Pledge

Introduction

Pledge is an important concept under the law of bailment. It is commonly used in financial transactions where goods are given as security for a loan. Understanding pledge helps in clearly distinguishing it from general bailment and is important for exams.

Meaning / Definition

Pledge is a special kind of bailment where goods are delivered as security (safety for repayment) for a debt or for performance of a promise (Section 172 of the Indian Contract Act, 1872).

• The person who gives the goods is called the Pawnor (Pledger)
• The person who receives the goods is called the Pawnee (Pledgee)

Ownership (full ownership) of the goods remains with the pawnor, but the pawnee gets a special right (limited right) over the goods, including the right to retain and sell them on default.

Modes or Types

Based on nature of delivery

Actual delivery

Physical transfer of goods to the pawnee.
Example: Giving a gold chain to a bank for a loan.

Constructive delivery

Transfer of control instead of physical delivery.
Example: Handing over the key of a warehouse where goods are stored.

Delivery through third party

When a third person holding goods agrees to hold them on behalf of the pawnee.

Based on persons who can create pledge

By owner or authorised agent

The owner or someone authorised by him can create a valid pledge.

By co-owner in possession

A co-owner in sole possession of goods (with consent of others) can pledge.

By mercantile agent

An agent in possession of goods with owner's consent can pledge (Section 178).

By person in possession under voidable contract

A person who obtained goods under a contract that can be cancelled (voidable) can pledge before it is cancelled (Section 178A).

By seller or buyer in possession

• Seller in possession after sale
• Buyer in possession before sale (Section 30, Sale of Goods Act)

By person with limited interest

Such a person can pledge only to the extent of his interest (Section 179).

Important Case Law

Lallan Prasad v. Rahmat Ali

The Supreme Court defined pledge as bailment of goods as security for a debt or obligation. It clarified that the pawnee has a right over the goods but ownership remains with the pawnor.

Purshottam Das v. Union of India

A pledge based on a forged (fake) document of title is not valid. Valid possession and genuine documents are essential for a valid pledge.

Distinction / Comparison

Pledge vs Bailment

• Pledge is a special form of bailment
• Pledge is always for security; bailment can be for any purpose
• Pawnee can sell goods on default; bailee generally cannot
• Pawnee cannot use goods; bailee may use if allowed

Practical Example

A borrows ₹100 from B and gives his cycle as security.

• A is the pawnor
• B is the pawnee
• The cycle is the pledged goods

If A repays the money, he gets the cycle back.
If A fails to repay, B can sell the cycle after giving notice.

Summary

• Pledge is a special type of bailment used as security for a debt
• Ownership remains with pawnor; possession goes to pawnee
• Delivery of goods is essential for a valid pledge
• Pawnee has the right to retain and sell goods on default
• Only certain persons can create a valid pledge
• Invalid documents or lack of possession make the pledge invalid