Unit 1

Contract of Pledge
By:- Siddharth Tyagi
Siddharth.tyagi@glsuniversity.ac.in
 Definition
 Section 172 defines pledge:

S.172 “Pledge”, “pawnor” and “pawnee” defined –

The bailment of goods as security for payment of a debt or performance of a promise is called
“pledge”. The bailor is in this case called the “pawnor”. The bailee is called the “pawnee”

Thus a pledge is only a special kind of bailment, and the chief basis of distinction is the object
of the contract. Where the object of the delivery of goods is to provide a security for a loan or
for the fulfilment of an obligation, that kind of bailment is called pledge. Pawn of pledge is a
bailment of personal proeprty as a security for some debt or engagement.
 Following are the essential characteristics of a pledge:

1) Delivery of possession

Delivery may be actual or constructive. Delivery of the key of the

godown where the goods are stored, is an illustration of
constructive delivery.

2) In pursuance of contract
RIGHTS OF PAWNEE
Right of retainer (S.173 - 174)

Section 173 - Pawnee’s Right of retainer

The pawnee may retain the goods pledged, not only for a payment of the debt or
the performance of the promise, but for the interest of the debt, and all necessary
expenses incurred by him in respect of the possession or for the preservation of the
goods pledged.
Section 174 - Pawnee not to retain for debt or promise other than that for which goods
pledged: presumption in case of subsequent advances.

The first important right of a pawnee is the ight to retain the goods pledged until his dues are
paid. He has a right to retain the goods not only for payment of the debt or performance of the
promise, but for the interest due of the debt, and all necessary expenses incurred by him in
respect of the possession or for the preservation of the goods pledged.

The pledgee can retain the goods only for the payment of that particular debt for which the
goods were pledged and not for any other debt or promise, unless there is a contract to the
contrary. However, where after a pledge is created, a subsequent advance is made without any
other secuirty, a contract to burden the same goods shall be presumed.
Right to extraordinary expenses (Section
175)
 The pawnee is entitled to receive from the pawner extraordinary expenses
incureed by him for the preservation of the goods pledged. For such expenses,
however he does not have the right to retain the goods. He can only sue to
recover them.

 S.175 pawnee is entitled to receive from the pawnor extraordinary expenses

incurred by him for the preservation of the goods pledged.
 Right to sell (Section 176)
S. 176 Pawnee’s right where pawnor makes default

Upon a default being made by the pawner in the payment of the debt or performance of
the promise, the pledgee gets two distinct rights under Section 176 of the act. Firstly the
pledgee may sue upon the debt and retain the goods as a collateral security. Secondly, he
may sell the goods after reasonable notice of the intended sale of the pawner.

If the proceeds of such sale are less than the amount due in respect of the debt or promise,
the pawnor is still liable to pay the balance. If the proceeds of the sale are greater than the
amount so due, the pawnee shall pay over the surplus to the pawnor.

The pledgee may sell the goods, before making the sale he is required to give to the
pawnor, a reasonable notice of his intention to sell. the requirement of “reasonable care”
is a statutory obligation and therefore cannot be excluded by a contract to the contrary.
 Rights of the pawnor

1. Right to get back the goods – on performance of the promise, the pawnor
has the right to get the goods back

2. Right to Redeem – S.177

3. Right to claim damages – if the pawnee makes unauthorized use of goods or

mixes the goods pledged with his own goods, pawnor has the right to claim
damages

4. Preservation & Maintenance of goods – the pawner has a right to see that the
pawnee, preserves goods pledged and properly maintains them.
 Duties of Pawnor

1. Duty to meet the obligations and comply with the terms of pledge – comply with the
terms and repay the debts

2. Duty to compensate pawnee for extraordinary expenses incurred – if the pawnee

incurs expenses for preservation of the pledged goods, he may receive such expenses
from the pawnor
Duties of Pawnee

1. Duty to take reasonable care of goods pledged

2. Duty not to make unauthorized use of goods

3. Duty not to mix pledged goods with his own

4. Duty to return pledged goods

Point of Difference Bailment Pledge

1. Meaning When the goods are temporarily When the goods are delivered to act
handed over from one person to as security against the debt owed by
another for a specific purpose, it is one person to another, it is known as
known as bailment pledge

2. Section S.148 of ICA S.172 of ICA

3. Parties Bailor – delivers the goods Bailee – Pawnor – delivers the goods Pawnee
to whom goods are delivered – to whom goods are delivered

4. Consideration May or may not be present Always present

Point of Difference Bailment Pledge

5. Right to sell the goods The party to whom goods are being The party whom goods are being
delivered, has no right to sell the delivered as security, has the right to
goods sell the goods if the party who delivers
the goods fails to pay the debt

6. Use of goods The bailee can use the goods The pawnee has no right to use the
depending on the contract. goods pledged with him.

7. Purpose Safe custody, repairing, etc As security against the

payment of debt