What is a Pledge?

• Pledge is a kind of bailment. Pledge is also known as Pawn. It is defined under section
172 of the Indian Contract Act, 1892. By pledge, mean bailment of goods as a security
for the repayment of debt or loan advanced or performance of an obligation or promise.

• The person who pledges the goods as security is known as Pledger or Pawnor and the
person in whose favor the goods are pledged is known as Pledgee or Pawnee.

Essential Features of a Pledge

Since Pledge is a special kind of bailment, therefore all the essentials of bailment are also the
essentials of the pledge. Apart from that, the other essentials of the pledge are:

 There shall be a bailment for security against payment or performance of the promise,

 The subject matter of pledge is goods,

 Goods pledged for shall be in existence,

 There shall be the delivery of goods from pledger to pledgee,

 There is no transfer of ownership in case of the pledge.

o Exception:  In exception circumstances pledgee has the right to sell the movable goods
or property that are been pledged.
Who may pledge?
Any of the following persons may make a valid pledge:

i. The owner, or his authorized agent, or

ii. One of the several co-owners, who is in the sole possession of goods, with the consent of
other owners, or

iii. A mercantile agent, who is in possession of the goods with the consent of the real owner,
or

iv. A person in possession under a voidable contract, before the contract is rescinded, or

v. A seller, who is in possession of goods after the sale or a buyer who has obtained
possession of the goods before the sale, or

vi. A person who has a limited interest in the property. In such a case the pawn is valid only
to the extent of such interest.

Rights of Pawnor
 Right to maintenance and preservation of goods (Section 176)
The Pawnor has a right to see that the Pawnee is preserving and maintaining the pledged
goods properly.

 Right to redeem debt (Section 175)

A Pawnor who makes default payment of debt at the stipulated date has the right to
redeem the debt at any subsequent time before the actual sale of the goods pledged.

 Right to receive notice of sale (Section 177)

This right entails that the Pawnee cannot sell that good as and when he wants but he
should give some notice to the Pawnor

 Right to redeem goods (Section 177)

The Pawnor has a right to receive the goods back once the promise has been performed or
the loan and interest has been repaid.
Duties of Pawnor
 It is the duty of the Pawnor to comply with the terms of the pledge and to
repay the debt on the stipulated date or to perform the promise at the stipulated date
 The Pawnor needs to compensate the Pawnee for any extraordinary expenses incurred by
him for preserving the goods pawned.
 It is the duty of the Pawnor to pledge only those goods for which he has good title

Rights of Pawnee
 Right to Sale (Section 175)
The Pawnor in the payment of the debt/performance of the promise, the
Pawnee gets two separate rights.

 Right to extraordinary expenses (Section 175)

This right does not entitle the Pawnee to retain the goods for recovery of such expenses,
though, he can sue the Pawnor to pay such amount.

 Right against true owner of goods (Section 178 A)

When the Pawnor has acquired, possession of pledged goods, under a voidable contract,
but the contract has not been rescinded, at the time of pledge, the Pawnee
acquires a good title to the goods, even against the true owner

 Right of Retainer (Section 173&174)

The Pawnee has right to retain the pledged goods till his payments are made.

Duties of Pawnee
 It is the duty of the Pawnee to take reasonable care of the pledged goods.
 It is the duty of the Pawnee not to create unauthorized use of goods pledged.
 It is the duty of the Pawnee to return the goods when the debt has been repaid or the
promise has been performed.
 It is the duty of the Pawnee to not to mix his own goods with the goods pledged.
 It is the duty of the Pawnee not to do any act which is inconsistent with the conditions of
pledge.
 It is the duty of the Pawnee to deliver augment(if any), to the goods pledged.
Bailment v/s Pledge
Bailment and Pledge are two different contracts. Pledge is a special kind of bailment.

Basis of Comparison Bailment Pledge

Defined Under Section 148, Indian Contract Section 172, Indian Contract
Act Act

Meaning & Definition Transfer of possession for Transfer of possession for

general service or tasks obtaining a debt or
performance of a contract.

Parties Bailor & Bailee Pledger/Pawnor &

Pledgee/Pawnee

Consideration May or may not present Is always there

Right to sell Cannot sell the goods Can sell the goods if the
borrower defaults.

Rights to use the Property YES (With permission of NO

Bailor)

Purpose for service, repair, task, for getting loans,

promise performance of a contract

Example Mr X deliver his car to Mr Y Mr A pledge Gold to ICICI

for repairing. Bank to obtain a Gold Loan.

Examples of Bailment:
 ● Mr X gives his watch for repair to Mr Y., In this case, Mr X is bailor, Mr Y is Bailee and
the goods bailed is watch.

● Mr A bailed his car for Mr B for hire for a few days. But there was a default in the car of
which Mr A was not aware. And subsequently, Mr B suffered injuries because of the
same. Now Mr A is liable to pay damages to Mr B.

● Mr X gave his dog to Mr Y for looking after over some days. Dog in that while gave birth
to puppies. Now Mr Y is liable to return the dog along with the accretions.

Examples of Pledge:
● Mark took a loan from the bank against the security of gold. In this case, Mark is a
pledger, the bank is a pledgee and gold is the pledged goods.

● Z pledged his goods with A. But now Z refuses to make the payment of the same. A now
can either sell his goods or can initiate a suit proceeding against Z.