PLEDGE

S.172
The Bailment Of Goods
 As Security
For Payment Of A Debt Or
Performance Of A Promise

Bailor= Pawnor
Baliee= Pawnee
 Pledge = Bailment: so duty to take care exists
 Goods same as bailment
 Delivery of Possession : NECESSARY
 Constructive/Actual
 To check constructive possession: check upon who
has dominance over the goods & under whose
authority its done
Morvi Mercantile Bank v. UOI, 1965,SC
Railway receipts are symbols of goods , so pledgee bank
has a right to recover the full value of the goods lost
Pledge by Hypothecation
Pawnor keeps the custody of goods/securities for
some special purpose
No loss of the right of pledge
any fraud/conversion was made by the pawnor in such
cases, the pledgee/pawnee doesn’t lose any right
Preference is given to pawnee’s right
HYPOTHECATION
goods as security for debts
without actual transfer of
property/possession to the
creditor
No delivery
future repayments/goods
bought in future
No duty to take care as
such
No special statute, so ICA
PLEDGE
Pledge is bailment of
goods as security where
possession/actual
property transfers to
pawnee
Delivery is necessary
existing and specific
goods
Duty to take care
Specifically dealt u/ICA
Sure hon,
but only
Blundell-Leigh v. Attenborough,1912
upon MONEYKB
‘PLEDGE’
RIGHTS OF PAWNEE
1. RIGHT TO RETAINER- s.173 & s.174

preserv possess
ation ion

Interes s.173-Right
t to retain

Debt/perf
ormance
 s.174
Pledgee’s right ends upon proper tender of
performance by the pledger

Since special property right is transferred, it is said

that pledgee’s plea is preferred over other creditors
Bank of Bihar v. State of Bihar, 1972,SC

So, s.171 precedes over s.174

2. RIGHT TO EXTRA ORDINARY EXPENSES-
S.175

‘RECEIVE ‘RETAIN’
‘SUE IN
’ COURT’
3.RIGHT TO SELL-S.176

DEFAULT
Concurrent rights

s.176

Right To Sue
&Retain
Right To Sell
 Lallan Prasad v. Rahmat Ali, 1967,SC
Money – Rs.20,000 on PN
Security pledged= Aeroscraps worth Rs.35,000
Sued for claiming it back
Unable to produce the security as it was already sold
Court held: Pledgee cannot recover back the money
Rationale: The special property right which transfers
entitles the pawnor to take back the goods upon
payment, which is lost if its sold w/o seeking for non-
repayment
Pawnor cannot insist to sell the property and realise
the amounts, its choice of pawnee

Rights of Pledgor in this regard are:

- if sale is done, it needs to be honestly performed
- If no sale right used, then redeem the goods
- sale is improper, get damages
Ramaswamy Chetty v. Palaniappa Chettiar, 1930
Mad HC
NOTICE
Notice -MANDATE
Clear, specific in language, indicate the intention of
parties
No implied notice
‘sale’ is intended sale, so no requirement of the date,
place or time nor money
Rationale: reasonable time for the pawnor to redeem
the property
If given the notice, there is no necessity to sell it in
reasonable period, its pawnee’s discretion
Sale proceeds
Sale w/o notice: Invalid

Unauthorised sale: Right to redemption/suit for

conversion & damages

Proceeds of sale: Property of the pawnor

Pawnee’s right is to appropriate the money due to him

PAWNOR’S RIGHT TO REDEMPTION
S.177
Supplementary to s.176

BEFORE
SALE
WHO CAN PLEDGE?
Possession of
By a mercantile
goods/docume
agent
nts to title

Possession
with consent

Ordinary
course of
Pawnee-
business Good faith
Mercantile Agent s.178
S.2(9) of SOG- Authorized to sell/consign/buy/raise money
on security of goods

Before amendment to s.178, any person in possession pledge

-Repealed

Goods to be entrusted as a MA & not any other special

purpose

Consent: consent of owner to agent -Even if obtained by any

other manner- implied
S.2(4)- Documents to title
Includes bill of lading, dock warrant, warehouse –
keeper’s certificate, etc- documents used to prove the
possession /control of goods/authorizing the same by
delivery/endorsement or delivery the possessor of the
document to transfer/receive the goods
Good faith
General Clauses Act, 1897 – s.3(20) says good faith
means “a thing is to be deemed done in good faith
where it is in fact done honestly, irrespective of whether
it is done negligently”.
BOP: who dispute the pledge
Two things to be proved by pawnee:
1.) possession by MA is with consent
2.) pledgee was innocent
Notice: Actual/Constructive
Voidable contract-s.178A
Important requirement: Pawnor: the title holder
Method of rescinding: Notice/any other method if
the party is unable to be contacted

S.179: This needs to be read with s.178

END OF UNIT -II