• Meaning and Definition

 The Pledge is also a kind of special contract and a part of bailment. The bailment of goods as security for payment of a debt is called pledge. It is a transfer or bailment of goods as a security for the payment of debt or performance of the promise. Loan transaction is very familiar in business operation. Pledge or pawn provides security for repayment of such loan. The goods deposited as security to repay the debt or to perform the promise is known as pledge. The term pawn is synonymous to the term pledge. e.g. 'A' takes Rs. 20 thousands from 'B' and keeps his golden chain as security for payment of debt. The bailment of chain is Pledge. 'A' is Pledger and 'B' is Pledgee.

A contract by which a person received some property from another as security for granting a loan or as guarantee for performing a job is known as pledge or pawn. The contract by which the possession of goods is transferred as a security is known as a pledge. In this case the person who gives goods as security is called the Pledger or Pawner and the person who receives the goods as security is called the Pledgee or Pawnee.

According to Section 172 of the Indian Contract Act, 1872; the bailment of goods as security for payment of debt or performance of promise is called pledge or pawn. The Bailor in this case is called the Pledger or Pawner and the Bailee is called the Pledgee or Pawnee.

Similarly according to Section 35.1 of Nepal Contract Act, 2056 defined that; if there is a delivery of a property from one person to another for security of debt or for the guarantee of the performance of any promise there is a contract of pledge. In Nepalese context pledge is also called mortgages.

Thus a pledge is only special kind of bailment contract. A pledge also involves only a transaction of possession of goods pledged. The ownership of such goods remains with the Pledger.

Different between Bailment and Pledge

 

Bailment

Pledge

1.    Its scope is wider than pledge.

1.    Its scope is limited. It is a branch of bailment.

2.    Goods are bailed for carrying out specific purpose, repair or safe custody etc.

2.    Goods are pledged as a security of debt or performance of promise.

3.    Bailee may be used the goods bailed as per the terms of the contract.

3.    Pledgee has no right to use the goods, but he can use if the Pledger allows to do so.

4. The Bailee has no right to sell the goods bailed but he can either, sue the Bailor of retain the goods until payment of his due.

4. The Pledgee has right to sell the goods pledged on default after giving notice to the Pledger.

5.    There is no need of the guarantee in the contract of bailment.

5. A guarantee of goods is necessary for the purpose of security for the payment of debt in pledge.

6.    There is no loan transaction exist under it.

6.    Loan transaction may exist under it.

7.    Goods must be moveable in bailment.

7.    The goods may be moveable or immoveable but must be long lasting.

8.    Consideration may or may not be in bailment.

8.    Consideration is necessary in the pledge.

 Essential elements of Pledge

 The essential elements of pledge are as below:

 

  •  Delivery of goods:

As in a bailment, the goods should be delivered from the Pledger to the pledgee, which may be either actual or constructive.

 

  •  Delivery for Security:

Such delivery of goods should be made by way of security for payment of debt or performance of promise.

 

  •  Lawful purpose:

The delivery of goods for a security purpose should be lawful. Otherwise it is not valid pledge.

 

  •  Return of goods:

The pledged goods must be returned after the purpose is achieved.

 

  •  The goods must be (durable) long lasting:

The pledged goods must be durable.