Essentials of Pledge
A pledge is a bailment that conveys possessory title to property owned by a debtor (the pledgor) to a creditor (the pledgee) to secure repayment for some debtor obligation and to the mutual benefit of both parties. The term is also used to denote the property which constitutes the security.
It is defined in the following words, “Bailment of goods as a security for the payment of a debt or performance of a promise is called pledge.”
Bailor is called pledgor or “Pawnor” and Bailee is called “Pawnee” or pledgee.
Example: Mr. XYZ borrows $ Ten thousand from Mr. ABC and keeps his motorcycle as security for payment of the debt. The bailment of a motorcycle is called pledge.
Basic Essentials of Pledge:
Following are the important essentials of the pledge:
- Moveable Property: The pledge is concerned with the movable property. All types of goods and valuable documents are included in it.
- Transfer of Possession: In case of pledge only possession, of goods transferred by the pawnor to the Pawnee. Example: Mr. Nelson ledges car with Mr. Mcculan and gets $ 100,000. He gives the possession of car to Mr. Mcculan.
- Ownership Right: In the case of a pledge, the ownership of the goods remains with the pawnor. It is not transferred to Pawnee. Example: Mr. Wali pledges the plot with Mr. Raffel and gets 10 lac. The ownership of the plot remains with Mr. Wali.
- A case of Mere Custody: Those people who have only mere custody of the goods cannot pledge them. Example: A custodian cannot pledge his master’s bang low. It will be an invalid pledge.
- Limited Interest: Pledge property cannot be used for unlimited interest. When a person pledges goods in which he has only limited interest, the pledge is valid to the extent of that interest only. Example: Mr. Nelson gives a car to Mr. Andre for repair, but does not pay $ 20,000 repair charges. Mr. Andre pledges the car with Mr. Smith and borrows $ fifty thousand. This pledge is valid only up to ten thousand.