A Pledge represents a specialized species of bailment where goods are delivered specifically as collateral security for a debt or performance of a promise.
1. Statutory Definition: Section 172
Under Section 172, the bailment of goods as security for payment of a debt or performance of a promise is called a "Pledge".
- Pawnor / Pledger: The bailor who delivers the goods.
- Pawnee / Pledgee: The bailee who receives the goods as security.
2. Rights of the Pawnee (Pledgee)
- Right of Retainer (Section 173): The pawnee may retain the goods pledged not only for payment of the debt, but also for the interest on the debt, and all necessary expenses incurred by him for the preservation of the goods.
- Right to Sell (Section 176): If the pawnor defaults in payment, the pawnee may:
- Bring a legal suit against the pawnor and retain the goods as collateral security.
- Sell the goods pledged, provided they give the pawnor reasonable notice of the sale.
3. Pledge by Non-Owners
Ordinarily, only the owner of goods can make a valid pledge. However, to facilitate rapid trade, the law permits exceptions where non-owners can make a valid pledge:
- Pledge by Mercantile Agent (Section 178): A pledge made by a mercantile agent who is in possession of the goods or documents of title with the owner's consent, acting in the ordinary course of business, is valid, provided the pawnee acts in good faith.
- Pledge under Voidable Contract (Section 178-A): A pledge by a person who obtained possession under a voidable contract (e.g. by fraud or coercion) is valid if the pledge is made before the contract is rescinded by the owner.
- Pledge with Limited Interest (Section 179): Where a person pledges goods in which they have only a limited interest (like a bailee or finder), the pledge is valid to the extent of that interest.