The concept of pledge
Section -176 of Indian contract act provides for the definition of the pledge which states that “The bailment of goods for the purpose of security for the payment of a debt, that particular performance of a promise is called pledge “
Pawnor: The bailor in this case under the contract of a pledge is called pawnor.
Pawnee: The bailee under the contract of a pledge is called a pawnee.
“Pledge is a special kind of bailment “
“Pledge is a bailment of personal property as a security for some debt or for some promise “
Essential characteristics of a pledge :
It is a necessary element for the contract of pledge, another name for a contract of a pledge is a pawn. Delivery may be either actual or constructive. Under actual delivery, one person makes a physical transfer of the goods. Constructive delivery is one where there is no actual transfer but it gives the other a right over the goods.
Delivery by attornment is where the goods are in the possession of a 3rd party and who agrees to hold on behalf of pawnee.
Morvi mercantile bank ltd vs union of India
In this case, some goods were handed over to the railway company to transit from Bombay to Okhla. Consigner endorsed the railway receipt with his name to the appellant bank. He raised a loan of 20,000 and he gave the goods as security. The worth of the goods was Rs35,000, By mistake, goods were lost in transit by the railway company. As the bank has the authority over the goods it brought a case against the central govt of India. The trial court decided in favour of the state and bank bought an appeal. In High court, it was decided that a bank can only recover 20,000. Again an appeal was made to the supreme court; The Question was whether railway receipt can be considered a good? The Supreme court said that yes it can be considered and there is a valid pledge and the pledge is entitled to receive the loss from the state.
Hypothecation is a practice of giving collateral security for the purpose of raising a loan either by the third party or by the debtor.
Reeves vs capper
The captain of a ship pledged chronometer (Instrument showing accurate time on ship/voyage) with the shipowner, but ship owner allowed to keep it in the custody of captain only. Later he pledged it with another person. The first delivery is valid according to the supreme court as it is constructive delivery.
The pledge will only be valid when there is a contract. The loan and security need not be simultaneous, law permit that it can be one after the other.
