What is a Contract of Pledge?
A Contract of Pledge is a legal document that specifies the terms and circumstances under which a borrower pledges property to a lender as security for a loan or other financial obligation. It is also known as a Pledge Agreement or Security Agreement. The pledge serves as a means of repayment for the lender if the borrower fails on the loan. Both parties must have a complete understanding of the contents of the agreement before signing a commitment and seeking legal advice.
Section 172 of the Indian Contract Act, 1872 defines Pledge as “The bailment of goods as security for payment of a debt or performance of a promise. The bailor in this pledge is called the Pawnor. The bailee is called the Pawnee”.
Contract of Pledge: Meaning and Important Cases
Contract of Pledge is a formal agreement whereby one party, referred to as the Pawnor, promises particular items or property to another, referred to as the Pawnee, as security for a debt or obligation. Contract of Pledge carries unique legal implications, encompassing enforceability, consequences of default, and legal rights of both parties. The transfer of possession and the right of sale contribute to an enhanced security arrangement, safeguarding the Pawnee’s interests. The Pawnor transfers ownership of the pledged item to the Pawnee under the agreement, with the understanding that the Pawnor keeps ownership and the Pawnee has a security interest.
Geeky Takeaways:
- Contract of Pledge is considered to be a subset of a Contract of Bailment.
- The goods bailed here are kept as security against a debt or a performance of a promise.
- The bailor here is called Pawnor, and the bailee here is called Pawnee.
- Possession of pledged goods is transferred to the Pawnee, distinct from other bailments.
- The Pawnee has the right to sell the pledged goods in case of default by the Pawnor, providing a recourse for debt recovery.
Table of Content
- What is a Contract of Pledge?
- Case Laws under Contract of Pledge
- Who is a Mercantile Agent?
- Key Concepts Related to Mercantile Agents
- Conclusion
- Frequently Asked Questions (FAQs)