A pledge is a bailment of moveable property as security for the payment of debt or performance of obligation.
## Core concept
Under the Indian Contract Act 1872, a pledge is defined in Section 172 as the bailment of goods as security for payment of a debt or performance of an obligation. Key features:
- Bailor = pledgor (debtor) who delivers goods
- Bailee = pledgee (creditor) who receives goods as security
- Purpose = to secure a loan or obligation
- Property = only moveable goods (not immoveable property like land)
- Possession = actual or constructive possession of goods must transfer to pledgee
- Debt = must be existing or anticipated debt
Pledge vs Bailment: All pledges are bailments, but not all bailments are pledges. A pledge has a security element; a bailment is just for custody, repair, or hire.
Pledge vs Mortgage: Mortgage is used for immoveable property; pledge is for moveable property.
## Rights and liabilities (Sections 173–181)
Rights of pledgee: - Right to retain goods until debt is paid (lien) - Right to sell goods if debt not paid within reasonable notice (Section 176) - Right to recover expenses incurred on goods from sale proceeds - Right to receive interest on debt if specified
Duties of pledgee: - Must exercise reasonable care over pledged goods (Section 180) - Cannot use or pledge goods for own benefit - Must return goods when debt is discharged - Cannot sell goods without notice to pledgor
Rights of pledgor: - Right to redeem goods before sale - Right to recover goods if debt is discharged - Right to damages if pledgee acts negligently
## Formula / rule
Right to sell (Section 176): - Pledgee must give reasonable notice to pledgor - Notice must specify time (at least 15 days) and place of sale - If pledgor fails to pay within notice period, sale proceeds go to pledgee; balance (if any) to pledgor
Right of lien: Pledgee can hold goods until debt is fully paid; does not need court order.
## Common exam applications
Scenario 1: Ram borrows ₹50,000 from Shyam and pledges his gold ornaments as security. After 2 months, Ram defaults. Shyam gives 20 days' notice and sells the ornaments for ₹60,000. Shyam can recover his ₹50,000 debt plus expenses; remaining ₹10,000 must be returned to Ram.
Scenario 2: Pledgee uses pledged goods without permission. This is a breach of duty under Section 180. Pledgor can sue for damages and recover the goods.
Typical exam questions: - Distinguish pledge from bailment and mortgage - Who has the right to sell pledged goods and under what conditions? - What is the pledgee's right of lien? - What happens to sale proceeds if goods are sold?
## Common mistakes
- Confusing pledge with hypothecation: In hypothecation, goods remain with the debtor; in pledge, goods transfer to creditor.
- Assuming pledgee can sell immediately: No—reasonable notice must be given. Sale without notice is unlawful.
- Forgetting immoveables cannot be pledged: Only moveable property. Land/building cannot be pledged (use mortgage instead).
- Ignoring pledgee's duty of care: Pledgee is liable for loss due to negligence; ordinary wear and tear is excepted.
- Assuming pledgor loses all rights: Pledgor retains right to redeem before sale and right to excess proceeds.