BBA 201 Business Law Ref: N.D.

Kapoor 30th Edition 1

 Definition of Contract of Pledge
 Essentials of contract of Pledge
 Duties & Rights of Pledgee
 Duties & Rights of Pledgor

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BBA 201 Ref: N.D. Kapoor 30th edition
 Gain an understanding of Principles
Underlying contract of Pledge.
 Know the various parties involved In contract
of Pledge.
 Understand the duties and rights of various
parties to a contract of pledge.
 Differentiate between Bailment and Pledge

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BBA 201 Ref: N.D. Kapoor 30th edition
 “Pledge is the bailment of goods as security for payment of
debt or performance of a promise.” (Section 172 of Indian
Contract Act)
It is a special type of contract of bailment for the purpose of
security only.
Examples :
(a) X borrows Rs. 1,00,000 from Citibank and keeps his share
as security for payment of a debt. It is a contract of pledge
(b) Money taken as debt from the money lender by pledging
gold as security.
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BBA 201 Business Law Ref: N.D. Kapoor 30th Edition
Example: B borrows Rs. 1,00,000 from Citibank and keeps his share
as security for payment of a debt. It is a contract of pledge
 Pledgor/Pawnor : The person who delivers the goods as
security for a payment of a debt or performance of a
promise.
( In above Example B is Pledgor)
 Pledgee/Pawnee : The person to whom the goods are
delivered as security for payment of a debt or performance
of a promise.
( In above Example Citibank is Pledgor)
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BBA 201 Business Law Ref: N.D. Kapoor 30th Edition
 Delivery of Goods: The delivery of goods to pledgee is
necessary to constitute a pledge.

 Delivery of goods should be by way of security: The

security being for the payment of debt or the performance of a
promise.

 Transfer of Property: in a contract of pledge only Special

property is transferred not General property. Hence only
possession is transferred not ownership.

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BBA 201 Business Law Ref: N.D. Kapoor 30th Edition
 Right of retainer{S.173}: right to retain goods
until dues paid
 Right of retainer for subsequent
advances:{S.174}: on lending money to same
debtor without further security ;right to retain
earlier goods extends
 Right to extraordinary expenses {S.175}
 Right to sell {S.176}
 Right to sue the pledgor or sell the goods on
default. {S.176}

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BBA 201 Business Law Ref: N.D. Kapoor 30th Edition
 Duty not to make unauthorised use of pledged goods.
 Duty to take reasonable care of Pledged goods.
 Duty not to mix Pledged goods with his own goods.
 Duty to return the pledged goods.
 Duty to Return Accretions to the goods.

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BBA 201 Business Law Ref: N.D. Kapoor 30th Edition
 Right to get Pledgee’s Duties duly Enforced
It means Pledgor has the right to see that Pledgee is
fulfilling his duties like taking care of goods, not making
unauthorized usage etc.
 Defaulting pledgor’s right to redeem
It means Right to recover back the goods by making
payment of the debt or performance of promise.

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BBA 201 Business Law Ref: N.D. Kapoor 30th Edition
 Duty to comply with the terms of Pledge.
 To Pay or Compensate extraordinary expenses
incurred by the Pawnee/Pledgee.
 Duty to pay the loss on sale.
 Duty to disclose all faults in goods.
 Duty to indemnify in case title id defective.

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BBA 201 Business Law Ref: N.D. Kapoor 30th Edition
 Difference b/w Bailment and Pledge
Basis for
Bailment
Comparison
When the goods are temporarily
handed over from one person to
Meaning
another person for a specific
purpose, it is known as bailment.
Consideration May or may not be present.
The party whom goods are being
Right to sell the goods delivered has no right to sell the
goods.
The party whom goods are being
Use of Goods delivered can use the goods only,
for the specified purpose.
Purpose Safe keeping or repairs, etc.
Pledge
When the goods are delivered to
act as security against the debt
owed by one person to another
person, it is known as the pledge.
Always present.
The party whom goods are being
delivered as security has the right
to sell the goods if the party who
delivers the goods fails to pay the
debt.
The party whom goods are being
delivered has no right to use the
goods.
As security against payment of
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debt.
 Difference b/w Mortgage and Pledge
Basis for
Comparison Pledge
Pledge is used for movable
assets like shares,
securities, fixed deposits
Types of Assets etc.
When you pledge your
shares, they would still
remain with you and you
Ownership would be entitled to
dividends
It's easier to sell a pledged
asset by the lender, if the
borrower fails to pay the
Sell
amount
Mortgage
Mortgage is a term that is
used for fixed assets like
land, buildings,
apartments etc.
However, when you
mortgage your apartment,
the documents would
remain with the lender. It
could either be banks or
any other lending
institution
However, in certain cases
there could be a legal
binding in the case of a
mortgaged property and 12
 True or False (with Justification)
1. In a contract of Pledge Ownership is
transferred.
2. Pledgee has the right to use goods.
3. Pledge is a special type of bailment
4. In pledge the creditor has right to sell
the goods
5. A pledge can also be created for
immovable property.

BBA 201 Business Law Ref: N.D. Kapoor 30th Edition 13

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BBA 201 Business Law Ref: N.D. Kapoor 30th Edition
Reference: N.D Kapoor Business Law. 30th
Edition (page 175-190)

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BBA 201 Ref: N.D. Kapoor 30th edition