Section 172 of The Indian Contract Act states that “The bailment of goods as security for payment of a debt or performance of a promise is called ‘pledge’. The bailor is in this case called the ‘pawnor’. The bailee is called ‘pawnee’. —The bailment of goods as security for payment of a debt or performance of a promise is called ‘pledge’. The bailor is in this case called the ‘pawnor’. The bailee is called ‘pawnee’.”
Essentials of a Pledge:
1) Delivery of Possession: the property pledged should be delivered to the pawnee, thus the delivery of the goods is an important element to constitute a pledge. Delivery of possession can be actual delivery or constructive delivery depending on the circumstances of the case. Suppose some goods are place in the possession of a third party who on the direction of the pledger holds the goods on the pledgee’s behalf is sufficient to be considered delivery under this definition. It is called delivery by attornment.
In the case of Morvi Mercantile Bank Ltd v Union of India, some goods were sent to the railways for safekeeping from Bombay for transit to Okhla. The railway receipts were endorsed by the consigner to the bank against an advance of 20000 Rs. Subsequently the goods got lost in transit and the bank as an endorsee and the pledgee of goods sued the railways for 35000 Rs. The trial court rejected the action while Bombay court allowed recovery of 20000 Rs. The matter subsequently went to the Supreme Court where it was held that the delivery of railway receipts was akin to the delivery of goods and therefore the pledgee was entitled to get the recovery amount and the pledge was valid in the eyes of the law. The court also held that the pledgee was entitled to get full value of the goods lost not just the Advance amount.
Pledge by Hypothecation: In certain circumstances the goods are allowed to be kept in the custody of the pledger for a specific purpose and yet it does not mitigate or weaken the effectiveness of the pledge. In Reeves v Capper, The captain of a ship pledged his chronometer to the ship-owner who allowed him to use the device for a voyage. Subsequently the captain pledged it again to another person. It was held by the court that the initial pledge was valid in a similar manner as a constructive pledge. As the panwer without delivering the goods physically agrees to hold the goods for the Pawnee with the promise of delivering them on demand. Similarly in Bank of Chittoor v Narasimbulu, A cinema projector and its accessories were pledged with the bank however they allowed the property to be kept with the pledgers since they were running a cinema. After a while the machinery was sold by the pledgers and it was held that the sale was subject to the pledge as there was constructive delivery.
2) In Pursuance of Contract: It is an essential requirement for a pledge to be valid that the delivery of goods be made in pursuance of a contract of pledge by a pledger to a pledgee. However it is not necessary that the loan taken should be contemporaneous with the delivery of possession. A pledge can be perfected by delivery after the advance has been made and delivery and advance need not happen at the same time.
In the case of Blundell Leigh v Attenborough, In this case the plaintiff had handed over her jewellery to one Miller so that he could value it and see what offer he could give her for lending her money. The jewellery was kept with him as a security if he made the advance. On that very same day Miller pledged the jewellery to the defendants who on their good faith advanced 1000 pounds to him. Couple days later Miller advanced 500 pounds to the plaintiff as advance on the security for the ring. Subsequently he died and the plaintiff came to know the entirety of facts and thus paid the amount she had borrowed and sued the defendants for return of the jewellery. The plaintiff contended that she had given the jewellery to Miller for examination and he was no more than a gratuitous Bailee having no right to deal with such jewellery. She contended that there was no valid pledge at the time and when the advance had been made no valid pledge could arise as he had already parted with the possession of the goods. However the court held the pledge to be valid as the delivery made on the first of November was a valid delivery for the purpose of creating a pledge and that the intention of the plaintiff was clear when handing over the jewellery to create a pledge between him and her. This happened as soon as he gave her the money as loan and she accepted it.
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