Meaning of Pledge
A Pledge is defined under Section 172 of the Indian Contract Act, 1872 as a bailment of goods as security for payment of a debt or performance of a promise. The person who delivers the goods is called the pawnor, and the person who receives them is called the pawnee. A pledge creates a legal relationship where the pawnor retains ownership, but the pawnee acquires possession and certain rights to ensure the debt is secured. The contract of pledge must satisfy the general requirements of a valid contract, including free consent, lawful consideration, and capacity of the parties. Importantly, the pledge involves goods that are movable, as immovable property cannot be pledged. Pledge is widely used in financial transactions, especially in banking and credit facilities, as it provides security to lenders while ensuring the pawnor’s ownership rights are protected.
Rights and Duties of Pawnor and Pawnee
The pawnor has the right to redeem the pledged goods once the debt or obligation is discharged. He must not neglect or misuse the goods during the period of the pledge. The pawnee has the right to retain the goods until repayment of the debt, and under Section 172, may sell the goods if authorized or under default. The pawnee is also responsible for taking reasonable care of the goods as per Section 171. Both parties must act in good faith, and any misuse or negligence may give rise to legal claims. The legal framework ensures that while the pawnee is protected as a creditor, the pawnor’s ownership and redemption rights are preserved. This balance makes pledge a secure and enforceable method of securing debts in commercial and personal finance transactions.
Importance and Legal Significance
The pledge is important in commerce because it secures credit transactions and minimizes the risk of default. It is a common method for banks, financial institutions, and traders to lend money while retaining the borrower’s property as collateral. Understanding pledge is critical for law students as it illustrates key principles of bailment, security interests, and property rights, providing insight into how legal rules balance the interests of both parties. The legal provisions under Sections 170–176 govern the creation, rights, and duties of pledges, ensuring transparency and enforceability in financial and commercial transactions. Proper knowledge enables lawyers to advise clients, draft agreements, and handle disputes related to pledged goods effectively.
Real-Life Example
Suppose Ravi pledges his gold jewelry to a bank as security for a loan of ₹5 lakhs. Here, Ravi is the pawnor, and the bank is the pawnee. The bank can retain the jewelry until the loan is repaid. If Ravi fails to repay within the agreed period, the bank may sell the jewelry to recover the debt, following the legal provisions under Sections 172–176. Once Ravi repays the loan, he has the right to redeem his jewelry. This example demonstrates how pledge functions as a legally recognized security arrangement, protecting both the lender’s interests and the ownership rights of the borrower.
Mnemonic to Remember – “P-R-C”
To easily recall the essentials of a pledge, think P-R-C:
- P = Pawnor delivers goods (owner retains property)
- R = Redemption right of the pawnor after payment
- C = Care of goods & Collection (pawnee’s duties to protect goods and recover debt)
Think: “Pledge = P-R-C: Pawnor, Redemption, Care.”
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Understanding the pledge under Section 172 of the Indian Contract Act, 1872 is crucial for law students and professionals. At Lawgnan.in, we simplify complex legal concepts like rights of the pawnor, duties of the pawnee, and enforcement of pledge through structured notes, real-life examples, and mnemonics like P-R-C (Pawnor, Redemption, Care). Whether you are preparing for exams or building practical knowledge, our resources help you grasp how pledges secure debts while protecting ownership rights. Visit Lawgnan.in today to access comprehensive study materials, case laws, and guides tailored for LLB and competitive law exams.
