1. What do you mean by Pledge? What are the essential characteristics/features of “bailment”? Who can create a pledge?

Ans. Pledge means “bailment of goods as security for payment of a debt or performance of a promise”.  Bailment is the delivery of goods by one person to another for some purpose, under contract that the goods shall, when the purpose is accomplished, be returned or otherwise disposed of, according to the direction of the persons delivering them.  So, pledge means:   * Bailment of goods * Bailment must be by or on behalf of the debtor or intending debtor. * Must be the intention of the parties that the goods will serve as security for a debt or performance of a promise.   Essential characteristics/features of “Bailment”:

• Bailment always based upon contract.
• Delivery of goods is essential for a contract of bailment. Delivery means transfer of possession, actual or constructive from one person to another person.
• Ownership remains with the pledgor (Borrower).
• Possession retains with pledgee (Banker).

Who can create a pledge?

Ans. 1. The owner of the goods himself.

2. Mercantile Agent (Section 178 of contract act 1872)
3. Joint owner with consent of other co-owner.
4. If a buyer leaves the goods or documents of title of after sale in the possession of seller,

the latter may make a valid pledge of the goods provided by the pledgee acts in goods faith and he has no notice of the sale of goods to the buyer.

5. A pledgee can himself re-pledge the goods.

1. Write down the rights & obligations of “pledger”

Ans. Right s of the pledger:   i). To claim back the security pledged on repayment of the debt with interest and other charges.  

ii). To receive reasonable notices in case the pledgee intends to sell the goods. iii). In case of sale, the pledger is entitled to receive from the pledgee any surplus after debt is completely paid off.  

iv). Any loss caused to the goods, because of mishandling or negligence on the part of the pledgee, the pledger has the right to claim the same.  

Obligations of the pledger:   i). A pledger must disclose the any material faults or extra ordinary risk involved in the goods.  

ii). Pledger is responsible to meet the expenditure for the preservation of the goods.  

iii). Where the pledgee has exercised his right of the sale of goods the pledger is liable to make good the shortfall, if there be any.  

iv). The pledger is liable for any loss caused to the pledgee because of defect in his (pledgor) title to the goods.

1. Write down the right & obligations of pledgee?

Ans. Right s of the pledgee:   i). The pledgee has a right to retain the goods pledged to him by the pledger till the debt, together with interest due thereon and the expenses for preservations of the goods are fully repaid by the pledger. (Section 173 of contract act 1872).  

ii). The pledgee has no right to retain his possession over the goods pledged for any debt or promise other than the debt for which they were pledged, unless otherwise provided for, by a contract (Section 174)  

iii). The pledgee can claim any extra ordinary expenses incurred by him for preservation of the goods.  

iv). In case of default by the pledger to make payment of the debt, the pledgee has the right either:  

a). To file a suit against the pldger for the amount due and retain the goods as a collateral security.

b). To sell the goods pledged after giving the pledger reasonable notice of sale (Se. 176)

obligation/ duty of the pledgee: i). The pledgee must take the proper preservation of the goods pledged to him.  

ii). The pledgee can not make unauthorized use of the pledged goods.  

iii). The pledgee is bound to return the goods on payment of the debts.  

iv). The pledgee will pay the pledger any benefit accrued from the pledged goods.  

v). The pledgee is to refund to the pledger the surplus of the sale proceeds of the securities after fulfillment of the debt against which the said securities were pledged.