Essential Features of a Contract of Pledge
- Valid Contract: Like any other contract, a contract of pledge needs to fulfil certain requirements in order to be considered legitimate. These comprise similar elements as that of a Contract of Bailment, such as an offer, an acceptance, the desire to establish legal relations, consideration, the parties’ legal capacity and the purpose’s validity.
- Delivery of Possession: The transfer of title of the pledged asset from the pawnor to the pawnee is a crucial component of a pledge. This transfer of ownership denotes the security interest and frequently sets a promise apart from other security agreements.
- Ownership cannot be Transferred: A pledge does not include the transfer of ownership, as compared to a sale. The pledgor continues to be the owner. As security for the loan, the pledgee is the owner of a security interest in the property.
- Security against Debt: A pledge’s main objective is to offer security for a debt or commitment. In the event that the pledgor defaults, the pledgee may take and sell the pledged asset as collateral. This provision guarantees the availability of a valued asset to cover the debt.
- Return of Goods on Repayment: One of the main principles of a pledge is that the pledged commodities or property should be returned to the pledgor upon fulfilment of their duties, such as repaying the debt or meeting other established standards. The assumption that the pledge is a security agreement rather than a transfer of ownership is strengthened by this case.
Contract of Pledge : Meaning, Features, Duties and Rights
A Contract of Pledge is a formal agreement whereby one party, referred to as the Pawnor, promises particular items or property to another, referred to as the Pawnee, as security for a debt or obligation. The Pawnor transfers ownership of the pledged item to the Pawnee under the agreement, with the understanding that the Pawnor keeps ownership and the Pawnee has a security interest.
Geeky Takeaways:
- Contract of Pledge is said to be a subset of a Contract of Bailment.
- The goods bailed here are kept as security for a debt or a performance of a promise.
- The bailor here is called Pawnor, and the bailee here is called Pawnee.
Table of Content
- What is a Contract of Pledge?
- Essential features of a Contract of Pledge
- Duties of the Pawnor and Pawnee
- Rights of the Pawnor and Pawnee
- Conclusion
- Contract of Pledge – FAQs