Introduction 

• A pledge is a common way to secure a loan or promise by temporarily giving possession of valuable items to the lender.  
• The Indian Contract Act of 1872 provides clear rules about how pledges work, protecting both the person giving the pledge and the person receiving it.  

Legal Provisions Based on Bailment of Pledges 

Section 172: Definition of Pledge, Pawnor and Pawnee 

• This section establishes the fundamental concept of a pledge and introduces the parties involved. 
• A pledge is created when: 
  • Someone gives their goods to another person. 
  • The goods serve as security for a debt or promise. 
  • There is an intention to create a pledge relationship. 
• The section names two important parties: 
  • The pawnor (bailor): The person who gives their goods as security. 
  • The pawnee (bailee): The person who receives the goods as security. 
• For example: When you leave your gold jewelry at a bank as security for a loan, you become the pawnor and the bank becomes the pawnee. 

Section 173: Pawnee's Right of Retainer 

• This section provides what a pawnee can hold the goods for. 
• The pawnee can keep the pledged goods until they receive: 
  • The main debt payment or fulfillment of the promise. 
  • Any interest that has accumulated on the debt. 
  • Reimbursement for necessary expenses related to: 
    • Keeping possession of the goods. 
    • Preserving the goods in good condition. 
• For example: If you pledge your car for a loan, the lender can keep it until you pay: 
  • The loan amount 
  • Interest on the loan 
  • Cost of keeping the car safe in their garage 

Section 174: Pawnee Not to Retain for Debt or Promise Other Than That for Which Goods Pledged Presumption in Case of Subsequent Advances 

• This section puts important limits on the pawnee's right to keep the goods. 
• The pawnee cannot keep the goods for any other debt unless there is a specific agreement. 
• Exception: For additional loans (subsequent advances): 
  • The right to retain is automatically assumed. 
  • This assumption applies unless the agreement specifically says otherwise. 
  • For example: If you pledge your watch for a ₹10,000 loan, the pawnee cannot keep it for an unrelated ₹5,000 debt unless you agreed to this specifically. 

Section 175: Pawnee’s right as to extraordinary expenses incurred 

• This section deals with unusual or unexpected expenses for preserving the goods. 
• The pawnee can claim reimbursement for extraordinary expenses. 
• These are expenses beyond normal maintenance. 
• The expenses must be necessary for preserving the goods. 
• For example: If pledged artwork needs emergency restoration to prevent damage, the pawnee can claim these costs from the pawnor. 

Section 176: Pawnee's Rights where pawnor makes Default 

• This section explains what the pawnee can do if the pawnor doesn't pay on time. 
• The pawnee has two options: 
  • Sue the pawnor while keeping the goods as security. 
  • Sell the pledged goods after giving reasonable notice. 
• Rules for sale proceeds: 
  • If sale brings less than the debt: Pawnor must pay the remaining balance. 
  • If sale brings more than the debt: Pawnee must return the excess to pawnor. 
• For example: If someone defaults on a loan secured by pledged jewelry, the pawnee must: 
  • Give notice before selling. 
  • Return any extra money if the jewelry sells for more than the loan. 
  • Can claim the remaining balance if the jewelry sells for less. 

Section 177: Defaulting pawner’s right to redeem 

• This section protects the pawnor's right to reclaim their goods. 
• The pawnor can redeem their goods: 
  • At any time before the actual sale 
  • Even after defaulting on payment 
  • By paying the full amount plus any extra expenses from the default 
• For example: Even if you miss your payment deadline, you can still get your pledged items back by paying the full amount plus any additional costs before they are sold. 

Section 178: Pledge by Mercantile Agent 

• This section deals with pledges made by business agents. 
• A pledge by a mercantile agent is valid if: 
  • The agent has the owner's permission to possess the goods. 
  • The pledge is made in the normal course of business. 
  • The pawnee acts in good faith. 
  • The pawnee doesn't know about any problems with the agent's authority. 
• For example: A warehouse manager with authority to handle goods can validly pledge them if acting within their business role. 

Section 178A: Pledge by person in possession Under Voidable Contract 

• This section protects innocent pawnees in problematic contracts. 
• A pledge remains valid if: 
  • The original contract could be cancelled (is voidable). 
  • The contract hasn't been cancelled yet. 
  • The pawnee acts in good faith. 
  • The pawnee doesn't know about the contract problems. 
• For example: If someone pledges goods obtained through a voidable contract, an innocent pawnee who takes the pledge in good faith is protected. 

Section 179: Pledge where pawnor has only a limited interest 

• This section handles situations where the pawnor only partly owns the pledged goods. 
• The pledge is only valid for whatever interest the pawnor actually has 
• It cannot affect other people's rights in the goods 
• For example: If someone owns 50% of a business asset and pledges it, the pledge only affects their 50% share. 

Conclusion 

The Indian Contract Act creates a balanced system for pledges that protects everyone involved. It gives lenders security while ensuring borrowers have fair chances to reclaim their property. The law is designed to be practical and fair, making pledges a reliable way to secure loans and promises in everyday business and personal matters.