"Every Pledge is Bailment, but every Bailment is not pledge"

The Pledge is legal relationship that arises when one party (Pledger) temporally transfers the possession of his personal property to another party (Pledgee) for security purpose. The Pledger has the ownership of the goods, while Pledgee holds the possession of goods. Pledge is transfer of possession rather than transfer of ownership.

The concept of Pledge is concerned with movable property because it involves the temporary transfer of possession rather than the transfer of ownership. Since immovable objects cannot be easily transferred from one party to another, they generally do not fall within the scope of Pledge.

There are two parties involved in contract of Pledge, they are:

1. Pledger/ Pawnor - The person who transfers the goods to another person as security is called as Pledger
2. Pledgee/ Pawnee - The person who receives the goods is called as Pledgee.

Scope and Definition
According to section 172 of Indian contract act, "A Pledge is a transfer of property as a security for payment of debt or any other obligation.

Essentials of Pledge:
Following are some essential elements to form contract of Pledge:

1. Contract: To establish contract of Pledge, adherence to essentials of valid contract is fundamental. This means there should be 2 or more parties involved, with each party providing clear proposal and acceptance, demonstrating mutual consent. Additionally, there must be lawful consideration and the terms and condition of Pledge should be clearly written out. By meeting this criteria contract of Pledge is effectively formed.
    
2. Goods: Goods or any moveable property are necessary element of Pledge, because to establish the contract of Pledge there must be transfer of possession of goods or personal moveable property from one party (Pledger) to other (Pledgee) for specific purpose.
    
3. Purpose: To make contract of Pledge valid there must be some kind of security purpose involved in transferring goods from Pledger to Pledgee. The purpose or direction should be clear. The purpose of delivery of goods in Pledge is always security.
    
4. Return of goods: As the contract of Pledge is only transfer of possession from Pledger to Pledgee and not the transfer of ownership, therefore after the purpose is completed, the goods must be returned to Pledger.

Illustration 1
'A' keeps his scooter with 'B' as a security and takes a loan of Rs 5000 from 'B', here 'A' is pledger and 'B' is pledgee.

Illustration 2
'A' borrows Rs 20000 form 'B' and keeps his gold chain with 'B' as security for the payment of Rs 20000, in this example 'A' is pledger and 'B' is pledgee.

Rights of Pledger:

Following are some rights of the Pledger during contract of Pledge:

1. To claim damages:
   According to Indian Contract Act, it is the right of Pledger to claim damages in case of any negligence made by Pledgee. It is the responsibility of Pledgee to take reasonable care of the Pledged goods. If he is insufficient to take care of Pledged goods, then Pledger has the right to claim damages for any loss or damage incurred.
    
2. To avoid contract: Contract of Pledge is voidable. If Pledgee does any act which is inconsistent with the condition of Pledge, then the Pledger has the right to void the contract of Pledge.
    
3. To claim expenses for separation of mixture of goods: If the Pledgee without the consent of Pledger mixes the goods with own goods and if goods can be separated, then the Pledger has the right to claim expenses necessary for the separation of goods.
    
4. To claim loss by mixture of goods: If the Pledgee without the consent of Pledger mixes the Pledged goods with its own goods and if the goods are not of separable nature then, Pledger has the right to claim the loss incurred due to the mixture of goods.
    
5. Restoration of goods: Pledger has the right to require the return of goods Pledged at any time. The Pledger has the right to breach the contract of Pledge at any time during the course of Pledge.
    
6. To claim increase or profit: As per the Indian Contract Act, if due to Pledged goods Pledgee has incurred any profit then he is bound to give back earned profit with Pledged goods to Pledger after the completion of the contract of Pledge.

Duties of Pledger:

Following are some Duties of Pledger:

Delivery of Property:

• The Pledger must deliver the property to the Pledgee according to the terms of the agreement. This delivery should be in accordance with the terms and conditions specified in the agreement or as required by law.

To disclose fault in Pledged goods:

• The Pledger has a duty to disclose any faults or defects in the goods being Pledged. This duty stems from the principle of good faith and fair dealing. By disclosing any faults or defects, the Pledger ensures that the Pledgee is fully informed about the condition of the goods and can take appropriate precautions to avoid any potential harm or damage. Failure to disclose faults in the Pledged goods could lead to legal liabilities for the Pledger if the Pledgee suffers any losses as a result.

To repay expenses:

• If the Pledgee incurs any reasonable expenses in relation to the care or maintenance of the Pledged goods, the Pledger typically has a duty to repay those expenses. This duty ensures that the Pledgee is not unfairly burdened with expenses that arise from fulfilling their obligations under the Pledge agreement. However, it's important to note that the Pledger is only responsible for reimbursing reasonable expenses that were incurred with the consent of the Pledgee or were necessary for the proper care of the Pledged goods.

To indemnify the Pledgee:

• The Pledger has a duty to indemnify the Pledgee for any losses or damages that the Pledgee may suffer as a result of the Pledge arrangement. This duty arises from the Pledger's responsibility for the condition and use of the Pledged goods. If the Pledgee suffers any losses or damages due to the fault of the Pledger, such as hidden defects in the Pledged goods or breaches of the Pledge agreement by the Pledger, the Pledger is typically liable to indemnify the Pledgee for those losses.

To pay remuneration:

• In some cases, the Pledger may agree to pay remuneration to the Pledgee for the use of the Pledged goods. This could be in the form of a rental fee or other agreed-upon payment. The duty to pay remuneration arises from the benefit that the Pledgee receives from the use of the Pledged goods. The terms and conditions of remuneration, if any, should be clearly defined in the Pledge agreement.

To receive back goods:

• Finally, the Pledger has a duty to receive back the Pledged goods upon the termination of the Pledge agreement. This duty ensures that the Pledgee is not left responsible for the Pledged goods indefinitely. The Pledger should be available and ready to take back possession of the goods when the Pledge agreement comes to an end, whether due to the fulfillment of the purpose of the Pledge, expiration of the agreed-upon term, or any other reason specified in the agreement.

These duties collectively govern the responsibilities of the Pledger in a Pledge arrangement, ensuring that the interests of both parties are protected and that the Pledge proceeds smoothly and fairly.
 

Rights of Pledgee:

1. Right to retain goods: The Pledgee has the right to retain possession of the Pledged goods until certain conditions are met. This right typically arises when the Pledger fails to fulfill their obligations under the Pledge agreement, such as failing to pay agreed-upon remuneration or failing to collect the goods at the end of the Pledge period. In such cases, the Pledgee can retain possession of the goods until the Pledger fulfills their obligations or until the Pledgee is otherwise legally entitled to dispose of the goods.
    
2. Right to recover expenses: If the Pledgee incurs reasonable expenses in relation to the care or maintenance of the Pledged goods, they have the right to recover those expenses from the Pledger. This right ensures that the Pledgee is not unfairly burdened with expenses that arise from fulfilling their obligations under the Pledge agreement. However, the Pledgee must have incurred these expenses with the consent of the Pledger or under circumstances where such expenses were necessary for the proper care of the Pledged goods.
    
3. Right to sue: The Pledgee has the right to sue the Pledger for any breaches of the Pledge agreement or for any losses or damages suffered as a result of the Pledger's actions or omissions. This right allows the Pledgee to seek legal remedies, such as compensation for losses or damages, specific performance of the Pledge agreement, or other appropriate relief. The Pledgee can exercise this right to protect their interests and enforce their rights under the terms of the Pledge agreement or under applicable laws.
    
4. Right to sell: In certain circumstances specified by law or by the terms of the Pledge agreement, the Pledgee may have the right to sell the Pledged goods. This right typically arises when the Pledger fails to reclaim the goods within a specified period after the termination of the Pledge agreement or when the Pledger defaults on their obligations under the agreement. The Pledgee must follow legal procedures and requirements for selling the goods, including providing proper notice to the Pledger and conducting the sale in a commercially reasonable manner. Any proceeds from the sale are usually applied towards satisfying the Pledgee's claims, such as recovering expenses or unpaid remuneration, with any surplus returned to the Pledger.

These rights empower the Pledgee to protect their interests, recover costs incurred, and seek legal remedies in case of breaches or disputes arising from the Pledge agreement.

Duties of Pledgee

Certainly, here's an explanation of each duty of the Pledgee:

Duty to take care:

• The Pledgee has a duty to take reasonable care of the Pledged goods while they are in their possession. This duty requires the Pledgee to exercise the same degree of care and diligence in handling the goods as they would with their own property. The Pledgee must take measures to prevent loss, damage, or deterioration of the goods, which may include storing them properly, handling them with care, and taking precautions to protect them from theft or other risks.

Not to make unauthorized use of goods:

• The Pledgee is prohibited from making any unauthorized use of the Pledged goods beyond the scope of the Pledge agreement. This duty prevents the Pledgee from using the goods for purposes other than those specified in the agreement or from engaging in activities that may risk damage or loss to the goods. The Pledgee must use the goods only in accordance with the terms of the contract and obtain the Pledger's consent for any deviations from the agreed-upon use.

Not to mix own goods with Pledger's goods:

• The Pledgee must ensure that they do not mix their own goods with the Pledged goods in a way that would make it difficult to identify or separate them. This duty helps to prevent confusion and disputes over ownership and ensures that the Pledged goods can be easily distinguished and returned to the Pledger when necessary. Mixing the Pledger's goods with the Pledgee's own goods could result in complications and difficulties in returning the goods to the rightful owner.

Duty to return goods:

• At the end of the Pledge period or upon the fulfillment of the purpose of the Pledge, the Pledgee has a duty to return the Pledged goods to the Pledger. This duty includes returning all components or parts of the goods and ensuring that they are returned in a timely manner and to the agreed-upon location. Failure to return the goods as required may result in legal liabilities for the Pledgee.

Act according to terms of contract:

• The Pledgee must act in accordance with the terms and conditions specified in the Pledge agreement. This duty requires the Pledgee to comply with any instructions, restrictions, or obligations set forth in the contract, including requirements regarding the use, care, and return of the Pledged goods. The Pledgee must perform their duties faithfully and in good faith, adhering to the terms of the contract and fulfilling their obligations to the best of their ability.

These duties collectively govern the responsibilities of the Pledgee in a Pledge arrangement, ensuring that the Pledged goods are properly cared for, used, and returned in accordance with the terms of the agreement, while also protecting the interests of the Pledger.

Conclusion:
In conclusion, Pledge is a legal concept that governs the temporary transfer of possession of personal property from one party to another for a security purpose. It involves a relationship of trust and responsibility between the Pledger, who owns the property, and the Pledgee, who receives possession of the property. Throughout the Pledge relationship, both the Pledger and the Pledgee have rights and duties that must be adhered to, ensuring that the Pledged property is properly cared for, used, and returned in accordance with the terms of the agreement. Understanding the principles of Pledge is essential for protecting the interests of both parties and resolving any disputes that may arise during the course of the Pledge arrangement.