Pledge – Law of Contracts II – Notes

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  • Delivery of Possession – Property pledged should be delivered to the pawnee.  When producer of a film borrowed a sum of money and agreed to deliver the prints of film when ready, it was not pledge as no actual transfer of possession took place.
  • Delivery of possession may be constructive or actual.
  • Delivery by attornment – When delivery is made to third person on direction of pledger.
  • Delivery of documents of tile is effective to create a pledge. – Morvi Mercantile Bank v. Union of India
  • Pledgee having bailment of goods as security for payment will have same remedied as owner of goods against third person for deprivation of goods or injury to them.
  • Pledge by Hypothecation – When goods are allowed to remain in custody of pledger for special purposes.
  • If pledger pledges the good to A by hypothecation and later on pledges good again to B then B cannot claim anything from goods as long as A’s claim is not satisfied.
  • In pursuance of contract – Pledge shall be made in pursuance to contract.
  • Blundell Leigh v. Attenborough – The case involved that plaintiff gave jewellery to X to let her know what offer he could to him as to lending money, and in return jewellery was kept as advance. X pledged jewellery to Y for 1000 pounds and gave 500 pounds to plaintiff.  Then X died and plaintiff after paying 500 pounds sued Y for jewellery and contended no pledge took between X and Y as X had first become gratuitous bailee and later on advancement of money possession was already passed from plaintiff to X. Court held otherwise.
  • §173 & §174 – Pawnee may retain goods till all due including interest is paid but may do only so for the debt goods were pledged and not for other debt.
  • Pawnee has first claim over goods than any other creditor. Bank had rights over the stock of sugar then cane commissioner for remaining dues as goods were pledged to bank and cane commissioner was an unsecured creditor. Central Bank of India v. Siriguppa Sugars & Chemicals Ltd.
  • In case of hypothecated pledge pawnee cannot seize the good himself and need court’s decree for the same.
  • Duty of Care – Pledgee need to take reasonable care of goods or else suffer loss.
  • Security holder is not bound to proceed against the security first or surrender it before maintaining a summary suit against the buyer.  – Suraj Sanghi Finance Ltd. v. Credential Finance Ltd.
  • Requirement of Notice – Pledgee before making the sale of goods kept as security needs to give a reasonable notice of his intention to sell. This requirement cannot be done away with a contract to the contrary.
  • Banker sold goods as right to sell of pledgee, the buyer returned goods and banker sold the goods to somebody else for lower price and sued pledger for balance. Court dismissed the claim stating that should have consulted the pledger before refunding the amount. L.N.  Arjundas v. State Bank of India
  • If consent of pledgee is real it is immaterial if consent has been obtained by fraud or misrepresentation. Jeweller took jewellery stating that he has a customer and then later on pledged it, the pledge was valid.- Ah San v. Maung Ba Thi
  • Plaintiff sent diamond for sell, the pawnbroker asked his friend to pledge them. Pledge not valid as it is not in course of business of a mercantile agent to ask a friend to pledge goods. – De Gorter v. George Attenborough & Sons
  • When the transfer of possession is voidable merely by reason of its being induced by fraud, which can be rescinded at the option of the owner, the consent which followed false representation is a sufficient consent within the meaning of section 30(2) of the Sale of Goods Act. But where the fraud induced an error regarding the identity of the person to whom or the property in respect of which possession was given, the whole thing is void and there is no consent in the sense of an agreement of two persons on the same thing in the same sense.
  • If contract is rescinded before pledge takes place then no valid title passes such as if a swindler gives a cheque then if police is informed and Automobile Association is informed to trace the vehicle then its sufficient to show of intent to rescind.
  • §179 – When a person pledges goods in which he has only a limited interest, he pledge is valid to the extent of that interest.
  • If a pledgee further pledge the goods pledged to him, original pledger is still entitled to his goods as long as he is willing to pay the amount for which he pledged the goods. – Thakurdas v. Mathura Prasad
  • If the original pledge made to pledgee is not valid then any pledge further made by pledgee is also equally ineffective. – Jaswantrai Manilal Akhaney v. State of Bombay

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