Unit - 17: Law Relating to Securities And Modes of Charge - II
Legal & Regulatory Aspects of Banking - Law Relating to Securities And Modes of Charge -II Unit - 17 : Law Relating to Securities and Modes of Charge - II A banker in his business of lending takes security of pledge and hypothecation of moveable goods to secure cash credit and overdraft.
PLEDGE : Bailment of goods for purpose of providing security for payment of debt or performance of promise as per Section 172 of Contract Act , 1872. The Person whose goods are bailed is called the Pawnor , the person who takes the goods as security is called the Pawnee. I) Legal Implications of a Pledge : a) Ownership of a property is retained by Pawnor . b) Actual or Constructive Delivery of goods to the Pawnee. c) Created only in case of existing goods which are in the possession of Pawnor himself . d) Possession of goods is the most important characteristic of pledge and thus, Pledge is lost when possession of the goods is lost . e) An agreement may be implied from the nature of the transaction or the circumstances of the case.
Who Can Create a Pleadge ? Owner of goods Mercantile agent Persons in Possession of goods under a voidable contract, provided the contract, has not been rescinded at the time of pledge. Seller of the goods , who continues to be in possession of goods even after sale can create a valid pledge .
Rights of a Pawnee : a) Rights of a retainer b) Right to claim extraordinary purpose c) No right to retain in respect of other debts d) Rights against Third Party e) Pawnee's right when Pawnor makes default in payment.
HYPOTHECATION: The mortgage of a moveable property and and obligation to repay money and no transfer of interest .
BANKERS LIEN: Right of a banker to retain possession of goods and securities owned by the debtor until the debt due from the latter is paid .
SET-OFF: Right of a debtor to take into account a debt owning to him by a creditor, when claiming a debt due from him to the creditor.
Pledge Mortgage Hypothecation Banker’s Lien Set-Off Pledge and Mortgage Pledge required only a limited interest in the property and ownership remains with the right of pledger. Here the legal ownership passes to mortgagee. Of course subject to the mortgagor to redeem the property.
The Pawnee has “special property” in the goods decree of pledged The mortgage as a rule, takes decree of a Court of Law before having recourse against the property mortgaged. Pawnee has no right to foreclosure. In certain cases, the mortgagee can foreclose the property.
Hypothecation and Mortgage The mortgage of moveable property is called Hypothecation Mortgage relates to immoveable property There is only obligation to repay the money and no transfer of interest. There is transfer of interest.