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LEGAL AND REGULATORY ASPECTS OF BANKING (LRAB)
Unit - 44: Contact of Pledge
Legal & Regulatory Aspects of Banking -
Unit - 44 : Contract of Pledge
Contract means an agreement enforceable by law. There must be lawful proposal by one party and the other party must accept the proposal to enter into a contract.
A Contract of Bailment is a contract to deliver goods by one person to another for some purpose .
When the purpose is accomplished , the goods are to be returned or otherwise disposed of according to the direction of the person delivering them .
A bailment is not the same as the sale which is an intentional transfer of ownership of personal property in exchange of something of value .
A bailment involves only a transfer of possession of custody and not of ownership.
The bailment of goods as security for payment of a debt or performance of a promise is called ' PLEDGE '.
The bailor is in this case called ' PAWNOR ' .
The bailee is called ' PAWNEE '.
Under Pledge , the bank can , on the insolvency of a borrower , take possession of the asset , sell it and use the proceeds to repay the loan.
This puts the bank in a stronger position than creditors who do not have security .
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