1) Creation of right: In a pledge, goods are bailed as a security for payment of debt or for performance of a promise.
2) Right to sell: It gives a right to sell.
3) Possession: It creates a right of security i.e. pledge of goods is not lost by return of goods to the owner or by loss of possession.
4) Origin: Pledge is created by contract between the parties.
1) There is no bailment of goods as security. It is only a creation of a right to possession in the hands of the bailee. It is a mere right of retainer.
2) It gives no right to sell
3) Lien is host by loss of possession
4) Lien is created by law or by express or implied contract.
A lien is merely a personal right. A pledge is a much more valuable right than a mere lien. The difference lies in that, in a lien there is no power of sale or disposition of the goods, whereas in a pledge there is power to sell on default. A lien is merely a personal right of retention. A lien disappears when possession is lost and there is no right of sale. Sale on default is an incident of pledge. A pledge is assignable.
A pledge is something between a simple lien and a mortgage. In the case of alien there is no transfer of any interest. In the case of a mortgage, mortgagee has an absolute interest in the property subject to a right of redemption. But in the case of a pledge, the pledgee has only a special property while the general property therein remains in the pledgor.
Pledge and Bailment distinguished:
1) Goods are pledged to ensure repayment of a debt or for performance of a promise.
2) Goods are pledged as a security.
1) Goods may be bailed for any purpose
2) Goods are bailed for carrying out a specific purpose or for a particular period of time.
Both bailment and pledge can be effected only of movable property and in both there is only transfer of possession and not that of ownership. Goods are to be returned in both the cases after the purpose is accomplished, or debt paid, or promise performed, as the case may be. Both bailment and pledge are created by agreement between the parties.
Rights of a Pawnee:
To retain (Sec 173 & 174) The pawnee may retain the goods for —
1) payment of the debt or the performance of the promise;
2) interest on the debt; and
3) all necessary expenses incurred by him in respect of the possession or for the preservation of the goods pledged.
Pawnee’s right of retention is that of a particular lien. Pawnor continues to be the real owner. The pawnee shall not retain the goods pledged for any debt or promise other than the debt or promise for which they are pledged. The parties may however contract otherwise and extend the right of pawnee to retain the goods pledged for any other debt or promise.
To recover extra ordinary expenses (Sec 175) The pawnee is entitled to receive from the pawnor extraordinary expenses incurred by him for the preservation of the goods pledged. It must be noted that pawnee has no right to retain the goods to recover extra ordinary expenses.
Right on pawnor’s default: (Sec 176) If the pawnor makes default in payment of the debt, or performance of a promise at the stipulated time in respect of which the goods were pledged –
1) the pawnee may bring a suit against the pawnor upon the debt or promise;
2) retain the goods pledged as a collateral security.
The pledge is entitled to retain the goods until the money due is recovered. He has, therefore to surrender the goods on realizing the debt.
When the pawnee files a suit for recovery of a debt, though he is entitled to retain the goods he is bound to return them on payment of the debt.
3) he may sell the goods pledged, on giving the pawnor reasonable notice of the sale.
If the proceeds of such sale are less than the amount due in respect of the debt or promise, the pawnee can recovery the balance. If the proceeds of the sale are greater than the amount so due, the pawnee shall pay over the surplus to the pawnor.
Pawnee is, therefore, given the right either to sue the pawnor and retain the goods, or sell the thing pledged after giving a reasonable notice of sale to the pawnor.
Pawnee can avail of these rights only when the pawnor commits default at the stipulated time. If no time is stipulated, pawnee has first to give to the pawnor and call upon to pay the debt or perform his promise on or before a certain day. Pawnee can then avail himself of the above rights, if the pawnor defaults. Pawnee’s right to sell the goods pledged is without reference to the Court. Notice of sale to the pawnor is a must; otherwise the sale is bad and void. However, notice of sale need not state the exact date and time and place of sale. Notice of an intention to sell is sufficient. When the pledgees gets a right to sell the goods he may buy the goods himself. Sale to then pledge himself is not void.