MEANING OF PLEDGE AND HYPOTHECATION
Pledge:- Pledge is used when the lender (pledgee) takes actual possession of assets (i.e. certificates, goods ). Such securities or goods are movable securities. In this case the pledgee retains the possession of the goods until the pledgor (i.e. borrower) repays the entire debt amount. In case there is default by the borrower, the pledgee has a right to sell the goods in his possession and adjust its proceeds towards the amount due (i.e. principal and interest amount).
A kind of bailment in which the goods are kept with the lender as security for the payment of a debt or fulfillment of the contract. There are two parties involved in the contract of pledge, i.e. pawnor, the one who pledges the asset and Pawnee, the one who grants a loan against collateral.
The Title of goods remains with the Pawnor, but the possession of goods passes to the Pawnee. Deposit of goods with the lender is the precondition for the pledge. There can be actual or constructive possession of goods. It is the duty of the Pawnee, not to make unauthorized use of the pawnor’s goods and take reasonable care of the goods pledged……
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