CMA Laws and Ethics Pledge Question and Answers

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Pledge

Question 1. Meaning of Pledge or Pawn
Answer:

  • As per Section. 172,
    • It refers “to the bailment of goods as security for payment of debt or performance of a promise.”
  • It refers to a contract where an article is deposited with a money lender as a security for the loan repayment or for the performance of the promise.

Parties:

  1. Pawnor – The person who pledges bailor in case of a pledge
  2. Pawnee- The bailee in case of pledge.

Question 2. Essential Elements of Pledge
Answer:

  1. There must be an expressed implied contract between the parties
  2. It can be of goods only
  3. There must be delivery of goods from one person to another
  4. It must be for some purpose.

Question 3. Duties of Pawner
Answer:

  • Repay the loan or perform the promise
  • Pay expenses in cases of default
  • Pay the deficit on sale
  • Pay extraordinary expenses incurred for preserving the goods.
  • Disclose faults in goods which are material for the use of goods or may put pawnee to extra-ordinary risks
  • Indemnify the pawnee if he suffers any loss due to the defective title of the pawner.

Read and Learn More CMA Laws and Ethics Paper

Question 4. Rights of Pawner
Answer:

Section. 177: Redeem the goods pledged.

  • Right to sue in the event of the pawnee refusing to return the goods even after payment of debt etc.
  • Receive any increase in goods.
  • Receive notice of sale.

Question 5. Duties of Pawnee
Answer:

  • Not to use the goods unless authorised by the pawner
  • Return the goods to the pawnor on payment of debt etc.
  • Take reasonable care of the goods
  • Not to mix the goods with his goods
  • Return any increase in goods pledged with him
  • Return any surplus on sale.

Question 6. Rights of Pawnee
Answer:

  • Section. 173: Retain the goods pledged only for
    • The performance of the promise,
    • Payment of a debt,
    • And interest on the debt.
  • Section. 174: Right of particular lien.
  • Section. 175: Seek reimbursement of extraordinary expenses.
  • Section. 176: Right to sue the pawner in the event of the pawner failing to redeem the debt or perform the promise. He can sell the goods after giving a notice of Sale

Question 7. Pledge by non-owners
Answer:

A valid pledge can be created by the following non-owners:

1. Pledge by Estoppel.

2. Pledge by a mercantile agent. (Section. 178): Mercantile Agent means an agent of the seller who has been appointed to sell the goods belonging to the seller.

Conditions for pledging:

  • Goods came into his possession with the consent of the seller Or owner of goods.
  • The pledge is made by him in the ordinary course of business
  • Pawnee acts in good faith.

3. Pledge by a person in possession under a voidable contract. (Section. 178 A)

Conditions –

  • A person acquires goods under a voidable contract
  • A person who acquires the goods pledges such goods
  • At, the time of the creation of the pledge, the voidable contract should not have been rescinded
  • The pledge is made in good faith.

4. Sec. 179: Pledge by a person having limited interest in the goods.

If a person has a limited interest, he can make a valid pledge to the extent of that interest.

5. Pledge by a co-owner in possession: Consent of all joint owners is required, if the goods owned jointly are to be sold or pledged.

Conditions for exception –

  • Goods are in the sole possession of one joint owner. ,
  • Goods came into his possession with the consent of other joint owners
  • The pledge is made in good faith.

6. Pledge by a seller.in possession of goods after their sale Conditions-

  1. Ownership of goods has been passed to the buyer-seller
  2. “Goods be in their possession, even after their sale 
  3. The seller pledges the goods to some other person
  4. Pleduge is made in good faith without any notice of the prior sale

7. Pledge by a buyer who has obtained possession of goods under an agreement to sell.

Pledge Descriptive Question And Answers

Question 1. Comment on the following based on legal provisions: On expiry of the stipulated period, the pledgee can sell the pledged goods to any person.
Answer:

Pawnee or Pledgee cannot sell. Pawnee or Pledgee is to give notice to the pawner indicating his intention to sell.

  • Notice of sale is essential even where the agreement especially excludes it (Sec. 176).
  • Hence, this is void and unenforceable.

Pledge Practical Question And Answers

Question 1. Nishant lends a sum of $ 8,000 to Prashant on the security of ten shares of XYZ Ltd. on 1st Jan 2015. On 25th March 2015, XYZ Ltd. issued one Bonus share. Prashant returned the loan amount of $ 8,000 with interest to Nishant. But Nishant returned only ten shares which were pledged and refused to give one bonus share. Advise, Prashant in the light of the provisions of the Indian Contract Act, 1872.
Answer:

As per the provisions of Section 163(4) of the Indian Contract Act, 1872 “in the absence of any contract to the contrary, the bailee is bound to deliver to the bailor, or according to his directions any increase or profit which may have accrued from the goods bailed”.

  • Applying the provisions to the instant case, the bonus share is an increase on the shares pledged by Prashant to Nishant.
  • So Nishant is liable to return the shares along with the bonus share and hence Prashant the bailor, is entitled to receive the bonus share also from Nishant (Motilal Vs Bal Mani).

Question 2. Kavita falsely representing herself as the wife of a millionaire, takes a necklace from a jeweller’s shop for the approval of her husband. She pledges with a pawnbroker who is in good faith and without. notice of the fraud paying her $ 1,00,000. Can the jeweller recover the necklace from the pawnbroker? 
Answer:

  • The necklace cannot be recovered from the pawnbroker.
  • The jeweller intended to contract with the person present before him.
  • He was not mistaken about his identity but only about his attributes.
  • He intended to sell to the person present there was consent, but it was vitiated by fraud.
  • Hence the contract is voidable and not void.
  • In case of a voidable contract, before it is repudiated, one can pass a good title to the pledgee or purchaser in good faith.
  • Thus, in the instant case, the pledge is valid.
  • It may be noted that in the given case if Kavita had falsely represented herself as the wife of a certain well-known millionaire, it would have been a case of mistake as to the identity of the person contracted with, rendering the agreement void ab initio, thereby enabling the jeweller to recover the necklace from the pawn broker.

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