Pledge and Pawn

Bailment and Pledge are those matters which are governed by the special types of contract. It is specific types of transaction between the parties that play significant role in the operation of business. Bailment is a border term under which pledge is also compromised one of special form. It is one of the important areas to be addressed by the contract law. Nepalese Contract Act, 2000 has dealt the general principles in relation to this contract under its chapter 5 and 6. They are mentioned separately as underneath:

B. Pledge and Pawn 

Accumulation of capital is one of the significant functions for business. Capital may be raised by different means. One of these means is to obtain loan. Loan transaction is very much important in business operation and pledge or pawn provides security of repayment of such loan. Pledge is a specific bailment since it is relating only to the loan transaction. The goods deposited as security to repay the debt or to perform the promise is known as pledge. The term pawn is synonymous to the term pledge and it can be used interchangeably.

The Contract Act, 2000 has used the different terms Dhito or Dharaut for denoting pledge. Section 35 of the Act mentions that in case any person has obtained a collateral while supplying credit to anybody as a security for that credit, or obtained any property as a deposit in the form of a guarantee to perform the concerned work while having any work performed a contract relating to collateral or deposit shall be deemed to have been concluded. The Explanation of the same section further mentions that For the purpose of this chapter, the term property shall denote any movable or immovable property, and title or document establishing title to that property.

Therefore a pledge is only a special kind of bailment contract under which goods are deposited with a tender or promise as a security for the repayment, a pledge also involves only a transfer of possession of goods pledge not ht ownership. The ownership remains with the pledger. The pledge or Pawnee has a special interest in the goods pledged. The general interest always remains in the pawner and wholly reverts to him on discharge of debts or work to be performed.