Pledge

September 22, 2009

The word pawn is derived from a Latin word meaning pledge, and once items have been pledged are known as pawns, pledges or simply collateral. A pledge, otherwise known as pawn is a type of security interest, and in particular a form of possesory security whereby the assets that are being pledged have to be delivered in their physical form to the beneficiary of the pawn, in this case known as the pledgee.


Even though pledges are now rarely used in their commercial context, pawnbrokers still use pledges in the credit industry. A pledge is an oath that the assets should act as security for borrowed money or security to fulfill a certain obligation. A pledge can also mean an item that is intended to be sold to a pawn broker, or a deposit of some property as security for a debt.

Once the pledgee gets possession of the property, he has common law power of sale in case the pledgor turns out to be a defaulter, or fails to honor his pledge. The power of sale comes about when the secured obligations are not met by the set time or better still, in default of agreement in a rational period of time. In case the pledgee decides to exercise his power of sale, he has to account to the pledgor for any extra amount after the payment of secured obligations is met.

A pawn or pledge doesn’t in any way bestow a right for foreclosure or a right to appoint a receiver. If the pledgee disposes off the pledged assets by way of selling or otherwise when not entitled to i.e. when the term of the pledge hasn’t expired, the pledgee is legally responsible for conversion to the pledgor.

Pawnbroker

A pawnbroker is an individual who gives monetary loans in exchange of items of the same value. Once the pledgor delivers the item as security and exceeds the stipulated contractual period, the pledgor can repossess the assets back to cover for the total amount of the loan and any other agreed upon interest. Incase the set time elapses and no payment is forthcoming from the pledgor, the pawnbroker is mandated by common law to sell the item for purposes of recouping the amount.

Essential characteristics of Pledge or Pawn

The essential characteristics of pledge are as follows:
1. There must be a delivery of goods – i.e. no verbal agreement or delivery of papers for proof of ownership of the assets or goods
2. Such delivery is made on a contract that once the purpose of pledgee having the goods is over in this case the purpose being payment of a debt, the goods should be repossessed back by the owner
3. The goods or assets are delivered on condition that the exact same goods should be returned in their original form to the owner, with no alterations whatsoever as long as the contract terms are honored by the pledgor
4. Ownership of the transferred goods or assets is not transferred to the pledgee.

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Written by Uncle Sam · Filed Under Mortgage and Loan 

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