Module: | Pledge, Lien, Agency, and Discharge
Q15: Which of the following statements, regarding a contract of pledge, are correct?
1. A pledge is a contract where a customer delivers goods, such as gold or warehouse receipts, to a bank as security for a loan.
2. The bank, as the pawnee, has the right to sell the pledged goods if the borrower (pawnor) defaults on the loan.
3. Before the bank can sell the pledged goods upon default, it is legally required to give reasonable notice of the sale to the borrower.
4. The bank must obtain a court order before selling any pledged goods, even after a default.
2. The bank, as the pawnee, has the right to sell the pledged goods if the borrower (pawnor) defaults on the loan.
3. Before the bank can sell the pledged goods upon default, it is legally required to give reasonable notice of the sale to the borrower.
4. The bank must obtain a court order before selling any pledged goods, even after a default.
✅ Correct Answer: B
A pledge is the bailment of goods (like gold or warehouse receipts) as security for a debt (Statement 1). The bank (pawnee) has the right to sell the goods upon default by the borrower (pawnor) (Statement 2). However, Section 176 of the Contract Act mandates that the bank must give reasonable notice of the sale to the borrower (Statement 3). A court order is not required (Statement 4 is incorrect).