Module: General Practice
Q116: Scenario: A bank grants a loan against the security of a warehouse full of paddy. The bank puts its own lock and key on the warehouse and appoints a security guard. The key remains with the Bank Manager. Which legal mode of charge has been created?
✅ Correct Answer: B
Concept: The crucial differentiator between Hypothecation and Pledge is Possession.
Pledge (Indian Contract Act, 1872): Requires the delivery of possession of the goods to the creditor (pledgee). Possession can be actual (handing over a watch) or constructive (handing over the key to a godown, as in this scenario). Since the bank holds the key and controls access, it has "Constructive Possession." Hypothecation: The goods would remain in the borrower's possession.
The bank would only have a right to seize them upon default.
Mortgage: Applies to immovable property (land/buildings).
Pledge (Indian Contract Act, 1872): Requires the delivery of possession of the goods to the creditor (pledgee). Possession can be actual (handing over a watch) or constructive (handing over the key to a godown, as in this scenario). Since the bank holds the key and controls access, it has "Constructive Possession." Hypothecation: The goods would remain in the borrower's possession.
The bank would only have a right to seize them upon default.
Mortgage: Applies to immovable property (land/buildings).