Pledge
PLEDGE
The Concept
In Jewish law, in addition to the personal right of action against the debtor, the creditor also has a right of *lien on the latter's property. This lien automatically comes into being when the debt is created and is termed aḥarayut or shi'bud nekhasim. Sometimes the operation of the lien may be limited by the parties to a specified asset or part of the debtor's property, in one of two possible ways: either this distinct asset remains in the debtor's possession, in which case the lien is termed apoteke, or possession of the asset is surrendered to the creditor, which is termed mashkon ("pledge"). In both cases limitation of the lien to a distinct asset may be effected either so that it operates over and above the general lien on all the debtor's property, or so as to free all but the distinct asset from its operation; in the case of pledge, these two forms are referred to respectively as mashkon stam ("unconditional") and mashkon meforash ("express pledge"; Tur, Ḥm 117:1).
Jewish law distinguishes between three types of pledge: a pledge taken when the debt is due for repayment, not in payment of it but as a security for its repayment; a pledge taken when the debt is established with the consent of both debtor and creditor, as security for repayment of the debt on the due date; and a pledge given by the debtor to the creditor for the latter's use and enjoyment of its fruits.
Taking a Pledge After Establishment of the Debt
There are various biblical enjoinders concerning taking a pledge from the debtor: "If thou lend money to any of My people, even to the poor with thee, thou shalt not be to him as a creditor; neither shall ye lay upon him interest. If thou at all take thy neighbor's garment to pledge, thou shalt restore it unto him by that the sun goeth down; for that is his only covering, it is his garment for his skin; wherein shall he sleep?" (Ex. 22:24–26); similarly, "When thou dost lend thy neighbor any manner of loan, thou shalt not go into his house to fetch his pledge. Thou shalt stand without, and the man to whom thou dost lend shall bring forth the pledge without unto thee. And if he be a poor man, thou shalt not sleep with his pledge; thou shalt surely restore to him the pledge when the sun goeth down, that he may sleep in his garment, and bless thee; and it shall be righteousness unto thee before the Lord thy God" (Deut. 24:10–13); and, "No man shall take the mill or the upper millstone to pledge, for he taketh a man's life to pledge" (Deut. 24:6). In their plain meaning, these passages refer to a debtor from whom a pledge is taken as such. These passages (which also lay down general principles concerning the creditor-debtor relationship; see *Execution, Civil) are the source of a threefold direction in matters of pledge and relate to articles which may never be taken in pledge; which may be taken in pledge but must be returned to a poor debtor when he needs them; and the prohibition against taking a pledge from a widow.
From the biblical prohibition on taking "the mill or upper millstone to pledge," the scholars deduced that it is forbidden to take in pledge "aught wherewith is prepared necessary food" (bm 9:13). They generally agree that the prohibition applies to utensils which are used in the actual preparation of "necessary food," such as a grain mill, certain cooking pots, an oven, and a sieve (Tur, Ḥm 97:17), as well as water, wine, or oil jugs, "since this involves taking from a man a utensil which was fashioned for the actual preparation of necessary food for himself and his family, and this the Torah has forbidden, to save him hurt" (Ḥm 97:11). In the case of things which do not meet this exact requirement but are used by a man to earn his livelihood, such as oxen for plowing and the like, some scholars hold that these may be taken in pledge, except for the essentials of his sustenance which must be left with the debtor, in terms of the rule of making an "arrangement" or assessment for the debtor (Rema, Ḥm 98:8); other scholars hold that these things too fall into the category of "necessary food" and, therefore, may not be taken in pledge (Tur, Ḥm 97:17; bm 113b; this opinion also conforms with the ordinary meaning of the statements in Tosef., bm 10:11 and those surrounding the discussion about a yoke of oxen and a pair of barber's shears, in bm 116a). With regard to articles which may be taken in pledge but must be returned to a needy debtor, Maimonides states "when a person takes a pledge from his neighbor [when the debt is due for payment] – whether through a court, or forcibly of his own accord, or with the debtor's consent – then if the debtor is poor it is a mitzvah to return the pledge to him if and when he be in need thereof; he must return to him the pillow at night to sleep thereon, and the plow by day to work therewith" (Yad, Malveh 3:15). Anyone who does not return a poor man's pledge when he needs it transgresses two prohibitions of the Torah and one positive precept.
It is in the interest of the creditor to take a pledge – notwithstanding his obligation to return it to the debtor when the latter is in need of it – in order that the debt shall not be wiped out in the Jubilee Year, just as a debt established against a pledge is not wiped out in order to recover payment of it on the death of the debtor, so that it should not be like movable property in the hands of orphans, which is not charged in the creditor's favor (Tosef., bm 10:9; bm 115a; Yad and Sh. Ar., loc. cit.). "Why then does he continue each day to take the pledge after he has returned it to the debtor whenever necessary? So that the debtor shall hurry to repay the debt because he is ashamed of having his pledge returned by the creditor day after day" (Tos. to bm 115a). In a dispute with R. Simeon b. Gamaliel, the scholars held that the creditor must return the debtor's pledge in this way as long as the debtor is alive; Gamaliel's opinion was that the creditor need only return the pledge during a period not exceeding 30 days; thereafter it must be sold through the court. All the scholars agree that if the creditor takes in pledge articles which are not essential to the debtor and therefore need not be returned to him from time to time, the creditor will be entitled to have the pledge sold through court, in similar manner to a pledge taken at the time of the establishment of the debt.
In the case of a widow, R. Judah held that the prohibition applies to all widows, rich or poor, giving to the word "widow" its ordinary meaning, since "he did not seek the reason for the scriptural law." R. Simeon, because "he sought the reason for the scriptural law," was of the opinion that the prohibition only applied to a poor widow, since the creditor would have to return her pledge if she needed it, and by entering and leaving her house from time to time would bring her into disrepute. The halakhah was decided according to R. Judah's opinion. Maimonides' opinion that the prohibition extends also to a pledge taken from a widow at the time the debt is established (Yad Malveh 3:1) is disputed in most of the codes on the grounds that the Torah deals solely with the question of a pledge taken when the debt is due for payment and that this is also to be deduced from the statements in the Talmud, even when the debtor is a widow (Hassagot Rabad and Maggid Mishneh, ad loc.).
The laws concerning a pledge of the debtor's property which the creditor takes after the debt is due as security for but not in payment of a debt are set out in detail in Scripture; although these laws were also dealt with in the Talmud and in the codes, by then they had become of less practical importance in daily life. The result was that the relevant laws came to be interpreted as applying also to the matter of actually satisfying a debt out of the debtor's property. (Maimonides, for instance, incorporates a number of matters pertaining to the siddur le-va'al-ḥov in his treatment of the above laws (Yad, Malveh 3:6) and this is done by other commentators also.) This process is particularly noticeable in the treatment of the prohibition against entering the debtor's home; the prohibition was interpreted in talmudic discussions and until the 12th century as applying also to the case of the creditor seeking to recover his debt, and only R. Tam interpreted the prohibition as applying solely to the case of entry for the purpose of taking a pledge.
In talmudic times, when the creditor came to take any of the debtor's assets after the debt was due, he generally did not do so in order to take a pledge, but rather as a means of recovering his debt. For this purpose too the scholars specified a number of articles which a debtor needed for the sustenance of himself and his family which might not be taken from him. From talmudic times onward it became most common for the pledge to be delivered by the debtor to the creditor at the time the debt was established.
Pledge Taken When the Debt is Established
The distinction drawn in Hebrew legal parlance in the State of Israel between the terms mashkon and mashkanta, pertaining to movables and to immovable property respectively, does not appear in the sources, where the term mashkanta is simply the Aramaic form of mashkon (although the distinction is already hinted at in earlier periods – see, e.g., Elon, Mafte'ah, note on p. 152).
Modes of Establishing a Pledge
The ancient form of pledge was apparently executed in the following manner: the debtor would sell one of his assets – land or movable property – to the creditor on the condition: "whenever I so desire I shall return the money and take it back." On receipt of the property the creditor would hand over the money; if, in the course of time, the money was returned by the debtor, the transaction constituted a loan and the property a pledge, otherwise the property would be forfeited to the creditor, presumably upon determination and expiry of a maximum period allowed the debtor for redemption of the property. This form of pledge also existed in other legal systems (Tosef., bm 4:4; Gulak, Toledot ha-Mishpat be-Yisrael bi-Tekufot ha-Talmud, 1 (Ha-Ḥiyyuv ve-Shi'budav), 62–65). A variation of this form of pledge was one in which the sale only came into effect upon the debtor's failure to make repayment on the date due (bm 63a). In the first case the creditor was entitled to sell the property after it had been delivered to him, although the debtor retained the right to redeem the property from a third party – i.e., within the period determined for this purpose; since the property had already been sold to the creditor, his usufruct thereof was not in conflict with the prohibition against *interest (see below). In the second case, however, it was forbidden for the creditor to sell the property before the agreed date of repayment and, therefore, according to some scholars, the fruits of the property were forbidden to the creditor, as amounting to interest, since the property had not yet been effectively sold to the latter. Common to both the above forms of sale was forfeiture of the property to the creditor upon the debtor's failure to return the money within the determined period (Gulak, 65–66). Forfeiture of this kind, although likely to have resulted in the creditor gaining property whose value exceeded the amount of the debt, was not regarded by the scholars as prejudicial to the debtor since the latter retained the option of selling the pledged property to a third party before the due date for repayment of the debt and then paying the creditor the exact amount only (Tos. to bm 65b).
In the later form of the pledge that was customary in talmudic times, the creditor was only entitled to recover out of the pledge – when the debt matured – the exact amount owing to him, and the remainder belonged to the debtor; conversely, if the value of the pledge was less than the amount of the debt, the creditor was entitled to recover the shortfall from the debtor. (Nevertheless, from a number of halakhot it is discernible that later, as early as amoraic times, forfeiture of the whole of the pledge continued to be practiced; see Gulak, 69–71.) It was customary for the parties to stipulate that the whole of the pledge be forfeited to the creditor upon the debtor's failure to repay the debt within a prescribed period, even if the value of the pledge exceeded the amount of the debt. Some scholars upheld the validity of such express conditions, but R. Judah held a contrary opinion: "In what manner shall this party become entitled to that which is not his!" (Tosef., bm 1:17). For part of the amoraic period some scholars maintained that the above condition was valid, but later the halakhah was decided to the effect that this condition was invalid because of the defect of *asmakhta (bm 66a–b). A similar decision was made in the codes; namely, that this condition was invalid unless imposed in a special manner so as to obviate the defect of asmakhta (Yad, Malveh 6:4; Sh. Ar., Ḥm 73:17).
Ownership and Responsibility for the Pledge
Property pledged by the debtor remains in his ownership, but cannot be alienated by him to another since it is not in his possession (Rashi, Pes. 30b). The debtor may, however, alienate the pledge to another in such manner that the kinyan, i.e., transfer of ownership, shall take effect after he has redeemed the pledge from the creditor, and then retroactively to the time of alienation; in addition, the debtor may immediately alienate that portion of the pledge which is in excess of the amount of the debt (Ket. 59a–b; Tos. to bm 73b, s.v.hashata; s.v.hakhi ka-amar; Rema, YD 258:7).
The creditor acquires a limited proprietary interest in the pledge (Pes. 31b; et al.), hence a marriage contracted by him through the means of a pledge he holds is valid (according to Maimonides, the creditor has mikẓat kinyan, "a measure of kinyan," in the pledge: Yad, Ishut 5:23). The creditor may assign to another the charge which he has on pledged property. According to the posekim, the creditor only has mikẓat kinyan in a pledge that is taken after the debt is established, and no kinyan whatever in a pledge taken at the time of establishment of the debt, so that a marriage contracted by the debtor through the means of pledged property of the latter kind will be invalid (Tos. to bm 82b, s.v.emor; Rema; Siftei Kohen,Ḥm 72, n. 9; R. Isaac's above statement is also based on a passage dealing with a pledge taken after establishment of the debt).
Opinions were divided on the question of the creditor's responsibility for the pledge in his possession, some holding him liable as a bailee for reward and others regarding him as an unpaid bailee (bm 6:7). The majority of the posekim decided according to the first view: "hence if the pledge was lost or stolen, he will be liable for its value; if the value of the pledge equaled the amount of the debt, the one party will have no claim against the other; if the debt exceeded the value of the pledge, the debtor must pay the difference; but if the value of the pledge exceeded the debt, the creditor must refund the difference to the debtor; if the loss of the pledge was due to *ones, the creditor must swear that this was the case, whereupon the pledger must repay the debt to the last penny" (Yad, Sekhirut 10:1; Hassagot Rabad, ad loc.; Rema, Ḥm 72:2).
Use of the Pledge
The use of the pledge is forbidden to the creditor, since this is tantamount to taking interest on the loan. In the case of a poor debtor, if the nature of the pledge is such that it suffers only slight deterioration upon use and the return for its hire is great – for instance a plowshare or spade – the creditor will be entitled to hire the pledge to others and to apply the proceeds in reduction of the debt, since this is assumed to be convenient for the debtor. It is precisely to others and not to himself that the creditor may hire the pledge in this manner, lest he be suspected of using the pledge without reducing the debt accordingly. If originally, however, the parties stipulate with each other that the creditor might use the pledge and apply the hire in reduction of the debt, then he will be entitled to use the pledge himself, since anyone who knows that he holds a pledge will also know what he stipulated with the debtor. When the pledge consists of books, the use of the pledge is permitted by some scholars because it is a mitzvah to lend books for study, but other scholars include books in the general prohibition against the use of the pledged property (Rema, Ḥm 72:1; and YD 172:1).
Recovering Payment out of the Pledge
When the debt matures the creditor must notify the debtor, before two witnesses, that the debt must be repaid and the pledge redeemed or else he will seek leave from the court to sell the pledge in satisfaction of the amount owing to him. The debtor, according to some of the posekim, has 30 days in which to make payment, failing which the value of the pledge is assessed by three knowledgeable assessors and "he [the creditor] shall sell it at the assessment price allowed by the above three and he is given the advice to sell it before witnesses, lest the debtor say that it was sold for more than the assessment price" (Yad, Malveh 13:3; Sh. Ar., Ḥm 73:12–15). The creditor himself may not purchase the pledge, but some scholars aver that he may do so if the pledge is sold through a court of experts.
Pledge (Mortgage) with a Right of Usufruct in the Creditor's Favor
usufruct and the prohibition against interest
In the case of a long-term debt in a large amount, land was generally given in pledge, to remain in possession of the creditor until the debt matured; this practice is illustrated in Nehemiah 5:3–5. According to the Jewish laws of interest, any benefit derived by the lender over and above repayment of the original amount of the loan is regarded as interest and prohibited (bm 5:9). Strict observance of the minutiae of the prohibition posed no particular economic hardship in the case of small short-term loans, but when large credits were involved it was difficult to deny the creditor the right to derive any benefit from the mortgaged land in his possession. In other legal systems it was customary for the creditor to enjoy the fruits of the mortgaged property by way of interest and the existence of this phenomenon in Greco-Roman laws was mentioned in the Talmud (tj, bm 6:5). In order to ensure the availability of credit, the halakhic scholars sought to evolve special ways for the creation of a mortgage in a manner enabling the creditor to derive some usufructuary benefit from it without transgressing the prohibition against interest.
As already noted, the use and enjoyment of the pledge was permitted the creditor in case of a sale for return and – in the opinion of R. Judah – even in the case where the sale only came into effect upon the debtor's failure to make payment on the due date. This was because the property was regarded as sold to the creditor whereas the question of interest could only arise in the case of loan. The Babylonian amoraim regarded even the above cases as involving prohibited interest, since upon repayment of the debt the land would return to the debtor and the sale become voided retroactively (see bm 67a and Rif, Halakhot; Sh. Ar., Ḥm 182:12; and Ha-Gra). A way of permitting the creditor a usufruct of the pledged property was found by the latter scholars on the principle of a reduction of the debt, at times until full liquidation thereof, by virtue of and in return for the usufruct. Even if such reduction bore no proportion to the actual value of the usufruct enjoyed by the creditor, yet this method – unlike the case of a sale of the body of the land – involved some real and not fictitious consideration for the usufruct. An important consideration for the Babylonian amoraim in treating the permissibility of such usufruct was the distinction between a mortgage "in a place where it is customary to make the creditor give up possession" and a mortgage "in a place where it is not the custom…" In the former case the debtor could repay the debt at any time and recover possession of his land from the creditor and therewith regain the usufruct of his land; in the latter case the creditor could not be made to give up possession within a fixed period and thus the mortgage was akin to a sale for a specified period, whereby the suspicion of prohibited interest was reduced. In certain places it was laid down that, unless expressly stipulated between the parties, the debtor might not recover possession of the land from the creditor during the first year at least (bm 67a–b).
Three forms of usufruct of the mortgaged land were customarily recognized by the Babylonian amoraim.
Mortgage with a Fixed Deduction
With a mortgage of this kind the practice was to make a deduction from the amount of the debt against the creditor's enjoyment of the usufruct, as if the fruits were sold for the amount deducted. The rate of the deduction was fixed and amounted to far less than the value of the usufruct enjoyed, hence a talmid ḥakham was forbidden from enjoying the usufruct of the mortgaged property, even with the deduction (bm 67b).
Mortgage with a Stipulated Time Limit
The practice in this case was for the creditor to enjoy the usufruct of the mortgaged land against a deduction for the first five years – i.e., with a minimal reduction of the debt (and none at all according to another opinion) – and thereafter enjoyment of the usufruct would be assessed at its full value for purposes of repayment of the debt. Some of the scholars held this form of mortgage to be permissible also to a talmid ḥakham (bm 67b). During the first five years the creditor apparently could not be made to surrender possession of the land, the mortgage being akin to a sale and the suspicion of prohibited interest therefore reduced.
Mortgage "as Arranged in Sura"
In this form of mortgage the parties would insert into the bond the condition: "on the expiry of so-and-so-many years, this estate reverts [to the debtor] without any payment." Here the creditor would enjoy the usufruct for a period stipulated in advance, at the end of which the land reverted to the debtor and the debt was considered as fully repaid. In this case too the value of the usufruct may have exceeded the amount of the debt, but this method was preferable to the "time limit" mortgage as regards the interest prohibition. In the "Sura" mortgage the creditor, as against his profits, also had to face a possible loss, since the land would revert to the debtor at the end of the stipulated period even though the creditor may not have enjoyed any profits during one or more years; on the other hand, in the "time limit" mortgage, repayment of the debt, after the first five years, would take place according to the measure of the profits enjoyed, and during the first five years the profits could be enjoyed without any risk of loss. With the "Sura" mortgage the suspicion of prohibited interest was entirely eliminated, since it in no way resembled a loan transaction, but rather one of "purchasing the fruits of these particular years against this particular payment" (Rashi, bm 67b). Hence all the scholars agreed that a "Sura" mortgage was permissible even to a talmid ḥakham (bm, loc. cit.).
In permitting a usufruct of the mortgaged property, both with reference to the ancient forms of mortgage and those sanctioned by the Babylonian amoraim, the scholars relied on the law of the redemption of dwellings in walled cities and fields of possession (Lev. 25:16, 27, 29; Tosef., bm 4:2; tj, bm 5:3, 108; bm 67b).
Disputing Opinions in the Codes
The problem of the creditor's enjoyment of a usufruct of the mortgaged property continued to engage halakhic scholars in post-talmudic times and became a subject of much controversial discussion in the codes (Ha-Gra, yd 172, n.1, enumerates six different methods entertained by the posekim). The main points of dispute may be briefly summarized as follows:
It was generally agreed that a "Sura" mortgage was permissible. As regards a mortgage "with deduction," Alfasi's opinion (to bm 67b) was that although enjoyment of the fruits is initially prohibited to the creditor, nevertheless the post facto value of this cannot be reclaimed from him, since no fixed or direct interest is involved, but only avak ribbit or indirect interest. The distinction between the two forms of interest, even as regards mortgage, was already discussed in the Talmud (bm 67b). In this case Maimonides permitted enjoyment of the usufruct from the start, but only with reference to a field, "since in the case of a field, the profits are not yet in existence at the time of the loan, and it is possible that the creditor may either derive fruits and profits therefrom or suffer loss in the sowing and cultivation of the field." In the case of a courtyard or a dwelling, Maimonides held the profits to be available at the time of loan and enjoyment of them, although prohibited initially, became permissible, ex post facto – because this entailed no more than avak ribbit ("dust of interest"; see *Usury) by virtue of the reduction (Yad, Malveh 6:7). Rabad held that a mortgage "with deduction" is only permissible from the start where the local custom is not to make the creditor give up possession of the mortgaged property (against repayment of the debt) and that for this purpose no distinction should be made between a dwelling and a field (Hassagot Rabad to Malveh 6:7). Rashba, on the other hand, held all mortgages "with deduction" to be permissible from the start, whether relating to a field or dwelling and regardless of local custom on the question of the debtor regaining possession of the mortgaged property.
A great deal of difference of opinion is also expressed in the codes concerning a mortgage with no deduction at all in return for the usufruct. Alfasi (to bm 67b) regarded this as amounting to fixed interest which could be reclaimed by action. Maimonides (Yad, Malveh 6:7) regarded this form of mortgage as entailing direct interest when relating to a courtyard or dwelling, and "dust of interest" when relating to a field or vineyard, and Rabad's view (ibid.) was that such a mortgage entailed direct interest or "dust of interest" depending respectively on whether it was local custom to make the creditor give up possession of the mortgaged property (against repayment of the debt) or not. Rashi (on bm 62a, 67a) was of the opinion that in the case of a field a mortgage, even without deduction, was permissible from the start wherever it was the custom not to make the creditor give up possession of the property, since by virtue of the latter fact, "all agree that all these years he holds the field as if purchased by him" (see also Tur, yd 172). However, in the case of a dwelling, such a mortgage (i.e., a usufruct without further deduction of the debt) entailed direct interest (see Leḥem Mishneh to Malveh 6:7). Although extremely liberal as regards the permissibility of a mortgage with deduction, Ibn Adret nevertheless held that where it was customary to make the creditor give up possession of the property, a mortgage without deduction entailed direct interest, and where it was customary not to make the creditor give up possession, it was "dust of interest" (Nimmukei Yosef, bm 67b; Lehem Mishneh, loc. cit.).
The diversity of opinions made it difficult to decide the law in practice: "how shall we enter into the scholarly discussions… we have no power to decide the issue, but the court must act in accordance with its own understanding" (Resp. Abraham b. Isaac of Narbonne, no. 173). In one of his responsa Nahmanides similarly expressed regret at the diversity of opinion, which left the halakhah on the subject uncertain and lacking in binding force. Therefore it had to be left for every community to act in this matter according to local custom. The opinions of the posekim were summarized by Isserles in a similar fashion: "Local custom is to be followed in this matter and in these countries the custom is to permit [enjoyment of usufruct] in the case of a mortgage with deduction, even when the debtor may reclaim possession [of the property from the creditor] and in this regard no distinction is drawn between a field and a dwelling or the different kinds of movables, since in all cases a mortgage with deduction is permissible" (Rema, yd 172:1).
In the State of Israel
The laws of pledge are ordered in two laws of the Knesset: the Pledge Law, 1967, and the Land Law, 1969. Sections 85–91 of the second law deal with a pledge of land, termed mash-kanta, i.e., mortgage (sec. 4), to which all the provisions of the Pledge Law are applicable save as otherwise provided in the Land Law itself (sec. 91). The provisions of the Pledge Law are partially in accord with the attitude of Jewish law on the subject. The bill originally submitted to the Knesset (in 1964) included a provision entitling the creditor to enjoy the income of the pledge, with the debtor's consent and in return for an appropriate consideration to the latter, his waiver thereof to be of no validity (sec. 23). In the final version passed by the Knesset, the law provides that the creditor shall pay the debtor appropriate remuneration "unless otherwise agreed." This in effect means that upon the debtor's waiver of consideration the creditor becomes entitled to use and enjoy the income of the pledged property without making any reduction of the debt, which is contrary to Jewish law, where this amounts to prohibited interest.
bibliography:
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[Menachem Elon]
pledge
pledge / plej/ • n. 1. a solemn promise or undertaking: the conference ended with a joint pledge to limit pollution. ∎ a promise of a donation to charity: the company's pledge of 10% of profits to environmental concerns. ∎ (the pledge) a solemn undertaking to abstain from alcohol: she persuaded Arthur to take the pledge.2. Law a thing that is given as security for the fulfillment of a contract or the payment of a debt and is liable to forfeiture in the event of failure. ∎ a thing given as a token of love, favor, or loyalty.3. a person who has promised to join a fraternity or sorority.4. archaic the drinking to a person's health; a toast.• v. 1. [tr.] commit (a person or organization) by a solemn promise: the government pledged itself to deal with environmental problems. ∎ formally declare or promise that something is or will be the case: the president pledged that 20,000 government buildings would have solar roofs. ∎ [intr.] solemnly undertake to do something: they pledged to continue the campaign for funding. ∎ [tr.] undertake formally to give: Japan pledged $100 million in humanitarian aid to pledge allegiance.2. [tr.] Law give as security on a loan: the creditor to whom the land is pledged.3. [tr.] promise to join (a fraternity or sorority): Francie and I pledged the same sorority.4. [tr.] archaic drink to the health of.PHRASES: pledge one's trothsee troth.DERIVATIVES: pledg·er n.pledg·or / ˈplejər/ n. ( Law ).
Pledge
PLEDGE
Abailmentor delivery ofpersonal propertyto a creditor as security for a debt or for the performance of an act.
Sometimes called bailment, pledges are a form of security to assure that a person will repay a debt or perform an act under contract. In a pledge one person temporarily gives possession of property to another party. Pledges are typically used in securing loans, pawning property for cash, and guaranteeing that contracted work will be done. Every pledge has three parts: two separate parties, a debt or obligation, and a contract of pledge. The law of pledges is quite old, but in contemporary U.S. law it is governed in most states by the provisions for secured transactions in article 9 of the uniform commercial code.
Pledges are different from sales. In a sale both possession and ownership of property are permanently transferred to the buyer. In a pledge only possession passes to a second party. The first party retains ownership of the property in question, while the second party takes possession of the property until the terms of the contract are satisfied. The second party must also have a lien—or legal claim—upon the property in question. If the terms are not met, the second party can sell the property to satisfy the debt. Any excess profit from the sale must be paid to the debtor, or first party. But if the sale does not meet the amount of the debt, legal action may be necessary.
A contract of pledge specifies what is owed, the property that shall be used as a pledge, and conditions for satisfying the debt or obligation. In a simple example, John asks to borrow $500 from Mary. Mary decides first that John will have to pledge his stereo as security that he will repay the debt by a specific time. In law John is called the pledgor, and Mary the pledgee. The stereo is referred to as pledged property. As in any common pledge contract, possession of the pledged property is transferred to the pledgee. At the same time, however, ownership (or title) of the pledged property remains with the pledgor. John gives the stereo to Mary, but he still legally owns it. If John repays the debt under the contractual agreement, Mary must return the stereo. But if he fails to pay, she can sell it to satisfy his debt.
Pledged property must be in the possession of a pledgee. This can be accomplished in one of two ways. The property can be in the pledgee's actual possession, meaning physical possession (for example, Mary keeps John's stereo at her house). Otherwise, it can be in the constructive possession of the pledgee, meaning that the pledgee has some control over the property, which typically occurs when actual possession is
impossible. For example, a pledgee has constructive possession of the contents of a pledgor's safety deposit box at a bank when the pledgor gives the pledgee the only keys to the box.
In pledges both parties have certain rights and liabilities. The contract of pledge represents only one set of these: the terms under which the debt or obligation will be fulfilled and the pledged property returned. On the one hand, the pledgor's rights extend to the safekeeping and protection of his property while it is in possession of the pledgee. The property cannot be used without permission unless use is necessary for its preservation, such as exercising a live animal. Unauthorized use of the property is called conversion and may make the pledgee liable for damages; thus, Mary should not use John's stereo while in possession of it.
For the pledgee, on the other hand, there is more than the duty to care for the pledgor's property. The pledgee has the right to the possession and control of any income accruing during the period of the pledge, unless an agreement to the contrary exists. This income reduces the amount of the debt, and the pledgor must account for it to the pledgee. Additionally, the pledgee is entitled to be reimbursed for expenses incurred in retaining, caring for, and protecting the property. Finally, the pledgee need not remain a party to the contract of pledge indefinitely. She can sell or assign her interest under the contract of the pledge to a third party. However, the pledgee must notify the pledgor that the contract of pledge has been sold or reassigned; otherwise, she is guilty of conversion.