When it comes to contracts, it`s important to understand the different types of security that can be involved. One such type is a pledge, where security is in the form of bailment.
A pledge is essentially a contract where one party (the pledgee) agrees to hold onto something of value (the pledge) in exchange for a loan or other obligation from the other party (the pledger). This could be cash, securities, or any other type of valuable asset.
The security in a pledge comes in the form of bailment, which means that the pledgee has physical possession of the pledged asset. This gives the pledgee the right to sell or liquidate the asset if the pledger fails to fulfill their obligation under the contract.
There are several reasons why a pledger might choose to use a pledge as security. For one, it can be an effective way to secure a loan without having to provide a more traditional form of collateral, such as real estate or equipment.
In addition, a pledge can provide a level of security that is more flexible than other types of collateral. For example, if a pledger has a portfolio of stocks and bonds, they might be hesitant to put them up as collateral for a loan because they don`t want to risk losing those assets in the event of a default. By using a pledge, they can still maintain ownership of their portfolio while using it as security for the loan.
Of course, there are risks involved in using a pledge as security. If the value of the pledged asset declines, the pledgee may demand additional collateral or even liquidate the asset to cover the loan. And if the pledger defaults on the loan, they may lose the asset altogether.
Overall, however, pledges can be a useful tool for securing loans or fulfilling other obligations. By understanding the role that bailment plays in a pledge contract, parties can make informed decisions about when and how to use this type of security.