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A pledge is a limited real right that one person acquires in another person’s movable property in order to secure payment of a debt. The right is created by delivery by the debtor of the movable asset to the creditor, pursuant to an agreement between the parties. It is important to note that a pledge can only be created in respect of movable property in the form of either corporeal or incorporeal property.

The elements for a valid pledge are as follows:

  1. there must be an agreement in which the pledger/debtor agrees to secure a valid underlying principal debt to the pledgee/creditor by giving the pledge;
  2. the pledge must be created in respect of movable property;
  3. the movable property to be pledged must exist at the time that the pledge is created;
  4. the pledged property must be delivered to the pledgee.

A pledge comes into existence as a real security right when the pledged object is delivered to the pledgee, thus constituting perfection of said pledge. Physical possession of the pledged object of security is essential, as it entitles the pledgee to then sell the pledged object if the pledgor defaults on his principle obligation to the pledgee (the debt). Possession of the pledged object thus equates to perfection of that pledge. The pledgee must at all times retain possession of the pledged object as long as the underlying debt remains unpaid. Should the pledgee voluntarily give up possession of the pledged object, the pledge is terminated. However, a third party may exercise possession on behalf of the pledgee without the resultant termination of the pledge.

Author: Carole Bamu