Also known as: law of pledge · pledge law · pledges · pledge · security pledge
Written by attorneys · grounded in primary & secondary sources — see below
A security device by which a debtor delivers possession of personal property to a creditor to hold as collateral for an obligation. The arrangement creates a possessory security interest that the creditor may enforce upon default.
Lola Langley borrowed funds from First Bank and delivered her jewelry collection into the bank's vault as collateral. When she missed three payments the bank refused to return the jewelry. The law of pledges permitted the bank to retain and sell the collateral to satisfy the debt.
Lighthouse Shipping's board authorized a loan and delivered its fleet of trucks to the lender as collateral. No shareholder vote occurred. The law of pledges permitted the transaction without shareholder approval because the pledge fell within the corporation's ordinary powers to encumber assets.
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Lotus Pharmaceuticals pledged laboratory equipment to a bank to secure a line of credit. The board acted without amending the articles. The law of pledges validated the transfer because the corporation possessed statutory power to pledge any part of its property.
Lone Peak Energy pledged shares it held in a supplier corporation to obtain financing. The board approved the transaction. The law of pledges allowed the company to use the shares as collateral because corporations may pledge interests in other entities.
Liberty Trust pledged its real estate holdings to a lender in exchange for a construction loan. The trust agreement expressly authorized the action. The law of pledges enforced the security interest because the entity held power to secure obligations by pledge of its property.
Lars Lindstrom borrowed from City Bank and physically delivered warehouse inventory to the bank as security. Upon default the bank sold the goods. The law of pledges validated the enforcement because possession had been transferred to perfect the creditor's interest.
The creditor must show delivery of the collateral, a valid underlying obligation, and default by the debtor. Possession by the creditor perfects the interest against most third parties.
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No shareholder approval is required unless the articles of incorporation provide otherwise. The corporation possesses statutory authority to pledge assets in or out of the ordinary course of business.
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Traditional pledges require delivery of possession to the pledgee. Modern secured transactions law permits nonpossessory security interests through filing or control without physical delivery.
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…a building block of our national community. For that reason, just as a couple vows to support each other, so does society pledge to support the couple, offering symbolic recognition and material benefits to protect and nourish the union. Indeed, while the States are in general free to vary the benefits they confer on…