Also known as: law of pledge · pledge law · pledges · pledge · security pledge
Written by attorneys — see sources 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.
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.
Yick Wo and Wo Lee were Chinese subjects operating laundries in San Francisco. Both petitioners complied with every requisite deemed necessary by law or public officers for the protection of neighboring property from fire and against injury to the public health. The ordinances of the supervisors of the county and city of San Francisco conferred upon the supervisors a naked and arbitrary power to grant or withhold consent without reference to the personal character or qualifications of applicants or the adaptation of the buildings. They did not point to a regulation of the business of keeping and conducting laundries with a view to protection against fire. Applications for consent submitted by Yick Wo, Wo Lee, and more than two hundred other Chinese subjects were denied by the supervisors. At the same time, eighty individuals who were not Chinese subjects received permission to carry on the same business under similar conditions. Yick Wo was convicted and imprisoned for violating the ordinances. His case was brought to the Supreme Court of the United States by writ of error from the Supreme Court of California. Wo Lee's parallel case advanced through the Circuit Court of the United States for the District of California. The matters reached the Supreme Court of the United States for review of federal questions arising under the Constitution and treaties.
View caseThe 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.
Supporting sources
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.
Supporting sources
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…