pledge

A pledge involves the transfer of possession of assets to a creditor for the purposes of allowing the creditor to secure a debt. If the debt is not discharged, the creditor is entitled to sell the assets to discharge the debt when it falls due or the debtor is otherwise in default.  For the purposes of a pledge, a transfer of the ownership of the assets does take place, but possession changes, either constructive possession or actual possession.

For instance, if a business owes a creditor a sum of money, it may elect to transfer its stock in trade to the creditor for the purposes of receiving some relief on repayment terms; it may be that ownership of the assets are received. If it eventuates that the sums realised from the sale of the goods exceeds the debt, the creditor must account to the debtor for the sum of the excess or surplus after the discharge of the debt.

Usage: The debtor pledged the goods with its creditor to extend the terms of credit

Related Words: mortgage; charge; fixed charge; floating charge; lien; equitable mortgage; legal mortgage; security interest.