By Sanette Viljoen
This question confuses many people. As we all know, pledging goes with a lot of grief because it usually goes hand in hand with poverty.
A pledge is a movable asset handed to a creditor by a person. The asset provides security for money owed to the creditor. There are many types of asset that could be given to a creditor: it could be material, immaterial, corporeal, incorporeal, e.g. furniture, shares in a company, etc. If a pledge can yield a return, the return also becomes part of the pledge. If, for instance, a farmer pledges a sheep and the sheep bears a lamb, the lamb is part of the pledge.
A law of pledge is established when the asset is handed to the creditor, i.e. the date of delivery. If the debt is not paid the creditor can sue the debtor and after obtaining a judgment the creditor has preference to the asset given to him as pledge. This type of claim is called a preferential claim. The return on the pledge therefore first goes to the creditor before it can go to another creditor.
If a creditor holds an asset and the asset costs him money, e.g. the sheep has to be fed, the creditor can also claim for all the costs he incurred in connection with the reasonable and fair maintenance of the pledge.
An important term to remember in the law of pledge, is the execution without court order. What this amounts to, is an agreement entered into between the creditor and the debtor that the asset handed over as pledge may be sold immediately upon failure to pay. This agreement must be mentioned specifically, otherwise it will have to go through a court process.
The creditor does not have the right to use the pledge or its return and must take care of the pledge, in other words, the reasonable man’s care.