Difference Between Bailment and Pledge | Civil Law for Judiciary Exams PDF Download

Introduction

• Bailment involves the temporary transfer of goods for safekeeping or repair, while a pledge is the transfer of goods as collateral for a debt payment.
• In this table, the key differences between pledge and bailment are summarized, highlighting the variations in the nature of transfer, legal definitions, consideration, purpose, sale of goods, and use of goods.
  

Definition of Bailment

• Bailment can be defined as a contractual arrangement where one party transfers goods to another party for a specific purpose, either explicitly or implicitly, for a short period of time. The individual who delivers the goods is known as the bailor, while the recipient of the goods is referred to as the bailee.
• Upon fulfilling the intended purpose, the bailee is responsible for returning the goods to their rightful owner. It should be noted that the term "goods" encompasses movable items, excluding property and money. Throughout the transfer of goods, the ownership remains with the bailor, while the possession is temporarily transferred to the bailee.
• The bailee has an obligation to exercise reasonable care in safeguarding the goods, treating them as if they were their own possessions, and not using them without the owner's consent, except for the specified purpose. Furthermore, it is the duty of the bailor to disclose any faults or defects in the goods.
• Goods can be delivered through three methods: actual delivery, symbolic delivery, and constructive delivery. Bailment can be categorized into two types: gratuitous bailment, which benefits either the bailor or the bailee alone, and non-gratuitous bailment, which benefits both parties mutually.
• For instance, when clothes are entrusted to a laundry service for cleaning, it serves as an illustration of a bailment situation.

Deposit of Valuables in a Safe Deposit Box

When an individual rents a safe deposit box at a bank and deposits their valuable belongings, such as jewelry, important documents, or other valuable items, it creates a bailment. The bank acts as the bailee, assuming responsibility for safeguarding the deposited items and holding them in trust for the depositor.

Storage of Furniture in a Warehouse

If someone needs to store their furniture temporarily while moving or during renovations, they may choose to utilize a warehouse or storage facility. In this situation, the warehouse owner becomes the bailee, holding the furniture in trust for the owner until they retrieve it. The owner of the furniture, in this case, is the bailor.

Lending Books from a Library

• When individuals borrow books from a library, a bailment relationship is established. The library becomes the bailee, holding the books in trust for the borrowers (bailors). The library is responsible for ensuring the books' safekeeping and returning them to the library within the agreed-upon timeframe.
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Understanding Pledge Contracts

• A pledge refers to a specific type of agreement where an individual offers goods as a form of security to another party to cover a debt owed. The person providing the goods is known as the pawnor, while the recipient is the pawnee.
• Upon fulfilling the intended purpose or repayment of the debt, the pawnee is obligated to return the goods to the original owner. However, if the debt remains unpaid within a reasonable timeframe, the pawnee has the right to sell the goods after notifying the owner appropriately.
• It is the responsibility of the pawnee to maintain the pledged goods with care, akin to how they would treat their personal belongings. Usage of the goods without the owner's consent is prohibited. Conversely, the pawnor must disclose any defects in the goods to the pawnee.

Examples of Pledge in Various Contexts

• Vehicle Ownership Pledge: In the realm of auto financing, a borrower may offer their vehicle as collateral for a loan. This serves as an assurance to the lender that they can seize and sell the vehicle if the borrower fails to meet the repayment terms.
• Inventory Pledge: Businesses often use their inventory as collateral to secure loans or lines of credit, ensuring that in case of default, the lender can claim and sell the inventory to recover the owed amount.
• Artwork or Collectibles Pledge: Individuals or entities might pledge valuable art pieces or collectibles as security for financial agreements. For example, an art collector could pledge a valuable painting to secure a loan, allowing the lender to sell it in case of default.

Difference Between Bailment and Pledge

• Nature of Transfer: Bailment involves the temporary transfer of goods from one party to another, usually for a specific purpose. Pledge, however, is a form of bailment where goods are transferred as security for a debt.
• Legal Definitions: Bailment is defined under section 148 of the Indian Contract Act, 1872, whereas pledge is defined under section 172 of the same act.
• Consideration: In bailment, consideration may or may not be present. It is not a requirement for a bailment agreement. In contrast, in a pledge, consideration is essential as it acts as security for the debt.
• Purpose: Bailment is primarily for the safekeeping or repair of the entrusted goods. On the other hand, pledging goods is mainly to serve as collateral for debt repayment.
• Sale of Goods: In bailment, the bailee cannot sell the goods received. However, if the pawnor fails to reclaim the goods within a reasonable time, the pawnee can sell them after providing notice.
• Use of Goods: In bailment, the bailee is permitted to use the goods for the agreed purpose. In a pledge, the pawnee holding the goods as security cannot use them.