Difference between Bailment and Pledge

Two unique contracts that are frequently mixed up are

bailment and pledge. While every pledge is a bailment, not
every bailment is a pledge. Delivering goods from one person
to another for a specific purpose is referred to as
bailment. While a pledge is the delivery of goods for
fulfilment of a promise or security for the payment of a
debt. Bailment & Pledge are thus two distinct contracts. A
specific type of bailment is a pledge.

Although the Bailee in a contract of pledge does not acquire

ownership, he is considered to have a particular property
because he has possession and the legal right to possess.
Pledge, which is effectively a bailment, obligates the
Pawnee to treat the things bailed to him with the same care
that a prudent man would under comparable circumstances,
taking care of his goods of equal quantity, quality, and
worth. The loss of the commodities would be the
responsibility of the owner if the pawnee lost the items
without any fault of his own and after exercising such
ordinary care.

Although the Pawnee now has possession of the goods, the

Pawnor still retains ownership of the products' title. The
prerequisite for the pledge is the delivery of the items to
the Pawnee. Possession of goods may be actual or
constructive. The Pawnee must take reasonable care of the
goods pledged and must not use the Pawnor's property without
authorization.

What is Bailment?

A short-term contract in which the goods are transferred

from one party to another for a specific cause which is
express or inferred. The individual delivering the moveable
property is known as the bailor, and the one receiving them
is known as the bailee.

The Bailee is required to restore the goods to their

rightful owner after the intended purpose of delivery is
fulfilled. All transportable items / movables may be
included in this definition of "goods," but property and
money are not included. Only the temporary
custody/possession of the commodities moves during the
transfer; ownership of the goods stays with the bailor. The
recipient of the products must treat them with the same care
as he does his own belongings and must only use them for the
stated purposes with the owner's consent. The bailor is
required to disclose any flaws in the goods.

Actual delivery, symbolic delivery, and constructive

delivery are the three ways in which items might be
delivered. Two categories make up the bailment. One is
Gratuitous bailment, where it is for the sole advantage of
the bailee or the bailor. Second is Non-gratuitous Bailment,
where it is in both parties' best Interests. An Example of
bailment would be clothes given to dry cleaner for petrol-
washing.

The Basics of Bailment

1. Contract: The parties will enter into a contract for

the delivery of the goods,

2. Specific Purpose: The products must only be delivered

for a certain purpose.

3. Moveable Goods: Only moveable goods, not immovable

items or money, may be subject to bail,

4. Ownership: Bailee does not acquire ownership; as a

result, Bailor continues to be the owner.

5. Possession: only possession of goods is transferred,

not ownership.

6. Return of same goods: Bailee has a responsibility to

return the same goods only and not any other goods as
replacement. (Exception: Since the bank would not return the
same notes, the money put there is exempt from accounting
for bailment.)

Obligations of a Bailor

The Indian Contract Act, 1872's Section 150 imposed

obligations on the bailor to reveal any latent facts,
particularly those pertaining to product flaws. The
disclosure obligations of Bailor are:

Gratuitous Bailment: The bailor is required to inform the

bailee of all product flaws that could prevent him from
using the products or put him in a dangerous situation.
Furthermore, failing to comply will subject the bailor to
liable for damages.

Non Gratuitous Bailment (Bailment for Reward): This

obligation focuses specifically on the items provided on
hire. According to this clause, when the goods are bailed
for hire, regardless of whether the bailor is aware of the
defect in the products or not, they will be held accountable
for any harm produced as a result of the defect.

Obligations of a Bailee

According to the Indian Contract Act of 1872, Bailee is

required to carry out a number of duties:

1. Reasonable care: The Bailee is responsible for the

goods he owns. He is responsible for ensuring that all
safety precautions are taken to protect the items. The
standard of care should be that which a wise man would
provide. Regardless whether the commodities are gratuitous
or non-gratuitous , they must be treated equally. If the
Bailee does not exercise reasonable caution, he will be held
responsible for paying compensation. However, if Bailee
exercised reasonable care and the items were nonetheless
damaged despite that, Bailee would not be responsible for
compensating. The Bailee is not responsible for the loss of
commodities as a result of fire-related devastation
(Sections 151 to 152).

2. Duty to use the goods only as intended: Bailee has a

duty to use the items only as intended and in no other way.
If he uses the goods for any other purpose than what was
agreed upon, the bailor may cancel the bailment or may seek
damages for any harm brought on by the illegal use (Sections
153 to 154).

3. Duty not to combine bailor's goods with own: The

bailee has a responsibility to not combine the bailor's
goods with his own. However, if he wants to mix the
commodities, he must get the bailor's permission beforehand.
The interest in the combined goods will be divided
proportionally if the bailor consents to their mixing. There
are two possibilities if the bailee combines the commodities
with his own without the bailor's permission: the items can
be separated, or they can't be separated. In the first
scenario, the Bailee is responsible for paying the
separation costs, however in the second, since the items
were lost, the Bailor is entitled to damages for that loss.
(Sections 155 to 157)

4. Duty to return the goods upon purpose

completion: Bailee has a duty to return the goods upon
completion of the intended purpose or upon the conclusion of
the time for which the goods were bailed. However, if the
Bailee fails to return the goods on schedule, he will be
liable for any losses, ruins, or deterioration of the
moveable property. (Sections 160 and 161). (In the case of
Bank of India v. Grains & Gunny Agencies, the court
determined that Bailee would also be responsible if the
items were lost or damaged as a result of the servant's
carelessness).

5. Subject to a contract to the contrary, the bailee is

required to restore the commodities and any rise or profit
on the goods that were bailed to the bailor. The bailor has
the right to any accretions that have grown out of the
bailed goods because they are considered to be a component
of the bailed goods. And these additions must be given to
the bailor with the goods being bailed. For instance, if A
hands over control of a dog to B, the dog gives birth to
puppies. The bailed items (dog) and any accretion (puppies)
must then be delivered by B to the bailor. (163 Section).

What are the Rights of a Bailor?

Rights of a Bailor are not directly covered under the Indian

Contract Act, however, Bailee's duties are taken as Bailor's
Rights. These are discussed below:

1. Enforcement of Bailee's Duty: Because the bailor's

rights and the bailee's duties are identical, the bailor's
right is realised after all of the bailee's obligations have
been met. For instance, the bailee must provide the
accretions, and the bailor has the right to request the
same.

2. Right to sue for damages: The bailor has the right to

sue for damages if the bailee neglects to take care of the
goods.

3. Right to Terminate the Contract: If the Bailee

breaches the contract's provisions and acts
irresponsibly/negligently in doing so, the bailor may
repudiate or cancel the agreement. (153 Section)

4. Right to sue for compensation: The bailor has the

right to sue if the bailee uses the products for an improper
purpose or mixes them together in a way that results in the
loss of goods.

5. Right to request the return of goods: The bailor has

the right to request that the bailee return the items.
What are Bailee's Rights?

1. Right to recoup expenses: Under the terms of the

bailment agreement, the bailee must pay to protect the
items/goods and keep them safe. The bailee is entitled to
recover from the bailor for these costs. (Section 158)

2. Right to payment: The bailee is entitled to

remuneration for the services he has provided when the items
are bailed to him. But when a gratuitous bailment is given,
the bailee is not given any compensation.

3. Right to compensation: On occasion, the bailor is

unable to enter into a bailment agreement. Given that such a
contract results in loss for the bailee, the bailee is
entitled to reimbursement from the bailor. (Section 168 )

4. Bailee has the right to Lien: Bailee has the right to

keep the items bailed in his possession until the time the
dues are paid or if the bailor fails to make payment of
compensation or does not pay the amount due. (Section 170-
171)

5. Right to sue a wrongdoer: If a third party denies the

bailee access to the goods after they have been released on
bail, the bailee or bailor may file a lawsuit against the
offending party. (Section 180)

What is Pledge?

In a pledge, goods are transferred from one person to

another as security for the payment of debts owed by him.
Pledges are different forms of bailment. The individual who
delivers the items is referred to as the Pawnor, and the
person who receives them as the Pawnee.

Once the goal of the transfer is achieved, that is, when the
debt for which the commodities are pledged is paid, the
receiver must restore the goods to their rightful owner.
However, the receiver has the authority to sell the goods
after properly notifying the owner if he fails to redeem
them within a reasonable amount of time. The Pawnee must
treat the items with the same care that he does his own, and
he must not use them without the owner's consent.
Additionally, the Pawnor is required to disclose all product
flaws.
Basics of Pledge

Due to the fact that a pledge is a unique type of bailment,

all bailment requirements also apply to a pledge. In
addition, the pledge must include the following:

1. A bailment is required as collateral or security

against the payment or performance of a promise.

2. Goods are the subject matter of pledge.

3. The goods to be pledged should actually exist,

4. Deliveries of goods/commodities from the pledger to

the pledgee must occur.

5. In the event of the pledge, there is no transfer of

ownership. However, under exceptional circumstances, the
pledgee may sell the tangible property or assets that have
been pledged.

Pawnor's Rights

The Pawnor has the Right to Redeem in accordance with

Section 177 of the Indian Contract Act of 1872. By this, it
means that before the Pawnee makes the real sale, the Pawnor
may redeem the goods or property pledged from the Pawnee
upon the payment of the debt or the fulfilment of the
promise. Once the Pawnee actually sells the property in
accordance with his entitlement under section 176 of the
Indian Contract Act of 1872, the right of redemption is
forfeited.

Pawnees' Rights

The Indian Contract Act of 1872 specifies the following as

the Pawnee's rights:

1. Right to keep the goods: The Pawnee has the right to

retain the goods offered as security if the Pawnor fails to
pay a debt or fails to keep a commitment made. Additionally,
Pawnee has the right to keep goods in case a debt's interest
or expenditures are not paid. However, Pawnee is not
permitted to keep goods as collateral for any other promise
or debt than those specified in the contract. (Sections 173-
174)

2. Right to collect unusual costs: The Pawnee has the

right to claim reimbursement from the Pawnor for any extra
expenses related to maintaining/preservation of the goods
that were pledged (Section 175)
 3. The right to sue to collect debt and sell pledged
goods: Pawnee has two options if the debt is not repaid:
either to file a lawsuit against the debtor or to sell the
collateral. In the former situation, the Pawnee maintains
the items as collateral security and starts legal action. He
is not required to provide the Pawnor any notice of such
actions. Additionally, in the latter scenario, the Pawnee
may sell the goods after giving the Pawnor the required
notice of sale. If the proceeds from the sale of the
commodities fall short of the balance owed, the Pawnor may
be held liable for the difference. And if the Pawnee
receives more money than is required, the extra must be
returned to the Pawnor (Section 176).

Distinctions between Bailment and Pledge

Section 148 of the Indian Contract Act of 1872 defines a

bailment, while Section 172 defines a pledge.

The main distinctions between bailment and pledge are as

follows:

1. Bailment and Pledge are both Contracts. Bailment is a

contract in which moveable property is temporarily
transferred from one party to another for a predetermined
purpose. A form of bailment known as the pledge involves the
pledge of goods as collateral for the repayment of debt.

2. Consideration is always present in Pledge, however,

consideration might or might not be present in a bailment.

3. The purpose of a bailment is the safekeeping or

repair of given goods. Contrarily, in pledge, the only
reason for delivering the products is to provide as
security/collateral for the debt.

4. In the case of a bailment, the receiver does not have

any right to sell the goods/moveable property, but if the
pawnor does not redeem the goods within a reasonable amount
of time, the pawnee may, after giving notice, may sell the
pledged goods.

5. The moveable property/goods are only to be utilised

for the stated/decided purpose, by the bailee when they are
in bailment. In contrast, the pawnee is not permitted to use
the products at all under pledge.