The transfer of property in exchange of equivalent money or other commodities is a sale. However, if the goods are delivered on the condition of returning them after the accomplishment of a specific purpose, then what is it? It is a Bailment Contract. Whereas, if goods are delivered to provide security against debt, then it is a Pledge. Bailment and Pledge seem similar contracts, but there is discernible difference between them. The Indian Contract Act, 1872 governs Bailment and Pledge. Sections 148 and 172 define Bailment and Pledge, respectively.
What is Bailment?
Bailment is the delivery of goods by one person, called the bailor, to another, known as the bailee, for some purpose under a contract. Sections 148-171 of the Indian Contract Act, 1872 deal with Bailment.
Delivery of goods becomes Bailment when:
– it involves transfer of possession of goods by the bailor to the bailee; and
– there is an obligation on the person to return the subject matter either in its original or in an altered form, upon
accomplishment of the purpose; or
– dispose of the goods according to the direction of the bailor.
Valet Parking, hire of goods or hire of work and labour on goods are examples of Bailment.
What is Pledge?
Pledge is the delivery of goods by a person, called the pawnor, to another, known as the pawnee, as security for the payment of debt or performance of a promise. Sections 172-181 of the Act govern Pledge.
The three essential conditions of Pledge are:
– bailment of goods;
– bailment to ensure security; and
– security for payment of debt or performance of promise.
Jewellery loans and deposits of physical share certificates to a financial institution as collateral are examples of Pledge.
Difference between Bailment and Pledge:
Bailment and Pledge both involve transfer of goods from one person to another, but the purpose behind that transfer is completely different:
– In Bailment, the goods are entrusted to keep them safe in custody or repair them. In pledge, the goods are kept as security for payment of debt or performance of a promise.
– Bailment may or may not involve consideration, while the pledge does comprise consideration.
– The bailee has no right to dispose of or sell the goods, whereas the Pawnee has the right to sell the goods after default in payment of debt within the prescribed time. Pawnee may sell the thing pledged, on giving the pawnor reasonable notice of the sale.
– In bailment, the bailor grants the use of goods for the intended purpose, whereas the pawnee has no right to use the pledged goods as security.
Conclusion:
The distinction between Bailment and Pledge involves the nature of transfer of property, the rights of bailee and pawnee with respect to the delivered property and the consideration component. In Bailment, bailee has no right to sell the delivered property against the pawnee. Therefore, all Pledges can be Bailments, but not all Bailments can be Pledges.
Written By:
Sonali
