Pledge and Bailment: Difference & Comparison

By | September 9, 2019
Pledge and Bailment: Difference & Comparison

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I. Introduction

The article analyzes the difference and comparison between Pledge and Bailment. In our day to day interactions, we undertake various contractual transactions with various types of people for various reasons knowingly or unknowingly. Undertaking a contractual relationship has become so common that people hardly realise that what they are undertaking could have legal consequences.

One such example is the case of “Bailment”. Bailment Contracts are stated in section 148 of the Act, states that when any person delivers any goods to another person on a contract that upon a contract that after the purpose for which it was delivered is completed the goods shall be returned to the owner of that goods.

It basically means that when goods have been given to someone for any use, then when that use has been complete then those goods have to be returned to the owner of the goods. The receiver of the goods shall have the sole responsibility of taking such care of the goods as if it’s the property of the receiver and shall be liable if the goods get destroyed.

Like, if A hands over her jewellery to B for polishing, and then the jewellery get stolen, then B shall be liable to A. In this case since the jewellery was handed over to B for some particular purpose (for polishing) and temporary purpose, so it becomes the contract of bailment and A becomes the Bailor and B becomes the Bailee. The whole purpose of entering into the contract of bailment is to ensure that goods which are handed over to another person for any person shall be returned after the fulfilment of that purpose.

Now, in the case of pledge, as stated in section 172, is nothing but a special kind of pledge. In this case, also the delivery of goods is there, but it differs from bailment on the point of object of the delivery. In bailment, the delivery of the goods is done for the completion of some purpose, but here the goods are delivered as some kind of security for a loan taken or for a performance of a promise.

Like, suppose, A takes a loan from B for Rs 50,000 for a certain purpose. Now for the security of that loan B delivers the papers of his property to A so that A can ensure that B will return the money loaned or else he can sell off his property and recover his money.

II. Section 148 & 172 of the act / Pledge and Bailment

Section 148 talks about the Bailment and the section states that

“A “bailment” is the delivery of goods by one person to another for some purpose, upon a contract that they shall, when the purpose is accomplished, be returned or otherwise disposed of according to the directions of the person delivering them. The person delivering the goods is called the “bailor”.

The person to whom they are delivered is called, the “bailee”. Explanation.—If a person already in possession of the goods of another contract to hold them as a bailee, he thereby becomes the bailee, and the owner becomes the bailor of such goods, although they may not have been delivered by way of bailment.”

This section states that bailment is a type of contract in which one person delivers some good/s to other for some purpose and when that purpose is fulfilled then the person shall return the goods to the owner. It basically means is that bailee won’t become the owner of the goods entrusted upon him and once its objective has been fulfilled then it shall be the duty of the bailee to return the goods in the exact condition he has taken the goods.

Furthermore, he shall be liable if any damage happens to the good as he has the responsibility to take care of the goods in a reasonable manner. A gives his ring to B for safekeeping and he carelessly left it in the open.

Next day, he saw all his things along with the ring given to him by A have been stolen. In this case, B can’t take the defence of the fact that since all his belongings have stolen along with A’s ring that means he has taken the same care that if his own belongings. The degree is that he should undertake reasonable care and the fact that he left the ring carelessly in the open shall the ground under which he can be prosecuted.

Section 172 talks about the concept of pledge, which states that

“The bailment of goods as security for payment of a debt or performance of a promise is called ‘pledge’. The bailor is in this case called the “pawnor”. The bailee is called the ‘pawnee’.”

Section 172 of the Act states that when a bailment is done for the purpose of creating security for payment of any debt or for the performance of any contract then that kind of bailment shall be called as Pledge. Pawn or pledge is a bailment of personal property as a security for some debt or engagement.

As held in the case of Lallan Prasad[1] “A pawnor is one is one who being liable to an engagement gives to the person to whom he is liable a thing to be held as security for payment of his debt or the fulfilment of his liability and the person to whom it’s delivered shall be called pawnee”.

III. Difference between the pledge and bailment

BASISBAILMENTPLEDGE
1.    MeaningIt’s a contract where goods are entrusted upon by the bailor to the bailee for the fulfilment of certain objective after which the good/s is returned to the owner.It’s a peculiar kind of bailment in which the pawnor delivers his goods to pawnee as security for a debt owed to that person or performance of a contract owned to that person.
2.    PartiesIn this case, there are two parties; Bailor-who gives the goods for a certain purpose & Bailee- who is the receiver of the good.In this case, there are two parties; Pawnor- who gives his good as security for debt & pawnee-who receives the good.
3.    SectionsIt’s defined under section 148 of the Act.It’s defined under section 172 of the Act.
4.    ConsiderationsIn the contract of bailment, consideration may be involved or may be missing. It depends upon the contractual terms.But, in this case, since the whole concept of the pledge is that it’s a security for a debt so the involvement of consideration is important or else there will be no contract of pledge.
5.    Right to sell the goodIn this case, the good/s is entrusted to the bailee for a specific use, so in this case, the bailee has no right to sell the good but has the duty to return it after the fulfilment of the purpose.In this case, since the good entrusted upon works as a security/assurance for the debt so in case the debt is not paid then pawnee can sell the good as he has been given this right so that he can satisfy his debt
6.    PurposeThe main purpose of undertaking a bailment contract is for the main safekeeping of goods or for the repair.The main purpose of undertaking this contract is for ensuring security against the payment of the debt.
7.    Use of goodsIn this case, the bailee can use the goods to the extent allowed by the bailor for the specified purpose only.In this case, the pawnee can never use the good/s for any purpose. He doesn’t have the right to do it, only has the right to keep the good/s until the repayment of debt is made.
8.    LienBailee can use the lien over the good/s but only for labour and servicePledgee also exercises the lien over the goods but for the non-payment of the interest.
9.    Rights of the pawnee & bailee  I.     Right to compensation [section 164]:-  If the bailor has no right to deliver the goods or if he didn’t give any direction on how to use or maintain the goods and in response, the bailed goods lost some value, then bailor shall be responsible for it.

II.     Right to expenses [section 158]: – When the bailee has to keep the goods of the bailor and in return, no compensation is given, then the bailee can ask for any necessary expenses which he has incurred for the performance of the bailment.

III.     Right to lien [section 170-171]:- if the bailor’s lawful expenses remain unpaid then he may retain the goods till the time charges are paid in respect to that property.

IV.     Right to sue [section 180-181]: – Under this right, bailee can sue any person who has wrongfully deprived him of using the goods. As per this right, both the bailor & bailee right against the wrongdoer is one & same.

  I.     Right to retainer [section 173-174]:- This right entails that the pawnee can retain the goods till the time payment of the debt has been made. It’s imperative to note that he can retain the goods only for that debt for which it was given, not for any other debt.

II.     Right to extraordinary expenses [section 175]: – under this right, pawnee can claim any extraordinary expenses which he has incurred in maintaining and preserving the goods bailed by the pawnor

III.     Right to sell [section 176]: – If pawnor fails in repayment of the debt, then pawnee can exercise two rights under this section; either retain the goods & sue the pawnor for the repayment of the debt or sell the pledged goods and satisfy the debt.

 

10.    Who can undertake pledge/bailmentThere is as such no bar or special provisions provided specifically mentioning who can or cannot enter into bailment.        I.            Mercantile agent [section 178]

II.            Pawnee can further pledge the goods to subsequent Pawnee provided he shall have the right to do so as per his interest on the property [section 179].

11.         Payment defaultIn the case of bailment, the bailee can either retain the goods till the payment is made or can sue the bailor for his outstanding dues.In this case, if pawnor fails to pay the debt, the pawnee can sell the good entrusted upon as security to the debt.

[1] Lallan Prasad v. Rahmat Ali AIR 1967 SC 1322


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