Understanding the Difference Between Bailment and Pledge

Bailment involves transferring a good for a specific purpose, like safekeeping. A pledge involves transferring a good as security for a debt. The right to sell the good if the debt isn’t repaid is exclusive to pledge.

In this article, we will be understanding the difference between bailment and pledge. We will also be understanding these in detail.

Table of Contents

• Difference between bailment and pledge
• What is bailment?
• What is pledge?
• The verdict

Difference between Bailment and Pledge

Bailment and pledge are two legal terms often used interchangeably. However, they have distinct differences that have been explained in tabular format. 

What is Bailment?

Bailment is a legal term referring to the transfer of possession of a good. This transfer is from the bailor to the bailee. The purpose of bailment can vary. It can be for safekeeping, repair, or use of the good. The bailee must return the good after the agreed purpose is fulfilled. During the bailment, the bailee cannot use the good for any other purpose. The risk of loss generally falls on the bailee.

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Parties Involved

The following parties are involved in bailment:

• Bailor: The bailor is the person who owns the good and transfers its possession to the bailee. The bailor does this for a specific purpose, such as safekeeping, repair, or use of the good.
• Bailee: The bailee is the person who receives the good from the bailor. The bailee holds the good for a specific purpose agreed upon with the bailor. After fulfilling this purpose, the bailee must return the good to the bailor. The bailee cannot use the good for any other purpose and generally bears the risk of loss.

Features of Bailment

The following are the feature of bailment:

• Transfer of Possession: In bailment, there is a transfer of possession of a good from the bailor to the bailee.
• Purpose: The purpose of bailment can be for safekeeping, repair, or use of the good.
• Return of Good: The bailee must return the good after the agreed purpose is fulfilled.
• Limited Use: The bailee cannot use the good for any purpose other than the agreed one.
• Risk of Loss: The risk of loss generally falls on the bailee.
• Two Parties Involved: Bailment involves two parties – the bailor (owner of the good) and the bailee (the one who temporarily possesses the good).

Types of Bailment

The following are the different types of bailment:

• Gratuitous Bailment: This is a bailment where only one party benefits. For example, if you lend a book to a friend, you’re not receiving any benefit.
• Non-Gratuitous Bailment: This is a bailment where both parties benefit. For example, when you leave your car at a repair shop, both you and the shop owner benefit.
• Constructive Bailment: This type of bailment occurs when a person finds lost property and takes care of it.

What is Pledge?

Pledge is a legal term that refers to the transfer of a good’s possession to secure a debt. The pledgor gives the good to the pledgee. The pledgee holds the good until the debtor repays the debt. If the debtor fails to repay, the pledgee has the right to sell the good. The pledgor bears the risk of loss. This process involves three parties: the pledgor, the pledgee, and the debtor.

Parties Involved in Pledge 

The following parties are involved in the pledge:

• Pledgor: The pledgor is the person who owns the good and transfers its possession to the pledgee. The pledgor uses the good as security for a debt or obligation.
• Pledgee: The pledgee is the person who receives the good from the pledgor. The pledgee holds the good until the debtor repays the debt. If the debtor fails to repay, the pledgee has the right to sell the good.
• Debtor: The debtor is the person who owes the debt or obligation. The debtor’s repayment of the debt leads to the return of the good from the pledgee to the pledgor. If the debtor fails to repay, the good may be sold by the pledgee.

Features of Pledge

A pledge has the following features:

• Transfer of Possession: In a pledge, the pledgor transfers the possession of a good to the pledgee.
• Purpose: The primary purpose of a pledge is to secure a debt or obligation.
• Return of Good: The pledgee returns the good to the pledgor once the debtor repays the debt.
• Right to Sell: If the debtor fails to repay the debt, the pledgee has the right to sell the good.
• Risk of Loss: Loss risk in a pledge falls on the pledgor.
• Three Parties Involved: A pledge involves three parties – the pledgor, the pledgee and the debtor.

Types of Pledge

The following are the different types of pledges:

• Pawn: This is a type of pledge where the borrower (pawnor) gives an asset to the lender (pawnee) as security for a loan.
• Hypothecation: In this type of pledge, the borrower retains possession of the asset but gives the lender the right to sell the asset if the borrower defaults on the loan.
• Lien: This is a type of pledge where the lender has the right to retain possession of the asset until the borrower repays the loan.

Difference Between Bailment and Pledge: The Verdict

Bailment, defined under Section 148 of the Indian Contract Act, 1872, is a concept in law involving the delivery of goods from a bailor to a bailee. In a contract of bailment, the bailee holds the goods for a specific purpose, such as safekeeping or repair. There are various types of bailment. 

Each of them is defined by the specific purpose for which the goods remain with the bailee. After fulfilling this purpose, the bailee must return the goods to the bailor. The duty of the bailor and the bailee in a bailment contract can also involve constructive delivery, where the means of accessing the goods are transferred instead of the goods themselves.

On the other hand, a pledge, defined under Section 172 of the Indian Contract Act, 1872, involves the delivery of goods as security for a debt. In the case of a pledge, the goods are pledged as security by the pledgor to the pledgee. 

The pledgee, or pawnee, can sell the goods if the debtor fails to make payment of a debt. However, if the debtor manages to redeem the goods by repaying the debt, the pledgee must return the goods. The key differences between bailment and pledge lie in the purpose of the transfer and the rights of the possessor of the goods.

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