DIFFERENCE BETWEEN BAILMENT AND PLEDGE

The Law of Contracts has been one of those subjects which law students absolutely love. After all, that is the first law subject in most colleges. The Law of Contract in India specifies a Contract as an agreement that is enforceable by law which offers personal rights, and impels personal obligations which the statute safeguards and enforces against the parties to the agreement. Nonetheless, a very general view in mind of the Contract law, that the parties to the agreement have is the idea of creating legal rights and obligations, which are only enforceable against the party that is in default.

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ESSENTIAL INGREDIENTS FOR A CONTRACT TO BE SAID COMPLETE

Intention to enter into legally binding relations
An Offer to be made to form a contract
Acceptance of the offer
Certainty to show both the parties are clear about the terms, conditions and obligations to the contract
Consideration is the value you will get for providing your goods or services

WHO CAN BE COMPETENT TO FORM A CONTRACT?

A person with the age of majority (above 18 years)
Is of sound mind (who is capable of understanding the contract and making a rational judgment)
Is not disqualified under any law

UNDERSTANDING THE TERM “BAILMENT”

Bailment falls under Chapter IX of the Indian Contract Act, 1972 which focuses on the general rules relating to bailment. In layman’s term, Bailment simply refers to the handing over of goods, changing the physical possession (position) of the goods but not its ownership.

A bailment is a special contract under Section 148 of the Indian Contract Act, 1972. In a contract of Bailment, there shall be two parties; one who will deliver the possession of goods (Bailor), and the one who will receive the possession of goods (Bailee) for a stipulated period of time.

Illustration: You deliver some fabric to a tailor ‘B’ to make a dress. Here YOU are the bailor and B is the Bailee. By delivering your clothes with the fabric you provided, a contract of Bailment is formed.

ESSENTIALS OF A CONTRACT OF BAILMENT

Contract: There must be a contract of Bailment at the first place may it be expressed or implied.
Goods: A contract of Bailment can only be done for movable goods (car, bus, keys, etc.) and not for immovable goods (apartment, house etc.).
Delivery: There must be a delivery of goods from one person to another in the agreement.
Purpose: The goods must be delivered for some purpose. The delivery may be expressed or implied.
Ownership: In a contract of Bailment, the ownership is not transferred or delivered; only the possession is.

UNDERSTANDING THE TERM “PLEDGE”

Just like we came across “Bailor” and “Bailee” in a Contract of Bailment; in the case of a Pledge there are “Pawnor” and “Pawnee”. The bailment of goods as security for payment of a debt or performance of a promise is called a pledge. The bailor is in this case called the “pawnor”. The bailee is called “pawnee”.

Pledge is also a type of bailment, defined under Section 172 of the Indian Contract Act, 1892. While saying “pledge”, we refer to bailment of goods as a security of the repayment of the debt or loan advanced or performance of an obligation. The person who pledges the goods as security is known as “pledgor” or Pawnor, and th e person in whose favor the goods are pledged is known as “Pledgee” or Pawnee. Pawn or Pledge is that special type of bailment where a movable property is bailed as security of repayment of a debt or for the performance of a promise.

Illustration: If you borrow a loan of Rs 5 lakhs from B, keep your ornaments with B as security. A Contract of Pledge is formed.

ESSENTIALS OF A CONTRACT OF PLEDGE

Contract: There must be a contract that may be expressed or implied.
Moveable Property: The Contract of Pledge is pertaining to movable properties, however important documents and all types of goods are inclusive of it.
Goods: Pledge can be made out of goods only. Goods need to be in existence,
Delivery: There must be delivery of goods from one person to another, and shall be delivered for a purpose.
Transfer of Possession: In case of a pledge, only possession of the goods is transferred.
Ownership Right: In a contract of Pledge, the ownership rights of the goods remain with the Pawnor and is NOT transferred to the Pawnee.

DIFFERENCE BETWEEN BAILMENT AND PLEDGE

BAILMENT	PLEDGE
Covered in Section 148 of the Indian Contract Act, 1892.	Covered in Section 172 of the Indian Contract Act, 1892.
The goods are delivered for a temporary period of time from one party to another for a specific purpose.	Goods are delivered to act as security against the debt due on one person to another.
Consideration may or may not be present.	Consideration has to be present.
The party to whom the goods are delivered has NO rights to sell goods.	The party to whom the goods are delivered as a security has the right to sell goods, if the the other party refrains from paying the debt/ loan or whatever.
The party to whom the goods are delivered, can use those goods for a specific purpose.	The party to whom the goods are delivered, has no right to use the good.