Pledge contract

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 Contract of Bailment & Pledge

Overview: Bailment and Pledge are special contracts involving the transfer of possession of goods. Although related, they serve different purposes and have distinct legal implications.

Bailment

Definition: Bailment refers to the transfer of possession of goods from one person (bailor) to another (bailee) for a specific purpose. The goods are to be returned or otherwise disposed of according to the bailor's directions once the purpose is fulfilled.

Essentials of Bailment:

  • Contractual Agreement: There must be a contract for the delivery of goods.
  • Specific Purpose: Goods must be delivered for a particular purpose.
  • Movable Goods: Bailment applies only to movable goods, not to immovable goods or money.
  • Transfer of Possession: Possession of the goods must be transferred to the bailee.
  • Retention of Ownership: The bailor remains the owner of the goods.
  • Return of Same Goods: The bailee must return the exact goods, not substitutes.

Duties of Bailor:

  • Disclosure of Defects:
    • Gratuitous Bailment: Bailor must disclose known defects.
    • Non-Gratuitous Bailment: Bailor is liable for defects irrespective of knowledge.

Duties of Bailee:

  • Reasonable Care: Must take care of goods as a prudent person.
  • No Unauthorized Use: Must use goods only for the specified purpose.
  • No Mixing of Goods: Must not mix bailor’s goods with his own without consent.
  • Return of Goods: Must return goods once the purpose is fulfilled.
  • Return of Accretions: Must return any increase or profit from the goods.

Rights of Bailor:

  • Enforcement of Bailee’s Duties: Bailor can demand compliance with the bailee’s obligations.
  • Claim Damages: For failure to take care of goods.
  • Terminate Contract: If the bailee breaches the terms.
  • Compensation for Unauthorized Use: If goods are used improperly.
  • Demand Return of Goods: Upon fulfillment of the purpose.

Rights of Bailee:

  • Recover Expenses: For expenses incurred in maintaining the goods.
  • Remuneration: For services rendered, except in gratuitous bailment.
  • Compensation for Loss: If the bailor lacked the capacity to contract.
  • Lien: Right to retain goods until due payment is made.
  • Sue Wrongdoers: For interference by third parties.

Pledge

Definition: A pledge is a special type of bailment where goods are transferred as security for the repayment of a debt or the performance of a promise.

Essentials of Pledge:

  • Security Purpose: Bailment is specifically for security against payment or performance.
  • Movable Goods: The subject matter must be movable goods.
  • Existence of Goods: Goods must be in existence.
  • Delivery of Goods: Goods must be delivered to the pledgee.
  • Retention of Ownership: Ownership remains with the pledger.

Rights of Pawnor:

  • Right to Redeem: Can redeem the goods upon repayment of the debt or performance of the promise before the actual sale by the pledgee.

Rights of Pawnee:

  • Retain Goods: Can retain goods for non-payment of debt or expenses.
  • Recover Extraordinary Expenses: Can claim expenses incurred in preserving the goods.
  • Sue for Debt or Sell Goods: Can initiate court proceedings or sell the goods if the debt is unpaid.

Difference Between Bailment and Pledge

Basis Bailment Pledge
Meaning Transfer of goods for a specific purpose Transfer of goods as security for debt repayment
Defined In Section 148 of the Indian Contract Act, 1872 Section 172 of the Indian Contract Act, 1872
Parties Bailor and Bailee Pledger (Pawnor) and Pledgee (Pawnee)
Consideration            May or may not be present Always present
Right to Sell Bailee cannot sell the goods Pawnee has the right to sell the goods
Use of Goods For a specific purpose only Cannot use the goods
Purpose For safekeeping, repairs, etc. As security for repayment of debt or performance

Additional Information:

  • Bailment Examples: Repairing a car, storing goods in a warehouse.
  • Pledge Examples: Pledging gold jewelry for a loan, pledging stocks for securing a loan.
  • Termination of Bailment: Can happen by mutual consent, fulfillment of purpose, or breach of terms.
  • Sale in Pledge: Pawnee must give notice before selling the pledged goods.

This concise yet comprehensive overview provides clarity on the legal distinctions and practical implications of bailment and pledge contracts.