UNIT 08 BAILMENT AND PLEDGE
Bailment is the delivery of goods from one person to another for a specific purpose, where ownership remains with the original person. Pledge is a specific type of bailment where goods are delivered as security for a debt or performance of a promise.
Ø Bailment
Bailment is a contract where one person, the bailor, delivers goods to another, the bailee, for a specific purpose. The bailee must return the goods or dispose of them as per the bailor’s directions once the purpose is fulfilled. A key aspect is that only possession of the goods is transferred, not ownership.
v Essential Elements
- Contract: A bailment is based on a contract, which can be express or implied. Consideration is not always necessary.
- Delivery of Goods: This is the transfer of possession, which can be actual (physically handing over the goods) or constructive
- Movable Goods: Bailment applies only to movable property, not immovable property or money.
- Specific Purpose: The goods are delivered for a particular reason, such as repair, safekeeping, or transportation.
- Return of Goods: The bailee is obligated to return the specific goods after the purpose is accomplished or dispose of them as directed.
v Types of Bailment
Gratuitous Bailment: Neither the bailor nor the bailee receives any payment or reward. For example, lending a book to a friend.
Non-Gratuitous Bailment (or Bailment for Reward): Both parties receive some benefit. For instance, leaving a car at a repair shop or giving clothes for dry cleaning.
Pledge: This is a special type of bailment, discussed in detail below.
v Duties of a Bailee
Take reasonable care of the bailed goods. The standard of care is that of a “man of ordinary prudence.”
Not to make unauthorized use of the goods. If they do, they are liable for any damage that occurs.
Keep the goods separate from their own goods to avoid confusion, unless otherwise agreed.
Return the goods after the purpose is completed or the time period expires.
Return any additional profit that accrues from the goods
- Duties of a Bailor
Disclose known faults in the goods that could pose a risk to the bailee.
Reimburse the bailee for any necessary and extraordinary expenses incurred in relation to the bailment.
Accept the goods back when the bailee returns them at the end of the bailment.
Indemnify the bailee for any loss they suffer if the bailor’s title to the goods is defective.
Ø Pledge
A pledge is a specific type of bailment. It’s the delivery of goods as security for a debt or for the performance of a promise. The person who pledges the goods is the pawnor, and the person to whom the goods are pledged is the pawnee. The pawnee gets a special interest in the goods, which is a right to retain possession and, in case of default, to sell the goods.
v Key Concepts
Purpose: The sole purpose of a pledge is to secure a debt or promise.
Right to Sell: Unlike a normal bailee, a pawnee has the right to sell the pledged goods if the pawnor defaults on the debt, but only after giving reasonable notice. Any surplus from the sale must be returned to the pawnor.
Right of Retainer (Lien): The pawnee has the right to retain the goods until the debt, interest, and any expenses incurred for the preservation of the goods are paid.
Ø Rights and Duties of Pawnor and Pawnee
| Party | Rights | Duties |
| Pawnor | Right to redeem: Can get the goods back by paying the debt and expenses before the sale. | Repay the loan with interest. Compensate for extraordinary expenses of the pawnee. |
| Pawnee | Right of retainer: Can keep the goods until the debt is paid. Right to sell: Can sell the goods after giving notice if the pawnor defaults. Right to sue: Can sue the pawnor for the debt while retaining the goods as collateral. | Take reasonable care of the goods. Not to use the goods for their own benefit. Return the goods once the debt is repaid. Return surplus from a sale. |
Ø Bailment vs. Pledge: Key Differences
| Feature | Bailment | Pledge |
| Purpose | Can be for various reasons like repair, storage, or temporary use. | Always to secure a debt or promise. |
| Right to Sell | The bailee has no right to sell the goods. | The pawnee has the right to sell the goods upon default. |
| Lien | A bailee may have a particular lien for services rendered, but not a general lien unless specified by contract. | The pawnee has a special right of retainer (a particular lien) for the debt, interest, and expenses. |
| Parties | Bailor and Bailee. | Pawnor and Pawnee. |
| Origin | A broad concept. | A specific type of bailment. All pledges are bailments, but not all bailments are pledges. |
- Rights of a Bailor-
Ø Finder of Lost Goods
A person who finds goods belonging to another and takes them into their custody is legally considered a bailee of those goods. This creates a special legal relationship, often called a quasi-contract, which imposes specific duties and rights on the finder.
Ø The Right of Lien
A lien is the right of a person to retain the goods belonging to another until their claims or charges are satisfied. It’s a key right in both bailment and pledge, allowing the party in possession of the goods to hold onto them as a form of security.
Ø Types of Lien
There are two primary types of liens:
Particular Lien: This right allows the bailee or pawnee to retain only the specific goods on which they have expended labor or skill, resulting in an improvement to the goods.This lien applies only to charges related to those specific goods.
For example, a tailor can hold a suit they have repaired until the repair charges are paid.
General Lien: This is a broader right that allows a person to retain any goods of the debtor that are in their possession, not just those related to the specific debt or service. This right is typically only available to specific categories of professionals, such as bankers, factors, and attorneys, who have this right by law or by special contract.
For example, a banker can retain any goods of the customer as security for the general balance of the customer’s account.