Contract of Bailment and pledge

Edited By Ritika Jonwal | Updated on Jul 02, 2025 05:47 PM IST

Pledge and bailment contracts differ from one another. The conveyance of commodities from one person to another for a purpose is referred to as bailment in section 148 of The Indian Contract Act, of 1872. When this goal is achieved, the person who received the commodities returns them or disposes of them in another way per the person who delivered them.

This Story also Contains

What is a Bailment Contract?
Contract of Pledge
Recognising the Differences Between Bailment and Pledge
Conclusion

Contract of Bailment and pledge

Transferring an item for a specified reason, such as safekeeping, is known as bailment. Transferring a good as security for a debt is known as a pledge. If the obligation is not paid back, the pledgee has the sole right to sell the good. The concepts of bailment and pledge is described under the preview of Legal studies.

What is a Bailment Contract?

The term 'Bailment' originates from the French word 'Baillier', which means to deliver.
Section 148 of the Indian Contract Act, of 1872 defines "bailment" as "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 under the directions of the person delivering them."
The individual who delivers the products is known as the 'Bailor', whereas the person who receives the commodities for a specified purpose is known as the 'Bailee'.
It is a specific sort of contract governed by Chapter IX (Sections 148-171) of the Indian Contract Act, of 1872.

Essential Components of a Valid Bailment

The Contract of Bailment has several elements; a few of the more important ones are discussed below:

Agreement between Bailor and Bailee

The bailor and bailee must have reached an agreement. This agreement may be expressed or assumed. In some cases, a bailment may be required by law, such as when a missing item is found.

In the case of, Kavita Trehan vs. Balsara Hygiene Products Ltd., the Supreme Court ruled that the surrender of possession to the bailee is a sine qua non (necessary condition) of bailment.

Delivery of Goods

In bailment, the commodities must be delivered to the bailee. It is fundamental to the bailment agreement. The custody of commodities must be transferred freely and in line with the contract.

Delivery might be of two types:

Actual delivery: Delivering an automobile to a workshop dealer for repair is considered an actual delivery.
Constructive delivery: Delivering a car key to a workshop dealer for repair is considered constructive delivery.

In the case of the State of Gujarat against Memon Mahomed Haji Hasam, the Supreme Court ruled that bailment cannot be established without a contract. Only if a bailment is based on a contract is it subject to the Contracts Act.

Exception: Lost Goods Found

When the lost commodities are discovered by a third party or a stranger, the founder of the goods serves as the bailee.

Duties of the Finder:

To keep the items secure.
Do not use these products for personal use.
Make appropriate attempts to locate the true owner of the products.
Make certain that the things are handed to their rightful owner once discovered.

Rights of the Finder

To be reimbursed for the expenditures and effort required to keep things safe and locate the owner.
According to Section 168, items must be sold if they are in perishable condition.
The owner couldn't be located.

Delivery for some Purpose

The transfer of commodities from the bailor to the bailee must be for a particular purpose. Sections 153 and 154 provide that the bailment contract may be cancelled if the bailee acts inconsistently or makes unauthorised use of the commodities. The specific objective is critical, and both parties must follow the terms of the agreement.

For example, A brings his automobile to B's garage for washing.

Return of Goods

After the reason for which the commodities were bailed is fulfilled, the bailee must return them to the bailor. The method and manner of return will be as specified in the contract or by the bailor.

Under Section 160: "The bailee must return or deliver according to the bailor's directions, the goods bailed, without demand, as soon as the time for which they were bailed has expired, or the purpose for which they were bailed has been accomplished."

Role of the Bailor and the Bailee

The bailor and bailee must comply with certain requirements outlined in the bailment contract. A couple of the essential points are listed below.

Duties of the Bailor

The bailor's tasks are briefly described below:

To reveal flaws in Goods: The bailor must notify the bailee of any flaws in the goods. If the bailor fails to do so, he is accountable to the bailee for any losses resulting from such failure.
To Pay Required and Exceptional Costs: The bailor is obligated to reimburse the bailee for any required and unusual fees made to safeguard the commodities bailed.
To Indemnify the Bailee for all Losses: According to Section 159 of the Indian Contract Act, the bailor is obligated to reimburse the bailee for any damage suffered if the bailor requests his goods before the agreed-upon deadline. According to Section 164, the bailee may also recover losses from the bailor if the bailor wilfully bails goods with a defective title.
To collect Bailed Goods: The bailor must retrieve his goods after the period for which they were bailed has passed. If the bailor fails to collect the items by the end of the bailment period, he will be accountable for any damages suffered by the bailee.

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Role of the Bailee

The Contract of Bailment specifies several tasks that Bailey must do; a few of the essential aspects are listed below.

Take Proper Care of the Products: According to Section 151 of the Indian Contract Act of 1872, the bailee is responsible for the commodities bailed to him as if they were their own. However, section 152 states that in the absence of a particular Contract, the bailee is not accountable for the loss or collapse of the commodities bailed provided he has taken care of the goods under the Contract.
To use the items for permitted purposes exclusively.
The bailee should utilise the products strictly for the reason specified in the contract. If it is discovered that the products are being used for unlawful purposes, the bailor may declare the entire contract null and invalid. Under the provisions of Section 154, "If the bailee makes any use of the goods bailed which is not according to the conditions of the bailment, he is liable to make compensation to the bailor for any damage arising to the goods from or during such use of them."
Keep the bailed goods separate: The bailee must ensure that the items are safely returned to the bailor. He is required to store the things separately.

Section 155: It allows the bailee to combine his own and the bailor's goods with the bailor's approval. In this instance, both the bailor and the bailee must have an interest in the mixture generated.
Section 156: States that if the bailee mixes the commodities without the bailor's agreement and the items may be separated, the bailee is liable for the costs of partition or division, as well as any damages incurred as a result of the mixing.
Section 157: If the bailee combines the commodities without the bailor's authorisation and they cannot be divided in this instance, the bailee is obligated to cover the harm and compensate the bailor.

Types of Bailment

The following are the many sorts of bailments:

Gratuitous Bailment: A bailment in which only one side profits. For example, lending a book to a buddy does not provide you with any reward.
Non-gratuitous Bailment: This type of bailment benefits both parties. For example, leaving your automobile at a repair shop benefits both you and the business owner.
Constructive Bailment: This sort of bailment occurs when a person discovers missing property and takes care of it.

Contract of Pledge

In a pledge contract, the items are held as collateral for a debt.
According to Section 172 of the Indian Contract Act 1872, 'the bailment of the commodities as security for the payment of a debt or the execution of a contract is termed pledge'.
In this scenario, the bailor is referred to as the pawnor, and the bailee is the pawnee.
It is regulated by Chapter IX (Sections 172–181) of the Indian Contract Act, of 1872.

Parties Involved in Pledge

The following parties participate in the pledge:

The Pledgor is the individual who owns the item and transfers it to the pledgee. The pledgor utilises the asset as collateral for a debt or obligation.
The individual who obtains the good from the pledgor is the Pledgee. Until the debtor settles the obligation, the pledgee is the owner of the good. The pledgee is entitled to sell the good if the debtor is unable to make payments.
The one who is in debt or has an obligation is the Debtor. The good is returned to the pledgor by the pledgee upon the debtor's redemption of the obligation. The pledgee may sell the good if the debtor is unable to make payments.

Rights of Pawnee and Pawnor

The act of pledging goods as collateral for the payment of a debt or the fulfilment of a guarantee is known as a Pawn. The bailee is referred to as the pledgee, while the bailor is referred to as the pledger or pawnor. This procedure is known as a pledge by non-owners or the pledge legislation. For both parties, the pledge agreement is enforceable.

Rights of Pawnor

Section 173: Right to Retain Merchandise

The pledged items are subject to the pawnee's retention rights until the loan's maturity date. For the duration of the obligation and any costs associated with the preservation of such goods, he will keep them. He does, however, also reserve the power to use a wholly express lien on goods.

Section 174: Right to Retain Ensuant Advances

It is always likely that, unless a contract expressly states otherwise, the adult's right to keep the promised goods also includes the money they gave to another adult on the day of the pledge.

Section 175: Right to Extraordinary Expenses

The pawnee also has the right to demand reimbursement for any out-of-the-ordinary costs he incurs to protect the goods pledged. He may only file a lawsuit for sickness of expenditures; he cannot keep the items.

Section 178 A: Right Against the True Owner

The contract is still in effect even if the pledger's title to the pledged goods is deemed to be faulty and possession is acquired under a revocable agreement. If the adult performs honourably, he has the right to accumulate a reasonable claim to the promised goods.

The pawnor has the following rights if the pawnee makes any illegal sales of goods pledged without providing the pawnor with the appropriate notice and time:

The ability to start a lawsuit to recover items by establishing a debt.
The ability to claim losses and damages at the bottom of conversion.

Rights of a Pawnee

The right to have the products returned: Once the promise is kept or the loan and interest are paid back, the pawnor has the right to have the items returned.
Possession of the Items Until Payment: The Pawnee is entitled to retain the pledged goods until the obligation, interest, and any expenses associated with the products are paid in full. For instance, Mr. X guarantees his gold jewels in exchange for bank loans. In this situation, the bank is fully entitled to retain the gold embellishments for the credit amount alteration and to install the premium that was collected on the advance amount.
The entitlement to debt redemption: The chosen period is allotted for fulfilling a commitment or paying off debt. When the pawnor fails to fulfil a commitment or pay back a loan, he has the right to redeem the pledged goods before their sale, although he is still responsible for covering any associated costs.
The entitlement to uphold and safeguard merchandise: The adult has the right to see that the pledgee is appropriately preserving and caring for the promised items. Pawnee is entitled to seek compensation for the extraordinary expenses incurred. In any event, he is unable to carry goods in this situation.
The Ordinary Debtor's Rights: The pawnor has rights as well, rights granted to him by several laws designed for the protection of borrowers, much like those of a regular debtor.
Ability to File a Suit: The Pawnee is entitled to keep the promised goods as security while filing a lawsuit to collect the obligation. Because of him, he is entitled to sue for the offer of goods pledged and payment instalments.
Possession of the Right to Sell: The right to sell the goods is granted by the pawnee after providing the pawnor with reasonable notice and time. After the pawnor offers such things, the pawnee, if any, may claim for inadequacy. In addition, the pawnee is required to return any excess product discount to the pawn.

Important Components of a Contract Of Pledge

A pledge has the qualities listed below:

Transfer of Possession: When a promise is made, the pledgor gives the pledgee ownership of the good.
Goal: Securing a debt or obligation is the main goal of a pledge.
Return of Good: After the debtor pays back the loan, the pledgee gives the good back to the pledgor.
Right to Sell: The pledgee is entitled to sell the good if the debtor defaults on the loan.
Risk of Loss: The pledgor bears the risk of loss in a commitment.
There Are Three Parties: The pledgor, the pledgee, and the debtor are the three parties involved in a pledge.

Kinds of Pledge

The various kinds of commitments are as follows:

Pawn: In a pawn, the borrower (pawnor) pledges something to the lender (pawnee) in exchange for a loan.
Hypothecation: In this kind of pledge, the asset is still owned by the borrower, but in the event of loan failure, the lender is granted the right to sell the item.
Lien: Under this kind of commitment, the asset is subject to the lender's ownership until the debt is repaid.

Recognising the Differences Between Bailment and Pledge

Here are some frequent distinctions between a pledge and a contract of bailment:

Feature	Contract of Bailment	Contract of Pledge
Sections Related	Section 148: Indian Contract Act, 1872	Section 172: Indian Contract Act, 1872
Meaning	The act of transferring ownership of an item from the bailor to the bailee is referred to as bailment.	Transferring ownership of an item in exchange for a debt or obligation is known as a pledge.
Parties	Two parties: the Bailor and the Bailee.	Three parties: are involved: the Pledgor, the Pledgee, and the Debtor.
Purpose	The primary objective of the product transfer is to ensure secure custody and repairs.	To protect claims is the goal.
Return of Good	Once the prearranged goal is accomplished, the item is returned.	Once the debt is settled, the item is returned.
Risk of Loss	The bailee usually bears the risk of loss.	The pledgor bears the risk of loss.
Rights of the Possessor	The good may only be used by the bailee for the specified purpose.	If the obligation is not paid back, the pledgee is entitled to sell the good.

Conclusion

Pledge and bailment contracts are a broad and important subject. Not all bailment contracts are pledge contracts, but all pledge contracts are contracts of bailment. The interests of the parties to the contract are safeguarded by the pledge and bailment arrangements. It also provides a structure for the Contract and outlines the rights and obligations of the bailor and bailee as well as the pawnor and pawnee. For the Contract of Bailment and Pledge to be enforceable by law, it must also meet the requirements of a legitimate contract.

Frequently Asked Questions (FAQs)

1. What is the pledge and bailment contract?

The act of giving a good from the bailor to the bailee is referred to as bailment. Transferring ownership of an item as collateral for a loan or commitment is known as a pledge.

2. What is a pledge contract?

A pledge is a contract in which a party deposits an item or product with a lender in exchange for the return of a loan or the fulfilment of a promise, according to section 172 of the Indian Contract Act, 1872. Another name for a pledge is a pawn.

3. Describe a bailment contract in detail using examples.

When one party asks a friend to temporarily keep furniture at their house while they search for a place to reside, it is one example of a bailment arrangement. The one who provides the goods is known as the bailor, and the person who gets them is known as the bailee.

4. What does the term "pleasure" mean?

A pledge is a bailment that transfers ownership of property from a debtor (the pledgor) to a creditor (the pledgee) for the benefit of both parties and to ensure repayment of a debt or obligation. The property that makes up the security is also referred to by this name.

5. What kinds of bailments are there?

Three kinds of bailments exist: one that benefits the bailor and the bailee equally, one that helps the bailor exclusively, and one that exclusively benefits the bailee. A bailment may be terminated under the following circumstances: when a bailment's purpose is fulfilled. when a set term expires.

6. How does bailment relate to the concept of "possession" in law?

Bailment is closely tied to the legal concept of possession. In a bailment, the bailee gains physical possession of the property but not legal ownership. This creates a special type of possession known as "custody" or "possession as bailee." The bailee has certain rights and duties associated with this possession, including the right to bring legal action against third parties who interfere with their possession and the duty to care for the property. Understanding this distinction between possession and ownership is crucial for grasping the nature of bailment relationships.

7. Can a bailee create a sub-bailment?

Yes, a bailee can create a sub-bailment by transferring possession of the bailed property to a third party (sub-bailee) for a specific purpose. However, this is generally only allowed if the original bailment agreement permits it or if it's necessary for the proper care of the property. The original bailee remains responsible to the bailor for the actions of the sub-bailee.

8. How does bailment differ from agency?

While both bailment and agency involve one party acting on behalf of another, they differ in key aspects:

9. How does the concept of "ordinary care" apply in bailment?

Ordinary care in bailment refers to the level of care that a reasonably prudent person would exercise under similar circumstances. This standard typically applies in bailments for reward. The bailee must take reasonable precautions to protect the bailed property from damage, loss, or theft. What constitutes ordinary care can vary depending on the nature of the property, the purpose of the bailment, and the customary practices in the relevant industry.

10. What is the significance of the "burden of proof" in bailment disputes?

The burden of proof in bailment disputes is significant because it determines which party must provide evidence to support their claim. Initially, the bailor must prove the existence of the bailment and that the property was not returned or was returned damaged. Once this is established, the burden shifts to the bailee to show that they exercised the appropriate level of care and were not negligent. This shifting burden helps balance the interests of both parties and recognizes the bailee's superior knowledge of what happened while the property was in their possession.

11. How does bailment differ from a sale?

Bailment differs from a sale in that ownership does not transfer in a bailment. In a sale, ownership of the property changes hands, while in bailment, only possession is transferred temporarily. The bailee must return the property or deal with it as instructed, whereas in a sale, the buyer becomes the new owner with full rights to the property.

12. What is the difference between bailment and pledge?

While both bailment and pledge involve the temporary transfer of possession, a pledge is a specific type of bailment where property is transferred as security for a debt or obligation. In a pledge, the bailee (pledgee) has the right to sell the property if the debt is not repaid, whereas in a general bailment, the bailee does not have this right.

13. How does bailment terminate?

Bailment can terminate in several ways:

14. What is the "doctrine of estoppel" in bailment?

The doctrine of estoppel in bailment prevents a bailee from denying the bailor's title to the bailed property. Once a person accepts possession of property as a bailee, they cannot later claim ownership or challenge the bailor's right to the property. This doctrine helps protect the bailor's interests and maintains the integrity of the bailment relationship.

15. What is the "bailee's lien"?

A bailee's lien is the right of a bailee to retain possession of the bailed property until they receive payment for services rendered in relation to that property. This typically applies in bailments for reward, such as when a mechanic repairs a car. The lien gives the bailee some security for payment but does not grant ownership rights.

16. What is a contract of bailment?

A contract of bailment is a legal agreement where one person (the bailor) temporarily transfers possession of personal property to another person (the bailee) for a specific purpose, with the understanding that the property will be returned or dealt with as directed once that purpose is fulfilled. The key elements are temporary transfer of possession, not ownership, and the obligation to return or dispose of the property as agreed.

17. What are the three types of bailment?

The three types of bailment are:

18. What level of care is required from a bailee?

The level of care required from a bailee depends on the type of bailment:

19. What are the duties of a bailor?

The main duties of a bailor include:

20. Can a bailee use the bailed property for personal purposes?

Generally, a bailee cannot use the bailed property for personal purposes unless explicitly permitted by the bailor or if such use is necessary for the property's preservation. Unauthorized use may constitute a breach of the bailment agreement and could lead to liability for any resulting damage or loss.

21. What is constructive bailment?

Constructive bailment occurs when a person comes into possession of another's property by accident, mistake, or through circumstances that do not involve a formal agreement. Despite the lack of an explicit contract, the person in possession (constructive bailee) still has a duty to care for the property and return it to its rightful owner.

22. What is "involuntary bailment"?

Involuntary bailment occurs when a person becomes a bailee without their consent or agreement. This can happen when property is accidentally delivered to the wrong address or left behind in a public place. The involuntary bailee has a duty to take reasonable care of the property and make efforts to return it to its rightful owner, even though they did not agree to the bailment.

23. Can a thief become a bailee?

Surprisingly, yes, a thief can become a bailee in certain circumstances. If a thief steals property and then entrusts it to a third party for safekeeping, a bailment relationship is created between the thief and the third party. The third party (bailee) is obligated to return the property to the thief (bailor), even though the thief's possession is wrongful. However, this doesn't affect the original owner's right to reclaim their property.

24. What is the "bailment for hire" and how does it differ from other types of bailment?

Bailment for hire, also known as bailment for reward, is a type of bailment where the bailee receives compensation for their services. It differs from gratuitous bailment in that both parties benefit from the arrangement. In bailment for hire, the bailee is held to a higher standard of care (ordinary care) compared to gratuitous bailment, and they may have additional rights such as a bailee's lien for unpaid services.

25. What is a "gratuitous bailee's" liability for negligence?

A gratuitous bailee's liability for negligence depends on whether the bailment is for the benefit of the bailor or the bailee:

26. How does the "doctrine of conversion" apply to bailment?

The doctrine of conversion in bailment refers to any unauthorized act by the bailee that seriously interferes with the bailor's rights of ownership. This can include:

27. What is the concept of "bailment by estoppel"?

Bailment by estoppel occurs when a person's words or actions lead another to reasonably believe that a bailment relationship exists, even if no actual bailment was intended. If the supposed bailee acts on this belief and takes possession of property, a court may treat the situation as a valid bailment to protect the interests of the party who relied on the apparent bailment. This concept is based on the principle of estoppel, which prevents a person from denying the truth of a statement they have made or a situation they have created if another has relied on it to their detriment.

28. How does the "duty to return" operate in bailment?

The duty to return is a fundamental obligation of the bailee in a bailment relationship. It requires the bailee to return the bailed property to the bailor:

29. What is "bailment by finding" and what are the finder's obligations?

Bailment by finding occurs when a person (the finder) takes possession of lost property. The finder becomes an involuntary bailee with certain legal obligations:

30. How does the concept of "commingling" affect bailment?

Commingling in bailment refers to the mixing of bailed property with other similar property, often in the context of fungible goods like grain or oil. When commingling occurs:

31. What is the significance of "delivery" in creating a bailment?

Delivery is a crucial element in creating a bailment relationship. It involves the transfer of possession of the property from the bailor to the bailee. Delivery can be:

32. How does "bailment for sale" differ from a regular sale transaction?

Bailment for sale, also known as consignment, differs from a regular sale in several ways:

33. What is the "doctrine of confusion" in bailment law?

The doctrine of confusion in bailment law applies when bailed goods are mixed with similar goods belonging to the bailee or other bailors in such a way that they cannot be separated. Unlike commingling, which involves intentional mixing of fungible goods, confusion often results from negligence or accident. When confusion occurs:

34. How does the concept of "sub-bailment" affect the original bailee's liability?

Sub-bailment occurs when a bailee transfers possession of the bailed property to a third party (sub-bailee). The effects on the original bailee's liability include:

35. What is the "bailee's duty of disclosure" and why is it important?

The bailee's duty of disclosure requires the bailee to inform the bailor of any significant events or changes affecting the bailed property. This includes:

36. How does the concept of "bailment for mutual benefit" affect the standard of care?

In a bailment for mutual benefit, also known as bailment for reward, both the bailor and bailee derive some advantage from the arrangement. This type of bailment affects the standard of care in the following ways: