Bailment is a legal relationship in which the owner of goods (called the bailor) delivers them to another person (called the bailee) for a specific purpose under a contract, with the understanding that the goods will be returned after the purpose is fulfilled or otherwise disposed of according to the bailor’s directions.
Bailment is governed by Sections 148 to 171 of the Indian Contract Act, 1872.
Definition (Section 148)
According to Section 148,
“A bailment is 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 according to the directions of the person delivering them.”
Thus, bailment involves:
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Delivery of goods
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Specific purpose
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Return or disposal of goods as instructed
Features of Bailment:
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Delivery of Goods
Only movable goods (not immovable property or money) can be bailed. The delivery can be:-
Actual delivery: Physical handing over of goods.
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Constructive delivery: Transfer of possession without actual handover, like handing over keys to a godown.
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Contract
Bailment must be based on a contract, express or implied. In some cases (e.g. finder of goods), bailment exists even without a formal agreement. -
Purpose
Goods are delivered for a specific objective, such as safekeeping, transportation, or repair. -
Return of Goods
The bailee must return the goods or dispose of them as per the bailor’s instructions once the purpose is fulfilled.
Duties of the Bailee:
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Take reasonable care of goods (Section 151)
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Not use goods for unauthorized purposes
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Return goods on time (Section 160)
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Return increase or profit (e.g., baby animals, interest on bonds)
Duties of the Bailor:
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Disclose known faults in goods (Section 150)
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Compensate bailee for losses due to defective goods
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Pay agreed charges or expenses
Types of Bailment
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Gratuitous Bailment: Bailment without reward (e.g., lending a book to a friend).
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Bailment for Hire or Reward: Bailment with consideration (e.g., leaving a car with a valet or in a garage for service).
Termination of Bailment:
Bailment ends when:
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The purpose is fulfilled
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The agreed time expires
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The bailee returns the goods
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The bailor demands return (in some cases)
Examples of Bailment:
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Giving clothes to a dry cleaner
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Depositing valuables in a hotel locker
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Lending a bicycle for a day
Pledge
Pledge is a special type of bailment, where goods are delivered by one party to another as security for repayment of a debt or performance of a promise. It is a commonly used concept in banking, lending, and commercial transactions involving collateral.
Pledge is governed by Sections 172 to 179 of the Indian Contract Act, 1872.
Definition (Section 172):
According to Section 172 of the Indian Contract Act:
“The bailment of goods as security for payment of a debt or performance of a promise is called a pledge.”
In this relationship:
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The pawnor (pledgor) is the person who delivers the goods as security.
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The pawnee (pledgee) is the person who receives the goods and holds them until the debt or obligation is fulfilled.
Essentials of a Valid Pledge
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Delivery of Possession
There must be delivery of movable goods (not immovable property) by the pawnor to the pawnee. Delivery can be:-
Actual: Physical handover of goods.
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Constructive: Symbolic delivery (e.g., handing over documents of title like a warehouse receipt).
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Purpose – Security for Debt or Promise
The pledge must be made as security for a debt repayment or the performance of a promise. -
Return of Goods
Once the debt is repaid or the promise fulfilled, the pawnee must return the goods to the pawnor. -
Ownership Retained by Pawnor
Ownership of the goods remains with the pawnor; only possession is transferred temporarily.
Rights of the Pawnee
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Right of Retention (Section 173)
The pawnee can retain the goods pledged until the full payment of the debt or performance of the promise. -
Right to Recover Expenses (Section 175)
If the pawnee incurs expenses in preserving or protecting the goods, he can recover those from the pawnor. -
Right to Sell (Section 176)
If the pawnor defaults, the pawnee can:-
Sue for the debt, retaining the goods, or
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Sell the goods after giving reasonable notice to the pawnor.
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Duties of the Pawnee:
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Take reasonable care of the pledged goods.
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Not use goods for unauthorized purposes.
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Return goods upon repayment or performance of the promise.
Rights and Duties of the Pawnor:
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Right to redeem goods before actual sale by the pawnee.
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Duty to repay the debt or perform the promise.
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Duty to compensate for any expenses incurred by the pawnee.
Pledge by Non-Owners (Section 178 & 179):
In certain cases, non-owners (like mercantile agents or persons with possession under a voidable contract) can make a valid pledge if:
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They act in the ordinary course of business.
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The pawnee acts in good faith and without knowledge of any defect in title.
Examples of Pledge:
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Pledging gold ornaments with a bank for a loan.
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A business pledging goods in a warehouse for working capital financing.
Key differences between Bailment and Pledge:
Aspect | Bailment | Pledge |
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Purpose | Custody | Security |
Involves | Goods only | Movable goods |
Parties | Bailor, Bailee | Pawnor, Pawnee |
Ownership | Retained | Retained |
Possession | Temporary transfer | Security transfer |
Consideration | May or may not | Always |
Right to Sell | No | Yes (on default) |
Use of Goods | With permission | Not allowed |
Right of Retention | Limited | Extended |
Delivery Type | Actual/Constructive | Actual/Constructive |
Governing Sections | 148–171 | 172–179 |
Example | Dry cleaning | Gold loan |
Compensation | For damage | For default |
Return Obligation | After use/purpose | After repayment |
Legal Remedy | Sue only | Sue or sell |
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