The bailment of goods as security for payment of debt or performance of promise is called pledge. Elucidate the legal provision regarding bailment of pledge, rights of the parties etc.
Every business is affected by the law of Bailment at one time and in some case even on daily basis. When any individuals deal with bailments whether they realize or not, they are subject to the obligations and duties that arise from the bailment agreement. Most bailments are formed by an agreement but not necessarily through contract law, because all of the elements of a contract are not present in many bailments. For example, I have loaned my laptop to a friend so that he can do his assignment. A bailment is created here without a contract because there is no consideration.
A bailment is the delivery of goods by the Bailor (person who is delivering the goods) to Bailee (person who is receiving the goods) for special purpose and this goods will be returned to the bailor by bailee after completion of purpose of the contract.
A pledge is a bailment of goods where the properties are delivered to other party as a security for payment of a debt or performance of a promise. Here bailor is known as pledgor and bailee is known as pledgee. For example a person keeps his gold or other valuable items in a bank for making a loan. He is making a pledge to the bank that he will return the loan and get back his gold or other valuable.
Pledge is one kind of bailment and all conditions are also applied that are applicable for bailment. In bailment of pledge, the pledgee acquires a special property in the goods pledged whereby he gets possession coupled with the power of sale, on default.
Elements of bailment of pledge
The basic elements of bailment of pledge creation are as follows:
1. Personal property : Bailment of pledge involve tangible personal properties like jewelry, cattle, automobiles etc. and intangible personal properties like promissory notes and shares of corporate stock etc.
2. Delivery of possession: Its means transfer of procession of personal property to the pledgee. Pledgee is given a exclusive procession and control over the property and he/she intends to exercise control over it.
3. Agreement: There is an agreement that the property will be returned to the pledgor or otherwise property will be disposed by order of owners. This agreement can be express or implied.
Duties of the Pledgee
The pledgee has some basic duties those are as follows _
- Duty of reasonable care : The pledgee is responsible for reasonable take care to
Protect the property during the possession period. If the pledgee does not take care properly and the property is lost or damaged, the pledgee is liable for this type of negligence. In that case, pledgee have to repay the amount of loss or damaged have made. But if the lost or damaged is happened without fault of pledgee, they are not liable for that. If the bailment is solely for the benefit of pledgor, then the pledgee may be held to a somewhat lower degree of care. Pledgee in this situation is liable for major gross negligence. So who gets benefits from bailment is one consideration of what is reasonable care.
- Unauthorized use of goods: If the pledgee makes unauthorized use of goods bailed like, uses them such a way not authorized by the terms of the bailment, he is responsible for all damages to the goods and have to pay compensation to the pledgor. So pledgee is not allow to use according to their own way. If anything goes wrong with the property during the unauthorized use, they have to pay for it even if the damages are done accidentally.
- Mixture of Pledgor’s goods with the Pledgee’s : If the pledgee combine the
Property of pledgor with his own property then goods will be separated or divideded, the property in the goods remains in the parties respectively but the cost of separation will be bear by the pledgee.
- Duty to return bailed property: At the end of the bailment, the pledgee has to return the undamaged property to the pledgor or have to dispose of it if required. So it is another responsibility of pledgee that to hand over the bailed property in the time of termination of bailment. If, by the default of the pledgee, the goods are not transferred at the proper time, he is responsible to the pledgor, for any loss, destruction or deterioration of the goods from that time.
- Delivery of goods to the wrong person: If the bailed goods is returned to the wrong pledgor , then pledgee is responsible for that. As soon as pledgee is informed about the misdelivery, should take necessary step to correct.
Duties of the Pledgor
There are some duties basic duties of the pledgor. Those are as follows
- Pledgor’s duty to disclose faults in goods bailed : When personal property is
pledge, the pledgor makes an implied warranty that there are no hidden defects in the property that can make it unsafe for use. The pledgor is bound to disclose to the pledgee faults in the goods bailed of which the pledgor is known and which materially interfere with the use of them or expose the additional risk of damages. So there is no liability for damages which occur due to hidden of faults in goods by pledgor.
- Payment of expenses in Gratuitous Bailments : The pledgor will repay to the
pledgee the necessary expenses incurred by him for the purpose of the bailment.
- Responsibility for breach of warranty : The pledgor is responsible to the pledgee
for any loss which the pledgee may sustain if the pledgor was not entitled to make the bailment, or to receive back the goods or to give direction respecting them.
In addition, in a mutual benefit bailment the pledgor must notify the pledgee of all the known defects which the pledgor knew of or could have found with reasonable diligence and proper inspection. In a pledgee sole benefit bailment, the pledgor must inform the pledgee regarding any known defects.
Termination of bailment of pledge
Bailment of pledge will be terminated under the following circumstances
- Bailment can be terminated after the completion of the purpose of contract.
- Bailment can be terminated by the mutual agreement of both pledgee and pledgor.
- If any party demands then bailment can also be terminated.
- It can be terminated if an act by the pledgee that is inconsistent with the terms of the bailment.
- Bailment can also terminate due to the death of any party.
Non-owner can make valid pledge
In general the owner of goods can always make a valid-pledge but the following cases, one who is not an owner can make valid pledge
- Mercantile Agent: A mercantile agent, who is in possession of the property or of the documents of title to property, can make a valid pledge. If the agent has no authority to pledge, bailment of pledge will be valid.
- Possession under a voidable contract: A person, who is having possession of propertyunder a voidable contract, can make a valid pledge so long as the contract is not terminated.
- Pledgor with a limited interest: Where a person pledges goods in which he has only alimented interest, the pledge is valid to the extent of that interest.
- Procession with co-owner: If one of several co-owners is in sole possession of the goods with the consent of the owners, he can make a valid pledge.
Right of the Pledgor
There are some rights which enjoyed by the Pledgor. Those are as follows
- Defaulting pledgor’s right to redeem : If the time is over for the payment of the debt, or
performance of the promise, for which the pledge is made, and the pledgor makes default in payment of the debt or performance of the promise at the desired time, he can redeem the pledged properties at any subsequent time before the actual sale of them ; but he must pay any expenses which have arisen from his default.
- Preservation and maintenance : The pledgor can enforce to pledgee for the
preservation and proper maintenance of the pledged properties. So pledgor have right to monitor the pledged properties to ensure free from damages.
- Protection of debtors : The pledgor as a debtor has given some rights by statutes
enacted for the protection of debtors for example Moneylenders Acts.
Right of the Pledgee
There are some rights which enjoy by the Pledgee. Those are as follows
- Right of retainer: The pledgee can retain the property pledged for payment of the debt ; the performance of the promise. Pledgee also can retain for the interest of debt and all other necessary expenses which incurred by him for procession or preservation of pledged property.
- Retainer for subsequent advance: Pledgee cannot retain the property for any debt other than the debt for which the security was given unless there is an express contract to the contrary. The pledgee makes fresh advances to the debtor and he presumed that the debtor has agreed to create on the property already pledged a lien for the fresh advance.
- Extraordinary expenses: The pledgee can claim to receive extra ordinary expensesfrom the pledgor which incurred by him for the preservation of the pledged property.
- Pledgee’s right where pledgor makes default : If the pledgor fail to make payment of the debt, or performance, at the desired time of the promise, in respect of which the properties were pledged than the pledgee can bring a suit against the pledgor for the default of debt or promise, and retain the goods pledged as collateral asset ; or, he may sellthe pledged properties by giving reasonable notice. If the market values of properties are less than the amount due according to the debt or promise, the pledgor is still liable to pay the balance. If the values of the properties are greater than the amount due, the pledgee will pay the surplus to the pledgor.
The bailment of pledge means the bailment of personal property which works as a collateral asset for payment of debt or performance of promise. In some special case pledgor can use properties as security which not own by him. In a bailment of pledge both parties have some responsibilities and liabilities. If any party break any term of contact or not fulfill his desired task properly, other party can suit against him. The pledgee and pledgor have some basic rights which they can exercise under the following circumstance according to right. The bailment of pledge is heavily used in business deal and its required for safety in transaction.
Jentz, G.A. , Miller, R.L. , Cross, F.B. & Clarkson, K.W. , (1990). West’s Business Law.New York , West publishing Company.
Barnes, A.J., Dworkin, T.M. & Richards, E.L., (2000). Law for Business. Boston, New York. Mcgraw-hill.
Bailment and pledge (n.d). Retrieved November 2 , 2011, from http://www.lawyersnjurists.com/
Difference between bailment and pledge (May 21, 2011 ). Retrieved November 2 , 2011, from
Manage a Business (n.d.). Retrieved November 2 , 2011, from http://business.gov.in/manage_
 A bailment is the delivery of goods by one person to another for some purpose.
 See Jentz, G.A. , Miller, R.L. , Cross, F.B. & Clarkson, K.W. , West’s Business Law.
 See Barnes, A.J., Dworkin, T.M. & Richards, E.L. , Law for Business.
 See http://www.lawyersnjurists.com
 See http://www.lawyersnjurists.com
 Barnes, A.J., Dworkin, T.M. & Richards, E.L. , Law for Business
 http://www.lawyersnjurists.com/ commercial-law-and-industrial-law.
 See Jentz, G.A. , Miller, R.L. , Cross, F.B. & Clarkson, K.W. , West’s Business Law
 See West’s Business Law
 Jentz, G.A. , Miller, R.L. , Cross, F.B. & Clarkson, K.W. , West’s Business Law
 http://www.lawyersnjurists.com/ commercial-law-and-industrial-law