Rishabh Gaur 1 Special Contracts

Unit – Bailment and Pledge

Introduction
The word “Bailment” has been derived from the French word “ballier” which means “to deliver”.
Bailment etymologically means ‘handing over’ or ‘change of possession’.
As per Section 148 of the Act, bailment is the delivery of goods by one person to another for some
purpose3, upon a contract, that the goods shall, when the purpose is accomplished, be returned or
otherwise disposed of according to the directions4 of the person delivering them.
Parties to bailment
Bailor: The person1 delivering the goods.
Bailee: The person to whom2 the goods are delivered.
Example - Where ‘X’ delivers his car for repair to ‘Y’.
1 - ‘X’ is the bailor and 2 - ‘Y’ is the bailee.
3 – Example - X delivers a piece of cloth to Y, a tailor, to be stitched into a suit. It is contract for bailment.
4 – Example - X delivers goods to blue dart for carriage.

Essential Elements
The essential elements of a contract of bailment are—
1) Contract: Bailment is based upon a contract. The contract may be express or implied. No
consideration is necessary to create a valid contract of bailment.
2) Delivery of goods: It involves the delivery of goods from one person to another for some purposes.
Bailment is only for moveable goods and never for immovable goods or money. The delivery of
the possession of goods is of the following kinds:
 Actual Delivery: When goods are physically handed over to the bailee by the bailor. Eg:
delivery of a car for repair to workshop
 Constructive Delivery: Where delivery is made by doing anything that has the effect of putting
goods in the possession of the bailee or of any person authorized to hold them on his behalf.
Eg: Delivery of the key of car to a workshop dealer for repair of the car.
3) Purpose: The goods are delivered for some purpose. The purpose may be express or implied.
4) Possession: In bailment, possession of goods changes. Change of possession can happen by
physical delivery or by any action which has the effect of placing the goods in the possession of
bailee. The change of possession does not lead to change of ownership. In bailment, bailor
continues to be the owner of goods. Where a person is in custody without possession he does not
become a bailee. For example, servant of a master who is in custody of goods of the master does
not become a bailee.
Similarly, depositing ornaments in a bank locker is not bailment, because ornaments are kept in
a locker whose key are still with the owner and not with the bank. The ornaments are in possession
of the owner though kept in a locker at the bank.
5) Return of goods: Bailee is obliged to return the goods physically to the bailor. The goods should
be returned in the same form as given or may be altered as per bailor’s direction. It should be
noted that exchange of goods should not be allowed. The bailee cannot deliver some other goods,
even not those of higher value.
Deposit of money in a bank is not bailment since the money returned by the bank would not be
identical currency notes.

Types of Bailment
 On the basis of benefit, bailment can be classified into three types:
 For the exclusive benefit of bailor:

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Rishabh Gaur 2 Special Contracts

The delivery of some valuables to a neighbour for safe custody, without charge.
 For the exclusive benefit of bailee:
The lending of a bicycle to a friend for his use, without charge.
 For mutual benefit of bailor and bailee:
Giving of a watch for repair.
 On the basis of reward, bailment can be classified into two types:
 Gratuitous Bailment: The word gratuitous means free of charge. So, a gratuitous bailment is
one when the provider of service does it gratuitously i.e. free of charge. Such bailment would
be either for the exclusive benefits of bailor or bailee.
 Non-Gratuitous Bailment: Non gratuitous bailment means where both the parties get some
benefit i.e. bailment for the benefit of both bailor & bailee.

Duties of Bailor
The duties of bailor are spelt out in a number of Sections [Section 150, 158, 159, 164]. These are
categorized under the following headings-
1) Bailor’s duty to disclose faults in goods bailed [Section 150]
 In case of gratuitous bailment: The bailor is bound to disclose to the bailee faults in the goods
bailed, of which the bailor is aware1, and which materially interfere with the use of them, or
expose the bailee to extraordinary risks; and if he does not make such disclosure, he is responsible
for damage arising to the bailee directly from such faults.
 In case of non- gratuitous bailment: If the goods are bailed for hire, the bailor is responsible for
such damage, whether he was or was not aware 2 of the existence of such faults in the goods
bailed.
In Hyman & Wife v. Nye & Sons (1881), A hired from B a carriage along with a pair of horses and
a driver for a specific journey. During the journey a bolt in the under-part of the carriage broke
away. As a result of this, the carriage became upset and A was injured. It was held that B was liable
to pay damages to A for the injury sustained by him. The court observed that it was the bailor’s
duty to supply a carriage fit for the purpose for which it was hired.
Sometimes, the goods bailed are of dangerous nature (e.g., explosives). In such cases it is the duty
of the bailor to disclose the nature of goods. [Great Northern Ry’ case (1932)] existence of such
faults in the goods bailed.
2) Duty to pay necessary expenses [Section 158]
 In case of Gratuitous bailment: Where, by the conditions of the bailment, the goods are to be kept
or to be carried, or to have work done upon them by the bailee for the bailor, and the bailee is to
receive no remuneration (gratuitous bailment), the bailor shall repay to the bailee the necessary
expenses incurred by him and any extraordinary expenses incurred by him for the purpose of the
bailment.
 In case of non-gratuitous bailment: the bailor is liable to pay the extraordinary expenses incurred
by the bailee3.
3) Duty to indemnify the Bailee for premature termination [Section 159]: The bailor must
compensate the bailee for the loss or damage suffered by the bailee that is in excess of the
benefit received, where he had lent the goods gratuitously and decides to terminate the bailment
before the expiry of the period of bailment.
4) Bailor’s responsibility to bailee [Section 164]: The bailor is responsible to the bailee for the
following
a) Indemnify for any loss which the bailee may sustain by reason that the bailor was not
entitled to make the bailment, or to receive back the goods or to give directions, respecting
them (defective title in goods).
b) It is the duty of the bailor to receive back the goods when the bailee returns them 4 after the
time of bailment has expired or the purpose of bailment has been accomplished. If the bailor

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Rishabh Gaur 3 Special Contracts

refuses to take delivery of goods when it is offered at the proper time the bailee can claim
compensation for all necessary expenses incurred for the safe custody.
1 – Example - A lends a horse, which he knows to be vicious, to B. He does not disclose the fact that the horse is vicious.
The horse runs away. B is thrown and injured. A is responsible to B for damage sustained.
2 – Example - A hires a carriage of B. The carriage is unsafe, though B is not aware of it, and A is injured. B is responsible
to A for the injury.
3 – Example - A hired a taxi from B for the purpose of going to Gurgaon from Noida. During the journey, a major defect
occurred in the engine. A had to pay 5000 as repair charges. These are the extraordinary expenses and it is the bailor’s
duty to bear such expenses. However, the usual and ordinary expenses for petrol, toll tax etc. are to be borne by the bailee
itself.
4 – Example - X delivered his car to S for five days for safe keeping. However, X did not take back the car for one month. In
this case, S can claim the necessary expenses incurred by him for the custody of the car.

Duties of Bailee
1) Take reasonable care of the goods (Section 151 & 152): In all cases of bailment, the bailee is
bound to take as much care of the goods bailed to him as a man of ordinary prudence would,
under similar circumstances, take care of his own goods of the same bulk, quality and value, as the
goods bailed.
Exception: Bailee when not liable for loss, etc., of thing bailed [Section 152]: The bailee, in the
absence of any special contract, is not responsible for the loss, destruction or deterioration of the
thing bailed, if he has taken reasonable care as required under section 1511.
2) Not to make inconsistent use of goods (section 153 & 154): As per Section 154, if the bailee makes
any use of the goods bailed, which is not according to the terms and conditions of the bailment,
he is liable to compensate the bailor2 for any loss or destruction of goods.
As per Section 153, a contract of bailment is voidable3 at the option of the bailor, if the bailee does
not use the goods according to the terms and conditions of bailment.
3) Not to mix the goods (Section 155, 156 and 157):
 If the Bailee, mixes the goods bailed with his own goods, with the consent of the bailor, both
the parties shall have an interest in proportion to their respective shares in the mixture thus
produced (Section 155).
 If the bailee, without the consent of the bailor, mixes the goods bailed with his own goods
and the goods can be separated or divided, the property in the goods remains in the parties
respectively; but the bailee is bound to bear the expense of separation 4 or division and any
damage arising from the mixture (Section 156).
 If the bailee, without the consent of the bailor mixes the goods of the bailor with his own
goods in such a manner that it is impossible to separate the goods bailed from the other
goods and to deliver them back, the bailor is entitled to be compensated by the bailee for
loss5 of the goods (Section 157).
4) Return the goods (Section 160 & 161): It is the duty of bailee to 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. [Section
160]
If, by the default of the bailee, the goods are not returned, delivered or tendered at the proper
time, he is responsible to the bailor for any loss, destruction or deterioration of the goods 6 from
that time. [Section 161]
5) Return an accretion from the Goods [Section 163]: In the absence of any contract to the contrary,
the bailee is bound to deliver to the bailor, or according to his directions, any increase or profit
which may have accrued from the goods bailed7.
6) Not to setup Adverse Title: Bailee must not set up a title adverse to that of the bailor. He must
hold the goods on behalf of and for the bailor. He cannot deny the title of the bailor.
1 – Example - If X bails his ornaments to ‘Y’ and ‘Y’ keeps these ornaments in his own locker at his house along with his
own ornaments and if all the ornaments are lost/stolen in a riot ‘Y’ will not be responsible for the loss to ‘X’. If on the other

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Rishabh Gaur 4 Special Contracts

hand ‘X’ specifically instructs ‘Y’ to keep them in a bank, but ‘Y’ keeps them at his residence, then ‘Y’ would be responsible
for the loss caused on account of riot.
Shanti Lal V. Takechand - A deposited his goods in B’s warehouse. On account of unprecedented floods, a part of the goods
were damaged. It was held that, B is not liable for the loss.
2 – Example - A lends a horse to B for his own riding only. B allows C, a member of his family, to ride the horse. C rides
with care, but the horse accidentally falls and is injured. B is liable to make compensation to A for the injury done to the
horse.
‘A’ hires a horse in Kolkata from B expressly to march to Varanasi. ‘A’ rides with due care, but marches to Cuttack instead.
The horse accidentally falls and is injured. ‘A’ is liable to make compensation to B for the injury to the horse.
3 – Example - A lends to B, a horse for his own riding. B gives the horse to C for riding. This contract is voidable at the
option of A, bailor.
4 – Example - A bails 100 bales of cotton marked with a particular mark to B. B, without A’s consent, mixes the 100 bales
with other bales of his own, bearing a different mark; A is entitled to have his 100 bales returned, and B is bound to bear
all the expenses incurred in the separation of the bales, and any other incidental damage.
5 – Example - A bails a barrel of Cape flour worth 4500 to B. B, without A’s consent, mixes the flour with country flour of
his own, worth only 2500 a barrel. B must compensate A for the loss of his flour.
6 – Example - X delivered books to Y to be bound. Y promised to return the books within a reasonable time. X pressed for
the return of the book. But Y, failed to deliver them back even after the expiry of reasonable time. Subsequently the books
were burnt in an accidental fire at the premises of Y. In this case Y was held liable for the loss.
7 – Example - A leaves a cow in the custody of B. The cow gives birth to a calf. B is bound to deliver the calf along with the
cow, to A.

Rights of Bailor
1) Right to terminate the bailment [Section 153]: A contract of bailment is voidable at the option of
the bailor, if the bailee does any act with regard to the goods bailed, inconsistent with the
conditions of the bailment.
2) Termination of bailment.
3) Right to demand back the goods (Section 159): When the goods are lent gratuitously, the bailor
can demand back the goods at any time even before the expiry of the time fixed 1 or the
achievement of the object.
However, due to the premature return of the goods, if the bailee suffers any loss, which is more
than the benefit actually obtained by him from the use of the goods bailed, the bailor has to
compensate the bailee.
4) Right to file a suit against a wrong doer [Section 180 and section 181]
5) Right to sue the bailee: The bailor has a right to sue the bailee for enforcing all the liabilities and
duties of him.
6) Right to compensation: If any damage is caused to the goods bailed because of the unauthorized
use of the goods or unauthorized mixing of the goods, the bailor has a right to claim compensation
for the same.
1 – Example - A, while going out of station delivered his ornaments to B for safe custody for one month. But A returned to
station after one week. He may demand the return of his ornaments even though the time of one month has not expired.

Rights of Bailee
1) Right to Deliver the Goods to any one of the joint bailors [Section 165] - If several joint owners
bailed the goods, the bailee has a right to deliver them to any one of the joint owners 1 unless
there was a contract to the contrary.
2) Right to indemnity (Section 166): Bailee is entitled to be indemnified by the bailor for any loss
arising to him by reasons that the bailor was not entitled to make the bailment or to receive back
the goods or to give directions in respect to them. If the bailor has no title to the goods, and the
bailee in good faith, delivers them back to, or according to the directions of the bailor, the bailee
shall not be responsible to the owner in respect of such delivery. Bailee can also claim all the
necessary expenses incurred by him for the purpose of gratuitous bailment.
3) Right to claim compensation in case of faulty goods (Section 150): A bailee is entitled to receive
compensation from the bailor or any loss caused to him due to the failure of the bailor to disclose

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Rishabh Gaur 5 Special Contracts

any faults in the goods known to him. If the bailment is for hire, the bailor will be liable to
compensate even though he was not aware of the existence of such faults.
4) Right to claim necessary expenses (Section 158): In case of gratuitous bailment, the bailor shall
repay to the bailee the necessary expenses incurred by him and any extraordinary expenses
incurred by him for the purpose of the bailment.
5) Right to Apply to Court to Decide the Title to the Goods [Section 167]: If the goods bailed are
claimed by the person other than the bailor, the bailee may apply to the court to stop its delivery
and to decide the title to the goods2.
6) Right of particular lien for payment of services [Section 170]
7) Right of general lien (Sec. 171)
1 – Example - A, B and C are the joint owners of a harvesting combine. They delivered it on hire to D for one month. After
the expiry of one month, D may return the “combine” to any one of the joint owners namely, A, B or C.
2 – Example - A, a dealer in T.V. delivered a T.V. to B for using in summer vacation. Subsequently, C claimed that the T.V.
belonged to him as it was delivered only for repairs, to A and thus, B should deliver it to him. In this case, B may apply to
the Court to decide the question of ownership of the T.V. so that he may deliver it to the right owner.

Right of Bailor and Bailee against any Wrong Doer (Third Party)
 Suit by bailor & bailee against wrong doers [Section 180]: If a third person wrongfully deprives
the bailee of the use or possession of the goods bailed, or does them any injury, the bailee is
entitled to use such remedies as the owner might have used in the like case if no bailment had
been made; and either the bailor or the bailee may bring a suit against a third person for such
deprivation or injury.
 Apportionment of relief or compensation obtained by such suits [Section 181]: Whatever is
obtained by way of relief or compensation in any such suit shall, as between the bailor and the
bailee, be dealt with according to their respective interests.

Termination of Bailment
A contract of bailment shall terminate in the following circumstances:
 On expiry of stipulated period: If the goods were given for a stipulated period, the contract of
bailment shall terminate after the expiry of such period1.
 On fulfillment of the purpose: If the goods were delivered for a specific purpose, a bailment shall
terminate on the fulfillment of that purpose2.
 By Notice:
 Where the bailee acts in a manner which is inconsistent with the terms of the bailment, the
bailor can always terminate the contract of bailment by giving a notice to the bailee.
 A gratuitous bailment can be terminated by the bailor at any time by giving a notice to the
bailee. However, the termination should not cause loss to the bailee in excess of the benefit
derived by him. In case the loss exceeds the benefit derived by the bailee, the bailor must
compensate the bailee for such a loss (Sec. 159).
 By death: A gratuitous bailment terminates upon the death of either the bailor or the bailee.
 Destruction of the subject matter: A bailment is terminated if the subject matter of the bailment
is destroyed3 or there is a change is in the nature of goods which makes it impossible to be used
for the purpose of bailment.
1 – Example - X gives his motorcycle to Y for a month. The bailment terminates after 1 month.
2 – Example - X hires certain tents and crockery on marriage of his daughter. The bailment terminates after marriage.
3 – Example - X gives his cycle to Y on hire. Cycle damaged beyond repairs. Bailment ends.

Finder of Lost goods

 Right of finder of lost goods- may sue for specific reward offered [Section 168]: A person who
finds some goods which do not belong to him, is called the finder of the goods. It is the duty of the
finder of goods to find the true owner and surrender the goods to him. However, the finder of

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Rishabh Gaur 6 Special Contracts

goods has no right to sue the owner for compensation for trouble and expense voluntarily incurred
by him in finding the owner and preserving the goods found. But he has a right to retain the goods
against the owner until he receives such compensation; and, where the owner has offered a
specific reward on the lost goods, the finder may sue the owner for such reward, and may retain
the goods until then.
 When finder of thing commonly on sale may sell it [Section 169]: When a thing which is
commonly the subject of sale if lost, if the owner cannot with reasonable diligence be found, or if
he refuses, upon demand, to pay the lawful charges of the finder, the finder may sell it—
1) when the thing is in danger of perishing or of losing the greater part of its value, or
2) when the lawful charges of the finder in respect of the thing found amount to two- thirds of
its value.

Right of Lien
Lien is the right of a person
 to retain the goods belonging to another
 until his claim is satisfied or
 some debt due to him is repaid.
Types of Lien
Lien may be of two types:
a) Particular Lien
b) General Lien
Particular Lien: It is a right to retain only the particular goods in respect of which the claim is due.
Section 170 provides, where the bailee has, in accordance with the purpose of the bailment, rendered
any service involving the exercise of labour or skill in respect of the goods bailed, he has, in the absence
of a contract to the contrary, a right to retain such goods until he receives due remuneration for the
services he has rendered in respect of them1.
General Lien: It is a right to retain the goods not only for demands arising out of the goods retained
but for a general balance of account in favour of certain persons (in the absence of a contract to the
contrary). Section 171 provides this right is available to Bankers, factors, wharfingers, policy brokers
and attorneys of law.
Under the right of general lien the goods cannot be sold but can only be retained for dues. The right
of lien can be waived through a contract.
1 – Example 1 - ‘A’ gives cloth to ‘B’, a tailor, to make into a coat. ‘B’ is entitled to retain the coat until he is paid.
Example 2- If in the above example, ‘B’ takes 15 days time to make the coat, right of lien will be applicable after 15 days.
Example 3 - A delivers a rough diamond to B, a jeweller, to be cut and polished, which is accordingly done. B is entitled to
retain the stone till he is paid for the services he has rendered.
2 – Example - A’ borrows 500/- from the bank without security and subsequently again borrows another 1000/- but with
security of say certain jewellery. In this illustration, even where ‘A’ has returned 1000/- being the second loan, the banker
can retain the jewellery given as security to the second loan towards the first loan which is yet to be repaid.

General lien Particular lien

Section 171 of the Indian Contract Act, 1872 Section 170 of the Indian Contract Act, 1872
confer on Bailee the right of General Lien. confers on the Bailee, the right of particular lien.
General lien alludes to the right to keep Particular lien implies a right of the bailee to retain
possession of goods belonging to other against specific goods bailed for non-payment of amount.
general balance of account.
A general lien is not automatic but is recognized It is automatic.
through on agreement. It is exercised by the
bailee only by name.

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Rishabh Gaur 7 Special Contracts

It can be exercised against goods even without It comes into play only when some labor or skill
involvement of labor or skill. is involved has been expended on the goods,
resulting in an increase in value of goods.
Only such persons as are specified under Bailee, finder of goods, pledgee, unpaid seller,
section 171, e.g., Bankers, factors, wharfingers, agent, partner etc. are entitled to particular
policy brokers etc. are entitled to general lien. lien.

Pledge
“Pledge”, “pawnor” and “pawnee” defined [Section 172]: The bailment of goods as security for
payment of a debt or performance of a promise1 is called “pledge”. The bailor is in this case called the
“pawnor”. The bailee is called the “pawnee”.
Section 172 to 182 of the Indian Contract Act, 1872 deal with the contract of pledge.
1 – Example - A lends money to B against the security of jewellery deposited by B with him. This bailment of jewellery is a
pledge as security for lending the money. B is a pawnor/ pledger and A is a pawnee/ pledgee.

Essentials of Pledge
Since pledge is a special kind of bailment, therefore all the essentials of bailment are also the essentials
of the pledge. Apart from that, the other essentials of the pledge are:
 There shall be a bailment for security against payment or performance of the promise,
 The subject matter of pledge is goods,
 Goods pledged for shall be in existence,
 There shall be the delivery of goods from pledger to pledgee

Rights of Pawnee / Pledgee

 Right to retain the pledged goods [Section 173]: The pawnee may retain the goods pledged, not
only for payment of the debt or the performance of the promise, but for the interest, of the
debt1, and all necessary expenses incurred by him in respect of the possession or for the
preservation of the goods pledged.
 Right to retention of subsequent debts [Section 174]: The Pawnee can retain the goods pledged
for any debt or promise other than the debt or promise for which they are pledged. But he can
exercise this right only when there is a contract to this effect. i.e. a right to retain goods for
subsequent debts can be exercised only when it has been provided for in a contract to this effect.
 Pawnee’s right to extraordinary expenses incurred [Section 175]: The pawnee is entitled to
receive from the pawnor extraordinary expenses incurred by him for the preservation of the
goods pledged. For such expenses, however, he does not have the right to retain the goods, but
he can sue the pawnor for such expenses.
 Pawnee’s right where pawnor makes default [Section 176]: If the pawnor makes default in
payment of the debt, or performance, at the stipulated time of the promise, in respect of which
the goods were pledged, the pawnee has the following rights:
 the pawnee may bring a suit against the pawnor upon the debt or promise, and retain the
goods pledged as a collateral security; or
 he may sell the thing pledged on giving the pawnor reasonable notice of the sale.
If the proceeds of such sale are less than the amount due in respect of the debt or promise, the
pawnor is still liable to pay the balance. If the proceeds of the sale are greater than the amount so
due, the pawnee shall pay over the surplus to the pawnor.
1 – Example - Where ‘M’ pledges stock of goods for certain loan from a bank, the bank has a right to retain the stock not
only for adjustment of the loan but also for payment of interest.

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Rishabh Gaur 8 Special Contracts

Rights of Pawnor
As the bailor of goods, pawnor has all the rights of the bailor. Along with that he also has the right of
redemption to the pledged goods which is enumerated under section 177 of the Act.
Right to redeem [Section 177]
If a time is stipulated for the payment of the debt, or performance of the promise, for which the pledge
is made, and the pawnor makes default in payment of the debt or performance of the promise at the
stipulated time, he may redeem the goods pledged at any subsequent time before the actual sale of
them; but he must, in that case, pay, in addition, any expenses which have arisen from his default.
Note: Redemption means to recover back the goods by making of the payment of debt or performance
of promise.

Duties of the Pawnee

Pawnee has the following duties:
 Duty to take reasonable care of the pledged goods.
 Duty not to make unauthorized use of pledged goods.
 Duty to return the goods when the debt has been repaid or the promise has been performed.
 Duty not to mix his own goods with goods pledged.
 Duty not to do any act which is inconsistent with the terms of the pledge.
 Duty to return accretion to the goods, if any.

Duties of a Pawnor
Pawnor has the following duties:
 The pawnor is liable to pay the debt or perform the promise as the case may be.
 It is the duty of the pawnor to compensate the pawnee for any extraordinary expenses incurred
by him for preserving the goods pawned.
 It is the duty of the pawnor to disclose all the faults which may put the pawnee under extraordinary
risks.
 If loss occurs to the pawnee due to defect in pawnor’s title to the goods, the pawnor must
indemnify the pawnee.
 If the pawnee sells the good due to default by the pawnor, the pawnor must pay the deficit.

Pledge by Non – Owner

Ordinarily, it is the owner of the goods, or any person authorized by him in that behalf, who can pledge
the goods. But in order to facilitate mercantile transactions, the law has recognised certain exceptions.
These exceptions are for bonafide pledges made by those persons who are not the actual owners of
the goods, but in whose possession the goods have been left.
 Pledge by mercantile agent [Section 178]: A mercantile agent, who is in the possession of goods
or document of title, with the consent of owner, can pledge them while acting in the ordinary
course of business as a Mercantile Agent.
Such Pledge shall be valid as if were made with the authority of the owner of goods. Provided,
Pawnee acted in good faith and had no notice that Pawnor has no authority to pledge.
 Pledge by person in possession under voidable contract [Section 178A]: When the pawnor has
obtained possession of the goods pledged by him under a contract voidable under section 19 or
section 19A (contracts where consent has been obtained by fraud, coercion, misrepresentation,
undue influence), but the contract has not been rescinded at the time of the pledge, the pawnee
acquires a good title to the goods, provided he acts in good faith and without notice of the
pawnor’s defect of title.

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Rishabh Gaur 9 Special Contracts

 Pledge where pawnor has only a limited interest [Section 179]: Where a person pledges goods in
which he has only a limited interest i.e. pawnor is not the absolute owner of goods, the pledge is
valid to the extent of that interest1.
 Pledge by a co-owner in possession: Where the goods are owned by many person and with the
consent of other owners, the goods are left in the possession of one of the co-owners. Such a co-
owner may make a valid pledge of the goods in his possession.
 Pledge by seller or buyer in possession: A seller, in whose possession, the goods have been left
after sale or a buyer who with the consent of the seller, obtains possession of the goods, before
sale, can make a valid pledge, provided the pawnee acts in good faith and he has no knowledge of
the defect in title of the pawnor2.
1 – Example - Mr. X finds a defective mobile phone lying on the road. He picks it up, gets it repaired for 5000. He later
pledges the mobile phone for 2,000. The true owner can recover the mobile phone only on paying 5,000.
Example - ‘A’ pledges his jewellery worth 1,00,000 with ‘B’ for a advance of 70,000. ‘B’ pledges the same for 90,000 with
‘C’. Now this pledge is valid upto 70,000 plus interest due thereon.
2 – Example - A buys a cycle from B. But leaves the cycle with the seller. B then pledges the cycle with C, who does not
know of sale to A, and acted in good faith. This is valid pledge.

Difference between bailment and pledge

Basis of Bailment Pledge
Distinction
Meaning Transfer of goods by one person to Transfer of goods from one person to
another for some specific purpose another as security for repayment of
is known as bailment. debt is known as the pledge.
Parties The person delivering the goods The person who delivers the good as
under a contract of bailment is security is called the “Pawnor”.
called as “Bailor”. The person to whom the goods are
The person to whom the goods are delivered as security is called the
delivered under a contract of “pawnee”.
bailment is called as “Bailee”.
Purpose Bailment may be made for any Pledge is made for the purpose of
purpose (as specified in the contract delivering the goods as security for
of bailment, eg: for safe custody, for payment of a debt, or performance of a
repairs, for processing of goods). promise.
Consideration The bailment may be made for Pledge is always made for
consideration or without a consideration.
consideration.
Right to sell The bailee has no right to sell the The pawnee has right to sell the goods if
the goods goods even if the charges of the pawnor fails to redeem the goods.
bailment are not paid to him. The
bailee’s rights are limited to suing
the bailor for his dues or to exercise
lien on the goods bailed.

Right to use Bailee can use the goods only for a Pledgee or Pawnee cannot use the goods
of goods purpose specified in the contract of pledged.
bailment and not otherwise.

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