by Bailment
Bailment is a legal relationship in which a person (the “bailor”) transfers possession of personal property to another person (the “bailee”) for a specific purpose, subject to certain terms and conditions. The property remains the property of the bailor, and the bailee has a duty to take care of the property while it is in their possession.
There are Three main types of Bailment:
- Bailment for the benefit of the bailor: In this type of bailment, the bailor transfers possession of the property to the bailee for the bailor’s own benefit. For example, the bailor may ask the bailee to store their personal property, such as a car or furniture, while they are out of town.
- Bailment for the benefit of the bailee: In this type of bailment, the bailor transfers possession of the property to the bailee for the bailee’s own benefit. For example, the bailor may lend their personal property, such as a car or a tool, to the bailee for their use.
- Mutual benefit bailment: In this type of bailment, both the bailor and the bailee receive some benefit from the transfer of possession. For example, the bailor may rent out their personal property, such as a car or a boat, to the bailee for a fee.
The Key features of bailment are:
- Delivery of personal property: Bailment requires the physical delivery of personal property from the bailor to the bailee. Personal property can include goods, documents, or even living creatures.
- Intention to create a bailment: There must be an agreement or understanding between the bailor and the bailee that a bailment has been created. This can be expressed or implied.
- Purpose of the bailment: The bailor must have a specific purpose in mind for the property, such as storage, repair, or transportation.
- Possession and control: The bailee must have possession and control over the property during the bailment, but only for the specific purpose agreed upon with the bailor.
- Duty of care: The bailee has a duty to take reasonable care of the property during the bailment, and is responsible for any damage or loss that occurs due to their negligence or breach of this duty.
- Return or disposal of property: Once the purpose of the bailment has been fulfilled, the bailee must return the property to the bailor or dispose of it according to the bailor’s instructions. If the bailee fails to do so, they may be liable for conversion (i.e., wrongfully retaining or disposing of the property).
Pledge
Pledge is a legal concept that involves the transfer of possession of personal property as security for a debt or obligation. In a pledge, the person who owes the debt or obligation (the pledgor) transfers possession of the property to the person to whom the debt is owed (the pledgee), who holds the property until the debt is repaid or the obligation is fulfilled.
Here are some key features of a pledge:
- Transfer of possession: The pledgor must transfer possession of the property to the pledgee, either physically or through a symbolic transfer of control.
- Security for a debt or obligation: The pledge is created as security for a debt or obligation that is owed by the pledgor to the pledgee.
- Specific property: The property that is pledged must be specifically identified and described, and must be capable of being transferred and possessed by the pledgee.
- Continuing interest in property: The pledgor retains a continuing interest in the property even though it is in the possession of the pledgee.
- Rights and duties of the pledgee: The pledgee has a duty to take reasonable care of the property and must return it to the pledgor once the debt or obligation has been satisfied. In the event of default, the pledgee may have the right to sell the property to recover the debt or obligation.
- Priority of the pledge: If the pledgor has pledged the same property to multiple pledgees, the pledge that was created first will generally have priority over subsequent pledges.
There are several types of pledges that are commonly used, depending on the nature of the debt or obligation being secured, the type of property being pledged, and other factors. Here are some of the most common types of pledges:
- Simple pledge: A simple pledge is the most basic type of pledge, where the pledgor transfers possession of the property to the pledgee as security for a debt or obligation. Once the debt is repaid or the obligation is fulfilled, the property is returned to the pledgor.
- Possessory pledge: In a possessory pledge, the pledgee not only takes possession of the property, but also assumes control over it, such as by taking steps to maintain or preserve it.
- Non–possessory pledge: In a non-possessory pledge, the pledgor retains possession of the property, but grants the pledgee a security interest in the property as collateral for a debt or obligation. The pledgee may have the right to take possession of the property in the event of default.
- Floating pledge: A floating pledge involves the pledging of a group or class of assets that may change over time. For example, a business might pledge its inventory as collateral for a loan, but as the business sells inventory and replenishes it with new stock, the composition of the pledged assets changes.
- Equitable pledge: An equitable pledge involves the creation of a security interest in property that is not capable of being transferred or possessed by the pledgee. For example, a pledge may be created in intangible assets such as a patent or a trademark.
- Legal pledge: A legal pledge is a type of pledge that is created by operation of law, rather than by agreement between the parties. For example, a mechanic may have a legal right to retain possession of a car that has been repaired until the owner of the car pays for the repairs.
Key Differences Between Bailment and Pledge
| Bailment | Pledge |
| Definition: A legal relationship in which physical possession of property is transferred from one person (the bailor) to another person (the bailee), with the understanding that the property will be returned to the bailor or dealt with according to the bailor’s instructions. | Definition: A type of bailment in which property is transferred as security for a debt or obligation. The person making the pledge (the pledgor) transfers physical possession of the property to the person receiving the pledge (the pledgee). |
| Purpose: The purpose of bailment is usually for safekeeping, transportation, or repair of the property. | Purpose: The purpose of pledge is to provide security for a debt or obligation. |
| Parties: The parties involved in a bailment are the bailor and bailee. | Parties: The parties involved in a pledge are the pledgor and pledgee. |
| Return of property: In bailment, the property must be returned to the bailor when the bailment ends or the purpose of the bailment has been fulfilled. | Return of property: In pledge, the property must be returned to the pledgor when the debt or obligation for which it was pledged has been satisfied. |
| Rights of the parties: In bailment, the bailor retains ownership and possession of the property, and the bailee has possession but not ownership. The bailee has a duty of care to the property and must return it to the bailor when the bailment ends. | Rights of the parties: In pledge, the pledgee has possession of the property but not ownership. The pledgor retains ownership but transfers possession as security for a debt or obligation. If the pledgor defaults on the debt, the pledgee has the right to sell the property to satisfy the debt. The pledgee is entitled to any surplus from the sale of the property after the debt has been satisfied. |
| Termination: Bailment can be terminated by mutual agreement, by the completion of the purpose for which the bailment was made, or by the occurrence of some other event that terminates the bailment. | Termination: Pledge is terminated when the debt or obligation for which the property was pledged has been satisfied. |
Similarities Between Bailment and Pledge
Bailment and pledge are two legal concepts that involve the transfer of possession of property from one party to another. While there are important differences between the two, there are also some similarities:
- Transfer of possession: Both bailment and pledge involve the transfer of possession of property from one party (the bailor or pledgor) to another party (the bailee or pledgee).
- Duties of care: In both bailment and pledge, the party receiving possession of the property (the bailee or pledgee) has a duty to take reasonable care of the property while it is in their possession.
- Return of property: In both bailment and pledge, the property must be returned to the original owner (the bailor or pledgor) when the bailment or pledge is terminated or the purpose for the transfer of possession has been fulfilled.
- Liability for loss or damage: In both bailment and pledge, the party receiving possession of the property (the bailee or pledgee) may be held liable for any loss or damage that occurs to the property while it is in their possession
