Difference Between Bailment and Pledge
What is Bailment?
A bailment refers to a legal relationship in which possession of personal property is given by one party to another,
but the ownership of the property remains with the original owner. The person who holds the property is known as the
“bailee” and the person who gives the property is known as the “bailor”.
Examples of Bailment:
1. Leaving your car at a valet parking service.
2. Borrowing a friend’s camera for a vacation.
3. Renting a bike from a rental shop during a vacation.
Uses of Bailment:
1. Temporary transfer of possessions for safekeeping.
2. Renting goods or equipment for a certain period.
3. Temporary storage of belongings in a warehouse.
What is Pledge?
Pledge is a legal concept where a borrower gives a property as collateral to a lender to secure a loan. If the borrower
fails to repay the loan, the lender has the right to sell the pledged property to recover the amount owed.
Examples of Pledge:
1. Offering jewelry as security for a loan.
2. Providing a car as collateral for an auto loan.
3. Pledging stocks or bonds to secure a loan.
Uses of Pledge:
1. Obtaining loans or credit based on valuable assets.
2. Securing financial obligations with valuable property.
3. Facilitating business transactions through collateral.
Differences Between Bailment and Pledge
| Difference Area | Bailment | Pledge |
|---|---|---|
| Ownership | The ownership of the property remains with the bailor. | The ownership of the property is transferred to the lender. |
| Transfer of Possession | The bailee merely possesses the property. | The pledgee takes possession of the property. |
| Intention | Intention is to return the property after a specific purpose or time. | Intention is to use the property as collateral for a loan. |
| Right to Use | The bailee has no right to use the property for personal benefit. | The pledgee can use the property unless defaulted. |
| Liability | The bailee may be liable but within the terms of the bailment agreement. | The pledgee is not liable unless defaulted by the pledgor. |
| Sale of Property | Bailor cannot sell the property while in possession of the bailee. | Pledgee can sell the property in case of default by the pledgor. |
| Return of Property | The bailee must return the property after the specified purpose or time. | If the loan is repaid, the pledged property is returned to the pledgor. |
| Compensation | Bailment can be a paid or unpaid arrangement. | Pledge is usually made in exchange for a loan or credit. |
| Insurance | The bailor may choose to insure the property. | The pledgee may require insurance coverage on the pledged property. |
| Termination | Bailment can be terminated by either party or by fulfilling the agreement terms. | Pledge is terminated by repaying the loan and releasing the lien on the property. |
Conclusion:
In summary, the main differences between bailment and pledge lie in the ownership transfer, possession rights, intentions,
liabilities, and return of the property. While bailment is temporary and retains ownership with the bailor, pledge involves
the transfer of ownership to secure a loan. The bailee in bailment has no right to use the property, while the pledgee can
utilize it unless the pledgor defaults. Pledge provides the lender with the right to sell the property in case of default,
whereas in bailment, the bailor has no such authority.
People Also Ask:
Q: What is the purpose of bailment?
A: The purpose of bailment is to temporarily transfer possession of personal property for safekeeping, rental, or storage.
Q: Why is pledge used?
A: Pledge is utilized to provide security for loans or credit by offering valuable assets as collateral.
Q: Can a bailor use the property during bailment?
A: Yes, a bailor retains the right to use the property during the bailment period unless otherwise agreed upon.
Q: What happens if a borrower fails to repay a pledged property?
A: If the borrower defaults on the loan, the lender has the right to sell the pledged property to recover the amount owed.
Q: Is insurance necessary for a pledge?
A: The pledgee may require the pledgor to obtain insurance coverage on the pledged property to mitigate potential risks and
protect the value of the collateral.
