What is The Difference Between Bailment and Pledge

Updated on

Sep 03, 2023

What is The Difference Between Bailment and Pledge

Wondering what could be the difference between Bailment and Pledge? Well, don't worry, as you are not alone in this confusion. It is common thing to get perplexed regarding these legal terms. Here let us understand the key difference here:

Key Difference between Pledge and Bailment:

Pledge and Bailment are two types of legal concepts that are in a way related but totally distant. In both situations, one party ( the pledgee or the bailee) holds the property that belongs to the opponent or the other party( the bailor or the pledgor). Although both the concept sounds the same, there are differences between the two.

In Bailment, the bailee, for a specific reason, holds the property belonging to another person, i.e., the bailor. Once the purpose of the Bailment has been fulfilled by the bailor, the bailee needs to return the property. Until then, the bailee is responsible for taking care of the property. Lending a tool to a friend or storing property in a storage unit are some of the most common examples of a legal relationship known as Bailment.

The Pledge is a type of Bailment under which a person can take a loan or other favor/ obligation by keeping the property to the pledgee, who holds the property as a collateral unit for offering the loan to the pledgor. The pledgor can take the property after paying the loan back to the pledgee; if the pledgor fails to do so, then the pledgee can sell it to recover the loan amount.

If we distinguish between Bailment and Pledge, then one of the key differences is the overall purpose for which a property is being held between both parties. While in the Bailment, it is held due to a specific purpose, such as using or storing it, in Pledge, on the other hand, it is held as a security or collateral unit for a loan, favor, or other obligations.

Another key difference is that, after fulfilling the purpose of the Bailment, the bailee is responsible for taking care of the property that is being held and returning it to the bailor. In a pledge, on the other hand, the pledgee is not in any circumstances responsible for taking care of the property and can only be responsible for holding it as a collateral unit until the obligation or loan is paid back.

Lastly, in the Bailment, the bailee doesn't have any right to sell the property until the bailor gives the bailee permission to sell it. But in the Pledge, the pledgee has the right to sell the property if the pledgor doesn't pay or fails to pay the loan or obligation.

Consideration may or may not be present in the case of Bailment, but in the Pledge, consideration is always present.

Overall both Bailment and pledges are similar in a way that they transfer the position of property for a particular reason, with the person receiving the property being responsible for taking care of the property and returning it once the purpose is fulfilled and the owner retaining the ownership. But the major difference here is the purpose of Bailment and Pledge. In short, every Pledge is a Bailment, but every Bailment cannot be considered a pledge.