Legal Aspects of Business

Anurag Verma
Roll No: 35413
Assignment
Legal Aspects of Business
Date of Submission: 12/05/2013
Symbiosis Institute of Business Management
MBA [Ex. Edu.] Batch 2012-2014
Semester II – Division A

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Anurag Verma
MBA [Ex. Edu.] Batch 2012-2014, Semester – II
Assignment – Legal Aspects of Business
Table of Contents
Q1: Write short notes on Indemnity and Guarantee............................................................................3
Indemnity..........................................................................................................................................3
Indemnity under Indian Contract Act 1872 ..............................................................................................3
Key Fundamentals.....................................................................................................................................3
Essential Elements of an Indemnity Contract...........................................................................................3
Rights Of An Indemnity Holder .................................................................................................................4
Conclusion.................................................................................................................................................4
Guarantee .........................................................................................................................................5
Essential Elements of Contract of Guarantee...........................................................................................5
Kinds of Guarantee ...................................................................................................................................6
Difference Between Contract of Indemnity and Contract of Guarantee................................................7
Examples on Indemnity and Guarantee ..............................................................................................7
Q2: Write short notes on Bailment and Pledge...................................................................................8
Bailment............................................................................................................................................8
Essential Elements of a Valid Bailment.....................................................................................................8
Types of Bailment .....................................................................................................................................9
Duties of a Bailee ......................................................................................................................................9
Duties of a Bailor.....................................................................................................................................10
Bailee Rights............................................................................................................................................11
Bailor’s Rights..........................................................................................................................................11
Termination of Bailment.........................................................................................................................12
Pledge .............................................................................................................................................13
Rights of a Pawnee..................................................................................................................................13
Rights of a Pawner ..................................................................................................................................13
Pledge By a Non-Owner..........................................................................................................................14
Difference Between a Bailment and a Pledge....................................................................................14
Examples on Bailment and Pledge....................................................................................................14

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Q1: Write short notes on Indemnity and Guarantee
Indemnity
An indemnity contract arises when one individual takes on the obligation to pay for any loss or damage
that has been or might be incurred by another individual.
As a legal concept, it has a more specific meaning. For instance, compensation connotes merely a sum
paid to make good the loss of another without regard to the payer's identity, or their reasons for doing
so. As the following paragraphs should explain, an indemnity is a sub-species of compensation, in the
same way that damages and reparations are.
An obligation to indemnity can also be distinguished from a guarantee granted by one party in regard to
the potential debts of another. For example A might agree to stand guarantor (or surety) for her son C
(an poor law student) so that if C cannot afford to pay his rent to B (his canny landlord), A will be obliged
to pay for him. Here, C is the one primarily responsible for payment of the rent. A's liability is only
ancillary. The liability of an indemnifier, properly so-called, is primary.
Indemnity under Indian Contract Act 1872
As per section 124 of the Indian contract Act 1872 a contract by which one party promises to save the
other from loss caused to him by the conduct of the promisor himself, or by the conduct of any other
person, is called a "contract of indemnity".
Key Fundamentals
1. It is a promise to compensate for or security against damager, loss or injury
2. In wider sense it includes all contracts of insurance, guarantee. It it not a collateral but an
independent contract.
3. It is a tool for allocating risks contingent liability.
Essential Elements of an Indemnity Contract
All the essentials of a valid contract must also be present in the contract of indemnity. The contract of
indemnity is possible by the express or implied manner. It is a class of contingent contract. Following are
the essential elements of the indemnity contract
1. Loss to One Party
A person can indemnify another person, only if such other person incurs some loss or is about to
incur some loss. Therefore, a contract of indemnity can be performed only when the loss has
incurred to the promisee or the loss to the promisee has become certain.
2. Indemnity by the Promisor
The purpose of the contract of Indemnity is to protect the indemnity holder from any loss that may
be caused to the indemnity holder in future (i.e. such a loss has not already been caused to the
indemnity holder)

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3. Reason for Loss
The contract of indemnity may specify that the indemnity holder shall be protected from the loss
caused due to the action of the promisor, or the action of any other person or any act, event of
accident, which is not in the control of the parties.
Rights Of An Indemnity Holder
The indemnity holder has the right to recover the following from the indemnifier by the way of
compensation.
1. Right to Recover Damages
The indemnity holder is entitled to recover from indemnifier all the damages which he is compelled
to pay in any suit in respect of any matter covered by the contract of indemnity.
2. Right To Recover Costs
The indemnity holder is entitled recover from the indemnifier all the costs which he is compelled to
pay in bringing or defending such suit. It may be noted that the indemnity holder must act within
the scope of his authority and while bringing or defending the suit, he must as a prudent person.
3. Right to Recover Sums Paid in Compromise
The indemnity holder is entitled to recover from the indemnifier all the amount which he has paid
under the terms of a compromise of the suit. However, he must act within the scope of his
authority, While in a compromise, he must act like a prudent man.
Conclusion
Indemnity is a legal exemption from the penalties or liabilities incurred by any course of action. An
insurance payout is often called an in indemnity, or it can be insurance to avoid any expenses in case of
a lawsuit. Indemnification is a promise, usually as contract provision, protecting one party from financial
loss. This is something stated as a requirement that one party hold harmless the other. (Hold harmless
does not imply indemnification.
The first says I won’t make any claims against you and the second says I will pay the claims against
and/or your costs, etc.) Indemnification is a type of insurance which protects the one party from the
expenses of other. Indemnification clause cannot usually be enforced for intentional tortious conduct of
the protected party.
Corporate officers, board members and public officials often require an indemnity clause in their
contracts before they perform any work. In addition indemnification provisions are common in
intellectual properties. Licenses in which the licensor does not want to be liable for misdeeds of the
licensee. A typical license would protect the licensor against product liability and patent infringement.

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Guarantee
A contract of Guarantee is a contract to perform the promise, or discharge the liability of a third person
in case of his default.
The person who gives the guarantee is called the ‘surety’, the person in respect of whose default the
guarantee is given is called the principal debtor and the person to whom the guarantee is given is called
the creditor.
A guarantee may be either oral, or written (Section 126). The contract of guarantee may be express, or
implied, and may even be inferred from the course of conduct of the parties concerned.
For Example : Ramesh request Mohan to lend Rs 2000 to Sunil and guarantees that if Sunil fails to pay
the amount, he will pay. This is a contract of guarantee. Ramesh, in this case, is the surety, Mohan, the
creditor and Sunil, the principal debtor.
The contract of guarantee is a tripartite agreement which contemplates the principal debtor, the
creditor, and the surety. Here, the following three collateral contracts may be distinguished.
1. As between the creditor and the principal debtor, there is a contract out of which the
guaranteed debt arises.
2. As between the surety and the creditor, there is a contract by which the surety guarantees to
pay to the creditor, the principal debtor’s debt, in case of his debtor’s default.
3. As between, the surety and the principal debtor, there is a contract that the debtor shall
indemnify the surety, in case the surety pays, in the event of a default by the principal debtor.
This contract if it is not expressed between the parties is always implied.
Essential Elements of Contract of Guarantee
The essential elemetns of the contract of guarantee are discussed as under :
1. Concurrence
A contract of guarantee requires the concurrence of all the three parties to it viz., the principal
debtor, the creditor and the surety
2. Primary Liability in Some person.
There must be a primary liability in some person other than the surety. The word liability as used in
the definition of guarantee, means a liability which is enforceable at law. If that liability does not
exist, there cannot be a contract of guarantee. But a guarantee given for the debt of a minor is an
exception to this rule.
3. Essentials of a Valid Contract
A contract of guarantee must have all the essential elements of a valid contract like free consent,
capacity of parties, lawful object and consideration. But the following two points should be noted.
All the parties must be capable of entering into a valid contract though the principal debtor may be
a person suffering from the incapacity to contract. In such a case, the surety is regarded as the
principal debtor and is liable to pay personally, even though the principal debtor (e.g. a minor) is not
liable to pay.

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A consideration received by the principal debtor is sufficient for the surety and it is not necessary
that it must necessarily result in some benefit to the surety himself. It is sufficient if something is
done or some promise is made for the benefit of the principal debtor.
4. Writing Not Necessary.
A guarantee may be either oral or written. It may be express or implied. The implied guarantee may
be inferred from the course of conduct of the parties concerned.
Kinds of Guarantee
A guarantee may either be prospective or retrospective guarantee:
1. Retrospective Guarantee
A guarantee given for an existing debt or obligation is called the retrospective guarantee.
2. Prospective Guarantee
A guarantee given for a future debt or obligation is called prospective guarantee. A guarantee may
be classified either as a specific guarantee or a continuing guarantee
3. Specific Guarantee
When a guarantee extends to a single transaction or debit, it is called the specific guarantee. The
specific guarantee is also known as a simple guarantee. On the completion of a specific transaction,
the guarantee is discharged.
4. Continuing Guarantee
When a guarantee extends to a series of transactions, it is called the continuing guarantee. The
continuing guarantee does not come to an end on the performance of a single transaction, or the
discharge of debt but it will be enforceable for the subsequent transactions also. At the time of
giving a continuing guarantee, the surety can either fix the amount of time.
Examples
A, in consideration that B will employ C in collecting the rents of B’s zamindari, promises B to be
responsible to the amount of Rs 5000 for the due collection and payment by C of those rents. This is
continuing guarantee.
A becomes the surety of C for B’s conduct as manager in C’s bank, and B is appointed on the faith of
this guarantee. A is precluded from annulling the guarantee so long as B acts as a manager in C’s
bank.
A guarantee for the faithful discharge of his duties by a person appointed to a place of trust in a bank is
not a continuing guarantee. It is a guarantee of appointment.
A guarantee for payment of a certain sum by installments, within a definite time, is not a continuing
guarantee. It is a guarantee of loan.

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Difference Between Contract of Indemnity and Contract of
Guarantee
Sr
No.
Contract of Indemnity Contract of Guarantee
1 There are two parties to the contract, the
indemnifier (promisor) and the indemnified
(promise)
There are three parties to the contract, the
creditor, the principal debtor and the surety.
2 Liability of the indemnifier to the indemnified
is primary and independent
Liability of the surety to the creditor is
collateral or secondary, the primary liability
being that of the principal debtor.
3 There is only one contract in the case of a
contract of indemnity, i.e. between the
indemnifier and the indemnified
In a contract of guarantee, there are three
contracts, between the principal debtor and
the creditor, between the creditor and the
surety, and between the surety and the
principal debtor.
4 It is not necessary for the indemnifier to act at
the request of the indemnified
It is necessary that the surety should give the
guarantee at the request of the debtor
5 The liability of the indemnifier arises only on
the happening of a contingency
There is usually an existing debt or duty, the
performance of which is guaranteed by the
surety.
6 An indemnifier cannot sue a third party for the
loss in his own name because there is no
privity contract. He can do so only if there is an
assignment in his favour.
A surety, on discharging the debt due by the
principal debtor, steps into the shoes of the
creditor. He can proceed against the principal
debtor in his own right.
Examples on Indemnity and Guarantee
Indemnity Examples :
A car insurance policy is an example of indemnification. If a purchaser of car insurance policy is involved
in an accident wherein the liability for the accident is undisputedly of their insured driver, then the
insurance carrier has the duty to indemnify their insured driver in very specific ways to "make them
whole" again.
Jack would like to enter into a contract with Jill to build a playground, but Jill is hesitant because of the
potential future liability of such an endeavor. In this case, Jack could chose to indemnify Jill against
future claims that may arise due to Jill’s participation in the contract. Jill is protected and Jack gets Jill’s
participation.
Guarantee Examples
B requests A to sell and deliver to him goods on credit. A agrees to do so, provided C will guarantee the
payment of the price of the goods. C promises to guarantee the payment in consideration of A's promise
to deliver the goods. This is a sufficient consideration for C's promise.

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Q2: Write short notes on Bailment and Pledge
Bailment
The term bailment is derived from the French word ‘bailer’ which means to deliver a thing under a
contract. The delivery of goods by one person to another person for a specific purpose with a condition
to return the goods when the purpose is over or otherwise disposed off according to the direction of the
person.
The Person who delivers the goods is known as the ‘Bailor’ and the person who receives the goods is
known as the ‘Bailee’ and the transaction is known as ‘Bailment’
For Example : Salman gives a cloth to his tailor Shaukat for stitching. It is a bailment of the cloth. As soon
as the cloth is stitched, it will be returned to Salman.
Essential Elements of a Valid Bailment
The essential features of a valid bailment are discussed as under :
1. Delivery of Possession
Under the bailment, the possession of goods is delivered by the bailor to the bailee. If the
possession is not delivered, it is not a bailment. If the ownership is not transferred to other person,
it is not a bailment.
The delivery of goods may take place either by a way of an actual delivery or by a constructive
delivery. An actual delivery means, the bailor hands over the physical possession of goods to the
bailee, A constructive delivery means some act on the part of the bailor, which has the effect of
putting the goods in the possession of the bailee. The bailment is not possible with an immovable
property.
For Example : The deposit of money in a bank is not a bailment, since the money returned by the
bank would not be the identical currency notes. Moreover, money is not goods.
2. Contract between the parties
There must be a contract between the parties. The contract must be provided for the transfer of the
possession of goods from one person to another. The contract may be expressed or implied.
Sometimes the bailment may arise even without the contract, i.e. a finder of goods is treated as
bailee.
3. Delivery for Some purpose
The delivery of goods must be for some purpose. The purpose could be the safe custody of the
goods or the transportation of goods. The purpose may be expressly specified in the contract or may
be implied from the circumstances.
4. Return or Disposal of Goods
The goods must be delivered to the bailee for some purpose and subject to the condition that when
the purpose is achieved, the goods shall be returned to the bailor or disposed off according to his
direction. The return of goods may be in the original or altered form.

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Types of Bailment
A bailment can be classified either on the basis of reward or on the basis of benefits. The bailment on
the basis of reward can be classified as
 A Gratuitous Bailment
 A Non-Gratuitous Bailment
1. A Gratuitous Bailment
It is the bailment of goods without any charges or reward. The bailee is not required to pay any
charges for the bailment.
2. A Non-Gratuitous Bailment
It is the bailment for some charges or reward. The bailee is required to pay some charges to the
bailor. The bailment on the basis of benefit may be classified in the following three manners
Bailment for the Exclusive Benefit of a Bailor
It is the bailment in which the goods are delivered by the bailor to the bailee only for the exclusive
benefits of the bailor himself
Bailment for the Exclusive Benefit of a Bailee
It is the bailment in which the goods are delivered by the bailor to the bailee only for the exclusive
benefit of the bailee
Bailment for Mutual Benefit of Both Bailor and Bailee
It is the bailment in which the goods are delivered by the bailor to the bailee for the benefit of both
the parties.
Duties of a Bailee
Duties of a bailee in the bailment are grouped as under
1. Duty of Care – Sections 151 and 152
The bailee should take reasonable care of the goods which are in the possession. The degree of care
required by the bailee is similar to that of a man of ordinary prudence would take of his own goods
under the similar circumstances. If he has taken such care, he is not liable, even if the goods are lost
or damaged. He is also not liable for the destruction or the loss of goods due to an act of God.
For Example : If A bails her ornaments to B and B keeps these ornaments in her own locker at her
house along with his own ornaments and if all the ornaments are lost or stolen then B will not be
responsible for the loss to A
2. Compensation for an Unauthorized Use – Section 154
The bailee should not use the goods for an unauthorized purpose. He can use the goods as per the
terms of the bailment.
If the bailee makes any unauthorized use of goods, he shall be liable for any loss or destruction of
the goods even if he was not negligent. On any unauthorized use of goods, the bailor may terminate
the contract of bailment. In other words, the contract of bailment becomes voidable.

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3. Duty Not to Mix - Sections 155 - 157
The bailee should not mix the bailor’s goods with his own goods. If the bailee mixes his own goods
with the bailor’s goods with the bailor’s consent, the bailor and bailee shall have an interest in the
proportion to their respective shares in the mixture thus produced. It must be remembered that if
the mixture has taken place by an act of God, the bailee is not liable for such mixture.
When the bailee mixes the bailor’s goods with his own without a consent and the goods are
separable, the bailee is required to pay the cost of separation but if it cannot be separated, the
bailor entitled to be compensated
For 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.
4. Duty to Return Goods - Sections 160 and 161
On the achievement of the object or completion of the purpose or expiry of the contract period, the
bailee should return the goods to the bailor. When the bailor gives direction to the bailee for the
return of the delivery of goods, in such as case, the bailee should deliver the goods as per the
direction. The bailee should return or deliver the goods without waiting for the demand from the
bailor. In case, if the bailee fails to return the goods to the bailor, the goods will be at his risk even
though the loss as been created due to an act of God.
5. Duty to Return Increase or Profit - Sections 163
If the goods which are bailed due to any circumstances get an accretion, the goods should be
returned back along with such addition. If some profit arises from the goods, the bailee is bound to
return the profit of the bailor. This is however, subject to any contract to the contrary.
For Example : A leaves a cow in the custody of B to be taken care of. The cow has a calf and B is
bound to deliver the calf as well as the cow to A.
6. Duty Not to Setup Adverse Title
The bailee should not use the goods in such a way that it impairs the right of the bailor. The bailee,
as such, can apply the goods only for the purpose of bailment and thus he cannot create the adverse
title.
Duties of a Bailor
Duties of a bailor in the bailment are grouped as under
1. Duty to Disclose Fault – Section 150
It is the duty of the bailor to disclose the known defects in the goods. The bailor should compensate
the bailee for such a loss, if the bailer finds to disclose such defects and as a result, if the bailee
suffers from any loss. But these provisions are applicable only for the known defects. However, it
must be noted that a non-gratuitous bailer would be liable for known as well as unknown defects.
For 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 the
damage sustained.

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2. Duty to Bear Extraordinary Expenses – Section 158
The bailor is liable to reimburse, to the bailee, all the necessary and extraordinary expenses incurred
by the bailee in case of a gratuitous bailment. But in case of non-gratuitous bailment, the bailor is
liable to reimburse the extra-ordinary expenses incurred by the bailee.
3. Duty to Indemnify Loss for Permanent Termination of Bailment – Section 159
In case of a gratuitous bailment, the bailer may prematurely terminate the bailment. If the loss
caused to the bailee due the premature termination is more than the benefit obtained by the bailee,
it is the duty of the bailor to compensate the bailee for such an excess loss.
4. Duty to Indemnify the Bailee for Any Loss – Section 164
If the bailor does not have any title to deliver the goods on the bailment, he would be liable to
indemnify to the bailee for any loss which the bailee has paid to the original owner.
5. Duty to Receive Back the Goods – Section 164
If the bailor wrongfully refuses to take the custody of the goods, he is liable to pay to the bailee, the
necessary expenses of the custody.
6. Duty to Bear a Loss – Section 162
If the goods are destroyed or lost while in possession of the bailee without his fault, the bailor is
required to bear the loss.
Bailee Rights
The duties of the bailor are the rights of the bailee. In addition to these rights, the bailee has the
following rights:
1. Return or Delivery of Goods – Section 165
The bailee has a right to return the goods to anyone of the several joint bailors. It is not necessary
that the goods should be delivered in the presence of all the bailors. However, if any agreement
provides the contrary then the goods should be returned accordingly.
2. File Lawsuit to Court
If the bailee gets the ownership claims of the goods, from more than one person, he has a right to
request the court to decide the real ownership of the goods. Until the final decision comes, the
bailee can keep the goods with himself.
If the third person or the wrong does prevents the bailee to use the goods under the bailment, he
has the right to file a lawsuit and can ask for compensation from the third party.
3. To Recover Charges
The bailee has the right to recover the charges as agreed. The bailee has the right to recover the
expenses incurred by him.
4. Right of Lien
To recover his due, the bailee can exercise his right of lien. However, the bailee gets only a particular
lien and not the general lien.
Bailor’s Rights
The duties of bailee are the rights of the bailor. In addition, the bailor has the following rights :

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1. Enforcement
The bailor has a right to force the bailee to perform his duties. The bailor can compel the bailee to
take proper care of the goods. If the bailee neglect his duties, the bailor has the right to enforce by
filing a suit to the court.
2. Termination of Bailment – Section 153
If the bailee uses the goods, in an unauthorized manner, the bailor can terminate the bailment
before the completion of the bailment. A contract of bailment is regarded as a voidable contract. In
such an event, the bailee cannot suit the bailor for a breach of contract.
For Example : A lets on hire his horse to B for his own riding but B uses the horse for driving his
carriage. A has a right to terminate the contract of bailment.
3. File Lawsuit Against a Wrong Doer
To protect his goods, the bailor has a right to take a legal action against any person who has caused
any loss or damage to the goods.
4. To Demand Goods at Any Time – Section 159
In Gratuitous bailment, the bailor has a right to demand the return of goods even before time.
Termination of Bailment
The bailment is terminated in the following circumstances:
1. Fulfillment of Purpose
If the bailment contract is made for a specific purpose, it terminates as soon as the purpose is
achieved.
2. Termination by a Bailor
A gratuitous bailment may be terminated by the bailor at any time. The bailor may terminate the
gratuitous bailment even it if was for a specific purpose or for a specified time.
3. Death of Any Party
A Gratuitous bailment is terminated on the death of the bailor of the bailee.
4. Inconsistent use of Goods
If the bailee makes unauthorized use of the goods, in such a case, the contract of bailment becomes
voidable at the option of the bailor. If the bailor does so, the contract is terminated.
5. Time is Expired or End Time is reached.
If the bailment contract is made for a specific period, it terminates on the expiry of the specify
period.
6. Destruction of the Subject
On the destruction of the goods which is the subject-matter, the bailment is terminated.

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Pledge
A Pledge is a special kind of bailment. Here the goods are delivered as a security for the payment of debt
or for the performance of a promise. The person who delivers the goods is known as the Pledger or
Pawner and the person who receives the goods is known as the Pledgee or Pawnee. In the Pledge, there
is no change in the ownership of the property
Rights of a Pawnee
Following are the rights of a Pawnee with reference to the goods pledged:
1. Right of a Retainer – Sections 173 and 174
The pawnee can retain goods pledged with him until he is paid:
a. Money in Advance by him.
b. Necessary Expenses
c. Interest Paid on Debt
But the Pawnee has no right to retain the goods even for the subsequent advance.
For Example : Ramesh pledges stock of goods for certain loan from a bank, the bank has right to
retain the stock not only for adjustment of the loan but also for payment of interest.
2. Extraordinary Expenses – Section 175
The Pawnee has a right to retain the extra ordinary expenses related to the goods from the Pawner
for the preservation of the goods pledged with him.
3. When a Pawner Defaults – Section 176
If the Pawner makes a default, the Pawnee has a right to sell the goods after giving notice of his
intention to sell goods. Even if the title of the Pawner is defective, the Pawnee gets valid title. If sale
proceeds of the goods by the Pawnee are less than the amount of debt, the Pawnee can recover
such deficit from the Pawner.
On Default by the Pawner, the Pawnee has the right to file a recovery suit for the recovery of money
due, interest due on the money lent, the necessary expenses and the extraordinary expenses.
4. To Sell Goods
The Pawnee can sell the goods, if the Pawner makes a default after giving a reasonable notice. The
contract may exclude this right. If the sale is made by the Pawnee without notice is void.
Rights of a Pawner
Following are the rights of the Pawner under the Contract of Pledge:
1. Redeem Goods Pledged
The Pawner has a right to redeem his goods on the payment of debt or other charges. The right to
redeem means get back his goods.
The Pawner gets all the protection that is available to the ordinary debtor under any law, which is
for the time being enforced in India. The Pawner has a right to recover the extraordinary expenses
related to the goods from the Pawnee.
2. Surplus on Sale
The Pawner has the right to take back any increase alone with the goods. But the Pawner can get it
back only on the payment of debt or other charges.

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Pledge By a Non-Owner
Following are the rights of the Pawner under the Contract of Pledge:
1. Mercantile Agent
A mercantile agent means an agent who has the authority to sell the goods in the ordinary course of
business. At the time of creation of Pledge, the Pawnee has no notice of the fact that the mercantile
agent had no authority to pledge the goods.
2. Possession Under a Voidable Contract
The person possessing the goods under a voidable contract can make a valid pledge on the
satisfaction of following condition:
1. The voidable contract has not been declared as void.
2. The Pawnee must act in good faith. He should not have any notice of Pawner’s defective title.
3. Person with Limited Interest
When a person pledges the goods in which he has only limited interest, the pledge is valid only to
the extent of such limited interest.
4. Seller in Possession After Sale
When the seller continues to be in possession of goods even after sale, he can make a valid pledge
of goods. The pledge is valid only if the Pawnee acts in good faith and had not choice or previous
sale.
Difference Between a Bailment and a Pledge
The main distinction between a bailment and a pledge are as under:
1. The Pledge is a variety of bailment. Under a Pledge, the goods are bailed as a security for a loan or
performance of a promise. In a regular bailment, the goods are bailed for other purpose than the
two referred above. The bailee takes them for repairs and safe custody.
2. The Pledge enjoys the right to sell only on default by the Pledger to repay the debt or perform his
promise after giving due notice. In a bailment, the bailee, generally, cannot sell the goods. He can
either retain or sue for the non-payment of the dues.
3. The Pledgee has a right to use the goods. A bailee can, if the terms so provide to use the goods.
Examples on Bailment and Pledge
1. X delivers his car to Y for repair. It is the case of a Bailment
2. X delivers his car to Y for repair. Here X is a Bailor
3. X delivers his car to Y for repair. Here Y is a Bailee
4. Immovable Goods and Money does not come under Contract of Bailment
5. Depositing of Ornaments in a bank locker cannot come under Contract of Bailment because the
ornaments are still under the possession of the owner.
6. Any increase of profit from the goods bailed belongs to Bailor.
7. X borrows Rs 10000 from Y and keeps his bike as security. It comes under Contract of Pledge

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