Distinguish between ‘Bailment’ and ‘pledge’. Can “non-owners create a valid pledge”? Explain.

  Bailment is described as the delivery of goods by one person to another for some purpose upon the condition that the goods would be, when the purpose is accomplished be returned to the bailor or to any other person, according to the directions of the bailor. It has been classified in the following three heads, namely: for the exclusive benefit of the bailor, for the exclusive benefit of the bailee and for the mutual benefit of the bailor and bailee. It can also be differentiated between gratuitous and non-gratuitous bailment on the basis of reward.

Pledge is treated as special kind of bailment in which a movable thing is bailed as security for the repayment of a debt or for the performance of a promise. Pledge is also referred to as a pawn.

The person who takes the loan is called the pledger or the pawnor. Where as the person with whom goods are pledged is called the pawnee or the pledgee. The pledgee is not passed the ownership of the pledged goods.

That is, it is with the pledger that the general property of the pledged goods remains, however, a special property init is passed on to the pledgee. This special property is the right to the possession of the articles along with the power of sale on a default, and the property pledged should be delivered to the pledgee.

In case where the possession of the goods is with a third party, who, on the direction of the pledger, consents to hold them on behalf of the pledgee is enough delivery. For example, a railway receipt is a document of title of the goods and a pledge of the receipt operates as a pledge of the goods.

Any of the following persons can make a valid pledge:

1. The owner or his authorized agent; or

2. One of the several co-owners, who is in the sole possession of goods, with the consent of other owners; or

3. A mercantile agent, who is in possession of the goods with the consent of real owner; or

4. A person in possession under a voidable contract, before the contract is rescinded; or

5. A seller, who is in possession of goods after sale or a buyer who has obtained possession of the goods before sale; or

6. A person who has a limited interest in the property.

The law in order to facilitate mercantile transaction has recognized certain exception to the general rule of the owner pledging the goods. It is because of this fact that these pledges are for bonafide pledges made by the persons who are not the actual owners. These would include the following:

1. Pledge by a mercantile agent: The following necessary conditions of validity under this section are:

(a) The person pledging the goods must be a mercantile agent;

(b) Mercantile agent must be in possession either of the goods or the documents of title to goods;

(c) Such possessions must be with the consent of the owner;

(d) Pledge must have been made by the mercantile agent when acting in the ordinary course of business;

(e) The pledgee must act in good faith; and

(f) The pledgee should have no notice of the pledger's defect of title.

2. Pledge by person in possession under voidable contract: If the consent is caused due to misrepresentation, fraud, coercion, undue influence or mistake such contract is voidable at the option of the person where the consent was so obtained. If the goods are pledged by the person who had obtained their possession under a voidable contract then the pledge is valid provided that the contract has not been rescinded at the time of pledge. Also that the pledgee had acted in good faith.

3. Pledge where pledger has only a limited interest: Where the pawner is not the actual owner of the goods, but has a limited interest and he pledges the goods, then the pledge is valid to the extent of that interest.

4. Pledge by a co-owner in possession: If the goods are owned by many persons and with the consent of the other owners, the goods are left with one of the co-owners, then it makes a valid pledge if the goods in his possession.

5. Pledge by seller or buyer in possession: A seller in possession in whose possession the goods have been left after the sale or a buyer who with the consent of the seller has the possession of the goods before sale makes it a valid pledge provided that the pawnee acts in good faith and does not have knowledge of the defected title. 

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