Bailment, Pledge, Hypothesis and Mortgage
1. Bailment
Definition:
Bailment is a delivery of goods by one person (the bailor) to another (the bailee) for some purpose under an agreement that the goods will be returned or otherwise disposed of according to the bailor’s instructions.
Governed by Sections 148 to 171 of the Indian Contract Act, 1872.
Essential Features:
Delivery of goods.
Purpose agreed upon.
Return or disposal of goods as per bailor’s instructions.
No transfer of ownership.
Rights & Duties:
Bailor must disclose defects, pay agreed compensation.
Bailee must take reasonable care and return goods.
Case Law:
Lalman Shukla v. Gauri Dutt (1913) – The bailee’s duty is to take reasonable care and return the goods.
2. Pledge
Definition:
A pledge is a special kind of bailment where goods are delivered as security for payment or performance of a debt or obligation.
Governed by Sections 172 to 181 of the Indian Contract Act, 1872.
Essential Features:
Bailment of goods.
Goods as security for a debt.
Possession of goods transferred to the pledgee.
Ownership remains with the pledgor.
Rights & Duties:
Pledgee (the person holding goods) has a right to retain the goods until the debt is paid.
Can sell the goods if the debt is not paid after due notice.
Pledgor must pay debt and can reclaim goods.
Case Law:
K.C. Alexander v. State Bank of Travancore (1969) – The pledgee has a right to sell pledged goods if debt is not paid after notice.
3. Hypothecation
Definition:
Hypothecation is a charge on movable goods without delivery of possession, created as security for a debt.
Common in banking and finance.
Essential Features:
No transfer of possession to the creditor.
Charge over goods remains with the debtor.
Creditor has right to seize goods if debt is not paid.
Governed primarily by contract and banking regulations; no specific statutory provision like pledge.
Differences from Pledge:
| Feature | Pledge | Hypothecation |
|---|---|---|
| Possession | Transferred to pledgee | Remains with debtor |
| Nature | Bailment of goods as security | Charge on goods without bailment |
| Control | Pledgee controls goods | Debtor retains control |
Case Law:
State Bank of India v. M. Ramaswamy (1965) – Recognized hypothecation as a security interest without possession transfer.
4. Mortgage
Definition:
Mortgage is a transfer of interest in immovable property as security for repayment of debt.
Governed by the Transfer of Property Act, 1882 (Sections 58 to 104).
Essential Features:
Transfer of interest in immovable property.
Secures payment of debt or performance of an obligation.
No delivery of possession necessarily.
Property is returned after debt repayment.
Types of Mortgage:
Simple Mortgage: Transfer of interest without possession.
Mortgage by Conditional Sale: Transfer subject to condition of repurchase.
Usufructuary Mortgage: Mortgagee gets possession and profits till debt is paid.
English Mortgage: Mortgagee can sue for repayment and sell property.
Equitable Mortgage: By deposit of title deeds without formal registration.
Rights & Duties:
Mortgagor (borrower) must repay debt.
Mortgagee (lender) can enforce sale or possession if debt not repaid.
Courts intervene to protect mortgagor’s rights.
Case Law:
Sundar Ram v. Collector of Madras (1953) – Emphasized mortgagor’s right to redeem.
K.K Verma v. Union of India (1989) – Recognized equitable mortgage by deposit of title deeds.
Summary Table
| Feature | Bailment | Pledge | Hypothecation | Mortgage |
|---|---|---|---|---|
| Nature | Delivery of goods for safekeeping or purpose | Bailment as security for debt | Security on movable goods without possession transfer | Transfer of interest in immovable property as security |
| Possession | Transferred to bailee | Transferred to pledgee | Remains with debtor | May or may not involve possession transfer |
| Subject Matter | Movable goods | Movable goods | Movable goods | Immovable property |
| Ownership | Remains with bailor | Remains with pledgor | Remains with debtor | Transferred to mortgagee as security |
| Governing Law | Indian Contract Act | Indian Contract Act | Contract and Banking Law | Transfer of Property Act |
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