Law of Contracts II

Module 2
Jino M Kurian
Assistant Professor in Law
TNNLU
 Module 2
• Meaning of Bailment –
• Kinds of Bailment –
• Rights and Duties of Bailor and Bailee –
• Termination of Bailment –
• Finder of Lost Goods –
• 'Lien' and its kinds (including Bailee's lien) -
• Meaning of Pawn or Pledge –
• Essentials of Pledge –
• Persons who can create pledge –
• Rights and Duties of Pawnor –
• Rights and Duties of Pawnee –
• Distinction between Pledge and Hypothecation

jinomkurian
 Points
• Sections 148 to 181
• Bailment
• Sec 148 to 171
• Sec 180 & 181
• Sec 71
• Pledge
• Sec 172 to 179
• Illustrations
• Definition

jinomkurian
jinomkurian
jinomkurian
 • What kind of contract exists between the parties of a contract of
hiring of cars/bikes?

jinomkurian
jinomkurian
 after 3 months

jinomkurian
jinomkurian
 What are the features of these kind
of contracts?

jinomkurian
 Essential Elements
• It is a delivery of goods from one person to another.
• It should be goods (movable property).
• It is for some purpose
• It is upon a contract (condition) that the goods shall be returned either in
their original or in an altered form.
• It shall be returned or disposed of according to the direction of the person
who delivers them.
• The person who is delivering the goods is called bailor.
• The person who receives the goods is called bailee.
• The contract is between bailor and bailee

jinomkurian
 Points
• Recap
• Polling
• Section
• Ingredient
• Kinds
• 20th Century Finance Corpn Ltd v State of Maharashtra, (2000) 6 SCC 12 : AIR
2000 SC 2436 .
• Based on

jinomkurian
 Section 148. "Bailment", "bailor" and "bailee" defined
A "bailment" is the delivery of goods by one person to another for some
purpose, upon a contract that they shall, when the purpose is accomplished, be
returned or otherwise disposed of according to the direction of the person
delivering them. The person delivering the goods is called the "bailor". The
person to whom they are delivered is called the "bailee".
Explanation: If a person already in possession of the goods of other contracts
hold them as a bailee, he thereby becomes the bailee, and the owner becomes
the bailor of such goods, although they may not have been delivered by way of
bailment.

jinomkurian
 Section 148. "Bailment", "bailor" and "bailee" defined
A "bailment" is the delivery of goods by one person to another for some
purpose, upon a contract that they shall, when the purpose is accomplished, be
returned or otherwise disposed of according to the direction of the person
delivering them. The person delivering the goods is called the "bailor". The
person to whom they are delivered is called the "bailee".
Explanation: If a person already in possession of the goods of other contracts
hold them as a bailee, he thereby becomes the bailee, and the owner becomes
the bailor of such goods, although they may not have been delivered by way of
bailment.

jinomkurian
 Ingredients
• Specific movable property
• Delivery of possession
• possession is nine-tenths of the law“
• Constructive delivery can create
• Actual delivery
• Obligation to deal according to directions
• No need of express return clause
• Money
• Not bailment

jinomkurian
 Problem
• Suman gave 12gm of silver to Raja, who is a gold smith to make an
ornament for her. What kind of contract is involved in this case?

jinomkurian
 Sitla Bakksh Singh v Baij Nath, AIR
1936 Oudh 264

jinomkurian
 Tilendra Nath v United Bank of India
AIR 2002 Gau 1
• S.148 deals with Bailment. Bailment is established only when there is
delivery of goods by one person to another for some purpose upon a
contract that they shall when the purpose is accomplished, be
returned or disposed according to the direction of the person who
delivers the goods. It is the duty of the bailee to deal with the goods
according to the direction of the bailor.

jinomkurian
 Kinds
• 20th Century Finance Corpn Ltd v State of Maharashtra, (2000) 6 SCC
12 : AIR 2000 SC 2436 .
• On benefit
• On reward

jinomkurian
 20th Century Finance Corpn Ltd v
State of Maharashtra AIR 2000 SC
2436 .
• The Constitution Bench of the Supreme Court 34referred to the six
classes of bailment as rearranged by Sir William Jones in five classes
in Coggs v Bernard (1558–1774) All ER Rep 1, which are as follows:
• (i) the gratuitous deposit of a chattel with the bailee, who is simply to
keep it for the bailor;
• (ii) the delivery of a chattel to the bailee, who is to do something
without reward for the bailee to or with the chattel;
• (iii) the gratuitous loan of a chattel by the bailor to the bailee for the
bailee to use;
jinomkurian
 • (iv) the pawn or pledge of a chattel by the bailor to the bailee, who is
to hold it as a security for a loan or debt or the fulfillment of an
obligation; and
• (v) the hire of a chattel or services by the bailor to the bailee for
reward.
The first three classes are without compensation and are designated
gratuitous bailments; the others are bailments for reward, or for
valuable consideration.
Of the three kinds of gratuitous bailments, the first two are wholly for
the benefit of the bailor, and the third, wholly for the benefit of the
bailee.
jinomkurian
 Rights of Bailor
• Right of termination- sec 153
• Right to demand return of goods any time in case of gratuitous
bailment

Duties of Bailee are the rights of bailor and he can sue bailee for their
enforcement

jinomkurian
 Illustration
• A lets to B, for hire, a horse for his own riding. B drives the horse in
his carriage.

jinomkurian
 Duties of the bailor
• To disclose faults in the goods bailed –Sec 150
• Responsibility for title to the goods- Sec 164
• To bear necessary expenses of bailment – Sec 158
• Example in of repair
• Non gratuitous bailment then bailor should pay for the expenses
• To bear risk for loss etc

jinomkurian
 Polling
• R hired a motor launch from D for a holiday on river Thames. The
launch caught fire and R could not extinguish the fire as the fire-
fighting equipment was out of order. R was injured. Whether D is
liable for damages?

jinomkurian
 • Reed v Dean (1949) 1 K B 188

jinomkurian
 Duties of the bailee
• To take reasonable care -sec 151
• sec 152 Not
• Liability for the acts of servants Right of the bailor
• No deviation from the terms of contract: sec 153
illustration
• To use goods according to the conditions of bailment -Sec 154
• Must not mix up the goods with his own goods. Sec 155, 156, 157
Without demand
• To return the goods Sec 160 and 161
Otherwise, responsible to the loss
• To return any increase or profit from the goods Sec 163
illustration
• Must not set up an adverse title
Sec 164, 166, 167
jinomkurian
 Rights of the bailee
• Right to claim compensation in case of faulty goods (Sec 150)
• Right to claim necessary expenses –Sec 158
• Right to recover losses- Sec 164
• Right of delivery of goods to any one of the several joint bailors of goods –
Sec 165
Duty not to set up jus tertii –
• Right to implead- Sec 165 right of a third person -167
• Right to indemnity Sec 166-
• Right of particular lien for payment for service- remuneration (Sec 170)
• Right of general lien – Sec 171 Lein

• Right against third person- sec 180

jinomkurian
 Rights of bailor and bailee against
third parties
• Suit by bailor or bailee against wrong doer Sec 180
• Apportionment of relief or compensation obtained by such suits Sec
181
• Liability of hotel-keepers, common carriers etc – sec 151
Carriers Act 1865,
Railways Act 1890

jinomkurian
 Question
• A stayed in a hotel room in a hotel. The hotel-keeper knew that room
occupied by A was in an insecure condition. While was in dinning in
another part of the hotel building, some articles were stolen from his
room. A sued against the management of the hotel. Decide?

jinomkurian
 • Appellants: A. Cameron Vs. Respondent: Jan and Son (1922)ILR 44All735

jinomkurian
 • Right to retain goods
Lein • Bailee has rendered some service involving
labour or skill, to the goods bailed
Lein not entitled if has not completed
• Until receives the remuneration
• Sec 170 • Not in a contract to the contrary
• Sec 171

Particular Lein General Lein

• Attached to a particular /specific
goods
• To satisfy certain demands of the
baileee
• Not necessary that demands should
arise only out of the articles detained
under possession
• Legal claim on general balance of
account

jinomkurian
 Questions
• Raja gave 10 kg of wheat for flouring to Sudhakar who is running a
mill. Sudhakar mixed the flour of low quality with the floured wheat
given by Raja. Whether Sudhakar is liable to compensate Raja?

jinomkurian
 Rights and liabilities of the finder of
goods
• Sec 168
• Sec 169

• Finder = bailee But not to sue for

compensation

jinomkurian
 Pledge
• Illustrations
• Comparing with contract of bailment
• Sec 172

jinomkurian
jinomkurian
jinomkurian
 A buyer
receiving the
product
without
payment

jinomkurian
 Essentials
• Expressed
• Delivery to the pawnee
• Actual or constructive
• Delivery should be in pursuance of the contract
• Delivery should be for the purpose of security
• Delivery should be upon a condition to return

jinomkurian
 Bailment and pledge
• As a security
• No right to use
• Right to sell

jinomkurian
 Lien and Pledge
• Right to sell the goods
• Pledge is created by a contract, but lien can be created even
otherwise
• Right to sue

jinomkurian
jinomkurian
jinomkurian
jinomkurian
 Hypothecation

jinomkurian
 Hypothecation and Pledge
• Movable property, As a security of loan or performance of a promise
• Debtor continues to enjoy possession
• Deal with the property subject to the terms of the contract
• Frequently, debtor has to update the creditor
• Creditor may inspect the property at his convenience

jinomkurian
 Rights and duties of the pawner
• Duty to repay loan
• Right to receive goods till sold
• Sec 177
• Before the sale
• Additional expenses
• Entitled for increase or profits
• Calf, shares

jinomkurian
 Rights and duties of the Pawnee
• Right to receive payment of the debtor to obtain the performance of
promise with interest and expenses (sec 173)
• Right to particular lien (Sec 174)
• Right to receive extra ordinary expenses (sec 175)
• Pawnee’s right in case of default of the pawner (sec 176)
• Pawnee must not use the goods pledged.

• All other rights and duties of bailer and bailee

jinomkurian
 Pawnee’s right in case of default of
the pawner (sec 176)
• Bring a suit
• Retain the goods as a collateral security
• He may sell the goods pledged
• Reasonable Notice
• IF greater
• IF lesser

jinomkurian
 Dhani Ram & sons v Frontier Bank
AIR 1962 Punj 321
• The pledgee may sell the goods to himself but in case he has given a
value less than the market price of the goods, the pledger may make
him liable for the balance.

jinomkurian
 Pledge by non owners
• Pledge by a mercantile agent (sec 178)
• Pledge by person in possession under voidable contract sec 178A
• Pledge where pawner has only a limited interest Sec 179
• A pledgee may repledge the goods only to the extent of his interest (the
amount due to him and the interest)
• IF original pledge is invalid, repledge will also be equally invalid
• Pledge by a coowner in possession
• Pledge by seller or buyer in possession after sale
• Pawnee should be acting on good faith

jinomkurian
 Mercantile Agent
• Sale of Goods Act, 1930 Sec (9) “mercantile agent” means a
mercantile agent having in the customary course of business as such
agent authority either to sell goods, or to consign goods for the
purposes of sale, or to buy goods, or to raise money on the security of
goods
• Sec 178
• Consent of the owner
• Pawnee acts in good faith

jinomkurian
 Illustration
• Limited interest
• A finds a watch on the road and spends Rs.1000 on its repair. He
pledges it with B for Rs. 5000.
The real owner can get the watch by paying Rs. 1000

jinomkurian
 Illustration
• A buys goods from Y, pays for them but leaves them in the possession
of Y, and Y then pledges the goods with Z who does not know of sale
to X, the pledge is valid.

jinomkurian
 Termination of bailment
• On expiry of stipulated period
• On fulfillment of the purpose
• By notice
• By death

jinomkurian
 Question
• A, a mercantile agent was entrusted with certain diamonds for sale.
He pledged them through a friend with B. Whether this arrangement
is protected by law?

jinomkurian
 Answer
• Sec 178
• De Gorsgter v George Attenborough & Son

jinomkurian
 Question
• A purchases a car worth Rs. 10,000 from his student B for Rs. 5000 by
exercising undue influence over him. Before B takes any action for
rescinding the contract, A pledges the car with C for a sum of Rs.
5,000 who accepts this in good faith. Whether A has right to pledge
the car?

jinomkurian
 Answer
• Sec 178A

jinomkurian
 Sample Contract
• Assignment

jinomkurian