Law of Contract-II

MODULE-1

What is Contract Of Indemnity ?

Contract of indemnity meaning is a special kind of contract. The term ‘indemnity’ literally
means “security or protection against a loss” or compensation. According to 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.”  

Example: P contracts to indemnify Q against the consequences of any proceedings

which R may take against Q in respect of a certain sum of money.

OBJECTIVE OF CONTRACT OF INDEMNITY

The objective of entering into a contract of indemnity is to protect the promisee against
unanticipated losses.

PARTIES TO THE CONTRACT OF INDEMNITY

A contract of indemnity has two parties.

1. The promisor or indemnifier

2. The promisee or the indemnified or indemnity-holder

The promisor or indemnifier: He is the person who promises to bear the loss.

The promisee or the indemnified or indemnity-holder: He is the person whose loss is

covered or who are compensated.

In the above-stated example,

 P is the indemnifier or promisor as he promises to bear the loss of Q.

 Q is the promisee or the indemnified or indemnity-holder as his loss is covered by

P.
ESSENTIALS OF CONTRACT OF INDEMNITY

1. PARTIES TO A CONTRACT: There must be two parties, namely, promisor or

indemnifier and the promisee or indemnified or indemnity-holder.

2. PROTECTION OF LOSS: A contract of indemnity is entered into for the purpose

of protecting the promisee from the loss. The loss may be caused due to the
conduct of the promisor or any other person.

3. EXPRESS OR IMPLIED: The contract of indemnity may be express (i.e. made by

words spoken or written) or implied (i.e. inferred from the conduct of the parties or
circumstances of the particular case).

4. ESSENTIALS OF A VALID CONTRACT: A contract of indemnity is a special

kind of contract. The principles of the general law of contract contained in Section
1 to 75 of the Indian Contract Act, 1872 are applicable to them. Therefore, it must
possess all the essentials of a valid contract.

 NUMBER OF CONTRACTS: In a contract of Indemnity, there is only one

contract that is between the Indemnifier and the Indemnified.

RIGHTS OF PROMISEE/ THE INDEMNIFIED/ INDEMNITY HOLDER

As per Section 125 of the Indian Contract Act, 1872 the following rights are available to
the promisee/ the indemnified/ indemnity-holder against the promisor/ indemnifier,
provided he has acted within the scope of his authority.

1. RIGHT TO RECOVER DAMAGES PAID IN A SUIT [SECTION 125(1)]:  An

indemnity-holder has the right to recover from the indemnifier all damages which
he may be compelled to pay in any suit in respect of any matter to which the
contract of indemnity applies.
 2. RIGHT TO RECOVER COSTS INCURRED IN DEFENDING A SUIT [SECTION
125(2)]: An indemnity-holder has the right to recover from the indemnifier all
costs which he may be compelled to pay in any such suit if, in bringing or
defending it, he did not contravene the orders of the promisor, and acted as it
would have been prudent for him to act in the absence of any contract of
indemnity, or if the promisor authorized him to bring or defend the suit.

3. RIGHT TO RECOVER SUMS PAID UNDER COMPROMISE [SECTION

125(3)]: An indemnity-holder also has the right to recover from the indemnifier all
sums which he may have paid under the terms of any compromise of any such
suit, if the compromise was not contrary to the orders of the promisor, and was
one which it would have been prudent for the promisee to make in the absence of
any contract of indemnity, or if the promisor authorized him to compromise the
suit.

Is contract of insurance a contract of indemnity?

In India contract of insurance is not a contract of Indemnity as it is a contingent

contract under sec.31
Under English Law, the word indemnity carries a much wider meaning than
given to it under the Indian Act. Under English law, a contract of insurance
(other than life insurance) is a contract of indemnity. Life insurance contract is,
however, not a contract of indemnity, because in such a contract different
consideration apply.

A contract of life insurance, for instance, may provide the payment of a certain
sum of money either on the death on a person or on the expiry of a stipulated
period of time (even if the assured is still alive) Indian Contract Act does not
specifically provide that there can be on implied contract of indemnity.
Commencement of Liability of Promisor/ Indemnifier
Indian Contract Act, 1872 does not provide the time of the commencement of
the indemnifier’s liability under the contract of indemnity. But different
High Courts in India have held the following rules in this regard:
Indemnifier is not liable until the indemnified has suffered the loss.
Indemnified can compel the indemnifier to make good his loss although he has
not discharged his liability

Contract of Guarantee1

Sec. 126 of the Indian Contract Act 1872, which deals with

the contract of guarantee, has defined it as “A contract to
perform the promise, or discharge the liability of a third person
in case of his defaults”.

Example: A advances a loan of Rs.10,000 to B, and C promises

A that if B does not repay the loan, I will repay it. This is a
contract of guarantee. It involves three parties namely,

1. Surety, who gives the guarantee.

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 2. Principal Debtor, in respect of whose default the guarantee
is given.

3. Creditor, to whom the guarantee is given.

Example: A supplies goods to B on C’s guaranteeing payment by

B to A. This means that if B does not pay, C would be liable to
pay. This is a “Contract of Guarantee”.

Here B is the principal debtor, C is the surety and A is the

creditor.

There are three contracts in contract of guarantee

1. Between creditor and Principal debtor

2. Between surety and creditor
3. Between surety and Principal debtor

Essentials of a Contract of Guarantee

1. Concurrence of All the Parties

All the three parties namely, the principal debtor, the creditor
and the surety must agree to make such a contract.
2. Liability

In a contract of guarantee, liability of the surety is secondary

i.e., the creditor must first proceed against the debtor and if the
latter does not perform his promise, then only he can proceed
against the surety.

3. Existence of a Debt

A contract of guarantee pre-supposes the existence of a liability,

which is enforceable at law. If no such liability exists, there can
be no contract of guarantee. Thus, where the debt, which is
sought to be guaranteed is already time barred or void, the
surety is not liable.

4. Consideration(chinnaya vs Ramaya)

There must be consideration between the creditor and the

surety so as to make the contract enforceable. The
consideration must also be lawful.  In a contract of guarantee,
the consideration received by the principal debtor is taken to be
the sufficient consideration for the surety.

Anything done, or any promise made, for the benefit of the principal
debtor may be sufficient consideration to the surety for giving the
guarantee

– Sec. 127 of Indian Contract Act, 1872..

Thus, any benefit received by the debtor is adequate
consideration to bind the surety. But past consideration is no
consideration for a contract of guarantee. There must be a fresh
consideration moving from the creditor.

5. Writing not Necessary

A contract of guarantee may either be oral or written. It may be

express or implied from the conduct of parties.

Note: A Contract of Guarantee must always be in writing

under English Law.

6. Essentials of a Valid Contract

It must have all the essentials of a valid contract such as offer

and acceptance, intention to create a legal relationship, capacity
to contract, genuine and free consent, lawful object, lawful
consideration, certainty and possibility of performance and
legal formalities.

7. No Concealment of Facts

The creditor should disclose to the surety the facts that are
likely to affect the surety’s liability. The guarantee obtained by
the concealment of such facts is invalid. Thus, the guarantee is
invalid if the creditor obtains it by the concealment of material
facts.
8. No Misrepresentation

The guarantee should not be obtained by misrepresenting the

facts to the surety. Though the contract of guarantee is not a
contract of uberrimae fidei i.e., of absolute good faith, and thus,
does not require complete disclosure of all the material facts by
the principal debtor or creditor to the surety before he enters
into a contract. But the facts, that are likely to affect the extent
of surety’s responsibility, must be truly represented

Difference between Contract of

Indemnity and Contract of
Guarantee2
Contract of Indemnity Contract of Guarantee

It refers to a Contract by which one party

It refers to a Contract to perform the
promises to save the other from loss
promise or discharge the liability of a third
caused by conduct of the promisor or
person in case of his default.
another person.

In contract of guarantee, the primary

In contract of indemnity, the liability of
liability is of principal debtor and the
the promisor is primary.
liability of surety is secondary.

The contract of indemnity can be oral or in In India it can be oral or in writing but in
writing both in India as well as in UK. UK it has to be in writing

In contract of indemnity there are two In contract of guarantee there are three

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 parties indemnifier and the indemnity parties i.e. creditor, the principal debtor
holder. and surety.

In contract of guarantee there are three

In Contract of indemnity there is only one agreements i.e. agreement between the
agreement i.e. the agreement between creditor and principal debtor, the creditor
indemnifier and indemnity holder. and surety and surety and principal
debtor.

Contract of indemnity protects the Contract of guarantee is for the surety of

promisee from loss. the creditor.

Principal debt

subrogation

Rights of a Surety3

A surety has the following rights:

1. Rights against the Creditor

As per section 141, a surety is eligible to the benefit of every security

which the creditor has against the principal debtor. This holds true
even if at the time of entering into the contract of guarantee the surety
was unaware of the existence of such a security.

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Also, when the creditor losses or parts with such security without the
consent of the surety, this discharges the surety to the extent of the
value of such security.

2. Rights against the Principal Debtor

Once the surety discharges the debt, he obtains the rights of a creditor

against the principal debtor. He can now sue the principal debtor for
the amount of debt paid by him to the creditor due to the default of
the principal debtor.

In a case where the principal debtor on discovering that the debt has
become due, starts disposing of his properties in order to prevent
seizure by the surety, the surety can compel the debtor to pay the debt
and discharge him from his liability to pay.

3. Surety’s rights against the co-sureties

When a surety pays more than his share to the creditor, he has a right
of contribution from the co-sureties, who are equally liable to pay.
For example, Anthony, Barkha, and Chaya are the co-sureties to
David for a sum of ₹30000 lent to Erwin who made default in
payment. Thus, Anthony, Barkha, and Chaya are liable to pay
₹10000 each as between them. So, in this case, if anyone of them
pays more than ₹10000, he can claim the excess from the other two
co-sureties so as to reduce his payment to ₹10000 only. However, if
one of the co-sureties becomes insolvent, the other co-sureties shall
contribute his share equally.

Right to share benefit of the security

Kinds of Guarantees

A contract of guarantee may be for an existing liability or for future

liability. A contract of guarantee can be a specific guarantee (for any
specific transaction only) or continuing guarantee.

Specific Guarantee: A specific guarantee is for a single debt or any

specified transaction. It comes to an end when such debt has been
paid.

Continuing Guarantee: A continuing guarantee is a type of

guarantee which applies to a series of transactions.

A continuing guarantee applies to all the transactions entered into by

the principal debtor until it is revoked by the surety. A continuing
guarantee can be revoked anytime by surety for future transactions by
giving notice to the creditors. However, the liability of a surety is not
reduced for transactions entered into before such revocation of
guarantee.
Discharge of a Surety (Sec.130 – 141)
A surety is discharged from his liability on:

1. Death of surety-The death of a surety as regards future

transactions in case of a continuing guarantee in the absence of a
contract to the contrary.

2. Notice of revocation -Notice of revocation as regards future

transactions in case of a continuing guarantee. For example, Anu
gives a guarantee to Bela to the extent of ₹50000, that Freida will
pay all the bills that Bela will draw upon her. Bela draws bills on
Freida and she accepts the bill. Anu gives notice of revocation.
Freida dishonours the bill at maturity. Anu is liable as it was a
transaction before the notice of revocation.

3. Variation in the terms -Any variation in the terms of the contract

between the principal debtor and the creditor without surety’s
consent.

4. Release of Principal Debtor -If the creditor releases the principal

debtor, the surety also automatically discharges.

5. Composition by the creditor- When the creditor makes an

arrangement for composition or promises to give time or not sue
the principal debtor without surety’s consent, the surety will be
discharged.
 6. Loss of security-Where the creditor loses or parts with any
security which he receives from the principal debtor without the
consent of the surety, this discharges the surety to the extent of the
value of such security.

Contract of Bailment
Meaning of bailment :
 The term bailment is derived from French word 'bailor' which means
to deliver. Bailment is a delivery of goods on condition that the
receipent shall ultimately restore them to the Bailor or dispose of
them according to the direction of the Bailee or dispose of them
according to the direction of the Bailor.
Section 148 defines ‘Bailment’ as “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 off according to the directions of the person delivering
them”.

Bailor:- The person delivering the goods is called ‘Bailor’.

Bailee:- The person to whom they (goods) are delivered is ‘Bailee’.

What are the Essential elements of bailment?4

Essentials of bailment
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There are various Essentials of bailment which must be there. Let’s discuss

essential elements of a contract of bailment:-

Contract

The [bailment] is always based upon the contract. there must be a contract

between Bailor and Bailee. Though, the contract can be “Express” or

“implied.”

Example: A gives his car to B for repair, here A is the Bailor and the B is

the Bailee and the purpose of the [bailment] is expressed by the A that he

wants to repair the car by B.

Delivery of possession

This is a very essential element of the contract of [bailment]; there must be

the giving of possession of the property by the Bailor to the Bailee to

perform the purpose of bailment. If the possession is not given there is

no [bailment].

Purpose

There should be the purpose of the bailment or giving personal property to

another person. The goods should be transferred by the Bailor to the Bailee

for some purpose.

 Example: A gives his car to X to repair that car. Here the repairing of the

car is the purpose of bailment.

Return of goods

The goods transferred by the Bailor to the Bailee are transferred on the

condition that it will be returned back to the Bailor after the fulfilment of the

purpose of the bailment. However, the goods can be returned back to the

Bailor in its original form or in altered form as the contract may be.

Bailment is concerned with the goods

Subject matter of bailment is goods.

Types of bailment
There are mainly 3 types of bailment under the act, which are as follow:

1. A bailment for the benefit of Bailor and Bailee

The bailment whereby contracting the bailment, both the person ie Bailor

and Bailee get benefits comes under this type.

Example: the best example for this when a Bailor parks his car in the paid

parking of Bailee. The Bailor will get the benefit to park his car and the

Bailee will get the money for parking.

 2. Only for the benefit of Bailor5

Where the bailment gives benefit to the Bailor only is cover under this.

Example: Free parking of the car of Bailor in the free parking lot of bailee.

3. Only for the benefit of Bailee

[bailment] which on gives the benefit to the Bailee only is comes under this.

These will be no profit to the Bailor.

Example: the best example of this is to read the books in the common

library; here you are the Bailee and the owner of the library is Bailor. You

can read the book free of cost and gain knowledge for yourself, you will get

benefits whereas the Bailor will get nothing.

Termination of bailment6
There are various situations when the [bailment] can be ended which

are:

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1. On the expiry of the term of bailment: where it is already specified

that the bailment will be for a specific period of time, the [bailment] will

be considered ended on that date.

2. On the fulfilment of the object: the bailment will be considered ended

when the object of the [bailment] has been fulfilled.

3. Destruction of goods: if the goods which were used in

the [bailment] were destroyed due to any reason, the contract of

bailment will be terminated.

4. On the death of Bailor or Bailee: on the death or either of the party,

the [bailment]will be terminated.

5. On the inconsistent act: if either of the party failed to comply with the

terms of the [bailment], the [bailment]will be terminated.

6. By notice: the [bailment] can be terminated by notice.

Duties of Bailee and Bailor7

Duties of a Bailee

Duties of a bailee in respect of goods are as follows:

1. Take proper care of goods

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According to section 151, it is the duty of a bailee to take care of
goods bailed to him. Bailee should take care of these goods as an
ordinary man will take care of his goods of the same value, quality,
and quantity.

Thus, if the bailee takes due care of goods then he will not be liable
for any loss, deterioration of such goods. Also, the bailee needs to
take the same degree of care of goods whether the bailment is for
reward or gratuitous.

However, the bailee is not liable for any loss due to the happening of
any act by God or public enemies though he agrees to take special
care of the goods.

Martin vs london county council 1947

A was admitted to hospital and her jewellery was removed by the hospital staff
and from their custody it was stolen. Hospital was held responsible

Ultzen vs Nicole

A entered in to the restaurant his coat was removed by the staff member and it
was hung on the back side of the chair of A. when A rose to leave the restaurant
he found his coat missing. Restaurant was held liable.

2. Not to make unauthorized use

As per section 153, the Bailee shall not make any unauthorized use of
goods bailed. In case he makes any unauthorized use, then bailor can
terminate the bailment.

Bailor can also claim for damages caused to goods bailed due to

unauthorized use as per Section 154.

3. Keep goods separate

 The bailee needs to keep the goods separately from his own goods.
He should not mix the goods under bailment with his own goods. In
case bailee mixes the goods with his own goods without the consent
of the bailor, then:

i. Bailor also has an interest in the mixture.

ii. If the goods can be separated or divided, the property in the goods
remains with both the parties. But, the bailee bears the expenses
of separation or any damages arising from the mixture.
iii. If it is not possible to separate the goods, the bailee shall
compensate the bailor for the loss of goods.
4. Not to set adverse title

A bailee must not set an adverse title to the goods bailed.

5. Return the Goods

The duty of the bailee is to return the goods without demand on the
accomplishment of the purpose or the expiration of the time period.
In case of his failure to do so, he shall be liable for the loss,
destruction, deterioration, damages or destruction of goods even
without negligence.

6. Return increase or profits

A bailee shall return the goods along with any increase or profit
accruing to the goods to the bailor, in the absence of any contract to
the contrary.

For example, A leaves a hen in the custody of B. The hen gets a

chick. B shall deliver the hen along with the chick to A.
Duties of a bailor   

Duties of a bailor are as follows:

1. To disclose all the known faults

It is the duty of a bailor to disclose all faults. If bailor fails to disclose

such faults then he will be responsible for the damage caused to
goods or loss suffered by the bailee.

2. To pay extraordinary exp.

Also, the bailor is under the duty to pay the extraordinary expenses
incurred by the bailee for such bailment.

3. To take the goods back

It is the duty of the bailor to accept the goods after the purpose for
which such goods were bailed is accomplished.

4. To indemnify in case of defective title

It is the duty of the bailor to indemnify the bailee for the cost
incurred due to the defective title of goods bailed to the bailee.

5. To indemnify the bailee in case of premature termination of

gratuitous bailment

A gave his old bicycle to B for three months. B spent Rs 600 on its
repair and then a after 15 days A demanded his bicycle back. Now A
must compensate B for the money B has spent on its repair.

Rights of Bailee:

The Rights of bailee are as follows -

1. Right to know Material faults in goods.

       The bailee has right to know material faults in goods. According to

Section150 of the Indian Contract Act, the bailor is bound to disclose to

the bailee faults in the goods bailed, of which the bailor is aware and

which materially interfere with the use of them or expose the bailee to

extraordinary risk and if he does not make such disclosure he is

responsible for damage arising to the bailee directly from such faults.

Ex. 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 damage sustained.

2.Right to claim expenses of bailment.

     The bailee has right to claim expenses of bailment  Section 158

of the Indian Contract Act, 1872 confers on bailee right to recover

expenses of bailment. 

3.  Right to claim Lien for remuneration

        The Bailee has right to claim lien for remuneration.The term 'Lien'

means  right of one person to retain possession of goods owned by

another until the possessor's claims against the owner have been

satisfied. 
Who is the finder of Goods?
Any person who finds the goods belonging to another person
and takes the goods in his custody is the finder of goods.

For Example, A found a wallet belonging to B on the road, A

picked the purse. Here, A is the finder of the goods.

Rights and Duties

According to Section 71 of the Indian Contract Act, if a
person finds the goods belonging to another person and
takes the goods in his custody then he has the same
responsibility as a bailee.

Rights of the Finder of Goods

The rights of the finder of goods are the same as that of the
bailee. These are discussed in detail below:

1. Right of lien

According to Section 168 of the Indian Contract Act, the

finder of the goods has no right to sue the owner of the
goods for compensation for the trouble and expenses that
have been incurred by him voluntarily. However, he has the
right to retain the goods unless the compensation is paid to
him.

For example, If A the finder of goods belonging to B has

incurred expenses for preserving the gold chain of B, then B
can not sue B for the compensation but can only retain the
goods unless such an amount is paid to A by B.

2. May sue for a specific reward

Under section 168 of the Indian Contract Act, the finder of

goods can sue the owner of the goods if he has offered a
specific reward for the return of the goods lost. He also has
the right to retain the goods unless he receives the reward
offered. Thus, if a reward is offered by the owner then the
finder has both the rights (i) right of lien (ii) right to sue.

thus, If A found a wallet belonging to B. B advertises that he

will pay a sum of ₹1,000 to a person whosoever finds the
wallet and return it. Here, if B denies paying the rewarded
sum then A has two options with him (i) He has the right to
sue B for the reward offered and, (ii) He has the right to
retain the wallet unless B pays the reward.

3. When finder of thing commonly on sale may sell it

According to Section 169 of the Indian Contract Act, if the

finder of goods is unable to find the true owner after due
diligence or if the owner refuses to pay the lawful charges to
the finder then he may sell the goods if:

1. Owner can not be found

 2. Owner found but refuse to pay reasonable exp.
3. The thing is perishable or is such of nature that it will
lose the greater part of its value.
4. When lawful charges of the finder amount to two-thirds
of the value of goods.

Duties of Finder of Goods

Duties of the finder of goods are the same as of the bailee.

The duties are discussed in detail below:

1. Duty to take reasonable care

Section 151 of the Indian Contract Act lays down that the
bailee is required to take reasonable care of the goods as he
would have taken the care of goods under similar
circumstances. Thus, the finder of goods is required to take
reasonable care of goods as he would have taken of his
goods.

Section 152 of the Act lays down that if there was not a
special contract to the contrary then the bailee can not be
made liable for the loss, destruction or deterioration of the
goods provided that he has taken the due care of the goods.

Burden of Proof

The burden of proof that the reasonable care was taken by

the finder of goods is on the finder if he proves the same
then he will not be liable.

2. Duty not to make unauthorised use

According to Section 154 of the Indian Contract Act states

that if a person makes the unauthorised use of goods then
he will be liable to make compensation to the bailor for any
damage caused to the goods. Thus, any unauthorised use of
the goods will make the bailee absolutely liable. [1]

3. Duty not to mix

The finder of goods is bound not to mix the goods with his
goods. If the goods are mixed with the consent of the owner
then both the owner and the finder will have a proportional
share in the mixture thus produced. [2] If the goods mixed are
of such a nature that they can be separated from the goods
of the finder then the finder of goods will be liable to pay any
such amount which is incurred for the separation of goods.
[3]
 However, if the goods mixed are of such a nature that they
can not be separated from the goods of the finder then the
finder of the goods is required to compensate the owner of
the goods for the loss of goods.[4]

4. Duty to Return the goods

The finder of the goods has to return the goods to the owner
of the goods.[5] He is bound to return the goods but can
exercise his right of lien if he is not paid the lawful charges.

5. Duty to return the increase

The finder of goods is bound to return any profit or increase

from the goods to the owner of the goods.[6]

Thus, if A has found the cow belonging to X, and the cow has
a calf. Here, A is bound to return the cow along with the calf.
A will not become the owner of the calf.

Pledge: Meaning, Definition And Nature

The Indian Contract Act 1872 defines the Contract of Pledge as:
Sec.172.The bailment of goods as security for payment of a debt or
performance of a promise is called pledge. The bailor is in this case called the
pawnor. The bailee is called pawnee.

From the definition of the term pledge in the given section, it is clear that
pledge is also a type of bailment due to the fact that a contract of pledge to
come into existence, delivery of goods is requisite. A pledge can also be
defined as , Pledge is the transfer by one person to another of the possession
of certain goods to be held by the latter as security for the performance by the
former of some obligation to pay or perform, which being performed, the
pledge must be restored. The Supreme Court has defined pledge as , Pawn or
pledge is a bailment of personal property as a security for some debt or
engagement. A pawnor is one who being liable to an engagement gives to the
person to whom he is liable a thing to be held as security for payment of his
debt or the fulfilment of his liability.

Rights Of The Pawnee Under Contract Of Pledge

1. Right to retain- until and unless the loan has been repaid or the
obligation has been performed, the pawnee has the right to retain
the goods. This is illustrated in section 173 of the Indian Contract Act
1872,

173. Pawnees right of retainer.-The pawnee may retain the goods

pledged, not only for payment of the debt or the performance of the
promise, but for the interests of the debt, and all necessary expenses
incurred by him in respect of the possession or for the preservation
of the goods pledged.

Thus a pawnee can retain the goods for-

a) payment of the debt or performance of the promise,
b) interests on the debt,
c) all other expenses incurred by him in respect of the pledged goods
 2. Right to retain for subsequent advances- section 174 provides
that the pawnee is not entitled to retain the goods for debt or
promise other than that for which goods for pledged for.[16]
However it is presumed that the pawnee has the right, if he makes
subsequent advances to the pawnor, to retain the goods unless it is
otherwise provided in the contract. Thus it is the terms of the
contracts which decides the rights of the pawnee in this case.

3. Right to extraordinary expenses- the pawnee has further rights

of claiming form the pledgor extraordinary expenses as provided
under section 175,
175. Pawnees right as to extraordinary expenses incurred.-The
pawnee is entitled to receive from the pawnor extraordinary
expenses incurred by him for the preservation of the goods pledged.

This includes the expenses which the pledgee has incurred by virtue
of preserving the goods under his possession by way of pledge. The
pertinent thing to note here is the usage of the word receive which
states the position that the pledgee cannot retain the goods for the
extraordinary expenses. In other words it can be said that his lien
over the pledged goods does not extend to cover the rights of
extraordinary expenses. Thus what the pledgee has is the right of
action for recovering these expenses.[17]

4. Pawnee rights in case of default- the pawnee is entitled to the

exercise of this right when there is a default from the side of the
pawnor or the debtor.
section 176 vests in the pawnee two distinct rights in case of default namely:
1. To sue the pawnor upon the debt and retain the goods or
collateral as security and
2. To sell the thing which has been pledged after a proper notice of
such a sale has been transmitted to the pawnor.
 5. Right in case of defective title
Where pawnor has received the goods under the voidable contracts
(coercion, fraud, misrepresentation) and the contract has not been
rescinded and the goods have been delivered to the pawnee then
pawnee will have a better title.

Rights of Pawnor

 Right to receive the goods

 Right to see maintenance and preservation of goods.

In case pawnee makes any unauthorized sale of goods pledged

without giving proper notice and time to pawnor than pawnor has
following rights:

 Right to file a suit for redemption of goods by making payment of

debt.

Difference between Bailment and Pledge

1. The Pawnee cannot use the goods pawned, but in bailment, bailee
can use the goods bailed if the terms of bailment so provide.
2. In Bailment, goods are bailed for some specific purpose, but in
pledge, goods are bailed as a security for the loan.