Unit-2 bailment and pledge

A.CONTRACT OF BAILMENT

SYNOPSIS
 Introduction
 Definition
 Essentials
 Classification of contract of bailment
 Rights of bailor and bailee
 Duties of bailor and bailee
 Termination of bailment
 Lien of a bailee
 Case laws

INTRODUCTION
 Bailment as defined in section 148 of the Indian contract act 1872 is the
delivery of goods by one person to another for some specific purpose,
upon a contract that these goods are to be returned when the specific
purpose is complete.
 For example, A delivering his car for Service at the service center is an
example of bailment. The person delivering the goods is known as bailor
and the person to whom goods are delivered is known as bailee.
However, if the owner continues to maintain control over the goods, there
is no bailment

DEIFINTION/MEANING OF BAILEMENT
 The word Bailment has got its origin from a French word baillier which
means - to deliver.
 The person who delivers the goods is known as the ‘Bailor’ and the
person who receives the goods is known as ‘Bailee’ and the transaction is
known as ‘bailment’ and the relation between them is defined in Section
148 of the Indian Contract Act.
 Illustration, If A gives his car to B his neighbor for 10 days, but at the
same time he keeps one key with himself and during this period of 10
days he used to take the car. Now this will not be a case of bailment as A
is keeping control over the property bailed.

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ESSENTIALS FOR A CONTRACT OF BAILEMENT
There are three essential elements to constitute a contract of bailment:
 Delivery of Goods i.e. Delivery of Possession
 Delivery should be upon Contract
 Delivery should be upon some purpose and Return of Goods
Delivery of goods: Here the delivery of goods means delivery of possession
which is essential for bailment. The transfer of possession of the bailed goods
from bailor to bailee for whatever is the purpose of bailment must be
distinguished from mere custody.
As per Section 149, the delivery can also be made to the bailee by doing
anything which has the effect of putting the bailed goods in the possession of
the intended bailee or any person authorized by him for this purpose.
Delivery should be upon Contract: In bailment, the delivery of goods is upon a
contract and once the purpose is done, such goods shall be returned to the
bailor. This means there should be a contract between two parties for
transaction of delivery and subsequent return. If there is no possession of goods
obtained by someone other than contract, there should be no bailment.
Delivery should be upon some purpose and Return of Goods: In a contract of
Bailment where the goods are delivered(in the sense of possession) from one
person to the another, on some purpose. Once the purpose of bailment has been
completed it is mandatory for a bailee to return the property to the bailor, or be
disposed of as per bailor’s instructions depending upon the terms and conditions
of the contract. If through no fault of bailee own, the return of the property is
delayed or become impossible to return for example if the property is lost
during bailment or get destroyed by natural calamities- the bailee will not be
held liable for non-delivery on demand.

CLASSIFICATION OF CONTRACT OF BAILMENT

Section 150 of the Indian Contract Act 1872, The bailment can be broadly
classified into two heads:
1. Classification based on Reward.
2. Classification based on Benefit.

Classification based on Reward:

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1. Gratuitous Bailment:
Gratuitous bailment is one where no consideration passes between the bailor
and the bailee. No mutual benefits will be acted upon by both parties in the
contract.
2. Non – Gratuitous Bailment:
non-gratuitous bailment is one where consideration passes between the bailor
and the bailee. In this case both parties get mutual benefits.
Classification based on Benefit:
1. Bailment for the Exclusive benefit of the Bailor:
A bailment in which goods are delivered by the bailor to the bailee only for the
exclusive benefit of the bailor himself.
illustration: A give his valuable goods to his relative B for safe custody without
any charges. This is a bailment for the exclusive benefit of the bailor ‘A’.
2. Bailment for the Exclusive benefit of the Bailee:
This is a bailment in which goods are delivered by the bailor to the bailee only
for the exclusive benefit of the bailee.
illustration: X lent his car to his friend Y, for the temporary use without any
charges. This is the bailment for the exclusive benefit of the bailee ‘Y’.
3. Bailment for the Mutual Benefit of the Bailor and the Bailee:
This is a bailment in which goods are delivered by the bailor to the bailee only
for the exclusive benefit of the bailee.
illustration: P gave his car keys to Q to drop his as well as Q’s kid to their
respective home. This is the bailment for the mutual benefit of both the bailor
‘P’ and the bailee ‘Q’ as both of them are benefitted.

RIGHTS OF BAILOR AND BAILEE

The rights of Bailor are as follows:
 Right to claim damages if bailee makes wrongful use (Section 154)
 Right to claim a proportionate share in mixed bailed goods (Section 155)
 Right to claim the return of bailed goods (Section 160, 161)
 Right to claim damages due to mixing up of bailed goods (Section 156,
157)
The rights of Bailee are as follows:
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  Delivery of goods to one of several joints bailor of goods;
 Delivery of goods to bailor without a title;
 rights to apply to the court to stop delivery;
 Rights of action against trespassers
 Bailee’s lien

DUTIES OF BAILOR AND BAILEE

Duties of a bailor are as follows:
 It is the duty of a bailor to disclose all flaws. If the bailor fails to disclose
such flaws then he will be responsible for the damage caused to bailed
goods or loss suffered by the bailee. (For Example, Mr. X lends a horse,
which he knows to be vicious, to Mr. Y, he does not disclose the fact that
the horse is vicious. The horse runs away. Mr. Y is thrown and injured.
Here Mr.X is responsible for Mr.Y for damage sustained.)
 Also, the bailor is under the duty to pay the extraordinary expenses
acquired by the bailee for such bailment. (Section 158)
 It is the duty of the bailor to accept the goods after the purpose for which
such bailed goods were bailed is accomplished.
 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.

For example, Mr. A. lends his horse to Mr. B., a friend, for a few days. While
the feeding charges are to be paid by ‘B’. But if the horse meets with an
accident ‘A’ will have to repay ‘B’ medical expenses incurred by Mr. B

The duties of Bailee are as follows:

 Take proper reasonable care of goods bailed(Section 151)
 Not to make any unauthorized use of goods (Section 153)
 Not to mix the goods bailed with his own goods
 Not to set up an adverse title on bailed goods
 Return the goods along with any increase or profit accruing to the goods
to the bailor
 (For example, if Mr. A lent his pet hamsters to Mr. B and if those
hamsters gave birth to a pup then both the hamsters along with their pups
have to be returned to Mr. A.)
 To return the goods.

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TERMINATION OF A BAILMENT
 After the fulfillment of the purpose
 When use of goods become inconsistent
 When the subject matter of bailment gets destroyed
 Death of any party occurs
 When bailor terminates the bailment contract

LIEN OF A BAILEE

Particular lien
Section 170 of Indian contracts act 1872
Lien is basically a right in one person to retain the property which is in his
possession, belonging to another, until certain demands are satisfied. It includes
those things where the bailee, in accordance with the purpose of bailment,
rendered any service involving the exercise of labor or skill in respect of the
goods bailed.
Illustration: If A gives a piece of cloth to tailor for stitching a suit. Then Taylor
is entitled to keep the suit with him until A pays him for the cost of stitching.

For exercising this particular lien following factors are to be considered:

 The bailee must have rendered some service involving labor or skill
 The service must be in accordance with the purpose of the bailment.
 This service must be with regard to the thing bailed.
 There must be no contract to the contrary.
General lien
Section 171 of the Indian contract act 1872 deals with the general lien. A
general lien is the right to retain the property of another for a general balance of
accounts. It entitles a person in possession of goods to retain them until all
claims or accounts of the person in possession against the owner of goods are
satisfied.
An example of general lien can be Banker who is entitled to retain the goods
until the person satisfies his debt with the bank.

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CASE LAWS
1. Kavita Trehan V. Balsara Hygiene Product Ltd. ( AIR 1992 Delhi 103):
In this case it was decided that one of the very requirement of bailment is the
delivery of goods to the bailee, where there is no change of possession there is
no bailment.

2. Jagdish Chandra Trikha V. Punjab National Bank (AIR 1998 Delhi 266):
This case is related to parcel which was carrying some gold jewellery. The
jewellery was well scaled and packed. When the parcel reached the destination
some part of the jewellery was missing. In this the court held that the position of
bank is of bailee.

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B. CONTRACT OF PLEDGE

SYNOPSIS
 Introduction
 Definition
 Essential features
 Rights of pawnor and pawnee
 Duties of pawnor and pawnee
 Pledge by non-owners
 Conclusion

INTRODUCTION

 The Indian Contract Act, 1872 deals with some specific contract, a
contract that has specific features.
 They are distinct from the other contract. They include Indemnity,
Guarantee, Bailment, Pledge, Agency, etc.
 The contract of Pledge is of great importance in the economic transaction.
Pledge generally means the placement of goods or their title as security
for borrowing a loan from the creditor or for discharging any obligation
under the promise.

DEFINITION/MEANING

Section 172 defines pledge as “The bailment of goods as security for payment
of a debt or performance of a promise is called pledge.”
The parties to this contract are called ‘pawnor’ and ‘pawnee’.
Contract of pledge is a subset of a contract of bailment. Here, the goods bailed
are kept as a security for a debt or a performance of a promise.
Pledge is defined in Section 172 of the Indian Contract Act,1872 as “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’.”

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ESSENTIAL FEATURES OF A CONTRACT OF PLEGDE

 A valid contract: Similar to the contract of bailment, all the basic

essentials of a valid contract should be present in a contract of pledge.
 Delivery of possession: It is necessary that the possession of goods be
delivered from the pawnor to the pawnee.
 Ownership cannot be transferred: In the case of pledge, mere possession
of the goods is transferred to the pawnee. The pawnor of the goods is still
the owner.
 Security against debt: The goods must be pledged as security against an
outstanding debt of the pawnor.
 Return of goods on repayment: Once the debtor the specific performance
against which goods are pledged as security is repaid or completed, the
goods must be returned to the pawnor in the manner specified by him.

RIGHTS OF PAWNOR AND PAWNEE

Rights of the Pawnee

The Pawnee does not have the absolute title of the goods pledged because he is
only the processor, and the actual ownership lies with the Pawnor. But there are
certain rights provided to the Pawnee.
A. Right to Retain:
The pawnee has the right to retain the goods until the pawnor has repaid the
debt amount or performed part of the obligation. This right has been given
under section 173 of The Indian Contract Act, 1872.
B. To get compensation for extraordinary expenses
It is implied that the pawnor will be liable to pay for all the necessary expenses
needed for the safekeeping of the goods. As per Section 175, if any
extraordinary expenses arise, the pawnor will only be liable for the same as
well.
C. Right to Sale:
If the Pawnor makes a default in the payment, then the Pawnee has the right to
either bring a suit against the Pawnor or may sell the thing pledged by giving

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reasonable notice of sale. This right is given under section 176 of The Indian
Contract Act,1872.
Rights of the pawnor:
A. To redeem the goods
In case there is a stipulated time to pay for the debt and the Pawnor makes a
default, he still has the right to redeem the goods at any time before the goods
are actually sold. This right is given under Section 177 of The Indian Contract
Act, 1872.
B. To get the goods back
Once the pawnor pays back the amount due along with the interest to the
pawnee, he has the right to get the goods back. After clearing the entire due
against which the goods were held as security, the pawnee cannot retain the
pledged goods.

DUTIES OF PAWNOR AND PAWNEE

Duties of the pawnor:

A. To compensate expenses
The pawnor has the responsibility to compensate the pawnee for all the ordinary
and extraordinary expenses made by the pawnee in order to ensure the well-
being of the pledged goods.
B. To repay the entire amount due along with interest
The pawnor has to repay the amount which is due to the pawnee. This amount is
the total of the principal amount as well as any interest accrued on that amount
during the course of the contract.
C. To disclose all the faults in the goods
The pawnor before entering into a contract has to disclose all the faults in the
goods to the pawnee. If the pawnee incurs any loss later due to those faults, the
pawnor will be liable for those.

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Duties of the pawnee:
A. To take reasonable care of the goods
It is the pawnee’s responsibility to take care of the goods that are pledged. The
care taken by the pawnee must be just, fair and reasonable. It should be as the
pawnee took care of his personal belongings.
B. To use the goods only for authorised purpose
The pawnee can use the goods pledged if only it is authorised by the pawnor. If
the goods are used for any purpose that is not authorised, the pawnee will have
to compensate the pawnor against the same.
C. To return the goods
As per the contract, once the amount against which the goods are pledged is
repaid, the goods must be returned to the pawnor. This return must be as
mentioned in the contract or as per the pawnor’s directions.
D. To return any profits arised from the goods
If at any time during the contract, the pawnee earns profit from the pledged
goods, the same shall be returned to the pawnor during the termination of the
contract.
E. To keep the goods separate
It is the pawnee’s duty to keep the pledged goods separate from his own goods.
If he mixes the pledged goods, all expenses to separate them will be borne by
the pawnee.

PLEDGE BY NON-OWNERS
Ordinarily, goods may be pledged by the actual owners or by any person that
has the owner's authority. But the law has recognised certain exceptions where
it is a bonafide pledge when it is made by persons who are not the actual owner
but in whose procession goods are left.
1. Pledge by mercantile agent:
Where a mercantile agent is, with the consent of the owner, in possession of
goods or the documents of title to goods, any pledge made by him, when acting
in the ordinary course of business of a mercantile agent, shall be as valid as if he
were expressly authorised by the owner of the goods to make the same;
provided that the Pawnee acts in good faith and has not at the time of the pledge
notice that the Pawnor has no authority to pledge. (178)

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 2. Pledge By Person In Possession Under Voidable Contract:
When the pawnor has obtained possession of the goods pledged by him under a
contract voidable under section 19 or section 19A, but the contract has not been
rescinded at the time of the pledge, the pawnee acquires a good title to the
goods, provided he acts in good faith and without notice of the pawnor's defect
of title. [Section 178A]
3. Pledge Where Pawnor Has Only A Limited Interest:
Where a person pledges goods in which he has only a limited interest, the
pledge is valid to the extent of that interest. [Section 179]
One can only pledge goods to the extent that he has an interest in the goods.

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C.DISTINCTION BETWEEN BAILMENT AND PLEDGE

 Section 148 of the Indian Contract Act of 1872 defines a bailment, while
Section 172 defines a pledge.

The main distinctions between bailment and pledge are as follows:

1. Bailment and Pledge are both Contracts. Bailment is a contract in which
moveable property is temporarily transferred from one party to another
for a predetermined purpose. A form of bailment known as the pledge
involves the pledge of goods as collateral for the repayment of debt.
2. Consideration is always present in Pledge, however, consideration might
or might not be present in a bailment.
3. The purpose of a bailment is the safekeeping or repair of given goods.
Contrarily, in pledge, the only reason for delivering the products is to
provide as security/collateral for the debt.
4. In the case of a bailment, the receiver does not have any right to sell the
goods/moveable property, but if the pawnor does not redeem the goods
within a reasonable amount of time, the pawnee may, after giving notice,
may sell the pledged goods.
5. The moveable property/goods are only to be utilised for the
stated/decided purpose, by the bailee when they are in bailment. In
contrast, the pawnee is not permitted to use the products at all under
pledge.

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