Chapter 12

BAILMENT AND PLEDGE

In both bailment and pledge, there is a

delivery of (moveable) goods which is
delivered back to the bailor or pawnor
after accomplishment of purpose or expiry
of stipulated time. However, bailment has
a general purpose whereas pledge has a
specific purpose i.e., repayment of a debt
or performance of a promise.
 BAILMENT Defined

A bailment is a situation wherein the owner of goods entrusts

their possession into the care of another for some purpose
briefly .
Legal Definition:
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 directions of the person delivering them . (S 118)
• The person delivering the goods or owner of the goods is called
the ‘bailor’.
• The person to whom they are delivered is called the ‘bailee’.
Example
A delivers his car to B for repair. Here a relationship of bailment is
created between A and B where A is the bailor and B is the bailee.
 Some Common Examples of Bailment

• Giving watch, TV or a radio set, computers etc. for repair.

• Leaving car or scooter for service/repairs or at a parking lot.
• Delivering cloth to tailor for stitching a suit.
• Hiring car, AC, tent, etc.
• Delivering goods to transporter for dispatching and
delivering them to the consignee.
• Leaving diamonds with goldsmith for being studded in gold
jewellery.
• Placing important documents in safe custody at a bank.
• Handing over valuables or pets to the safe custody of a
friend or neighbour while leaving station.
• Leaving luggage at cloakrooms.
 Essentials of Bailment
1. Contract
Bailment is based upon a contract between two persons namely, bailor and the
bailee. The contract, may, however be implied in some cases such as, finder
of goods, seizing of someone’s goods by the State in the exercise of its
powers under various Acts.
2.Subject matter - moveable goods
Goods form the subject matter of the bailment. As per section 2(7) of the Sale of
Goods Act, ‘goods’ means every kind of movable property other than
money and actionable claim. Thus, depositing money in a bank account
does not constitute bailment.
3.Delivery of goods must be actual or constructive
Delivery of goods is the essence of bailment. The term ‘bailment’ signifies change
of possession in law. In bailment, therefore, possession [custody] of goods
must change. E.g. a student borrowed a book from library is actual delivery.
When possession of goods changes by doing anything which has the effect of
putting the goods in the possession of the bailee or any other person to
hold them on behalf of bailor is called constructive delivery. E.g. handing
over the key of warehouse to other person to store the goods.
 Essentials of Bailment
4. No change in ownership
Ownership is not transferred. Bailment signifies change of possession of
goods from one person to another. But there is no change in the
ownership. The bailor continues to be the owner of the goods.
5. Purpose
The bailor delivers his goods to the bailee for some definite purpose. The
purpose for which the goods are delivered is usually in the
contemplation of both the parties.
6. Return of goods
Every bailment pre-supposes a condition that the goods bailed would be
returned to the bailor, or otherwise be disposed of according to the
directions of the bailor, on the accomplishment of the purpose, or after
the expiry of period of bailment. On this account, it is important to note
that in order to discharge his duty, a bailee is supposed to return the
goods bailed out and not any other goods although of an equal or even
higher value. On this account, a banker is not a bailee for the deposits
accepted from his customers, as he is not obliged to return the same
currency notes but an equivalent of it, and at times, even interest on the
deposits.
 Kinds of Bailment
1. Gratuitous bailment
A bailment with no consideration is called a gratuitous bailment. In this kind of
bailment neither the bailor, nor the bailee is entitled to any remuneration or
reward. Such a bailment may be for the exclusive benefit of either party i.e., the
bailor or bailee:
Bailment for the exclusive benefit of the bailor In this case the bailor delivers the
goods for his exclusive benefits and the bailee does not derive any benefit out of it.
For example, A leaves his pets with B, his neighbour to be looked after during A’s
absence. In this case, A alone is being benefited by the bailment.
Bailment for the exclusive benefit of the bailee This is the case where a bailor
delivers the goods to the bailee for the exclusive benefits of the bailee and does
not gain anything from the contract himself. For example, you lend your book to a
friend of yours for a week without any charge or favour.
2. Non-gratuitous bailment
Contrary to gratuitous bailment, a non-gratuitous bailment or bailment for reward
is one that involves some consideration passing between the bailor and the bailee.
Obviously in this case the delivery of goods takes place for the mutual benefit of
both the parties. For example, A hires B’s car. Here B is the bailor and receives the
hire charges and A is the bailee and enjoys the use of the car.
 Duties and Rights of the Bailor
Duties . The bailor owes the following duties to bailee in respect of the
goods bailed out by him.
1. Duty to disclose faults. Bailor is bound to disclose to the bailee faults in
the goods bailed, of which he is aware, and which materially interfere with
the use of them, or could expose the bailee to extraordinary risks. If he
does not make such a disclosure, he is responsible for the damage arising
to the bailee directly from such faults.
Example 1. A lends his car, which he knows, was having some technical
defect, to B. He does not disclose the fact to B. When B tries to ride it, he
met with an accident and B is injured. A is responsible to B for injury
sustained.
2. Duty to repay bailee’s expenses A bailor is duty bound to repay to the
bailee expenses incurred by him for work done on the goods received
under conditions of bailment, and for which he is not receiving any
remuneration. E.g. A gave his cat to B for a week since he was going out of
town. The cat was injured while playing with B. B bared all the medical
expenses. It is A’s duty to repay B for the medical expenses bared by him.
3. Duty to indemnify the bailee . The bailor is bound to make
good the loss suffered by the bailee that is in excess of the benefit
actually derived, where he had delivered the goods gratuitously
and compelled the bailee to return them before the expiry of the
period of bailment. E.g. A left his bike for servicing with B. B found
that the stand if the bike has broken and it has to be replaced. B
has replaced. Now it’s A’s duty to pay B.

4. Duty to claim back the goods The bailor is bound to accept the
goods upon being returned by the bailee in accordance with the
terms of bailment. If he refuses or fails to accept back the goods, if
offered at a proper time and at a proper place, without any
reasonable ground, he shall be responsible for any loss or damage
to the goods and not the bailee. Moreover, the bailee, in such a
case, can also claim from the bailor all necessary and incidental
expenses that he might have incurred to keep and protect the
goods.
 Rights of the Bailor
1. Right to enforce bailee’s performance. e.g. A gave the clothes to tailor
stitch. A can enforce tailor to stitch the clothes.
2. Right to claim damages This gives bailor a right to claim for damages
against the loss, if any, caused to the goods bailed due to the bailee’s
negligence or misconduct.
3. Right to claim compensation against unauthorized use of goods.
4. Right to terminate the contract. Bailor has a right to terminate the
contract if the bailee does any act with regard to the goods bailed,
inconsistent with the conditions of the bailment. For example, A lets to
B, for hire, a horse for his own riding. B drives the horse in his carriage. A
can terminate the contract immediately.
5. Right to demand return of goods alongwith accretion to, if any. For
example, A leaves his hen in the custody of B to be taken care of for a
week. The hen has laid eggs and thereby hatched the chicks. A is entitled
not only to the hen but also to the chicks.
 Duties and Rights of the Bailee
Duties. The bailor and the bailee are reciprocally related to one another.
Hence rights of the bailor are the duties of the bailee and vice versa.
Accordingly, the bailee owes the following duties in respect of goods
bailed to him:
1. Duty to take reasonable care of the goods whilst they are in his
possession
2. Duty not to make any unauthorized use of the goods bailed.
Example 1. A lets his horse to B, for his own riding. B, however, drives the
horse in his carriage. It is at the option of A, a termination of the bailment.
Example 2. A lends a horse to B for his own riding only. B allows C, a
member of his family, to ride the horse. C rides with care, but the horse
accidentally falls and is injured. B is liable to make compensation to A for
the injury caused to the horse.
3.
 Duties and Rights of the Bailee
3. Duty not to set up jus tertii The bailee should not set up jus tertii i.e.,
adverse title (his own title or the title of a third party) to the bailed goods,
as the same will be inconsistent with the conditions of bailment. Even if a
third person claims a better title to the goods other than that of the bailor,
the bailee is duty bound to return the goods to the bailor only.
4. Duty not to mix the goods bailed with his own goods
5. Duty to return the goods in accordance with the contract
6. Duty to return any accretion to the goods
 Duties and Rights of the Bailee
Rights of the Bailee. Due to the reciprocity of
relationships, most of the duties of the bailor are the
rights of the bailee. Accordingly, a bailee enjoys the
following rights:
• To claim damages from the bailor if he has suffered
some loss due to non-disclosure of defects in the goods on
the bailor’s part. If the goods were bailed for hire, the
bailee would be entitled to recover damages from the
bailor.
• To claim from the bailor all necessary expenses
incurred by him for the purpose of the bailment if the
bailment was non-gratuitous .
• To be indemnified against any loss or damage
sustained by him by reason of defective title of the bailor.
 Duties and Rights of the Bailee
3. Right to sell the goods. If the bailor fails to take delivery
of the goods and to pay the bailee’s charges, the bailee has
a right to sell the goods after giving a notice to the bailor of
his intention.
4. Right to return the goods to any of the joint bailors. If
several joint owners of goods bail them, the bailee may
deliver them back to, or according to the directions of, one
joint owner without the consent of all in the absence of any
agreement to the contrary.
5. Right to deliver goods to the bailor without title. If the
bailor has no title to the goods, and the bailee, in good
faith, delivers them back to, or according to the directions
of, the bailor, the bailee is not responsible to the owner of
the goods in respect of such delivery.
 Termination of a Bailment

The following circumstances render a contract of bailment terminated:

1. Unauthorized use of goods bailed A bailor may terminate the
bailment where the bailee does any act with regard to goods bailed,
inconsistent with the conditions of bailment. Simply put, it means that a
baior can terminate a bailment before its term runs out in case if he finds
the bailee’s conduct, with respect to the bailed goods, contrarty to the
agreed terms.
2. Expiry of term of bailment A contract of bailment automatically
comes to an end upon the expiry of the period for which the goods were
bailed. A gratuitous bailment may, however, be terminated at any time,
even before the agreed time.
3. Accomplishment of purpose If the goods were bailed for a specific
object, the bailment comes to an end upon achievement of the said
object or purpose.
4. Death of either party A gratuitous bailment terminates by the death
either of the bailor or the bailee.
5. Destruction of subject matter A contract of bailment also comes to an
end if the goods that are the subject matter of the bailment get
destroyed or otherwise become incapable of being used for bailment any
more.
 PLEDGE

A Pledge or pawn is a kind of bailment. It is the bailment of a

moveable thing as security for the repayment of a debt or
performance of a promise.
The bailor in this case is called the ‘Pawnor’ or ‘Pledgor’, while the
bailee is called the ‘Pawnee’ or ‘Pledgee’.
In order to enforce a contract of pledge, the property pledged
should be actually or constructively delivered to the pawnee.
Ownership of the pledged goods does not pass to the pledgee. A
pawnee has only a special property in the pledge; the general
property remains in the pawnor and wholly reverts to him on
discharge of the debt (Lallan Prasad vs Rahmat Ali ).
Any kinds of movable goods or property, valuables, documents or
securities may be pledged. The government securities should,
however, be pledged by endorsement and delivery.
 Pledge and Bailment Compared
The contracts of pledge and bailment are similar in two of the following
respects:
• In both the cases there is a delivery of moveable goods or property.
• The goods are delivered back to the bailor or pawnor after
accomplishment of purpose or expiry of stipulated time.
The two, however, differ in a number of ways such as the following:
1. Purpose Bailment has a general purpose whereas pledge has a specific
purpose i.e., repayment of a debt or performance of a promise.
2. Use of goods The pawnee has no right to make any use of the goods
pledged. On the other hand, in bailment the bailee uses the goods if the
terms of bailment so provide.
3. Right to sell The pawnee in case of pawnor’s default to repay the debt
can dispose of the goods pawned after serving him a proper notice. But
the bailee has no such right. Instead, he may either retain the possession
of the goods, or sue the bailor for his dues.
 Rights and Duties of Pawnee

Pledge being a species of bailment, the rights and duties of the pawnor and pawnee are almost
similar to those of the bailor and bailee.
Rights of Pawnee . The Law confers the following rights to the pawnee.
1. Right of retaining goods The pawnee has a right to retain the goods pledged for:
• payment of the debt;
• performance of the promise; and
2. Right as to extraordinary expenses The pawnee is entitled to receive from the pawnor
extraordinary expenses incurred by him for the preservation of the goods pledged.
3. Right to sue when pawnor makes default Should the pawnor default in payment of the debt,
or performance of the promise, at the stipulated time, the pawnee may bring a suit against the
pawnor upon the debt or promise while retaining the goods pledged as collateral security .
4. Right to sale Upon pawnor’s default as regards payment of debt or performance of the
promise, the pawnee may sell the goods pledged, on giving the pawnor reasonable notice of the
sale. If the proceeds of such sale are less than the amount due in respect of the debt or promise,
the pawnor is still liable to pay the balance. If the proceeds of the sale are greater than the
amount so due, the pawnee shall pay over the plus to the pawnor.
5. Right to have good title to the goods Where the pawnor’s title with regard to the goods
pledged by him is defective, the pawnee acquires a good title to the goods, provided he acted in
good faith and without notice of the pawnor’s defect in title.
 Duties of Pawnee

A pawnee is subject to the following duties

1. Duty of reasonable care of the goods pledged
2. Duty not to make personal use of the goods pledged
3. Duty not to mix goods pledged with his own goods
4. Duty to return the goods pledged after the debt has
been paid or the promise has been performed
5. Duty not to commit any act which is inconsistent with
the terms of pledge
6. Duty to deliver accretion (if any) to the goods
pledged
 Rights and Duties of the Pawnor: Duties

The Pawnor has the following duties

1. Duty to repay the debt or perform the promise The pawnee is
bound to comply with the terms of pledge. Accordingly, he must
repay the debt in full along with interest and other charges, if
any or perform the promise at the stipulated date or time.
2. Duty to disclose defects in the goods pledged The pawnor
should disclose to the pawnee, defect in the goods pledged (if
any) to which he is aware failing which he will be liable for any
loss to the pawnee due to such defect.
3. Duty to meet extraordinary expenses If the pawnee has
incurred any extraordinary expenses for preserving the goods
pledged, it is the duty of the pawnor to compensate him for the
same.