BAILMENT AND

PLEDGE
 A delivers a piece of cloth to the tailor to
be stitched into a suit.
 A lends a book to B to be returned after
examination.
 A sells certain goods to B who leaves them in
A ‘s possession.
 An insurance company places a damaged
insured car of A in possession of R, a
repairer .
 E’s ornaments having been stolen and
recovered lying in Police custody.
BAILMENT AND PLEDGE
What is Bailment?
• Section 148 defines Bailment as:
“The delivery of goods by one to another
person 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.” The person
delivering the goods is called the ‘Bailor’, and
the person to whom goods are delivered is
called the ‘Bailee’.
ESSENTIALS OF BAILMENT
1. Goods: Bailment can be effected only with
respect to goods.
2. Delivery: Delivery of goods by one person
to another is essential.
 ‘Delivery’ includes:
 Physical delivery
 Constructive delivery
 Symbolic delivery
ESSENTIALS OF BAILMENT
3. To be returned
 Without demand unless agreed
otherwise.
4. In specie
 i.e., the same goods are to be
returned and not the equivalent.
 including any accretion, e.g.,
bonus shares, calf born to a cow.
DUTIES OF BAILOR
1. To disclose faults in goods
 Only known faults where
bailment is gratuitous.
 All faults including not known
but existing at the time of
bailment in case of non-
gratuitous bailment.
DUTIES OF BAILOR
2. To bear expenses
 Gratuitous Bailment: All expenses
– ordinary or extra-ordinary.
 Non-Gratuitous Bailment: Only
extra-ordinary expenses.
3. To indemnify for loss caused
because of defective title.
DUTIES OF BAILEE
1. To take care of the goods
bailed
 As much care as a man of
ordinary prudence will take in
respect of his own goods of the
same nature and value.
2. Not to make unauthorized
use of goods
DUTIES OF BAILEE
3. Not to mix bailor’s goods
with his own/other bailor’s.
 If does, then:
 Where goods can be separated
 Bailee to bear cost of separation.
 Where goods can not be
separated
 Bailor to be compensated for loss.
4. To return the goods in specie
 Section 172
“Pledge is the bailment
of goods as security
for payment of debt
or performance of a
promise.”
DELIVERY ESSENTIAL
 Discussion on Bailment
applicable to pledge also.
 Right of a pledgee to effect sale of goods
without intervention of Court (Sec.176):
 After giving reasonable notice to the pledger.
Sale without reasonable notice
shall make pledgee liable to pay
damages to the pledger.
However, sale will be valid.
 SPECIAL CONTRACTS
Indemnity and Guarantee
 Meaning and Definition of Indemnity
Section 124 defines a contract of indemnity as
“A contract of indemnity is a contract whereby
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.
Definition of Indemnity under Section 124 is
restrictive [Gajnan Moreshwar v. Moreshwar
Madan].
COMMENCEMENT OF
INDEMNIFIER’S LIABILITY
 Diversified views expressed by courts.
 According to earlier view – indemnifier does
not become liable until the indemnified has
incurred on actual loss.
 But according to later view – indemnifier may
compel the indemnifier to place him in a
position to meet liability.
 CONTRACT OF GUARANTEE
 Meaning and Definition
A contract of guarantee is defined by the
Indian Contract Act, as “A contract to
perform the promise or discharge the
liability of a third person in case of his
default. The person who gives the
guarantee is called the ‘Surety’, the
person for whom the guarantee is given is
called the ‘Principal Debtor’, and the
person to whom the guarantee is given is
called the ‘Creditor’.”
DISTINCTION
 In case of guarantee, surety has a secondary
liability but in case of indemnity, the liability
of the indemnifier is primary.
 A contract in which ‘A’ says to ‘B’, ‘If you
lend ₤20 to ‘C’, I will see that your money
comes back’
IS A CONTRACT OF INDEMNITY.

 On the other hand, an undertaking in these

words, ‘If you lend ₤20 to ‘C’, and he does
not pay you, I will’ is a contract of guarantee.
NATURE OF SURETY’S
LIABILITY
 Secondary but co-extensive
 Unless otherwise agreed, it can be neither
less nor more than the liability of the
principal debtor.
 Minor Principal Debtor vis-à-vis Liability of
Surety.
KINDS OF GUARANTEES
 Specific Guarantee
 Continuing Guarantee
SPECIFIC GUARANTEE
 A guarantee is a “specific guarantee”, if it is
intended to be applicable to a particular debt
and thus comes to an end on its repayment.
 A specific guarantee once given is
irrevocable. Even the death of the surety
does not result in revocation of the
guarantee. Legal successor(s) continue to
remain liable. However, their liability shall
be limited to the value of the assets
inherited.
CONTINUING GUARANTEE
 A guarantee which extends to a series of
transactions is called a “continuing
guarantee”, e.g., (i) fidelity guarantee,
(ii) overdraft.
 The death of the surety operates, in the
absence of any contract to the contrary,
as a revocation of a continuing
guarantee, so far as regards future
transactions (Section 131).
JOINT GUARANTEE
 Where joint sureties have guaranteed an
equal amount
 Liability shall be equal.
 Where joint sureties have guaranteed
different amounts
 Liability shall be equal
subject to the amount
guaranteed (Section 147).
EXAMPLES:
1. ‘A’, ‘B’ and ‘C’ as sureties for ‘D’, enter into
three several bonds, each in a different
penalty, namely, ‘A’ in the penalty of
Rs.10,000/-, ‘B’ in that of Rs.20,000/-, ‘C’ in
that of Rs.40,000/-, conditioned for ‘D’s duly
accounting to ‘E’. ‘D’ makes default to the
extent of Rs.30,000/-. ‘A’, ‘B’ and ‘C’ are
each liable to pay Rs.10,000/-.
2. In the above example, if ‘D’ makes default to
the extent of Rs. 40,000/-, ‘A’ is liable to
pay Rs.10,000/-, and ‘B’ and ‘C’ Rs.15,000/-
each.