Chapter No – 10

Bailment and Pledge

Company
Kardan University
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Kabul Afghanistan

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 Contents
Part – A (Bailment) Part – B (Pledge)
1. Nature and definition
of Bailment.
2. Essentials of Bailment
3. Kinds of bailment
4. Rights and duties of
Bailor
5. Rights and Duties of
Bailee
6. Termination of
bailment
1. Pledge nature and
definition
2. Essentials of Pledge
3. Rights and duties of
Pledgor
4. Rights and Duties of
Pledgee
5. Difference between
Bailment and Pledge
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 Part – A
Bailment

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 Nature and definition of Bailment

 The word ‘Bailment’ is derived from French

word ‘Baillier’ which means ‘to deliver’ or
transfer.
 Legally “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”.
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 Parties to the contract of Bailment

 The person or owner who transfers

the possession of goods is called
“Bailor” and to whom it is
transferred is called “Bailee” and
the property transferred is called
“property bailed” or “goods
bailed” and the contract is called a
“contract of bailment”.

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 Examples

 Examples of bailment are hiring of goods,

loan of goods, pledge of goods, delivery of
goods for carriage, safe custody, or repair
etc.
1. ‘A’ delivers a piece of cloth to B to make a
suit. There is a contract of bailment.
2. ‘A’ sells certain goods to ‘B’. “B” does not
take it with himself rather leaves them in
the possession of A. Therefore, B becomes
the bailor and A becomes a bailee.
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Kinds or types
of bailment

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 Kinds or types of Bailment

 Bailment can be classified and

categorized on the following
grounds…
On the basis of Benefit
1. For the benefit of Bailor
2. For the benefit of Bailee
3. For the mutual benefit of
Bailor and Bailee

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 Kinds of Bailment continues …

1. For the benefit of Bailor : a contract of

bailment is for the benefit of bailor when
the bailee acts gratuitously and the bailor
receives the sole benefit.
Example.
‘K’ delivers some ornaments for safe
custody to ‘L’ her neighbor, without any
charges for that, it is bailment for the sole
benefit of bailor …

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 Kinds of Bailment continues …

2. For the benefit of Bailee : Bailment for the

sole benefit of Bailee is the one when the
bailor agrees to deliver certain goods to the
bailee in order to be used for his/her own
advantage without giving any thing to the
bailor in return.
Example.
 The loan of a book from the library is the
bailment for the sole benefit of bailee.

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 Kinds of Bailment continues …

3. For the mutual benefit of Bailor and

Bailee : Bailment for the mutual benefit of
Bailor and Bailee is the one when there is
exchange of performance between the
parties. It means when goods are
delivered for the benefits of both parties
i.e. bailor and bilee.
Example.
 Shamroz delivers his car to Sultan
(mechanic) for repair on payment. It is
bailment for the benefit of both parties.
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 Kinds of Bailment continues …

 First two types of bailment are Gratuitous

bailment and are without rewards,
whereas third type is for hire or Reward,
and is important.
 Gratuitous means ‘free’, for nothing or
without reward. The first type is for the
exclusive benefit of Bailor and Bailee acts
gratuitously, whereas second is for the
exclusive benefit of Bailee and bailor acts
gratuitously.

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Essential Features
of Bailment

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 Essentials of Bailment

Following are the essentials features

of the contract of Bailment
1. Contract Based
2. Delivery of goods
3. Specific purpose
4. No change of ownership
5. Return of same goods

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 Essentials of Bailment

1. Contract Base : Bailment is based on

contract between Bailor and Bailee.
Bailor agrees to deliver and bailee
agrees to accept the goods bailed.
Example.
 Shamshad gives a piece of cloth to
Raheem (tailor) for making a suit.
There is a bailment between
Shamshad and Raheem.

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 Essentials of Bailment …

2. Delivery of Goods: Basically the contract of

Bailment means delivery of goods by one
person to an other for specific purpose.
Whereas delivery of goods mean “transfer of
the possession of goods”. Delivery is by two
ways
A. Actual delivery
B. Constructive delivery

Actual delivery is the one wherein the bailor

transfers the physical possession of goods to the
bailee.
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 Essentials of Bailment …

… Constructive delivery is the one

wherein physical possession of the
goods takes no change but remains
where they are. In such case something
is done which has the effect of putting
them in the possession of bailee. For
example ‘delivery of receipts’ amounts
to delivery of goods.

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 Essentials of Bailment …

3. Specific Purpose : The contract of Bailment

must be made for some purpose, and the
goods bailed are returned on the completion
of that purpose. But, when the goods are
delivered without any purpose there is no
bailment.
Examples.
 ‘A’ deliver his watch to ‘B’ for repair, there is a
contract of bailment.
 Shamshad gives a piece of clothes to
Raheem (tailor) for making a suit. There is a
bailment between Shamshad and Raheem.
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 Essentials of Bailment …

4. No Change of Ownership: In the contract of

Bailment, bailor transfers only the possession
of goods to bailee, the ownership does not
change and remains with the bailor. In case
the ownership is also transferred the contract
becomes the sale contract.
Examples.
 ‘A’ deliver the possession of his car to ‘B’ for
repair, the ownership remains with ‘A’. There
is a contract of bailment. If the ownership is
also transferred, it is a contract of sale.

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 Essentials of Bailment …

5. Return of same Goods: it means that the

bailed goods must be returned in same
specie as soon as the purpose is
accomplished. Return of goods in same
specie means return of same goods. Its
form may be changed but specie must be
the same. For examples old ornaments of
gold can be changed in new form and
shape but specie must be same that is
“gold”. A piece of cloth can be stitched into
shirt but the cloth is not changed, etc.
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Rights & Duties
of Bailor

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 Rights & Duties of Bailor
Duties of Bailor
Bailor is the one who delivers
the goods, his Duties &
Obligations are as following
1. To disclose fault in
goods bailed
2. To bear extra – ordinary
expenses
3. To indemnify bailee
against the defective
title of the property.
4. To receive back goods.
Rights of Bailor
Bailor is the one who delivers
the goods, his Rights are as
following
1. Right to claim
damages
2. Right to claim return of
goods
3. Right to claim increase
4. Right to terminate
bailment
5. Right to sue
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Rights & Duties of Bailor

Details

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 Duties of Bailor

 Bailor is the one who delivers the goods,

his Duties & Obligations are as
following

1. To disclose fault in goods bailed

2. To bear extra – ordinary expenses
3. To indemnify bailee against the
defective title of the property.
4. To receive back goods.
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 Duties of Bailor illustration

1. To disclose fault in goods bailed: The bailor

is bound to disclose all those faults in the
goods bailed which are known to him. If he
fails to do so, then he will be liable to pay
damages to the bailee if any loss sustained to
him due to that fault.
Examples: ‘A’ lends a horse to ‘B’ which he
knows to be vicious. He does not disclose the fact
to ‘B’. The horse runs away ‘B’ is thrown and
injured. A is responsible to B for damages
sustained.
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 Duties of Bailor illustration

… In case of non-gratuitous bailment

where the goods are bailed for hire, the
bailor is responsible for such damage, where
he was or was not aware of the existence of
such fault in goods bailed.
Examples: ‘A’ hire a carriage of ‘B’. The
carriage is unsafe, though ‘B’ is not aware of
it, and ‘A’ is injured. B is responsible to A for
the injury.

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 Duties of Bailor illustration

2. To bear Extra – Ordinary expenses:

expenses in bailment can be of two types i)
necessary expenses may be known ,
general or ordinary expenses and ii) Extra –
Ordinary expenses.
In case of Gratuitous bailment, necessary
expenses are borne by the bailor where bailee
acts gratuitously, e.g. ‘A’ has bailed a horse to
‘B’ for safe custody. Now expenses for feeding
the horse will be borne by the bailor.

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 Duties of Bailor illustration

… Whereas in case of Non – Gratuitous

bailment, i.e. bailment for hire, the bailee
is liable to make necessary expenses.
e.g ‘A’ hired a car of ‘B’, necessary
expenses to put fuel etc. in it will be
made by the bailee but putting engine
oil, overhauling of the car or engine
comes under extra – ordinary expenses,
which will be made by bailor.

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 Duties of Bailor illustration

3. To Indemnify Bailee: It is the duty of Bailor to

indemnify the bailee against the defective title
of the property bailed. The bailor is bound to
indemnify the bailee for any cost or loss which
the bailee may incur because of the defective
title of the bailor to the goods bailed.
Example: ‘A’ gives car on rent to ‘B’ which is not
registered in the name of A. On the way police
arrests and fine him. Held that A is liable to make
damages to B.

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 Duties of Bailor illustration

4. Duty to receive back the goods: It is the duty

of Bailor to receive back the goods when the
bailee returns them after the accomplishment
of the purpose of bailment. If the bailor refuses
to receive the goods at proper time. The bailee
can claim compensation for all necessary
expenses incured for safe custody.
Example: ‘A’ bails his cow to B for feeding 2
months. A does not take his cow back after 2
months. B has to spend more on feeding. A is
laible to compensate.
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Rights of Bailor

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 Rights of Bailor

 Bailor is the one who delivers the goods,

his Rights are as following

1. Right to claim damages

2. Right to claim return of goods
3. Right to claim increase
4. Right to terminate bailment
5. Right to sue

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 Illustration

1. Right to claim damages: the bailor can recover

damages from the bailee if any damage to the goods
caused due to the bailee’s negligence, unauthorized
or wrongful use, or un-authorized mixture of the
goods bailed with the bailee’s own goods.
Example:
a) ‘A’ bailed some goods to B, B didn’t keep the goods locked.
Resultantly the goods were stolen, A can recover loss from
B.
b) ‘A’ bails 100 bales of cotton with a particular mark to B. B
without A’s consent mixes them with other bales of own
bearing a different mark. A is entitled to have his 100 bales
returned, and B is bound to bear all the expenses incurred in
the separation of bales.
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 Illustration

2. Right to return of goods : the bailor has

got the right to get his goods back as soon
as the purpose is achieved and the time
fixed expires. It is the duty of bailee to
return the good without the demand of
bailor. If the bailee makes default in
returning of goods at proper time and place,
then the bailor is entitled for compensation.
If the goods are lent gratuitously, the bailor
can demand the return at any time before
the specified time.
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 Illustration

3. Right to claim increase or profit:

the bailor has got the right to claim
any increase or profit, which may
have grown from the goods bailed.
Example:
a) ‘A’ bailed cow to B, for safe custody,
the cow gave birth to a calf. A has got
right to claim cow with a calf.

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 Illustration

4. Right to terminate bailment: the bailor

has got the right to terminate the contract if
the bailee does any act which is against
the terms of contract, though the term of
the bailment has not expired or the
purpose has not been accomplished.
Example:
a) ‘A’ bailed horse to B for ride. B drives the
horse in carriage. A can terminate the
contract.

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 Illustration

5. Right to sue: the bailor has got the right to

sue the bailee for breach of contract if the
goods are not returned or disposed of as
directed by the bailor. The bailor can also
take legal action for negligence, or
destruction of goods bailed, when the
bailee is guilty of such conduct.
Example:
a) ‘A’ gave a piece of wood to B, a carpenter to make
a table. B didn’t take proper care; a fire broke out
and destroyed the wood. A can sue B for loss.

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Rights & Duties
of Bailee

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 Rights & Duties of Bailee

Rights of Bailee Duties of Bailee

Bailee has got the following Duties
Bailee is the person to whom to perform
goods are bailed. He has got
the following Rights. 1. Duty to take
reasonable care of the
1. Right to claim goods bailed
damages 2. Duty not make un-
2. Right to recover authorized use of the
expenses property bailed
3. Right to sue 3. Duty not to mix goods
4. Right of lien 4. Duty to return goods
5. Duty to return increase
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termination
of Bailment

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 Termination of Bailment

 The contract of bailment is terminated

in the following circumstances.
1. Expiry of time
2. Accomplishment of purpose
3. Un-authorized use of goods
bailed.
4. On death of either party
5. Termination By bailor
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 Illustration regarding termination

1. When the contract of bailment is for the

specified time, such bailment comes to an
end the time fixed expires.
2. If bailment is for some specific purpose, it
comes to an end as soon as the purpose is
achieved.
3. When the bailment comes to an end under
above mentioned circumstances, the bailee
must return the goods bail without the
demand of bailor.

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 Illustration continues …

4. If the bailee does any act which is against the

terms of bailment, the bailor may terminate
the contract even before the expiry of time or
accomplishment of purpose.
5. A gratuitous bailment (bailment without
reward) is terminated by the death of either
bailor or bailee.
6. A gratuitous bailment can also be terminated
by bailor at any time if it causes no loss to
bailee. In case bailee suffers any loss then
bailor is liable for the loss.
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 Part – B
Pledge or Pawn

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 Nature and definition of Pledge

 Pledge or Pawn contract is defined as

“the bailment of goods as security for
payment of a debt or performance of
promise”.
 Under Pledge or Pawn one person
transfers possession of some goods or
deposits some article to another to
secure the payment of debt or the
performance of promise.
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 Parties to Pledge or Pawn

 The contract of Pledge or Pawn is a

special kind of bailment. In such
contract a bailor who transfers the
possession of goods or deposits some
article is called “Pledgor, Pawnor” or
Depositor, and the bailee to whom it is
transferred is called “Pledgee,
Pawnee” or Depositee.

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 Essentials of Pledge or Pawn

Essentials of pledge or pawn are as

under

1. Pledge must be of moveable

property,
2. Possession of the goods must
be transferred to pawnee.
3. Ownership must remain with
Pawnor and not be transferred.

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Rights of Pledgee
or Pawnee

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 Rights of Pledgee
1. Right to retain the goods pledged: The
pledgee or Pawnee can retain the goods
pledged until his dues are clear. For
example, ‘A’ borrows Afs. 2 lac from B and
pledges his diamond ring. If A does not return
the loan B can retain the ring.

2. Right to sue and sell the goods pledged: if

the pledgor makes default in the payment of
debt or performance of promise in due time, ..
To be continued on next page …
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 Rights of Pledgee
.. the pledgee may bring suit against the
pledgor or sell the thing pledged after giving a
reasonable notice to the pledgor of his
intention to sell. The following points must be
noted in this regard
a) Reasonable notice is necessary, a sale
without notice is void
b) The pledgee cannot sell the goods to
himself, if he does so, such sale is void.
To be continued on next page …
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 Rights of Pledgee
c) If income of such sale is less than the amount
due, he can recover the balance from the
pledgor, but if there is surplus, he must return
it to the pledgor.

3. Right to extra- ordinary expenses: the pledgee

has the right to recover from the pledgor extra-
ordinary expenses suffered by him for the
preservation of the goods pledged. In such case
he cannot retain the goods but can sue to
recover them.

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Duties of Pledgee
or Pawnee

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 Duties of Pledgee

The duties of pledgee are as follow

1. To take reasonable care of goods pledged

2. Not to make any unauthorized use of the goods
pledged.
3. Not to mix the goods pledged with his own
goods
4. Not to do any act against the terms of a contract
5. To return goods on receipt of his full dues.
6. To deliver any accretion (increase, or growth) to
the goods pledged.

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Rights of Pledgor
or Pawnor

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 Rights of Pledgor

Rights of pledgor are as following

1. Right to claim damages; if the pledgee
mixes the goods pledged with his own
goods or converts it into other form, the
pledgor has right to claim damages.
2. Right to claim increase; the pledgor
has got the right to claim the pledged
goods back with accretion, if any, on
making full payment on stipulated
(specified) time.
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Duties of Pledgor
or Pawnor

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 Duties of Pledgor

Duties of pledgor are as following

1. Duty to compensate; it is the duty of
pledgor to compensate the pledgee for
an extra-ordinary expenses incurred
(suffered or sustained) to him.
2. Duty to fulfill obligations; it is the duty
of pledgor to meet all the obligations on
stipulated date and comply (obey) with
terms of contract.
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Difference between
Bailment and Pledge

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 Difference between Bailment and Pledge

The difference between the contract of

bailment and pledge is as under

1. In the contract of Pledge, goods

are delivered as a security for loan
or for the performance of contract.
Whereas in the contract of
bailment goods are transferred for
repair and safe custody.
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 Difference between Bailment and Pledge

2. In the contract of pledge, the pledgee has a

right of sale of the pledged goods in case of
default after giving a notice to the pledgor. But
in case of Bailement the bailee has no such
right of sale. He can retain the goods or sue
for dues.
3. In pledge the pledgee has no right to use the
goods pledged, whereas in bailment goods
may be used if the nature of contract so
requires.

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 Difference between Bailment and Pledge

4. In the contract of pledge, the pledgee is

not bound to return the goods delivered
unless the debt is repaid, whereas in case
of bailment without reward the bailee is
bound to return the goods on demand by
the bailor.

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Thank
You

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