Bailment & pledge

Bailment & Pledge

Prepared By:

Kapadia Brijesh N.

Jigar Davra

Komal Singh

Introduction

Contracts of bailment and pledge are a special class of contracts. These are dealt with in chapter ІX (Secs. 148to181) of the Indian Contract Act 1872.

The contract act deals with the general principles underlying contracts of bailment.

Bailment

The word ‘bailment is derived from French word ‘ballier’ which means ‘to deliver’. It means any kind of ‘handing over.’

Sec.148 defines ‘bailment’ as the delivery of goods by one person to another for some purpose, up on a contract, that they shall, when the purpose is accomplished, be returned or otherwise disposed of according to the direction of the person delivering them.

The person delivering the goods is called the ‘bailor’ and the person to whom they are delivered is called the ‘bailee’. Eg: A delivers a piece of cloth to B ,a tailor ,to be stitched in to a suit. there is a contract of bailment between A and B.

Requisites of Bailment

Contract A bailment is usually created by agreement

between the bailor and the bailee The agreement may be or expressed or implied. In

some cases, bailment is implied by law as between a finder of goods and the owner.

Delivery of possession A bailment necessarily involves delivery of

possession of goods by bailor to bailee. The basic features of possession are control and an

intention to exclude others.


For some purpose The delivery of goods from bailor to bailee must be

for some purpose. If goods are delivered by mistake to a person, there

is no bailment. Return of specific goods

It is agreed between the bailor and the bailee that as soon as the purpose is achieved, the goods shall be returned or disposed according to the directions of the bailor. e.g. When a piece of cloth is stitched into a suit.


Bailment is concerned only with goods Goods as defined in Sec. 2(7) of the sale goods Act,

1930, mean every kind of movable property other than money and actionable claims.

Other examples of bailment Acceptance of goods by a transport company or railway

for carriage [Shiv Nath v. Union of India, A.I.R (1965) S.C. 1666]

Consideration in a contract of bailment In a contract of bailment, the consideration is generally

in the form of money payment either bt the bailor or the bailee for example, when A gives his bicycle to B for repair, or when A gives his car to B on hire

Classification of Bailments

According to the benefit derived by the parties: For the exclusive benefit of the bailor

As delivery of some valuables to a neighbour for safe custody without charge

For the exclusive benefit of the bailee As the lending of a bicycle to a friend for his use,

without charge For the mutual benefit of the bailor and the bailee

As the hiring of a bicycle or giving of a watch for repair.

Classification of Bailments

Bailment may also be classified into: Gratuitous bailment

It is a bailment where no consideration passes between the bailor and the bailee, e.g. where A lends a book to his friend B.

Non-gratuitous bailment or bailment for reward It is bailment where consideration passes

between the bailor and the bailee e.g. where certain goods are kept in a godown for hire,

Duties and Rights of Bailor and Bailee

Duties of bailor1. To disclose known faults

It is the first and foremost duty of the bailor to disclose known faults about the goods bailed to the bailee. If he does not make such disclosure, he is responsible for any damage caused to the bailee directly from such faults(Sec. 150, para 1)

2. To bear extraordinary expenses of bailment A goes out on holiday - leaves his dog with B – B

incurred expenses on feeding the dog – A liable to repay B the necessary expenses incurred by him.


Duties of bailor3. To indemnify bailee for loss in case of premature

termination of gratuitous bailment A lends his old discarded bicycle to B gratuitously

for 3 months – Bincurs Rs.100 on its repairs – A asks for return of bicycle after one month – A liable to compensate B for expenses incurred by him in excess of benefit derived by him.(Sec. 159)

4. To receive back the goods It is duty of the bailor to receive back the goods when

the bailee returns them after the expiry of the term of the bailment.


Duties of bailor5. To indemnify the bailee

in case bailor has defective title to goods and not entitled to make bailment or receive back the goods or give directions in relation to them and bailee suffers some loss as consequence – bailor liable to indemnify the bailee.(Sec. 164)


Duties of bailee1. To take reasonable care of the goods bailed.

Certain goods of A were bailed with B, B omitted to lock u the goods, bailed, locking up similar goods of his own. Held he was liable

2. Not to make any unauthorized use of goods. A hires a horse in Anand from B expressly to

march to Ahmedabad. A rides with due care, but marches to cuttack instead. The horse accidentally falls and is injured. A is liable to compensate B for the injury to the horse.


Duties of bailor3. Not to mix the goods bailed with his own goods.4. Not to set up an adverse title.(Sec. 117 of the

Indian Evidence Act, 1872) Bailee must hold the goods on behalf of and for

the bailor.5. To return any accretion to the goods.

A leaves a cow in the custody of B to be taken care of. The cow has a calf. B is bound to deliver the calf as well as the cow to A.

6. To return the goods.


Rights to bailor1. Enforcement of rights - Bailor can enforce by suit all the

duties of the bailee as his rights

2. Avoidance of contract - A lets a horse to B for his own riding only. B uses the horse with a carriage. A can terminate the bailment

3. Return of goods lent gratuitously - Bailor can demand return at any time even though bailment for specified time or purpose – however, in case bailee suffers some loss exceeding the benefit derived by him, bailor has to indemnify the bailee.

4. Compensation from a wrong-doer - If any third person deprives bailee use or possession of goods bailed or does them any injury, bailor (also the bailee) entitled to bring a suit against such third person for such deprivation or injury.


Rights to bailee1. Return of goods to one of several joint bailors - in the

absence of any contract to the contrary.

2. Delivery of Goods to bailor without title - if bailee acts in good faith, he is not responsible to the owner in respect of such delivery

3. Right to apply to Court to stop delivery - if any third person claims the goods bailed, bailee may apply to Court to stop the delivery of goods and to decide the title to the goods.

4. Right of action against trespassers

5. Bailee’s lien - where lawful charges of the bailee are not paid, he may retain the goods (particular lien).

Law Relating to Lien

‘Lien’ means the right of a person to retain possession of some goods belonging to another until some debt or claim of the person in possession is satisfied.

Possession is essential for exercising the right of lien, and in order to create a lien the possession must be rightful, not for a particular purpose and continuous.

Right of lien may arise by Statute, by express or implied contract, or by a general course of dealing between the parties in a particular trade.

A lien can be 1) Particular lien 2) General lien


Particular Lien : A particular lien is available only against the particular

property in respect of which the bailee has expended labour and skill. A bailee is entitled to a particular lien only e.g. A repairs B's car. B does not pay the repair charges. B can retain the car until payment is made.

General Lien : A general lien is a right of one person to retain any

property or goods which are in his possession belonging to another person until the promise or liability is discharged. General lien is available to bankers, factors, wharfingers, attorneys of High Court and policy brokers.

Difference between Particular lien and General lien

Basis Particular lien General lien

Availability of right

Available only against those goods in respect of which skill and labour has been expended by the bailee

Available in respect of any property belonging to other party and in possession of the person exercising the right, in respect of any payment lawfully due to him

Reason of lien For recovery of charge for labour employed or expenses incurred upon the goods

For a general balance of account


Right of bailor and bailee against wrong-doer: Suit against wrong doer: when third party

wrongfully deprives the bailee of use or possession of goods bailed or causes injury to the goods – bailee or bailor may bring a suit against the wrong-doer.

Apportionment of relief: whatever received by way of relief or compensation in any suit against wrong-doer, proportionate share of bailor and bailee as per respective interests

Finder of Goods

Person who comes by an article but not entitled to its possession - if he picks it up, he becomes a bailee

Rights of finder of goods : Right of lien - has right of lien for expenses incurred

on the preservation and for finding out the owner – but has not right to sue the owner for its recovery, as incurred by him voluntarily.

Right to sue for reward - Finder can sue for specific reward offered by owner for return of goods - may retain the goods until reward received.

Finder of Goods

Right of sale - finder can sell the goods

a) If owner cannot be found with reasonable diligence, or

b) If found, refuses to pay the lawful charges of finder, or

c) If goods are in danger of perishing or losing the major part of its value, or

d) If lawful charges of finder exceeds two-third of value of goods.

Finder of Goods

Obligations of finder of goods

1. He Must take reasonable care of goods – if despite such care, if goods are destroyed, finder not responsible for such loss.

2. He Must not use the goods for own purpose.

3. He Must not mix the goods with his own.

4. He Must try to find out the owner – if fails to do so, he is liable as a trespasser.

Termination of Bailment

1. On expiry of the period - if bailment is for specific period.

2. On achievement of object - if bailment is for specific purpose.

3. Inconsistent use of goods - if used in manner inconsistent with the terms of contract.

4. Destruction of subject matter or incapable of use for the purpose of bailment.

5. Gratuitous bailment - at any time as per wishes of bailor.6.

6. Death of bailor or bailee - in case of gratuitous bailment.

Pledge

Bailment of goods as security for payment of a debt or performance of a promise – bailor is called ‘pledger/pawnor’ – bailee is called ‘pledgee/pawnee’

Any movable property can be pledged - even a saving bank pass book may be pledged.

Delivery is necessary – may be actual or constructive or symbolic (likehanding over of keys of bank vault)

Difference between Bailment and Pledge

Basis Pledge Bailment

Purpose As security for performance of a specific promise, like repayment of a debt

For any purpose

Remedy on default

After giving notice to pawnor, pawnee may sell the goods pledged.

Bailee may either retain the goods or sue for his charges.

Use of own purpose

Pawnee has no right to use the goods pledged with him

Bailee may use the goods bailed for own purpose if terms of bailment so provide.

Rights of pawnee

1. Right of retainer: may retain the goods pledged until his dues are paid - also for interest due and all necessary expenses incurred by him for possession and preservation of goods – has particular lien.

2. Right of retainer for subsequent advances: if pawnee lends money to same pawnor after date of original pledge – gets right of retainer over goods for subsequent advances also.

3. Right to extraordinary expenses: can only sue for their recovery – no right of retainer

Rights of pawnee

4. Right against true owner, when pawnor’s title is defective – when pawnor got possession of goods pawned under a voidable contract, but contract not rescinded at time of pledge – pawnee gets good title if he acts in good faith and without notice of such defective title.

5. Pawnee’s right where pawnor makes default – when pawnor defaults in redeeming the pledge, pawnee may –

1) File suit for specific performance and retain goods as collateral security.

2) Sell the goods after giving reasonable notice to pawnor

3) Recover any deficiency arising on sale of goods from the pawnor – also liable to hand over the surplus realised, if any.

Rights of pawnor

Right to get back goods – after performance of promise or repayment of loan and interest and necessary expenses, if any.

Right to redeem debt – if default made in fulfilment of promise, but anytime before sale of goods pledged by pawnee, pawnor can redeem the goods pledged andalso make payment of interest and expenses, if any.

Preservation and maintenance of goods – can ask pawnee to preserve and maintain the goods pledged.

Right of an ordinary debtor – has right given under various statutes for protection of debtors.

Pledge by Non-owners

1. Pledge by mercantile agent - in ordinary course of business of mercantile agent – if in possession of goods with consent of owner – valid onlyif pledgee acts in good faith and without notice of defect of agent’s title.

2. Pledge by seller or buyer in possession after sale – seller left in possession after sale or buyer in possession before sale with consent of other party – valid only pledge acts in good faith and without notice of defect of pawnor’s title.

3. Pledge by pawnor having limited interest - e.g. person having lien over the goods or a finder of goods may pledge them to the extent of his interest.

Pledge by Non-owners

Pledge by co-owner in possession – one of several co-owners in actual possession with consent of others – can create valid pledge

Pledge by person in possession under a voidable contract – pledge valid if made before rescission of the voidable contract and if pledge acts in good faith and without notice of defect in pledgor’s title.

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Bailment & pledge