Bailment and pledge

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  • Phillips v Brooks Ltd. (1919) 2 KB 243In this case a person went to the plaintiff’s shop to buy some jewellery and represented himself as Sir George Bullough, a man of credit. He issued cheque towards the payment which bounced in the meantime the ring was pledged with a third party. The recovery was not allowed as the defendant had received the goods in good faith.
  • Bailment and pledge

    1. 1. LAW OF CONTRACT - II CONTRACT OF BAILMENT AND PLEDGE BY- SHRADHA BARANWAL ASSISTANT PROF. COLS, UPES sbaranwal@ddn.upes.ac.in
    2. 2. BAILMENT AND PLEDGE (148-181) Section 148. Defines Bailment, Bailee and Bailor Essentials of bailment – • Delivery of goods • One person to another • For a purpose • Upon a contract • Delivery or disposal of the goods • Change of possession and not mere custody Pre-existing possession of goods not delivered under contract of bailment – constructive delivery Bailor – who delivers the goods Bailee – who receives the goods
    3. 3. Implied contract to follow the directions of the bailor No contract of bailment without obligation to return or dispose of Non contractual bailment - eg Finder of the goods Property seized wrongfully an
    4. 4. CASE LAWS ON THE NATURE OF BAILMENT • State of Gujarat v. Menon Mohammad, AIR 1967 SC 1885 • Mohammad Murad v. Govt. of U.P. AIR 1956 All 75 • Ram Gulam v. U.P. Govt. AIR 1950 All 206 • National Bank of Lahore v Sohan Lal AIR 1962 Pun 534 • Lasalgaon Merchants Cooperative Bank Ltd. v Prabhudas Hathibhai AIR 1966 Bom 134 • Trustee of the Port of Bombay v Premier Automobiles Ltd. AIR 1981 SC 1982
    5. 5. CLASSIFICATION OF PURPOSES FOR BAILMENT         For hire (Sec. 150) For Custody (Sec. 158) For Carriage (Sec. 158) To work on by putting labour and skill (Sec. 158, 170) For Loan (Sec. 159) Gratuitous Bailment (Sec. 159, 162) For security and repayment of debt (Sec. 172) For security for performance of promise (Sec. 172)
    6. 6. DUTIES OF THE BAILOR (SEC. 149, 150) Sec. 149 – Delivery by doing anything which has the effect of putting the goods in possession of the intended bailee Actual and constructive delivery of goods    Gov. General of India in Council v. Jubilee Mills AIR 1953 Bom 46 Kaliaperumal v. Visalakshmi AIR1938 Mad 32 N.R. Srinivasa Iyer v New India Insurance Co. AIR 1983 SC 899
    7. 7. Section 150. Bailor’s Duty to disclose faults in goods bailed  Duty to disclosure of a gratuitous bailor Liability in case of knowledge  Duty to disclose of a bailor for reward/ Hire Liability absolute
    8. 8.  DUTIES OF BAILEE Duty to reasonable care (section 151-152)  Duty to act as per the conditions of the bailment (Sec. 153)  Duty not to make unauthorized use (Section 153-154)  Duty not to mix with own goods (Sections 155-157)  Duty to return (Section 159, 160)  Duty not to set up title in third person (sections 166167)
    9. 9. DUTY TO REASONABLE CARE (SECTION 151152 Section 151. test of a prudent man Section 152. not liable if has taken due care Exceptions under Laws of Carriage – limited liability • • Calcutta Credit Corporation Ltd. v Prince Peter of Greece AIR 1964 Cal 374 Dwarkanath v. River Steam Navigation Co. Ltd. AIR 1917 PC 173
    10. 10. Cochin Port Trust v Associated Cotton Traders AIR 1983 Ker 154 Burden of proof on Bailee Section 151 – 152 to be read together • DUTY NOT TO MAKE UNAUTHORIZED USE Sec. 153 Duty to act as per conditions of bailment Includes only wholly inconsistent terms not the irregular exercise of a right such as sub pledge.
    11. 11. SEC. 154 Bailee is supposed to use the goods only for the agreed purpose. Use of goods otherwise than the agreed purpose and remedies – 1. Option of termination of the bailment (Sec. 153) 2. Recovery of compensation in case of loss (Sec. 153)
    12. 12. DUTY NOT TO MIX THE GOODS –SECTIONS 155157 Bailee is under a duty to maintain separate identity of the goods by the Bailor Mixture of goods with the Bailor’s consent – Section 155 Would result into proportionate share and interest Mixture of the goods without the Bailor’s consent – Sections 156-157 Where goods can be separated (Sec. 156) Where goods cannot be separated (Sec. 157)
    13. 13. DUTY TO RETURN THE GOODS (SEC. 160-161) Sec.160 Duty to return even without any demand as soon as the purpose is over Sec. 161 Absolute liability in case of default in return of the goods. Exception to absolute liability  Goods are not fit for the purpose of use  Seizure of goods by Government JK Oil Mills v Union of India AIR 1976 SC 227 Gratuitous bailment – Required to be returned at the demand (Sec. 159) Also terminated with the death of the Bailor or Bailee (Sec. 162)
    14. 14. DUTY NOT TO SET UP TITLE IN THIRD PERSON (SEC. 166-167) Bank of Bombay v. Nandlal Thackerseydass (1913) 15 BOMLR 1 RIGHTS OF BAILOR  Right to damage for wrongful use (Sec. 154)  Right to claim return or their loss (Sec. 159, 160, 161)  Claim of proportionate share in mixed goods with consent (Sec. 155)  Claim damages for mixing of goods without consent (Sec. 156, 157)
    15. 15. RIGHTS OF BAILEE         To claim possession of goods (Sec. 149) To know material faults in the goods (Sec. 150) To Claim proportionate share in mixed goods (Sec. 155) To claim damages due to defect in Bailor’s title or fault in goods (Sec. 150, 164) To claim expenses of bailment (Sec. 158) To claim indemnity To claim lien for remuneration (sec. 170, 171) Right to sue wrongdoers (Sec. 180)
    16. 16. LIABILITY OF BAILEE Duty to return increase and accretion (Sec. 163) Standard chartered Bank v. Custodian (2000) 6 SCC 427  To pay damage under sec. 152, 154, 156, 157, 161  To return bailed goods  LIABILITY OF BAILOR     To pay expenses of bailment (Sec. 158) To pay damages for non disclosure of material defects (Sec. 150) To pay damages for defect in bailor’s title (Sec. 164) To indemnity gratuitous bailee (Sec. 159)
    17. 17. Termination of gratuitous bailment by death (Sec. 162) Bailment by several joint owners (Sec. 165) Third person’s claim over the goods bailed (Sec. 166, 167) Finder of the goods (Section 168-169) Apportionment of relief (Sec. 181) Right to lien (Sec. 170, 171)
    18. 18. Particular lien (Section 170)       Applies only to a particular property In the absence of a contract to the contrary Bailee must have rendered some services or skill Right to lien continues only till the time goods are in possession of the bailee Rule of quantum meruit No transfer of lien General lien (Section 171)  Bailee can retain any goods.  For general accounts  Only specified persons (banker, factor, attorney, wharfingers)  Contract to the contrary  Overriding effect – other statutes not to affect – unless specifically excluded
    19. 19. Bankers Subject to contract to the contrary Goods must have been received as bailee Deposit of money is excluded Lien also does not extend to goods in custody, locker facility etc. Notice of defect in title of the goods – no right to lien State Bank of India v. M.P. Iron & Steel Works Ltd. AIR 1998 MP 93 Money does not maintain its identity unless earmarked for some specific purpose. The money in customers account belongs to the bank and hence the relationship of bailor bailee does not arise.
    20. 20. Factors Factor is an agent entrusted with possession of goods for selling the same for principal. Goods should have been received in the capacity of bailee and not otherwise. Wharfingers ‘owner or keeper of wharf’ – a person in charge of handling of freight, loading, unloading, storage, removal of goods at the port or wharf. The charge is available only against seller not against buyer.
    21. 21. Attorney of a High Court RD Saxena v. Balram Prasad Sharma (2000) 7 SCC 264 No right over litigation papers. Overruled earlier judgments allowing claim on papers Kinds of lien – summarization Finder of the goods (Sec. 168) Particular lien of bailee (sec. 170) General lien of bankers, factors, wharfingers, high court attorneys, policy breakers (Sec. 171) Lien of pawnees (sec. 173, 174) Lien of agents (Sec. 221)
    22. 22. PLEDGE Section 172. ‘Pledge’, ‘’Pawnor, and ‘Pawnee’ defined – The bailment of goods as security for payment of a debt of performance of a promise is called ‘pledge’. The bailor is in this case called the ‘Pawnor’. The bailee is called ‘Pawnee’ General rules regarding delivery in bailment apply Subject of pledge – only valuables (money excluded) Object of pledge Nature of pledge The rights of the pledgee are wider than a bailee.
    23. 23. Essential features of Pledge     Delivery of possession In pursuance of contract of pledge For the purpose of security Return of articles Hypothecation , mortgage and Pledge    Possession remains with the owner only constructive charge is created. No right to lien. Right to seize the goods in case of default.
    24. 24. RIGHTS AND LIABILITIES OF PLEDGEE • • • • • • • • • • Right to claim payment of debt, promise, interest on debt, within the time stipulated When time is not stipulated – no default till notice Expenses (necessary + extraordinary Sec 173 & 175) In case of necessary expenses – right to lien In case of extraordinary expenses – only right to receive hence no lien Sell the goods after reasonable notice (notice to guarantor- not mandatory but advisable) (Sec 176) Sale without notice - void Excess of sale is to be returned (Sec. 176) Can not retain goods for any other promise (Sec 174) Period of limitation for recovering pledged goods – 30 years (Art. 70 Limitation Act, 1963)
    25. 25. WHO CAN BE A PAWNOR Only the owner of the goods can be a pawnor Exceptions • Pledge by mercantile agent • Pledge of goods obtained under a voidable contract • Pledge of goods by seller or buyer of the goods Sec. 178 – pledge by mercantile agent  Possession of goods, possession of title with the consent of owner (either express or implied)  Acting in ordinary course of business  Pawnee to act in good faith  Has no notice of defective authority
    26. 26. Sec. 2(9) Mercantile agent – “mercantile agent” means a mercantile agent having in the customary course of business as such agent authority either to sell the goods or to consign goods for the purpose of sale or to buy goods or to raise money on the security of goods. Possession with owner’s consent Morvi Mercantile Bank v. UOI AIR 1965 SC 1954 Central National Bank v. United Industrial Bank AIR 1954 SC 181 Good faith Acting in ordinary course of business Excludes transactions outside business premises after business hours
    27. 27. Sec. 178A - Pledge by person in possession under a voidable contract  Goods under a voidable contract  Before the contract has been rescinded  Pawnee acting in good faith and without the notice of defect in title. Sale of Goods Act section 30(1) - Pledge by person in possession after sale (when possession has not been given in spite of receiving the payment) Section 30 (2) - Pledge by Buyer in possession before sale (when possession has been given without payment)
    28. 28. Pledge by a person with a limited interest (Sec. 179) Right only up to the interest irrespective of the fact that the pawnee was not aware of the limited interest. CASE LAWS ON PLEDGE Bank of Chittoor v. Narasimhulu AIR 1966 AP 163 Bailor of cinema projector to the Bank kept goods in his possession in trust. Held there was constructive delivery. State Bank of India v. Smt. Neelu Ashok Naik AIR 2000 Bom 151 It was held that the bank was allowed to retain an

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