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Contract of bailment
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Contract of bailment

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  • 1. Contract of Bailment Bailment means the delivery of goods of a person to whom permission is given to have the goods of another person. Eg.- Delivery of clothes to a laundryman for washing and pressing is bailment. Section 148 of Contract Act lays down that a bailment is the delivery of goods by one person to another for a definite purpose and upon the agrement that they shall be returned or, disposed of according to the directions of the deliverer when the purpose is accomplished. Person delivering the goods-Bailer Person whom it is delivered-Bailee Essential features of Bailment:1. Agreement: Bailment is always created by an agreement between the bailer and the bailee.It may be express or, implied.(Finder of goods is an exception). Eg.-Tobacco packages were lying in the godown of PH firm which were pledged with a bank as security.The Income-tax officer ordered the seizer of the goods and so the keys of the godown was handed over to the police.Owing to heavy rain, roof of godown leaked and tobacco stock was damaged. The bank claimed the damages from the Government. It is held that the Government stood in the position of bailee and therefore liable to pay damages.Here,the bailment arises in an implied way of act. 2.Delivery of Goods: Bailment involves the change of possession without giving ownership.The possession means the right to keep control over the delivered goods.Hence,one who has custody of goods without possession is not a bailee and such custody does not constitute bailment. Eg.-A servant using his master's goods and a guest using his host's goods is not a bailee. Therefore, delivery of physical possession of goods is essential to establish a bailment.However the ownership of goods is retained by the bailer with himself. Delivery of possession may be of two kindsi) Actual delivery- when one hands over the physical possession of goods ,i.e. physically transfers the goods to another . For eg.when a person gives his wrist watch for repair to the watch-mechanic. ii)Constructive delivery-when some act is taken to mean handling over of the physical possession of goods ,though in fact no physical transfer of goods is made at that time. Eg.-Handling over of a key of the room or godown where goods are lying. 3.Movable Property: Goods in bailment means every kinds of movable goods other than money.Hence, bailment of immovable goods like land and building cannot be made. 4.Definite Purpose:Goods are delivered for some specific purpose i.e. for repairing of goods, tailoring,security of goods or, deposit of security for a debt, etc.
  • 2. 5. Return or disposal of the specific goods: Once the purpose is acheived the goods is to be returned to the bailor. Eg.- After setting the diamond in the golden ring goldsmith return the ring to you. 6.Essentials of a Valid Contract: All essential elements of a valid contract should be presesnt in the bailment. 7. Ownership not transferred: i.e. ownership remains with the bailor.(where the ownership is transferred with the delivery of goods ,such contracts are called Contract of Sale.) Kinds or, Classification of Bailment: Contracts of bailment can be classified on two bases:i) Reward basis or, ii)benefit basis. i) On the basis of Reward a)Gratuitous bailment:A graituitous bailment is that in which neither the bailor nor the bailee is entitled to any remuneration. Eg.- Lending of motorbike to a friend. b)Non-gratuitous bailment:A non-gratuitous bailment is that in which either the bailee or the bailor is entitled to some remuneration. Eg.- Giving scooter or bike for repair,giving tailor cloth for stiching etc. ii)On the basis of Benefit a)Bailment for exclusive benefit of bailor: For eg.- Mr. X is going out of station. He leaves the valuable things with his neighbour for safety.Here, Mr. X alone is being benefited by this bailment. b)Bailment for exclusive benefit of bailee: For eg.- Lending your bike to your friend without charging. c)Bailment for the mutual benefit of bailor and the bailee: For eg.-Giving cloth to a tailor for stiching.
  • 3. Duties & Rights of Bailor & Bailee Duties of Bailor 1.To disclose the known material faults:-Sec.150 of Contract Act states that bailor is bound to disclose those faults in the goods of which he is aware,which shall interfere in the use of such goods . Eg.- If goods are bailed for hire,the duty of bailor is still greater to disclose the faults. B takes a cycle on rent from A. The brakes are not working .The fact is not known to A but B meets with an accident because of that brake failure.Now, A has to compensate B for all the damages . 2.To repay necessary expenses:Sec.158 Eg.- X lends a cow to Y for safe custody.Suppose cow falls ill and Y has to incur certain medical expenses. If bailment is gratuitous (without reward),then X must reimburse Y for normal feed and medical expense as well. If it is non-gratuitous (with reward) , X must repay the medical expenses as it comes in extraordinary expenses. 3.To indemnify Bailee for excess loss:Sec.159 of Contract Act states that if the bailment is gratuitous (without reward) and is made for specified time or purpose, but bailor compels him to return the goods in between that is before time,then the bailor should indemnify the bailee for any loss incurred. Eg. X lends a scooter to Y without any charges for one month.Y spent Rs.300 on its repair,then he drives for 15 days and got a benefit of Rs.200 .On 16th day X asked the scooter back,now X should indemnify Y for Rs.100. 4.To Bear the normal risks of wear and tear of goods 5.To pay back the loss due to lack of title of goods to be bailed: Sec.164 of Contract Act statesif the bailor was not entitled for the bailment ,and the bailee suffers any loss due to that reason,it is the respnsibility of the bailor to pay back the loss. Eg.-X found a bike not belonging to him and bailed it to Y for safe -custody. Z the actual owner come to know about the fact, and recovered the bike certain amount of compensation from Y through court. Here, X is bound to pay the amount of compensation . 6.To receive back the goods bailed: After the expiry of the bailment,it is the duty of bailor to get back the goods, if he refuses to do so then he has to pay compensation for the expense incurred by the bailee on the custody of goods. RIGHTS OF BAILOR 1.Right to claim damages:Sec.151 0f Contract Act, Bailor can claim damages for an loss that might have caused to tha bailed goods. 2.Right to terminate the contract:Sec.153 staes that if bailee does something which is inconsistent with the terms and conditions of the bailment ,then the contract can be
  • 4. terminated by the bailor. Eg.- X lends a car to Y . But, Y starts using it as a taxi. Seeing this, X has full right to terminate the contract. 3.Right to claim compensation:Bailor can claim compensation if any damages is done to the goodsor, if some losses are incurred with regards to the goods bailed.(Sec.154,156 & 157) 4.Right to demand back the at any time the goods lent without charges: (Under Sec.159) 5.Bailor entitled to any profit accrued from the goods bailed:Sec.163 states that the bailor is entitled to any profit accrued from the goods bailed.Eg.-X hands over his car for safe-custody to Y.Y uses it as a taxi and earns Rs.2000 .X is entitled to get that profit of Rs.2000. DUTIES OF BAILEE 1.To take reasonable care of the goods bailed:(Under Sec.151) 2.Not to make unauthorised use of goods bailed:(Under Sec.154) 3.To return the goods:(Under Sec.160) 4.To return any accretion i.e. increase to the goods bailed:(Under Sec.163)The bailee is bound to return the added accrued value from the goods bailed. Eg.-J leaves a cow in the custody of K to be taken care of.Cow gave birth to a calf . K is bound to deliver the cow as well as the calf to J. RIGHTS OF BAILEE 1.To claim damages:(Sec.150)If the bailor has bailed the goods without disclosing the defects and due to that bailee has suffered a loss ,then he can claim the damages from the bailor. 2.To claim necessary expenses:(Under Sec.158) 3.Right to be indemnified:(Sec.159)If the bailor demands the goods before time and due to that bailee suffered a loss, then bailee is to be indemnified by the bailor . 4.Right of Particular lien:-Lien means a right to retain the possession of the goods till the promise made by the owner is fulfilled.Eg.-When a bailee has rendered a service ,he has the right to retain the thing or, good untill and unless he receive any remuneration for the same.(Sec.170)
  • 5. 5.Right to general lien:To retain for general balance as an security.For eg. Bankers in lieu of loan delivered retain the bonds or property(Sec.171) PLEDGE Sec.172 of Contract Act defines pledge or, pawn as ' The bailment of goods as security for payment of a debt or, performance of a promise is called a Pledge. The bailor here is called the Pledger or, Pawnor. The bailee is called the Pawnee or ,Pledgee. Eg.-If X borrows Rs.5000 from Y and keeps his scooter with Y as security for repayment,it is a contract of pledge. Pledge and Bailment: Similarities: 1. Both are created by contract between the parties. 2.Both involve transfer of Possession. 3.Only movable property can be the subject matter. 4.The same goods are to be returned after the fulfillment of the purpose of the contract. Differences: 1.Purpose: Bailment may be for any kind of purpose,for eg.- repair,reward,safe-cusody etc..While,pledge is made for a specific purpose of providing security against loan . 2.Right to use the goods:In bailment, a bailee may have the right to use the goods if the terms of the bailment so provide.However, in pledge,a pledgee does not have any right to use the goods. 3.Right to sell the goods:In pledge,pledgee has the rigjht to sell the goods in case of any default by giving a prior notice of asle to the pledger.. ut, in bailment he has no right to sell the goods, but he can retain the goods or , can file a suit against the bailor. RIGHTS AND DUTIES OF PLEDGER & PLEDGEE Rights of Pledger Similar to those of Bailor 1.Right to redeem the pledged goods:To redeem means to get something back by making payment.Sec.177 of Contract Act states that if a time is fixed for the payment of the debt ,then by making the payment on time,the goods can be taken back . 2.Right to receive any increase from pledged goods:-
  • 6. Eg.-X took a loan of Rs.5000 from Y and pledged his 100 shares .During the period of pledging , the company issued some bonus shares. Duties of Pledger 1.Duty to repay the loan:It is the duty of the pledger to comply with the terms of pledge and repay the debt on the fixed date. 2.To pay extraordinary expenses incurred by the pawnee RIGHTS & DUTIES OF PLEDGEE RIGHTS OF PLEDGEE 1.Right to retain the pledged goods: Sec.173 of Contract Act states that Pawnee or, Pledgee has the right to retain the goods untill and unless the paymnet of debt or, the performance of promise is made. 2.Right to extraordinary Expenses:Sec.175 states that Pledgee is entitled to receive from the pledger the expenses incurred by him for the preservation of the pledged goods. 3.Right in case of default of pledged goods:Sec.176 states that he can bring a suit against the pledger or, he can sell the pledged goods to recover the claim. DUTIES OF PLEDGEE 1.Duty not to use the pledged goods 2.Duty to return the pledged goods
  • 7. Eg.-X took a loan of Rs.5000 from Y and pledged his 100 shares .During the period of pledging , the company issued some bonus shares. Duties of Pledger 1.Duty to repay the loan:It is the duty of the pledger to comply with the terms of pledge and repay the debt on the fixed date. 2.To pay extraordinary expenses incurred by the pawnee RIGHTS & DUTIES OF PLEDGEE RIGHTS OF PLEDGEE 1.Right to retain the pledged goods: Sec.173 of Contract Act states that Pawnee or, Pledgee has the right to retain the goods untill and unless the paymnet of debt or, the performance of promise is made. 2.Right to extraordinary Expenses:Sec.175 states that Pledgee is entitled to receive from the pledger the expenses incurred by him for the preservation of the pledged goods. 3.Right in case of default of pledged goods:Sec.176 states that he can bring a suit against the pledger or, he can sell the pledged goods to recover the claim. DUTIES OF PLEDGEE 1.Duty not to use the pledged goods 2.Duty to return the pledged goods