Bailment and pledge


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Bailment and pledge

  1. 1. 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.
  2. 2. 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‟.
  3. 3. 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
  4. 4. 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.
  5. 5. 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.
  6. 6. 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.
  7. 7. 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
  8. 8. 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
  9. 9.  Section 172“Pledge is the bailment of goods as security for payment of debt or performance of a promise.”
  10. 10. 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.
  11. 11. 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].
  12. 12.  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.
  13. 13. 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‟.”
  14. 14.  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‟
  15. 15.  Onthe 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.
  16. 16.  Secondary but co-extensive Unlessotherwise agreed, it can be neither less nor more than the liability of the principal debtor. MinorPrincipal Debtor vis-à-vis Liability of Surety.
  17. 17.  Specific Guarantee Continuing Guarantee
  18. 18. 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.
  19. 19.  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).
  20. 20.  Where joint sureties have guaranteed an equal amount  Liability shall be equal. Where joint sureties have guaranteed different amounts
  21. 21. Liability shall be equal subject to the amount guaranteed (Section 147).
  22. 22. 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.