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 bailor
1. 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.

3. 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.

5. 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 bailee
1. 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.

3. 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 bailor
1. 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 bailee
1. 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.

Bailment & pledge

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