BAILMENT & PLEDGE business law notes

1. BAILMENT & PLEDGE

2. BAILMENT
 According to Sec 148 of the Contract Act, 1872-----
 ‘A bailment is the delivery of goods by one person to
another 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,
the person to whom they are delivered is called the
bailee and the transaction is called the bailment.

3. MODES OF DELIVERY
􀂾 Actual delivery
Transfer of physical possession of goods from one person to another .
􀂾 Symbolic delivery
• Physical possession of goods is not actually transferred.
• A person does some act resulting in transfer of possession to any other
person.
Examples:
(a) Delivery of keys of a car to a friend
(b) Delivery of a railway receipt.

4. CONTD…
􀂾 Constructive delivery
If –
• A person is already in possession of goods of owner.
•Such person contracts to hold the goods as a bailee for a third person.
Then –
Such person becomes the bailee, and the third person becomes the bailor.

5. CLASSIFICATION OF BAILMENT
􀂾 Gratuitous bailment
Bailment without any charges or reward, i.e. –
• No hire charges are paid by bailee; and
• No custody charges are paid by bailor.
􀂾 Non – gratuitous bailment
Bailment for some charges or reward, i.e.-
• Hire charges are paid by bailee; or
• Custody charges are paid by bailor.

6. Essentials of Bailment
 It is a delivery of movable goods by one person to another
(not being his servant).
 According to Section 149 the delivery of goods may be actual or
constructive.
 The goods are delivered for some purpose. When they are
delivered without any purpose, there is no bailment as defined
under Sec 148.
 The goods are to be returned in specific or disposed of
according to the directions of the bailor, either in original
form or in altered form.

7. Duties of the Bailee
 (i) Duty to take reasonable care of goods delivered to
him [Sec 151]
 (ii) Duty not to make unauthorized use of goods
entrusted to him [ sec 154]
 (iii) Duty not to mix goods bailed with his own goods
[Sec 155]
 (iv) Duty to return the goods [ Sec 165]
 (v) Duty to deliver any accretion to the goods [Sec 163]

8. Duties of the Bailor
 (i) Duty to disclose fault in the goods bailed [Sec 150]
 (ii) Duty to repay necessary expenses in case of gratuitous
Bailment [Sec 158]
e.g bailment of horse and expenses incurred towards feeding
and medical care of the horse to keep it alive.
 (iii) Duty to repay any extraordinary expenses in case of
non-gratuitous expenses.
 (iv) Duty to indemnify bailee [Sec 164]

9. Rights of Bailee
 (i) Enforcement of Bailor’s Duties
 (ii) Right to deliver goods to one of several joint
owners
 (iii) Right to deliver goods, in good faith, to bailor
without title, without incurring any liability to the true
owner
 (iv) Right of Lien

10. Rights of the Bailor
 (i) Enforcement of Bailee’s Duties
 (ii) Right to terminate bailment if the bailee uses the
goods wrongfully [ Sec 153]
 (iii) Right to demand return of the goods at any time in
case of gratuitous bailment [Sec 159]

11. DISTINCTION BETWEEN BAILEE’S
PARTICULAR AND GENERAL LIEN
Basis of distinction Bailee’s particular lien Bailee’s general lien
1. Natural of right Particular lien gives right
to retain only such goods
in respect of which
charges due
remain unpaid.
General lien gives right to
retain any goods
belonging to
another person for any
amount due from him.
2. Condition for
exercising lien
Particular lien can be
exercised only when some
labour or skill has been
expended on the goods,
resulting in an increase in
value of goods.
General lien may be
exercised even though no
labour or skill has been
expended on the
goods.
3. Right to whom? Every bailee is entitled to
particular lien.
General lien can be
exercised by only such
persons as are specified
u/s 171. e.g., bankers,
factors, Attorneys of High
Court, policy brokers.
Any other bailee may

12. TERMINATION OF BAILMENT
(Sec.153, 159 and 162)
Situation Explanation Example
1. Expiry of specified
period
When bailment is for
specific period, it
terminates on the expiry
of the specified period.
Z lends a moped to Y for a
period of 3 months April
– June. The Bailment
terminates by the end of
June.
2. Accomplishment
of specified purpose
Where bailment is for a
specified purpose, it
terminates when such
purpose is accomplished.
G hires tables and chairs,
utensils, etc. from H for
organizing his son’s
engagement. G shall
return them once the
engagement
functions are over.

13. CONTD…
Situation Explanation Example
3. Bailee’s act
inconsistent with
Conditions
When bailee does some
act which is inconsistent
with the
terms and conditions of
bailment, the Bailor may
terminate the bailment.
J gives his car to K
keeping it in K’s garage. K
gives it to his son for
racing. J can terminate
the bailment.
4. Destruction of
subject matter
When goods bailed are
destroyed, Bailment
comes to an end.
K hires a cycle from L.
When the cycle is
damaged beyond repair
in an accident, bailment
ends.

14. CONTD…
Situation Explanation Example
5. Gratuitous
Bailment
• Gratuitous Bailment can
be terminated at any
time.
• Also, a Gratuitous
Bailment ends by the
death of either Bailor or
Bailee. (Sec162)
Note:
Where premature
termination of bailment
by the Bailor, causes loss
to the Bailee exceeding
the benefits derived by
him, the Bailor shall
indemnify the Bailee.

15. FINDER OF GOODS
(Sec. 71, 168 and 169)
 Finder of lost goods [Sec 71]
A person, who finds goods belonging to another and
takes them into his custody, is subject to the same
responsibility as a Bailee.
 Implied Agreement
There is an agreement, implied by law between finder
and owner of goods.

16. CONTD…
􀂾 Duties of Finder
 A finder of lost goods is treated as Bailee of goods found.
His duties are –
 (a) To take initiative to find the real owner of the goods,
 (b) To take reasonable care of the goods found,
 (c) Not to put the goods found for his personal use, and
 (d) Not to mix the goods found with his own goods.

17. Rights of Finder:
 Suit for specific reward [Sec.168]
 Finder of goods is not entitled to sue the owner for compensation for trouble
and expenses voluntarily incurred in –
 (a) preserving the goods,
 or (b) finding out the owner.
 However, he is entitled to –
(a) Lien: Retain the goods against the owner till he receives such compensation
(b) Suit: Sue the owner for payment of any specific reward offered by the owner
for the return of goods lost, and retains the goods till payment of such reward.

18. CONTD…
 Right of Sale [Sec.169]
If a thing which is commonly the subject of sale is lost,
and
• Owner cannot be found with reasonable diligence, [or]
• Owner, if found, does not pay the lawful charges of the
Finder.

19. CONTD…
 Then, Finder of Goods is entitled to sell the same
when –
(a) the thing is in danger of perishing, or
(b) the thing is in danger of losing the greater part of
its value, or
(c) The lawful charges of finder, amount to 2/3rd of
the value of the thing lost and found.

20. Pledge or Pawn
 According to Sec 172, Contract Act, 1872----
 ‘The bailment of goods as security for repayment of a
debt or performance of a promise is called ‘pledge’.
 The bailor in this case is called the pawnor, the bailee
is called the pawnee.
 For example, LOAN

21. Distinction between Bailment &
Pledge
Pledge Bailment
Pledge is the bailment for a specific
purpose i.e to provide security for a
debt or for fulfillment of object.
Bailment is for a purpose other than
two under pledge i.e for repairs, safe
custody etc.
The pledgee has right to sale on default
after giving notice thereof to the
Pledger.
No right to sale. The bailee may either
retain the goods or the bailor for non-
payment of his dues

22. Essential Features of a valid
Pledge
 Delivery of possession
 Delivery should be upon a contract
 Delivery should be for the purpose of security
 Delivery should be upon condition to return

23. Duties of a Pawnor
 Duty to repay the loan
 Duty to pay expenses in case of default

24. Duties of a Pawnee
 Duty not use of pledged goods
 Duty to return the goods

25. Right of Pawnor
 Right to redeem the goods pledged
 Right to receive the increase

26. Right of Pawnee
 Right to retain the pledged goods
 Right to extra ordinary expenses
 Right in case of default of the pawnor
 Right to sell the goods