details about the contracts of bailment & pledge

2. 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.

3. 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.

4. 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.

5. Requisites of Bailment
 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.

6. Requisites of Bailment
 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

7. 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.

8. 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,

9. 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.

10. Duties and Rights of Bailor and Bailee
 Duties of bailor
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.

11. Duties and Rights of Bailor and Bailee
 Duties of bailor
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)

12. Duties and Rights of Bailor and Bailee
 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.

13. Duties and Rights of Bailor and Bailee
 Duties of bailor
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.

14. Duties and Rights of Bailor and Bailee
 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.

15. Duties and Rights of Bailor and Bailee
 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).

16. 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

17. Law Relating to 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.

18. 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

19. Law Relating to Lien
 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

20. 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.

21. 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.

22. 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.

23. 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.

24. 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)

25. 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.

26. 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

27. 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.

28. 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.

29. 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.

30. 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.