Bailment and Pledge Final

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BAILMENT AND PLEDGE

BY :Prashant Awasthi

Kuljinder SinghRaghav Bhatia

Nitish Arora

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Bailment is derived from a French word “baillier” which means to deliver or any kind of handing over.Bailment is the delivery of goods by one person to another for some purpose, when the purpose is accomplished, the goods are returned to or otherwise disposed off according to the direction of the person delivering them.

BAILMENT

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BAILMENTAccording to Contract Act 1872 Chapter

9 section 148 “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 off according to the directions of the person delivering them".

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Bailor : who givesBailee : who takesBailment : the transaction

Bailor

Bailee

Bailment

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EXAMPLESA lends a book to B to be returned after

the examination. There is a contract of bailment between A & B.

A places his damaged car in possession of a repairer R. A is bailor and R is bailee in this case and there is a contract of bailment between A & R.

X who is going out of station delivers a horse to Y for proper care.

Keeping valuables in locker of a bank.

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Essential Elements of a Bailment

Agreement

Delivery of Goods

Purpose

Return of Specific Goods

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AgreementBailment is usually created by an agreement

between bailor & bailee.The agreement may be expressed or implied.In certain exceptional cases bailment is

implied by law.eg: bailment b/w a finder of goods and owner of

goods.All the essential of a valid contract are

applied.

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Delivery of GoodsThere must be delivery of goods. It means

that the possession of goods must be transferred.

The delivery must be voluntary. eg : the delivery of jewellery by its owner to a

thief who shows a revolver, does not create a bailment, because the delivery is not voluntary.

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Purpose

Delivery of goods should be for some specific purpose, task or performance.

If the goods are delivered by mistake it should not be considered as Bailment.

eg : Wrong delivery of Goods to shop A instead of shop B , does not create any bailment.

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Return of Specific GoodsBailee must return the specific goods as soon as the

specific purpose is accomplished or otherwise disposed off according to the directions of the bailor.

The goods must be returned in specie(same) though they may undergo a change of form.

eg : delivery of old gold jewellery to a banker for safe custody & delivery of old gold jewellery to a goldsmith for making new one out of it , both creates a bailment, though jewellery returned undergo a change of form in 2nd case.

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Types of Bailment

1) On the basis of Rewards:Gratuitous: No consideration passes b/w the bailor

and the bailee. eg : X lends a horse to Y for riding without any

charge.Non-Gratuitous: Some consideration passes b/w

the bailor and the bailee. eg :Y hires a horse from X.

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2) On the basis of Benefit :For the exclusive benefit of bailer eg :Delivery of some valuables to a neighbour for

safe custody without charges.

For the exclusive benefit of bailee eg : X lends a horse to Y for riding without any charge.

For the mutual benefit of bailer and bailee eg : Giving a watch for repair.

Types of Bailment (contd)

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Duties of Bailor

Duties of Bailor

Duty to Disclose Defects

Duty to Bear

ExpensesDuty to indemnify the Bailee in case of premature terminatio

n of gratuitous bailment

Duty to indemnify the bailee

against the defective

title of bailor

Duty to receive

back the goods

Duty to bear the risk of loss

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Duties of Bailor (contd)

A) Duty to disclose defects (Sec 151) : The bailor must disclose all the known faults.

If he does not do so he is responsible for any damage caused to bailee from such fault.

eg : A lends a horse to B which he knows to be vicious and does not disclose it. The horse runs away, B is thrown and injured. A is responsible to B for damage sustained.

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B) Duty to bear expenses (Sec 158) : The bailor must repay to the bailee all the necessary

expenses (gratuitous bailment) and extraordinary expenses (non-gratuitous bailment) which the bailee has incurred for the purpose of bailment.

eg : X delivered a horse to Y. Y incurred `100 as feeding expenses and `200 as medical expenses.

X has to repay `300 in case if it is gratuitous bailment.

X has to repay `200 in case if it is non-gratuitous bailment.

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C) Duty to indemnify the Bailee in case of premature termination of gratuitous bailment (Sec 159) :

A gratuitous bailment may be terminated by the bailer at any time even though bailment was for a specified time or purpose, the bailer must indemnify the bailee in case the loss rising due to premature termination of the bailment exceeds the benefits actually derived by the bailee.

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D) Duty to indemnify the bailee against the defective title of bailor (Sec 164) :

The bailor is responsible to the bailee for the loss which the bailee may suffer because of the defective title of the bailor.

eg : Y asks X, his friend to give him horse for 1 hr. X instead of his own horse delivers Z’s horse to Y. While Y was riding, Z catches Y and hands him over the police custody. Y is entitled to recover from X all costs which he had to incurred in getting out of this situation.

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E ) Duty to receive back the goods (Sec 164) :

The bailor must receive back the goods when the bailee, in accordance with the terms of bailment, returns the goods to him. If the bailor refuses to receive back the goods, he must repay to the bailee all the expenses which the bailee has incurred for the safe custody of goods.

eg :X lent a horse to Y for 5 days. On the expiry of 5 days, X refused to receive back the horse but two days thereafter , he agreed to receive back the horse. During these 2 days Y incurred `100 as feeding expenses. X must repay `100 to Y.

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Duties of Bailor (contd)F) Duty to bear the risk of loss (Sec 152) :

The bailor must bear the risk of loss of goods provided the bailee has taken all reasonable steps to protect the goods from loss.

eg: X lent a horse to Y for 5 days. On 3rd day, the became sick and was hospitalized but died. Y is not liable to X for this loss.

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Duties of Bailee

Duties of Bailor

Duty to take care of goods bailed

Duty not to make unauthori-zed use of goods

Duty not to mix bailor’s goods

with own goods

Duty to return the

goods

Duty to return

accretions to the goods

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Duties of Bailee(contd)A) Duty to take care of goods bailed (Sec 151,152) : The bailee is bound to take care of the goods whether the

bailment is gratuitous or non-gratuitous.B) Duty not to make unauthorized use of goods (Sec

154) :The bailee must use the goods bailed according to the conditions of the bailment. If he does not use the goods according to the condition of the bailment, he is liable to make compensation if any damage arises.

eg: X lends a horse to Y for his own riding only. Y allows Mrs. Y to ride the horse. Mrs. Y rides with care but the horse accidentally falls and is injured. Y is liable to make compensation to X.

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Duties of Bailee(contd)C) Duty not to mix bailor’s goods with own goods

(Sec 155,157)D) Duty to return the goods (Sec 160,161) : The bailee must return or deliver the goods according to the

bailor’s directions without demand, after the accomplishment of purpose or after the period of bailment. If he fails to do so, he is responsible to the bailor for any loss or damage.

eg: X lent a horse to Y for 5 days. On the expiry of 5 days, Y did not return the horse. The horse died without any fault on part of Y. Y was responsible to X for the loss.

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Duties of Bailee(contd)E) Duty to return accretions to the goods (Sec 163) : In the absence of any contract to the contrary, the

bailee is bound to deliver to the bailor, or according to his directions, any increase or profit which may have accrued from the goods bailed.

eg: 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.

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Rights of a BailorA) Right to claim damages in case of Negligence

(Sec 152): If the bailee has not taken reasonable care, the

bailor has a right to claim damages for the loss, destruction or deterioration of the goods bailed.

B) Right to Terminate the contract in case of Unauthorized use (Sec 153):

If the bailee does any act in respect of goods bailed, which is inconsistent with the conditions of the bailment, the bailor has a right to terminate the contract of bailment.

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Rights of a Bailor (contd)C) Right to claim compensation in case of

unauthorized use (sec 154) : If the bailee does not use the goods bailed

according to the conditions of the bailment, the bailor has right to claim compensation.

D) Right to demand returns of Goods (Sec 160) : The bailor has a right to demand return of goods

after the accomplishment of the purpose or after the expiry of period of bailment.

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Rights of a Bailor (contd)E) Right to claim compensation in case of

unauthorized retention of goods (Sec 161): If the bailee does not return or deliver the goods

according to the bailor’s directions, the bailor has a right to claim compensation for any loss.

F) Right to demand Accretion to goods (sec 163) : In the absence of contract to the contrary, the bailor

has a right to demand any increase or profit which may have accrued from the goods bailed.

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Rights of a BaileeA) Right to claim damages (Sec 150) : If the bailor does not disclose the defect in the

goods which are known to him and the bailee suffers some loss due to such defects, the bailee has a right to claim damages.

B) Right to claim Reimbursement of Expenses (Sec 158) :

The bailee has a right to claim reimbursement of all the necessary expenses which he has already incurred for the purpose of bailment.

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Rights of a Bailee (contd)C) Right to deliver goods to anyone of the joint Bailors

(Sec 165) : The bailee has a right to deliver back the goods to anyone

of the joint owners or may deliver the goods back according to the directions of one joint owner without the consent of all.

D) Right to particular Lien (Sec 170) : Where the bailee has, in accordance with the purpose of

the bailment, rendered any service involving the exercise of labour or skill in respect of the goods bailed, he has, in the absence of a contract to the contrary, a right to retain such goods until he receives due remuneration for the services he has rendered in respect to them.

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PLEDGE

Pledge is a special type of bailment where transfer of

goods is for security of something.

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PLEDGE According to Contract Act 1872 Chapter 9

section 172 “The bailment of goods as security of payment of a debt or performance of a promise is called “Pledge”.

The bailor in this case is called “Pledger” or

“Pawner” and bailee is called “Pledgee” or “Pawnee”.

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EXAMPLESA borrows `200 from B and keeps his

watch as security for payment of the debt. The bailment of watch in this case in called pledge.

X borrows `1 lakh from a bank and keeps his shares as security for payment of a debt. It is a contract of pledge.

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ESSENTIAL ELEMENTS OF PLEDGE

Pledge is a type of bailment so it possess the same requisites as of bailment.

AgreementDelivery of PossessionPurposeReturn of goods after the performance of

promise or payment of debt

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RIGHTS OF PAWNORRight to get back goods : On the performance of promise or repayment

of loan and interest the pawnor is entitled to get back the goods pledged

Rights to redeem debt (Sec 177) : If a time is stipulated for payment of debt or

performance of promise, in such case if pawnor makes default in payment or performance at stipulated time he may still redeem the pledged goods before actual sale.

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RIGHTS OF PAWNOR (contd)

Preservation and maintenance of goods : The pawnor has a right to see that the Pawnee

preserves the goods pledged and properly maintain them.

Right of an ordinary debtor : In addition to above rights, the pawnor has the

rights of an ordinary debtor which are conferred on him by various statutes meant for the protection of debtors.

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RIGHTS OF PAWNEERight of retainer (Sec 173) : The Pawnee may retain the pledged goods until his

dues are paid. He may also retain the goods for payment of interest due on debt and expenses incurred in respect of possession of goods.

Right of retainer for subsequent advances When the Pawnee lends money to same pawnor after

the date of pledge, it is presumed that the right of retainer over the pledged goods extends to subsequent advance also.

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RIGHTS OF PAWNEE (contd)Right to claim Reimbursement of Extraordinary

Expenses (Sec 173) : The Pawnee is entitled to receive from the pawnor

extraordinary expenses incurred by him for the preservation of goods pledged.

Right against true owner(Sec 178A) : When the pawnor’s title is defective and he has

obtained possession of pledged goods under a void able contract, the Pawnee can acquire a good title to the goods provided he acts in good faith.

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RIGHTS OF PAWNEE (contd) Right when pawnor makes default(Sec 176) : When the pawnor fails to redeem his pledge the

Pawnee can exercise the following rights :

1. He may file a suit against the pawnor

2. He may sell the goods pledged after giving a reasonable notice of sale

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Difference b/w bailment and pledge

Basis of Distinction Pledge Bailment

Purpose Pledge is bailment of goods for a specific purpose, i.e. repayment of a debt or performance of a duty.

Bailment is for a purpose of any kind.

Right to Use Pawnee cannot use the goods pledged.

Bailee can use the goods as per terms of bailment.

Right to sell Pawnee can sell the goods after giving notice to the pawnor in case of default by the pawnor.

Bailee can either retain the goods or sue the bailor for his dues.

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THANK YOU

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Prashant : 2,3,4,5/20,21,22,23/33,34(Start)

Kuljinder :6,7,8,9,10/24,25,26/38 (End)

Nitish :11,12,13,14,15/27,28/35,36

Raghav :16,17,18,19/29,30,31,32/37

Bailment and Pledge Final

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