STUDY MATERIAL LLM . IV SEMESTER LAW OF CONTRACT II … · Section 148 in The Indian Contract Act, 1872 148. „Bailment‟, „bailor‟ and „bailee‟ defined.—A „bailment‟

PROF.JAVAID TALIB DEPT.OF LAW,AMU

STUDY MATERIAL

LLM . IV SEMESTER

LAW OF CONTRACT –II

UNIT – II

1.BAILMENT

Introduction

The word “bailment” has been derived from the French word “ballier” which means “to deliver”.

In general, Bailment means the delivery of goods of a person to whom permission is given to

have the goods of another person. The contracts of bailment come under a special class of

contract and are dealt under Sections 148 to 181 of the Indian Contract Act, 1872. Though the

Contract Act covers the general principles related to contracts of bailment but it does not deal

with all types of bailment. The Carriers Act, 1865, The Carriage Act of Goods by Sea Act, 1925

and The Railways Act, 1890, are the few Acts which deal with special types of bailment.

According to Section 148 of the Contract Act, “Bailment means 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 “bailer” and the person to whom

they are delivered is called the “bailee”.

Illustrations

1. Sanju delivers a piece of cloth to Manju, a tailor, to be stitched into a suit. There is a contract

of bailment between Sanju and Manju.

2. „Z‟ lends a novel to „Y‟ to be returned aer a month. There is a contract of bailment between

„Z‟ and „Y‟. 3. Najuk sold some goods to Komal who le them in the possession of Najuk. The

relationship between Najuk and Komal.


Bailment Defined

Section 148 in The Indian Contract Act, 1872

148. „Bailment‟, „bailor‟ and „bailee‟ defined.—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‟. —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‟."

Explanation.—If a person is already in possession of the goods of other contracts to hold them

as a bailee, he thereby becomes the bailee, and the owner becomes the bailor of such goods,

although they may not have been delivered by way of bailment.

Essential Features of Bailment

Agreement:

Bailment is always created by an agreement between the bailer and the bailee. It can be either

express or implied.

Delivery of Goods:

Bailment involves the change of possession without giving ownership. The possession means

the right to keep control over the delivered goods.

Movable Property:

Goods in Bailment involves all types of movable goods except money. Thus, bailment of

immovable goods cannot be done.


Definite Purpose:

Goods are delivered for a definite purpose. For ex. repairing, tailoring, security, etc.

Duties of Bailor and Bailee

Duties of Bailor:

1) Disclosure of known faults (Section 150): Bailor is supposed to disclose the known faults in

the goods bailed to the bailee and if he fails to do so, he will be held liable for the damage casued

to the bailee due to such faults. If the bailor bails goods for hire, he will be liable for even the

faults which he isn‟t aware of. However, in a bailment for consideration, he can be held

responsible only for the faults which he is aware of and failed to disclose them.

2) Bear unordinary expenses of bailment (Section 158): The bailor has to bear any unordinary

expenses incurred under contract of bailment. In case of bailment for consideration, when the

goods are required to be carried or kept or some work is done in relation to them by the bailee,

the bailor is required to repay all the expenses incurred by the bailee to him.

3) Indemnification of bailee for incurring loss when bailment is terminated prior to its term

(Section 159): A bailment for consideration can be terminated at any time by the bailor even

when the bailment was for a specific purpose or time. Any loss accrued to the bailee from such

termination shall not more than the benefit derived from the bailment. In case the loss is more

than the benefit, the bailee shall be indemnified by the bailor.

4) Receive back the goods: The bailor shall receive the goods back when the bailee returns them

aer the expiry of term or fulfillment of purpose of bailment. If the bailor denies the receipt of

goods, the bailee shall receive compensation from bailor for the expenses incurred due to

custody of such goods.

5) Indemnification of the bailee (Section 164): If the bailor‟s title to the goods is defective and

he is not entitled to make bailment and the bailee suers any loss or damage as a consequence, the

bailor will be liable for such loss or damage.


Duties of Bailee

1) Reasonable care of the goods (Section 151): The bailee has a duty to take care of the goods

bailed as any reasonable man would take of his own goods under similar circumstances. The

burden of proof that he exercised reasonable care negligently when he fails to return the goods or

return them in a damaged condition lies on the bailee. If the goods are destroyed or damaged

even after bailee‟s reasonable care, then the bailee is not responsible for such loss under section

152.

2) Not use the goods inconsistently with the contract (Section 154): A bailee shall be liable

for the loss incurred due to use of goods inconsistent with the terms of contract even if he did not

act negligently and the damage has resulted due to an accident.

3) Not to mix the goods bailed with his own goods (Section 155, 156): The bailee has a duty

not to mix his goods with the goods of the bailor and shall keep them separate. If he does so: 1.

with the consent of the bailor, the bailor and the bailee shall have an equal proportion of interest

in this mixture of goods. 2. without the consent of the bailor, the bailee has to bear the expenses

of division and separation and the damages arising from such mixture, if the goods can be

divided/separated. without the consent of the bailor, the bailee shall compensate the bailor for the

loss if the goods mixed cannot be separated.

4) Not to set up an adverse title (Section 117): The bailee shall not hold the goods for the

bailor on behalf of him as per Section 117 of the Evidence Act, 1872. The bailee cannot deny the

rights of the bailor to have the goods and receive them back. The bailor is bound to prove that the

other person had a right to goods as against the bailor if he delivers them to person other than the

bailor.

5) Return accretion to the goods (Section 163): The bailer shall deliver any increase or profit

accredited from the goods bailed to the bailor except as otherwise provided in the contract. 6)

Return the goods (Section 161): The bailee has a duty to return or deliver the goods bailed

according to the bailor‟s directions when the time of the bailment expires or the purpose of

bailment has been fulfilled.


Rights of Bailor and Bailee

Rights of Bailor

1) Enforcement of Rights: The bailor has a right to sue the bailee for enforcing all the

liabilities and duties of him.

2) Avoidance of Contract (Section 153): The bailor has a right to terminate the bailment if the

bailee doesn‟t any act inconsistent with the terms of the bailment with regard to the goods

bailed.

3) Return of goods (Section 159): When the goods are lent for consideration, the bailor has a

right to demand their return as and when he wants even if he lent them for a specific period

of time or purpose.

4) Compensation from wrongdoer (Section 180): If a bailee is deprived of the use or

possession of the goods bailed by a third person wrongfully or if the goods are damaged, the

bailee or bailor has a right to sue the third person for such damage or deprivation.

Rights of Bailee

1) Delivery to one of several joint bailors of the goods bailed (Section 165): If goods of

several joint owners are being bailed, the bailee may deliver them back to one joint owner

without the consent of all owners when there is no agreement to the contrary.

2) Delivery of goods to bailor without title (Section 166): If any person other than the

bailor claims the goods bailed, the bailee has a right to apply to Court to prevent the delivery

of goods to the bailor and to decide the title of such goods.

3) Right to take action against trespassers (Section 180): If any third person deprives the

bailee wrongfully of the possession or use of goods bailed to him, the Bailee can file a suit

against that person in respect of the goods bailed.

4) Bailee’s Lien: When the charges incurred by the bailee in regard to the goods bailed are

not paid to him, he has a right to lien i.e. right to retain the goods with him.


Distinction between Bailment and Pledge

Sr. No

Bailment

Pledge

1

Sections 148 to 171 of the Indian Contract Act 1872 deals with bailment

Sections 172 to 181 of the Indian Contract Act deals with Pledge.

2

Meaning: The term bailment is derived from the French word ‘Bailor’, which means ‘to deliver. It means possession voluntarily from one person to another.

Meaning: Pledge is a special kind of bailment. If the goods are bailed as a security for payment of a debt or performance of a promise, it is called Pledge.

3

Definition: Delivery of goods by Bailor to Bailee for a definite purpose on condition of their return or disposal, when purpose is accepted. (Section.148, I.C.A)

Definition: The Bailment of goods as security for payment of a debt or performance of a promise is called pledge. (Section.178, I.C.A)

4

Example: Sam delivers a cloth to John, a tailor making a shirt . The contract between Sam and John is bailment

Example: If a Farmer delivers to bank 50 bags of wheat as security for obtaining a loan, it is called pledge.

5 It is made for any purpose

It is made for specific purpose

6 The Bailee can use the goods

Pledgee cannot use the goods

7

The Bailee has no right to sell the goods bailed

The Pledgee / Pawnee has a right to sell the goods pledged if the pledger could not redeem them within the stipulated period.

8

Bailee can exercise lien on goods only for labour and service

Pledgee can exercise lien even for nonpayment of interest.

Case laws

JAGDISH CHANDRA TRIKHA Vs. PUNJAB NATIONAL BANK (http://www.the-laws.com) LAWS(DLH)-

1997-10-19 HIGH COURT OF DELHI Decided on October 24,1997JUDGEMENT C.M.NAYAR. J. –

(1.) The plaintiff moved this Court in December 1977 for permission to file the suit as an indigent

person under the provisions of Order 33 Rules 1 and 2 of the Code of Civil Procedure. The Court

granted permission by order dated 22/03/1982. The plaintiff, as a consequence, filed a suit for


recovery ofGold ornaments weighing 480 Tolas i.e. 5596.80 grammes depositedin safe deposit

box under receipt No. 17/47 dated 3/06/1947 withthe defendant .Bank or in the alternative for

the price thereof amounting to Rs. 3,72,400. The plaint was subsequently amended and

theplaintiff claimed recovery of the gold ornaments/jewellery or pricethereof as on the date of

the judgment/decree in the suit. (2.) The brief facts of the case are that late Rai Sahib Mool

Chand,father of the plaintiff and defendants 3 to 5 and husband of Smt.Washeshran Devi, who

was arrayed as defendant No. 2 but was deleted by the Court's order as she had expired during

the pendency ofthe suit was an eminent civil lawyer of the city of Peshawar (nowforming part

of Pakistan) in 1947. The said Rai Sahib Mool Chandhad a very lucrative practice as an Advocate

and was a regular income-tax payer. He was considered to be one of the wealthiest person

inthe city of Peshawar and after migrating from Peshawar in 1947 toIndia with his family at the

time of partition died on 30/04/1953in Delhi leaving behind the legal representatives/heirs

entitled to hisestate as referred to above. Rai Sahib Mool Chand entrusted forsafe custody a

sealed box containing 500 Tolas of Gold ornaments/Jewellery belonging to him with the then

The Punjab National Bank Ltd., Peshawar Cantt. Branch, Peshawar of which defendant No. 1is

the successor according to the Banking Companies (Acquisition and Traisfer of Undertaking)

Act, 1969. The gold ornaments/jewellery allegedly weighed 500 Tolas and were placed in the

box by the late father of the plaintiff Rai Sahib Mool Chand and his mother Smt.Washeshran

Devi with a list of the said articles of jewellery there in and the same was locked by the

deceased himself after which the box was wrapped with a white cloth and duly stitched by

defendant no. since deceased, and sealed with "Lac" (sealing wax) by the deceased after which

a monogram "M.C.R.S." i.e. "Mool Chand Rai Saheb was embossed on the seals of the said box

in the presence of defendant No. 2. Before handing over the said box to the then The Punjab

National Bank Ltd.. Peshawar Cantt Branch, Peshawar, the deceased wrote his name on the said

box. The box was given/entrusted to the Bank under receipt No. 17/47 dated 3/06/1947 and

the afore said Bank accepted it for safe custody as a part of its business activities for fee paid by

the deceased to the said Bank for safe custody. The details of the jewellery as handed over to

the Bank are referred to inparagraph 3 of the plaint which may be reproduced as follows :(i) S.

No. Description of articles Quantity Weight in Tolas1. Gokhroos 2 252. 'Churian' 8 403. Bangle 8

54. Other Bangles 12 75. Phul-Churian 2 56. Lacche 2 67. Pocchian 2 68, Janjeer 1 169. Necklace

1 910. Other type Necklace 1 1011. Chain I 312. Small Necklace 2 313. Lammi 1 614. Chhote

Kare 2 315. Children's Necklaces 6 716. Kanon-ke-Magar 2 517. Chain of wrist watch 1 218.


Buttons 4 319. Studds 2 120. Finger rings 2 221. Bittion-ke-Har 1 3022. Pound-ke-Har 1 2023.

Separate Pounds - 1024. Sets of ear rings 3Total 250Tolas(ii) In addition to above mentioned

articles, 250 Tolas of Gold ornaments/ jewellery were also lying in the Box containing some

broken items and some concrete items of gold ornaments/ jewellery, Sone-kapasa, weighing 25

Tolas, bangles weighing 30 tolas, Kare 13 Tolas and Bangles of 14 Tolas with 20 Bitties.......... 200

Tolas(iii) Other miscellaneous items of Gold ornaments 50 Tolas Total 500 Tolas(3) -- (3.) In

paragraph 4 it is stated that after depositing the sealed box containing the aforesaid

jewellery/gold ornaments father of the plaintiff came to Simla Hills in July, 1947 on a visit and

stayed there for a month. In the meantime the communal disturbances took place and

consequently said Rai Sahib Mool Chand could not return to Peshawar to collect his

paraphernalia/belongings lying in the paratial bungalow situated at No. 5 Kitchner Lane,

Peshawar Cantt including the safe deposit box deposited with the then The Punjab National

Bank Ltd., Peshawar Cantt Branch, Peshawar.

Ulen vs. Nicolls [1894 1 QB 92]

Facts: A customer went to a restaurant to dine there. When he entered the restaurant, a waiter

without being asked for help, took his coat. The waiter, who worked in the restaurant, hung the

coat on a hook behind the customer. When the customer rose to leave, the coat was no longer

there on the hook.

Held: The waiter had merely acted in courtesy to a customer of the restaurant. However, once the

waiter took the coat in his possession, he had relieved the customer of its care. Thus, the waiter

took on the responsibility of a bailee. Further, it was the waiter who selected the place where the

coat was to be hung without any direction from the gentleman. Therefore, the restaurant keeper

was held liable for the loss of the coat. If the customer had instructed the waiter where and how the

coat should be put, the result, perhaps, would have been otherwise. To create a bailment, the

bailee must intend to possess and in some way physically possess or control the bailed goods or

property. In a situation where a person keeps the goods in possession of another person but in fact,

continues to have control over such goods, there is no delivery for the purpose of bailment.


Kaliaporumal Pillai vs. Visalakshmi AIR [1938 Mad 32]

Facts: A lady, A, gave her jewelry to a goldsmith to melt and use in making new jewelry for her.

Every evening, A received the semi-finished jewelry from the goldsmith and put it in a box in the

goldsmith’s room. Then, A would lock the box herself and leave the goldsmith’s place with the key

in her possession. One night, the box so locked was stolen from the room and the jewelry within it

was lost. A brought an action against the goldsmith.

Held: The goldsmith was not liable as any bailment in this case came to an end when the lady

received the semi-finished jewelry from the goldsmith every evening. Leaving the locked box in the

defendant’s premises was not enough to constitute delivery under Section 149 especially since the

lady kept the keys with herself. Without legal possession, there cannot be any bailment and there

was no duty on the goldsmith to take care of the box.

Conclusion

On the basis of above discussion, it can be analyzed that bailment is a contract in which a

delivery of possession of specific goods is given to another person for a specific purpose and it is

dierent from the concept of license and sale. The bailee and the bailor have to perform in

accordance with the provisions of the Indian Contract Act, 1872 and the contract of bailment.

2. PLEDGE

Introduction

The Indian Contract Act 1872 defines the Contract of Pledge as section172. Pledge, Pawnor and

Pawnee defined.-The bailment of goods as security for payment of a debt or performance of a

promise is called pledge. The bailor is in this case called the pawnor. The bailee is called

pawnee. From the definition of the term pledge in the given section, it is clear that pledge is also

a type of bailment due to the fact that a contract of pledge to come into existence, delivery of

goods is requisite.


Pledge defined

Pledge is the transfer by one person to another of the possession of certain goods to be held by

the latter as security for the performance by the former of some obligation to pay or perform,

which being performed, the pledge must be restored. The Supreme Court has defined pledge as ,

Pawn or pledge is a bailment of personal property as a security for some debt or engagement. A

pawnor is one who being liable to an engagement gives to the person to whom he is liable a thing

to be held as security for payment of his debt or the fulfilment of his liability.

There are three categories in which security is provided, namely- lien, mortgage and the third of

them is pledge. Under a contract of pledge, any good or the title of the good is pledged by one

party to the other as a collateral for the money advanced by the later party. Thus making of

pledge is a condition precedent for advancing money. Pledge may also be defined as delivery of

goods by the debtor to the creditor for a debt or for any other contractual obligation and the

object herein delivered shall be returned to the pledgor when the debt money has been repaid or

the obligation has been performed.

A valid contract of pledge involves the bailment of goods, as defined under section 148[6] of the

Act as security for the debt. There is no difference regarding the concept of pledge in both Indian

and Common Law system of England. The nature of the contract is one of security where this

security is liable in case of default by the debtor.

Essentials Of Pledge

1. Delivery of the good to be pledged- to constitute a valid contract of pledge, the primary

requirement is the delivery of the possession of a good. There must be an actual delivery of

possession of the identified chattel in pursuance of the contract. The property or any other good

pledged must be actually and constructively delivered to the creditor which in this case is the

pawnee, the person to whom pledge has been made.

Actual delivery refers to the physical delivery of the good to the pawnee, the whole of the good

is bailed to him. On the other hand pledge by way of constructive delivery involves an indirect or

symbolic delivery of the property or the good. The most common illustration on this point is the

delivery of the key of the warehouse containing the goods to be pledged to the pawnee. Delivery


can also be made by the way of attornment which means that if the goods are in possession of a

third person, the pledgor may give him direction to hold them on pledgees behalf. Also delivery

of the title of the good or property to be pledged would constitute an equivalent of actual

delivery for the purpose of pledge. In a Supreme Court case, Subba Rao J held that the railway

receipts for goods was the same thing as delivery of goods and that pledge entered thereby was

valid and the pledgee was invested with the rights. Thus what can be inferred is that the goods

pledged need not actually change hands, there can be a valid contract of pledge in spite of the

good still remaining in the possession of the pawnor

2. A valid contract- though contract of pledge comes under the head of Special contracts yet

it is necessary that for it to be valid, there must be contract with all the essentials as mentioned in

the provisions of the Indian Contract Act 1872.

3. Right on the Pledge- another major ingredient of pledge is that the pawnee merely

possess possessory rights and not juristic rights over the pledge. The pawnee only has the special

property while the general property stays with the pledgor. When the pledge comes to an end by

way of repayment the special rights are also transferred back to the pledgor.

4.Time of Delivery- Under a contract of pledge the delivery of possession and the payment of

money need not always be simultaneous. A pledge can even be given subsequently after advance

has been made.A case in hand on this issue to elaborate further is Blundell Leigh v Attenborough

The facts of the case are that A gave B some jewels for the purpose of valuation and to let her

know as to what credit can she secure on their value. B kept the jewel as security if he did make

advances to her. This was on November 1st. that same day B took the jewels and pledged them

with C for 1000 pounds. On a later date B made advance of 500 pounds to A on the pledge of the

jewels and promissory note.Subsequently A died. B then sued C for recovery of jewels stating

that the jewels which she gave top a was only a gratuitous bailment and he was not entitled to do

anything with them. When he subsequently advanced money it was not a pledge as he was not in

the possession of the goods. When the matter went to the court, the trial court held that there was


no valid pledge between A and B as the jewels were not in the possession of B at the time of

pledge being made.

Therefore A was entitled to get back the jewels from C without any payment of money of any

kind. However this decision was reversed by the Court of Appeals which held that the original

delivery, though a gratuitous one, constituted a good and valid delivery. Thus even though he

was not in the possession of the jewels at the time of making the pledge, it was still valid.

Rights Of The Pawnee Under Contract Of Pledge

The pawnee or the pledgee under a contract of pledge gets no absolute title at law he is a mere

possessor of the property or good pledged to him. This is known as Special Property. In this kind

of property, the ownership rights including rights of its enjoyment remains with the pledgor

while what is actually transferred is only possession.

However, the pawnee does have one right in this situation, namely the right to sale the thing

pledged in case of default by the debtor. But this is not the only right which the pawnee under

pledge is entitled to. The following sections deals with the rights of the pawnee as has been

provided under the Indian Contract Act 1872.

1.Right to retain- until and unless the loan has been repaid or the obligation has been

performed, the pawnee has the right to retain the goods. This is illustrated in section 173 of the

Indian Contract Act 1872,

173. Pawnees right of retainer.-The pawnee may retain the goods pledged, not only for payment

of the debt or the performance of the promise, but for the interests of the debt, and all necessary

expenses incurred by him in respect of the possession or for the preservation of the goods

pledged.

Thus a pawnee can retain the goods for-

a) payment of the debt or performance of the promise,

b) interests on the debt,


c) all other expenses incurred by him in respect of the pledged goods.

The pawnee can hold or retain the goods only for the payment of that debt for which the

particular goods have been pledged. Unless a pledgees claim under pledge has not been satisfied,

another creditor can not take away the pledged goods from his possession. A case here in point is

Bank of Bihar v State of Bihar[15] where the pledgee bank advanced loan to the pledgor on the

pledge of sugar bags whose constructive delivery was made by handing over of the key of the

godown where these were stored. However these were then seized by the state of Bihar through

rationing officer and district magistrate. Thereafter the pledgee, the Bank, filed a suit for the

recovery of the sugar bags. It was held that the act of the State of seizing the goods will not

deprive the pledgee of his rights of the pledge and that he was still liable to the amount he

advanced.Thus the State had the responsibility to indemnify him. The Bank had the special

property right over the sugar bags which will not extinguish until the debt amount has been paid

back to him. Thus the State had to reimburse the bank after realising the sale of the pledged

goods on default of pawnor in making repayment of the debt.

2. Right to retain for subsequent advances- section 174 provides that the pawnee is not

entitled to retain the goods for debt or promise other than that for which goods for pledged

for.[16] However it is presumed that the pawnee has the right, if he makes subsequent advances

to the pawnor, to retain the goods unless it is otherwise provided in the contract. Thus it is the

terms of the contracts which decides the rights of the pawnee in this case.

3.Right to extraordinary expenses- the pawnee has further rights of claiming form the pledgor

extraordinary expenses as provided under section 175,

175. Pawnees right as to extraordinary expenses incurred.-The pawnee is entitled to receive from

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

This includes the expenses which the pledgee has incurred by virtue of preserving the goods

under his possession by way of pledge. The pertinent thing to note here is the usage of the word

receive which states the position that the pledgee cannot retain the goods for the extraordinary

expenses. In other words it can be said that his lien over the pledged goods does not extend to


cover the rights of extraordinary expenses. Thus what the pledgee has is the right of action for

recovering these expenses.

4.Pledgees rights in case of default- the pawnee is entitled to the exercise of this right when

there is a default from the side of the pawnor or the debtor.

The pawnees rights are contained in section 176 of the act which reads as follows:

176. Pawnees right where pawnor makes default.-If the pawnor makes default in payment of the

debt, or performance; at the stipulated time or the promise, in respect of which the goods were

pledged, the pawnee may bring a suit against the pawnor upon the debt or promise, and retain the

goods pledged as a collateral security; or he may sell the thing pledged, on giving the pawnor

reasonable notice of the sale.If the proceeds of such sale are less than the amount due in respect

of the debt or promise, the pawnor is still liable to pay the balance. If the proceeds of the sale are

greater than the amount so due, the pawnee shall pay over the surplus to the pawnor.

Thus section 176 vests in the pawnee two distinct rights in case of default namely:

1. To sue the pawnor upon the debt and retain the goods or collateral as security and

2. To sell the thing which has been pledged after a proper notice of such a sale has been

transmitted to the pawnor.

A pawnee has to right to sell the thing pledged and this right is exercisable after notice off intent

of sale and thereafter the pawnee is entitled to sell the thing on any time of his will. The later part

of the section further states that if after sale the amount received is less than the debt then the

pawnor would still be liable and when the proceeds received after sale is higher than the amount

to be paid under debt then it is the duty of the pawnee that he pays the surplus back to the

pawnor. After the sale the right of the pawnor of re-delivery is extinguished but his right to

redeem continues up to sale.

Requirement of Notice- section 176 requires that if the pawnee is to exercise his right of sale

then he must do so after he makes a notice of the same to the pawnor. Making of the notice is a

statutory obligation and thus even though it is mentioned in the terms of contract that notice is


not necessary, still the pawnee is obligated to make a notice. A notice of sale must be given in all

cases of pledge even when an instrument of pledge contains unconditional power of sale.

As to from and manner of the notice, there has been no statutory compulsion.However the

language of the notice must not be such that it acquires character of an implied notice. It must be

clear and specific of the intentions of selling the goods. It is not necessary on the part of the

pawnee to specify the details of the sale in the notice and even when he has mentioned the

specific, he is under no obligation to abide by it. If in case of a pledge where no time for

repayment has been specified then a right to sell may arise when a notice has been served by the

pawnee regarding clearing the dues within specified time.

The pawnee also has the right to bring a suit against the pawnor for the recovery of the amount

advanced by him. Thus the choice of right the pawnee wants to exercise is his discretion.

Pawnors Right To Redeem

The right to redeem as provided under section 177 of the act must be read along with the earlier

sections. The pawnor is entitled to redeem the goods at any time before the pawnee has exercised

his right to sell them. This right is exercisable even when the period specified for repayment has

come to an end. To exercise this right, a suit for redemption has to be filed.Even if the pawnor

prematurely redeems his good, before expiration of specified time, the terms of the loan would

still persist.

Pledge By The Mercantile Agent

Section 178 provides that a pledge made by a mercantile agent, acting in the ordinary course of

business is valid. It reads as, 178. Pledge by mercantile agent.-Where a mercantile agent is, with

the consent of the owner, in possession of goods or the document of title to goods, any pledge

made by him, when acting in the ordinary course of business of a mercantile agent, shall be as

valid as if he were expressly authorised by the owner of the goods to make the same; provided

that the pawnee acts in good faith and has not at the time of the pledge notice that the pawnor has

not authority to pledge.


Explanation: In this section, the expressions mercantile agent and documents of title shall have

the meanings assigned to them in the Indian Sale of Goods Act, 1930 (3 of 1930).]

Consent of the owner of the goods is assumed to exist in case where the mercantile agent pledges

a good. A mercantile agent is one who has the authority on behalf of the owner to sell, consign or

raise money out of the goods by keeping them as security.

The present section 178 came into force after the earlier wordings of it were repealed in 1930. In

the earlier section any person in possession of goods or documents of that good can effect a

pledge but after the new section has been enacted this right of pledging on behalf of goods whose

ownership rests with another is only given to a mercantile agent. This section has been enacted

with an objective to protect those dealing in good faith with persons who are mercantile

agents.The new section is an improvement in another sense that it provides that those in

possession and not in mere custody are entitled to make pledge the goods owned by a third party.

Pledge Under Voidable Contract

This type of pledge has been provided under section 178A of the Act which states that even

when the pawnor has obtained the goods under a voidable contract by the virtue of section 19

and 19A, and when the contract has not been rescinded at the time of pledge, the pawnee will

acquire a good title to the pledged goods.

However it is required that the pawnee must act in good faith and must have been unaware of the

presence of a voidable contract. The principle here is that though there is a de facto contract even

if it is voidable due to the reason of fraud, misrepresentation and alike.For instance if a person

buys good without paying for them, there is consent, though not free and the contract in spite of

being voidable will enable the party receiving the good to make a valid pledge.[32] Thus what

matters here is the possession of the tile of the goods to be pledged.

Pledge When Pawnor Has Limited Interest

Under section 179[33], it is provided that a person is eligible to make pledge to the extent to

which he has interest in it. Whenever a party to pledge has interest, he has unconditional

authority to charge at least that interest.[34] While the cases where the pawnor has no interest


and only possession are governed by section 178 and 178A of the Act, the cases where the

pawnor has, even a limited interest, falls within the ambit of section 179.

Pledge And Its Distinctiveness

1. Pledge and Hypothecation-

a hypothecation has been regarded as a form of pledge but where there is no delivery

of the possession. Thus the hypothecator still remains in the possession of the goods

with all his interest and rights to enjoyment of it intact. It is pertinent to note that in

case of hypothecation, unlike pledge where the pledgee is in possession, the owner of

the things as an agent of the hypothecatee. Thus delivery of possession is the primary

point of distinction between pledge and hypothecation. However, alike pledge the

hypothecatee under pledge to have the right to sue and even to sell the thing for

recovering the loan amount. In hypothecation the position of the true owner becomes

that of a bailee of goods acting for the bailor who in this case is hypothecatee. In

simpler words the one made clear by saying that while pledge involves transfer of

possession, hypothecation involves transfer of rights or interest, those too limited.

2. Pledge and Lien- While a pledge creates special property in the thing pledged,

lien is merely a personal right which the party is entitled to exercise in case where payment is

due. The difference between the two arises on the basis of the rights the party have. While a

pledge permits the pledgee to retain, sue and even sell the property of good pledged, under lien

only the right of retainment is provided. To some extent lien can be regarded as an inverse of

hypothecation as where the former involves transfer of possession, the later requires transfer of

rights.


3.Pledge and Mortgage- pledge involves transfer of possession of a thing in return for certain

sum or as a security for fulfilling an obligation. A pledge gives pledgee special rights to the

pledgee that in case of default he has remedies available with him. However, under a mortgage,

other than these special rights, the juristic rights or the legal rights are also transferred. That is to

say that the right of enjoyment is not transferred in the case of pledge , but in case of mortgage,

the mortgagee has the right of enjoyment.

Who can made a valid pledge

The general rule is that only owner can create a valid pledge. However, even non-owner can create a

valid pledge. As we know that normally only the owner of goods can pledge them and that no one can

pass a better title to the goods than what he himself has. But in order to facilitate mercantile

transactions, the law has recognised certain exceptions. These exceptions are for bonafide pledges

made by those persons who are not the actual owners of the goods, but in whose possession the goods

have been left.

Pledge by a mercantile agent: Where a mercantile agent is, with the consent of the owner, in

possession of goods or, the documents of title to goods, any pledge made by him, when acting in the

ordinary course of business of a mercantile agent, shall be valid, provided that the pawnee acts in good

faith and has, at the time of pledge, no notice of the fact that the agent has no authority to pledge.

Pledge by person in possession under voidable contract: You have already read under earlier units

that for the formation of a contract, the consent of parties should be free, i.e., the consent must not

have been caused because of coercion, misrepresentation, fraud, undue influence or mistake or

because of any of them. If the consent is caused because of any of them, such contract is voidable

under Section 19 or 19 A of the Indian Contract Act, at the option of person, where consent was so

obtained. Section 178 A of the Contract Act provides that where goods are pledged by a person who

has obtained their possession under a voidable contract, the pledge is valid, provided that the contract

has not been rescinded at the time of the pledge and the pledgee has acted in good faith and without

notice of the pledger's defect of title.

Pledge by a co-owner in possession: Where the goods are owned by many persona and with the

consent of other owners, the goods are left in the possession of one of the co-owners. Such a co-owner

may make a valid pledge of the goods in his possession.


Conclusion

The study can be concluded by stating that it has dealt with and analysed what a contract of

pledge means and what is the nature of it. The features of pledge along with various rights, duties

and obligations it creates has also been dealt with in this research study. The rights which the

pawnee possess, the duties which the pawnor has and other features of pledge has been explained

with giving due considerations to the relevant case laws. In the later part of project the researcher

has dealt with how pledge is different from lien, hypothecation and mortgage to clear the general

doubts which arises.

Suggested readings:

Dutta :Indian Contract Act ;iv Ed

Chitty: Contract Vol .II (XXIVth Ed)

R.K. Bangia: Indian Contract Act

MULLA The Indian Contract Act, 13th Edition 2011.

STUDY MATERIAL LLM . IV SEMESTER LAW OF CONTRACT II … · Section 148 in The Indian Contract Act, 1872 148. „Bailment‟, „bailor‟ and „bailee‟ defined.—A „bailment‟

Documents