UNIT II
Bailment and pledge - bailment – definition – essentials – kinds – rights and duties of bailor and bailee – bailee’s lien – termination of bailment. Pledge – definition – rights and duties of Pawnor and Pawnee – Pledge by non – owners
Bailment and pledge
Secs 148 to 181 of the Contract Act of deal with contracts of bailment and pledge.
Bailment the world ‘bailment’ is derived from the French world the French world ‘baillier’ which means “to deliver”, it means any kind of handling over’. In legal sense, it involves change of possession of goods from one person to another for some specific purpose.
Definition of Bailment: Sec. 184 defines Bailment as 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’ and the person the person to whom they are delivered is called the ‘bailee’. Example: A delivers a piece of cloth to B, a bailor, to be stitched into a suit. There is a contract or bailment between A and B.
Consideration in a contract of bailment: In a contract of bailment, the consideration is generally in the form money payment either by the bailor or the bailee, as for example, when A gives his bicycle to B for repair, or when A gives his car to B on hire. Such consideration in money form.
Essential elements of bailment: To constitute a contract of bailment, the following conditions are to be satisfied.
1.Delivery of possession of goods : Delivery of goods from one person to another person for some purpose is an essential elements of bailment.
2. Delivery of possession upon a contract : There can be no bailment without a contract. all conditions for valid contract are to be satisfied
3. Return or dispose of goods according to the direction : Types of bailment
There are mainly 3 types of bailment under the act, which are as follow:
1. For the benefit of Bailor and Bailee.:The bailment whereby contracting the bailment, both the person ie Bailor and Bailee get benefits comes under this type.
Example: the best example for this when a Bailor parks his car in the paid parking of Bailee. The Bailor will get the benefit to park his car and the Bailee will get the money for parking.
2.Only for the benefit of Bailor :Where the bailment gives benefit to the Bailor only Eg: Free parking of the car of Bailor in the free parking lot of bailee.
3.Only for the benefit of Bailee: Where the bailment gives benefit to the Bailee only Eg: to read the books in the common library; here you are the Bailee and the owner of the library is Bailor. You can read the book free of cost and gain knowledge for yourself, you will get benefits whereas the Bailor will get nothing.
Duties Of A Bailor
1. Duty to disclose defects [Section 151]
2. Duty to bear expenses [Section 158]
3. Duty to indemnity the bailee in case of premature termination of gratuitous bailment [Section159]
4.Duty to indemnity the bailee against the defective title of bailor [Section 164]
5.Duty to receive back the goods [Section 164
6. Duty to bear the risk of loss [Section 152]
Duties Of A Bailee
1.Duty to take care of the goods bailed [Section 151&152]
2. Duty not to make any unauthorised use of goods [Section 154]
3. Duty not to mix bailor‘s goods with his own goods [Section 155 to 157]
4.Duty to return the goods [Section 160 & 161]
5. Duty to return accretion to the goods [Section 163] Rights of a Bailor:
1.Right to claim damage in case of negligence [Section152]
2.Right to terminate the contract in case of unauthorized use [Section 153]
3. Right to claim compensation in case of unauthorized use [Section 154]
4. Right to claim the separation of goods in case of unauthorized mixture of goods which cannot be separated [Section 157]
5. Right to demand return of goods [Section 160]
6. Right to claim compensation in case of unauthorized retention of goods [Section 161]
7. Right to demand accretions to goods[Section 163]
RIGHTS OF A BAILEE:
1.Right to claim damage [Section 150]
2. Right to claim reimbursement of expenses [Section 158]
3. Right to be indemnified in case of premature termination of gratuitous bailment [Sec 159]
4. Right to recover loss in case of bailor‘s defective title [Section 164]
5. Right to recover loss in case of bailor‘s refusal to take the goods back [Sec 164]
6.Right to deliver goods to any one of the joint bailors [Section 165]
7. Right to deliver goods to bailor in case of bailor‘s defective title [Section 166]
8. Right to particulars lien [Section 170]
TERMINATION OF BAILMENT
I. Termination of every Contract of Bailment (whether Gratuitous or not) Every contract of bailment comes to end under the following circumstances: (a) On the Expiry of Fixed Period
(b) On fulfilment of the Purpose (c) Inconsistent Use of Goods (d) Destruction of the subject Matter of Bailment II. Termination of Gratuitous Bailment A contract of gratuitous bailment is terminated in the following circumstances also. (a) Before the Expiry of fixed Period (b) On Death of Bailor/Bailee
Meaning of Lien: Lien means the right of a person having possession of goods belonging to another to retain those goods until the satisfaction of sum claimed by the person in possession of the goods. If may be noted that the possession of goods must be lawful and continuous. For example, X took Y’s godown on rent ofRs.5,000 p.m on an agreement that X cat at any time deposit or take out his goods from the godown after six months, X stopped paying the rent. Y auctioned X’s goods and claimed lien. Y cannot claim lien because it was agreed that X can take out his goods whenever he wanted.
Types of Lien:
(a) Particular Lien [Section 170] :A particular lien is right to retain only those goods in respect of which some charges are due.Example:- X gives a piece of cloth to Y, a tailor, to make a coat. Y promises X to deliver the coat as soonas it is finished. Y is entitled to retain the coat till he is paid for (if he has not allowed any credit period)but is not entitled to retain the coat (if he has allow one month’s credit for the payment.)
(b) General Lien [Section 171] :A general lien is a right to retain all the goods as a security for the general balance of account until the full satisfaction of the claims due whether in respect of those goods or other goods. The general lien is available to other person only when there is an express contract to that effect. Example: - X deposited US 64 units and shares of Reliance Industries Ltd. as security with Citi Bank and took a loan against the shares of Reliance Industries Ltd. Citi Bank may retain both the securities until its claim are fully satisfied.
PLEDGE
Section 172 of the act states that “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 the ‘pawnee”.
When Bailment is done for the purpose of creating security for repayment of the debt then that kind of bailment shall be called a Pledge. Pledge is a special kind of bailment in which personal property is delivered as a security for the debt or engagement.
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. 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.
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.[10]
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
Rights of Pawnee
Right of retainer [Section 173]
Right to claim reimbursement of extraordinary expenses [Section 173] Right to sue pawnor [Section 176]
Right to sell [Section 176]
Right against true owner [Section
Duties of a Pawnee
Duty to take reasonable care of the goods pledged
Duty not to make unauthorized use of goods
Duty not to mix pawnor’s goods with his own goods
Duty to return goods
Duty to return accretion to the goods
Rights of Pawnor
Right to get pawnee’s duties duly enforced
Right to redeem [Section 177]
Duties of Pawnor
Duty to comply with the terms of pledge
Duty to compensate the Pawnee for extraordinary expenses [Section 185]
Pledge by non-owners: There are certain circumstances in which non-owners can make a valid pledge they are –
1.Mercantile agent (sec 178) – A mercantile agent is an agent having the right to buy/sell goods on behalf of his Principal and can consign goods for the purpose of sale or raise money on the security of goods. Such agent with the consent of principle can make a valid pledge.
2.A person in possession under voidable contract (Sec 178 A) – Person having possession under voidable contract can make a valid contract of pledge of goods, provided that the contract has not been cancelled at the time of pledge and the pledge has acted in good faith and without knowledge of pledger’s defective title. Example- where A purchase a watch from B, under coercion and pawns it with C before the contract is cancelled by B. the pledge is valid. C will get a good title to the watch and B can only claim damages from A 3. Pledger having Limited interest (sec. 179) – where a person pledges goods in which he has limited interest, the pledge is valid to the extent of his interest. thus, a person having a lien over goods can pledge it upto the extent of his interest.
Example – A goes to B( a tailor) to get his cloth sewed for a charge of 2000. in the course when the suit was ready, B needed urgent cash and pledged the suit to C for rs. 3000. Pledge is valid to the extent of B’s interest i.e. 1500. here A can directly recover his suit from C by giving him 1500.
4.Seller in possession of goods after sale ( sec 30(1) of sale of goods act) – A seller, left in possession of goods sold, is no more owner of the goods, but a pledge created by him is valid, provided the Pawnee has acted in good faith and has no knowledge of sale of goods to the real owner. in this case, the original buyer can obtain damages from the seller but cannot recover the goods from pledgee.
5. Co-owner in possession – where there are two or more than two co-owners in possession of goods anyone of them can make a valid pledge after taking consent of co-owners.