2. Bailment And Pledge

Question 1

Essential elements of a contract of bailment

Answer 1

Essential elements of a contract of bailment: Section 148 of the Indian Contract Act, it defines the term ‘Bailment. 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 essential elements of the contract of the bailment are

1. Delivery of goods-The essence of bailment is delivery of goods by one person to another.
2. Bailment is a contract - In bailment, the delivery of goods is upon a contract that when the purpose is accomplished, the goods shall be returned to the bailor.
3. Return of goods in specific: The goods are delivered for some purpose and it is agreed that the specific goods shall be returned.
4. Ownership of goods- In a bailment, it is only the possession of goods which is transferred and the bailor continues to be the owner of the goods.
5. Property must be movable-Bailment is only for movable goods and never for immovable goods or money.

Question 2

Delivery to bailee

Answer 2

According to Section 149 of the Indian Contract Act. the delivery to the bailee may be made by doing anything which has the effect of putting the goods in the possession of the intended bailee or of any person authorised to hold them on his behalf. Thus, delivery is necessary to constitute bailment.

Question 3

What is bailment

Answer 3

Bailment is defined as an act whereby goods are delivered by the person to another for some purpose on a contract that the goods shall, when the purpose is accomplished, be returned or otherwise disposed of according to the directions of the person delivering them.

Ballor- the person who delivers the goods Bailee- the person to whom the goods are delivered.

Question 4

Bailor’s duties

Answer 4

(i) Bailor has to disclose all the facts/faults about bailed goods to bailee.

(ii) Under gratuitous bailment, Bailor has to reimburse expenses incurred by Ballee, if any.

(iii) Bailor has to compensate the loss on bailed goods to Bailee, if any.

(iv) Bailor has to accept the goods after purpose is accomplished.

Question 5

Bailor’s rights

Answer 5

(i) To enforce bailee’s duties such as right to claim damages, compensation, if any.

(ii) To terminate the contract of bailment.

(iii) To demand back goods.

(iv) To claim increase or profit from goods bailed.

Question 6

Categories of bailment on the basis of reward

Answer 6

On the basis of reward, bailment can be classified into two types

a. Gratuitous Bailmene: The word gratuitous means free of charge. So, a gratuitous bailment is one when the provider of service does it gratuitously ie, free of charge. Such bailment would be either for the exclusive benefits of bailor or bailee.

b. Non-Gratuitous Bailment: Non gratuitous bailment means where both the parties get some benefit i.e. bailment for the benefit of both bailor & bailee

Question 7

Goods with default

Answer 7

in Section 150. The section provides that The bailor is bound to disclose to the bailee faults in the goods bailed, of which the bailor is aware, and which materially interfere with the use of them, or expose the bailee to extraordinary risks; and if he does not make such disclosure, he is responsible for damage arising to the bailee directly from such faults.

Question 8

Bailee is bound to take care

Answer 8

Sec 151 of the Indian contract Act,1872 states that in all the cases of Bailment, the Bailee is bound to take as much care of the goods Bailed to him as a man of ordinary prudence would, under similar circumstances takes care of his own goods of the same bulk, quality and value as the goods Bailed.

Question 9

In the absence of any special contract

Answer 9

according to section 152 of the Indian Contract Act, 1872, the ballee, in the absence of any specia contract, is not responsible for the loss, destruction or deterioration of the thing bailed, if he had taken reasonable care as required under section 151

Question 10

Voidable contract

Answer 10

As per Section 153, a contract of bailment is voidable at the option of the bailor, if the bailee does not use the goods according to the terms and conditions of bailment.

Question 11

Goods used not according to conditions

Answer 11

According to section 154 of the Indian Contract Act, 1872, if the bailee makes any use of the goods bailed, which is not according to the conditions of the bailment, he is liable to make compensation to the bailor for any damage arising to the goods from or during such use of them.

Question 12

Without bailor’s consent mixes the goods

Answer 12

According to section 156 of the Contract Act, 1872, If the bailee, without the consent of the bailor, mixes the goods bailed with his own goods and the goods can be separated or divided, the property in the goods remains in the parties respectively; but the bailee is bound to bear the expense of separation or division and any damage arising from the mixture

Question 13

Mixes without consent & unseperable

Answer 13

According to section 157 of the Contract Act, 1872, if the bailee, without the consent of the bailor. mixes the goods of the bailor with his own goods, in such a manner that it is impossible to separate the goods bailed from the other goods and deliver them back, the bailor is entitled to be compensated by the bailee for the loss of the goods.

Question 14

Gratuitous bailment

Answer 14

According to section 158 of the Contract Act, 1872,

a. In case of Gratuitous bailment:

Where, by the conditions of the bailment, the goods are to be kept or to be carried, ar to have work done upon them by the bailee for the bailor, and the bailee is to receive no remuneration (gratuitous bailment), the bailor shall repay to the bailee the necessary expanse incurred by him and any extraordinary expenses incurred by him for the purpose of the bailment,

b. In case of non-gratuitous bailmentthe bailor is liable to pay the extraordinary expenses incurred by the bailee.

In this case, since it is non-gratuitous bailment and these are the extraordinary expenses and it is the bailor’s duty to bear such expenses. the usual and ordinary expenses for petrol, toll tax etce are to be borne by the bailee itself.

Question 15

Demand goods back

Answer 15

According to section 159 of the Contract Act. 1872, When the goods are lent gratuitously, the bailor can demand back the goods at any time even before the expiry of the time fixed or the achievement of the object. The bailor must compensate the bailee for the loss or damage suffered by the bailee that is in excess of the benefit received, where he had lent the goods gratuitously and decides to terminated the bailment before the expiry of the period of bailment.

Question 16

Expired Contract

Answer 16

section 160 and 161 of the Indian Contract Act, 1872. Accordingly, it is the duty of the bailee to return or deliver the goods bailed according to the bailor’s directions, without demand, as soon as the time for which they were bailed has expired, or the purpose for which they were bailed has been accomplished.

According to Section 161, if, by the default of the bailee, the goods are not returned, delivered or rendered at the proper time, he is responsible to the bailor for any loss, destruction or deterioration of the goods from that time, notwithstanding the exercise of reasonable care on his part.

Question 17

Delivery according to directions

Answer 17

section 163 of the Indian Contract Act, 1872, 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.

Question 18

Termination of contract of bailment

Answer 18

A contract of bailment shall terminate in the following circumstances:

1. On expiry of stipulated period: If the goods were given for a stipulated period, the contract of bailment shall terminate after the expiry of such period.
2. On fulfilment of the purpose: If the goods were delivered for a specific purpose, a bailment shall terminate on the fulfilment of that purpose.
3. By Notice:

(a) Where the bailee acts in a manner which is inconsistent with the terms of the bailment, the bailor can always terminate the contract of bailment by giving a notice to the bailee.

(b) A gratuitous bailment can be terminated by the bailor at any time by giving a notice to the bailee. However, the termination should not cause loss to the bailee in excess of the benefit derived by him. In case the loss exceeds of the benefit derived by the bailee, the bailor must compensate the bailee for such a loss (Sec. 159).

4. By death: A gratuitous bailment terminates upon the death of either the bailor or the bailee.
5. Destruction of the subject matter: A bailment is terminated if the subject matter of the bailment is destroyed or there is a change is in the nature of goods which makes it impossible to be used for the purpose of bailment.

Question 19

Finder of lost goods

Answer 19

As per the provisions of section 168 and 169 of the Indian Contract Act, 1872,

(1) The finder of goods has no right to sue the owner for compensation for trouble and expense voluntarily incurred by him to preserve the goods and to find out the owner. But ‘finder of lost goods’ can ask for reimbursement for expenditure incurred for preserving the goods and also for searching the true owner. If the real owner refuses to pay compensation, the ‘finder’ cannot sue but retain the goods so found.

Further, where the real owner has announced any reward, the finder is entitled to receive the reward. The right to collect the reward is a primary and a superior right even more than the right
to seek reimbursement of expenditure.

(ii) The finder though has no right to sell the goods found in the normal course; he may sell the goods if the real owner cannot be found with reasonable efforts or if the owner refuses to pay the lawful charges subject to the following conditions:

(a) when the article is in danger of perishing and losing the greater part of the value or

(b) when the lawful charges of the finder amounts to two-third or more of the value of the article found.

Question 20

General lien

Answer 20

Sec 171 of the Indian Contract Act, 1872 confer on bailee the right of general lien.
General lien alludes to the right to keep possession of goods belonging to other against general balance of account

A general lies is not automatic but is recognized through on agreement. It is exercised by the bailee only by name

It can be exercised against goods even without involvement of labour skill

Only such persons as are specified under sec 171. Eg. Bankers, factors, wharfingers, policy brokers etc. are entitled to general lien

Question 21

Particular lien

Answer 21

Section 170 of the Indian Contract Act, 1872 confers on the bailee, the right of particular lien.

Particular lien implies a right of the bailee to retain specific goods bailed for non-payment of amount

It is automatic

It comes into play only when some labour or skill is involved has been expended on the goods, resulting in an increase in value of goods

Bailee, finder of goods, pledgee, unpaid seller, agent, partner etc. are entitled to particular lien

Question 22

Right of lien

Answer 22

According to section 170 of the Indian Contract Act, 1872, 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 of them.

To exercise the right of lion, Bailee must have the possession of the goods. Such a right to retain the goods bailed is the right of particular tien. He however does not have the right to sue

Question 23

General lien of bankers

Answer 23

According to section 171 of the Indian Contract Act, 1872, bankers, factors. wharfingers, attorneys of a High Court and policy brokers may, in the absence of a contract to the contrary, retain, as a security for a general balance of account any goods bailed to them; but no other persons have a right to retain, as a security for such balance, goods bailed to them, unless there is an express contract to the effect

Question 24

Pledge

Answer 24

Section 172 of the Indian Contract Acts defines a pledge as the bailment of goods as security for payment of debt or performance of a promise. When goods have been pledged, the bailor is called in this case the pawner and the bailee, the pawnee. In the case of pledge no transfer of any interest in property takes place; but a special right to property is carved out in favour of the pledge, ie. he has right to dispose of the property in certain circumstances.

Question 25

Pawnor’s right to redeem

Answer 25

As per the provision laid down under Section 177 of the Indian Contract Act, 1872 if a time is stipulated for the payment of the debt or performance of the promise; for which the pledge is made, and the pawnor makes default, he may redeem the goods pledged at any subsequent time before the goods are sold, but in that case, he must pay, in addition, any expenses occasioned by the default. The period for a suit against a pawnee to recover the things pledged is 3 years from the date of pawnee’s refusal to do so after demand.

Question 26

Pawnee’s right to retain the goods pledged

Answer 26

According to section 173 of the Indian Contract Act, 1872, the pawnee may retain the goods pledged, not only for payment of the debt or the performance of the promise, but for the interest, of the debt, and all necessary expenses incurred by him in respect of the possession or for the preservation of the goods pledged.

Question 27

Rights of bailee

Answer 27

Rights of Bailee: As per Sections 178 and 178A of the Indian Contract Act, 1872 the deposit of title deed with the bank as security against an advance constitutes a pledge. As a pledgee, a banker’s rights are not limited to his interest in the goods pledged. In case of injury to the goods or their deprivation b a third party, the pledgee would have all such remedies that the owner of the goods would have against them.

Question 28

Morning mercantile bank Ltd. Vs. Union of india

Answer 28

MORVI MERCANTILE BANK LTD. Vs. UNION OF INDIA: The Supreme Court has held that the Bank (Pledge) was entitled to recover not only to the extent of the amount of advance due to it, but the full value of consignment. However, the amount over and above his interest is to be held by him in trust for the Pledgor.

wi deposited the Railway receipt, which is document of title to goods, in the bill When Ravi deposited the Railway receipt, which is document of title to goods, in the bill as a security and obtained an advance of Rs.30,000 it amounted to pledge. The bank as a Pledgee has got all right against the goods as if he is the true owner. When the railway Co. failed to deliver the goods, the Bank, as a pledgee can sue the Railway Co. not only for his interest in the goods pledged, but for all such remedies that the owner of the goods would have against them. If the amount exceeds over and above his interest it is to be held by him in trust for the Pledgor.

In the given case, the bank is entitled to recover not only amount of advance due to it, but full value of consignment. The excess amount if any will be held by the banker in trust for the pledger i.e. Ravi

Question 29

Pawnee in good faith

Answer 29

According to section 178A of the Indian Contract Act, 1872, When the pawnor has obtained possession of the goods pledged by him, under a contract voidable under section 19 or section 19A, but the contract has not been rescinded at the time of the pledge, the pawnee acquires a good title to the goods, provided he acts in good faith and without notice of the pawnor’s defect of title.

Question 30

Recovery of goods pledged

Answer 30

According to section 179 of the Indian Contract Act, 1872. Where a person pledges goods in which he has only a limited interest i.e. pawnor is not the absolute owner of goods, the pledge is valid to the extent of that interest.

Question 31

D/B contract of bailment and contract of pledge

Answer 31

The following are the distinction between bailment and pledge:

(a) As to purpose: Pledge is a variety of bailment. Under pledge goods are bailed as a security for a loan or a performance of a promise. In regular bailment the goods are bailed for other purpose than the two referred above. The bailee takes them for repairs, safe custody etc.

(b) As to right of sale: The pledgee enjoys the right to sell only on default by the pledgor to repay the debt or perform his promise, that too only after giving due notice. In bailment the bailee, generally, cannot sell the goods. He can either retain or sue for non-payment of dues.

(c) As to right of using goods: Pledgee has no right to use goods. A bailee can, if the terms so provide, use the goods.

(d) Consideration: In pledge there is always a consideration whereas in a bailment there may or may not be consideration.

(e) Discharge of contract: Pledge is discharged on the payment of debt or performance of promise whereas bailment is discharged as the purpose is accomplished or after specified time.