Meaning of Contract of Bailment (Sec. 148)
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.
Based on Benefit Based on Reward
| Exclusive benefit of Bailor | Exclusive benefit of Bailee | Mutual Benefit of both | Gratuitous Bailment |
Non gratuitous Bailment |
| J, neighbour of K, agrees to look after K’s per while he is out of station. K is benefited. |
Z lends a book to Y for reading. Y is benefited. |
A hires furniture from B, by payment of hire charges, Both A and B are benefited. |
Neither Bailor nor Bailee gets any remuneration, e.g. A lends his book to his are friend. |
Bailor or Bailee gets remuneration e.g. G gives his television set for repair to H, a technician. H gets paid for the job. |
Essentials of a Valid Contract of Bailment (Sec.148)
Contract
- There must be a contract.
- The contract may be expressed or implied.
Goods
- Bailment can be made of goods only.
Delivery
- There must be delivery of goods by one person to another person.
Purpose of delivery
- The goods must be delivered for some purpose.
- The purpose may be expressed or implied.
Return or disposal of goods
- The delivery of goods must be conditional
- The condition shall be that the goods shall be –
- returned (either in original form or in any altered from); or
- disposed of according to the directions of the bailor, when the purpose is accomplished.
Modes of Delivery (Sec.149)
Actual delivery
- Transfer of physical possession of goods from one person to another .
Symbolic delivery
- Physical possession of goods is not actually transferred.
- A person does some act resulting in transfer of possession to any other person.
Examples:
- Delivery of keys of a car to a friend
- Delivery of a railway receipt.
Constructive delivery
If –
- A person is already in possession of goods of owner.
- Such person contracts to hold the goods as a bailee for a third person.
Then –
- Such person becomes the bailee, and the third person becomes the bailor.
Classification of Bailment
Gratuitous bailment: Bailment without any charges or reward, i.e. –
- No hire charges are paid by bailee; and
- No custody charges are paid by bailor.
Non – gratuitous bailment: Bailment for some charges or reward, i.e.-
- Hire charges are paid by bailee; or
- Custody charges are paid by bailor.
Duties of a Bailor (Sec. 150, 158, 159 and 164)
Disclose faults in goods [Sec. 150]: Bailor is bound to disclose to Bailee, faults in the goods bailed, of which he has knowledge. He should also disclose such information which – (a) materially interferes with the use of goods, or (b) expose the Bailee to extraordinary risk.
Liability for Defects in Goods
| In case of Gratuitous bailment | In case of Non – Gratuitous Bailment |
| Bailor is liable only for those losses which arise due to non – disclosed risks. | Bailor is liable for damages whether or not he was aware of the existence of faults. |
Example: A owning a motorcycle, allows B, his friend, to take it for a joy ride. A knows that its brakes were not proper but does not disclose it to B. B meets with an accident. A is liable to compensate B for damages. But when A had lent the motorcycle on hire, he is liable to B even if he did not know of the failure of his brakes.
Bear expenses [Sec.158]
Expenses of Bailment
| In case of Gratuitous bailment | In case of Non – Gratuitous Bailment |
| Bailor shall repay to Bailee, all necessary expenses incurred by him for the purpose of Bailment. |
Bailor is liable to repay only extra –ordinary expenses, and not the ordinary expenses. |
Example: M lends his car to N and it runs out of petrol. N can recover the amount paid for refueling (ordinary expenses). If in case, the car suffers a breakdown, N can recover such charges as are paid by him in bringing it back to condition (extra – ordinary expenses). He M hired the car to N, he shall be liable only for the repair charges, being extra ordinary expenses.
Indemnify the bailee for defective title
- The bailor shall indemnify the bailee for any loss caused to bailee due to defective title of bailor.
Indemnify the bailee for premature termination
If –
- the bailment is gratuitous ; and
- for a specific period.
Then –
- (a) the bailor may compel the bailee to return the goods before expiry of the peiod of bailment; but
- (b) the bailor shall indemnify the bailee for any loss incurred by the bailee.
Receive back the goods
- It is the duty of the bailor to receive back the goods, when returned by bailee.
- If the bailor wrongfully refuses to receive back the goods, he shall be liable to pay ordinary expenses of custody of goods incurred by the bailee.
Duties of a Bailee (Sec.151 to 157)
Take reasonable care
- The bailee must take such case of goods as a man of ordinary prudence would take care of his own goods.The bailee shall not be liable for any loss or destruction of goods, if –
- (a) he is not negligent; or
- (b) the loss was caused due to an act of God or other unavoidable reasons.
Not to make unauthorized use of goods
- The bailee must not make any unauthorized use of the goods.
- If the bailee makes any unauthorized use of goods, then –
- (a) the bailment becomes voidable at the option of the bailor; and(b) the bailee shall be liable for any loss or damage even if such loss is caused due to an act of God or other unavoidable reasons
Not to mix goods
Goods are mixed with bailor’s consent: The parties shall have a proportionate interest in such mixture.
Goods are mixed without bailor’s consent, but the goods are separable
- The bailee shall pay the expenses of separation.
- The bailee shall pay damage incurred by the bailor.
Goods are mixed without bailor’s consent, and goods are not separable
- The bailee shall compensate the bailor for any loss caused to him.
Return the goods
The bailee must return the goods, without waiting for demand from bailor, if –
- (a) the time specified in the contract has expired ; or
- (b) the purpose specified in the contract is accomplished.
if the goods are not so returned, then –
- (a) the goods shall be at the risk of the bailee;
- (b) the bailee shall be liable for any loss or damage, even if such loss is caused without any fault or negligence of the bailee or due to an act of God or other unavoidable reasons.
Return accretion to goods
- The bailee must return to the bailor any accretion (i.e., addition) to the goods bailed.
Not to set up an adverse title
- The bailee has no right to allege that the bailor had no authority to bail the goods.
Rights of a Bailor (Sec. 153, 159, 163, 180, 181)
Terminate the bailment
If –
- The bailee does any act inconsistent with the terms and conditions of the contract of bailment.
Then –
- The bailment becomes voidable at the option of the bailor.
Demand back the goods
If –
- The bailment is gratuitous; and
- For a specific period.
Then –
- (a) the bailor may compel the bailee to return the goods before expiry of the period of bailment; and
- (b) the bailor shall indemnify the bailee for any loss incurred by the bailee.
File suit against wrongdoer
The bailor has the right to sue –
- A third party who does any damages to the goods; or
- A third party who deprives the bailee from using the goods
Sue the bailee: The bailor may sue the bailee to enforce his duties.
Rights of a Bailee (Sec. 165, 166, 167, 170, 180)
Right to compensation
The bailee has the right to be indemnified by the bailor, if –
- The bailor has no title to the goods; and
- As a consequence, the bailee suffers some loss.
Return the goods
- It is the duty as well as the right of the bailee to return the goods to the bailor.
- In case of joint bailor, the goods may be returned to any of joint bailors.
Recover charges incurred
Extra ordinary expenses
- The bailor is liable to pay the extraordinary expenses.
- The bailee may recover the extraordinary expenses paid by him.
Ordinary expenses: If the bailment is gratuitous, the bailor is liable to pay the ordinary necessary expenses, i.e., the bailee has the right to recover the ordinary necessary expenses incurred by him.
Suit for deciding the title: The bailee may apply to the Court for deciding the title to goods, if a person other than the bailor claims that the goods belong to him.
File suit against wrongdoer
The bailee has the right to sue –
- A third party who does any damages to the goods; or
- A third party who deprives the bailee from using the goods.
Right of lien: The bailee has the right to retain the goods delivered to him until the charges due to him are paid by the bailor.
Distinction between Bailee’s Particular and General Lien
|
Basis of distinction |
Bailee’s particular lien |
Bailee’s general lien |
|
1. Natural of right |
Particular lien gives right to retain only such goods in respect of which charges due remain unpaid. |
General lien gives right to retain any goods belonging to another person for any amount due from him. |
| 2. Condition for exercising lien | Particular lien can be exercised only when some labour or skill has been expended on the goods, resulting in an increase in value of goods. | General lien may be exercised even though no labour or skill has been expended on the goods. |
| 3. Right to whom? | Every bailee is entitled to particular lien. | General lien can be exercised by only such persons as are specified u/s 171. e.g., bankers, factors, wharfingers, Attomeys of High Court, policy brokers. Any other bailee may exercise general lien if there is an agreement to this effect. |
Termination of Bailment (Sec.153, 159 and 162)
|
Situation |
Explanation |
Example |
|
1. Expiry of specified |
When bailment is for specific |
Z lends a moped to Y for a |
|
period |
period, it terminates on the |
period of 3 months April – |
|
2. Accomplishment |
Where bailment is for a specified purpose, it terminates when such purpose is accomplished. |
G hires tables and chairs, utensils, etc. from H for organizing his son’s engagement. G shall return |
|
3. Bailee’s act inconsistent with conditions |
When bailee does some act which is inconsistent with the terms and conditions of bailment, the Bailor may terminate the bailment. |
J gives his car to K keeping it |
|
4. Destruction of |
When goods bailed are |
K hires a cycle from L. When |
|
5. Gratuitous |
• Gratuitous Bailment can |
Note: Where premature |
Finder of Goods (Sec. 71, 168 and 169)
Finder of lost goods [Sec 71]: A person, who finds goods belonging to another and takes them into his custody, is subject to the same responsibility as a Bailee.
Implied Agreement: There is an agreement, implied by law between finder and owner of goods.
Duties of Finder: A finder of lost goods is treated as Bailee of goods found. His duties are –
- (a) To take initiative to find the real owner of the goods, (b) To take reasonable care of the goods found,
- (c) Not to put the goods found for his personal use, and
- (d) Not to mix the goods found with his own goods.
Rights of Finder:
| Suit for specific reward [Sec.168] |
Right of Sale [Sec.169] |
|
Finder of goods is not entitled to sue that owner for compensation for trouble and expenses voluntarily incurred in – (a) preserving the goods, or (b) finding out the owner. However, he is entitled to – |
If a thing which is commonly the subject of sale is lost, and |
- (a) Lien: Retain the goods against the owner till he receives such compensation
- (b) Suit: Sue the owner for payment of any specific reward offered by the owner for the return of goods lost, and retains the goods till payment of such reward.
Then, Finder of Goods is entitled to sell the same when –
- (a) the thing is in danger of perishing, or
- (b) the thing is in danger of losing the greater part of its value, or
- (c) The lawful charges of finder, amount to 2/3rd of the value of the thing lost and found.
PLEDGE
Meaning of ‘Pledge’, ‘Pawnor’, ‘Pawnee’ (Sec.172)
- ‘Pledge’: The bailment of goods as security for payment of a debt or performance of promise is called ‘pledge’.
- ‘Pawnor’: The bailor in case of a pledge is called as ‘pawnor’.
- ‘Pawnee’: The bailee in case of pledge is called as ‘pawnee’.
Essentials of a valid Contract of Pledge (Sec.172)
Contract
- There must be a contract
- The contract may be expressed or implied.
Goods:
Pledge can be made of goods only.
Delivery:
There must be delivery of goods by one person to another person.
Purpose of delivery
- The goods must be delivered for some purpose.
- The purpose must be to deliver the goods as security for
- (a) payment of a debt; or
- (b) performance of a promise.
Return of goods
- The delivery of goods must be conditional
- The condition shall be that the goods shall be –
- – returned (either in original form or in altered form); or
- – Disposed of according to the directions of the pawnor when the purpose is accomplished.
Rights of Pawnee (Sec.173 and 176)
Right of Retainer [Sec.173]:
Pawnee may retain the goods pledged for –
- (a) payment of the debt or the performance of promise,
- (b) any interest due on the debt; and
- (c) all necessary expenses incurred by him with respect to possession or for preservation of goods pledged.
Retainer for subsequent advances [Sec.174]
- (a) Where the Pawnee lends money to the Pawnor subsequently, after the date of pledge, it shall be presumed that the he has a right of retainer over the goods already pledged in respect of the subsequent lending also.
- (b) This presumption can be made invalid only by an expenses provision to that effect.
Reimbursement of Expenses [Sec.175]:
Where the Pawnee incurs extraordinary expenses to preserve the goods pledged with him, he is entitled to receive such amount from the Pawnor.
Rights in case of default by Pawnor [Sec.176]
- (a) Suit: Pawnee may institute a suit against Pawnor when there is a default in payment of debt or performance of promise at the stipulated time.
- (b) Retention / Sale of goods: Pawnee may – (a) retain the goods pledged as collateral security, or (b) sell the goods pledged by giving a reasonable notice to the Pawnor.
- (c) Surplus / Deficit on Sale : When there is a surplus on sale, Pawnee shall pay the excess to the Pawnor. In case of deficit, Pawnor shall be liable for the balance amount.
- (d) No Notice: Where the Pawnee does not give a reasonable notice to the Pawnor, the sale is valid, but Pawnee is liable to pay damages to Pawnor.
Right against true owner of goods [Sec.178A]
- (a) Where the Pawnor has acquired possession of pledged goods, under a voidable contract u/s 19 or 19A but contract has not been rescinded at the time of pledge, the Pawnee acquires a good title to the goods, against the true owner.
- (b) The title of Pawnee is good only where – (a) he had no notice of the Pawnor’s defect in title and (b) he acts in good faith.
Reasonable notice u/s 176 means that a notice of intended sale of the security by the Creditor within a certain date, so as to afford an opportunity to the Debtor to pay the amount within the time mentioned in the notice. Notice of sale is essential and a clause in the agreement excluding the requirement of Notice is inconsistent with the Act & is void and unenforceable.
- Prabhat Bank Ltd. vs Babu Ram
Duties of a Pawnor
(Sec.175)
Pay the debt: The pawnor is liable to pay the debt or perform his promise as the case may be.
Pay deficit on sale:
If the pawnee sells the goods due to default by the pawnor, the pawnor must pay the deficit.
Pay extra – ordinary expenses:
The pawnor is liable to pay to the pawnee any extraordinary expenses incurred by the pawnee for preservation of goods.
Disclose faults in goods: The pawnor is liable to disclose all the faults which
- (a) are material for use of the goods; or
- (b) may put the pawnee to extraordinary risks.
Indemnify the pawnee: If loss is caused to the pawnee due to defect in pawnor’s title to the goods, the pawnor must indemnify the pawnee.
Duties of a Pawnee
- Not to use the goods
- The pawnee has no right to use the goods
However, he may use the goods, if he has been so authorised by the pawnor.
Return the goods: The pawnee must return the goods if the pawnor pays the debt or performs his promise.
Take reasonable care: The pawnee must take such care of goods pledged as a man of ordinary prudence would take care of his own goods.
Not to mix goods: The pawnee must not mix his own goods with the goods pledged.
Return increase in goods: The pawnee must return to the pawnor any accretion to the goods pledged with him.
Rights of a Pawnor (Sec.177)
Redeem the goods pledged
Meaning of redemption: Right to recover back the goods by making payment of the debt or performance of promise.
Time for redemption: Where time of redemption is fixed, the pawnor may exercise redemption –
- (a) within the time so fixed; or
- (b) even after expiry of time so fixed, provided –
- the pawnee has not sold the good; and
- the pawnee pays the pawnee all expenses arising on account of his default.
Enforce pawnee’s duties: The pawnor has the right to enforce the duties of pawnee, if the pawnee fails to fulfill his duties.
Receive increase in goods: The pawnor has the right to recover from pawnee any increase in goods pledged.
Right to receive notice of sals: 
In case of default by the pawnor to pay the debt or perform his promise, the pawnee has the right to sell the goods, after giving a reasonable notice to the pawnor. If the pawnee fails to give notice, the pawnor has the right to recover the loss incurred by him.
|
Basis |
Pledge |
Bailment |
|||||
| 1. |
Purpose |
Pledge is bailment of goods |
Bailment may be for purpose |
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| 2. |
Sale of Goods |
Pawnee, i.e. Pledgee has a right of sale of goods pledged |
There is no right of sale to the |
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| 3. |
Use of Goods |
Pledgee has no right of using goods pledged. |
Bailee can use the goods bailed as per terms of contract. |
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UNIT-II Important Case Laws
- Mahendra Pratap Singh V.Padam Kumari Devi, AIR 1993 All 182
- Keighley Maxsted & Co.V.Durant, 1901 AC 240
- Brook V.Cook, 1871 (6) Ex.89
- Kashi Ram & anr V. Raj Kumar & Ors., AIR 2000 Raj 405, 406
- Andrews V.Ramsay, 1903 (2) KB 635
