Bailment and Pledge
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 direction 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’.
(i) A lends his motor cycle to B for his use.
(ii) A gives a piece of cloth to a tailor to make it into a coat. (iii) A gives his radio set to a mechanic for repairs.
The essentail elements of the definition of bailment can be summed up as under:-
(a) Bailment is always based upon a contract. In exceptional cases it can also be implied by law, e.g., finder of goods.
(b) There can be a bailment of moyable properties only but money is not included in the category of movable goods.
(c) In Bailment the possession of goods must change. It thus requires temporary delivery of goods. Mere custody of goods without possession will not be sufficient to constitute bailment. A servant or a guest using his master’s or host’s goods will not be a bailee.
In bailment the delivery of goods may be actual or constructive.
(i) A delivers his radio set to B for repair. This s a case of actual delivery of goods by A to B. A is the bailor and B is the bailee.
(ii) A employed a goldsmith to melt old jwellery and prepare new jewels. Everyday she used to receive half-made jewels from the goldsmith and put them in a box and leave the box in the goldsmith’s room. She kept the key of the room with her. On one night-the jewels were stolen. It was held that there was redelivery of jewels to the lady and the goldsmith could not be regarded as bailee. The lady herself must bear the loss (Kaliapurimal v. Visalakshmi).
(d) In bailment, ownership is not transferred. The bailor continues to be the owner of the goods. (e) Goods are delivered upon a condition that they are to be returned in specie.
Deposit of money in a bank is not a case of bailment since the return of money will not be of the identical coins deposited. Moreover the money handed over to the bank is not for safe custody but to be credited to some kind of account. The relation between the bank and the depositor of money is that of a borrower and the lender and not that of a bailor and bailee.
RIGHTS AND DUTIES OF THE BAILEE
Rights of the bailee
1. Rights to interplead (Sec. 165). If a person, other than the bailor, claims the goods bailed, bailee may apply to the court to stop the delivery of the goods to the bailor and to decide the title to the goods.
2. Rights against third person (Sec. 180). If a third person wrongfully deprives the bailee of the use or possession of the goods bailed, or causes them any injury, the bailee is entitled to use such remedies as the owner might have used in a like case if no bailment has been made. Bailee can thus bring a suit against a third person for such deprivation or injury.
3. Right of particular lien for payment for services (Sec. 170). Where the bailee has (a) in accordance with the purpose of bailment, (b) rendered any service involving the exercise of labour of skill, (c) in respect of the goods, he shall have (d) in the absence of a contract to the contrary, right to retain such goods, until he receives due remuneration for the services he has rendered in respect of them. Bailee has, however, only a right to retain the article and not to sell it. The service must have entirely been formed within the time agreed or a reasonable time and the remuneration must have become due.
This right of particular lien shall be available only against the property in respect of which skill and labour has been used.
(i) A delivers a rough diamond to jeweller, to be cut and polished, which is accordingly done. B is entitled to retain the stone till he is paid for the services he has rendered.
(ii) A gives cloth to B, a tailor, to make into a coat. B promises A to deliver the coat as soon as it is finished, to give A three month’s credit for the price. B is not entitled to retain the coat until he is paid.
4. Right of general lien (Sec. 171). Bankers, factors, wharfingers, attorneys of a High Court and policy brokers will be entitled to retain, as a security for a general balance of amount, any goods bailed to them in the absence of a contract to the contrary. By agreement other types of bailees excepting the above given five may also be given five may also be given this right of general lien.
5. Right to indemnity (Sec. 166). Bailee is entitled to be indemnified by the bailor for any loss arising to him by reasons that the bailor was not entitled to make the bailment or to receive back the goods or to give a directions respecting them. If the bailor has not title to the goods, and the bailee in good faith, delivers them back to, or according to the directions of the bailor, the bailee shall not be responsible to the owner in respect of such delivery. Bailee can also claim all the necessary expenses incurred by him for the purpose of gratuitous bailment.
6. Right to claim compensation in case of faulty goods (Sec. 150): A bailee is entitled to receive compensation from the bailor or any loss caused to him due to the failure of the bailor to disclose any faults in the goods known to him. If the bailment is for hire, the bailor will be liable to compensate even though he was not aware of the existence of such faults.
7. Right to claim extraordinary expenses (Sec. 158) : A bailee is expected to take reasonable care of the gods bailed. In case he is required to incur any extraordinary expenses, he can hold the bailor liable for such expenses.
8. Right of delivery of goods to any one of the several joint bailor of goods. Delivery of goods to any one of the several joint bailors of goods will amount to delivery of goods to all of them in the absence of any contract to the contrary.
Duties of the bailee
1. To take reasonable care (Sec. 151 & 152): Bailee is bound to take as much care of the goods bailed to him as a man of ordinary prudence would, under similar circumstances, take of his own goods of the same bulk, quality and value as the good bailed. It will not make any difference whether the bailment is gratuitous for reward. If any loss is caused to the goods, in spite of such reasonable care by the bailee, he shall not be liable for the loss. Bailee shall be held liable for losses arising due to his negligence.
Example (i): A delivered to B certain gold ornaments for safe custody. B kept the ornaments in a locked safe and kept the key in the case box in the same room. The room was on the ground and was locked from outside, and therefore, was easily accessible to burglars. The ornaments were stolen. It was held that the bailee did not take reasonable care, and therefore, was liable for the loss (Rampal V. Gauri Shanker, 1952).
(ii) A deposited his goods in B’s godown. On account of unprecedented floods, a part of the goods were damaged. Held, B is not liable for the loss (Shanti Lal V. Takechand).
A bailee is liable to compensate the bailor for any damages done to the thing bailed by the negligence of his servants acting in the course of the employment.
2. To return the goods. Bailee must return or deliver the goods bailed according to the direction of the bailor, on the expiry of the time of bailment or on the accomplishment of the purpose of bailment (Sec. 160).
Bailee shall be responsible to the bailor for any loss, destruction or deterioration of the goods from of the date of the expiry of the contract of bailment, if he fails to return deliver or tender the goods at the proper time (Sec. 161).
3. To return any increase or profit from the goods (Sec. 163). Bailee is bound to deliver to the bailor any increase or profit which might have came from the goods bailed, provided the contract does not provide otherwise.
Example: A leaves a cow in the custody of B. The cow gives birth a calf. B is bound to deliver the calf as well as the cow to A.
4. To use goods according the conditions of bailment (Sec. 154). Bailee must use the goods according to the conditions of the contract of bailment or the directions of the bailor. He shall be held liable for compensation to the bailor if any damage is caused to the goods because of his unauthorised use. Bailee must not do any act with regard to the goods bailed which is inconsistent with the terms of the bailment, otherwise the contract shall become voidable at the option of the bailor and bailee shall be held liable to compensate and damages caused to the goods.
Example: A lends his horse to B for his own riding only. B allows C, a member of his family, to ride the horse. C, rides with care but the horse accidently falls and is injured. What remedy has A against B ?
A can claim damages from B for the injury caused to the horse from an unauthorised use. B in this case has failed to use the horse according to the conditions of bailment, and therefore, he shall be liable to pay compensation to the bailor for the damages caused to the horse because of his unauthorised use.
5. Must not mix up the goods with his own goods (Sec. 155 & 156-157). Bailee is not entitled to mix up the goods bailed with his own goods except with the consent of the bailor. If he, with the consent of the bailor, mixes the goods bailed with his own goods, both the parties shall have an interest in proportion to their respective shares in the mixture thus produced (Sec. 155).
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 bailee is bound to bear the expenses of separation and division and any damage arising from the mixture (Sec. 156).
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 to deliver them back, the bailor is entitled to compensation by the bailee for loss of the goods (Sec. 157).
Examples : (i) A bails two bales of cotton marked with a particular mark to B. B, without A’s consent, mixes the 100 bales of his own, bearing a different mark. A is entitled to have his 100 bales returned, and B is bound to bear all the expenses in the separation of the bales and any other incidental damages.
(ii) A bails a barrel of cape flour worth Rs. 45 to B. B withouth A’s consent, mixed the flour with country flour with country flour of his own, worth only Rs. 25 a barrel. B must compensate A for his flour.
6. Must not set up an adverse title. Bailee must not set up a title adverse to that of the bailor. He must hold the goods on behalf of and for the bailor. He cannot deny the title of the bailor.
Rights of Bailor and Bailee against Third Parties
Rights of Bailor and Bailee against Third Parties
1. Suit by bailor or bailee against a wrong-doer (Sec. 180). If a third person wrongfully deprives the bailee of the use of possession of the goods bailed, or does them any injury, the bailee is entitled to use such remedies as the owner might have in a like case if no bailment had been made; and either the bailor or the bailee may bring a suit against a third person for such deprivation or injury.
2. Appointment of compensation obtained by such suits (Sec. 181). Whatever is obtained by way of relief or compensation in any such suit shall as between the bailor and bailee, be dealt with according to their respective interests.
Rights and liabilities of the finder of goods
One who finds goods belonging to another and takes them in his possession is called the finder of the goods. He rights and liabilities have been discussed in Secs. 168 and 169 of the Contract Act as follows:
(i) A finder of the goods is free to take or not to take the goods found out under his custody. A person who finds goods belonging to another and takes them into his custody is subject to the same responsibility as a bailee.
(ii) Finder of goods is not entitled to bring a suit for the realisation of compensation for the trouble and expenses voluntarily incurred by him in preserving the goods and in finding out the real owner. However, he can exercise his right of particular lien on the goods found out and may refuse to deliver them to the real owner until he receives the compensation for his trouble and expenses.
(iii) In case where the real owner of the goods has offered a specific reward for their return of goods lost, the finder of the goods may sue for the realization of such rewards and may also retain his possession ever the goods until he received the reward with all other necessary costs.
(iv) Finder of the goods has no right to sell the goods found out except when all the following conditions are satisfied.
(a) When the thing found out is commonly the subject of sale.
(b) When the owner cannot be found out with reasonable diligence or when the owner refuses to pay the lawful charges of the finder.
(c) When the thing is in danger of perishing or losing the greater part of its value or when the lawful charges of the finder in respect of thing found out exceed two-thirds of the value of the goods.
Lein is a right of person to retain that which is in his possession and which belongs to another, until the demands of the person in possession are satisfied.
Kinds of Lien
There are two kinds of liens : (a) particular lien, (b) general lien.
It is a right to retain possession over those particular goods in connection with which the debt arose. It is restricted to those goods which are subject matter of the contract and are liable for certain demands of the person in possession of those goods.
According to Section 170 where the bailee has, in accordance with the purpose of the contract of bailment, rendered any service involving the exercise of labour and skill in respect of the goods bailed, he has, in the absence of a contract to contrary, a right to retain such goods in his possession until he receives due remuneration for the services he had rendered in respect of them.
Besides the bailee, other persons who are entitled to exercise particular lien are unpaid seller of goods, finder of goods, pawnee, agents, etc.
It entitles a person in possession of the goods to retain them until all claims of the person in possession against the owner of the goods are satisfied. It is not necessary that the demands should arise only out of the articles detained under possession. General lien is a kind of a special privilege which the law has granted only to few persons (i) bankers, (ii) factors (iii) wharfingers, (iv) attorney of the High Courts, (v) policy brokers, and (vi) others by agreement. These parties, can exercise general lien against any goods under their possession and for any sum legally due on a general balance of account. But where the goods are deposited for some special purposes, e.g., safe custody, they will not come under the spell of general lien. This is because acceptance of goods for, special purpose implied by excludes general lien.
Example (i) K deposited certain jewels with the Madras Bank to secure certain debt. after payment of this debt he demanded the return of these jewels from the bank. He was still indebted to the bank for certain other debts. On the bank’s refusal to return, it was held that he was not entitled to recover unless he proved that the bank had agreed to give up its general lien (Kunhan V. Bank of Madras, 1895).
(ii) A solicitor has a general lien on all the papers of the client in his possession in his professional capacity as solicitor. He can claim a lien for all costs due to him from the client but not for money loans (Re. Taylor).
Pledge is the bailment of goods as security for payment of a debt or performance of promise. Bailor in this case is called the ‘pawnor’ and the bailee is called the ‘pawnee’ (Sec. 172).
Pledge by non-owners
Ordinarily only a person who is the real owner of the goods can make a valid pledge, but in the following cases pledge made by non-owners will also be valid.
1. Pledge by a mercantile agent (Sec. 178). Where a mercantile agent is, with the consent of the owner, a 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 as valid as if he were expressly authorised by the owner of the goods to make the same, provided that the pawnee act in good faith and has not at the time of the pledge notice that the pawnor has no authority to pledge.
2. Pledge by person in possession under voidable contract (Sec. 178 A). 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 acquired a good title to the goods, provided he acts in good faith and without notice of the pawnor’s defect of title.
3. Pledge where pawnor has only a limited interest (Sec. 179). Where a person pledges goods in which he had only a limited interest, the pledge is valid to the extent of that interest.
Example: A finds a watch on the road and spends Rs. 25 on its repairs. He pledges it with B for Rs. 50/-. The real owner can get the watch by paying Rs. 25 to the pledge.
4. Pledge by a co-owner in possession. If there are several joint owners of goods and goods are in the sole possession of one of the co-owners with the consent of other co-owners, such a co- owner can make a valid pledge of goods.
5. Pledge by seller or buyer in possession after sale: A seller who has got possession of goods even after sale, can make a valid-pledge, provided the pawnees act in good faith.
Example: X buys goods from Y, pays for them, but leaves them in the possession of Y, and Y
then pledges the goods with Z who does not know of sale to X, the pledge is valid.
Similarly, if the buyer obtains possession of goods with the consent of the seller before payment of price and pledges them, the pawnee will get a good title provided he does not have the notice of seller’s right of lien or any other right.
Rights and duties of the pawner and pawnee
Rights and duties of the pawner
Right to receive goods till sole (Sec. 177). If a time is tipulated for the payment of the debt or performance of the promise, for which the pledge is made, and the pawnor makes default in the payment of the debt or the performance of the promise at the stipulated time he may redeem the goods pledged at any subsequent time, before their actual sale of them, but he must in that case pay, in addition, any expenses which might have arisen from his default.
Rights and duties of the pawnee
1. Right to receive payment of the debt or to obtain the performance of promise with interest and expense(Sec. 173). Pawnee has a right to retain possession on the goods pledged till he obtains payment of his debt interest on that debt and all other necessary expenses which he might have incurred for the preservation of the goods pledged or in respect, of his possession.
2. Right of Particular lien (Sec. 174). Pawnee has no right to retain his possession over the goods pledged for any debt or promise other than the debt or promise for which they were pledged unless otherwise provided for, by a contract.
3. Right to receive extraordinary expenses (Sec. 175). Pawnee is also entitled to receive from the pawnor any extraordinary expenses which he might have incurred for the preservation of the goods pledged.
4. Pawnee’s right in case of default of the pawnor (Sec. 176). In the case of default by the pawnor in the payment of debt or the performance of promise at the stipulated time or on demand or within reasonable time, the pawnee can exercise the following two rights:
(a) He has a right to bring a suit on the debt or promise and can retain the goods pledged as a collateral security.
(b) He has also a right to sell the goods pledged after giving reasonable notice of sale to the pawnor.
He has a right to claim any deficit arising from the sale of the goods pledged from the pawnor. He will have to return to the pawnor any excess obtained by the sale of goods pledged beyond the amount necessary to pay the debt and other expenses due.
5. Pawnee must not use the goods pledged. He must not use goods pledge unless they are such as will not deteriorate by wear.
Besides the above rights and duties, all other rights and duties of the bailor and bailee apply equally to pawnor and the pawnee.
Termination of Bailment
2. On fulfillment of the purpose: If the goods were delivered for a specific purpopse, a bailment shall terminate on the fulfillment 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.
4. By death: A gratuitous bailment terminates upon the death of either the bailor or the bailee.