Download VTU MBA 2nd Sem 17MBA24-Business Law BL Module 1 -Important Notes

Bailment and Pledge

Bailment (derived from French word ‘bailer') : Delivering under a contract for return at a specified time or specified conditions.

• e.g. giving a TV to a mechanic for repair ( a contract of bailment)

Pledge: Delivering of goods as security for a loan or fulfillment of an obligation

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• Special types of contracts and Sections 148 to 181 deal with it
• Contract Act does not deal with all types of bailment and pledge – It only deals with general principles
• There are separate Acts for special bailments and pledges

Bailment

In which the personal property of one person, temporarily goes into the possession of another person for some purpose.

Ownership with : one person who delivers

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Possession with: another person who receives for a purpose

So, change of possession only

Definition u/s 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"

Two parties:

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Bailor: who delivers

Bailee: To whom the goods are delivered

Essential features:

1. The delivery of possession

Delivery may be of two types:

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1. Actual delivery: Handing over physical possession of goods
2. Constructive delivery: Only effect of putting the goods into the bailee's possession

Note: Delivery of possession and custody of goods

Bank and a customer

2. The delivery should be on the basis of some contract.

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The contract may be express or implied

The bailment may also arise sometimes even without a contract ( Finder of the goods) - accepted by SC in

(State of Gujarat v. Memon Mohd. -1967)

3. The delivery should be for some purpose

Not necessary that the purpose should be expressly stated

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4. The delivery should be upon a condition to return - may be returned in its original form or in its altered form.

Note: The bailment can be made only of movable goods.

Duties of a bailor

1. Duty to disclose faults in the goods bailed
1. Duty of a gratuitous bailor : known and which are material – Otherwise liable for damages

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2. Duty of a non-gratuitous bailor: see that reasonably fit and liable whether known or not known
2. Duty to bear extraordinary expenses
3. Duty of indemnifying the bailee

• Arises when bailor has no title to the goods

Bailor title may be defective:

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• At the time of bailment
• At the time of receiving back the goods from the bailee
• At the time of giving directions in respect of the goods
• Premature termination of gratuitous bailment

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Duties of a bailee:

1. Duty to take reasonable care of the goods bailed

• If required degree of care is taken then not liable for loss
• Standard of care is same in all types
• Measure of care depends on nature, quality, quantity and value of the goods

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• Bailee not liable, if events are beyond the control of bailee
• If stolen, reasonable steps otherwise liable
• Burden of proof on bailee
• Loss due to the negligence of the servant

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If unauthorized use : can be voidable and terminated and liable for all losses even after utmost care

1. Mixing the goods with bailor's consent
2. Mixing the goods without the bailor's consent and goods are separable
3. Mixing the goods without the bailor's consent and goods are not separable

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• Need not be returned, if the bailee loses the possession by operation of law
• If joint bailors

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Rights of the bailor

Duties of the bailee = Rights of the bailor

Additional rights:

1. Right to terminate the bailment
2. Right to demand back the goods lent gratuitously at any time: However, if loss by bailee

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3. Right to file a suit against any wrong-doer
4. Right to file a suit for the enforcement of the duties imposed upon a bailee

Rights of a bailee

Additional rights:

1. Right to compensation : Due to defective title

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2. Right to return the goods to anyone of the joint bailors
3. Right to recover agreed charges : if not agreed, then reasonable
4. Right to file a suit to decide the title of goods bailed (called interpleader suit)
5. Right to file a suit against the wrong-doer
6. Right of lien : Right to retain the possession until charges are paid – Two types: Particular and General

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Particular lien:

• Right to retain only those particular goods in respect of which the charges are due.
• Generally, bailee has this lien only
• Conditions: (assignment)
• Bailee loses the lien, if possession is lost

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General lien:

• Right to retain any goods bailed for any amount due

Right of general lien is a privilege and is given only to certain kinds of bailees:

1. Bankers
2. Factors

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3. Wharfingers
4. Attorneys of a High Court
5. Policy brokers

Factors: An agent entrusted with the possession of goods for the purpose of selling on behalf of his principal.

If goods are delivered for some other purpose, no GL

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Wharfingers: A person who owns or keeps a wharf.

Wharf: Place, adjoining to water, used for loading and unloading goods from ships – not to store

Attorneys (solicitor) of a HC : A person who acts legally for another – lien on all the papers and documents of the client provided they are delivered in professional capacity

Finder of goods:

A person who finds the goods belonging to some other person and takes them in his position.

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A person finding goods not bound to take – but if picks up and takes its possession, he becomes bailee

Duties and rights

Pledge

• A special kind of bailment
• Goods are delivered as a security for a loan or fulfillment of an obligation
• Defined u/s 172

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• “The bailment of goods as security for payment of a debt or for performance of a promise, is called pledge. The bailor in this case is called the pawnor (pledger). The bailee is called the pawnee (pledgee)".

Essential features of a valid pledge

1. Delivery of possession
2. Delivery should be upon a contract : when
3. Delivery should be for the purpose of security

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4. Delivery should be upon a condition to return
5. Only of movable goods

DIFFERENCE BETWEEN BAILMENT & PLEDGE

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