Summarization Bailment and Pledge

by V S RAMA RAO on AUGUST 4, 2009

Bailment means to deliver or to handover the goods. It is the delivery of goods by one person to another for specific purpose upon a contract that when the performance is accomplished, the goods shall be returned or disposed off according to the directions of the person delivering them. The person delivering the goods is called the bailor. The person to whom the goods are delivered is called the bailee. The transaction is called the bailment. Essentials of bailment: (1) Delivery of goods is upon a contract. There is a change of possession of goods by delivery by one person to another for a temporary period. (2) Delivery may be actual or constructive. (3) Delivery of goods must be for specific purpose (4) Bailment can be only of lawful goods (5) The bailee must return the specific goods either to the bailor or to somebody according to his directions. Kinds of bailment: (1) Gratuitous bailment i.e. bailment without any reward or remuneration (2) Bailment for reward or remuneration (3) Goods delivered as security for money borrowed called pawn or pledge. Bailors rights: (1) to treat bailment as voidable; (2) to the return of the goods; (3) to claim compensations for wrongful use of goods by the bailee; (4) in case of mixture of the goods by the bailee (a) where it is done with the consent of the bailor to a proportionate share in the mixed goods; (b) where it is done without the consent of the bailor to claim expenses of separation, if goods can be separated and goods cannot be separated, to claim compensation for the loss of goods (5) to receive any increase of profit from the goods bailed. Duties and liabilities of the bailor: (1) to put the bailee into possession of the goods; (2) to disclose faults in the goods bailed; (3) to repay necessary expenses; (4) to indemnity gratuitous bailee; (5) to compensate for any loss to bailee due to defect in title; (6) to take back the goods Bailees rights: (1) to a particular lien; (2) to know faults in the goods bailed to him; (3) to claim proportionate share in the goods mixed; (4) to claim expenses of bailment; (5) to claim loss for defect in the title of the bailor. If the

bailee is gratuitous then to claim indemnity. If he is wrongfully deprived of the goods, then right action against third person. Duties and liabilities of bailee: (1) to take reasonable care of the goods bailed; (2) to make compensation to the bailor for unauthorized use of the goods bailed (3) to return the goods to the bailor or according to his directions; (4) to deliver any increase or profit accrued on the goods; (5) to pay damages under certain circumstances; (6) if he mixes his goods with the bailors goods, with his consent, to give a proportionate interest in the mixture produced. If he mixes the goods without the consent of the bailor and if the goods can be separated, he is bound to bear the expenses of the separation and if the goods cannot be separated, he is liable to compensate the bailor of the loss of the goods. Lien: It is a right of one person to retain that which is in his possession until certain demands of a person in possession are satisfied. In simple words, it is a right the possession of goods until the claim is paid. Lien may arise by statute or by express or implied contract in ordinary course of dealings. Lien is of two kinds general lien and particular lien. General lien is a right of goods not only towards the demands arising out of the article in possession, but for general balance of account. It is available to, pawnors, factors, wharfingers, attorneys and policy brokers. Particular lien is also called a special lien. It is a right of retaining the particular goods until claims arising on those goods are satisfied. Bailees right of lien is that which extends only in respect of the goods bailed to him. It can be exercised by the bailee only certain circumstances. Finder of goods: a finder of goods is subject to the same responsibilities as the bailee. He is entitled to retain the goods against the whole world except the true owner thereof. He is entitled to the lien. He entitled to sue for the reward if the owner has offered a specific reward. He is also entitled to sell the goods under certain circumstances. He must, however, use reasonable diligence to find out the true owner and must take due care of the goods. He must not use the goods for his own purpose.

Pledge: When goods are bailed as security for payment of a debt or performance of a promise, it is called pledge. The bailor is called the pawnor, the bailee is called the pawnee. The transaction is called the pledge or pawn. The goods must be delivered as security. Delivery may be actual or constructive delivery. Pledge can be made of movable goods only. Transfer of possession of goods is essential. ______________________________________________________________

Bailment (in terms of Business)

A bailment is the delivery of the 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 off according to the directions 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. The transaction is called bailment (Sec 148). Bailment means to deliver or to hand over. Change of possession of goods for some specific purpose is the essence of delivery. Bailment constitutes delivery of possession of goods for some specific purpose. Custody of goods without possession does not constitute bailment, for instance, a servant is not a bailee. Illustrations: 1. A delivers cloth to B, a tailor, to be stitched into a suit. This is bailment. 2. A delivers his TV to B for repairs. This is bailment. If a person already in possession of the goods of another contracts to hold them as a bailee, he thereby becomes the bailee and the owner becomes the bailor of such goods although they may not have been delivered by way of bailment (Expln to Sec 148)

This involves constructive delivery as distinguished from actual of goods for specific purpose. Constructive delivery also creates relation of bailor and bailee. Essentials: Contract: Delivery of goods is upon a contract between the bailor and the bailee. However, a person already in possession of the goods may become a bailee by a subsequent agreement, express or implied. Where Government has recovered stolen property, it does not constitute the Government as bailee. Supreme Court has held that it is not correct to say that there cannot be a bailment without an enforceable contract. A finder of goods has been held to be a bailee irrespective of any contract. Therefore, an obligation of a bailee also arises without a contract. Delivery of goods and change of possession: Change of possession of goods by delivery by one person to another must be for a temporary period. Mere custody of goods without parting with its possession does not constitute bailment, for example, a servant is a custodian of his masters goods. He is not a bailee. It constitutes rather of possession of goods for temporary period and not transfer of ownership thereof. Bailment involves change of possession. Mode of delivery: Delivery of goods may be actual or constructive. Actual delivery may be made by handing over something physically to the bailee. For example, delivery of watch for repairs. Constructive and symbolic delivery 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 authorized to hold them on his behalf (Sec 149) for example, delivery of documents, delivery of bill of exchange, delivery of railways receipt. There is transfer of possession of goods, but without actual physical delivery of the goods. Something is done which has the effect of putting them in the possession of the bailee. When the Port Trust is required to store the imported goods, the relationship of bailor and bailee comes into existence.

For specific purposes: Delivery of goods must be for some specific purpose. When the purpose is accomplished, they shall be returned or otherwise disposed off according to the directions of the bailor. There is no bailment if the thing delivered is not to be specifically returned or accounted for. Movable goods: The bailment can be only of movable goods. Money is not included in movable goods. Return of specific goods: The bailee must return the specific goods either to the bailor or to somebody according to the directions of the bailor as soon as the specific purposes for which goods were bailed is accomplished. Even if the goods are altered in form, there is bailment. If several joint owners of the goods bail them, then in the absence of any agreement to the contrary, the bailee may deliver the goods back to or according to the directions of one joint owner, without the consent of all (Sec 165). In such an event, the bailee may deliver the goods, but he is not bound to do so. Bailment is delivery or transfer of possession of a chattel with a specific mandate that identical res would be returned to, or dealt with in a particular way by the bailee as per the directions of the bailor. In bailment, bailee does not represent the bailor as in agency. Bailee exercises certain power of the bailor within his leave, but has no power to contract on behalf of the bailor. __________________________________________________________

Rights Duties and Liabilities of a Bailor

Rights of Bailor: Treat bailment as voidable: Termination of bailment: (Sec 153) If the bailor does any act with regard to the goods bailed, inconsistent with the conditions of the bailment, a contract of bailment is voidable at the option of the bailor. When the bailee wrongfully uses or disposes the goods, the bailor can terminate the bailment and claim his rights. Illustration: A lets to B for hire a horse for his own riding. B drives the horse in his carriage. A can terminate the bailment.

Return of goods: (Secs 160 & 161) The bailor has got a right to receive back the goods from the bailee or direct the goods to be delivered according to his directions, as soon as time for which they were bailed has expired, or the purpose for which they were bailed has been accomplished. If the goods are not returned delivered or tendered at the proper time, the bailor can claim compensation for any loss destruction or deterioration of the goods. Claim compensation for wrongful use of goods by bailee: (Sec 154). In case of wrongful or unauthorized use of goods by bailee, bailor can claim compensation for any damage arising to the goods. Illustration: A lends a 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 accidentally falls and is injured. B is liable to make compensation to A for the injury done to the horse. In case of mixture of goods by the bailee: (Sec: 155-157) i) If the bailee, with the consent of the bailor, mixes the goods of the bailor with his own goods, the bailor can claim proportionate share in mixed goods. ii) If the bailee without the consent of the bailor, mixes the goods of the bailor with his own goods, and the goods can be separated or divided, the bailor can claim expenses of separating and any damage arising from the mixture. iii) If the bailee without the consent of the bailor mixes the goods of the bailor with his own goods, and the goods cannot be separated or divided, the bailor is entitled to be compensated by the bailee for the loss of the goods. To receive any increase or profit from goods bailed: (Sec 163) In the absence of any contract to the contrary, the bailor is entitled to any increase or profit which may have accrued from the goods bailed. Enforcement of rights: The bailor can enforce by suit all the liabilities and duties of the bailee. Duties and Liabilities of the bailor:

Put bailee into possession: (Sec 149) The bailee shall put the goods in the possession of the intended bailee by doing anything which was the effect of putting the goods in the possession of the bailee. Disclose faults in the goods bailed: (Sec150) The bailor is bound to disclose to the bailee i) faults in the goods bailed of which the bailor is aware; and ii) faults which materially interfere with the use of them, or expose the bailee to extraordinary risks. If the bailor does not make such disclosure, he is responsible for damage arising to the bailee directly from such faults. Bailor is liable to pay damages which have arisen directly from such fault. If the goods delivered are dangerous, the fact should be disclosed to the bailee. If the goods are bailed for hire, the bailor is responsible for such damages, whether, he was or was not aware of the existence of such faults in the goods bailed. In case of gratuitous bailment, the bailor is bound to disclose only the defects or faults known to him. He is not liable for defects of which he is not aware. In case of other bailments, he is responsible for defects whether known to him or not. It is the duty of the bailor to supply goods as fit for the purpose for which they are hired as reasonable care and skill can render it.