J.K. SHAH CLASSES INTER C.A.

- LAW
UNIT 2 : BAILMENT AND PLEDGE
BAILMENT

• Meaning and Characteristics of Bailment

Meaning: Bailment is defined under Section 148 as "A contract whereby
goods are delivered by one person to another for some purpose, that the
goods shall, when the purpose is over be returned or disposed off according
to directions of the person delivering the goods."

The person delivering the goods is called the "bailor". The person to whom
they are delivered is called the "bailee".

Essential elements of bailment:

(1) Contract: Bailment is based upon a contract and therefore absolutely
enforceable, in the court of law. The Contract may be expressed or
implied. No consideration is necessary to create valid contract of
bailment.
(2) Movable property: Contract of bailment pertains to goods only.
(3) Ownership: In a contract of bailment, ownership of the goods always
remains with the bailor and is never transferred to the bailee.
(4) Possession: In bailment both custody and possession must change
but not the ownership. But where a person is in custody without
possession he does not became a bailee. Deposit of money in a bank
is not bailment since the money returned by the bank would not be
identical currency notes. Similarly depositing ornaments in a bank
locker is not bailment, because ornaments are kept in a locker whose
key are still with the owner and not with the bank. The ornaments are
in possession of the owner though kept in a locker at the bank.
(5) Same goods: The goods under bailment must be returned in specie
i.e. the same goods must be delivered and not similar goods.

• FORMS OF BAILMENT
(1) Delivery of goods by one person to another to be held for the bailor's purpose.
(2) Gratuitous bailment: Where neither the bailor nor the bailee gets any
remuneration. For example A lends his book to his friend.
(3) Hiring of goods.
(4) Delivering goods to a creditor to serve as security for a loan.
(5) Delivering goods for repair with or without remuneration.
(6) Delivering goods for carriage.
(7) Finder of Goods.
J.K. SHAH CLASSES INTER C.A. - LAW

• DUTIES AND RIGHTS OF BAILOR

Duties of Bailor: Rights of Bailor:

1) To disclose the faults [Section 150] 1) Liability of bailee making
2) To bear extra-ordinary expenses unauthorised use of goods bailed
[Section 158] [Section 154].
2) If the bailee, with the consent of the
3) The bailor is responsible to the bailee
bailor, mixes the goods of the bailor with
for any loss which the bailee may his own goods, the bailor and the bailee
sustain [Section 164] shall share the mixture produced, in
4) Where the bailment is gratuitous, the proportion to their respective shares
bailor must reimburse the bailee for any [Section 155]
expenditure incurred in keeping the 3) Effect of mixture, without bailor's
goods. consent, when the goods can be
separated [Section 156]: The property
5) The bailor should reimburse any in the goods remains in the parties
expense which the bailee may incur by respectively; but the bailee is bound to
way of loss in the process of returning bear the expenses of separation or
the goods or complying with other 4) Effect of mixture, without bailor's
directions for returning the goods. consent, when the goods cannot be
6) The bailor must compensate the bailee separated [Section 157]: Bailee has to
compensate the bailor.
for the loss or damage suffered by the
5) A contract of bailment is voidable at the
bailee that is in excess of the benefit
option of the bailor, if the bailee does
received, where he had lent the goods any act with regard to the goods bailed,
gratuitously and decides to terminate inconsistent with the conditions of the
the bailment before the expiry of the bailment [Section 153]
period of bailment. 6) In the absence of any contract to the
7) The bailor is bound to accept the goods contrary, the bailee is bound to deliver to
after the purpose is accomplished. the bailor, or according to his directions,
any accretions to the goods bailed
[Section 163]
7) Gratuitous bailment: Bailor in the case
of gratuitous bailment has a right to
demand the goods back even before the
expiry of the period of bailment. If in the
process, loss is caused to the bailee,
bailor is bound to compensate.
J.K. SHAH CLASSES INTER C.A. - LAW

• DUTIES AND RIGHTS OF BAILEE

Duties of Bailee: Rights of a Bailee

1) Care to be taken by bailee [Section 1) To claim compensation for any loss
151] arising from non-dislosure of known
2) The bailee, in the absence of any defects in the goods.
special contract, is not responsible for 2) To claim indemnification for any loss or
the loss, destruction or deterioration of damage as a result of defective title.
the thing bailed, if he has taken the
amount of care of it described in 3) To deliver back the goods to joint bailors
section 151 [Section 152] according to the agreement or directions.
3) Duty to not make unauthorized use of 4) If the bailor has no title to the goods,
goods. and the bailee, in good faith, delivers
them back to, or according to the
4) Duty to make sure goods do not mix directions of, the bailor, the bailee is not
with the goods bailed : responsible to the owner in respect of
5) Return of goods bailed on expiration such delivery. (Section 166)
of time or accomplishment of purpose 5) To exercise his 'right of lien'. Where
[Section 160] charges due in respect of goods retained
6) Bailee's responsibility when goods are have not been paid. The right of lien is a
not duly returned [Section 161] particular lien for the reason that the
bailee can retain only these goods for
7) If several joint owners of goods bail
which the bailee has to receive his
them, the bailee may deliver them
fees/remuneration.
back to, or according to the directions
of, one joint owner without the consent 6) To take action against third parties if
of all, in the absence of any that party wrongfully denies the bailee of
his right to use the goods.
7) If a third person wrongfully deprives the
bailee of the use or possession of the
goods bailed, or does them any injury,
the bailee is entitled to use such
remedies as the owner might have used
[Section 180]
Whatever is obtained by way of relief or
compensation in any such suit shall, as
between the bailor and the bailee, be
dealt with according to their respective
interests [Section 181].

8)If a person, other than the bailor, claims

goods bailed, he may apply to the Court
to stop the delivery of the goods to the
bailor, and to decide the title to the
goods [Section 167].
J.K. SHAH CLASSES INTER C.A. - LAW
• FINDER OF GOODS

The term 'finder of goods' means a person who has found some goods
belonging to another. When a person comes across some article he is under
no duty to pick them up, but if he picks them up, he becomes a finder of
goods and is subject to the same responsibility as a bailee.

The obligations of a finder of goods:

1) He must take reasonable care of the goods:
2) He must not use the goods for his own purpose.
3) He must not mix them with his own goods.
4) He must make appropriate efforts to find the true owner of the goods.

Rights of finder of goods

1) Right to retain goods: The finder can retain the goods against the true
owner until he receives compensation for trouble and expenses incurred
by him in preserving the goods and finding out the owner. This right is
known as the finder's lien on the goods
2) Right to sue for reward (Section 168)
3) Right to claim expenses incurred
4) Right of sale: Section 169 permits the finder to sell the goods in the
following cases:
a. If the owner cannot be found after reasonable search; or
b) If found, the owner refuses to pay the lawful charges to the finder; or
c) If the thing is in danger of perishing or losing the greater part of their
value; or
d) If the lawful charges of the finder amount to two - thirds of their value.
A finder of goods has a right to keep the goods with him against the whole world
except the true owner.

• TYPES OF LIEN

General lien (Section 171) Particular lien(Section 170)

1. It is a right to detain/retain any goods of 1. It is a right exercisable only on

the bailor for general balance of such goods in respect of which
account outstanding charges are due
2. A general lien is not automatic but 2. It is automatic
recognized through on agreement or
law exercised by the bailee only by
name
3. It can be exercised against goods even 3. It comes into play only when
without involvement of labour or skill. some labour or skill is involved

4. Bankers, factors, wharfingers, policy 4. Bailee, finder of goods, pledgee,

brokers etc. are entitled to general lien unpaid seller, agent, partner etc
are entitled to particular lien.
J.K. SHAH CLASSES INTER C.A. - LAW
PLEDGE

• MEANING AND CHARACTERISTICS OF PLEDGE

Meaning: Pledge is defined under Section 172 as the bailment of goods as
security for a payment of a debt or performance of a promise is called
pledge/pawn.

The person who makes such a bailment is called a pledger or pawnor and
the bailee is known as pawnee

Essentials of a valid pledge:
1) Delivery of goods: Delivery of the goods may be actual or constructive
or symbolic.
2) Goods must be the subject matter of the contract of pledge. The goods
pledged must be in existence
3) Purpose of pledge is security for payment of debt.
4) Pledge is specie of bailment.

• RIGHTS OF PAWNEE AND PAWNOR

Rights of pawnee Rights of pawnor:

1) Right of retain the goods pledged 1) Right to redeem [Section 177]
[Section 173] 2) Pledge where pawnor has only a
2) Right to retention of pledged goods for limited interest [Section 179] : Where
subsequent debts [Section 174] a person pledges goods in which he
has only a limited interest, the pledge
3) Pawnee's right as to extraordinary
is valid to the extent of that interest.
expenses Incurred [Section 175]
4) Pawnee's right where pawnor makes
default [Section 176]: If the pawnor
makes default in payment of the debt,
or performance, pawnee may retain
the goods or sell the goods.If the
proceeds of such sale are less than
the amount due in respect of the debt
or promise, the pawnor is still liable to
pay the balance. If the proceeds of the
sale are greater than the amount so
due, the pawnee shall pay over the
surplus to the pawnor.

Pledge by person in possession under voidable contract [Section 178A]: 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.
J.K. SHAH CLASSES INTER C.A. - LAW
• PLEDGE BY MERCANTILE AGENTS [SECTION 178]

Where a mercantile agent is, with the consent of the owner, in 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 acts in good faith and has not at the time
of the pledge notice that the Pawnor has no authority to pledge.

In this section, the expressions 'mercantile agent and documents of title' shall
have the meanings assigned to them in the Sale of Goods Act, 1930.

Pledge in this case can be effected through pledge of documents like a bill of
lading or a railway receipt etc.

DISTINCTION BETWEEN BAILMENT AND PLEDGE

Aspects Pledge Bailment

Purpose A pledge is made for a A bailment can be for

specific purpose as security any purpose.
for payment of debt or
performance of a promise.
Use of Goods A pawnee does not have the The bailee may use the
right to use the goods. goods bailed as per the
terms of the contract.
Lien Lien can be exercised even A bailee can exercise
for non- payment of interest. lien on the goods bailed
only for his labour and
skill employed
Sale of Goods The pawnee can sell the The bailee has no right
goods after due notice to the of sale.
pawnor.
Nature of Interest in The pledgee gets a special The bailee has no right
Property property in the goods. The of possession of the
general property remains goods bailed.
with the pawnor.