CONTRACTS OF BAILMENT AND PLEDGE- MEANING, FEATURES OF BAILMENT, TYPES OF DELIVERY, DUTIES OF BAILOR AND BAILEE, LIEN AND ITS FEATURES AND PLEDGE

 CONTRACT OF BAILMENT

•         The word ‘bailment’ is derived from the French word ‘bailor’, which means to ‘deliver’.

•         A contract of bailment is a contract in which one person delivers some goods to another person for some purpose and when the purpose is accomplished, the goods are returned or otherwise disposed, of according to the directions of the person delivering them.

•         Bailment is a delivery of goods for some purpose on an understanding that they are to be returned after the achievement of such purpose. In case of a contract of bailment, there is only the change of possession and not ownership.

·        According to section 148 of Indian Contract Act, “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”.

·         Bailor remains the owner of the goods; bailee only gets the possession of such goods. There may be actual delivery or constructive delivery of goods.

Example: Suman delivers a piece of cloth to tailor to be stitched into a coat. Here, there is a contract of bailment, between Suman and tailor. Suman is a bailor and the tailor is a bailee, and the purpose of delivering the cloth is to get a coat stitched. The tailor will return the cloth to Suman after stitching.

FEATURES OF BAILMENT

1.     There should be a contract:

• A bailment is based on a contract, i.e., it is created by a contract. The contract of bailment may be express or implied. In some cases e.g., in case of finder of goods, a contract of bailment can be implied by law.

2.     Delivery of goods by one person to another:

• In bailment, there must be delivery of goods by one person to another. However, the word, ‘delivery’ is very wide. It may be actual or constructive.

• It should be noted that in bailment, only possession of the goods passes from one person to another. Possession means control of goods to the exclusion of others. Mere custody of goods as against possession is not sufficient.

 

3.     The goods are delivered for certain purpose:

• The purpose may vary from safe-keeping or safe custody to repairing or changing the form of the goods.

Examples:

• A leaves his suit-case with a Railway Cloak Room for safe custody.

 • A gives his watch for repair to a watch-maker

• A gives a piece of cloth to a tailor for stitching it into a shirt.

DELIVERY GOODS IN A CONTRACT OF BAILMENT

 • Delivery of goods has special importance in a contract of Bailment.

• According to section 149, the delivery of goods is deemed to be affected to the bailee when the goods are given to the possession of the bailee or his accredited agent by the bailor.

Such delivery can be made in following three types:

1) Actual delivery

2) Constructive delivery

3) Token delivery

1. Actual or Physical Delivery: - It is called an actual delivery when a seller delivers the goods physically to the buyer or his agent, to take the possession.

Example: - Mrs. Anu sells a car to Mr. Narain. Car is delivered to Mr. Narain. It will be called the actual delivery.

2. Symbolic Delivery: - If the key of any store is delivered to any person, it will be considered the goods in the store are also delivered to that person. It is a symbolic delivery.

Example: - Mr. Ram sells the car to Mr. Anarta which are kept in the "Show Room". Mr. Ram gives the key of show room to Mr. Anarta. It is a symbolic delivery.

3) Constructive delivery: Physical transfer of goods (like it is done in an actual delivery) is not essential in constructive delivery. Such delivery made by doing something which has the effect of putting the goods in the possession of the intended bailee or any person authorized to hold them on his behalf.

Example: If vipin buys a radio, and leaves it with the seller so that he can get a cabinet made, it will be a constructive delivery, because vipin has not physically been delivered the ratio by the seller. The seller will be the bailee and the contract will be one of bailment. The contract arises out of a constructive delivery of goods.

DUTIES OF BAILOR

1 it is the duty of a bailor to disclose all faults. If bailor fails to disclose such faults then he will be responsible for the damage caused to goods or loss suffered by the bailee.

2 Also, the bailor is under the duty to pay the extraordinary expenses incurred by the bailee for such bailment.

3 It is the duty of the bailor to accept the goods after the purpose for which such goods were bailed is accomplished. 4 It is the duty of the bailor to indemnify the bailee for the cost incurred due to the defective title of goods bailed to the bailee.

RIGHTS OF BAILEE

1.     Take proper care of goods

•     According to section 151, it is the duty of a bailee to take care of goods bailed to him. Bailee should take care of these goods as an ordinary man will take care of his goods of the same value, quality, and quantity.

•         Thus, if the bailee takes due care of goods then he will not be liable for any loss, deterioration of such goods

2.      Not to make unauthorized use

•     As per section 153, the Bailee shall not make any unauthorized use of goods bailed. In case he makes any unauthorized use, then bailor can terminate the bailment.

•  Bailor can also claim for damages caused to goods bailed due to unauthorized use as per Section 154.

3.     Keep goods separate

•         The bailee needs to keep the goods separately from his own goods. He should not mix the goods under bailment with his own goods

4.     Not set adverse title

•         A bailee must not set an adverse title to the goods bailed.

5.     Return Goods

•  The duty of the bailee is to return the goods without demand on the accomplishment of the purpose or the expiration of the time period.

•    In case of his failure to do so, he shall be liable for the loss, destruction, deterioration, damages or destruction of goods even without negligence.

TERMINATION OF BAILMENT

1)    Doing an act inconsistent with terms of bailment: According to section 153 if the bailee defaults in adhering to the terms of bailment or does an act which is against such terms, the bailor has the right to terminate the contract, Example: A lends his horse to B for riding and B uses the horse to drive a Tonga ( carriage). In this case, A can terminate the contract.

2) On the Expiry of period: According to section if the contract of bailment stipulates the bailment to be for a specific period, it comes to an end at the expiry of such period. In Such period, the bailee should return the goods under bailment without the Bailor’s demanding their return 

3 On accomplishment of object: According to Section 160 when the object for which the bailment was made is achieved, the bailment terminates.

Death of the bailor or bailee in case of gratuitous bailment: In case of gratuitous bailment, according to section 162, the death of bailor or bailee terminates the contract.

FINDER OF THE GOODS

•         A person, who find goods belonging to another and takes them into his custody, is subject to the responsibility of taking due care of them and trying to find out the real owner of the goods.

•         In the words of section 71 “A person who finds goods belonging to another and takes them into his custody, is subject to the same responsibility as a bailee”.

•         It is true that a person who comes by an article is not obliged to take charge of it, but if he does pick it up, he becomes a bailee.

RIGHTS OF FINDER OF GOODS

1 Right to receive compensation

• The finder of goods has right to recover compensation for the trouble and expenses incurred in preserving.

2 Right of lien

• He can exercise his right of lien and may retain the goods until he receive the expenses incurred in preserving the property or for finding out the true owner.

3 Right to Sue

• He can file a suit against the owner for any reward that might have been offered to give him.

4 Right of Selling

 The finder has a right to sell the thing of another found by him under the circumstances given below. (Article 169)

a) The owner cannot be found with reasonable time.

b) The owner refuses to pay the lawful charges.

c) The thing is in danger of perishing or losing the greater part of its value or the lawful charges amount to two-thirds of its value.

DUTIES OF FINDER OF GOODS

1 Finding out the real owner

• It is the duty of the finder of the goods to make possible effort in order to find out the real owner of the goods. He may retain such goods until he finds true owner by advertisement in case of costly thing.

2 Care to be taken by the finder

• The finder is bound to take as much care of the goods lost as a man of ordinary prudence would under similar circumstances take of his own goods of the same bulk, quality and value as the goods lost.

3 Returning of goods

 • It is the duty of finder to return the lost goods to real owner when he receives reasonable compensation for his services he has rendered in respect of them.

LIEN

 • ‘lien’ means the right of one man to retain that which is in his possession belonging to another until some debt or claim of the person in possession are satisfied.

• Possession is necessary for exercising the right of lien. It is therefore also called Possessory lien. If the possession terminates, the lien also terminates. Example: the owner of a suit gives it to the dry cleaner for cleaning and the latter promises to return the same after two or three days.

The dry cleaner clean the suit and makes it ready for delivery, but he has the right to keep the suit till he is paid the charges, i.e., he has acquired the lien to the suit.

FEATURES OF LIEN

1 Possession is essential for exercising the right of lien, without possession, there can be no lien.

 

2 The right of lien arises from statue or law, not from a contract. 3 The possession must be rightful, and not obtained by force, fraud or misrepresentation.

4 The right of lien is not transferable to a third person.

5 The lien terminates when the Bailee’s demands are met.

PLEDGE

• According to section 172, the bailment of goods as security for payment of a debt or performance of a promise is called pledge. The Bailor is, in this case called the Pawnor or Pledger and the Baliee is called the Pawnee or Pledgee.

 • It is clear from what has been stated that a pledge is a bailment for security. If the purpose of bailment is to provide security for the payment of a loan or the performance of a promise, then such bailment is called pledge.

ESSENTIALS OF A VALID PLEDGE

1. Moveable Property: The pledge is concerned with the moveable property. All types of goods and valuable documents are included in it.

2. Transfer of Possession: In case of pledge only possession of goods transferred by the Pawnor to the Pawnee.

Example: Mr. Nelson ledges car with Mr. McMullan and gets Rs. 100,000. He gives the possession of car to Mr. McMullan.

3. Ownership Right: In case of pledge, the ownership of the goods remains with the Pawnor. It is not transferred to Pawnee.

Example: Mr. Wali pledges the plot with Mr. Raffle and gets 10 lacs. The ownership of the plot remains with Mr. Wali.

4. Case of Mere Custody:  Those people who have only mere custody of the goods cannot pledge them.

 Example: A custodian cannot pledge his masters Banglow. It will be invalid pledge.

5. Limited Interest: Pledge property cannot be used for unlimited interest. When a person pledges goods in which he has only limited interest, the pledge is valid to the extent of that interest only.

Example: Mr. Nelson gives car to Mr. Andre for repair, but does not pay Rs. 20,000 repair charges. Mr. Andre pledges the car with Mr. Smith and borrows Rs. fifty thousands. This pledge is valid only up to ten thousands.

DUTIES OF PLEDGER:

1) To pay the debt.

2) To disclose the defects in goods.

 3) To repay the necessary expenses.

DUTIES OF PLEDGEE:

1) To take reasonable care of the goods pledged.

2) Not to make improper use of goods pledged.

 3) To return the goods pledged after the performance of the contract.

DIFFERENCE BETWEEN BAILMENT AND PLEDGE