Pledge and Bailment

Pledge and Bailment

Author : Apratim De
Editor: Paavni

                                                                                   

 

      Introduction

The word bailment is derived from a French word ‘bailer’ which means “to deliver.” Moreover, from the legal perspective, the term bailment means a change of possession of goods from one person to another. On the other hand, the pledge is a kind of bailment which is used for some special purpose such as where the goods are transferred from one person to another as a security for the payment of a debt or for the performance of a promise.

 

      Q1) Define Bailment and also discuss who is a bailor and bailee?

 

According to Section-148 of Indian Contract Act 1872 bailment is defined asthe delivery of goods by a person to another person for some purpose, upon a contract that they shall, when the purpose is accomplished, be returned or disposed of according to the directions of the person delivering them.”

 

      Bailor– A person who delivers the goods is called as bailor.

      Bailee– A person to whom the goods are delivered is called as bailee.

For eg:- A person X purchases gold and delivers it to a goldsmith to make a jewellery out of it for his wife. So, in this case, X is the bailor and the goldsmith is the bailee.

 

      Q2)  (a)What are the essentials of bailment?

      Ans. The essentials of bailment are as follows:-

 

  • Agreement:- The first essential feature of the contract of bailment is that there must be a contract or an agreement between the parties for the delivery of goods. Such contracts can be written, oral, express or implied.
  • Delivery of Goods:- Bailment is valid only for the transfer of movable goods and not for the immovables. Also, the main essence of bailment is that the goods should be transferred to the bailee. Moreover, it is further necessary that the possession of the goods should be voluntarily transferred and is in accordance with the contract.

For eg:- A burglar enters into a house to commit theft, as a result the owner handovers all              his possessions to the burglar as he was on his gunpoint so this won’t be considered as a bailment as though the transfer of goods has taken place but it has taken place forcefully without the willful consent of the bailor.

Moreover, the delivery of possession can be actual or constructive. Actual delivery is the one in which the bailor himself deliver the goods to the bailee. Like for eg. a person(bailor) gives his scooter to the mechanic (bailee) so this is the example of actual delivery of goods whereas Constructive delivery means where physical possession of goods is actually not given but some act is done which has the effect of putting the good in the possession of the bailee or putting the goods under the possession of someone who is authorised to hold the possession other than the bailee.

  • Purpose:- The delivery of the goods between the bailor and bailee is for certain purpose. Also, the transfer of goods is for temporary purposes like repairing, safe custody, carriage etc.
  • Ownership:- In a bailment, the ownership remains with the bailor and is not transferred to the bailee or anyone as because if the ownership is transferred then it no longer remains a bailment but rather becomes a contract of sale.
  • Change in Form:- If the goods which are bailed are changed like a cloth is converted into a trouser than still, the contract remains a bailment.
  • Goods in possession of bailee:- Sometimes transfer of goods is not necessary for bailment like when the possessor of the goods becomes the bailee.
  • Redelivery of goods:- According to bailment upon the fulfilment of the purpose the bailee transfers back the goods to the bailor or do as directed by the bailor. But an exception to this is that in a bank if we deposit a certain amount of money in our account and later on when we try to withdraw that money the amount may increase or decrease from the actual amount deposited so here the relation between the customers and bank is not of a bailor and bailee but is rather of a creditor and debtor. This is because the customer can deposit the amount in a bank in various ways like a current account, savings account, fixed account etc. So in these cases bank has no obligation to return the identical money but rather an equivalent of it so it is no bailment.
  • Reward:- Both the bailor and bailee get a reward in a contract of bailment but the reward depends upon the nature of the transaction.

 

      (b) What are the types of bailment?

       Ans:- The types of bailment are as follows:-

  • On the basis of reward:- On the basis of reward, bailment can be classified into gratuitous and non-gratuitous bailment.
  1. Gratuitous bailment is the one where there is no remuneration or consideration is involved. For eg:- If a person lends another person his/her pen for filling up a form than it is a gratuitous bailment or if a person lends his /her bike to their friend for a ride then also it will be considered a gratuitous bailment as no consideration is involved in this. Because in the above-mentioned examples neither the bailor nor the bailee will be awarded any reward.
  2. Non-Gratuitous bailment is completely opposite to the gratuitous bailment. As because in this the bailor(person lending the goods) and bailee(to whom the goods are lent) enters into the contract of bailment on the basis of some consideration or remuneration. Like for eg if a person takes a car on rent for a ride than he/she has to pay a certain amount of money for it so this is considered as a non-gratuitous bailment as some consideration is there between the bailor and the bailee.
  • On the basis of benefits:- One the basis of benefits among the parties the contract of bailment is divided into the following types:-
  • For the benefit of the bailor:-In this type of contract of bailment is executed only for the benefit of the bailor and the bailee does not derive any benefit from it. For eg:- If you are going out of the station and you ask your neighbour to look after your pet than it’s you who is benefited as a bailor and not the neighbour(bailee).
  • For the benefit of the bailee:-In this type of contract of bailment the bailee is benefited and the bailor does not deserve any benefit out of such a contract. For eg:- A person lends his books to his friend to study for his/her exams so as a result of it in such a case the friend who here acts as a bailee is benefited.
  • For the mutual benefit of both bailor and bailee:- In this type of contract of bailment both bailor and bailee will be benefitted. For eg:- If a person gives his/her scooter for repairing to the mechanic then both the person and the mechanic are benefitted from this as the person gets benefited as his scooter his repaired while the mechanic, on the other hand, is benefited as he earns money for repairing the scooter.

            

             Difference between Bailment and Pledge?

 

Basis       Bailment                    Pledge
Right to Resale:- Under bailment, the bailee cannot resell the goods bailed to him rather he has to return back the goods to the bailor once the purpose of bailment is fulfilled.  

Under Section 176 of Indian Contract Act 1872, the Pawnee can resell the goods pledged with him if the pawnor fails to repay the loan or the interest on the loan or is unable to fulfil the promises. But the Pawnee cannot resell the goods pawned to themselves otherwise the pawnor can get back the goods from pawnee by repaying the loan and is interest eventually. Moreover before selling off the goods pawned the Pawnee should give a sufficient number of notices to the pawnor to warn him about the sell of goods.

Right of Retainer In bailment, the bailee does not have any right to retain the goods bailed but has to return back the goods upon the fulfilment of the contract of bailment.

For eg:- Rakesh gave a gold bar to his friend Ravi who is a goldsmith to make ornaments out of it for his wife. Once the ornament is made Ravi has to return back the ornament to Rakesh irrespective of the fact that he has been paid the making charges or not. As because under the law of bailment the goods bailed are to be returned back on the fulfilment of the purpose of bailment and the bailee cannot retain the goods in any case.

Under section 173 of the Indian Contract Act, 1872  Pawnee has the right to retain the goods pledged with them until he/she receives her payment.

The Pawnee can retain the goods for the following payments:-

(i) For the payment of the debt or performance of the promise.

(ii)For paying the interest on the debt.

(iii)For all the expenses incurred by him in respect of the possession or for the preservation of the pledged goods.

For eg:- Rajeev took a loan from the bank to start his own business by mortgaging his house for the purpose. So now the bank can retain the papers of Rajeev’s house till the time Rajeev does not return the amount of loan taken by him along with the interest on the loan.

Right to claim reimbursement According to section 158 of the Indian Contract Act 1872 under non-gratuitous bailment, the bailee has the right to recover all the expenses incurred by the bailor for achieving the purpose of the bailment. Moreover, in the case of gratuitous bailment, the bailee has the right to recover all the extraordinary expenses which were incurred by the bailee for the purpose of bailment.

For eg:- If A bailed C a refrigerator for repairing purposes but to repair the refrigerator C has to keep the refrigerator at the workshop to keep it safe from rain, as a result, C has to pay the rent of the workshop in addition. So as a result of it other than the repairing cost C will also receive the rent of workshop from A which C has paid additionally from his own pocket to procure the fridge safely.

Under section 175 the pawnor has the duty to pay the extraordinary expenses which are incurred by the Pawnee in the preservation of goods etc. But at the same time the Pawnee cannot retain the pledged goods to make the pawnor pay for the extra expenses, rather can sue the pawnor in case he denies to pay for the extra expenses.

 

For eg:- A kept his car as a security for taking a loan from B. So as a result of it to protect the car from rain, dust and other factors B had to build a garage for it. So now once A repays the loan then B has to return back the car to him irrespective of the fact that whether A has paid for the cost of making garage or not. But other than that if A denies paying the expenses for the construction of the garage then B can get the expenses from A by filing a suit against him.

Miscellaneous Ajay bailed some bags of cotton to Soham for preserving it with him for a couple of days as he was going out of the station. But by mistake, Soham mixed the bags of cotton given by Ajay with his ones so as a result of it additional expenses were incurred for separating the bags. So in the case of bailment, the bailee has to bear the expenses which are incurred to the goods bailed by the bailor. Sunny pawned his car with Rajesh as a security for taking a loan from him. But at the same time, Rajesh used Sunny’s car to go on a trip so while returning back from the trip the car had met with an accident so now Rajesh will be liable to compensate Sunny for the damages of the car.

 

Q3) (a). What are the rights and duties which are associated with the bailor?

Ans:-The rights and duties associated with the bailor are:-

  • Rights of a bailor are:-  

  1. Right to demand the return of goods:- The bailor has the right to get back the goods bailed by him to the bailee and in case the bailee fails to return back the goods bailed to him by the bailor then the bailee is liable to pay the compensation to the bailor.
  2. Right to avoid Contract:-  Under Section 153 of Indian Contract Act 1872 the bailor has the right to avoid the contract of bailment in case there is any breach in the terms and conditions of the contract by the bailee. For eg:- the bailor lends his car to his friend for personal use but the friend rather uses it for commercial purposes so this may lead to the breach of contract and thus the contract of bailment can become null and void.
  3. Right to claim compensation for unauthorised use of goods:- Under Section 154 of Indian Contract Act 1872, the bailor has the right to claim compensation for the damages caused to the goods bailed by the bailor due to the unauthorised use of such goods. Moreover, under section 156 of the Indian Contract Act 1872, the bailor can also ask for the cost of separation of goods as compensation if the bailee mixes the goods bailed to him by the bailor with his own goods and is unable to retrieve back the goods bailed to him.
  4. Right to claim compensation:-Under Section 151 of Indian Contract Act 1872 the bailor has the right to ask for compensation from the bailee if the goods bailed by the bailor are damaged due to the negligent behaviour of the bailee.

 

  • Duties of the Bailor:- The duties of the bailor are as follows:-

  1. Duty to disclose defects:-  According to the law of bailment, the bailor should inform the bailee about all the defects related to the goods bailed because in case the bailor does not inform the bailee about the defects and as a result, the bailee incurs some injuries than the bailor is liable to pay compensation to the bailee.

Moreover, in case of gratuitous bailment, the bailor is liable to inform about all the known defects related to the goods bailed to the bailee and in case the bailor fails to inform about such defects and as a result of which the bailee incurs some injury then the bailor is liable to pay the compensation. While on the other hand if the bailee incurs some injury for the defects unknown to the bailor then the bailor is not liable to pay the compensation.

While on the other hand in case of a gratuitous bailment the bailor has the duty to keep the goods fit for use which he/she wants to bail and in case of any injury or damage caused to the bailee due to the use of the bailed goods then the bailor has to pay the compensation to the bailee irrespective of the fact that whether they were aware of the damage of the goods or not.     

 

  1. Duty to bear expenses:- In case of a gratuitous bailment, the bailor is liable to pay the expenses to the bailee for keeping the goods, carrying the goods or to have work done upon them by the bailee for the bailor. Like for eg:- X gives his television for repairing to his friend Y who is a technician. But Y won’t receive any remuneration for this work so it is the duty of X to repay all the expenses back to Y which was incurred by him while repairing the television.

While on the other hand in case of non-gratuitous bailment the bailer has to bear the extra expenses borne by the bailee for the purpose of bailment.

For eg:- If X lends his car to Y for a trip then Y has to pay for the fuel and rent of the car but at the same time if the car gets stolen or requires some repairs then X has to pay Y for it.

 

  1.   Duty to indemnify the bailee:- It is the duty of the bailor to indemnify the bailee for any loss which the bailee may suffer because of the bailor’s title is defective. Actually, the bailor, in this case, owes the duty of indemnity towards the bailee because of the reason that the bailor who bailed the goods did not have the authority to bail them or to receive back the bailed goods or to give directions regarding the goods bailed.

For eg:- C asks his friend D for his car but D, in turn, lends E’s car to him without telling E about it. E, when found out that C was using his car, complained to the police about it as a result of it now D is liable to pay compensation to C for all the expenses C had incurred

to get out of the situation.

 

  1.   Duty to bear risk:- In this case, it is the duty of the bailer to take risk of the goods and also to pay the losses for the goods bailed back by the bailee provided that the bailee had taken proper and reasonable care of the goods to protect the goods from loss.

 

  1.   Duty to receive back the goods:- It is the duty of the bailor to receive back the goods returned by the bailee unless there is any breach of duty or the terms and conditions were violated by the bailee. Moreover, the bailor has to pay all the expenses incurred by the bailee to protect the goods from losses if not collected by the bailor at the right time and place as mentioned by the bailee.

 

(b) What are the rights and duties which are associated to a bailee?

Ans:- The rights and duties of a bailee are as follows:-

  • Rights of the bailee
  1. Right to claim damages:- According to Section 150 of the Indian Contract Act 1872, the bailor is liable to pay the compensation to the bailee for the losses incurred by the bailee as he/she was not informed about the defect in the goods. For eg:- If A was riding a horse bailed by B to him and was unaware of its indifferent behaviour and as a result of which A incurs severe injuries. So, in this case, B is liable to pay compensation to A as B didn’t inform A about the indifferent behaviour of the horse which in turn has caused an injury to A.
  2. Right to claim reimbursement:-  According to section 158 of Indian Contract Act 1872    under non-gratuitous bailment, the bailee has the right to recover all the expenses incurred from the bailor for achieving the purpose of the bailment. Moreover, in the case of gratuitous bailment, the bailee has the right to recover all the extraordinary expenses which were incurred by the bailee for the purpose of bailment.
  3.  Right to recover losses:- Under Section 164 of Indian Contract Act 1872, the bailee has the right to recover all the losses from the bailor because of the fact that the bailor was either not entitled to bail out the goods or to receive back the goods or was not entitled to give any order regarding them.
  4. Right to deliver goods to any of the joint bailors:- If the goods bailed are owned by more  than one bailors than the bailee has the right in the absence of contrary contract to deliver or bail back the goods to any of the joint bailors or according to the directions of the joint bailor without the consent of all. (Section 165)
  5. Right to deliver back the goods to the bailor in the presence of defective title:-  Under Section 166 of Indian Contract Act 1872 if the bailee returns back the goods bailed or does according to the direction of the bailor then though the title of the bailor is defective but still the bailee will not be liable to the true owner about it.

 

  • Duties of the bailee are as follows:-

 

  1. Duty to take reasonable care of goods bailed:- According to Section 151 of the Indian Contract Act 1872 the bailee has the duty to take care of the goods to the extent a man of ordinary prudence would take care under the same circumstances in a way he /she would take care of their own goods of similar quality, bulk and value of the goods bailed. Also, the standard of care is the same for both gratuitous and non-gratuitous bailment and as a result, the bailee is liable to pay the compensation if the goods are damaged due to negligence on the part of the bailee.
  2. Not to make any unauthorised use of goods:- If the goods bailed to the bailee are used by the bailee in a way which violates the terms and conditions of the contract then the contract is voidable at the option of the bailor and moreover if the bailee makes an unauthorised use of the goods bailed to him then if the goods suffer any damages the bailee will be liable to pay the compensation irrespective of the fact that the bailee had taken a reasonable care to prevent the losses which an ordinary man of same prudent would have taken under such circumstances.
  3. The duty of not to mix the bailor’s goods with is own goods:- Section 155-157 of Indian Contract Act 1872 talks about the duties of the bailee to not to mix the goods of bailor with his own:-
  • Under Section 155 if the bailee mixes his own goods with that of the bailor but with the consent of the bailor then both the bailee and the bailor will have interests in their respective shares out of the total goods produced.
  • Under Section 156 if the bailee mixes the goods of the bailor without his consent but the goods can be separated or divided without any loss in the respective shares of both bailor and bailee, then the bailee is liable to pay the expenses of separation or division but can also have to pay for the damages incurred to the goods of the bailor during separation.
  • Under Section 157 if the bailee mixes his goods with the ones bailed by the bailor and it becomes impossible to separate both the goods then the bailee has to pay the entire compensation for the damages caused to the goods of the bailor because of the mixing of the goods.
  1. The duty of not to set up adverse title:- The bailee should not do or take any step which is inconsistent to the title of the bailor and moreover, he cannot set up a title of his own nor can a title a third party for the goods bailed to him.
  2. Duty to return the goods:- It is the duty of the bailee to return back the goods to the bailor or to do as directed by the bailor with the goods bailed to him. But in case the bailee denies or fails to return back the goods or to dispose them according to the directions of the bailor as a result of which the goods had incurred some damages so as a result of it the bailee is liable to pay compensation to the bailor for the losses incurred by him because of the delay.
  3. Duty to return exceptions to the goods:- The bailee is liable to return back any of the profits to the bailor on any of the goods bailed to him or to do so as directed by the bailor in the absence of any contract to the contrary.

 

Q4). What is a pledge? Mention about the authorities who can pledge?

Pawn or pledge is a special kind of bailment where movable goods are bailed as security for the repayment of a loan or debtor for the performance of a promise. For eg:- If A takes a loan from the bank to buy new tractors for his farm and in turn keeps the papers of his house with the bank as a security for the repayment of the loan then it is called a contract of pledge.

Pledger or pawnor:- The person who takes the loan is called as pledger or pawnor.

Pawnee:- The person with whom the goods are pledged or the one who gives the loan is called as Pawnee.

Note that the ownership of the goods which are pledged are not shifted to the Pawnee rather the general property remains with the pledger but a special property is shifted to the Pawnee. Here special property is referred to as the right to possession on the articles pawned along with the right to sale by default. Moreover one of the necessary steps involved while the goods are pawned is that the goods which are pawned are to be compulsorily delivered to the Pawnee.

 

     Authorities who can pledge the goods

The authorities who can pledge the goods are mentioned as under:-

  • The owner of the goods or any other authorised agent of the owner to whom the power has been delegated by the owner to do so.
  • One of the co-owners who is also there in the possession of certain goods but only with the permission of the other owners.
  • A mercantile agent who is in the possession of the goods with the permission of the real owner can also pledge the goods.
  •  A person in possession under a voidable contract, before the contract is rescinded,
  • A seller, who is in possession of goods after the sale or a buyer who has obtained possession of the goods before the sale, or
  • A person who has a limited interest in the property. In such a case the pawn is valid only to the extent of such interest.

 

Q5) What are the rights and duties associated with the Pawnor and Pawnee?

     Ans:- The rights and duties of the Pawnor and Pawnee are as follows:-

       Duties of the Pawnor:-

  • It is the duty of the pawnor to follow all the terms and conditions related to the goods pawned like repaying the loan amount within a stipulated period of time.
  • Moreover, the pawnor has the duty to pay the extra expenses incurred upon the Pawnee for preserving the goods pawned.

        Rights of the Pawnor:-

  • Right to redeem:- Under section 177 of Indian Contract Act 1872 the pawnor can redeem the goods pawned by him to the Pawnee anytime whenever there is a default in the repayment of the loan but in addition to it he must pay the extra expenses which have incurred because of his default in paying off the loan.
  • Right to claim damages:- The pawnor can claim the damages for the goods pawned if the Pawnee mixes the goods pledged with his own goods without the consent of the pawnor..

            

       Rights and Duties of Pawnee:-

  • Right of Retainer:- Under section 173 the Pawnee has the right to retain the goods pledged with them until he/she receives her payment.

The Pawnee can retain the goods for the following payments:-

  •  For the payment of the debt or performance of the promise.
  •  For paying the interest on the debt.
  •  For all the expenses incurred by him in respect of the possession or for the preservation of the pledged goods.
  •  Right to extraordinary expenses:- Under section 175 the pawnor has the duty to pay the extraordinary expenses which are incurred by the Pawnee in the preservation of goods etc. But at the same time the Pawnee cannot retain the pledged goods to make the pawnor pay for the extra expenses, rather can sue the pawnor in case he denies to pay for the extra expenses.
  • Right to sale:- Under section 176 the Pawnee can sell the goods pawned with him if the pawnor fails to repay the loan amount or is unable to perform the duties promised in the lieu of which the loan was granted. But the Pawnee can sell the pawned goods only after giving a sufficient number of notices to the pawnor and also the pawnee cannot sell the pawned goods to themselves and if they do so then it will be void and the pawnor can take back the goods after complete repaying of the loan. Moreover when the Pawnee sells the goods then the extra amount (amount remaining after fulfilling the loan amount)which they get on the sale of the goods should be paid back to the pawnor. Other than the selling of the pawned goods the Pawnee can also bring a legal action against the pawnor for being a defaulter in paying the loan.

 

       Duties of the Pawnee:-

The duties of the Pawnee are as follows:-

  1. Duty to take reasonable care of the pledged goods:- It is the duty of the Pawnee to take reasonable care of the pawned goods which a normal man of the same prudent would have taken in the same situation. If any damage is caused to the goods pawned then the Pawnee is liable to pay the compensation.
  2. The duty of not to make any unauthorised use of the pledged goods:- It is the duty of the Pawnee of not to make any unauthorised use of the pawned goods irrespective of which the Pawnee will be liable to pay the compensation for making an unauthorised use.
  3. Duty to return back the goods when once the loan is repaid or the promise has been fulfilled:- It is the duty of the Pawnee to return back the goods pawned to the pawnor when the loan is repaid or the promise has been fulfilled otherwise the Pawnee will have to pay the compensation for the delay and damages caused to the pawnor for returning back of goods.
  4. Duty of not to mix his/her own goods with that of the pawnor:- The pawnor can claim the damages for the goods pawned if the Pawnee mixes the goods pledged with his own goods without the consent of the pawnor or if the goods can be separated than the Pawnee has to pay the expenses for separating the goods.

 

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