BAILMENT AND PLEDGE



BAILMENT & PLEDGE


By Shreya Mittal

Shirsho Ghosh

Shivangi


INTRODUCTION

In this article, we will be discussing about bailment, its essentials, duties and rights of a bailor, bailee and various important case laws. Further, we will study about pledge, pawnee and pawnor, their rights and backing it up with relevant case laws.


BAILMENT

Bailment’ is a French word which means to deliver or, etymologically, to hand over[1]. It is a technical term of the Common Law. According to Chitty, Bailment is “the delivery of goods to another, other than a servant, for some purpose, upon a condition, express or implied, that after the promise has been fulfilled, they shall be redelivered to the bailor, or otherwise dealt with according to his directions, or kept till he reclaims them.”[2] In bailment, defined under Section 148 of the Indian Contract Act, the goods are delivered from one person to another and when the purpose is accomplished, the goods are returned or disposed off in accordance with the directions of the person delivering them. The main characteristic of a bailment is that the delivery of possession contemplated is for a temporary purpose.


Speaking of, it involves change of possession of goods from one person to another for a specific purpose. If a person is already in the possession of the goods of another person to hold them as a bailee, he remains a bailee. However, in case of, the person who has delivered the goods intents to sell the same to the person to whom possession of the goods is already with him; in such case, the bailee is the owner of the goods. There can be no bailment where the thing delivered is not to be specifically returned or accounted for.[3]


There are two essentials required for bailment;

  1. Delivery of goods for some purpose: delivery of the goods is the first essential for bailment and delivery doesn’t always have to be actual delivery. It may sometimes be a constructive or symbolic delivery. The delivery other than the actual delivery is stated under Section 149. It provides:

The delivery to the bailee 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.”


For example, transferring the key of the godown may be deemed to be delivery of the goods. When a person keeps his goods in the premises of another person but himself continues to have the control over them, then it is not considered sufficient to be bailment. This was held in the case of Kaliaporumal Pillai v. Visalakshmi[4].


  1. Return of the goods after the purpose is achieved, or their disposal according to the bailor’s directions: The delivery of the goods in bailment is only for some purpose, example, for safe custody, for carriage, or for repair, etc. When the purpose of the bailment is achieved, the goods are returned or disposed off according to the directions of the bailor. The section 148 distinguishes bailment from other transactions like sale of goods or gift, as the property/goods are not to be returned after the transfer and use. In every bailment, the same thing is to be returned either in the same form or in an altered form. But if the goods are delivered without the intention to take them back and the exact cost of the goods has been charged, it would be a transaction of sale rather than a contract of bailment. This may be explained by referring to the decision of the Supreme Court in Kalyani Breweries Ltd. v. State of West Bengal.[5]


RIGHTS OF BAILOR

  1. Enforcement of Rights: The bailor has a right to sue the bailee for enforcing all the liabilities and duties of him.

  2. Avoidance of Contract (Section 153): The bailor has a right to terminate the bailment if the bailee does any act that is inconsistent or out of his authority with regard to the goods bailed.

  3. Return of goods (Section 159): When the goods are lent, the bailor has the right to ask for the goods back from the bailee as and when he wishes even if he lent them for specific time or purpose.

  4. Compensation from wrongdoer (Section 180): if the goods get stolen or damaged, the bailor or the bailee has the right to sue the third party who did so and ask for the compensation of the same.


RIGHTS OF BAILEE


The bailee has the right to sue the bailor to enforce the duties of the bailor upon him. The other rights which are guaranteed to the bailee by the Contract Act are –

  1. Delivery of goods to one of several joint balers of goods. According to Section 165,if several joint owners of the goods bail them, the bailee may deliver them back to any of the joint owners, or according to the directions of, l any of the joint owners without the consent of all, unless there is any agreement which states otherwise.

  2. Delivery of goods to bailor without title. According to Section 166, if the bailor doesn't have title over the goods so bailed, however the bailee not knowing the fact and in good faith delivers them back to him, the bailee will not be liable to the original owner of the goods. However, good faith is sine qua non.

  3. Right to apply to court to stop delivery. According to Section 167 when a person other than the bailor claims title over the goods so bailed , the bailee has the right to approach the court to stop the delivery of such goods and to determine the real owner of the goods.

  4. Right of action against trespassers. According to Section 180 if the bailee is deprived of use or possession of the goods so bailed to him by a third person who is not party to the contract, he has the right to bring an action against the third person.

  5. Right of lien. This is known as “particular lien”, this refers to the right of bailee to retain the goods bailed, in default of payment by the bailor in respect of the bailment.


In the case of Surya Investment Company v. State Trading Corp[6] the Calcutta High Court clarified the position of two rights of the bailee- the right to repayment of necessary expenses by bailor and the right of lien. The Hon’ble Court held that while the latter remains only till the bailee is in possession of goods, the formers extends even when the bailee has returned the goods to the bailor.


DUTIES OF BAILOR

  1. Disclosure of faults. According to Section 150, the bailor must disclose the known faults in the goods build. If he does not disclose such faults he will be liable for any damage caused to the bailee because of such faults.

  2. Necessary and extraordinary expenses. According to Section 158 the bailor must pay the bailee all necessary expenses for travel or delivery or goods even in case of gratuitous bailment. When the bailee has to undergo certain extraordinary expenses over and above what is reasonable and ordinary, the bailor must repay the bailee such expenses.

  3. Indemnification of bailee. According to Section 159 if the bailor makes a premature termination of the bailment, and resultantly the bailee suffers a loss exceeding his benefits, then the bailor must indemnify the bailee of such extra loss.

  4. To receive the goods. The bailor is responsible to take back the goods after the purpose of bailment is achieved. If he doesn't do so and to keep the goods in custody, the bailee has to undergo certain expenses, the bailor will have to compensate the same.

  5. Indemnification for defective title. According to Section 164, if the bailor has a defective title over goods bailed and resultantly the bailee suffers any loss, then the bailor who had such defective title must indemnify the bailor.


DUTIES OF BAILEE


The following are the general duties of the bailee apart from which, all rights of the bailor are consequent duties of the bailee as well –


  1. Reasonable care of goods. According to Section 151 the bailee must take reasonable care of goods bailed to him and such care would be as much as an ordinary man under similar circumstances would. Further, Section 152 provides that the onus of proving that there was no negligence on part of the bailee, lies on the bailee himself.

  2. No unauthorised use of goods. Section 154 bars the bailee from using the goods bailed in any way other than that provided in the contract of bailment. If owing to such other use, there is any loss or damage, the bailee himself will be liable for it even if there is no negligence on his account.

  3. No mixture of goods. The bailee should not mix Goods bailed to him with his own goods. However, according to Section 155 if he does so with the consent of the bailor then both shall have a proportionate interest in the mixture so produced. If he does so without the consent of bailor and the goods are separable, then according to Section 156, the bailee will be liable for the costs incurred for such separation and other damages if caused due to such mixture. According to 157, if they are mixed without consent and they are inseparable, then the bailee is liable to compensate the bailor for loss of goods.

  4. Not to deny authority of bailor. Section 117 of the Indian Evidence Act, 1872 states that no bailor shall be allowed to deny the fact that the bailor had authority to bail the goods at the time of bailment. Explanation (2) of the same provision clarifies that if the goods are delivered by the bailee to some other person than the bailor, then he may prove that such person had a right over the goods and not the bailor.

  5. To return the goods. Section 160 provides that once the time of bailment is over or the purpose has been achieved, the bailee must return the goods to the bailor without any demand. Section 161 further states that if he fails to do so, owing to which the bailor incurs any loss, then he shall be liable to compensate the bailor for such loss, whether or not he was negligent.

  6. To return any increment or profit from goods. According to Section 163, if the bailee receives any profit or increase out of the goods bailed, then he is liable to return the same to the bailor as well, unless there is a contract to the contrary.