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.

In case of loss or damage of goods, the bailee is liable and has to prove there was no negligence. In the case of Union of India v. Sugauli Sugar Works[7]certain goods were being carried by a train which were lost. The railway administration was unable to explain how the barge carrying the goods sank and hence negligence on their part was presumed. The Supreme Court held that they were liable to compensate the respondent in this case.

TERMINATION OF BAILMENT

A contract of bailment can be terminated in any of the following cases-

1. When the bailment is for a specific period, the contract of bailment ceases when that time is expired.

2. When the bailment if for a specific purpose, the bailment will cease once that purpose is achieved.

3. If the bailee makes any use of the goods bailed in a way which is inconsistent with the terms of the contract, then the bailment will be terminated as provided under Section 154.

4. A bailment will also cease to exist if the subject-matter of the contract itself is destroyed or because of a change in its nature, the contract is impossible to be continued.

5. According to Section 159, a gratuitous bailment can be terminated at any time by the bailor but the bailor must compensate the bailee for any loss over the benefits. Such bailment will also be terminated in case of death of bailor or bailee.

PLEDGE

The pledge is done either by the owner or by any person on behalf of the owner wherein there is consent of the owner wherein the any person on behalf of the owner acts as an agent who is loyal and diligent towards its owner in terms of good intention, complying with what the owner says and to which the owner can rely his trust. The sections under the Indian contract act which says about pledge also talks about the limited interest which means that the pledgee would have the interest in the good upto the extent of the purpose for which the good has been pledged to him. The interest of the pledgee is upto the time period of the pledge being taken place between pledger and pledgee. The pledgee can make further pledge when he receives good from pledger having limited interest as per pledgee’s interest in pledge.

Pledge is when a good is given as security for discharging of the obligation made under promise or as a security for the payment of the debt. This kind of contract under pledge is of huge importance especially in the economic transaction. The contract of pledge involves delivery and possession of goods. From this, we can say that pledge is a part of bailment wherein under bailment a part of bailment is pledge but in total pledge and bailment are two different things. The person to whom the goods is being delivered and kept as pledge is called the pledgee or pawnee and the person who delivers the good is called the pledger or pawnor. The making of pledge is the condition precedent for advancing the money as the aforesaid explanation in this article. [8]

RIGHTS OF PAWNEE

The Pawnee has right for retaining the goods pledged until the payment of debt, interest and any other expense incurred for maintaining the good. The Pawnee can even file a suit for recovery of debt for the goods kept as security and can also sue in case of the sale of goods

pledged and default in the payment.

In addition, pawnee can reimburse the additional costs required for the maintenance of goods but cannot retain goods in that case. Only after giving reasonable notice and time to the pawnor, pawnee has the right to sell the goods wherein the pawnee can sue for the deficiency in goods or in case of surplus the pawnee has to return the surplus to the pawnor.[9] The rights of the panwee as to the repayment of debt, to return surplus to pawnor and all other rights as aforesaid is clearly explained in the case of Lallan Prasad v Rahmat Ali & Ors. [10]

DUTIES OF PAWNEE

Besides, the rights, pawnee possess certain duties as laid under the contract act which is to take reasonable care of the person as an ordinary person would take care of his own goods, he should not use the good unless it is authorised by the pawnor. In addition, pawnee would not mix the pawnor’s goods with other goods and would return the good if pawnor pays the debt. The pawnee should also return the pawnor any increase in the goods pledged to the pawnor.[11]

RIGHTS OF THE PAWNOR

The Pawnor has the right to file suit for the redemption of goods by making payment of debt. The pawnor having right to redeem to property until the sale takes place is being held in the case of Balkrishan Gupta and Ors. v Swadeshi Polytex Ltd. and Ors.[12]The pawnor can claim in case of any loss or damage on the ground of conversion. The pawnor has the right to get back the goods he has pledged. The pawnor has the right to see whether the pawnee is preserving the good like that of bailee and right to recover in case of any increase in goods pledged.

DUTIES OF PAWNOR

The Pawnor has the duty to repay the debt and to pay extra expenses incurred for the maintenance of goods pledged. The pawnor is liable to disclose any material default and may anything in relation to good which may put the pawnee at risk. The pawnor should indemnify the pawnee with respect to any loss caused due to pawnor’s title to goods.

REFERENCES

Books -

1. Pollock & Mulla, Indian Contracts and Specific Relief Acts, 2010, 1931.

2. R.K. Bangia, The Indian Contract Act, 2019, 1872.

3. Avtar Singh, Contract and Specific Relief, (Eastern Book Company, Lucknow, 12thedn., 2019).

4. N.D. Kapoor, Elements of Mercantile Law, (Sultan Chand& Sons, New Delhi, 37thedn., 2016).

Cases –

1. Surya Investment Company v. State Trading Corporation of India, AIR 1987 Cal 46.

2. Union of India v. Sugauli Sugar Works, (1976) 3 SCC 32.

3. Kaliaporumal Pillai v. Visalakshmi A.I.R. 1938 Mad. 32.

4. Kalyani Breweries Ltd. v. State of West Bengal A.I.R. 1998 S.C. 70.

Websites -

1. www.jstor.org

2. www.manupatrafast.in

3. www.scconline.com

4. Law Times Journal, Contract of Bailment and Pledge, Sakshi Agarwal, http://lawtimesjournal.in/contract-of-bailment-and-pledge/#:~:text=Bailment%20means%20a%20delivery%20of,a%20special%20kind%20of%20bailment. (Last Modified: August 10, 2018)

5. Key Differences, Difference between Bailment and Pledge, Surbhi S, https://keydifferences.com/difference-between-bailment-and-pledge.html (Last modified: July 26, 2018)

6. Legalserviesindia, Contract of Pledge, Omkar Upadhayay, http://www.legalserviceindia.com/legal/article-1361-contract-of-pledge-features-and-distinctiveness.html, ( Last visited: January 22, 2021)

7. Toppr, Rights of Pawnee and Pawnor, https://www.toppr.com/guides/business-laws-cs/indian-contract-act-1872/rights-of-pawnee-and-pawnor/ (Last visited: January 22, 2021)

[1]Pollock & Mulla, Indian Contracts and Specific Relief Acts, 2010, 1931. [2]Chitty on Law of Contracts, 1947, 843. [3]Gangam v. Crown, (1943) Nag. 436. [4]A.I.R. 1938 Mad. 32. [5]A.I.R. 1998 S.C. 70. [6]AIR 1987 Cal 46. [7](1976) 3 SCC 32 [8]Legalservicesindia, Contract of Pledge, Omkar Upadhayay, http://www.legalserviceindia.com/legal/article-1361-contract-of-pledge-features-and-distinctiveness.html, ( Last visited: January 22, 2021) [9]Toppr, Rights of Pawnee and Pawnor, https://www.toppr.com/guides/business-laws-cs/indian-contract-act-1872/rights-of-pawnee-and-pawnor/ (Last visited: January 22, 2021) (supra) [10]AIR 1967 SC 1322 [11] supra 1 [12] AIR 1985 SC 520 5