BAILMENT & PLEDGE business law notes.pptx

BAILMENT & PLEDGE business law notes

1. SPECIAL CONTRACT BAILMENT & PLEDGE

2. BAILMENT According to Sec 148 of the Contract Act , 1872----- ‘ 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. The person delivering the goods is called the bailor , the person to whom they are delivered is called the bailee and the transaction is called the bailment.

3. MODES OF DELIVERY 􀂾 Actual delivery Transfer of physical possession of goods from one person to another . 􀂾 Symbolic delivery • Physical possession of goods is not actually transferred. • A person does some act resulting in transfer of possession to any other person. Examples: (a) Delivery of keys of a car to a friend (b) Delivery of a railway receipt.

4. CONTD… 􀂾 Constructive delivery If – • A person is already in possession of goods of owner. •Such person contracts to hold the goods as a bailee for a third person. Then – Such person becomes the bailee , and the third person becomes the bailor .

5. CLASSIFICATION OF BAILMENT 􀂾 Gratuitous bailment Bailment without any charges or reward, i.e. – • No hire charges are paid by bailee ; and • No custody charges are paid by bailor . 􀂾 Non – gratuitous bailment Bailment for some charges or reward, i.e.- • Hire charges are paid by bailee ; or • Custody charges are paid by bailor .

6. Essentials of Bailment It is a delivery of movable goods by one person to another (not being his servant ). According to Section 149 the delivery of goods may be actual or constructive . The goods are delivered for some purpose. When they are delivered without any purpose, there is no bailment as defined under Sec 148. The goods are to be returned in specific or disposed of according to the directions of the bailor , either in original form or in altered form .

7. Duties of the Bailee ( i ) Duty to take reasonable care of goods delivered to him [Sec 151] (ii) Duty not to make unauthorized use of goods entrusted to him [ sec 154] (iii) Duty not to mix goods bailed with his own goods [Sec 155] (iv) Duty to return the goods [ Sec 165] (v) Duty to deliver any accretion to the goods [Sec 163]

8. Duties of the Bailor ( i ) Duty to disclose fault in the goods bailed [Sec 150 ] (ii) Duty to repay necessary expenses in case of gratuitous Bailment [Sec 158] e.g bailment of horse and expenses incurred towards feeding and medical care of the horse to keep it alive . (iii) Duty to repay any extraordinary expenses in case of non-gratuitous expenses. (iv) Duty to indemnify bailee [Sec 164]

9. Rights of Bailee ( i ) Enforcement of Bailor’s Duties ( ii) Right to deliver goods to one of several joint owners ( iii) Right to deliver goods, in good faith, to bailor without title, without incurring any liability to the true owner ( iv) Right of Lien

10. Rights of the Bailor ( i ) Enforcement of Bailee’s Duties ( ii) Right to terminate bailment if the bailee uses the goods wrongfully [ Sec 153] ( iii) Right to demand return of the goods at any time in case of gratuitous bailment [Sec 159]

11. DISTINCTION BETWEEN BAILEE’S PARTICULAR AND GENERAL LIEN Basis of distinction Bailee’s particular lien Bailee’s general lien 1. Natural of right Particular lien gives right to retain only such goods in respect of which charges due remain unpaid. General lien gives right to retain any goods belonging to another person for any amount due from him. 2. Condition for exercising lien Particular lien can be exercised only when some labour or skill has been expended on the goods, resulting in an increase in value of goods. General lien may be exercised even though no labour or skill has been expended on the goods. 3. Right to whom? Every bailee is entitled to particular lien. General lien can be exercised by only such persons as are specified u/s 171. e.g., bankers, factors, Attorneys of High Court, policy brokers. Any other bailee may exercise general lien if there is an agreement to this effect.

12. TERMINATION OF BAILMENT (Sec.153, 159 and 162) Situation Explanation Example 1. Expiry of specified period When bailment is for specific period, it terminates on the expiry of the specified period. Z lends a moped to Y for a period of 3 months April – June. The Bailment terminates by the end of June. 2. Accomplishment of specified purpose Where bailment is for a specified purpose, it terminates when such purpose is accomplished. G hires tables and chairs, utensils, etc. from H for organizing his son’s engagement. G shall return them once the engagement functions are over.

13. CONTD… Situation Explanation Example 3. Bailee’s act inconsistent with Conditions When bailee does some act which is inconsistent with the terms and conditions of bailment, the Bailor may terminate the bailment. J gives his car to K keeping it in K’s garage. K gives it to his son for racing. J can terminate the bailment. 4. Destruction of subject matter When goods bailed are destroyed, Bailment comes to an end. K hires a cycle from L. When the cycle is damaged beyond repair in an accident, bailment ends.

14. CONTD… Situation Explanation Example 5. Gratuitous Bailment • Gratuitous Bailment can be terminated at any time. • Also, a Gratuitous Bailment ends by the death of either Bailor or Bailee . (Sec162) Note: Where premature termination of bailment by the Bailor , causes loss to the Bailee exceeding the benefits derived by him, the Bailor shall indemnify the Bailee .

15. FINDER OF GOODS (Sec. 71, 168 and 169) Finder of lost goods [Sec 71] A person, who finds goods belonging to another and takes them into his custody, is subject to the same responsibility as a Bailee . Implied Agreement There is an agreement, implied by law between finder and owner of goods.

16. CONTD… 􀂾 Duties of Finder A finder of lost goods is treated as Bailee of goods found. His duties are – (a) To take initiative to find the real owner of the goods, (b) To take reasonable care of the goods found, (c) Not to put the goods found for his personal use, and (d) Not to mix the goods found with his own goods.

17. Rights of Finder: Suit for specific reward [Sec.168] Finder of goods is not entitled to sue the owner for compensation for trouble and expenses voluntarily incurred in – (a) preserving the goods, or (b) finding out the owner. However, he is entitled to – (a) Lien: Retain the goods against the owner till he receives such compensation (b) Suit: Sue the owner for payment of any specific reward offered by the owner for the return of goods lost, and retains the goods till payment of such reward.

18. CONTD… Right of Sale [Sec.169] If a thing which is commonly the subject of sale is lost, and • Owner cannot be found with reasonable diligence, [or] • Owner, if found, does not pay the lawful charges of the Finder.

19. CONTD… Then, Finder of Goods is entitled to sell the same when – (a) the thing is in danger of perishing, or (b) the thing is in danger of losing the greater part of its value, or (c) The lawful charges of finder, amount to 2/3rd of the value of the thing lost and found.

20. Pledge or Pawn According to Sec 172, Contract Act, 1872---- ‘The bailment of goods as security for repayment of a debt or performance of a promise is called ‘pledge ’. The bailor in this case is called the pawnor , the bailee is called the pawnee . For example, LOAN

21. Distinction between Bailment & Pledge Pledge Bailment Pledge is the bailment for a specific purpose i.e to provide security for a debt or for fulfillment of object. Bailment is for a purpose other than two under pledge i.e for repairs, safe custody etc. The pledgee has right to sale on default after giving notice thereof to the Pledger . No right to sale. The bailee may either retain the goods or the bailor for non-payment of his dues

22. Essential Features of a valid Pledge Delivery of possession Delivery should be upon a contract Delivery should be for the purpose of security Delivery should be upon condition to return

23. Duties of a Pawnor Duty to repay the loan Duty to pay expenses in case of default

24. Duties of a Pawnee Duty not use of pledged goods Duty to return the goods

25. Right of Pawnor Right to redeem the goods pledged Right to receive the increase

26. Right of Pawnee Right to retain the pledged goods Right to extra ordinary expenses Right in case of default of the pawnor Right to sell the goods