Contract -II , unit-1.pptx as per KSLU Syllabus by Smt.Sowmya.K

Contract -2 it contains all the details relating to Specific Contracts

1. CONTRACT-II UNIT-I By Smt.Sowmya.K M.A., LL.M Principal SBRR Mahajana Law College Mysore, Karnataka

2. Unit-I Contract of indemnity, guarantee, bailment, and pledge Definition, nature and scope – Rights of Indemnity holder to indemnify, commencement of the indemnifier's liability. Contract of Guarantee. Definition, nature and scope, Difference between contract of indemnity and guarantee. Right of surety -Discharge of surety -kinds of guarantee, extent of surety's 1iahitity. The place of consideration and the criteria for ascertaining the existence of consideration in guarantee contracts. Position of minor and validity of guarantee when minor is the principal debtor, creditor or surety. Continuing guarantee. Nature of surety's liability Duration and termination of such liability, Illustrative situations of existence of continuing guarantee. Creation and identification of continuing guarantees. Letters of credit and bank guarantees as instances of guarantee transactions; Definition - Difference between pledge and bailment rights of Pawnee and Pawnor , Pledger and pledge Other statutory regulations (State & Centre)regarding pledge, reasons for the same 2 Smt.Sowmya.K SBRR Mahajana Law College

3. Contract Of Indemnity Guarantee Bailment, And Pledge 3 Smt.Sowmya.K SBRR Mahajana Law College

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5. Contract Of Indemnity Guarantee Bailment, And Pledge 5 Smt.Sowmya.K SBRR Mahajana Law College

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7. CONTRACT OF INDEMNITY     Contract of indemnity meaning is a special kind of contract. The term ‘indemnity’ literally means “security or protection against a loss” or compensation. According to Section 124 of the Indian Contract Act, 1872 “A contract by which one party promises to save the other from loss caused to him by the conduct of the promisor himself, or by the conduct of any other person, is called a contract of indemnity.” Example: P contracts to indemnify Q against the consequences of any proceedings which R may take against Q in respect of a certain sum of money. OBJECTIVE OF CONTRACT OF INDEMNITY   The objective of entering into a contract of indemnity is to protect the promisee against unanticipated losses. PARTIES TO THE CONTRACT OF INDEMNITY A contract of indemnity has two parties. The promisor or indemnifier: He is the person who promises to bear the loss. The promisee or the indemnified or indemnity-holder: He is the person whose loss is covered or who are compensated. In the above-stated example, P is the indemnifier or promisor as he promises to bear the loss of Q. Q is the promisee or the indemnified or indemnity-holder as his loss is covered by P. 7 Smt.Sowmya.K SBRR Mahajana Law College

8. ESSENTIALS OF CONTRACT OF INDEMNITY   PARTIES TO A CONTRACT: There must be two parties, namely, promisor or indemnifier and the promisee or indemnified or indemnity-holder. PROTECTION OF LOSS: A contract of indemnity is entered into for the purpose of protecting the promisee from the loss. The loss may be caused due to the conduct of the promisor or any other person. EXPRESS OR IMPLIED: The contract of indemnity may be express (i.e. made by words spoken or written) or implied (i.e. inferred from the conduct of the parties or circumstances of the particular case). ESSENTIALS OF A VALID CONTRACT: A contract of indemnity is a special kind of contract. The principles of the general law of contract contained in Section 1 to 75 of the Indian Contract Act, 1872 are applicable to them. Therefore, it must possess all the essentials of a valid contract. NUMBER OF CONTRACTS: In a contract of Indemnity, there is only one contract that is between the Indemnifier and the Indemnified.   8 Smt.Sowmya.K SBRR Mahajana Law College

9. RIGHTS OF PROMISEE/ THE INDEMNIFIED/ INDEMNITY HOLDER     As per Section 125 of the Indian Contract Act, 1872 the following rights are available to the promisee / the indemnified/ indemnity- holder against the promisor / indemnifier, provided he has acted within the scope of his authority. RIGHT TO RECOVER DAMAGES PAID IN A SUIT [SECTION 125(1)]: An indemnity-holder has the right to recover from the indemnifier all damages which he may be compelled to pay in any suit in respect of any matter to which the contract of indemnity applies. RIGHT TO RECOVER COSTS INCURRED IN DEFENDING A SUIT [SECTION 125(2)]: An indemnity-holder has the right to recover from the indemnifier all costs which he may be compelled to pay in any such suit if, in bringing or defending it, he did not contravene the orders of the promisor , and acted as it would have been prudent for him to act in the absence of any contract of indemnity, or if the promisor authorized him to bring or defend the suit. RIGHT TO RECOVER SUMS PAID UNDER COMPROMISE [SECTION 125(3)]: An indemnity-holder also has the right to recover from the indemnifier all sums which he may have paid under the terms of any compromise of any such suit, if the compromise was not contrary to the orders of the promisor , and was one which it would have been prudent for the promisee to make in the absence of any contract of indemnity, or if the promisor authorized him to compromise the suit RIGHT TO SUE FOR SPECIFIC PERFORMANCE - The indemnity holder is entitled to sue for specific performance if he has incurred absolute liability and the contract covers such liability.     9 Smt.Sowmya.K SBRR Mahajana Law College

10. Case: Bihal Chandra v Chattur Sen [1967 ]  where seller promised to the purchaser to indemnify him against dues, if any, it was  held  that such indemnity clause would include only then existing dues and not those subsequently imposed though retrospectively. 10 Smt.Sowmya.K SBRR Mahajana Law College

11. COMMENCEMENT OF LIABILITY OF PROMISOR/ INDEMNIFIER Indian Contract Act, 1872 does not provide the time of the commencement of the indemnifier’s liability under the contract of indemnity. But different High Courts in India have held the following rules in this regard: Indemnifier is not liable until the indemnified has suffered the loss. Indemnified can compel the indemnifier to make good his loss although he has not discharged his liability. In the leading case of Gajanan Moreshwar vs. Moreshwar Madan (1942), an observation was made by the judge that “ If the indemnified has incurred a liability and the liability is absolute, he is entitled to call upon the indemnifier to save him from the liability and pay it off”. Thus, Contract of Indemnity is a special contract in which one party to a contract (i.e. the indemnifier) promises to save the other (i.e. the indemnified) from loss caused to him by the conduct of the promisor himself, or by the conduct of any other person. Section 124 and 125 of the Indian Contract Act, 1872 are applicable to these types of contracts. 11 Smt.Sowmya.K SBRR Mahajana Law College

12. Contract of Guarantee   Meaning Contract of Guarantee means a contract to perform the promises made or discharge the liabilities of the third person in case of his failure to discharge such liabilities.  Parties As per section 126 of Indian Contract Act, 1872, a contract of guarantee has three parties: –  Surety: A surety is a person giving a guarantee in a contract of guarantee. A person who takes responsibility to pay a sum of money, perform any duty for another person in case that person fails to perform such work. Principal Debtor: A principal debtor is a person for whom the guarantee is given in a contract of guarantee. Creditor: The person to whom the guarantee is given is known as the creditor. For example, Mr. X advances a loan of 25000 to Mr. Y and Mr. Z promise that in case Mr. Y fails to repay the loan, then he will repay the same. In this case of a contract of guarantee, Mr. X is a Creditor, Mr. Y is a principal debtor and Mr. Z is a Surety.   12 Smt.Sowmya.K SBRR Mahajana Law College

13. ESSENTIAL   Essentials of valid contract Consideration for guarantee Competency of the parties Existence of a recoverable debt No misrepresentation or concealment of facts Conditional liability of surety Concurrence of all the three parties Mode of creation of contract   KINDS OF GUARANTEE   Retrospective or prospective Specific or continuing Entire or partial debt REVOCATION OF CONTINUING GUARANTEE By notice By death of surety   13 Smt.Sowmya.K SBRR Mahajana Law College

14. NATURE AND EXTENT OF SURETY‘S LIABILITY Secondary Contingent or dependent Arises immediately on the default of the principal debtor Co-extensive Entitled to limit his liability Continuing guarantee Where the original contract between the principal debtor and creditor become void or voidable   Bank of Bihar v Damodar Prasad [1969 ] wherein the defendant guaranteed a bank loan. On default, the defendant was sued. The  trial court  held that bank shall enforce the guarantee only after having exhausting its remedies against the principal debtor.  Patna H.C.  confirmed the decree. But  SC   held  that it is on the  discretion of creditor  whether to first sue the principal debtor or the creditor first. The very object of guarantee is defeated if the creditor is asked to postpone his remedies against the surety. Union of India v Manku Narayan (1987) It was held that creditor must first proceed against the mortgaged property and then against the surety for the balance.     14 Smt.Sowmya.K SBRR Mahajana Law College

15. RIGHTS OF SURETY Against the principal debtor Right of subrogation Right of indemnity Right to insist the principal debtor to honour his obligation Right to securities with the creditor Against the creditor Right to request the creditor to proceed against the debtor Right of set off Right to benefit of creditor’s securities Right to require the employer to terminate the employees services Right to share reduction   Against co-sureties When liable to contribute equally Bound to pay in different sums Right to share benefits of securities Effect of release of surety   15 Smt.Sowmya.K SBRR Mahajana Law College

16. DISCHARGE OF SURETY By revocation By notice By death of surety By novation By act or conduct of creditor Variation in the terms of the contract Release or discharge of principal debtor Compounding with or giving time to the principal debtor Creditors act or omission impairing surety eventual remedy Loss of security By invalidation of contract of guarantee Obtained by misrepresentation Obtained by concealment Co-sureties does not join Lacks essential element of a valid contract M.V.Shantanarasimhaiah V/S Dena Bank [2002] An alteration not only discharges the surety from his personal liability but also releases the property, if any, which the surety had included in the contract. 16 Smt.Sowmya.K SBRR Mahajana Law College

17. CONTRACT OF BAILMENT (Sec 148) The word “Bailment” has been derived from the French word “ ballier ” which means “to deliver”. Bailment etymologically means ‘handing over’ or ‘change of possession’. As per Section 148 of the Act, bailment is the delivery of goods by one person to another for some purpose, upon a contract, that the goods 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 ”.   Ultzen v Nicolls (1894) Wherein an old customer went into a restaurant, a waiter took his coat and hung it on a hook behind him. When the customer was about to leave, the coat went missing.  Held  that though what the waiter did might be no more than an act of voluntary courtesy towards the customer, yet the restaurant was held liable as bailee . Ram Gulam v Govt of UP [1950 ] The plaintiff’s ornaments, having been stolen, were recovered by the police and while in police custody, were stolen again. The plaintiff’s action against the state for loss was dismissed.  Held  that the ornaments were not made over to govt under any contract therefore the govt never occupied the position of bailee and is not liable.   Smt.Sowmya.K SBRR Mahajana Law College 17

18. Essentials Contract: Bailment is based upon a contract. The contract may be express or implied. No consideration is necessary to create a valid contract of bailment. Delivery of goods: It involves the delivery of goods from one person to another for some purposes. Bailment is only for moveable goods and never for immovable goods or money. The delivery of the possession of goods is of the following kinds: Actual Delivery: When goods are physically handed over to the Bailee by the bailor . Eg : delivery of a car for repair to workshop Constructive Delivery : Where delivery is made by doing anything that has the effect of putting goods in the possession of the Bailee or of any person authorized to hold them on his behalf. Eg : Delivery of the key of a car to a workshop dealer for repair of the car. Purpose: The goods are delivered for some purpose. The purpose may be express or implied. Possession: In bailment, possession of goods changes. Change of possession can happen by physical delivery or by any action which has the effect of placing the goods in the possession of Bailee . The change of possession does not lead to change of ownership. In bailment, bailor continues to be the owner of goods as there is no change of ownership. Where a person is in custody without possession he does not became a Bailee . Bailee is obliged to return the goods physically to the bailor : The goods should be returned in the same form as given or may be altered as per bailor’s direction. It should be noted that exchange of goods should not be allowed. The Bailee cannot deliver some other goods,even not those of higher value. Deposit of money in a bank is not bailment since the money returned by the bank would not be identical currency notes. Smt.Sowmya.K SBRR Mahajana Law College 18

19. Duties of bailor The duties of bailor are spelt out in a number of Sections [Section 150, 158, 159, 164] 1. Bailor’s duty to disclose faults in goods bailed [Section 150]: The bailor is bound to disclose to the bailee faults in the goods bailed, of which the bailor is aware, and which materially interfere with the use of them, or expose the bailee to extraordinary risks; and if he does not make such disclosure, he is responsible for damage arising to the bailee directly from such faults. Hyman & Wife v. Nye & Sons (1881), A hired from B a carriage along with a pair of horses and a driver for a specific journey. During the journey a bolt in the under-part of the carriage broke away. As a result of this, the carriage became upset and A was injured. It was held that B was liable to pay damages to A for the injury sustained by him. The court observed that it was the bailor’s duty to supply a carriage fit for the purpose for which it was hired. Sometimes, the goods bailed are of dangerous nature (e.g., explosives). In such cases it is the duty of the bailor to disclose the nature of goods. [Great Northern Ry’.case (1932)] 2. Duty to pay necessary expenses [Section 158]: Where, by the conditions of the bailment, the goods are to be kept or to be carried, or to have work done upon them by the bailee for the bailor , and the bailee is to receive no remuneration (gratuitous bailment), the bailor shall repay to the bailee the necessary expenses incurred by him and any extraordinary expenses incurred by him for the purpose of the bailment. However, in case of non-gratuitous bailment the bailor is liable to pay the extraordinary expenses. 3. Duty to indemnify the Bailee for premature termination [Section 159]: The bailor must compensate the bailee for the loss or damage suffered by the bailee that is in excess of the benefit received, where he had lent the goods gratuitously and decides to terminate the bailment before the expiry of the period of bailment.  4. Bailor’s responsibility to bailee [Section 164]: The bailor is responsible to the bailee for the following: Indemnify for any loss It is the duty of the bailor to receive back the goods Smt.Sowmya.K SBRR Mahajana Law College 19

20.   Duties of bailee 1. Take reasonable Care of the goods (Section 151 & 152): In all cases of bailment, the bailee is bound to take as much care of the goods bailed to him 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 bailed. [ Martin V/S London County Council (1947)] 2. Not to make inconsistent use of goods (section 153 & 154): As per Section 154, if the bailee makes any use of the goods bailed, which is not according to the conditions of the bailment, he is liable to make compensation to the bailor for any damage arising to the goods from or during such use of them. 3. Not to mix the goods (Section 155, 156 and 157): Bailee is not entitled to mix up the goods bailed with his own goods except with the consent of the bailor . 4. Return the goods (Section 160 & 161): It is the duty of bailee to return, or deliver according to the bailor’s directions, the goods bailed without demand, as soon as the time for which they were bailed, has expired, or the purpo.se for which they were bailed has been accomplished. [Section 160] If, by the default of the bailee , the goods are not returned, delivered or tendered at the proper time, he is responsible to the bailor for any loss, destruction or deterioration of the goods from that time. [Section 161] 5. Return an accretion from the Goods [Section 163]: In the absence of any contract to the contrary, the bailee is bound to deliver to the bailor , or according to his directions, any increase or profit which may have accrued from the goods bailed. [Shaw & Co, V/S Symmons and Sons (1917)] 6. Not to setup Adverse Title : Bailee must not set up a title adverse to that of the bailor . He must hold the goods on behalf of and for the bailor . He cannot deny the title of the bailor .   Smt.Sowmya.K SBRR Mahajana Law College 20

21. Rights of Bailor Rights of Bailor : Broadly rights of bailor are also the duty of the bailee (under Sec. 151,154,155 and 157) In addition to that, the bailor has the following other rights also. Right of termination of bailment – Sec 153 Right to demand the goods back – Sec 159 Right to demand the return of goods on completion of bailment – Sec 160 Right to claim any increase or profit – Sec 163 Right to file a suit against the wrong doer – Sec 180 Rights of Bailee Rights of bailee : As a matter of fact, all the duties of the bailor are the rights of the bailee . In addition to that, the bailee has the following other rights also. Right to claim compensation in case of faulty goods (Sec. 150) Right to claim extraordinary expenses (Sec. 158) Right of indemnification in case of gratuitous bailment [Section 159] Right of indemnification in case of defective title [Section 164] Right to Deliver the Goods to any one of the Joint Bailors [Section 165] Right to deliver the goods to the bailor in good faith (Sec. 166) Right to Apply to Court to Decide the Title to the Goods/Interplead[Section 167] Right to claim damages in case of bailor’s refusal to receive back the goods Right of lien for payment of services [Section 170] Suit by bailor & bailee against wrong doers [Section 180] Apportionment of relief or compensation obtained by such suits [Section181]   Smt.Sowmya.K SBRR Mahajana Law College 21

22. Rights of Finder of Goods as Bailee [Section 168 & 169] The right of Lien According to section 168 of the Indian Contract Act, 1872 “finder of the lost goods can exercise his right of particular lien if the actual owner refuses to make the payment of the expenses incurred to preserve those goods or to find the actual owner. But finder of the lost goods cannot sue him for the same.” For instance, X finds Z’s wallet and gives it to him. Z promises X to give him Rs. 100 for the same. This is a contract of bailment and Z is bound to pay the reward. Right to sell the goods found: According to section 169 of the Indian Contract Act, 1872 finder of the lost goods also have the right to sell the goods on certain circumstances i.e. either he could not find the actual owner after taking all due diligence or the goods or of such nature that their value might perish. Right to Compensation (164) Right to necessary expenses or remuneration (158) Right of Lien (170 &171) Smt.Sowmya.K SBRR Mahajana Law College 22

23. Right of lien and its types 1. Bailee’s particular lien [Section 170] : Where the bailee has, in accordance with the purpose of the bailment, rendered any service involving the exercise of labour or skill in respect of the goods bailed, he has, in the absence of a contract to the contrary, a right to retain such goods until he receives due remuneration for the services he has rendered in respect of them. Example 1: A delivers a rough diamond to B, a jeweller , to be cut and polished, which is accordingly done. B is entitled to retain the stone till he is paid for the services he has rendered. Example 2: A gives cloth to B, a tailor, to make into a coat. B promises A to deliver the coat as soon as it is finished, and to give a three months’ credit for the price. B is not entitled to retain the coat until he is paid. 2. General lien of bankers, factors, attorneys and policy brokers [Section 171] : Bankers, factors, attorneys of a High Court and policy brokers may, in the absence of a contract to the contrary, retain, as a security for a general balance of account any goods bailed to them; but no other persons have a right to retain, as a security for such balance, goods bailed to them, unless there is an express contract to the effect. Bankers, factors, policy brokers and attorneys of law have a general lien in respect of goods which come into their possession during the course of their profession. For instance, a banker enjoys the right of a general lien on cash, cheques , bills of exchange and securities deposited with him for any amounts due to him. For instance, ‘A’ borrows ` 500/- from the bank without security and subsequently again borrows another `1000/- but with security of say certain jewellery . In this illustration, even where ‘A’ has returned `1000/- being the second loan, the banker can retain the jewellery given as security to the second loan towards the first loan which is yet to be repaid. Under the right of general lien the goods cannot be sold but can only be retained for dues. The right of lien can be waived through a contract.   Smt.Sowmya.K SBRR Mahajana Law College 23

24. PLEDGE (Sec 172) Pledge “Pledge”, “ pawnor ” and “ pawnee ” defined [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 ”. The bailee is called the “ pawnee ”. Pledge is a variety or specie of bailment. There is no change in ownership of the property. Example: A lends money to B against the security of jewellery deposited by B with him i.e. A. This bailment of jewellery is a pledge as security for lending the money. B is a pawnor and A is a pawnee . Case: Morvi Merchantile Bank v Union of India [1965 ]:   Certain goods were consigned with the railways to “self” from Bombay for transit to Okhla . The consigner endorses the railway receipts to the appellant bank against an advance of Rs.20,000. The goods having been lost in the transit, the bank as endorsee of the railway receipts and pawnee of goods sued the Railways for the loss.  Held  that delivery of railway receipts was the same thing as delivery of goods therefore it was valid pledge and pawnee was entitled to sue for the loss. 24 Smt.Sowmya.K SBRR Mahajana Law College

25. ESSENTIALS OF PLEDGE: Since Pledge is a special kind of bailment, therefore all the essentials of bailment are also the essentials of the pledge. Apart from that, the other essentials of the pledge are: There shall be a bailment for security against payment or performance of the promise, The subject matter of pledge is goods, Goods pledged for shall be in existence, There shall be the delivery of goods from pledger to pledgee , 25 Smt.Sowmya.K SBRR Mahajana Law College

26. PAWNEE’S RIGHTS Rights of Pawnee can be classified as under the following headings: Right to retain the pledged goods [Section 173]: The pawnee may retain the goods pledged, not only for payment of the debt or the performance of the promise, but for the interest, of the debt, and all necessary expenses incurred by him in respect of the possession or for the preservation of the goods pledged. Example: Where ‘M’ pledges stock of goods for certain loan from a bank, the bank has a right to retain the stock not only for adjustment of the loan but also for payment of interest. Right to retention of subsequent debts [Section 174]: The Pawnee shall not, in the absence of a contract to that effect, retain the goods pledged for any debt or promise other than the debt or promise for which they are pledged; but such contract in the absence of anything to the contrary, shall be presumed in regard to subsequent advances made by the Pawnee. Pawnee’s right to extraordinary expenses Incurred [Section 175]: The pawnee is entitled to receive from the pawnor extraordinary expenses incurred by him for the preservation of the goods pledged. For such expenses, however, he does not have the right to retain the goods. Pawnee’s right where pawnor makes default [Section 176]: If the pawnor makes default in payment of the debt, or performance, at the stipulated time of the promise, in respect of which the goods were pledged, the pawnee may bring a suit against the pawnor upon the debt or promise, and retain the goods pledged as a collateral security; or he may sell the thing pledged on giving the pawnor reasonable notice of the sale. Smt.Sowmya.K SBRR Mahajana Law College 26

27. Duties of the Pawnee Pawnee has the following duties: Duty to take reasonable care of the pledged goods Duty not to make unauthorized use of pledged goods Duty to return the goods when the debt has been repaid or the promise has been performed Duty not to mix his own goods with goods pledged Duty not to do any act which is inconsistent with the terms of the pledge Duty to return accretion to the goods, if any. Rights of Pawnor As the bailor of goods pawnor has all the rights of the bailor - Right to redeem [Section 177]: If a time is stipulated for the payment of the debt, or performance of the promise, for which the pledge is made, and the pawnor makes default in payment of the debt or performance of the promise at the stipulated time, he may redeem the goods pledged at any subsequent time before the actual sale of them; but he must, in that case, pay, in addition, any expenses which have arisen from his default.     Smt.Sowmya.K SBRR Mahajana Law College 27

28. Duties of Pawnor Pawnor has the following duties: The pawnor is liable to pay the debt or perform the promise as the case may be. It is the duty of the pawnor to compensate the Pawnee for any extraordinary expenses incurred by him for preserving the goods pawned. It is the duty of the pawnor to disclose all the faults which may put the pawnee under extraordinary risks. If loss occurs to the pawnee due to defect in pawnors title to the goods, the pawnor must indemnify the pawnee . If the Pawnee sells the good due to default by the pawnor , the pawnor must pay the deficit. 28 Smt.Sowmya.K SBRR Mahajana Law College

29. Smt.Sowmya.K SBRR Mahajana Law College 29 Sl.No Bailment Pledge 1 Sections 148 to 171 of the Indian Contract Act 1872 deals with bailment Sections 172 to 181 of the Indian Contract Act deals with Pledge. 2 The term bailment is derived from the French word ‘ Bailor ’, which means ‘to deliver. It means possession voluntarily from one person to another. Pledge is a special kind of bailment. If the goods are bailed as a security for payment of a debt or performance of a promise, it is called Pledge. 3 Delivery of goods by Bailor to Bailee for a definite purpose on condition of their return or disposal, when purpose is accepted. (Section.148, I.C.A) Example: Sam delivers a cloth to John, a tailor making a shirt. The contract between Sam and John is bailment The Bailment of goods as security for payment of a debt or performance of a promise is called pledge. (Section.178, I.C.A) Example: If a Farmer delivers to bank 50 bags of wheat as security for obtaining a loan, it is called pledge. 4 It is made for any purpose. Bailment may be for purpose other than by way of providing security for a loan or fulfillment of an obligation. It may be for purpose like repairs, safe custody, etc. It is made for specific purpose. Pledge is bailment of goods for a specific purpose, i.e. to provide a security for a loan or fulfillment of an obligation. 5 The Bailee can use the goods. Bailee can use the goods bailed as per terms of contract. Pledgee cannot use the goods. Pledgee has no right of using goods pledged. 6 The Bailee has no right to sell the goods bailed The Pledgee / Pawnee has a right to sell the goods pledged if the pledger could not redeem them within the stipulated period. 7 Bailee can exercise lien on goods only for labour and service Pledgee can exercise lien even for non payment of interest. 8 Sale of Goods-There is no right of sale to the Bailee . Bailee may either – (a) retain goods, or (b) sue the Bailor for non – payment of hisdues . Sale of Goods-Pawnee, i.e. Pledgee has a right of sale of goods pledged on default of Pawnor . He can do so by giving a notice to the pawnor .