UNIT III CONTRACT OF BAILMENT AND PLEDGE.docx

CONTRACT OF BAILMENT
Meaning (Section 148 of the Indian Contract Act, 1872)
A bailment is the delivery of goods by one person to another for some purpose, upon a contract that they shall be returned or otherwise disposed of according to the directions of the person delivering them.
Example:
A gives his watch to B, a watch repairer, to repair.
→ This is a bailment.
• A = Bailor (owner)
• B = Bailee (person to whom goods are delivered)

1. UNIT III – CONTRACT OF BAILMENT AND PLEDGE
1. CONTRACT OF BAILMENT
Meaning (Section 148 of the Indian Contract Act, 1872)
A bailment is the delivery of goods by one person to another for some
purpose, upon a contract that they shall be returned or otherwise disposed
of according to the directions of the person delivering them.
Example:
A gives his watch to B, a watch repairer, to repair.
→ This is a bailment.
A = Bailor (owner)
B = Bailee (person to whom goods are delivered)
2. PARTIES TO BAILMENT
PartyMeaning
BailorThe person who delivers the goods.
BaileeThe person to whom goods are delivered.
3. ESSENTIALS OF BAILMENT
1.Delivery of Goods:
Only movable goods can be the subject matter of bailment (not money
or immovable property).
2.Purpose:
Goods must be delivered for a specific purpose (repair, custody,
transport, etc.).
3.Return or Disposal:
Goods must be returned or disposed of after the purpose is achieved.
4.Contract:
There must be a contract (express or implied) between bailor and
bailee.
5.Possession:
Ownership remains with the bailor; only possession is transferred.

2. 4. TYPES OF BAILMENT
1.Gratuitous Bailment:
oNo consideration involved.
oExample: A lends his book to B without payment.
2.Non-Gratuitous Bailment (Bailment for Reward):
oDone for mutual benefit; consideration is involved.
oExample: A gives goods to a transporter for carriage.
3.Bailment for Safe Custody:
oGoods given for safekeeping (e.g., bank lockers).
4.Bailment for Use:
oGoods given for use and to be returned later.
5.Constructive Bailment:
oOccurs by operation of law (e.g., finder of lost goods).
5. DUTIES OF THE BAILOR
1.Disclosure of Faults (Sec. 150):
Must disclose known defects in goods. If not, liable for damages.
2.Bear Extraordinary Expenses (Sec. 158):
Must pay extraordinary expenses incurred by the bailee.
3.Indemnify Bailee (Sec. 159–164):
Must indemnify bailee for losses due to defective title or premature
termination.
4.Accept Return of Goods:
Must accept goods back after the purpose is accomplished.
6. RIGHTS OF THE BAILOR
1.Right to Demand Return:
Can demand return of goods after purpose is fulfilled.
2.Right to Compensation:
Can claim compensation if goods are misused or damaged.

3. 3.Right to Terminate Contract:
Can terminate bailment if bailee acts inconsistently.
4.Right to Sue:
Can sue third parties for wrongful deprivation or injury to goods.
7. DUTIES OF THE BAILEE
1.Reasonable Care (Sec. 151):
Must take as much care as a man of ordinary prudence would take of
his own goods.
2.Not to Make Unauthorized Use (Sec. 154):
Unauthorized use makes bailee liable for loss or damage.
3.Not to Mix Bailor’s Goods (Sec. 155–157):
Should not mix goods without consent; if mixed, may have to bear
separation cost or loss.
4.Return Goods (Sec. 160–161):
Must return goods when purpose is completed or time expires.
5.Deliver Increase or Profit:
Must deliver any increase or profit from the goods (e.g., offspring of a
cow).
8. RIGHTS OF THE BAILEE
1.Right to Compensation:
For loss due to bailor’s defective title or instructions.
2.Right to Lien (Sec. 170–171):
oRight to retain goods until charges are paid.
oThere are two types:
Particular Lien: For specific goods (e.g., tailor, mechanic).
General Lien: For general balance of account (e.g.,
bankers, factors, attorneys).
3.Right to Recover Expenses:
Can recover extraordinary expenses incurred.
9. BAILEE’S LIEN

4. Meaning:
Lien means the right to retain possession of goods belonging to another
person until dues are paid.
Types:
1.Particular Lien (Sec. 170):
Right to retain those specific goods on which work is done.
Example: Mechanic repairs a car and keeps it until payment.
2.General Lien (Sec. 171):
Right to retain any goods for general balance due.
Example: Banks retain customer’s property until loan is repaid.
10. FINDER OF LOST GOODS
A finder of lost goods is treated as a bailee of those goods (Sec. 71).
Rights of Finder:
1.Right of Possession:
Can retain possession against everyone except the true owner.
2.Right to Lien:
Can retain goods until expenses for preservation or finding are
reimbursed.
3.Right to Sue for Reward:
If the owner offers a reward, finder can claim it.
4.Right to Sell (Sec. 169):
Can sell goods if:
oOwner cannot be found, or
oOwner refuses to pay lawful charges, and
oGoods are perishable or charges amount to two-thirds of the
value.
Duties of Finder:
1.Must take reasonable care of goods.
2.Must try to locate the true owner.
3.Must not use goods for personal purpose.

5. 4.Must return goods if the owner is found.
11. PLEDGE (PAWN)
Meaning (Sec. 172):
A pledge is the bailment of goods as security for payment of a debt or
performance of a promise.
The bailor in this case is called the Pawnor.
The bailee is called the Pawnee.
Example:
A borrows ₹10,000 from B and gives his gold chain as security.
→ A = Pawnor, B = Pawnee.
12. ESSENTIALS OF A VALID PLEDGE
1.Delivery of Goods:
Actual or constructive delivery of goods is necessary.
2.Purpose:
Goods must be delivered as security for debt or performance.
3.Ownership:
Ownership remains with pawnor; possession passes to pawnee.
4.Return:
Goods must be returned after the debt is repaid.
5.Lawful Contract:
All essentials of a valid contract must be present.
13. RIGHTS OF PAWNOR
1.Right to Redeem (Sec. 177):
Can redeem goods by paying the debt before actual sale.
2.Right to Get Back Surplus:
If pawnee sells the goods, any surplus must be returned to pawnor.
3.Right to Sue:
Can sue pawnee if goods are wrongfully sold or misused.

6. 14. DUTIES OF PAWNOR
1.Must repay the debt or perform the promise.
2.Must disclose defects in goods pledged.
3.Must bear extraordinary expenses incurred by pawnee.
4.Must indemnify pawnee for any loss due to defective title.
15. RIGHTS OF PAWNEE
1.Right to Retain (Sec. 173):
Can retain goods pledged for debt, interest, and expenses.
2.Right to Recover Extraordinary Expenses (Sec. 175):
Can recover necessary expenses incurred for preservation of goods.
3.Right to Sell (Sec. 176):
On default by pawnor, pawnee may:
oSue on the debt while retaining goods as collateral, or
oSell goods after giving reasonable notice to pawnor.
4.Right to Retain for Subsequent Advances:
Can retain goods for subsequent loans if agreed.
16. DUTIES OF PAWNEE
1.Take reasonable care of goods pledged.
2.Not to use goods pledged.
3.Not to mix with his own goods.
4.Return goods after debt is discharged.
5.Return any increase or profit from goods pledged.
17. PLEDGE BY NON-OWNERS
Under Sections 178–179, in certain cases, even a non-owner can make a
valid pledge if conditions are met.
Person Conditions for Valid Pledge
Mercantile Agent (Sec. 178) Possession with owner’s consent and
pledge made in ordinary course of

7. Person Conditions for Valid Pledge
business.
Pledge by Person in Possession
under Voidable Contract (Sec.
178A)
If contract not rescinded at time of
pledge, pledge is valid.
Pledge by Person with Limited
Interest (Sec. 179)
Valid to the extent of interest possessed.
Pledge by Seller in Possession
after Sale (Sec. 30 of Sale of
Goods Act)
Seller in possession may make valid
pledge if pawnee acts in good faith.
Pledge by Buyer in Possession
(Sec. 30 of Sale of Goods Act)
Buyer in possession with owner’s
consent can make valid pledge if pawnee
acts in good faith.
18. DIFFERENCE BETWEEN BAILMENT AND PLEDGE
Basis Bailment Pledge
Purpose
Goods delivered for a specific
purpose (repair, custody, etc.)
Goods delivered as
security for debt
Right to SellBailee has no right to sell goods
Pawnee can sell goods on
default
ConsiderationMay or may not have consideration
Always for consideration
(debt or loan)
Ownership Remains with bailor Remains with pawnor
Use of Goods
Bailee may use goods as per
contract
Pawnee cannot use
goods
Example Giving clothes for washing Pledging gold for loan
19. IMPORTANT CASE LAWS
Case Principle Established
Chengalvaraya Naidu v.
Jagannath (1994)
Bailment requires lawful delivery of goods
Coggs v. Bernard (1703) Foundation case for bailment – Bailee

8. Case Principle Established
must take reasonable care
Edwards v. Lee (1811)
Finder of goods has certain rights similar
to bailee
Lallan Prasad v. Rahmat Ali
(1967)
Pawnee’s right to retain or sell goods upon
default
Morvi Mercantile Bank Ltd. v.
Union of India (1965)
Pledge by mercantile agent valid if done in
ordinary course of business
20. SUMMARY TABLE
Concept Key Point
Bailment Transfer of possession for a purpose
Types Gratuitous, Non-gratuitous
Rights & Duties Both bailor and bailee have rights and obligations
Lien Right to retain goods till payment
Finder of Goods Treated as bailee; certain rights and duties
Pledge Bailment as security for debt
Rights of Pawnee Retain, sell, recover expenses
Rights of Pawnor Redeem goods, claim surplus
Pledge by Non-OwnersValid under specified conditions
Difference Pledge is a special type of bailment