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BAILMENT AND PLEDGE.

Table of Contents

(Ss. 148 to 181)

QUESTION BANK

Q.1 Discuss fully general lien of banker, attorney, factor and broker. Oct.98 ,2001

Q.2 Explain the general features of contract of bailment, what are the rights of bailor when bailee mixes goods bailed with his own goods. Oct.99

Q.3 What are the rights and duties of bailee? Apr. 2000, 04,07, Oct. 2000,08.

Q.4. Define ‘Bailment’. Discuss the rights and responsibilities of a paid and a gratuitous bailee. How does a bailment differ from pledge? Oct.2000

Q.5. What are the rights and obligations of the finder of goods? What is the nature of lien he has over the goods? Apr.2001, Nov.2003

Q.6. Define Bailment? Explain the essential characteristics of bailment.Nov.2003

Q.7. Define Bailment? Explain rights and duties of bailor. Nov. 09.

Q.8 What is nature of surety’s authority? State his rights against –

the creditor
the principle debtor, and
the co-sureties. Nov.2005

Q.9 Define Bailment. Explain rights and duties of Bailor. Apr.2005

SHORT NOTES.

Finder of lost Goods. Nov. 06,09, Apr.02,04,08.
Effect of mixture by the bailee of the goods with his own goods.Oct.2001
Termination of bailment.
General lien. Nov. 05, 06, 07, 09.Apr.04
Duties of bailee.
Requisites of Bailment. Nov. 05

SYNOPSIS

Bailment Defined (S. 148)
Essential features of Bailment.
Delivery of Possession.
Delivery should be upon a contract.
Delivery for some purpose.
Consideration to Bailment.

III. Duties of Bailee: –

Duty to take reasonable care of goods (Ss. 151- 152).
Duty not to make unauthorised use (S. 153 and 154).
Duty not to mix goods (Ss.155-157).
Duty to return (Ss.160-161).
Duty not to set-up adverse title (Ss. 166-167)
Duty to return increase. (S.163)
Rights of Bailee.
Right to know fault in goods bailed (S.150).
Right to expenses or remuneration (S.158).
Right to compensation (S.164).
Right to lien (Ss. 170 and 171)
Right to sue (S.180).

NOTES

Gratuitous Bailment.
Finder of goods.
Right to lien of bailee.
Termination of bailment.

I. BAILMENT DEFINED (S. 148): –

148 of the Indian Contract Act defines Bailment as

“A Bailment is a 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[1].”

The person who delivers the goods is called the ‘bailor’, and the person to whom they are bailed is called the ‘bailee’.

So, a bailment is a delivery of a movable property on condition that the recipient (bailee) shall ultimately return them to the bailor. Such bailment transactions may be made by lending, pledging, hiring, or depositing for safe custody, etc. Delivering a cycle, watch or luggage or books in a cloakroom, delivering gold to a goldsmith for making ornaments, and delivering garments to a dry-cleaner are all relations that create a bailment. Thus, a bailment is a subject of considerable importance. The contract of bailment can be identified in day to day life of an individual.

The word ‘Bailment’ is derived from the French word ‘Bailler’, which means to deliver; it signifies the contract resulting from delivery.

II. ESSENTIAL FEATURES OF BAILMENT: –

The following are the essential features of bailment, as deduced from the above definition.

1. Delivery of possession: –

The delivery of possession of goods (movable property) by one person to another is essential for bailment.

The goods must be handed over to the bailee for whatever the purpose of bailment may be. Such handing over of goods may be by express delivery or constructive delivery. When the bailor hands over the physical possession of goods, that is called ‘actual delivery’, while when goods are placed in possession other than express possession, the delivery is called constructive delivery. For example, a railway receipt amounts to the delivery of actual goods.

2. Delivery should be upon contract: –

Delivery of goods should be made for some purpose, and upon a contract, the goods shall be returned to the bailor when the purpose is accomplished.

That contract of bailment may be expressed or implied from the facts of the case, e.g. finder of goods.

3. Delivery for some purpose: –

Bailment of goods is always made for some purpose and is subject to the condition that when the purpose is accomplished, the (same) goods will be returned to the bailor or disposed of according to his direction.

Return of the same goods after accomplishment of purpose is the essence of the contract of bailment.

4. Consideration to Bailment: –

There may or may not be a consideration in bailment. (See note on ‘Gratuitous Bailment’).

III. DUTIES OF BAILEE: –

The rights and duties of the Bailor and bailee are reciprocal. The duties of the bailee are the rights of the bailor. They are-

1. Duty to take reasonable care of goods (Ss. 151-152): –

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 (S. 151). He is not responsible for the loss, destruction or deterioration of the thing bailed if he takes such care[2].

2. Duty not to make unauthorised use[3] (S. 153 and 154): –

Bailee is liable to make compensation to the Bailor if he makes any unauthorised use of the goods bailed to him, thereby causing damage to such goods[4].

Illustration

(a) A lets B hire a horse for his own riding. B drives the horse in his carriage. This is, at the option of A, a termination of the bailment.

Any such unauthorised use by a bailee makes the bailment contract voidable at the bailor’s option[5].

(b) A lends a horse to B for his own riding only. B allows C, a member of his family, to ride the horse. C rides with care, but the horse accidentally falls and is injured. B is liable to compensate A for the injury done to the horse.

(c) A hires a horse in Calcutta from B expressly to march to Benares. A ride with due care. But marches to Cuttack instead. The horse accidentally falls and is injured. A is liable to compensate B for the injury to the horse.

3. Duty not to mix goods (Ss. 155 to 157): –

The bailee should maintain a separate identity for the bailor’s goods. He should not mix his own goods with those of the bailor’s and without his consent. If the goods are mixed with the bailor’s consent, both will have a proportionate interest in the mixture, thus produced4. If the mixture is made without the bailor’s consent. And if the goods can be separated, the bailee is bound to bear the expenses of separation as well as for any damage which may arise from the mixture[6].

Illustration.

A bails 100 bales of cotton marked with a particular mark to B. B, without A’s consent, mixes 100 bales with other bales of his own, bearing a different mark; A is entitled to have his 100 bales returned, and B is bound to bear all the expenses incurred in the separation of the bales, and any other incidental damage.

But if the mixture is beyond separation, the bailee must compensate the bailor for his loss[7].

Illustration

A bails a barrel of Cape flour worth Rs. 45 to B. B, without A’s consent, mixes the flour with country flour of his own. Worth only Rs. 25 a barrel. B must compensate A for the loss of his flour[8].

4. Duty to return (Ss. 160-161): –

Bailee is under a duty to return the goods as soon as the time for which they were bailed has expired or the purpose for the bailment is accomplished[9]. If by default of bailee, goods are not returned to the bailor within proper time or on the accomplishment of the purpose, thereby causing any loss, destruction or deterioration of the goods, the bailee is liable for that[10].

If several joint owners bail the goods, the goods may be re-delivered to all or anyone of them[11].

Duty in Gratuitous Bailment[12]: –

It is the duty of the bailee to return gratuitous bailment whenever it is asked for by the bailor of such gratuitous goods or loans [Discussed in end note].

5. Duty not to set up adverse title[13] (Ss.166 to 167): –

The bailee cannot establish an adverse title by denying the bailor’s title. The bailee can also not deny the bailor’s right to bail the goods and to receive them back.

If the bailor has no title to the goods bailed, and the bailee, in good faith, delivers them back to, or according to, the bailor’s directions, the bailee is not responsible to the true owner in respect of such delivery[14].

Illustration

If A, by fraud, obtained a watch of B and delivered it for repair with C. Hereafter repair, if C returns the watch to A in good faith, he is not responsible to B, a true owner of it.

But, if a person other than the bailor claims the goods bailed, he may apply to a court to stop the delivery of the goods to the bailor from Bailey’s possession and to decide the title to the goods[15].

6. Duty to return increase (S. 163): –

Bailee is bound to return any increase or profit accrued to the bailor from the goods bailed[16].

Illustration.

A leaves cow to B for care to be taken. A cow has a calf, and B is bound to return the cow with a calf.

IV. RIGHTS OF BAILEE: –

The rights of the bailee are the reciprocal duties of the bailor. They are-

1. Right to know the fault in goods bailed (S. 150): –

Bailor is duty-bound to disclose any fault in goods bailed that materially interferes with the use of such goods or exposes the bailee to extraordinary risks.

Illustration.

(a) A lends a horse, which he knows to be vicious, to B. He does not disclose the fact that the horse is vicious. The horse runs away. B is thrown and injured. A is responsible to B for damage sustained.

(b) A hires a carriage of B. The carriage is unsafe, though B is not aware of it, and A is injured, so B is responsible for A for the injury.

2. Right to expenses or remuneration (S. 158): –

Where the bailee is required by the terms of bailment to keep or carry the goods or to do some work upon them for the benefit of the bailor and the contract provides for no reward, the bailee has a right to ask the bailor for payment of necessary expenses incurred by him for the purpose of the bailment.

3. Right to compensation (S. 164): –

If the bailor has no right to bail the goods or to receive them back or to give direction regarding them and consequently, if the bailee sustains a loss, the bailor is responsible for the same.

4. Right to lien (S. 170 and 171): –

If Bailey’s lawful charges are not paid, he may retain the goods. The right to retain any property until the charges due concerning the property are paid is called the ‘right of lien[17]’ [Discussed in end note].

5. Right to sue (S. 180): –

Like the owner of goods, the bailee is entitled to sue any person who has wrongfully deprived him of using and possessing the goods bailed or has done them any injury.

V) Termination of Bailment

Bailment is terminated in the following. Viz.

1) Expiry of the term of bailment.

2) Fulfillment of the purpose of bailment.

3) Inconsistent or unauthorised use of goods by the bailee.

4) Destruction of goods.

5) Death of Bailor or Bailee.

*****

NOTES

1 GRATUITOUS BAILMENT

Consideration is not the essence of the contract of bailment. There may or may not be a consideration to the contract of bailment. Bailment without consideration is called ‘gratuitous bailment’.

I. Rights of Gratuitous bailee: – (Duties of Bailor)

To get expenses paid (S.158): –

Where the terms require the bailee of the bailment to keep or carry goods to do some work upon them for the benefit of the bailor and the contract provides for no reward (consideration), the bailee has a right to ask the bailor for payment of necessary expenses incurred by him for the purpose of bailment.

The rights of gratuitous bailees are the duties of the bailor.

II. RIGHTS AND DUTIES OF GRATUITOUS BAILOR (Sec. 159): –

A. Right of Gratuitous bailor (Duty of bailee) (S.159): –

A gratuitous bailor is one who bails goods or lends money without consideration or interest for the use of bailee. Bailor can require such bailed goods or loans back from Bailee at any time.

B. Right of the bailee (duty of Gratuitous bailor) (S. 159):-

If the gratuitous bailment of goods or loan is made for a specified time or purpose, but the same is asked back by the gratuitous bailor before the expiry of the specified time or accomplishment of the purpose for which they have bailed. The bailee has to return the goods or loan bailed.

But if the bailee suffers any loss by such earlier demand by the bailor of the goods bailed, he must indemnify the bailee.

Illustration

A gave Rs.10 000 to B without any interest for six months. B paid his due to the Bank. But A asked for the money back within one month. (Instead of months). In this case, B cannot refuse the payment of Rs.10 000 back, but to return the money, he had to borrow it from a private moneylender, comparatively by paying a high-interest rate (i.e. 30% p.a.). A has to indemnify B for such margin of interest (between 30% and the prevailing interest rate, i.e. 20% p.a.= 10%)

III. TERMINATION OF GRATUITOUS BAILMENT BY DEATH (S.162): –

The gratuitous bailment is terminated by either the bailor or the bailee’s death.

2. FINDER OF GOODS[18] (S. 168 and 169).

SYNOPSIS

Rights of Finder of Goods.
Right to lien. (S.168).
Sue for reward (S.168).
Right to sell (S.169).

FINDER OF GOODS:

A finder of goods is a bailee thereof and, as such, bound by the duty of reasonable care. He is bound to search for the true owner and return the goods to the owner when found. Bailment is implied in the case of found goods.

I. RIGHTS OF FINDER OF GOODS:

1. Right to lien[19] (S. 168): –

A finder of goods has a right to retain the goods against the owner until he receives compensation for trouble and expenses voluntarily incurred by him-

(i) to preserve the goods and

(ii) Find out the owner.

But he cannot sue for such trouble and expenses in court.

2. Sue for reward (S. 168): –

Where the owner has offered a specific reward for the return of goods lost, the finder may sue for such reward and may retain the goods until he receives it.

3. Right to sell (S. 169): –

Where the thing found is common, the subject of the sale, and if the owner cannot be found with reasonable diligence, or if he refuses to pay the lawful charges of the finder, the finder may sell the goods: –

When the thing is in danger of perishing or of losing the greater part of its value or
When the lawful charges of the finder, in respect of the thing found, amounts to two-thirds of its value.

3. RIGHT TO LIEN OF BAILEE

(Ss.170 and 171)

Rights of the lien of Bailee (Ss. 170 and 171): –

He may retain the goods if the bailee’s lawful charges are not paid. The right to retain any property until the charges due with respect to the property are paid is called the right of lien.

Lien is of two kinds, namely-

Particular lien.
General lien.

1. Particular Lien[20]: –

As a general rule, a bailee is entitled only to a particular lien, which means the right to retain only that particular property in respect of which the charges are due. This right is subject to two conditions viz-

Bailee must have rendered some services involving the exercise of labour or skill in respect of the goods bailed and,
Such labour and skill used by bailee must cause improvement in property bailed.

A well-known case on this point is-

Hutton V. Car Maintenances Co[21].

Facts: The owner of the motor car gave it to a company to maintain it for three years on a fixed annual payment. An amount having become due for maintenance charges, the company claimed a lien on the car.

Court Held: that though the company has used the services involving labour and skill to maintain the car, it has not caused any improvement in the car but just maintained it in its former condition. Therefore, the company cannot exercise the lien.

2. General Lien[22] (S.171): –

The right of “general lien” means the right to hold goods bailed as security for a general balance of account16. General lien entitles the bailee to retain any goods bailed to him for any amount due to him, whether in respect of those goods or any other goods. Whereas a particular lien is only exercised against particular goods.

Illustration

The two securities were given to a banker, but the loan was taken against one of them; the banker may detain both securities until his dues are paid.

Parties entitled to general lien: –

The right of a general lien is a privilege and is specially conferred by S. 171 on certain kinds of bailee only.

They are –

1. Banker[23]: –

The general lien of a banker is the right by which a banker attaches all goods and securities deposited with them as a banker by a customer or by a third person on a customer’s account, provided there is no contract, express or implied, inconsistent with a such lien[24].

2. Factors[25]: –

Factor means an agent entrusted with possession by the principal of the goods for the purpose of sale. He is given possession of the goods in the ordinary course of his business for the purpose of sale. He has a general lien on any types of goods instructed to him for his balance of account against the principal.

3. Wharfingers[26]: –

A wharfinger is a person in charge of handling freight, loading, unloading, storage, and removal of goods at the port or wharf on behalf of importers and exporters of the goods.

A Wharfinger’s lien is only effective regarding claims against the goods bailed to him.

4. Attorneys of the High Court[27]: –

An attorney or solicitor engaged by the client is entitled to a general lien until the fee for his professional service and other costs incurred are paid.

5. Policy Brokers[28]: –

An insurance agent who is employed to effect a policy of marine insurance is called a policy broker. His lien extends to any balance on any insurance account due to him from the person who employed him to effect the policy.

The distinction between General and Particular lien: –

General lien is the special privilege of those five classes of persons mentioned above. On the other hand, a particular lien is available to all bailees.
A general lien is available against all goods in possession of bailee. Whereas, Particular lien is available only as regards the goods on which the bailee has done any work.
A general lien can be exercised for a general balance of accounts. Whereas particular lien is available only for remuneration due in respect of those goods.

4. TYPES OF LIEN

Types of lien covered by the Act are.

Lien of the finder of goods (S. 168).
Bailee’s lien-
1. Particular lien. (S. 170).
2. General lien (S. 171).
Lien of the pledgee or Pawnee (Ss. 173 to 174)
Lien of Agents (S. 221).

TERMINATION OF BAILMENT

1 Expires of the bailment.

Fulfillment of the purpose.
Inconsistent or unauthorised use of goods.
Distraction of goods.
Death of bailee.

* * * * *

[1] अनामत/ निक्षेप, ‘अनामतीचा करार म्हणजे असा करार की ज्यामध्ये एका व्यक्तीकडून दुस-या व्यक्तीकडे विषिश्ठ हेतूसाठी माल पाठविला जातो व तो हेतू पूर्ण झाल्यानंतर तो माल पाठविणा-यास परत केला जातो अथवा पाठविणा-याच्या इच्छेप्रमाणे त्याची विल्हेवाट लावली जाते.

उदा. दर्जीकडे कापड षिलाईसाठी दिल्यानंतर कापड षिवून ते परत देणारास देण्याचा करार. ही अनामत किंवा निक्षेप स्वरूपाचा आहे. [निक्षेप’ का मतलब एक ऐसा समझौता है जिसमें एक व्यक्ति से दूसरे व्यक्ति को एक विशिष्ट उद्देश्य के लिए माल भेजा जाता है और उस उद्देश्य को पूरा करने के बाद, माल प्रेषक को वापस कर दिया जाता है या प्रेषक की इच्छा के रूप में निपटाया जाता है| उदा. दर्जी को सिलाई के लिए कपड़ा देने के बाद कपड़ा सिलने और दाता को वापस करने का करार। यह जमा या जमा के रूप में है।]

[2] In Martin v. London County Council.

Facts: – Hospital authorities took charge of jewelry of patient on his admission in hospital. The same was stolen from the custody of that Hospital.

Held: – that the Hospital is bailee and liable for compensation because, it has failed to exercise care which the gold articles required.

In Pyramid Finance Ltd. V. Ramkrishna Iyer.

Facts: – Hire purchased computers were destroyed in fire.

Held: – 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

[3] अनधिकृत वापर न करण्याचे कृर्तव्य. [अनधिकृत उपयोग नहीं करने का कर्तव्य।]

[4] Sec. 154

[5] Sec. 153

4 Sec. 155.

[6] Sec. 156.

[7] Sec. 157.

[8] 1961. In Dhampatram V. Jaynarayan

Facts: – Where bailee mixed his own goods with those of bailor. The same mixture is returned to bailor without sorting them out.

Held: – that bailor is entitled to refuse to take delivery and claim compensation for loss or damage.

[9] Sec. 160.

[10] Sec. 161.

[11] Sec. 165.

[12] Sec. 159. मोफत अनामत किंवा निक्षेपमध्ये कर्तव्ये. [मुक्त निक्षेप में कर्तव्य।]

[13] विरोधी हक्काने मालकी न मागण्याचे कर्तव्ये. [प्रतिकूल शीर्षक स्थापित न करने का कर्तव्य]

[14] Sec. 166

[15] Sec. 166

[16] Sec. 163.

[17] In T. N. Mahanta V. United Bank of India (AIR 2002 Gau.1).

Held: – Bank cannot exercise right of lien on Fix-Deposit with it (bank) of customer who has taken loan, because fix-deposit is not deposit as a security for loan given to bank.

[18] ज्याला वस्तू सापडते असा व्यक्ती. [माल का खोजकर्ता]

[19] धारणाधिकार किंवा वस्तू स्वतःकडे ताब्यात ठेवण्याचा अधिकार. [ग्रहणाधिकार का अधिकार]

[20] विशिश्ठ वस्तू धारणेचा किंवा ताब्यात घेण्याचा अधिकार. [विशेष ग्रहणाधिकार]

[21] (1915) 1 Ch. 621.

[22] सर्वसाधारण वस्तू धारणाचा अधिकार किंवा इतर वस्तू सुध्दा ताब्यात ठेवण्याचा अधिकार. [सामान्य धारणाधिकार]

16 Sec. 171.

[23] बॅंक व्यवसायीक. [बैंकर]

[24] In T. N. Mahanta V. United Bank of India (AIR 2002 Gau.1.)

Court Held that- Bank cannot exercise right of lien, on fix deposits with it, of a customer who has taken loan, because fix-deposit is not deposit as security for loan given to Bank.

[25] अडत्या, एक प्रकारचा एजंट की ज्याकडे नियुक्ती कत्र्याचा माल विक्रीसाठी ताब्यात दिलेला असतो. [अदत्य, एक प्रकार का एजेंट जिसे नियुक्त व्यक्ति का माल बिक्री के लिए सौंपा जाता है।]

[26] धक्कावाला, समुद्र किनारी असणा-या धक्क्यावरुन माल चढ-उतार कराताना जेथे साठवला जातो तो [बजरा, वह स्थान जहाँ समुद्र के किनारे बजरे से पारगमन के दौरान माल का भंडारण किया जाता है।]

[27] उच्च न्यायालयामधील वकील [उच्च न्यायालय में अधिवक्ता]

[28] समुद्र विमा उतरविणारा दलाल. [समुद्री बीमा दलाल।]