Contract-of-Bailment-and-Pledge

Contract of Bailment and Pledge

Contract of Bailment and Pledge

The contract of bailment and pledge are the special contracts under the Indian Contract Act, 1872. Though bailment and pledge act as contracts, it serves two different purposes.  The contract of bailment is the delivery of goods from one person to another for a specific purpose. The contract of the pledge is the delivery of goods as security. Every contract of the pledge is a bailment, but every contract of bailment is not a pledge. This article deals in detail about the contract of bailment and pledge.

Essential Requirements of Bailment

There are certain requirements that are necessary for the bailment of goods. The following are the requirements:

Delivery of Possession

The most important requirement for bailment is the delivery of possession of goods. The bailee should receive the goods for a specific purpose. A person taking custody of the goods does not make him a bailee. The Contract Act,1872 provides the facility where the delivery of goods comes under the possession of a bailee or any other authorised person. If a person already has possession over the goods of another person, then he becomes the bailee of such goods. This will make the owner the bailor though the delivery of goods was not by way of bailment. The delivery of possession is of two types. The following are its types:

Actual Delivery: Delivering the goods physically to the bailee is the actual delivery.

Constructive Delivery: The bailment by constructive delivery is the one where there is no change in the physical possession of the goods. But some action takes place which puts the bailee in possession of the goods.

Delivery Upon Contract

The delivery of goods takes place for a specific purpose and through the contract, if there is an accomplishment in the purpose, then the bailee will return the goods to the bailor. The returning of goods is either implied or express.

Conditional Delivery

The delivery is subject to a certain condition. The condition is that after the accomplishment of the purpose of delivery, the bailee will return the goods to the bailor.

Types of Bailor

Gratuitous bailor and bailor for reward are the two types of the bailor. A person lending his goods without any charge is the gratuitous bailor. Likewise, the person lending his goods with charge is the bailor for a reward.

Duties of Bailor

The bailor is bestowed with certain duties regarding the bailment of goods. The following are the duties of the bailor:

Disclose Faults in Goods

The bailor must disclose the faults in the bailed goods to the bailee. The bailor should be aware of such faults and also check whether the faults interfere materially in the use of the goods. If the bailee is at an extraordinary risk then the bailor must expose it. Furthermore, if the bailor fails to disclose the faults, then the bailor must mend to the damages of the bailee.

Goods Bailed for Hire

If there is any damage to the goods bailed for hire, then the bailor takes responsibility for it. The bailor becomes responsible for it even when he is unaware of the faults in the bailed goods.

Duties of Bailee

The bailee is bestowed with certain duties regarding the bailment of goods. The following are the duties of the bailee:

Reasonable Care

In all the cases of bailment, the bailee must take care of the bailed goods as his own. The bailee will stand liable to the stolen goods under his presence. He will not be liable if he proves to the court that he was reasonable.

Not to Use the Bailed Goods without Authorisation

If the bailee uses bailed goods without pertaining to the conditions of the bailment, then he is liable to the bailor for the damages during its usage. The bailee must use the bailed goods only for a specific purpose. The unauthorised usage of bailed goods makes the bailee liable for any damages.

Termination of Bailment

If the bailee acts inconsistently on the conditions of the bailment, then the bailor can make the contract voidable in regard to the bailed goods.

Not to Mix Goods

The bailee must separate his goods from that of the bailor’s. The bailee cannot mix the goods without the consent of the bailor. The following are the principles that relate to the duty not to mix:

Effect of the Mixture with the Consent of Bailor: If there is a mixture of goods with the consent of bailor, then both will receive the interest respective of their shares.

Effect of the Mixture without the Consent of the Bailor where the Separation of Goods can Happen: If the bailee mixes the goods without the consent of the bailor, then the goods will remain in the parties if the separation can happen. But the bailee is liable for the expenses of separation and also for the damages during the mixture.

Effect of the Mixture without the Consent of the Bailor where the Separation of Goods cannot Happen: If the bailee mixes the goods without the consent of the bailor and if it is not possible to separate the goods, then the bailee is responsible to compensate for the loss of the goods for the bailor.

Return of Goods

The bailee has to deliver the bailed goods without demand in accordance with the bailor’s directions. The delivery should take place before its expiry or if there is an accomplishment in the purpose of its bailment. If there are several joint owners to bail the goods, then the bail can deliver according to one of the joint owner without any consent from the others.

Not to Set up Jus Tertii

The defence of jus tertii is where the goods belong to a third person. The bailee cannot set against the goods of another person. The bailee cannot deny the rights of the bailor to bail the goods and take back. After the completion of bailment, the bailee must return the goods to the bailor.

Return Increase

If there is no contract during the bailment, then the bailee must deliver the profit from the bailed goods along with the goods.

Rights of Bailee

The bailee has certain rights regarding the bailing of the goods. The following are the rights of the bailee:

Compensation

If the bailor does not entitle to the bailment, receive the goods back or give proper directions, then he is responsible for the loss to the bailee. The bailee has the right to compensation for such a situation.

Necessary Expenses

If there are any expenses to be made on the goods, then the bailee should not receive any payment. But, the bailor must repay for the expenses.

Lien

Lien is the retaining of goods until the charges are paid respect to the goods. The lien is of two types, and they are a particular lien and general lien. The particular lien is the one where the bailee can retain the goods whose charge is still due. Whereas in general lien the bailee can retain the charged goods that are due as well as the other goods of the bailor.

Sue

If a third person prevents the bailee from using the bailed goods or causes injury to the goods, then the bailee can use the necessary remedies. The bailor and the bailee can bring a suit against the third person for such behaviour. The compensation from any such suit will be dealt between the bailor and the bailee according to the respective interests.

Pledge

The pledge comes under a special kind of bailment. The pledge is the performance of promise or the bailment of goods as a security for repaying the debt. The bailor is the pawnor, and the bailee is the pawnee.

Essential Characteristics of Pledge

There are certain characteristics that are necessary to pledge goods. The following are the characteristics:

Delivery of Possession

The pawnee must have the possession of the pledged goods. Sometimes for a special purpose, the goods can remain under the custody of the pledger. Whereas it will not affect the pledge.

Pledge of Goods upon Contract

The pledge acts as a conveyance pursuant to the contract. The delivery of the goods must take place by the pawnor to the pawnee through a contract. But it is not necessary for the loan and the delivery of the goods to occur at the same time.

Rights of Pawnee

The pawnee has certain rights regarding the pledging of the goods. The following are the rights of the pawnee:

Right of Retainer

It is the right of the pawnee to retain the pledged goods. This is not only regarding the payment of debt or performance of the promise. But it is for the interest of the debt and all the expenses regarding the possession or the pledged goods.

Right as to Extraordinary Expenses

The pawnee can receive from the pawnor for the extraordinary expenses for preserving the pledged goods.

Right where Pawnor makes Default

There are two distinct rights for the pawnee if the pawnor is at default. The pawnee can raise a suit against the pawnor and retain the pledged goods as collateral security. The pawnee can also sell the pledged goods by providing reasonable notice of the sale to the pawnor. If the amount due is still less after the sale, then the pawnor is still liable to pay the balance. If the amount of the sale is greater than the due amount, then the pawnee can return the surplus money to the pawnor.

Right of Pawnor to Redeem

The pawnor can redeem the pledged goods before the sale of those goods. But the pawnor has to pay for the expenses arising from the default. The pawnor has time to redeem his goods up to the time it is sold after issuing the notice.

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