17|Gontract of Bailment

and Pledge
CHAPTER

SYNOPSIS
1. Meaning of bailment
2. Classification of bailment
3. Rights and duties of Bailor and Bailee
4. Finder of lost goods
5. Termination of bailment
6. Meaning of pledge
7. Rights and duties of Pawnor and Pawnee
8. Pledge by non-owner
9. Summary
10. Test questions
256 BUSINESS LAW

Introduction condition that the

A bailment is a delivery of goods or movable property on the
ultimately return back them to the person from whom
he has received. them receiver shal
The
custody. It is arelation deivery of
good may be by way of lending, bledge, or deposit for safe
persons where the goods of one is in the custody of other. between two
Bailment and pledge are a special class of contract where some goods or cattle are delivered for
obligation.
some specified purpose or as security for the performance of a specific
all the goods required to him by One of the
human limitations is that no person can possess
them. In such a case, he has to receive goods from other with
a promise to return purchasthiemng
back and
after completing his object. This human dealing is legalized by the Contract of Bailment
Pledge. The Civil Code, 2074 has provided the general principles of bailment under Chapter 8
and pledge under chapter 9of part 5.
Pledge is a kind of bailment where a thing is delivered as security for the repayment of a dal.
of es
!he ownership in the goods does not pass to the other person. Therefore, the bailment
as security for the payment of debt or performance of a duty is called pledge. The person wk
delivers his property called pledger or pawnor and the person to whom the goods is deliverod
called pledgee or pawnee. In pledge, in fact, bailor in bailment known as pledger/ pawnor in
pledge and bailee in bailment known as pledgee/ pawnee.

BAILMENT

Meaning of Bailment
The word 'Bailment' is derived from the French word 'Bailler' which means to 'deliver' and is
understood as an expression signifying a contract resulting from delivery of goods by one to
another.

SirWilliam Jones, "Bailment is adelivery of goods on acondition, express or implied that they
shall be res tored by the bailee to the bailor or according to his directions, as soon as the purpose
for which they are bailed shall be answered'"
The Indian Contract Act, 1872, Section 148 defines Bailment, "A Bailment is the delivery o
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 0
the person delivering them."
The Civil Code, 2074, Section, 575 (1) reads:
"A contract relating to bailment shall be deemed to have been concluded in case a pes
delivers any property to another person to be returned to him or for handing it over to ay
other person or selling it as ordered by him.
another,
Therefore, Bailment is a contract where goods are delivered by One called bailor tothe bailee
called bailee for a certain period of time or some specified object on the condition that

ones on Bailment, 4h Edition Page 1

 Contract of Bailment and Pledge CHAPTER 17 257
shall return or dispose of the goods as directed by the bailor when the purpose is accomplished
or time has expired. The person who delivers his goods to another under a contract of bailment
called as Bailor and the party who receives the good of bailor on the condition that he shalI
ultimately returnthe good to the bailor or dispose of them as directed by hin is called Bailee.
Examples:
A lends abook to B to be returned back it to A afer the avemin ation There is a
between Aand B.
contract of baimen
Alends his car to Btokeep It safely for 5dayin B's garage. There is a bailment
b. contract between Aaoo
A returns certain goods to B who leaves them in the p0ssession of A.
C.
between A and B. There
is a bailment cona
Alends his bike toB on rent for 2days. The relationship between A and B is a contract of
d. bailment.
Essentials of Bailment
The essential of bailment are:

Goods to be
returned
back

Contract
Some between
purpose Bailor and
ESSENTIALS
Bailee
OF
BAILMENT

Goods Delivery of
possession

1.
Contract between Bailor and Bailee: There must be a contract, either express or implied,
between the bailor and bailee. The party delivering his goods is called bailor and ano ther
party receiving the goods with promise to returns back them called bailee. The general
rules of contract are applied to the contract of bailment with certain exceptions. If the
bailment good's price is nmore than Rs. 25,000, the conract must be in writing2
2.
Delivery of possession: As regards delivery, it is necessary the right of possession in
goods must be delivered by bailor to bailee. The delivery may be actual or constuctive or
symbolic. The delivery of goods creates a contractual relation between the bailor and
bailee. Therefore, the delivery to the bailee may be made by doing anything which has the
effect of putting the goods in the possession of the intended bailee or of any person
Civil Code, 2074, Section 575 (2)
258 BUSINESS LAW
are control
hold them on his behalf. The basic features of possesSion
authorized to
intention to exclude others. As such, mere custody of goods does not create relationship anaf and
from his master to
bailor and bailee. A servant who receives certain goods
party has mere custody of the goods and the servant does not become bailee to aas the take third
delivery intended to
possession still remains with the master. Similarly, where the
the right of ownership to another, there is no
bailmernt. Thu in Kali transfeVr
Perumal
Visalakasmi'.
new one out of
Alady employed a goldsmith for melting her old jewelry and making it. Every
them into a box kept at the
evening she received the unfinished jewelry and put
premises. She kept the key of that box with herself. One night, the jewelry
goldsmith's
was stolen from the
bailee.
She fled a case to recover the price of jewelry against the goldsmith as a
It was held that there was no bailment as the goldsmith had re-delivered to the lady the
jewelry bailed with him by her.
3. Goods: To be a contract of bailment, the delivery of goods is an essence. The term eond
to the land T
mean all the movable property except other than the land and attached
growing crops are not goods. A tree on the road is not goods but when we sever the crone
or tree from the land it becomes goods. The subject matter of bailment must be, therefore
of either goods or chattels.
4. Some purpose: Goods are delivered by bailor to bailee for some purpose which generally
exists in a contract of bailment. Therefore, where there is delivery of goods for mere
custody, it is not a bailment. The expression some purpose gives a right to the bailee which
the law recognized and protected. Therefore, the bailor cannot demand to return back the
goods without completion or the purpose or expiring of time. The purpose may be safe
custady or hire or pledge, etc.
5. Goods to be returmed back: It is essential that the goods which form the subject matter of
the bajlment should be returned by the bailee to the bailor or dispose off as asked by the
bailor after the purpose fulfilled or after the period of bailment expired. Where the goods
are delivered which need not to deliver back but to pay their value, there is no contract of
bailment.

Types of Bailment
Bailment can be classified in the different divisions on the different basis which are discussed
herein below:
1. On the Basis of Benefit derived by the Parties
a.
Bailment for the exclusive benefit of the bailor
In this type of bailment, the bailor delivers his goods to the bailee for taking care a
protection of the goods bailed without any charge.
Example:
resultsthe
Adelivers his car to Bto keep it safely for five days in the B's garage. The bailment
exclusive benefit to the bailor as he need not to pay parking charge.

AIR (1938) Mad. 32

 CHAPTER 17 259
Contract of Bailment and Pledge
Bailment for the exclusive benefit of the bailee
b.
In this case, the bailee can use the goods bailed but he need not to pay for this.
Example:
'A' lends his book to B, his friend, for a week or Aprovides his car to Bfor 5 days of his tip to
Pokhara without paying for.
C.
Bailment for the mutual benefit of the bailor and bailee
In this case, both the bailor and bailee are in benefit. One can use the goods and another
receives money.
For example, hire purchase agreement or goods delivered to repair it or lend on rent.
2.
on the basis of Charge Fee or Remuneration
a. Gratuitous bailment: In this case, no party pavs or received mnoney or remuneraton
against the delivery of goods. No consideration is moved from one party to another.
b. Non-gratuitous bailment: In the case of non gratuitous bailment, some consideration
passes against the delivery of goods. Some charge paid and benefit derived to the parties.
Where A hires acar from Bfor two days, it is a non-gratuitous bailment as A is paying tne
agreed amount to Bagainst the delivery of goods. Similarly, Adelivers his goods to keep
them in a godown of Band Ais paying the charge of godown to B.
The bailment exclusives benefit to the balior and the bailee is gratuítous bailment and the
bailment for the mutual benefit to the bailor and bailee is non-gratuitous bailment.

Rights and Duties of Bailor and Bailee

The effect of bailment contract is the goods or property of one is in the custody or charge
another, i.e., the goods are in the hands of one who is not the owner of them. In such situation,
by reason of human nature, there may be a chance of misuse or miscarriage which leads to the
loss or destruction of the goods. The goods being fundamental for the contract of bailment as it
forms the subject matter of bailment, the law has intended to protect and preserve the goods as
well as the interest of the bailor in the goods. For this, the law has imposed various duties to the
bailee and recognizes rights of the bailor. Similarly, if there is loss or destruction in the goods
while they were in charge or custody of bailee and bailee in all the cases is to be held
responsible, it leads injustice to him. Therefore, the law, to protect the property and interest of
bailee. The duties and
bailee, it imposes various duties to the bailor and confers rights to the
rights of bailee and bailor are stated here in below:
RIGHTS AND DUTIES OF BAILEE

Rights of Bailee Duties of Bailee

1. Right of enforce the bailor's duty as his right 1 To take care of the goods bailed

2. Right to delivery of goods to one of the 2. Duty to pay compensation

several joint bailors 3. Duty not to make any unauthornzed use of goods
3. Right to delivery of goods to bailor without 4. Duty not to mix the goods bailed with his own goods
title
5. Duty not to set up an adverse title
4. Right of lien/ Bailee's lien
6 Duty to return the goods bailed
7. Duty to return any accretion to the goods
260
BUSINESS LAW
RIGHTS AND DUTIES OF BAILOR

Rights of Bailor Duties of Bailor

1 1. Duty to disclose known defect in the goods bailed
Right to enforce the bailee's duty as his right
2 Right to terminate the contract 2. Duty to bear extra ordinary expenses of bailment
3 Right to return the goods lent gratuitously Duty to indemnify bailee
4 Right to sue for damages against wrong doer 4. Duty to compensate bailee for loss caused by
premature termination
5. Right to recover compensation for loss or
destruction of the goods bailed or wrong 5. Duty to respect the bailee's lien
delivery 6. Duty to receive back goods when returned by baileo

Rights of Bailee
The rights of bailee are given as follows:
1. Right of enforce the bailor's duty as his right: The duties of bailor can be enforced by the
bailee as his rights. Therefore, if the bailor had delivered the goods without disclosine
defects in the goods and the bailee suffered loss or injury therefore, the can clain
compensation for such loss or injury.
2. Right to delivery of goods to one of the several joint bailors: If there are several or joint
bailor, in the absence of any agreement to the contrary, the bailee may deliver the goods to
any one of the joint bailors. It is sufficient to deliver back the goods to only one bailor
though he might have been taken it in the presence of all the joint bailors. No joint bailor
can sue the bailee for such delivery of goods to only one joint bailor as per his convenient.
3 Right to delivery of goods to bailor without title: It arises when goods is delivered to
bailee by the bailor without title where the bailee returns the goods in good faith to the
bailor without title or disposes of the goods as per his direction. No third person or the
true owner of the goods can sue the bailee for such wrong delivery. By contrast, if he
delivers the goods to the bailor without title having knowledge that he is not the true
owner, he may be liable to the third person/true owner. It is quite natural to return the
goods by the bailee to him from whom he has received the goods so bailed.
4. Right of lien/ Bailee's lien: Right of lien refers a right to retain the goods of other until the
lawful expenses incurred by him to the goods were paid to him by that other. Hence,
where the lawful charges of the bailee in respect of the goods bailed are not paid; he may
retain the goods in his own possession.
To use the right of lien:
The goods must be in possession of bailee.
The bailee must incur some lawful expenses in the goods bailed.
The bailor still not paid these lawful charges.
bailed
Therefore, till the bailee is not paid all these lawful charges, he can retain the goods
in his custody and can make a bargain for the payment of these lawful charges. He i
bound to return the goods to the bailor till the bailor fully paid these lawful charge
 CHAPTER 17 261
Contract of Bailment and Pledge
him. The Jawful charges include not only money incurred but service and work as well.
bailee
The bailee's lien is a particular lien. Aparticular lien is one which is available to the
the
against only to those goods in respect of which he has rendered some service involving
exercise of labour or skill or expenses incurred in the goods.
'A' gives a piece of cloth to 'B, a tailor, to sew into a coat, when the coat is reaay a
ask delivery Bcan refuse to deliver the coat until his charge is not paia.
'A' gives a piece of cloths to 'B' to sew it into a shirt. Bagrees to receive the amount o
service after 3 months. Bis not entitled to retain the shirt as a right of lien.
Onthe other hand, general lien is aright to retain all the goods or any property of another
until all the claims of the holder are satisfied. This is a right to retain the property of
another for a general balance of account.
Duties of Bailee
The duties of bailee are important to make responsible him against the possible loss o
destruction in the goods bailed because of some negligent acts of the bailee. These duties are as
follows:
1s
1. To take care of the goods bailed: It is the first and foremost duty of the bailee that he
bound to take as much care of the goods bailed to him as a man of ordinary prudence
would, under similar circumstances, take care of his own goods of the same bulk, quality
that there has
and value as the goods bailed. The burden of proof lies on the bailee to show
he took
been no negligence and that the loss or damage occurred in spite of the fact that
reasonable care of them.
diligence
The question as to the standard of care expected of a bailee or the degree of
loss or
which should shown by the bailee to make him free for obligation for the
destruction of goods has been much debated. The fact is clear that the same degree of care
of care and
and diligence cannot be expected from the different persons. The degree
in bailment,
diligence depends upon the bailee's education, experience or status. Similarly, is low,
of care
where the bailment is exclusive benefit to the bailor the bailee's degre
diligence
where the bailment is exclusive benefit to the bailee his degree of care and
and
becomes high and where the bailment is for the mutual benefit, the degree of care
provides that
diligence of bailee is expected ordinary. Section 578(1) of the Civil Code, 2074
as
a bailee shall look after and arrange for the safety of the property received by him/her
contract or as his own
bailed property as mentioned in the terms and conditions of the
the contract.
property in case nothing has been mentioned in
depends upon
The question whether or not the bailee had taken care of the goods bailed
the following two questions:
Had he shown such degree of care or diligence which he does possess?
Had he shown the double standard of care or diligence while taking care of his own
goods and the good bailed to him?
or he had
If it is proved that he had not taken care of the goods bailed what he could do so,
or
differently treated the goods belonged to him and the goods bailed, he is liable for loss
destruction in the goods.
 262 BUSINESS LAW
Examples:
in a
a. "'A delivers his TV to 'B'a farmer unknown to TV, for safe Custody. He kept it store room oi his
house along with his food grains.
b. 'A' delivers his TV to 'B', a mechanic of electronics goods, for safe custody. He kept it in a store
room of his shop.
'A' delivers his TV to 'B', an illiterate farmer unknown to TV. He kept it in a store
C
room but he ken
another TV from his son in Hong Kong in a box in his bed room.
In the first case, if the TV is damaged B cannot be held liable as he
unknown to TV, had shown a reasonable degree of care or diligence by
being a farmer
store room which he might have been thought as a safe place.
keeping it in the
In the second case, Bis liable for the loss or damage in the TV as B, being a
electronics goods, he should not keep it in the store room of his shop, he had not sho technician of
Such degree of diligence and care of goods what he could show.
In the third case, Bis liable for the loss in the goods. The different between first and fhia
case is that in the third case Bhas taken care of his own goods and the goods bailed in .
different manner. If he had shown the same degree of diligence while taking care of his
goods and the goods bailed to him he wouldn't held liable for loss or damage caused in the
goods.
2.
Duty to pay compensation: In case the property is depreciated or lost, stolen, damaged
destroyed, decreased or harmed because of the negligence or malafide intention of the
bailee, or of his failure to take care or ensure its safety according to the terms and
conditions of the contract, he must return the goods so bailed and pay an equivalent
amount of loss so caused to the bailor. In Martin V. London Country Council', Mwas
admitted to a hospital where her jewelry was handed over to the hospital official for safe
custody.The jewelry was stolen. It was held that the hospital officials as bailee were liable
for the loss as they had failed to exercise a care which the nature and quality of the article
required.
Similarly,in Clarke V. Earnshaw, certain goods of Awere bailed with B. Bomitted to lock
up the goods bailed, locking up similar goods of his own. It was held that he was liable for
loss.
3 Duty not to make any unauthorized use of goods: In a bailment contract, except
otherwise provided in the contract, the bailee can use the goods bailed. While using the
goods bailed, he must use the goods in such a manner not inconsistent to the ternms of the
contract. Otherwise, it amounts to an unauthorized use and, in such a case, the bailor can
terminate the contract and the bailee is bound to compensate the bailor for such loss or
damage in the goods resulting from such unauthorized use even though he is not guilty o
negligence and even if the damage is result of an accident.

(1947) KB. 628

(1818) Gow 30
 CHAPTER 17 263
Contract of Bailment and Pledge
Examples:
a
'A' hires ajeep trom Bfor a trip from Kathmandu to Pokhara A instead going to Pokhara ne orive
to Butwal and got an accident without his faults near Naravanghat. A is liable for damage of detp
resulting from the accident.
Chitwan
b 'A' lends his jeep to B for passenger tour for 5 days. uses it for a 'Jungle Safari' at
National Park. A can return back the goods even by next day of the contract and can recovel
compensation for loss or destruction in the vehicle if any.
the norse
C "A lends nis norse to B for his riding only. B alows C. his son to ride the horse. C rides
with care but the horse accidentally fails and is iniured. B is liable to make compensation to A tor
the injury caused to the horse.
Sub-section (3) of Section 578of Civil Code, 2074 provides thus:
"In case the bailee uses the bailed property without having the right to do so under the
and if such
contract or in a manner contrary to the terms and conditions of the contract,
use causes any loSs, damage, destruction, depreciation or harm to the property, the bailee
shall pay for compensation to the bailor.
he has
4. Duty not to mix the goods bailed with his own goods: It is the duty of bailee that
to keep the goods bailed separate from his own goods. The goods bailed may mix with the
goods of bailee in the following three circumstances:
With the bailors' consent: If the goods are mixed up with the consent of bailor, both
parties shall have title on that property, as well as to the income accruing there from,
in proportion to their respective shares°, and the expenses incurred for separating the
same.
property so mixed and the loss, if any caused the bailee shall be liable for the
Without the bailor consent: In case the bailee has mixed-up his own property with
the
the bailor's property without consent of the bailor the bailee is bund to separate
goods at this own cost and the goods are belongs to the bailor if goods are
inseparable."
By accident or act of god: Where the goods of bailee are mixed up with the goods
bailed to him by an accident or act of god or by the act of an unauthorized third party,
bailee is bound to separate to the goods at his own cost and bailor cannot sue bailee
for loss caused by such mixture.
the bailor. If
5. Duty not to set up an adverse title: The bailee must hold the goods on behalf of
the bailment of goods is for safe custody, he cannot use the goods and cannot deal with the
goods as if they were his own. Hence, he cannot sel, lend on pledge, or dispose of the goods
at his discretion. If he does so, he is liable to pay commpensation the bailer for such loss.
6. Duty to return the goods bailed: It is the feature of bailment that bailee is under obligation
to return or deliver back, according to the bailor's directions, the goods bailed, without
demand, immediately after the expiring of time or completion of the purpose for which the
goods were bailed. He is bound to returm back the goods though purpose of bailment may

Civil Code. 2074. Section, 578 (4)

8Ibid, Section 578 (5)
Ibid, Section 578
lbid, Section 579 (6)
9

(1)
 264
BUSINESS LAW
not be completed but time has expired. If the bailee fails to do so, he is
liable to
compensate the bailee for . any loss resulting from such delay in return back of the
A question may rise where there aree joint bailors to whom he should return to goods.
or one of them. Section 579 (3) provides thus: goods, to all
"Except when otherwise provided for in the contract, in the case of a
owned by several persons, it may be handed over to any one of such owners or to bailed prOperty
person order by them." The effect of delivery of goods to one bailor is the deliver of the
to all joint bailors. goods
7. Duty to return any accretion to the goods: In the absence of any contract to
the
the property raised or earned through the bailed property shall also belong to
and the bailee is bound to return them to the bailor."10
thecontbairarlyor.
Example:
Alends his cowto Bto be taken care of. The cow gives birth of a calf. Bis bound to
along with the cow to A.
deliver the calt
Similarly, flower, fruits of a plant, wool of a sheep, etc. must be return back to the bailew
along with accretion to the goods bailed.
Rights of Bailor
The rights of a bailor which he can use as against the bailee or the goods bailed are given as
under:
1.
Right to enforce the bailee's duty as his right: The bailor can enforce by suit all the duties
or obligations of the bailee as his own right. Therefore, he can inspect that whether or not
the bailee has taken care of the goods, or mixing up the goods bailed with his own goods,
or unauthorized use of goods, etc. It follows that the duties of bailee are the rights of
bailor.
2 Right to terminate the contract: If the bailee has not fulfilled his duties or there is
unauthorized use of goods. The bailor, at any time can terminate the bailment and can take
back the goods bailed in his own custody though the contract period is still lapsed.
3. Right to return the goods lent gratuitously: When the goods are lent free of cost, the
bailor can demand for return of the goods whenever he pleases so even though he had lent
them for a specified time or purpose. But if the bailee suffers any loss exceeding the
benefits actually derived by him from the use of such goods because of such premature
return, the bailor shall have to indemnify the bailee.
4. Right to sue for damages against wrong doer: If third person wrongfully deprives the
bailee from the possession of the goods bailed, or does them any injury, the bailor or the
bailee may bring asuit against third person for such deprivation or damage caused by any
third persons.
5. Right to recover compensation for loss or destruction of the goods bailed or wron5
delivery: While the goods in the custody of the bailee get damaged, or destroyed or e

10 Civil Code, 2074, Section, 579 (5)

 CHAPTER 17 265
Contract of Bailment and Pledge
bailee makes wrong delivery of the goods to an unauthorized person, the bailor has not
rightto claim for such loss or wrong delivery of the goods bailed.
puties of Bailor
The duties of bailor are given as follows:

1. Duty to disclose known defect in the goods bailed: It is the fundamental duty of the
bailor that at the time of agreement or delivery of goods to the bailee he most disclose al
the defects in the goods known to him.1" If the bailee suffers loss or injury because of the
defective goods which were known to the bailor. he is liable for all the loss or injury
caused to the bailee 12
In allthe cases bailor is under obligation to disclose the defects in the goods bailed so far as
they are known to the bailor. If the goods is bailed for the mutual benefit, i.e., hire, the
duty of bailor is still greater. He is responsible even for those faults which are not known
to him. Thus, in Hyman V. Nye'",
Aperson hired acarriage, apair of horses and adriver form a job master; a bolt in the under part or
the carriage broke, the splinter-bar became displaced, the horses started of, the carriage was
upset, and the hirer was injured.
It was held that the job master's duty was to supply a carriage as fit for the purpose ror
which it is hired as care and skill can render it, that he had not discharged this duty, and
that he was liable. Similarly, in Read V. Dean'":
'R hires a motor lunch from 'B' for holiday on the river Themes. The lunch caught fire and Rwas
unable to extinguish it as the fire fighing equipment was out of order. As such he was injured and
suffered loss.
It was held that D' was liable to compensate for the loss suffered by R because of the
defective goods which was not disclosed by the bailor to the bailee.

Examples:
'A' lends acar to 'B, which he knows to be defective as its engine stops when it runs in 1st gear. He
does not disclose of the defectives. While driving the car in 1st gear it stopped and Bgot injury in a
road accident. A is liable.
b. 'A' hires a refrigerator of 'B' which was unsafe to use because of defective wiring, though B is not
aware of it. B is responsible to Afor the loss or injury.
2. Duty to bear extra ordinary expenses of bailment: The bailee is bound to bear ordinary or
reasonable expenses of the bailment but for any extra ordinary expenses the bailor is
responsible. It is open to the parties to enter into a contract as regards these expenses. But,
in the absence of such contract, it is understood that the extra ordinary expenses ought to
be paid by the bailor.
Examples:
a. 'A hires a horse of 'B' for two days. The feeding charges are to be paid by A. But if the horse
becomes sick and expenses have to be incurred or if the horse meets with an accident B is bound
to repay the amount incurred by A.
"CivilCode. 2074. Section, 577(1)
Ibid, Section 577 (2)
114
(1881) 6 QB
(1949) 1KB 685188
 266
BUSINESS LAW
b "A' leaves his car with 'B", afriend. for safe custody for three months Where Bhad paid
month to the night watchman for keeping a watch over the car. Ais bound to pay Bthe Rs. 500 pex
3.
by him.
Duty to indemnify bailee: The bailee is entitled to be indemnified by the bailor if
amount päig
of the bailor is
defective, and the right to indemnify extends also to a suit by the title
even after the goods are returned to the bailor. Similarly, if the bailee third
has parties,
expenses to protect or preserve the goods, the bailor has to indemnify the
the amount incurred by him. bailee inarndcurrepayd
4.
Duty to compensate bailee for loss caused by premature termination: A
bailment can be terminated and the bailor receives back his own goods at any time gratuitous
he pleased so. If such premature cancellation based on lawful ground, he is
not when
Compensate the bailee. By bound
contrast, if unauthorized the premature termination causes l to
to bailee, the bailor is bound to compensate bailee for such premature termination. B.t:
such a case, the loss accruing to the bailee from such premature termination should m
exceed the benefit he has derived outof the bailment. If the loss exceeds the benefit a
bailor shall have to indemnify the bailee.
Example:
'A' lends his old car to Bfor 6 months for no cost. Brepairs the car thoroughly where he incurs Re
25,000. Aask for the return of the car after 1 months. Ahas to compensate Bfor expenses incured
by B in excess of the benefit derive by him.
5. Duty to respect the bailee's lien: Where bailee exercised his lien, the bailor must respect
the bailee's lien and cannot ask or compel the bailee for receive back his goods without
paying the lawful charges of the bailee.
6. Duty to receive back goods when returned by bailee: After the completion of purpose or
expiring of time when bailee returns back the goods to bailor, he has to receive the goods
so returned. Ifhe refuses to receive the good and there is any loss or destruction in the
goods, the bailor cannot make the bailee liable. Further, if bailee has incurred expenses
even to take care of the goods or ordinary expenses after the bailor refuses to receive the
goods, he is bound to compensate the bailee for such costs too.15

Finder of Lost Goods

Where a person finds the lost goods of another and keeps it in his own charge, his position is
compared as like the position of bailee in a bailment contract. The law, in such a case, implied
that the finder of lost goods is a bailee and the owner is a bailor and the bailee had accepted the
offer to keep the lost goods safely on behalf of the true owner. It is a class of quasi-contract.
Section 71 of the Indian Contract Act, 1872 clearly lays down that a person who finds goods
belonging to another and takes them into his custody is subject to the same responsibility as a
bailee. Sinmilarly, Section 670 of the Civil Code, 2074, states that 'in case a person finds and
property in any way, he may keep it safely with himself by giving notice to police with detals
of the goods found until the true owner is found out. It further follows that the finder of los.

15 Civil Code, 2074, Section, 579 (2)

 CHAPTER 17 267
Contract of Bailment and Pledge
has in a
goods with some special rights and duties owes the obligations and right as the bailee
bailment.
Right of finder of lost goods
a.
finding out
Section 670(2) of the Civil Code, 2074, provides that "... The expenses incurred for
of the concerned owner,
the owner property and for keeping the property shall be borne by the pays such
person who has found the owner
and the property may keep it with himself until the
expenses." Therights of afinder of
f lost goods are given as under:
Right to be indemnified: If any expenses have been incurred by the finder of lost goods
1.
and for keeping the property safely or the cost of protection and the special care and skill
as well he can recover from the owner of the property as a right of indemnity.
2. Right of lien: For all the lawful charges, the finder can retain or hold the goods ana keeP
them in his own possession until the owner pavs such expenses. Such lawful charges oI
expenses include the compensation for trouble and expenses incurred in preserving the
such
goods and find out the true owner. But he has no right to sue the owner of any
compensation as the trouble and expenses were incurred by him voluntarily and were of
unnecessary.

3. Right to sue for reward: In case, the owner of goods has offered for the return of the
receives
goods, he can Sue for such rewards. He may also exercise his right of lien until he
the reward. But where he knows the offer of reward after delivering the goods, he cannot
claim for such reward nor he can retain the goods again by taking themn from the hands of
true oWner.

4 Right of sale the found goods: A finder of lost goods may sell the goods found in the
following conditions:
If the owner cannot with reasonable diligence be found even for three years.
If the owner refuses to pay the lawful charges to him.
If the goods are perishable nature or there is danger of losing the greater part of their
value.
If the lawful charges or expenses of the finder, in respect of the goods found, amounts
to two-third of their total value.
b. Obligations of finder of lost goods
As we have already atated that the position of finder is as like bailee in a bailment contract,
therefore, in general, all the duties of bailee are the duties or obligations of the finder. The only
one point of difference is in bailment, bailee may use the goods generally but the finder cannot
use the goods undess the use of goods is necessary to protect or preserve the foods. For example,
if Afinds milking cow. Milking the cow and use that milk is necessary even for the betterment
or preservation of the cow and her health. The duties and obligations of a finder of lost goods
are given as under.
1. Duty to take reasonable care of the goods.
2. Duty not to use the goods for his own purpose.
3. Duty not to mix the goods found with his own goods.
4 Duty to take reasonable steps to find out the true own.
The above said duties are already discussed while discussing the duties of bailee.
268
BUSINESS LAW
Termination of Bailment
A Contract of bailment mav come to an end in the following cases:

By death of bailor
or bailee

By termination of
By the expiry of
gratuitous time
bailment

TERMINATION
OF BAILMENT

By By the
destruction of completion of
subject matter purpose
By unauthorized
use of goods

1. By the expiry of time: Where the goods are bailed for a specified period of time. It
terminates immediately on the expiry of the period and it is immaterial that where there or
not the purpose of bailment is fulfilled.
2. By the completion of purpose: In bailment, goods are delivered for some specified
purpose and the contract of bailment terminates when the purpose is accomplished. But it
is to be noted that if goods are bailed for some specific purpose and
period of time as well.
the contract terminates along with the expiry of time whether the
purpose is fulfilled or
not, i.e., time prevails the purpose.
3. By unauthorized use of goods: If bailee makes an authorized used of the
goods bailed
contrary to the bailment contract, the bailor can terminate the contract and return the
goods from the custody of bailee.
4. By destruction of subject matter: In case the goods is destroyed or it becomes
useless for
the purpose of bailment by reason of a change in its nature, it comes to an
end.
5. By termination of gratuitous bailment: When the goods are bailed for the free of cost,
it
can be terminated at any time when the bailor pleases to do so. For
such pre-mature
termination he may liable for compensation to be paid to the bailee.
6. By death of bailor or bailee: A gratuitous bailment terminates on the
event of death ol
bailor or bailee.
 Contract of Bailment and Pledge CHAPTER 17 269

PLEDGE
Meaning of Pledge
In simple sense, the pledge is a contact of bailment where the goods or document of title or
aluables are delivered by pledger to pledgee as a security for the repayment of a debt or
performance of special duty. When a person borrows some loan from a bank or money lender,
or when a person promises to do something for another, he keeps some property as security
with the Iatter, so that if he fails to repay the loan or fails to perform his promise or does not
b.lall his duty in time, the former may recover his money even by selling such propery e
market. This act of keeping some property of other as security either for performing a promise
or obtaining a loan is called pledge. It is also known as Pawn.

If a person borrowing a loan or promising to fulAll aduty fails to perform his promise, the other
party will enjoy a right to recover this sum by forfeiting or selling the formers mortgaged
property. By contrast, if lhe fulfills his promise in time, the latter has to return back the property
so pledged to the former in the same condition.
A pledge differs from both lien and mortgage. Sale upon default of payment is an incident of
pledge but in lien there is only a right to hold or detain the goods,further, right of lien cannot
be assigned to other but the pledge is assignable. Similarly, in mortgage, limited property
passes by assignment subject to a right of redemption but possession need not pass to the
mortgagee. In a pledge there is only a bailment but in mortgage there is asort of transfer of
property. Delivery of the articles either actual or constructive is an essential for a valid pledge.

Essentials of Pledge
There are certain elements of specific features which make apledge a distinct type of contract.
The pledge being a type of bailment, the essentials of bailment are the essentials of pledge as
well. These essential elements of pledge contract are listed a follows:
1. It is a delivery of goods/ valuables/ documents of title.
2. The delivery is made by the pledger/ pawnor to pledgee/pawnee.
3. There is a contract.
4. Delivery is made as security of debt or performance ofa duty.
5. The pledgee/pawnee must return back the articles to the pledger/pawnor after the
payment of debt or performance of the promise.
6.
In case of default of pawnor, the pawnee can sell the goods.
7. The pledgee/pawnee cannot use the goods.
270
BUSINESS LAW

Difference between Bailment and Pledge

The different between the bailment and nledge can be stated as shown as under:
Basis of Bailment Pledge
Difference
1. Subject Goods, valuable or
matter of
Goods are delivered.
delivered. document are
contract

2. Purpose Bailment of goods may be various Bailment is for only

one purpose,
purposes. ie.. for the payment of debt
performance of a duty.
3. Use of Goods are not delivered as security. Goods are delivered as a security.
g0ods
4. Parties of The parties are called Bailor and The parties are called pledger/
contract Bailee. pawnor and pledge/ pawnee.
5. Right of The bailee cannot sell the goods on The pawnee carn sell the goods in
sale default of bailor. case of default of pawnor.
6. Right of Bailee generally can use the goods. Pawnee cannot use the goods s0
use pledged.
7. Request for Goods are delivered on the requestGoods are delivered only on the
delivery of of either party. request of the pawnor.
goods
8. Charge, fee Bailment may be either gratuitous Pledge is always non-gratuitous.
or non-gratuitous.
remunerati
On

9. Scope/ area Bailment includes all kinds of Pledge doesn't include all kind of
of contract pledge. bailment.
10. Relation of The relationship of bailor and bailee The relation of pawnee and pawmor
the parties is not of that of creditor and debtor. is that of creditor and debtor.

Rights and Duties of Pawnor and Pawnee

almost
The pledge being aspecial bailment, the rights and duties of pawnor and pawnee are
similar to those of bailor and bailee. The rights and duties of pawnor and pawnee are given
in below:

a. Rights of Pawnor
It includes:
the duty.
1. Right to receive back the goods: If pawnor makes payment of debt or performs
he isentitled toreceive back the goods pledged to the pawnee.
 CHAPTER 17 271
Contract of Bailment and Pledge
2ight to recover compensation: If there is any loss in the goods nledged or the pawiiee
2 the goods or fails to return back the goods on the event of payment or he makes wrong
delivery, the pawnor can recover compensation for such loss against the pledgee.

3
Right to redeem debt: If the pawnor makes default in pavment of the debt or performece
of the promise at the stipulated time, he may still redeem the goods pledgea at y
subsequent time before the actual sale of them.
4. Right to ask for the preservation and maintenance of the goods: The pawnor has right to
see that the pawnee preserves the goods pledged and properly maintains them.
5. Right of an ordinary debtor The relationship between Pawnee and pawnor is that of
creditor and debtor. The pawnor has, therefore, the rights of an ordinary debtor which are
conferred to him by various statutes meant for the protection of debtors.
b.
Duties of Pawnor
The duties of pawnor are those of the duties of bailor and his fundamental duty is to pay back
the debt or performance of aspecific duty for which the property is bailed. Similarly he is under
duty to respect the Pawnee's rights which are discussed later.
C. Rights of Pawnee
The rights are follows:
1. Right of lien: The Pawnee may retain the goods pledged until his debts are paid or duty is
discharged. He may retain them not only for the interest of the debt or performance of the
promise, but for the interest due on the debt, and allnecessary expenses incurred by him
in respect of the possession or for the protection of the goods so pledged.
2 Right to claim for extraordinary expenses: The Pawnee is entitled to receive from the
pawnor the extraordinary expenses incurred by him for the protection and preservation of
the goods pledged.
3. Right of lien for subsequent advances: When the Pawnee lends money to the same
pawnor after the date of the pledge, it is presumed that the right of lien over the pledged
goods extends to the subsequent advances also.
4. Right to sell: In case of default by the pawnor, the Pawnee by giving a notice therefor, can
sell the goods according to current market price or transfer the title such goods subject to
law in case it cannot be sold on auction. This right of sellis not available to the bailee as he
only can sue for damages and other losses.
5. Right to claim for the anmount: In case the property kept as collateral is sold at a price
lesser than the amount to be realized form the debtor by the person who has the collateral,
the shortfall mav recovered from other assets of the debtor. Incase the goods so pledged is
e

sold at a price lesser than the amount to be recovered, the unrecovered amount can be
claimed by the pawnee as against the-pawnor. But, if the sale proceeds is higher than the
loan amount, the pawnee must return the surplus.
If the pawnee sells the goods without givin8 notice of sale to the pawnor, it becomes
invalid.
272
BUSINESS LAW
d. Duties of Pawnee
The duties of pawnee are simnilar to those of bailee. In addition to that the pawnee
cannot use the goods as the goods are kept by the pawnee as a security. Therefore, in
bailee are the dutgeneriesalof,
Duty not to use the goods.
Duty of care and diligence.
Duty of not the mix the goods with his own or other's goods, e
Duty to return back the goods, etc.

Pledge by Non-owner
Aquestion may arise what would happen if the goods are pledged by non-owner.
we have to know the result where the goods is pledged by non-owner. Therefore,
The question of pledge by non-owner is important as, in pledge; if the pawnor makes defaul.
the paWnee can sell the goods. If the pawnor happens to be non-OWner and he makes default i
payment of the dept which does not make any loss to him as the goods does not belong to him
It causes loss to the true owner of the g0ods. Therefore, the law is that the pledge by
non-OWher
is void, i.e., a non-owner cannot make a valid pledge.
This rule has certain exceptions, thus, the following persons fhough they are not the owner of
goods; the pledge made by them becomes valid.
1. Pledge by mercantile agent
PLEDGE
BY
NON
OWNER 2. Pledge by a person in possession under a voidable contract
3. Pledge by seller in possession after sale
4. Pledge by buyer before sale
5. Pledge by a finder of lost good
6. Pledge by joint owner in possession
7. Pledge by liquidator or official assignee or receiver

1. Pledge by mercantile agent: Where a mercantile agent is, with the consent of the owner, in
possession of goods may pledge by him, when acting in the ordinary of business of a
mercantile agent, is a valid as if he were expressly authorized by the owner of the goods to
make the same. Therefore, the pledge by mercantile agent becomes valid if:
The goods is in possession of the mercantile agernt with the consent of the owner.
The agent acts in the general course of his business.
The pledgee/ pawnee acts in good faith without the knowledge of the defective tie
or want of authority of the nmercantile agent.
obtains
2 Pledge by a person in possession under a voidable contract: Where a person
possession of goods under a voidable contract, the pledge created by him is valid if:
The pledge created before the contract is rescinded.
The pledgee had acted in good faith.
 273
Contract of Bailment and Pledge CHAPTER 17
The pledgee had no knowledge of irregularity in the transaction from wne
pledger had obtained the right of possession or knowledge of the defective title of the
pledger.
Example:
Ahad purchased a motorbike from Bunder a threat to kil him While the goods was in possession
of A, he pledged the goods to Cwho received it without having knowledge that Ahad obtained the
motorbike by means of threat. The pledge is valid if the aoods is pledged before the invalidation or
the contract by B.

3. Pledge by seller in possession after sale: After the sale the property or title in the goods
transferred to the buyer and, therefore, the seller does not have ownership in the goods
sold. Where the goods are sold and they are still in possession of the seller, the seller may
pledge the goods to other person. In such a case the pledge by seller becomes valid:
If the goods are in possession of the seller even after the sale.
If the pledgee/pawnee acts in good faith without having knowledge of the sale.
4. Pledge by buyer before sale: Where there is an agreement to sale, the property in goods
does not transfer but the buyer may take the possession of the goods. In such a case, if the
buyer in possession of goods before sale pledges the goods and the pledgee received the
goods without having knowledge of the true fact, the pledge is treated a valid.
5 Pledge by a finder of lost good: Pledge by a person with limited interest in the goods
becomes valid if he had pledged the goods to the extent of his interest but the pledge more
than his interest becomes void. Similarly, the finder of lost goods who has incurred
expenses in the goods or who is entitled for reward can pledge the goods to the extent of
his interest.
6. Pledge by joint owner in possession: Where the goods are in possession of a joint owner
with the consent of other joint owners, the pledge make by him becomes valid if the
pledgee had received the goods in good faith believing that he had right to pledge the
goods by the consent of other joint owners.
7. Pledge by liquidator or official assignee or receiver: At the time of insolvency or
winding up a company, a person is appointed called liquidator or official assignee or
receiver who is entitle to collect and sell the assets of the company and if he thinks
appropriate, he can pledge the property belonging to the company. If he makes a pledge, it
becomes valid and effective.
Finally, a general rule regarding pledge by non-owner is that the pledge by non-owner is void
butin the exceptional cases it may valid and for the validity of pledge, the following requisites
should be fulfilled. They are:
1 The pawnor must be in possession of goods.
2 The possession must be with the consent of owner.
3. The pawnee must act in good faith.
4. The Pawnee receive the goods without having the illegality or irregularity in the
transaction or beleaving that the pawnor has right to pledge the goods.
5.
The pledgee should have no notice of the pledger's defective
title.
274
BUSINESS LAWN

Summary
Bailment
Rights of Bailor

Bailment and pledge are a special class of contract 1. Right to enforce the bailee's duty as hiss
where some goods or cattle are delivered for some 2. Right to terminate the contract right
specified purpose or as security for the 3. Right to returnthe goods lent
performance of a specific obligation. Abailment is 4. Right to sueefor damages againstgratWruitOongusly
a delivery of goods or movable property on the 5. Right to recover compensation doer
condition that the receiver shall ultimately return
for
destruction of the goods bailed loss or
back themto the person from whom he may or
receive them.
delivery
Duties of Bailor
WrOg
Essentials of Bailment 1. Duty to disclose known defect in
1. Contract between Bailor and Bailee bailed the goods
2. Delivery of possession 2. Duty to bear extra ordinary expenses
3. Goods bailment

4. Fora purpose 3. Duty to indemnify bailee

5. To be returned 4. Duty to compensate bailee for loss
premature termination causedby
Types of Bailment 5. Duty to respect the bailee's lien
1. On the basis of benefit derived by the 6. Duty to receive back goods when returned h.
parties
a. Bailment for the exclusive benefit of the bailee
bailor.
b. Bailment for the exclusive benefit of the Finder of Lost Goods
bailee. Where a person finds the lost goods of another and
c. Bailment for the mutual benefit of the keeps it in his own charge, his position is
bailor and bailee. compared with the position of bailee in a bailment
2. On the basis of charge fee or remuneration contract.
a. Gratuitous bailment
a. Right of finder of lost goods
b. Non-gratuitous bailment 1. Right to be indemnified
2. Right of lien
Rights and Duties of Bailor and
Bailee 3. Right to sue for reward
Rights of Bailee 4. Right of sale the found goods
1. Right of enforce the bailor's duty as his right b. Obligations of finder of lost goods
2. Right to delivery of goods to one of the several 1. Duty to take reasonable care of the goods.
joint bailor 2. Duty not to use the goods for his own
3. Right to delivery of goods to bailor without purpose.
title 3. Duty not to mix the goods found with his
4. Right of lien/ Balee's lien own goods.
Duties of Bailee 4. Duty to take reasonable steps to find out
the true own.
1. To take care of the goods bailed
2. Duty to pay compensation Termination of Bailment
3. Duty not to make any unauthorized use of 1. On the expiry of the time
goods 2. On the completion of the purpose
4. Duty not to mix the goods bailed with his own 3. On unauthorized use of goods
goods 4. On destruction of the subject matter
5. Duty not to set up an adverse title 5. On gratuitous bailment
6. Duty to return the goods bailed 6. On death of the bailor or bailee
7. Duty to return any accretion to the goods
 CHAPTER 17 275
Contract of Bailment and Pledge
back the
Pledge bailor and his fundamental duty is to pay which
a specific duty for
Pledgeis also called by Pawn. This is a kind of
vebt or performance of Similarly he is under duty to
bailment where a thing is delivered
as the property is bailed.
the repayment of a debt. The bailment security
of goodsfor
as respect the Pawnee's rights which
are discussed
securityfor the payment of debt or performance of later.
pledge. Rights of pawnee
a duty is called
Essential of Pledge 1. Right of lien
. is adelivery of goods/ valuables/ documents 2. Right to claim for extraordinary expenses
1.
oftitle. 3. Right of lien for subsequent advances
2. The delivery is made by the pledger/ pawnor to 4. Right to sell
pledgee/ pawnee. 5. Right to claim for the amount
There is a contract. Duties of pawnee
3
Delivery is made as security of debt or 1. Duty not to use the goods.
4
performance of a duty. 2. Duty of care and diligence.
or
The pledgee/ pawnee must return back the 3. Duty of not the mix the goods with his own
5
articles to the pledger/ pawnor after the other's goods,
payment of debt or performance of the 4. Duty to return back the goods, etc..
promise.
Pledge by Non-owner
4 In case of default of pawnor, pawnee can sell
the goods. The law is that the pledge by non-owner is void,
Le., a non-owner cannot make a valid pledge. This
7. The pledgee/ pawmee cannot use the goods. rule has certain exceptions;
Rights and Duties of Pawnor and 1. Pledge by mercantile agent
Pawnee 2. Pledge by a person in possession under a
Rights of Pawnor voidable contract
1. Right to receive back goods 3. Pledge by seller in possession after sale
2. Right to recover compensation 4. Pledge by buyer before sale
3. Right to redeem debt 5. Pledge by a finder of lost good
4. Right to ask for the preservation and 6. Pledge by joint owner in possession
maintenance of the goods 7. Pledge by liquidator or official assignee or
receiver
5. Right of an ordinary debtor
Duties of Pawnor
The duties of pawnor are those of the duties of

Test Questions
BRIEF ANSWER QUESTIONS
1.
What do you meant by bailment?
2. Who is bailor?
3 Who is bailee?
4
When a bailment becomes gratuitous?
5
Who is pledger/ pawnor?
6.
Who is pledge/ pawnee?
7
Give two difference between bailment and pledge.
8
What do you understand by subrogation?
9
State any two cases when a non-Owner make a valid pledge.
10. When pledge by finder of lost goods becomes valid?
276 BUSINESS LAW

DESCRIPTIVE ANSWER QUESTIONS

1. Explain the rights and duties of a pawner and a pawnee.
and duties a bailerofunder
of finder bailment contract.
2: Explain the rights
Who is the considered as the lost goods? Explain the rights and duties of finder of log
3.
goods.
4. What is pledge? Explain the legal effect of pledge by a non-owner.
5. Who is balee? Explain the duties of bailee. course?
6 "holder? Is there any difference between a holder and a holder in due
Wnat is a
bailment.
7. What is bailment? Define and discuss the essentials of a valid
8. Who is a bailor? Discuss with examples the duties of bailor.
ANALYTICAL ANSWER QUESTIONS
1. Define pledge. Discuss the rights and duties of pawnor and pawnee.
2. Any lawful contract creates legal relationship and thereupon rights and d°ties between the
contracting parties. In view of the given statement, discuss the rights and duties of Bailee under ,
Contract of Bailment.
3. What is pledge? Define and explain the cases with example where a non-owner can make a valid
pledge.