BAILMENT AND PLEDGE UNDER THE INDIAN CONTRACT ACT

Himanshu Gupta,

Chandra Prabhu Jain College of Higher Studies and School of Law

INTRODUCTION

Bailment can be termed as the transfer of possession of moveable goods made for a purpose and be returned when the purpose is over. Bailment of goods is made for different purposes by the parties mainly being repair/ maintenance, safeguarding the goods, etc. There is no transfer of ownership done in bailment only possession of goods is transferred. There are two parties involved in bailment one is the bailor (the party delivering the goods) and the other is the bailee (the party receiving the goods). Bailment can be done/made with/ without consideration.

The pledge can be termed as a transfer of possession of goods of moveable/ immovable property made for the purpose of using the property as collateral to secure loans in return. The pledge is always done for some consideration it cannot be gratuitous like bailment. Ownership of the said goods is not transferred initially but can be transferred if the obligations are not fulfilled by the pledgor. The pledge can be termed as a specific type of bailment.

Bailment and pledge both can be defined as legally binding contracts made by one party with another party for some specific purpose and when that purpose is over the bailed goods should be returned back/ disposed according to the obligations of the contract. Every pledge is a bailment but every bailment is not a pledge as Bailment is a wider concept whereas a pledge is a narrow concept. Bailment can be done with/ without consideration whereas a pledge cannot be done without consideration.

ESSENTIALS OF BAILMENT

1. VALID CONTRACT

The most basic essential of bailment is that there should be a contract between two parties that is free from fraud, coercion, etc. i.e. valid contract. The contract can be both implied and expressed in nature.

2. DELIVERY OF GOODS AND CHANGE OF POSSESSION

There should be delivery of goods and change of possession from one party to another party. Delivery of goods can be both actual and constructive.

3. DELIVERY IS FOR SPECIFIC PURPOSE

Bailment is done for various purposes but it is essential that the delivery of goods is done for a specific and legal purpose.

4. NATURE OF GOODS

A bailment contract is valid only when the goods delivered are moveable in nature. Any bailment contract made for immovable property is invalid.

5. RETURN OF SPECIFIC GOOD

The bailee has the duty to return the goods that were bailed for some purpose and should be returned/ disposed of after that purpose is over according to the contract.

Example- A borrowed bike from B for personal use. Once that use/ purpose is accomplished it is the responsibility of B to return the bike to B.

TYPES OF BAILMENTS

1. GRATUITOUS BAILMENT

Gratuitous bailment is a type of bailment contract which is done without any consideration. In this type of bailment, parties enter into a contract for their own benefit.

Example - A (bailee) borrows the car from B (bailor) for personal use. Here the contract is done for the benefit of the bailee.

2. NON-GRATUITOUS BAILMENT

Non-gratuitous bailment is also termed as contractual bailment as the contract is done for some consideration and the benefit of both the parties.

Example- A (bailor) leaves his motorbike with M (bailee) for repairing. In this both the parties are getting benefitted as the bailor will get his bike fixed and the bailee will get paid for his services.

3. INVOLUNTARY BAILMENT

Involuntary bailment is a type of bailment where a person finds some lost property and takes possession of such property. In such circumstances, the person having the possession is considered as bailee and has the duty to take due of such goods.

Example- A finds a gold ring while walking in the garden during his morning walk and keeps the gold ring with him under his possession. He will be considered as a bailee in such a case.

4. WAREHOUSE/ CARRIER BAILMENT

Warehouse/ carrier bailment arises when the bailor gives the possession of goods to the bailee to store in a warehouse or for transportation respectively.

Example- A (bailor) gives a box of apples to B (bailee) for storing in his cold warehouse.

RIGHTS, DUTIES AND LIABILITIES OF BAILOR

1. RIGHTS

• To claim compensation for wrongful/ Unauthorized use of goods

The bailor is entitled to claim compensation from the bailee if the bailee uses the bailed goods for wrongful purposes.

• To Receive the Goods Back

The bailor is entitled to claim his goods back from the bailee after the purpose for which he bailed the goods is over.

• To receive Proportionate Share in Mixed Goods

The bailor can claim a proportionate share in the mixed goods from the bailee if the bailee mixes his goods with the bailed goods with the consent of the bailor. If the same thing is done without the consent of the bailor, then he can claim expenses of separation and damages arising from the said act.

2. DUTIES

• To Give Possession of Goods to Bailee

The bailor has the duty to transfer the possession of the bailed goods to the bailee. Without the transfer of bailed goods, the contract of bailment cannot be executed.

• To Tell Any Defaults/ Defects in The Goods

The bailor has the duty to disclose if there are any material defaults in the goods before the bailed goods are delivered to the bailee.

3. LIABILITIES

• To Pay the Expenses of Bailment

When the purpose of the bailment is accomplished, the bailor is liable to pay the expenses of the bailment to the bailee.

Example- A gives possession of his car to M for regular maintenance of his car. After, the purpose is over A becomes liable to pay the mechanic M for paying the expenses of maintenance (bailment).

• To Suffer Damages for Non-Disclosure of Material Facts

The bailor is liable to pay any damages that occurred to the bailee from the negligence of the bailor as he did not disclose material defects in the goods.

• To Suffer Damage for Defect in Bailor’s Title

The bailor is liable to pay damages that occurred to the bailee due to a defect in the title of the bailor.

• To Indemnify Gratuitous Bailee

The bailor is liable to pay damages to the bailee in case of gratuitous bailment where the bailee suffers damages due to an act of the bailor like asking for bailed goods before the purpose is accomplished.

RIGHTS, DUTIES AND LIABILITIES OF BAILEE

1. RIGHTS 

• To receive Possession of Goods

The bailee is entitled to claim possession of bailed goods from the bailor and keep the possession until the purpose is accomplished.

• To Have Knowledge of Fault in Bailed Goods

The bailee has the right to know the faults in the bailed goods (if any) from the bailor.

• To Get Proportionate Share in the Mixed Goods

If the bailee mixes the goods of the bailor with his goods with the consent of the bailor then the bailee can claim his proportionate share in the goods.

• To Get Damages in Case of Defect in Bailor’s Title

The bailee is entitled to claim any damages incurred to him due to a defect in the bailor’s title.

• To Claim Expenses of Bailment

During the course of the bailment contract if the bailee incurs any expense on the bailed goods then he can claim such expense from the bailor.

• To Claim Lien or Remuneration

The bailee has the right to claim remuneration as specified in the contract and if the bailor fails to pay such amount, then the bailee can lien (retain) the bailed goods with him.

2. DUTIES

• To Take Reasonable Care of Bailed Goods

Bailee has the duty to take due care of the bailed goods as such he will take care of his own goods. Bailee will be held liable if he fails to do so.

• Not to Make Any Wrongful/ Unauthorized Use of Goods 

It is the duty of the bailee to use the bailed goods in a proper manner and not make any wrongful use of the bailed goods.

Example – A(bailor) dropped his bike with the service centre B(bailee) for repairing of the same. Here B has the duty to repair the bike and return it to A i.e. B cannot use the bike for his personal use.

• Not to Mix Up Bailed Goods with His Own Goods

The bailee should not mix up his goods with the bailed goods without the consent of the bailor.

• To Return Bailed Goods to Bailor

The bailee has the duty to return the bailed goods to the bailor as soon as the purpose for which the goods were bailed is accomplished.

3. LIABILITIES

• To Pay Damages for: -

- Failure to take prudent man care

- For wrongful use of bailed goods

- Loss arising due to mixing up of the goods

- For non-return of goods

• To Return Bailed Goods

The bailee is liable to return the goods to the bailor after the purpose of bailment is accomplished.

• To Pay any Increase/ Profit Accruing from The Goods

The bailee is liable to pay the bailor any increase/ profit arising out of the bailed goods during the tenure of the bailment contract.

PLEDGE

The pledge is a type of bailment where delivery of goods is done for the purpose of securing a loan from the other party i.e. using goods as collateral. There are two parties involved in pledging one is pledgor (the person who delivers the possession) and the other is pledgee (the person who keeps the possession). The pledge is always done in return for some consideration.

ESSENTIALS OF PLEDGE

• PURPOSE

The goods must be delivered as a security/ collateral for payment of debt/ performance of a promise. The delivery may be actual/ constructive in nature.

• OWNERSHIP

The ownership of the pledged goods must lie with the pledgor only. It can be transferred to the pledgee if the obligations are not fulfilled by the pledgor.

• RIGHT TO REDEEM

The right to redeem should always lie with the pledgor i.e. he can redeem the property as soon as he fulfils the obligation.

• CONTRACTUAL AGREEMENT

There should be a contractual agreement between the parties that is valid and binding in nature.

TYPES OF PLEDGE

• Pledge of Movable Property

In this type of pledge, the pledgor pledges tangible movable property like gold, silver, a car, etc for securing a debt from the pledgee.

• Pledge by Hypothecation

In pledge by hypothecation, the actual possession of the goods remains with the pledgor only but the pledgee gets a right/ interest over that specific property.

• Pledge of Document of Title

This type of pledge is most used while securing loans from banks and other financial institutions where the possession of the title documents of the property is transferred to the pledgee.

LANDMARK CASES

In Kavita Trehan v. Balsara Hygiene Product Ltd., In this case, the Supreme Court decided that one of the very requirements of bailment is the delivery of goods to the bailee, where there is no change of possession, there is no bailment.

In New India Assurance Co. Ltd v. The Delhi Development Authority, the defendant was an owner of a parking center in Delhi named Idle Truck Parking Centre. The plaintiff parked his truck at the parking lot owned by the defendant and received a receipt in return from the defendant. The truck got stolen from the parking lot in the night. The plaintiff sued the defendant to claim compensation for the loss where the defendant is contesting that he is not liable as the owner of the truck slept inside the truck so the possession of the truck was not transferred to him.

The Supreme Court held that the defendant was liable to pay the plaintiff. The essential element here was the transfer of possession. The possession was said to be transferred when the plaintiff issued a receipt for the safekeeping of the vehicle for the said night. For the contracted period, the defendant should have shown reasonable care towards the vehicle which failed to do so.

CONCLUSION

Bailment and pledges both are mostly the same in nature. The main difference lies in the purpose for which they are done. Both are binding contracts made between two parties for a specific purpose. Bailment contracts can be made gratuitously i.e. without any consideration whereas a pledge is always non-gratuitous i.e. with consideration.

Parties make these contracts for their own benefit. We also enter into these types of contracts regularly in our day-to-day lives without actually realizing it. Bailment is a wider topic compared to pledges as it can be used for various purposes. Pledge contracts also play an important role in securing loans as without pledging securing loans can be a hectic task.    

REFERENCES  

·https://lawbhoomi.com/difference-between-bailment-and-pledge/

·Kavita Trehan v. Balsara Hygiene Product Ltd.

·New India Assurance Co. Ltd v. The Delhi Development Authority