PROJECT

On
BAILMENT AND PLEDGE

In partial fulfilment of the requirements for Award of Degree of

LLB

Submitted To: AMIT DHALL

Supervisor
By: Kritika Matta
A3256121057
Section: B (3year LLB)
Sem: 2
 AMITY LAW SCHOOL
AMITY UNIVERSITY UTTAR PRADESH
INDIA

ACKNOWLEDGEMENT

I owe my deep gratitude to our project supervisor Mr Amit Dhall who took keen
interest on our project work and guided us all along, till the completion of our
project work by providing all the necessary information for developing a good
system. I thank my supervisor Sir for all the help she provided me with this project
report.
 Contents
1) Introduction
2) Bailment
3) Essential element of bailment
4) Kinds of bailment
5) Rights and duties of bailor and bailee
6) Termination of bailment
7) Pledge
8) Characteristics of pledge
9) Rights of pawner and pawnee
10) Bailment and pledge distinguished
11) Conclusion
 BAILMENT AND PLEDGE

Introduction
Bailment and pledge what a fancy word they seem but in reality, are really
general in nature, as they are contracts into which many of us enter into on
daily basis unknowingly thus adding to curiosity of many that what is this
we enter into daily and don’t know about, so this curiosity is what I seek to
cater through this piece of mine with intention of making this term more
household less fancy and unknown
First let’s begin with bailment as without understanding bailment it is
difficult though not impossible to understand what is pledge
BAILMENT
Bailment in layman’s language means contract whereby one party gives to
the other a product for particular purpose on condition of it to be returned
back at the decided time in proper condition to the owner of the product
concerned
As per what is mentioned in the Indian Contract Act of 1872 under section
148
Bailment is the 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.
The person delivering the goods is called Bailor,
The person to whom they are delivered is called Bailee
Thus, there are two parties in bailment
Bailment is said to be a relationship sui generis. Lord Denning M.R in
building and Civil Engineering Holidays Scheme Management Ltd V Post
Office stated
At common Bailment is offer associated with a contract, but this is not
always the case……. An action against Bailee can often be put, not as an
action in contract, nor in tort but as an action on its own sui generis, arising
out of possession had by the bailee of the goods.
Bailment, thus can exist independently of any contract, for instance, it is
created by the voluntary taking into custody of good which are the property
of another, as in case of bailment by finding.
Bailment consist in delivery of goods, i.e., movable property, by one
person, who is generally the owner thereof, to another person for some
purpose, the goods are to be returned to their owner after the purpose is
accomplished or they are to be disposed of according to direction of person
delivering them
 Daily basis example of bailment can be giving your clothes for dry cleaning
car for service or book for binding etc

Essential elements of Valid Bailment

 Agreement between bailor and bailee
 Delivery of goods
 Ownership not changes
 Only movable goods
 Delivery for some purpose
 Change in forms
 Return of goods
Agreement between bailor and bailee
There must be an agreement between the bailor and bailee. This agreement
may be express or implied. However, a bailment may be implied by law as
it happens in the case of finder of lost goods.

Delivery of goods
Delivery means transfer of possession of goods from one person to another,
delivery need not be actual always it can also be constructive or symbolic
delivery, Section149 recognizes other than actual delivery also
It provides:
The delivery to the bailee may be made by doing anything which has the
effect of putting the goods in possession of the intended bailee or of any
authorized to hold them on his behalf
An explanation to constructive delivery is given in section 148 which states
if a person is already in possession of goods of other contracts to hold them
as a bailee, with the owner being bailor of such though not delivered as
generally in bailment
Illustration: X sells his iPhone to Y but instead of delivering it to Y, X was
asked by the same to keep the iPhone with him for a week, thus in this
situation bailment was established even without actual delivery of the good,
as the good was already in possession of bailee
In Jagdish Chandra trikha vs Punjab national bank- the plaintiffs father has
entrusted a box containing 480 tolas, some gold ornaments and jewellery to
the defendant bank at Peshawar before partition of the country, the
jewellery box was packed and sealed when delivered with receipt defining
content of the same to Lahore and Delhi branch of the bank, but wen
delivered was not in the same condition as it was in Lahore, the branch of
Lahore put its own sticker on kit and was now not locked, the plaintiff
claimed gold ornaments or equitant amount
It was held that bank as bailee failed to take care goods and return them to
plaintiff thus bank was held liable to make the payment
 If a person assumes the custody of another person’s goods even without
formal delivery it is sufficient to constitute bailment the same was held in
Ultzen v Nicholas
If a person keeps his goods in the premises of another but himself continues
to have control over them, this is not sufficient delivery for being
considered to be bailment, this principle was established in Kaliaporumal
Pillai v Visalakshmi
Keeping things in bank locker doesn’t amount to bailment as customer is
given key of locker and no one other than him can access the same
Ownership not changes
In a bailment the ownership remains with the bailor and is not transferred to
the bailee or anyone as because if the ownership is transferred then it is not
a bailment contract. It becomes a contract of sale.
Delivery for some purpose
The goods must be delivered to the bailee for some purpose. The purpose
could be the safe custody, use of the goods, transportation of the goods,
repair of the goods etc
Return of goods
As mentioned, delivery of good in bailment is for a particular purpose, so
after this purpose is fulfilled, the goods are required to be returned or
disposed whatever the requirement of the person delivering them, this
provision of returning or disposing goods is mentioned in section 148, this
distinguishes bailment from other factors like gift, where the property in the
goods in transferred and they are not to be returned in any case, In every
Bailment, the same thing is to be returned either in same form or altered
form, in Secretary of State for India in council vs Sheo Singh, it has been
held that when a number of government promissory notes are given to a
treasury for being cancelled and consolidation into a single note of a higher
denomination, there is no bailment, as the same notes are not to be returned.

KINDS OF BAILMENT
1) On the basis of reward
 Gratuitous bailment
it is the bailment of goods without any charges or reward. The bailee is not
required to pay any charges for the bailment.
 Non gratuitous bailment-
it is a bailment for some charges or reward. The bailee is required to pay
some charges to the bailor.
2)On the basis of benefit
 Bailment for the exclusive benefit of the bailor
 Bailment for the exclusive benefit of the bailee
 Bailment for mutual benefit of both bailor and bailee
 Duties of Bailor
 Duty to disclose all known defects (sec 150) - It is the duty of the bailor to
disclose to the bailee all defects known to exist in the goods. In case failure
of bailor to do the same and as a result the bailee suffers from loss. The
bailor is required compensate the bailee for such loss incurred.
In case of gratuitous Bailment, If the bailor fails to disclose such defect,
then the bailor is liable to indemnify bailee for such loss.
In case of non- gratuitous bailment that is bailment for reward, If the bailee
suffers any loss Due to any defect in the goods, the bailor is liable to
indemnify Bailee for such loss whether he knows those defects or not.
So, difference in terms of liability lies in gratuitous and non- gratuitous
bailment
 Duty to bear necessary and extraordinary expenses (Sec 158) - The bailor
must repay to the bailee all the essential expenses which the bailee has
incurred for the reason of bailment in the case of gratuitous bailment.
But in case of non- gratuitous bailment, the bailor is liable to repay the
extra-ordinary expenses incurred by the bailee.
EXAMPLE Mr. A delivers a dog to Mr. B. Y incurred Rs 1000 as feeding
expenses and Rs 2000 as medical expenses when the dog become sick.
State the legal position
(a) if nothing was charged by either party.
(b) If Mr. A charged Rs 5000 from B.
Solution:
(a) It is a case of gratuitous bailment where x (the bailor) must repay Rs
Mr. A delivered a Dog to Mr. B incurred Rs 1000 as feeding expenses 3000
to Mr. B (the bailee) because the bailor is bound to bear all expenses
incurred by the bailee for the purpose of bailment.
(b) It is the case of non- gratuitous bailment where Mr. A (the bailor) must
repay Rs 2000 to B (the bailee) because the bailor is Bound to bear all
extraordinary expenses (and not ordinary expenses) incurred by the bailee
for the purpose of bailment.

 Duty to indemnify loss for premature termination of bailment (Sec 159)-If

the loss caused to the bailee due to premature termination and the loss
incurred is more than the benefit obtained by the bailee, it is the duty of the
bailor to compensate the bailee for such loss in excess.

 Duty to indemnify the bailee against the defective title of the bailor
(Sec164)-If the bailor does not have any title to deliver the goods to the
bailee, he would be liable to indemnify to the bailee for any loss which the
bailee has paid to the original owner. EXAMPLE- A asks his friend B to
give him cycle for one hour. B instead of his own cycle gives C's cycle to
A. While A was riding, the main owner of the cycle catches A and
surrenders him to police custody. A is entitled to recover from Ball costs,
which A had to pay in getting out of this situation
 Duty to receive back the goods (Sec 164)- If the bailor refuses to take back
the goods due to his own wrong intention, he shall be liable to pay essential
expenses incurred by the bailee for keeping the goods safely.
U lent a dog to Mr. K for ten days. On the expiry of ten days, Mr. U
refused to receive back the dog but after five days, he received back the
dog. During these five days, Mr. K incurred Rs 500 as feeding expenses.
Mr. Must repay Rs 5000 to Mr. K

 Duty to bear a loss (Sec162)-It is the duty of bailor to bear the risk of loss,
deterioration and destruction, of the things bailed, provided that bailee has
taken reasonable care to protect the goods from loss
Rights of a bailor
 Right to claim damages in case of negligence (section 152)- If there is no
reasonable care on the part of bailee (in the absence of any special contract
or special care) then the bailor has a right to claim damages for the loss,
destruction, or deterioration of the goods bailed.

 Right to terminate the contract in case of unauthorized use of goods (section

153)- If the bailee uses the goods in an unauthorized way, the bailor can
terminate the contract of bailment even before the completion of the
bailment, as the contract of bailment is a voidable contract, in event of
termination the bailee cannot sue the bailor for a breach of contract.

 Right of claim compensation in case of unauthorized use of goods (section

154)- If the bailee does not use the goods bailed according to the terms and
conditions fixed within the bailment contract, the bailor has a right to claim
compensation from bailee for any damages to the goods that may occur
while in use.

 Right to claim the separation of goods in case of unauthorized mixture of

goods (section 156) If the bailee, without the consent of the bailor mixes
bailor’s goods with that of his own goods. In the case goods can be
separated, the bailor has a right to claim his goods after separation of the
same

 Right to claim compensation in case of unauthorized mixture of goods

which cannot be separated (section 157)- If the bailee without the consent
of the bailor mixes bailor’s goods with that of his own goods and the goods
cannot be separated, the bailor has a right to claim compensation from
bailee for the loss incurred

 Right to demand return of goods (section160)- The bailor has a right to

demand return of goods after the completion of the purpose or after the
expiry of period of bailment.
 Right to claim compensation in case of unauthorized retention of goods
(section 161)- If the bailee does not return or deliver the goods according to
the bailor’s directions, after the accomplishment of purpose or after the
expiry of period of bailment, the bailor has a right to claim compensation
for any loss, destruction and deterioration of goods from that time.
 Right to demand accretion to goods (section 163)- - In the absence of contract
to the contrary, the bailor has a right to demand any increase or profit which may
have occurred from the goods bailed.
Example: - X leaves a sheep in the custody of Y to be taken care of. The sheep had
a Lamb then Y is bound to deliver the both of them to X.
Duties of Bailee
1) Bailee’s duty to take reasonable care of the goods bailed (sec 151-152)
According to section 151 of the contact, the standard of care required is that
of a reasonable man. This section lists down a uniform duty of care for
every kind of bailment whether the same is for reward or is merely
gratuitous.
Bailee should act as a prudent man
According to section 151, the bailee should take care of the goods as a man
of ordinary products would take of his own goods. If the bailee has not
acted like a ordinary prudent man, he cannot be excused by pleading that he
had taken similar care of his own goods also, and his goods, have also been
lost or damaged along with those of the bailor, or that the bailor had
knowledge that his goods were being kept in a negligent manner. Case law
in support-Union of India vs Udho Ram and
Bailee not liable when he takes due care (sec 152)
Section 151 describes the amount of care which bailee is supposed to take.
If he has taken due care, he will not be liable for any loss which may be
caused to the goods dale to him.
2) Bailee’s duty not to make unauthorised use of the goods bailed (secs. 153-
154)When the goods have been bailed for a particular purpose, the bailee is
authorised to use them only for that purpose and none else. As mentioned
If he makes unauthorised use of the goods field there are two remedies
available to the Bailor:
i. The bailor may terminate the bailment.( Sec 153)
ii. The bailor may recover compensation for the loss caused due to the
unauthorised use of the goods ( sec 154)
When goods are mixed with bailor’s consent
A bailee should not mix the bailor’s good with those of his own without the
bailor’s consent. If the builder consents, the bailee may mix the bailor’s
goods with those of his own, and in such a case the bailor and the bailee
shall have an interest in the mixed goods in proportion to their respective
shares.
When goods are mixed without bailor’s consent
When the bailee mixes bailor’s goods with his own goods without the
consent of the bailor, depending upon the nature of the goods, there are two
possibilities”
 a) when goods can be separated
b) when goods cannot be separated

3) Bailee’s duty to return the goods on the completion of purpose (sec 160-
161, 165-167)
According to sec 160, the bailment of the goods is either for a certain
purpose or certain period, the bailee is bound to return the goods to the
bailor as soon as the time for which they are bailed has expired, or purpose
of the bailment has been accomplished.
According to section 161, if a bailee is not in a position to deliver back the
goods, for instance, when they are lost due to the fault of his servants, the
responsibility for such loss is date of the bailee. A bailee is liable for the
loss due to non return on non delivery of goods if that is due to his fault.
When the goods are bailed gratuitously, i.e., when the lender of the goods is
to receive no remuneration in respect of the goods bailed, the bailor can ask
for the return of the goods at any time, even though the time for which they
were lent has not expired. According to section 159, the lender of a thing
for use may at any time, require its return if the loan was gratuitous, even
though he learnt it for a specified time or purpose. In case the bailor asks
for return before the agreed time, this may sometimes cause some loss to
the bailee. The bailor is bound to compensate the bailee for any loss
suffered by him for premature returns of the goods(sec 159).
A gratuitous bailment is ended by death of the bailor or of the bailee. In
such a case, the bailee or his representatives should return the goods to the
Bailor or his representatives.
Return of goods to the bailor, when the bailor has no title to goods
According to section 166, if the bailor of the goods has no title to the goods
and somebody else claims a better title, the bailee cannot be made liable for
the return of the goods to the bailor. The bailee’s duty to return the goods is
to the bailor only and nobody else. The bailey has no right to refuse to
return the goods to the Bailor by pleading jus terrtii, i.e., the title of a third
person being better than that of the bailor. The third person, who plays
better title than that of the bailor, may take their delivery from the bailee
only through a court of law. According to section 167, if any other person
than the bailor, claims a good bailed, he may go to the court to stop the
delivery of goods, and to decide the title of the goods. Bailor’s lack of title
may cause from loss to the bailee, i.e., in an action by the third party to
recover those goods, he may be involved in the litigation.

4) Bailee’s duty to deliver to the Bailor profit on the goods bailed (sec 163)
According to section 163, “In the absence of any contract to the contrary,
the bailee is bound to deliver to the bailor, or according to his directions,
any increase or profit which may have accrued from the goods bailed.
This section provides that if there is any gain with regards to the goods
bailed, then that gain must be given to bailor along with the goods and
bailee is not entitled to keep it with him. But the bailor cannot claim profit
or increase before the accomplishment of the purpose of bailment or before
the expiry of time of bailment contract.
 Rights of Bailee
1) Right to recover necessary expenses incurred on bailment (sect 158)-when
under the contract of bailment certain expenses are required to be incurred
by the bailee or when he is required to be paid for the services he renders
for the same, bailee has right to recover or to lien in respect of such goods
until he receives necessary payment
2) Right to recover compensation from the bailor (sect164)-sometimes the
bailor may not be entitled to make the bailment or to receive the back the
goods, this may result in some loss to the bailee. The Bailee is entitled to
recover from the Bailor such loss as may be caused due to above stated
reason, this provision is contained in section 164 of the Act
3)Right of lien on the goods bailed(sect170-171)- LIEN

Lien is the right of any person to retain the possession of goods belonging to
someone else until the claims/ charges due to the person in possession of goods are
paid. The lien of goods can be either a particular lien or a general lien.

Types of lien:
1- Particular lien[section 170]- Where the bailee has, in accordance with the purpose
of the bailment, rendered any services involving the exercise of labour or skill in
respect of the goods bailed, he has, in the absence of a contract to the contrary, a
right to retain such goods until he receive the due remuneration for the services he
has rendered in respect of them. Example- X gives a piece of cloth to Y, a tailor to
make a coat. Y promises X to deliver the coat as soon as it is finished. Y is entitled
to retain the coat till he is paid for(if he has not allowed any credit period) but is
not entitled to retain the coat(if he has allowed one month’s credit for the
payment).
2- General lien[section 171]- A general lien is a right to retain all the goods as
security for the general balance of amount until the full satisfaction of the claims
due whether in respect of those goods or other goods. In the absence of a contract
to the contrary, general lien is available only to bankers, factors, wharfinger,
attorneys of a high court and policy brokers. The general lien is available to other
persons only when there is an express contract to that effect.

Termination of bailment
 On the expiry of fixed period
 On fulfillment of the purpose
 Inconsistent use of goods
 Destruction of the subject matter of bailment
 Death of any party
 Termination by a bailor
 PLEDGE
Section 172 of the Indian Contract act 1872 defines pledge, pawnor,
pawnee as follows:
The Bailment of goods as security for payment of a debt or performance of
promise is called pledge. The bailor is in this performance of promised
called pawnor and the bailee called pawnee
Pledge or pawn is a bailment with a special kind of purpose, the goods
pawned or pledged serves as a security for payment of debt or performance
of promise.with the term pledge literally meaning things given over as
security,
As per Black Laws dictionary
Pledge is a formal promise or undertaking; the act providing something as
security for a debt or obligation; a bailment or other deposit of personal
property to a creditor as a security for debt or obligation.
A common law concept of pledge was explained in Maharashtra state co-op
bank Ltd vs Assistant P.F Commissioner
What can be pledged?
Any movable items such as assets, documents, valuables, receipt of fixed
deposit account or savings bank account and securities can be deposited
with the moneylender or promisee, as collateral, against the repayment of
loan or fulfilment of the obligation.
There must be actual or constructive delivery of the goods to be pledged.
However, government securities are to be pledged by endorsement and
delivery.
Who can pledge: ordinarily, it is the owner of the goods, or any person
authorized by him in that behalf, who can pledge the goods? If a servant has
the custody of the goods or as a tenant gets the possession of a furnished
house a servant cannot nor can tenant. A person obtaining the goods
fraudulently does not have any right to pledge
Exception
Pledge by mercantile agent(sect178)
Pledge by person possession under voidable contract(178A)
Pledge by a person with a limited interest( 179)
Pledge by seller in possession after sale (section 30 of sales of good act )
Pledge by buyer in possession after sale (section 30 sale of good act)
Characteristics of Pledge
The essential characteristics of the pledge are given as under:
1. Bailment of property for securing the payment of amount lent or
performance of a promise.
2. The asset is delivered to the pawnee by the pawnor as collateral, in pursuance
of a contract and upon a condition to return on the realisation of debt or
performance of the promise.
3. The subject matter of the contract is the asset or property given as collateral.
4. The property pledged with the pawnor must be in existence.
The ownership of the asset remains with the pawnor, accept in some
circumstances, where the pawnee gets the right to sell the asset pledged.
Further, the pawnee is obliged to take reasonable care of the asset pledged.
Rights of Pawnee
The right of the pawnee are discussed as under:
 Right to retain the goods: The pawnee has the right to retain the pledged
article, not just for the repayment of the loan advanced or fulfilment of the
obligation, but also for the interest accrued and all the relevant expenses
incurred in connection to the possession and safekeeping of the article.
 Right to the retention for subsequent loan: The pawnee can also retain the
goods pledged towards the further amount lent to the pawnor. Nevertheless,
it is required to be specifically stated in the contract.
 Right in connection to additional expenses borne: Any expenses made by
the pawnee for the safekeeping of the goods pledged are to be recovered
from the pawnor.
 Right in case of default: When the pawnor makes default in the repayment
of the amount lent or in the performance of the obligation within the stated
time, the pawnee can file a suit against pawnor and retain the goods
pledged, or he/she has the right to sell the property pledged, after giving a
reasonable notice of the sale to the pawnor.
Further, if the sale proceeds are less than the amount lent, the pawnor has to
pay the remaining sum, but if the sale proceeds are higher than the money
lent, then the pawnee should refund the surplus amount to the pawnor.
Rights of Pawnor
The rights of the pawnor are explained in the points below:
 Right to redeem: When there is a time specified for the repayment of loan or
performance of the obligation and the pawnor does not realise the dues
within that time, then he may redeem the item at any time before the goods
are sold by the pawnee. However, the pawnor has to pay the expenses
incurred to the pawnee, due to his default.
 Right to limited interest: When the pledge made by the pawnor for limited
interest, then its validity will be limited to that extent only.
 Rights in case of unauthorized sale: If the pawnee sells the pledged item
wrongfully, without giving notice, the pawnor has the right to file suit
against pawnor for the redemption of the item by depositing the amount and
treating the sale as if it has never taken place.
Alternatively, the pawnor can ask for the damages on the ground of
conversion of the property pledged.
Pledge acts as a security, which assures that the pawnor will repay the debt
or perform the obligation. These are mainly used in securing loans and if
the loan is not repaid when due, the pawnee has the right to sell the pledged
article, in order to discharge the dues.
BAILMENT AND PLEDGE DISTINGUISHED
1- Bailment is a wider term. It includes pledge. Pledge is a kind of Bailment,
where the goods are delivered by one person to another as security for
payment of debt or performance of a promise, It means that if the goods
serve as security, it is a pledge whereas when the goods are given for some
other purpose, for example, a watch is given for repairs it is bailment- other
than pledge

2- In case Bailment, if the bailor does not pay the lawful charges due to the
bailee in respect of services etc, rendered by the bailee, the bailee can
exercise lein over goods bailed; he can retain them until the necessary
payment is made to him, In case of pledge, the pledgee has not only right to
retain the goods pledged until the repayment of debt or performance of the
promise, etc but in the event of the default by the pawnor in payment of the
debt, or performance of the promise at the stipulated time, he may even sell
the goods, after giving a due notice of sale to the pawnor.

Conclusion
I would like to conclude by mentioning that each individual should brush
their understanding with regard to bailment and pledge to prevent
themselves from committing mistakes what usually one does while bailing
the goods and to be able to cherish rights available to them as a part of same
thus helping them become a better party to contracts like bailment and
pledge