Business Law

Topic: Bailment and pledge

By: Riaz Hussain Ansari

Lecturer Department of Business Administration
University of Sahiwal

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Learning Objectives

You will be able:

Define bailment and identify the essentials of

the contract of bailment

Explain the types of bailment

Identify duties and rights of the bailor and

bailee
Explain rights of pledgor and pledgee

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 NATURE OF BAILMENT
 The 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. [Section 148]

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Essential elements of bailment

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Essential elements of bailment
Agreement
A bailment is usually created by
agreement between the bailor and the
bailee. It may be gratuitous i.e. without
consideration or non-gratuitous i.e. with
consideration. The agreement may be
express or implied. In case of finder of
goods the bailment is implied by law.

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Essential elements of bailment
Delivery of Good
A bailment involves delivery of goods by
bailor to bailee. In this connection, the
following points may be noted:
 The delivery must be voluntary e.g. the delivery of
jewellery by its owner to a thief who shows a
revolver does not create a bailment because the
delivery is not voluntary.
 Delivery may be actual or constructive

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Essential elements of bailment
Purpose
The delivery of goods from bailor to bailee
must be for some purpose such as
personal service, safe custody, some work
to be done upon or transportation.

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Essential elements of bailment
Return of specific goods
In contract of bailment the goods are
either returned or disposed of as per the
instructions of bailor after the purpose is
achieved.

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Types of bailment

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Bailment on the basis of reward

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Bailment on the basis of benefit

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 Sub Bailment
A sub-bailee is a person to whom the actual
possession of goods is transferred by
someone who himself is not the owner of
goods but has a present right to possession of
them as bailee of the owner. Where the bailee
sub-bails the goods with the authority of the
owner, the relationship between the owner and
the sub-bailee is that of bailor and bailee.

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Pledge and Pawn

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 Duties of bailor
Duty to disclose faults

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 Duties of bailor
Duty to bear expenses

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 Duties of bailor

Duty to indemnify bailee for loss in case

of early termination of gratuitous
bailment
In case of gratuitous bailment the bailor can
terminate bailment even if it is made for a fixed
time or purpose. In such case bailor is liable to
compensate bailee for any loss in excess of
benefit due to early termination. [Section 159]

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 Duties of bailor

Duty to receive back the goods

Bailor is bound to receive back the goods when
the purpose is completed or on expiry of period. In
case the bailor refuses to accept the goods then
he is liable to pay the charges incurred by bailee
for the safe custody of goods. [Section 164]

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 Duties of bailor

Duty to indemnify the bailee

The bailor is liable to indemnify bailee for any loss
arising due to defective title of bailor. [Section 164]

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 Duties of bailor

Duty to bear the risk of loss

If the bailee has taken reasonable steps to protect
the goods then the bailor is bound to bear the risk
of loss of goods bailed. [Section 152]

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 Duties of bailee

Duty to take care of the goods bailed

In all cases of bailment, the bailee is bound to take
as much care of the goods bailed to him as a man
of ordinary prudence would, under similar
circumstances, take of his own goods of the same
bulk, quality and value as the goods bailed.
[Section 151 & 152]

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 Duties of bailee

Duty not to make any unauthorized

use of goods
If the bailee uses the goods bailed in a manner
which is not according to the terms of the contract,
he shall be liable to compensate bailor for any loss
arising due to inconsistent use of goods bailed.
[Section 154]

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 Duties of bailee

Duty not to mix the goods bailed

with his own goods
A bailee is bound to keep the goods bailed
separately. He must take prior consent from bailor
to mix with his own goods. [Section 155 to 157]

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 Duties of bailee

Duty not to set up an adverse title

The bailee is not the legal owner of the goods bailed

but holds the goods on behalf of the bailor. He cannot
deny the right of the bailor to bail the goods and
receive them back. He may however refuse to deliver
goods back to the bailor if there is an effective
pressure such as a court order, not to return goods to
the bailor.

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 Duties of bailee

Duty to return the goods

It is the duty of the bailee to return the goods bailed

without demand as soon as the:
Time for which they were bailed has expired or
Purpose for which they were bailed has been
accomplished unless otherwise agreed upon.
If the bailee fails to do so, he is responsible for any
loss, destruction or deterioration of the goods from
that time. [Section 160 & 161]
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 Duties of bailee

Duty to return increase

In the absence of any contract, it is the duty of the

bailee to return to the bailor any:
increase or
profit if the goods are bailed. [Section 163]

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 Duties of bailee

Duty to return increase

In the absence of any contract, it is the duty of the

bailee to return to the bailor any:
increase or
profit if the goods are bailed. [Section 163]

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 Rights of bailor
Right to claim damages in case of
negligence
A bailor is entitled to claim damages if
bailee has not taken reasonable care of
the goods bailed. [Section 152]

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 Rights of bailor
Right to terminate the contract in
case of unauthorized use
A bailor is entitled to terminate the
contract if the bailee without the
consent of bailor uses the goods for
other purposes. [Section 153]

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 Rights of bailor
Right to claim compensation in case
of unauthorized use
A bailor is entitled to claim
compensation if the bailee without the
consent of bailor uses the goods for
other purposes and any damage arise.
[Section 154]

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 Rights of bailor
Right to claim separation of goods
in case of unauthorized mixture
A bailor has a right to claim separation
of goods bailed (if separable) if bailee
mixes the goods with his own goods
without prior consent. [Section 156]

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 Rights of bailor
Right to claim compensation in case
of unauthorized mixture of goods
A bailor has a right to claim
compensation from bailee for any loss
to the goods bailed if bailee mixes the
goods with his own goods without prior
consent. [Section 157]

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 Rights of bailor
Right to demand return of goods

A bailor has a right to demand return of

goods after the fulfilment of the
purpose or after the expiry period of
bailment. [Section 160]

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 Rights of bailor
Right to claim compensation in case
of unauthorized retention of goods
If the bailee does not return or deliver the
goods according to the bailor’s direction
after the fulfilment of purpose or after the
expiry of period of bailment, the bailor has a
right to claim compensation for any loss,
destruction or deterioration of the goods.
[Section 161]
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 Rights of bailor
Right to demand increase

In the absence of any contract, the bailor

has a right to demand any increase or profit
which may have accrued from the goods
bailed. [Section 163]

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 Rights of bailee
Right to claim damages

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 Rights of bailee
Right to claim reimbursement of
expense

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 Rights of bailor
Right to be indemnified in case of
early termination of gratuitous
bailmen
In case of gratuitous bailment the bailee has a
right to claim indemnification if the bailor
terminates the contract of bailment before the
expiry of fixed period or completion of purpose. In
such case bailee has a right to claim
compensation for any loss in excess of benefit due
to early termination. [Section 159]
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 Rights of bailor
Right to recover loss in case of
bailor’s defective title

The bailee has a right to be indemnified for any

loss arising due to defective title of bailor. [Section
164]

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 Rights of bailor
Right to recover loss in case of
bailor’s refusal to take the goods
back
If the bailor refuses to take back the goods then
bailee has a right to be indemnified in case he
suffers any loss. [Section 164]

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 Rights of bailor
Right to deliver goods in case of
several joint owner
In absence of any contract to the contrary,
the bailee has a right to deliver back the
goods in accordance with the instructions of
one joint owner without the consent of or
other of the joint owners. [Section 165]

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 Rights of bailor
Bailee not responsible on re-delivery
to bailor without title
If the bailor has no title to the goods, and the
bailee, in good faith, delivers them back to,
or according to the directions of the bailor,
the bailee is not responsible to the owner in
respect of such delivery. [Section 166]

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 Rights of bailor
Rights of bailor and bailee against
wrong-doer
If a third person wrongfully deprive the bailee of the use or
possession of the goods bailed then the bailee may use
such remedies as the owner might have used and either
the bailor or the bailee may bring a suit against the third
person for such deprivation or injury. Whatever is obtained
by way of relief or compensation is any such suit in the
above case, shall as between the bailor and the bailee, be
dealt with according to their respective interests. [Section
180 & 181]

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 Rights of bailor
Right of particular lien
A particular lien is available to a bailee only against those
goods on which some skill and labour have been expended
by him. But if the bailee does not complete the work within
the agreed time, or a reasonable time, he cannot exercise
his right of lien. Also, if he voluntarily permits the bailor to
regain possession of the goods without payment of the
charges, he cannot exercise the right of lien. [Section 170]

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 TERMINATION
Termination of all contract of bailment
 All contract of bailment are terminated in
the following cases
 Automatic termination
 Inconsistent use of goods
 Destruction of the subject-matter

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 TERMINATION

Termination of gratuitous bailment

 Death of the bailor or bailee
 Before the expiry of the fixed period

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 PLEDGE

The bailment of goods as security for

payment of a debt or performance of a
promise is called a pledge.

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 Rights of plegdee
Right of retainer
The pawnee may retain the goods pledged for
[Section 173]:
Payment of the debt or the performance of the

promise
For the interest of the debt and

All necessary expenses incurred by him in respect

of the possession or for the preservation of the

goods pledged.

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 Rights of plegdee
Right of retainer
The pawnee may retain the goods pledged for
[Section 173]:
Payment of the debt or the performance of the

promise
For the interest of the debt and

All necessary expenses incurred by him in respect

of the possession or for the preservation of the

goods pledged.

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 Rights of plegdee
Right of retainer for other advances
It is the presumption that when the pawnee lends
money to the same pawnor after the date of the
pledge the right of the retainer over the pledged
goods extends to subsequent advances also unless
otherwise agreed upon. If the goods are separately
secured then such presumption will not prevail.
[Section 174]

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 Rights of plegdee
Right to extraordinary expenses
The pawnee is entitled to receive from the pawnor
extraordinary expenses incurred by him for the
preservation of the goods pledged

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 Rights of plegdee
Right against true owner, when the
pawnor’s title is defective
When the pawnor has obtained possession of the
goods pledged by him under a voidable contract but
the contract has not been rescinded at the time of
the pledge, the pawnee acquires a good title to the
goods, provided he acts in good faith and without
notice of the pawnor’s defect of title.

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 Rights of plegdee

Rights where pawnor makes default

If the person makes default in payment of the debt
or performance of the promise then the pawnee can
exercise the following rights: [Section 176]

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 Rights of plegdee
Rights where pawnor makes default
If the person makes default in payment of the debt or performance
of the promise then the pawnee can exercise the following rights:
[Section 176]
Right to sue
The pawnee may file a suit against the pawnor upon the
debt or
promise and
may retain the goods pledged as a collateral security.
Right to sell
The pawnee may sell the goods pledged after giving pawnor a
reasonable notice of the sale. He can recover from the pawnor any
deficiency arising on the sale of the goods by him. However, he
shall have to hand over the surplus to the pawnor, if any, realized
on the sale of the goods

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 Rights of pledgor
Right to get back goods
On the performance of promise, or repayment of
loan and interest, if any, the pawnor is entitled to get
back the goods pledged. [Section 177]

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 Rights of pledgor
Right to redeem debt
If the pawnor makes default in payment of the debt
or performance of the promise at the stipulated time,
he may still redeem the goods pledged at any
subsequent time before the actual sale of them. In
this case he must pay, in addition, any expenses
which have arisen from his default. [Section 177]

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 Rights of pledgor
Right to see
The pawnor has a right to see that the pawnee
preserves the goods pledged and properly
maintains them.

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 Pledge by non-owners
The general rule is that it is the owner
who can ordinarily create a valid pledge.
But in the following cases even a non-
owner can create a valid pledge.

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 Pledge by non-owners

Pledge by mercantile agent

The pawnee of goods from a mercantile agent, who has
no authority from the principal to pledge, gets a good
title to the goods if: [Section 178]
The agent is in possession of the goods or documents
of title to the goods with the consent of the owner
The agent pledges the goods while acting in the
ordinary course of business of a mercantile agent
The pawnee acts in good faith and
The pawnee has not at the time of the pledge, notice
that the agent has no authority to pledge.

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 Pledge by non-owners

Pledge by person in possession

under voidable contract
When a person has obtained possession of the
goods under a voidable contract and he pledges
those goods before the contract has been
rescinded, the pawnee of such goods acquired a
goods title to them provided the pawnee acts in
good faith and without notice of the pawnor’s defect
of title. [Section 178A]

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 Pledge by non-owners

Pledge by seller in possession after

sale
Where a seller having sold goods, continues to be in
possession of the goods or of the documents of title
to the goods and pledges them either himself or
through a mercantile agent to a person who pledges
them in good faith and without notice of the sale, it
will be a valid pledge. [Section 30 of the Sales of
Goods Act]

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 Pledge by non-owners

Pledge by buyer in possession before

sale
Where a person having bought or agreed to buy
goods obtains with the consent of the seller,
possession of the goods or documents of title to the
goods and pledges them either himself or through
an agent, the pawnee who acts in good faith and
without notice of any right of the original owner is
respect of the goods. The pledge of goods will be
valid. [Section 30 of the Sales of Goods Act]

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 Pledge by non-owners

Pledge by co-owner in possession

One of the several co-owners of goods in
possession thereof with the assent of the other
coowners may create a valid pledge of the goods if
the pawnee acts in good faith and without notice
about the co-owner.

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Pledge by non-owners

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Any Question?

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Many Thanks

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