Unit-4 Contracts of Bailment and Pledge

Program Semester Subject Code Subject Name Unit number

: MBA : III : MB0051 : Legal Aspects of Business :4

Unit Title
Lecture Number

: Contracts of Bailment and Pledge

:1

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Unit-4 Contracts of Bailment and Pledge

Lecture Outline
Introduction Bailment and its Kinds Duties and Rights of Bailor and Bailee Termination of Bailment Finder of Lost Goods Pledge or Pawn Pledge by Non-owners Rights and Duties of Pledgor and a Pledgee Activity

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Unit-4 Contracts of Bailment and Pledge

Contracts of Bailment and Pledge

Objectives Describe the bailment and its types Explain the duties and rights of bailor Define pledge Explain the pledge by non-owner

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Unit-4 Contracts of Bailment and Pledge

Introduction

In this unit you will study about the contract of bailment. At one time or another, where we enter into a legal business relationships,

called bailment and pledge.

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Unit-4 Contracts of Bailment and Pledge

Bailment and its Kinds

Definition of bailment (Sec.148)
Delivery of goods by one to another person 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 person delivering them. The person who deliver the goods is called the bailor. The person to whom the goods are delivered is called the bailee.

Characteristics

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Delivery of goods Bailment is based on a contract Return of goods in specie Ownership of goods

Unit-4 Contracts of Bailment and Pledge

Bailment and its Kinds

Kinds of bailments
Deposit Commodatum Hire Pawn or Pledge Delivery of goods for being transported, or something to be done about them, by the bailee for reward Delivery of goods for being transported, or something to be done about them, by the bailee, but without reward.

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Unit-4 Contracts of Bailment and Pledge

Duties and Rights of Bailor and Bailee

Duties of a bailor
To disclose know faults in the goods (Sec.150). Liability for breach of warranty as to title To bear expenses in case of gratuitous bailments In case of non-gratuitous bailments, the bailor is held responsible to bear only extraordinary expenses.

Duties of a bailee
To take care of the goods bailed (Sec.151). Not to make unauhorised use of goods (Sec.154). Not to mix bailors goods with his own (Secs.155-157).

To return the goods bailed without demand (Sec.160 ).

To return any accretion to the goods bailed (Sec.163).

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Unit-4 Contracts of Bailment and Pledge

Duties and Rights of Bailor and Bailee

Rights of a bailee
The duties of the bailor are, in fact, if looked from the point of view of bailee, the bailees rights. Another right of bailee is the right of lien (Secs.170-171). Right against wrongful deprivation of or injury to goods (Secs.180-181).

Rights of a bailor
The bailor can enforce, by suit, all duties or liabilities of the bailee In case of gratuitous bailment (i.e., bailment without reward), the bailor can demand their return whenever he pleases, even though he lent it for a

specified time or purpose

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Unit-4 Contracts of Bailment and Pledge

Termination of Bailment

On the expiry of the stipulated period.

On the accomplishment of the specified purpose.

By bailees act inconsistent with conditions of bailment. A gratuitous bailment may be terminated at any time (Sec.159).

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Unit-4 Contracts of Bailment and Pledge

Finder of Lost Goods

A finder of lost goods is treated as the bailee of the goods found as such and is charged with the responsibilities of a bailee, besides the

responsibility of exercising reasonable efforts in finding the real owner.

Right to retain the goods (Sec.168) Right to sell (Sec.169).

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Unit-4 Contracts of Bailment and Pledge

Pledge or Pawn
Pledge Sec.172- The bailment of goods as security for payment of a debt or performance of a promise. The person, who delivers the goods as security, is called the pledgor.

The person to whom the goods are so delivered is called the pledgee.

Advantages of Pledge The goods are in the possession of the creditor. Stocks cannot be manipulated as they are under the lenders possession and control. In the case of insolvency of the borrower, lender can sell the goods and

prove for the balance of the debt, if any.

There is hardly any possibility of the same goods being charged with some other party if actual possession of the goods is taken by the lender.
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Unit-4 Contracts of Bailment and Pledge

Pledge by Non-owners
Pledge by a mercantile agent. Pledge by seller or buyer in possession after sale.

Pledge by a person in possession under a voidable contract (Sec.178-A).

Pledge by co-owner in possession Pledge by a person having limited interest (Sec.179)

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Unit-4 Contracts of Bailment and Pledge

Duties and Rights of Pledgor and a Pledgee

Sec.176- If the pledgor fails to pay his debt or complete the performance of obligation at the stipulated time, the pledgee can exercise any of the

following right:
Bring a suit against the pledgor upon the default in redemption of the debt or performance of promise and retain possession of goods

pledged as a collateral security; or

Sell the goods pledged on giving the pledgor a reasonable notice of

sale.

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Unit-4 Contracts of Bailment and Pledge

Duties and Rights of Pledgor and a Pledgee

In addition to the rights mentioned in Sec.176, a pledgee has the following rights:

It is the duty of the pledgor to disclose any defects or faults in the goods
pledged which are within his knowledge.

Claim any damages suffered because of the defective title of the pledgor.

In case of injury to the goods or their deprivation by a third party, he

would have all such remedies.

Pawnees right of retainer [Sec.173].

A pledgee has a right to recover any extraordinary expenditure incurred

for the preservation of the goods pledged (Sec.175).

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Unit-4 Contracts of Bailment and Pledge

Duties and Rights of Pledgor and a Pledgee

Duties of Pledgee He is required to take as much care of the goods pledged to him

He must not put the goods to an unauthorised use.

He is bound to return the goods on payment of the debt. Any accruals to the goods pledged belong to the pledgor and should be

delivered accordingly.

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Unit-4 Contracts of Bailment and Pledge

Duties and Rights of Pledgor and a Pledgee

Duties of Pledger He must disclose to the pledgee any material faults or extraordinary risks in

the goods to which the pledgee may be exposed.

He is responsible to meet any extraordinary expenditure incurred by the pledgee for the preservation of the goods.

Where the pledgee has exercised his right of sale of goods, any shortfall
has to be made good by the pledgor.

He is liable for any loss caused to the pledgee because of defects in his

(pledgors) title to the goods.

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Unit-4 Contracts of Bailment and Pledge

Duties and Rights of Pledgor and a Pledgee

Rights of Pledger To claim back the security pledged on repayment of the debt with interest

and other charges.

To receive a reasonable notice in case the pledgee intends to sell the goods, and in case he does not receive the notice he has a right to claim any damages that may result.

In case of sale, the pledgor is entitled to receive from the pledgee any
surplus that may remain with him after the debt is completely paid off. Right to claim any accruals to the goods pledged. If any loss is caused to the goods because of mishandling or negligence on

the part of the pledgee, the pledgor has a right to claim the same.

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Unit-4 Contracts of Bailment and Pledge

Activity Activity 1
A customer entrusts certain important documents for safe custody to his bank. The bank keeps the documents in a wooden box. Later it is found that the documents were destroyed due to moisture. Suggest the banks liability to the customer.

Activity 2
The owner of the goods can create a valid pledge by transferring to the creditor the documents of title relating to the goods. Provide your view on this with the help of real life business situation.

Activity 3
A lends his car to B for going to attend the annual general meeting of XYZ Limited, being held at Juhu, a place in Mumbai. The brakes of the car are not in working order. This fact is already known to A, but he did not tell B about the defect. B holds a valid driving licence. B, instead of going to attend the annual general meeting at Juhu, drives the car to the Gateway of India on a pleasure trip. The car meet with an accident and B gets injured. B wants to hold A liable for the injury. Suggest whether B would succeed?
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Unit-4 Contracts of Bailment and Pledge

THANK YOU

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