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Contract Of Bailment and Pledge

The special contracts under the Indian Contract Act of 1872 are the contracts of bailment and pledge. Read this blog to know more.

The term Contract Of Bailment and Pledge is used in law in its technical definition, which denotes a change in custody of goods, i.e., one person transfers the goods to another. Pledge, on the other hand, is a type of bailment in which one person bails his goods to some other person as security for loans. Specific contracts include both bailment and promise.

“A ‘bailment’ is the delivery of commodities by one person to another for some purpose, upon a contract that they should, after the purpose is fulfilled, be returned or otherwise disposed of according to the directives of the person delivering them,” says Section 148 of the Indian Contract Act of 1872. The ‘Bailor’ is the person who delivers the commodities, and the ‘Bailee’ is the person who receives the items for the stated reason. It is a sort of contract governed by Chapter IX (Sections 148-171) of the Indian Contract Act of 1872.

Essential features of the Contract of Bailment

A Valid Contract:A bailment is a form of contract. As a result, it must have all the fundamental parts of a valid contract. The bailment must include the fundamental aspects such as offer, consideration, contractual capacity, intention, and so on. The contract cannot be enforced in a court of law unless these fundamental features are present. A bailment contract, on the other hand, can be valid without consideration.

Bailment is classified into two categories.

  • Bailment without consideration is known as gratuitous bailment.
  • Non-Gratuitous Bailment: Bailment with consideration.

Delivery of Possession:

Section 149 of the Act states that “the delivery to the bailee may be accomplished by doing anything that has the effect of putting the goods in the possession of the intended bailee or any person Authorised to retain them on his behalf.” 

Delivery upon contract:

The commodities must be delivered from the bailor to the bailee only when both parties have signed a contract. The contract should include information about the transfer of the products and their return. The contract, however, can be “expressly signed by the parties” or “implied by the parties.”

Exception:

Recovered lost goods

When a third party discovers lost commodities, they act as the bailee of such goods.

  • The finder’s responsibilities include keeping the goods safe.
  • Do not use these items for personal use.
  • Make reasonable attempts to locate the true owner of the goods.
  • As soon as the things are discovered, make certain that they are transferred to their rightful owner.

The finder’s rights include the right to be reimbursed for the expenses and trouble incurred in keeping the things safe and locating the owner. (See Section 168). 

  • If the commodities are perishable, they must be sold.
  • The owner was unable to be located.
  • The revenues of the sale, however, must be remitted to the owner/bailor of the goods. (See Section 169)

Purpose:

The items must be transferred from the bailor to the bailee for a defined purpose. According to Sections 153 and 154, the bailment contract may be canceled if the bailee acts inconsistently or makes unauthorised use of the commodities. The specific objective is critical, and the parties must follow the contract.

Return Of Goods:

After the purpose for which the commodities were bailed has been fulfilled, the bailee must return the goods to the bailor. The method and manner of return will be determined by the contract or the wishes of the bailor. “It is the bailee’s obligation to return, or deliver according to the bailor’s directives, the items bailed, without demand, as soon as the time for which they were bailed has elapsed, or the purpose for which they were bailed has been completed,” Section 160 states.

Duties of the bailor 

Disclose Faults in Goods:

The bailor shall notify the bailee of any flaws in the bailed items. The bailor must be aware of such flaws and determine whether they interfere materially with the use of the goods. If the bailee is in grave danger, the bailor must disclose it. Furthermore, if the bailor fails to reveal the flaws, the bailor must make up for the bailee’s losses.

Goods Bailed for Hire:

If there is any damage to the commodities bailed for hire, the bailor is liable for it. Even if the bailor is unaware of the flaws in the bailed goods, he becomes liable.

Duties of Bailee

Reasonable Care:

In all bailment instances, the bailee is responsible for the bailed things as if they were his own. The bailee will be held accountable for the stolen goods while he is present. He will not be held accountable if he can demonstrate to the court that he was reasonable.

Not to Use the Bailed Goods without Authorisation:

If the bailee uses bailed items without adhering to the terms of the bailment, he is accountable to the bailor for any losses incurred during their use. The bailee is only allowed to utilise the bailed items for one purpose. The bailee is accountable for any damages caused by the illegal use of bailed items.

Termination of Bailment:

If the bailee violates the terms of the bailment, the bailor may declare the contract void in relation to the bailed goods.

Not to Mix Goods:

The bailee must separate his property from the bailor’s. The bailee cannot mix the items without the bailor’s permission. The concepts relating to the responsibility not to mix are as follows:

The Effect of a Mixture with the Consent of the Bailor: If goods are mixed with the consent of the bailor, both parties will get interest on their respective portions.

Effect of Mixture Without the Approval of the Bailor: Where Goods May Separate: If the bailee mixes the commodities without the consent of the bailor, the goods will stay in the parties if the goods can separate. However, the bailee is accountable for the separation costs as well as any losses sustained during the mixture.

Effect of Mixture without the Consent of the Bailor: Where Separation of Goods is Impossible: If the bailee mixes the goods without the consent of the bailor and it is not possible to separate the commodities, the bailee is obligated to compensate the bailor for the loss of the goods.

Pledge

The pledge is classified as a type of bailment. The execution of a promise or the bailment of commodities as security for debt repayment is referred to as a pledge. The bailor and the bailee are the same people.

Essential Characteristics of Pledge

Delivery of Possession:

The pledged commodities must be in the ownership of the Pawnee. The commodities can sometimes be kept in the pledger’s custody for a specific reason. However, it will have no effect on the promise.

Pledge of Goods upon Contract:

According to the contract, the pledge serves as a transfer. The goods must be delivered by the pawnor to the Pawnee under the terms of a contract. However, the loan and the delivery of the products do not have to happen at the same time.

Rights of A Pawnee

In terms of pledging the goods, the Pawnee has specific rights. The Pawnee has the following rights:

Right of the retainer:

The Pawnee has the right to keep the pledged goods. This does not simply apply to debt repayment or promise fulfilment. However, it is for the debt’s interest and any expenses related to the possession or pledged property.

Right as to extraordinary expenses:

The Pawnee can receive compensation from the pawnor for the extra costs of preserving the pledged goods.

Right, where Pawnor makes default:

If the pawnor is in default, the Pawnee has two unique rights. The Pawnee can sue the pawnor and keep the pledged goods as collateral security. The Pawnee may also sell the pledged goods by giving the pawnor sufficient notice of the sale. If the amount owed is still less after the sale, the pawnor is still obligated to pay the difference. If the sale proceeds exceed the required amount, the Pawnee may return the excess funds to the pawnor.

Conclusion

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