The Contract Act 1872

CA. Manish Dafria

Unit 1 Part 8  Bailment and Pledge

IPCC Paper 2 Business Laws, Ethics & Communication 

Learning Objective

What is Contract of BailmentWhat is Contract of Bailment

Legal Rules as to Bailment‐ Rights and Duties of Bailor and BaileeLegal Rules as to Bailment‐ Rights and Duties of Bailor and Bailee

Meaning of Contract of PledgeMeaning of Contract of Pledge

Difference between Contract of Bailment and Contract of PledgeDifference between Contract of Bailment and Contract of Pledge

Contract of Bailment

Meaning (Sec. 148)

This is called a contract for bailment.

according to instruction of the person delivering it 

with the understanding that goods shall be either returned to or  disposed off 

When a person delivers some  goods to  another person  for  some purpose, 

Examples of Contract of Bailment

Sending T.V. toservice centre forrepairing

Delivering oldjewellary togoldsmith forpolishing

Handing overgoods totransporter fortransportation

Giving clothes forDry Cleaning

Hiring of taxi fortour purposes

Bailor and Bailee

Bailor

•is the persondeliveringthe goods

Bailee

•is the personto whom thegoods aredelivered

Legal Rules As To Bailment

Duties of the Bailor: Disclose Faults In Goods (Sec 150)

The bailor is bound 

to disclose to the 

bailee, …

…faults in the goods bailed, 

…of which the bailor is aware, 

and 

…which materially interfere with the use of 

them, or expose 

the bailee to 

extraordinary risks.

Duties of the Bailor: Disclose faults in goods (Sec 150)

If  he does not make such disclosure, 

he is responsible for damage arising to the bailee, directly from such faults.

Duties of the Bailor: Disclose faults in goods (Sec 150)

If such goods are bailed for hire, 

..the bailor is responsible for such damage, 

…whether or not he was aware of the existence of such faults in the goods bailed.A hires a taxi car from B. The car brake fails and A is injured. Though

B was not aware of brake problems in car, B is responsible to A forthe injury.

Duties of Bailee: Care of Goods (Sec 152)

The bailee, in the absence of any special contract, is not responsible for the loss, 

destruction or deterioration of the thing bailed, …

• ‐ if he has taken as much care of the goods bailed to himself as a man of ordinary prudence would  take  of his own goods .

Inconsistent Act by Bailee (Sec 153)

A contract of bailment is voidable at the option of thebailor,

if the bailee does any act with regard to the goods bailed,

inconsistent with the conditions of the bailment.

A lets to B, for hire, a horse for his own riding. B drives the horse in hiscarriage. This is, at the option of A, a termination of the bailment.

Liability Of Bailee Making Unauthorized Use Of Goods Bailed (Sec 154)

If the bailee makes any useof the goods bailed whichis not according to theconditions of the bailment,

..he is liable to makecompensation to the bailorfor any damage arising tothe goods from or duringsuch use of them.

A lends a horse to B for his own riding only. B allows C, a member of hisfamily, to ride the horse. C rides with care, but the horse accidentally falls andis injured. B is liable to make compensation to A for the injury done to thehorse.

Repayment, By Bailor, Of Necessary Expenses (Sec 158)

the bailor shall repay to the bailee the necessary expenses incurred by him for the purpose of the bailment.

and the bailee is to receive no remuneration, 

by the bailee for the bailor, 

Where, by the conditions of the bailment, the goods are to be kept or to be carried,  or to have work done upon them 

Restoration Of Goods Lent Gratuitously (Sec 159)

Bailor in the case of gratuitous bailment , has a right to demand the goods back even before the expiry of 

the period of bailment.

If in this process, loss is caused to the bailee, bailor is bound to 

compensate.

Duty of Bailee ‐Return Of Goods Bailed, (Sec 160)

the goods bailed, without demand, as soon as 

the time for which they were bailed has expired, 

or the purpose for which they were bailed has been accomplished.

It is the duty of the bailee 

to return, or deliver according to the bailor's directions, 

Bailee’s Responsibility When Goods Are Not Duly Returned (Sec 161)

If by the fault of thebailee, the goods arenot returned,delivered or tenderedat the proper time,

he is responsible tothe bailor for any loss,destruction ordeterioration of thegoods from that time.

Bailor Entitled To Increase Or ProfitFrom Goods Bailed (Sec 163)• In the absence of any contract to the contrary,the bailee is bound to deliver to the bailor, anyincrease or profit which may have accruedfrom the goods bailed.

A leaves a cow in the custody of B to be taken care of. The cow has calf. B isbound to deliver the calf as well as the cow to A.

Bailor’s Responsibility To Bailee (Sec 164)

by reason that the bailor was not, entitled to make the bailment, 

or to receive back the goods, 

or to give directions respecting them.

The bailor is responsible to the bailee 

for any loss, which the bailee may sustain 

Bailee Not Responsible On Redelivery To Bailor Without Title (Sec 166)• If the bailor has no title to the goods, and thebailee, in good faith, delivers them back to thebailor, the bailee is not responsible to theowner in respect of such delivery.

Finder of Goods

Right Of Finder Of Goods (Sec 168)

The finder of goods has 

NO right to sue the owner for compensation  

for trouble and expense voluntarily incurred by him to preserve the goods and to find out the owner.

Right Of Finder Of Goods (Sec 168)

However he may retain the goods against the owner

until he receives such compensation.

Finder Of Goods, May Sue For Specific Reward Offered (Sec 168)

Where the owner has offered a specific 

reward for the return of goods lost, 

the finder may sue for such reward, 

and may retain the goods until he receives 

it.

When Finder Of Thing Commonly On Sale May Sell It (Sec 169)When thing which is commonly the subject of sale is lost, 

and  the owner cannot with reasonable effort be found, 

or  he refuses, to pay the lawful charges of the finder, the finder may sell it …

When the thing is in danger of perishing or of losing the greater part of its value, or

When the lawful charges of the finder, in respect of the thing found, amount to two‐

thirds of its value.

General and Particular Lien

Lien means a right to retain the goods

Bailee’s Particular Lien (Sec 170)

Where bailee has, in accordance with the purpose of the bailment, 

rendered any service in respect of the goods bailed, 

he has a right to retain such goods 

until he receives due remuneration for the services he has rendered in respect of them.

A delivers a rough diamond to B, a jeweller, to be cut and polished, which isaccordingly done. B is entitled to retain the stone till he is paid for the services he hasrendered.

General Lien Of Bankers (Sec 171)

Bankers may, in the 

absence of a contract to the contrary, 

retain as a security for a 

general balance of account, 

any goods bailed to them.

Pledge

Pledge (Sec 172)

• Pledge is a Bailment of goods as security forpayment of a debt or performance of apromise

Eg., A borrows Rs.200 from B and keeps his watch as security for payment of the debt, the bailment of watch is a pledge.

Pledge (Sec 172)

Bailor of the  goods is called Pawnor .

Bailee of the goods is called Pawnee.

Pawnee’s Right Of Retainer (Sec 173)

and all necessary expenses incurred by him in respect of the possession or  for the preservation of the goods pledged.

and also for the interests on the debt, 

for payment of the debt or the performance of the promise, 

The pawnee may retain the goods pledged, 

No right of retainer for other  debt or promise (Sec 174)

The pawnee shall not, in the absence of a contract 

to that effect, 

retain the goods pledged for any debt or promise 

other than the debt or promise for which they are pledged.

Pawnee’s Right As To Extraordinary Expenses Incurred (Sec 175)

The pawnee is entitled to receive from the 

pawnor

extraordinary expenses incurred by him for the preservation of the goods pledged.

Pawnee's Right Where Pawnor Makes Default (Sec 176)

If the pawnor makes default in payment of the debt, in respect of which the goods were pledged,

the pawnee may sue the pawnor and retain the goods pledged as a collateral security; or 

he may sell the thing pledged, on giving the pawnor reasonable notice of the sale.

Pawnee's right where pawnor makes default (Sec 176)

If the proceeds of such sale are 

less than the amount due in respect of the debt or promise, 

the pawnor is still liable to pay the 

balance.

greater then the amount so due, 

the pawnee shall pay over the surplus to the 

pawnor.

Pledge V. Bailment

Pledge– Purpose: As security

– Sale of goods: Pledgee hasa right of sale of pledgedon default of pawnor

– Use of goods: No right

Bailment– Purpose: other purposes

like repairs, safe custody,etc.,

– Sale of goods: No right

– Use of goods: Can use asper the terms of thecontract

Thank You