BAILMENT AND PLEDGE

A delivers a piece of cloth to the tailor to be stitched into a suit.

A lends a book to B to be returned after examination.

A sells certain goods to B who leaves them in A ‘s possession.

An insurance company places a damaged insured car of A in possession of R, a repairer .

E’s ornaments having been stolen and recovered lying in Police custody.

BAILMENT AND PLEDGE

What is Bailment?• Section 148 defines Bailment as:

“The 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 the person delivering them.” The person delivering the goods is called the ‘Bailor’, and the person to whom goods are delivered is called the ‘Bailee’.

ESSENTIALS OF BAILMENT1. Goods: Bailment can be effected only

with respect to goods.2. Delivery: Delivery of goods by one

person to another is essential. ‘Delivery’ includes: Physical delivery Constructive delivery Symbolic delivery

ESSENTIALS OF BAILMENT3. To be returned

Without demand unless agreed otherwise.

4. In specie i.e., the same goods are to be

returned and not the equivalent.

including any accretion, e.g., bonus shares, calf born to a cow.

DUTIES OF BAILOR

1. To disclose faults in goods Only known faults where

bailment is gratuitous. All faults including not

known but existing at the time of bailment in case of non-gratuitous bailment.

DUTIES OF BAILOR

2. To bear expenses Gratuitous Bailment: All

expenses – ordinary or extra-ordinary.

Non-Gratuitous Bailment: Only extra-ordinary expenses.

3.To indemnify for loss caused because of defective title.

DUTIES OF BAILEE

1. To take care of the goods bailed As much care as a man of

ordinary prudence will take in respect of his own goods of the same nature and value.

2. Not to make unauthorized use of goods

DUTIES OF BAILEE3. Not to mix bailor’s goods

with his own/other bailor’s.

If does, then: Where goods can be separated

Bailee to bear cost of separation. Where goods can not be

separated Bailor to be compensated for loss.

4. To return the goods in specie

Section 172

“Pledge is the

bailment of goods

as security for

payment of debt or

performance of a

promise.”

DELIVERY ESSENTIAL Discussion on Bailment applicable to pledge also.

Right of a pledgee to effect sale of goods without intervention of Court (Sec.176):After giving reasonable notice to the

pledger.

Sale without reasonable notice shall make pledgee liable to pay damages to the pledger.

However, sale will be valid.

SPECIAL CONTRACTS

Indemnity and Guarantee Meaning and Definition of IndemnitySection 124 defines a contract of indemnity as “A contract of indemnity is a contract whereby one party promises to save the other from loss caused to him by the conduct of the promisor himself or by the conduct of any other person. Definition of Indemnity under Section 124 is restrictive [Gajnan Moreshwar v. Moreshwar Madan].

COMMENCEMENT OF INDEMNIFIER’S LIABILITY

Diversified views expressed by courts. According to earlier view – indemnifier

does not become liable until the indemnified has incurred on actual loss.

But according to later view – indemnifier may compel the indemnifier to place him in a position to meet liability.

CONTRACT OF GUARANTEE

Meaning and DefinitionA contract of guarantee is defined by the Indian Contract Act, as “A contract to perform the promise or discharge the liability of a third person in case of his default. The person who gives the guarantee is called the ‘Surety’, the person for whom the guarantee is given is called the ‘Principal Debtor’, and the person to whom the guarantee is given is called the ‘Creditor’.”

DISTINCTION In case of guarantee, surety has a

secondary liability but in case of indemnity, the liability of the indemnifier is primary.

A contract in which ‘A’ says to ‘B’, ‘If you lend ₤20 to ‘C’, I will see that your money comes back’

IS A CONTRACT OF INDEMNITY.

On the other hand, an undertaking in these words, ‘If you lend ₤20 to ‘C’, and he does not pay you, I will’ is a contract of guarantee.

NATURE OF SURETY’S LIABILITY Secondary but co-extensive Unless otherwise agreed, it can be

neither less nor more than the liability of the principal debtor.

Minor Principal Debtor vis-à-vis Liability of Surety.

KINDS OF GUARANTEES

Specific Guarantee

Continuing Guarantee

SPECIFIC GUARANTEE A guarantee is a “specific guarantee”, if

it is intended to be applicable to a particular debt and thus comes to an end on its repayment.

A specific guarantee once given is irrevocable. Even the death of the surety does not result in revocation of the guarantee. Legal successor(s) continue to remain liable. However, their liability shall be limited to the value of the assets inherited.

CONTINUING GUARANTEE A guarantee which extends to a

series of transactions is called a “continuing guarantee”, e.g., (i) fidelity guarantee, (ii) overdraft.

The death of the surety operates, in the absence of any contract to the contrary, as a revocation of a continuing guarantee, so far as regards future transactions (Section 131).

JOINT GUARANTEE Where joint sureties have

guaranteed an equal amount

Liability shall be equal.

Where joint sureties have guaranteed different amounts

Liability shall be equal

subject to the amount

guaranteed (Section

147).

EXAMPLES:1. ‘A’, ‘B’ and ‘C’ as sureties for ‘D’, enter into

three several bonds, each in a different penalty, namely, ‘A’ in the penalty of Rs.10,000/-, ‘B’ in that of Rs.20,000/-, ‘C’ in that of Rs.40,000/-, conditioned for ‘D’s duly accounting to ‘E’. ‘D’ makes default to the extent of Rs.30,000/-. ‘A’, ‘B’ and ‘C’ are each liable to pay Rs.10,000/-.

2. In the above example, if ‘D’ makes default to the extent of Rs. 40,000/-, ‘A’ is liable to pay Rs.10,000/-, and ‘B’ and ‘C’ Rs.15,000/- each.