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Contract of Bailment and Pledge: Features and Distinctiveness

Contract of bailment and pledge are different from each other. According to section 148 of the Indian Contract Act, 1872, Bailment means delivery of goods from one person to another for some purpose. On the accomplishment of such purpose, the person received the goods returns or otherwise disposes of them as per the instructions of the person delivering them. The person who delivers the goods is known as bailor.

The person to whom such goods are delivered is known as bailee. On the other hand, a pledge is defined under section 172 of the Indian Contract Act, 1872, states the bailment of goods as security for payment of a debt or performance of a promise is called pledge. The bailor in this case called pawnor. The bailee is called the pawnee. Here the features and distinctiveness of contract of bailment and pledge is discussed further.

Contract of Bailment and Pledge

Bailment, according to Chitty, is the delivery of goods to another, other than as a servant, for some purpose upon a condition, express or implied, that after the purpose has been fulfilled they shall be redelivered to the bailor, or otherwise dealt with according to his directions, or kept till he reclaims them.[1]

Thus it is a delivery of goods for some purpose on an understanding that they are to be returned after the achievement of such purpose. In case of a contract of bailment, there is only the change of possession and not ownership.

Bailor remains the owner of the goods; bailee only gets the possession of such goods. There may be actual delivery or constructive delivery of the goods. On the other hand, the term pledge literally means thing given over as security. In the ordinary sense of the term, a pledge is a case in which money is advanced on goods or chattels which are given to the person as security against the money.

Gratuitous Bailment and Contractual Bailment

Bailment can be two types, gratuitous bailment, and contractual bailment; in gratuitous bailment, neither the bailor nor the bailee receives any remuneration. Such a bailment may be for the exclusive benefit of either the bailor or the bailee. However, it terminates on the death of either the bailor or the bailee. Section 159 states that in the case of the gratuitous bailment, the bailor or the lender may require the bailee to return the goods any time, even before the expiration of the period of lending.

Also, he can do so even before the fulfillment of the purpose of bailment. However, if the bailee or the borrower incurs any loss due to this act of the bailor, the bailor needs to indemnify him for the loss or damages. The Contractual Bailment is for the mutual benefit of both the bailor and the bailee. For example, A hands over certain goods to B for transporting to Delhi. A here got the benefit of transportation and B gets transportation charges. Thus, both are benefitted.

Bailment, involves the transfer of possession of goods to a person, who holds the goods either for or at the direction of their owner, to whom they will be returned.[2] It implies a sort of relationship in which the personal property (movable) of one person temporarily goes into the possession of another.

The ownership of the goods is in one person and the possession thereof on another. It happens in numerous situations. Delivering a car or any other article for repair, leaving a cycle or car in a parking zone, depositing luggage in a clock room or delivering garments to a dry cleaner for cleaning, delivering goods for warehousing or carriage and so forth, are such situations which create the relationship of bailment. Bailment is thus, a subject of common public importance. [3] Bailment is thus said to be a relationship sui generis.[4]

At common law, bailment is often associated with a contract, but this is not always the case.....An action against a bailee can often be put, not as an action in contract, nor in tort, but as an action on its own, sui generis, arising out of the possession had by the bailee of the goods. Stated in, Lord Denning M.R. in Builsing and Civil Engineering Holidays Scheme Management Ltd. v. Post Office,[5]

Bailment, thus, can exist independently of any contract. For instance, it is created by the voluntary taking into custody of goods which are the property of another, as in case of bailment by finding.[6] Section 148 of the Indian Contract act, 1872, defines bailment as -'Bailment', 'bailor' and 'bailee' defined as A bailment is the delivery of goods by one person 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 direction of the person delivering them. The person delivering is called the bailee.

Features of Bailment

1. Delivery of goods for some purpose. Delivery means the transfer of possession of the goods from one person to another. Delivery need not always be actual. It may sometimes be a constructive or symbolic delivery. Section 149 recognizes delivery other than actual delivery.

It provides The delivery to the bailee may be made by doing anything which has the effect of putting the goods in the possession of the intended bailee or of any person authorized to hold them on his behalf.

In Jagdish Chandra Trikha V. Punjab National Bank[7], the plaintiff's father had entrusted a box containing 480 tolas, i.e., about 5600 grams gold ornaments and jewelry to the defendant Bank at Peshawar before the partition of the country. The jewelry box was locked, wrapped, and sealed when delivered. A proper receipt describing the contents of the box was given by the Bank.

From Peshawar, the box came to the Lahore branch of the Bank and thereafter to the Delhi branch. It was found that when the jewelry box was delivered to the plaintiff in Delhi, it was not in the same condition as it was delivered at Peshwar. The Lahore branch of the bank had its own wrapper on the box and it was not locked.

The plaintiff thereafter claimed the gold ornaments and jewelry deposited with the bank or their value amounting to Rs. 3,72,400. It was held that the position of the Bank was that of a bailee and it failed in its duty to take care of the goods and return them to the plaintiff. The Bank was held liable to pay the sum of Rs. 3,72,400 along with simple interest @ 12% p.a from the date of the institution of the suit till the date of realization of the amount.

If a person assumes the custody of another person's goods, even without any formal arrangement, this is sufficient to constitute bailment.[8] In Ultzen v. Nichols,[9] the plaintiff went to the defendant's restaurant for dining. When the plaintiff went to the defendant's restaurant, a waiter took the plaintiff's coat from him without being requisted to do so and hung it on a hook behind the plaintiff. When the plaintiff wanted to leave, he found that the coat was missing.

It was held that the defendant was the bailee of the coat as his servant had assumed the possession of the same and he was, therefore, liable for its loss which was because of the defendant's negligence. But if the owner maintains control over the goods, there is no bailment. When a person keeps his goods on the premises of another person but continues to have control over them, this is not sufficient delivery for being considered to be bailment.

In Kalia Porumal Pillai v. Visalakshmi,[10] a lady took her old jewels to a goldsmith for melting and converting it into new jewels. Every evening she used to receive the half made jewels, put the same into a box, and lock and then leave it on the premises of the goldsmith but the key to the box was in her possession. One night the jewels were stolen. It was held that there was no bailment as she had not handed over the possession of the jewels to the goldsmith, and, therefore, the goldsmith could not be made liable for the loss.

Similarly, in case of a locker where the customer is given the key of the locker, and if the bank do not keep an alternative key. In such a case, although the locker may be on the premises of the bank, the person who has kept his valuables in the locker has control over such goods, and there is no bailment of such goods to the bank. The position would, however, be different if the locker in the safe deposit vault of the bank can be operated even without the key of the customer.

This may be explained by the case of the National Bank of Lahore v. Sohan Lal.[11] In this case, the appellant bank used to maintain a safe deposit vault in its Jullundur City branch, where locker cabinets were rented to customers for the safe custody of jewelry and other valuables. One key to a locker was given to the customer, without which the locker would not open. However, the bank manager of that branch fraudulently filed the levers of the locker locks rented to the plaintiffs, so that the locks could be opened without the key given to the customer.

The valuables kept by the plaintiffs in the locker were found missing. Apart from the question of vicarious liability of the bank for the fraud of its agent, the question of the liability of the bank as a bailee for the customer's valuable in the locker also rose.

The bank contended to be a bailee of the valuables in the locker. It was held that, as in this case, the locker could be operated even without the key, the customer's control over the valuables in the locker had gone, and the same was with the bank, and, therefore, the bank was liable.

There can be a bailment without a contract, in some cases the question which has arisen is, can there be a bailment, when a person obtains the possession without a contract of bailment? In Ram Gulam v. Govt. of U.P[12], the Allahabad High Court expressed the view that obligations of a bailee can arise only out of a contract of bailment and not otherwise. In this case, the plaintiff's property was stolen.

The same was recovered by the police and was kept in the police Malkhana. From there, it was again stolen and could not be traced. The plaintiff brought an action to recover the value of the property. The state was not held liable, firstly, because it did not occupy the position of a bailee and, therefore, it was not liable as such, and secondly, the police, when it took and kept the property in its possession, was acting in the discharge of the obligations imposed by law, rather than in obedience to some executive orders.

The point of decision in the above case that bailment cannot arise without a contract, does not appear to be convincing. The law itself recognizes the finder of goods as bailee.[13] In some subsequent cases, it has been held that bailment can be there even without a contract.

2. Return of the goods after the purpose is achieved, or their disposal according to the bailor's directions. The delivery of the goods, in a bailment of the goods, is only for some purpose, e.g., for safe custody, for carriage, or for repair, etc.

When the purpose is accomplished, the goods are to be returned or otherwise disposed of according to the directions of the person delivering them. As stated in section 148, the goods shall, when the purpose is accomplished, be returned or otherwise disposed of according to the directions of the person delivering them.

This element distinguishes bailment from other transactions like the sale of goods, or gifts, where the property in the goods is transferred and they are not to be returned in any case. In every bailment, the same thing is to be returned either in the same form or in an altered form.

When the cloth is given being stitched into a suit, or gold for being converted into ornaments, or wheat for being converted into flour, there is bailment in each case. When the money is deposited in a bank, it is not bailment, because the banker do not return the same money to the depositor. [15]

Similarly, when an agent receives some payment on behalf of the principal, he is not the bailee as he is only bound to pay an equivalent of it to the principal rather than exactly the same currency.[16] When the goods are delivered without an intention to take them back and the exact cost of the goods has been charged, it would be a transaction of sale rather then a contract of bailment.

Features of Pledge
A valid pledge must satisfy the following. There should be a bailment of goods, i.e, the delivery of goods from one person to another. In Revenue Authority v. Sudarsanam Pictures[18] it has been held that an agreement wherein, the producer of a film agrees to deliver final prints of the film under production, when the same is ready, to a financier-distributor in return for the finance provided is not pledge because there is no delivery of the goods.

2. The purpose of such a pledge is to make the goods serve as security for the payment of a debt, or performance of a promise. In Bank of India v. Binod Steel Ltd.[19], it has been held that when certain movables have been pledged by a company to a bank, they cannot be attached and sold for satisfying the claim of the creditors of the company without first satisfying the claim of the bank.

Bailment and Pledge Distinctiveness
Bailment is a wider term. It includes a pledge. Pledge is a kind of bailment, where the goods are delivered by one person to another as security for payment of a debt or performance of a promise. It means that if the goods serve as security, it is a pledge, whereas when the goods are given for some other purpose, for example, a watch is given for repairs, it is bailment.

In the case of bailment, if the bailor does not pay the lawful charges due to the bailee, the bailee can exercise a lien over the bailed goods, i.e. he can retain them until the necessary payment is made. In case of pledge, the pledge has not only a right to retain the goods pledged until the repayment of debt or performance of the promise but even may sell the goods, after giving due notice of sale to the pawnor.

Thus to conclude we can say bailment implies a sort of relationship in which the personal property of one person temporarily goes into the possession of another. The ownership of the articles or goods is in one person and the possession on another.

The circumstances in which this happens are numerous. Delivering a cycle, watch or any other article for repair, or leaving a cycle or car, etc, at a stand, depositing luggage or books in a cloakroom, delivering gold to a goldsmith for making ornaments, delivering garments to a dry-cleaner, delivering goods for carriage, warehousing or storage and so forth, are all familiar situations that create the relationship of bailment. Thus bailment is the subject of considerable public importance.

On the other hand a pledge is only a special kind of bailment, and the chief basis of distinction is the object of the contract. Where the object of the delivery of goods is to provide security for a loan or for the fulfillment of an obligation, it is considered a pledge.

  1. Chitty on Law of Contract, 1947, 843
  2. Anson, Law of Contract, 2002, 456
  3. C.V. Davidge, Bailment, (1925) 41 L.Q.R 433
  4. Cheshire, 5, 112
  5. (1966) 1 Q.B. 247
  6. Halsbury's Law of England, Bailment, IV, reissue Vol. 2, para 1081
  7. AIR 1998 Delhi 266S
  8. Port Trust of Bombay v. Premier Automobiles, AIR 1981 S.C. 1982
  9. (1894) 1 Q.B. 92
  10. AIR 1938 Mad 32
  11. AIR 1962 Punjab 534
  12. AIR 1950 All. 106
  13. Section 71
  14. Tata Iron & Steel Co. Ltd v. South Eastern Roadways, Jameshdpur, AIR 2012, Jhar 27
  15. Ichha Dhanji v. Natha, (1888) 13 Bom. 338
  16. Bridges v. Garrett, (1870) L.R. 5 C.P. 451
  17. Dinesh V Pai v. Chief Engineer, Naval Academy, Kochi, AIR 2003 Ker. 280
  18. AIR 1968 Mad. 319
  19. AIR. 1977 M.P 188

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