Bailment & Pledge: Notes | Corporate & Other Laws for CA Intermediate PDF Download

 Page 1


1.29 
BAILMENT AND PLEDGE 
LEARNING OUTCOMES 
UNIT–2: BAILMENT AND PLEDGE 
After studying this unit, you would be able to: 
?
Understand the general principles underlying contracts of 
bailment and pledge. 
?
Know duties and rights of the parties to the contracts. 
 
 1. WHAT IS BAILMENT? 
The word “Bailment” has been derived from the French word “ballier” which 
means “to deliver”. Bailment etymologically means ‘handing over’ or ‘change of 
possession’.  
Bailment and Pledge [Section 148-181]
Bailment [Section 148-171]
Duties 
and 
Rights 
of 
Bailor
Duties 
and 
Rights 
of 
Bailee
Finder 
of 
Goods
General 
lien and 
particular 
lien
Pledge [Section 172-181]
Pawnee 
Rights 
Pawnor 
Rights
Pledge by 
Mercantil
e Agent
Distinction 
between 
bailment and 
pledge
 
Page 2


1.29 
BAILMENT AND PLEDGE 
LEARNING OUTCOMES 
UNIT–2: BAILMENT AND PLEDGE 
After studying this unit, you would be able to: 
?
Understand the general principles underlying contracts of 
bailment and pledge. 
?
Know duties and rights of the parties to the contracts. 
 
 1. WHAT IS BAILMENT? 
The word “Bailment” has been derived from the French word “ballier” which 
means “to deliver”. Bailment etymologically means ‘handing over’ or ‘change of 
possession’.  
Bailment and Pledge [Section 148-181]
Bailment [Section 148-171]
Duties 
and 
Rights 
of 
Bailor
Duties 
and 
Rights 
of 
Bailee
Finder 
of 
Goods
General 
lien and 
particular 
lien
Pledge [Section 172-181]
Pawnee 
Rights 
Pawnor 
Rights
Pledge by 
Mercantil
e Agent
Distinction 
between 
bailment and 
pledge
 
 
 
1.30 
 
CORPORATE AND OTHER LAWS 
As per Section 148 of the Act, bailment is the delivery of goods by one person to 
another for some purpose, upon a contract, that the goods shall, when the 
purpose is accomplished, be returned or otherwise disposed of according to the 
directions of the person delivering them.   
Parties to bailment:  
(a) Bailor: The person delivering the goods. 
(b) Bailee: The person to whom the goods are delivered.  
Example 1: Where ‘X’ delivers his car for repair to ‘Y’, ‘X’ is the bailor and ‘Y’ is the 
bailee. 
Example 2: X delivers a piece of cloth to Y, a tailor, to be stitched into a suit. It is 
contract for bailment. 
Example 3: Goods given to a friend for his own use, without any charge. 
Example 4: X delivers goods to blue dart for carriage. 
Analysis: 
The essential elements of a contract of bailment are— 
(a) Contract: Bailment is based upon a contract.  The contract may be express 
or implied. No consideration is necessary to create a valid contract of 
bailment. 
(b) Delivery of goods: It involves the delivery of goods from one person to 
another for some purposes. Bailment is only for moveable goods and never 
for immovable goods or money. The delivery of the possession of goods is 
of the following kinds: 
i. Actual Delivery: When goods are physically handed over to the bailee 
by the bailor. Eg: delivery of a car for repair to workshop 
ii. Constructive Delivery: Where delivery is made by doing anything 
that has the effect of putting goods in the possession of the bailee or 
of any person authorized to hold them on his behalf. Eg: Delivery of 
the key of a car to a workshop dealer for repair of the car. 
(c) Purpose: The goods are delivered for some purpose. The purpose may be 
express or implied.  
(d) Possession: In bailment, possession of goods changes. Change of 
possession can happen by physical delivery or by any action which has the 
effect of placing the goods in the possession of bailee. The change of 
Page 3


1.29 
BAILMENT AND PLEDGE 
LEARNING OUTCOMES 
UNIT–2: BAILMENT AND PLEDGE 
After studying this unit, you would be able to: 
?
Understand the general principles underlying contracts of 
bailment and pledge. 
?
Know duties and rights of the parties to the contracts. 
 
 1. WHAT IS BAILMENT? 
The word “Bailment” has been derived from the French word “ballier” which 
means “to deliver”. Bailment etymologically means ‘handing over’ or ‘change of 
possession’.  
Bailment and Pledge [Section 148-181]
Bailment [Section 148-171]
Duties 
and 
Rights 
of 
Bailor
Duties 
and 
Rights 
of 
Bailee
Finder 
of 
Goods
General 
lien and 
particular 
lien
Pledge [Section 172-181]
Pawnee 
Rights 
Pawnor 
Rights
Pledge by 
Mercantil
e Agent
Distinction 
between 
bailment and 
pledge
 
 
 
1.30 
 
CORPORATE AND OTHER LAWS 
As per Section 148 of the Act, bailment is the delivery of goods by one person to 
another for some purpose, upon a contract, that the goods shall, when the 
purpose is accomplished, be returned or otherwise disposed of according to the 
directions of the person delivering them.   
Parties to bailment:  
(a) Bailor: The person delivering the goods. 
(b) Bailee: The person to whom the goods are delivered.  
Example 1: Where ‘X’ delivers his car for repair to ‘Y’, ‘X’ is the bailor and ‘Y’ is the 
bailee. 
Example 2: X delivers a piece of cloth to Y, a tailor, to be stitched into a suit. It is 
contract for bailment. 
Example 3: Goods given to a friend for his own use, without any charge. 
Example 4: X delivers goods to blue dart for carriage. 
Analysis: 
The essential elements of a contract of bailment are— 
(a) Contract: Bailment is based upon a contract.  The contract may be express 
or implied. No consideration is necessary to create a valid contract of 
bailment. 
(b) Delivery of goods: It involves the delivery of goods from one person to 
another for some purposes. Bailment is only for moveable goods and never 
for immovable goods or money. The delivery of the possession of goods is 
of the following kinds: 
i. Actual Delivery: When goods are physically handed over to the bailee 
by the bailor. Eg: delivery of a car for repair to workshop 
ii. Constructive Delivery: Where delivery is made by doing anything 
that has the effect of putting goods in the possession of the bailee or 
of any person authorized to hold them on his behalf. Eg: Delivery of 
the key of a car to a workshop dealer for repair of the car. 
(c) Purpose: The goods are delivered for some purpose. The purpose may be 
express or implied.  
(d) Possession: In bailment, possession of goods changes. Change of 
possession can happen by physical delivery or by any action which has the 
effect of placing the goods in the possession of bailee. The change of 
 
 
1.31 
 
BAILMENT AND PLEDGE 
possession does not lead to change of ownership. In bailment, bailor 
continues to be the owner of goods. Where a person is in custody without 
possession he does not become a bailee.   
 For example, servant of a master who is in custody of goods of the master 
does not become a bailee. 
 Similarly, depositing ornaments in a bank locker is not bailment, because 
ornaments are kept in a locker whose key are still with the owner and not 
with the bank. The ornaments are in possession of the owner though kept in 
a locker at the bank. 
(e) Return of goods: Bailee is obliged to return the goods physically to the 
bailor. The goods should be returned in the same form as given or may be 
altered as per bailor’s direction. It should be noted that exchange of goods 
should not be allowed. The bailee cannot deliver some other goods, even 
not those of higher value.  
 Deposit of money in a bank is not bailment since the money returned by the 
bank would not be identical currency notes. 
 
Different forms of Bailment: Following are the popular forms of bailment: 
(1) Delivery of goods by one person to another to be held for the bailor’s use. 
(2) Goods given to a friend for his own use without any charge. 
(3) Hiring of goods. 
(4) Delivering goods to a creditor to serve as security for a loan. 
(5) Delivering goods for repair with or without remuneration. 
ESSENTIALS OF BAILMNET
Contract
Delivery of goods
Purpose
Possession
Return of goods
Page 4


1.29 
BAILMENT AND PLEDGE 
LEARNING OUTCOMES 
UNIT–2: BAILMENT AND PLEDGE 
After studying this unit, you would be able to: 
?
Understand the general principles underlying contracts of 
bailment and pledge. 
?
Know duties and rights of the parties to the contracts. 
 
 1. WHAT IS BAILMENT? 
The word “Bailment” has been derived from the French word “ballier” which 
means “to deliver”. Bailment etymologically means ‘handing over’ or ‘change of 
possession’.  
Bailment and Pledge [Section 148-181]
Bailment [Section 148-171]
Duties 
and 
Rights 
of 
Bailor
Duties 
and 
Rights 
of 
Bailee
Finder 
of 
Goods
General 
lien and 
particular 
lien
Pledge [Section 172-181]
Pawnee 
Rights 
Pawnor 
Rights
Pledge by 
Mercantil
e Agent
Distinction 
between 
bailment and 
pledge
 
 
 
1.30 
 
CORPORATE AND OTHER LAWS 
As per Section 148 of the Act, bailment is the delivery of goods by one person to 
another for some purpose, upon a contract, that the goods shall, when the 
purpose is accomplished, be returned or otherwise disposed of according to the 
directions of the person delivering them.   
Parties to bailment:  
(a) Bailor: The person delivering the goods. 
(b) Bailee: The person to whom the goods are delivered.  
Example 1: Where ‘X’ delivers his car for repair to ‘Y’, ‘X’ is the bailor and ‘Y’ is the 
bailee. 
Example 2: X delivers a piece of cloth to Y, a tailor, to be stitched into a suit. It is 
contract for bailment. 
Example 3: Goods given to a friend for his own use, without any charge. 
Example 4: X delivers goods to blue dart for carriage. 
Analysis: 
The essential elements of a contract of bailment are— 
(a) Contract: Bailment is based upon a contract.  The contract may be express 
or implied. No consideration is necessary to create a valid contract of 
bailment. 
(b) Delivery of goods: It involves the delivery of goods from one person to 
another for some purposes. Bailment is only for moveable goods and never 
for immovable goods or money. The delivery of the possession of goods is 
of the following kinds: 
i. Actual Delivery: When goods are physically handed over to the bailee 
by the bailor. Eg: delivery of a car for repair to workshop 
ii. Constructive Delivery: Where delivery is made by doing anything 
that has the effect of putting goods in the possession of the bailee or 
of any person authorized to hold them on his behalf. Eg: Delivery of 
the key of a car to a workshop dealer for repair of the car. 
(c) Purpose: The goods are delivered for some purpose. The purpose may be 
express or implied.  
(d) Possession: In bailment, possession of goods changes. Change of 
possession can happen by physical delivery or by any action which has the 
effect of placing the goods in the possession of bailee. The change of 
 
 
1.31 
 
BAILMENT AND PLEDGE 
possession does not lead to change of ownership. In bailment, bailor 
continues to be the owner of goods. Where a person is in custody without 
possession he does not become a bailee.   
 For example, servant of a master who is in custody of goods of the master 
does not become a bailee. 
 Similarly, depositing ornaments in a bank locker is not bailment, because 
ornaments are kept in a locker whose key are still with the owner and not 
with the bank. The ornaments are in possession of the owner though kept in 
a locker at the bank. 
(e) Return of goods: Bailee is obliged to return the goods physically to the 
bailor. The goods should be returned in the same form as given or may be 
altered as per bailor’s direction. It should be noted that exchange of goods 
should not be allowed. The bailee cannot deliver some other goods, even 
not those of higher value.  
 Deposit of money in a bank is not bailment since the money returned by the 
bank would not be identical currency notes. 
 
Different forms of Bailment: Following are the popular forms of bailment: 
(1) Delivery of goods by one person to another to be held for the bailor’s use. 
(2) Goods given to a friend for his own use without any charge. 
(3) Hiring of goods. 
(4) Delivering goods to a creditor to serve as security for a loan. 
(5) Delivering goods for repair with or without remuneration. 
ESSENTIALS OF BAILMNET
Contract
Delivery of goods
Purpose
Possession
Return of goods
 
 
1.32 CORPORATE AND OTHER LAWS 
(6) Delivering goods for carriage. 
Note: On the basis of reward, bailment can be classified into two types: 
a. Gratuitous Bailment: The word gratuitous means free of charge. So a 
gratuitous bailment is one when the provider of service does it gratuitously 
i.e. free of charge. Such bailment would be either for the exclusive benefits 
of bailor or bailee. 
b. Non-Gratuitous Bailment: Non gratuitous bailment means where both the 
parties get some benefit i.e. bailment for the benefit of both bailor & bailee 
 
 2. DUTIES OF A BAILOR 
Duties of Bailor: The duties of bailor are spelt out in a number of Sections 
[Section 150, 158, 159, 164].  These are categorized under the following headings: 
 
These are enumerated hereunder: 
(i) Bailor’s duty to disclose faults in goods bailed [Section 150]:  
Bailment
Gratuitous Bailment
for the exclusive 
benefit of bailor
for the exclusive 
benefit of the baillee
Non Gratutitous 
bailment
For the benefit of 
the bailor and the 
bailee
Duties of 
Bailor
•Disclose known facts
•Bear necessary expenses
•Indemnify bailee
•Bound to accept the goods
Page 5


1.29 
BAILMENT AND PLEDGE 
LEARNING OUTCOMES 
UNIT–2: BAILMENT AND PLEDGE 
After studying this unit, you would be able to: 
?
Understand the general principles underlying contracts of 
bailment and pledge. 
?
Know duties and rights of the parties to the contracts. 
 
 1. WHAT IS BAILMENT? 
The word “Bailment” has been derived from the French word “ballier” which 
means “to deliver”. Bailment etymologically means ‘handing over’ or ‘change of 
possession’.  
Bailment and Pledge [Section 148-181]
Bailment [Section 148-171]
Duties 
and 
Rights 
of 
Bailor
Duties 
and 
Rights 
of 
Bailee
Finder 
of 
Goods
General 
lien and 
particular 
lien
Pledge [Section 172-181]
Pawnee 
Rights 
Pawnor 
Rights
Pledge by 
Mercantil
e Agent
Distinction 
between 
bailment and 
pledge
 
 
 
1.30 
 
CORPORATE AND OTHER LAWS 
As per Section 148 of the Act, bailment is the delivery of goods by one person to 
another for some purpose, upon a contract, that the goods shall, when the 
purpose is accomplished, be returned or otherwise disposed of according to the 
directions of the person delivering them.   
Parties to bailment:  
(a) Bailor: The person delivering the goods. 
(b) Bailee: The person to whom the goods are delivered.  
Example 1: Where ‘X’ delivers his car for repair to ‘Y’, ‘X’ is the bailor and ‘Y’ is the 
bailee. 
Example 2: X delivers a piece of cloth to Y, a tailor, to be stitched into a suit. It is 
contract for bailment. 
Example 3: Goods given to a friend for his own use, without any charge. 
Example 4: X delivers goods to blue dart for carriage. 
Analysis: 
The essential elements of a contract of bailment are— 
(a) Contract: Bailment is based upon a contract.  The contract may be express 
or implied. No consideration is necessary to create a valid contract of 
bailment. 
(b) Delivery of goods: It involves the delivery of goods from one person to 
another for some purposes. Bailment is only for moveable goods and never 
for immovable goods or money. The delivery of the possession of goods is 
of the following kinds: 
i. Actual Delivery: When goods are physically handed over to the bailee 
by the bailor. Eg: delivery of a car for repair to workshop 
ii. Constructive Delivery: Where delivery is made by doing anything 
that has the effect of putting goods in the possession of the bailee or 
of any person authorized to hold them on his behalf. Eg: Delivery of 
the key of a car to a workshop dealer for repair of the car. 
(c) Purpose: The goods are delivered for some purpose. The purpose may be 
express or implied.  
(d) Possession: In bailment, possession of goods changes. Change of 
possession can happen by physical delivery or by any action which has the 
effect of placing the goods in the possession of bailee. The change of 
 
 
1.31 
 
BAILMENT AND PLEDGE 
possession does not lead to change of ownership. In bailment, bailor 
continues to be the owner of goods. Where a person is in custody without 
possession he does not become a bailee.   
 For example, servant of a master who is in custody of goods of the master 
does not become a bailee. 
 Similarly, depositing ornaments in a bank locker is not bailment, because 
ornaments are kept in a locker whose key are still with the owner and not 
with the bank. The ornaments are in possession of the owner though kept in 
a locker at the bank. 
(e) Return of goods: Bailee is obliged to return the goods physically to the 
bailor. The goods should be returned in the same form as given or may be 
altered as per bailor’s direction. It should be noted that exchange of goods 
should not be allowed. The bailee cannot deliver some other goods, even 
not those of higher value.  
 Deposit of money in a bank is not bailment since the money returned by the 
bank would not be identical currency notes. 
 
Different forms of Bailment: Following are the popular forms of bailment: 
(1) Delivery of goods by one person to another to be held for the bailor’s use. 
(2) Goods given to a friend for his own use without any charge. 
(3) Hiring of goods. 
(4) Delivering goods to a creditor to serve as security for a loan. 
(5) Delivering goods for repair with or without remuneration. 
ESSENTIALS OF BAILMNET
Contract
Delivery of goods
Purpose
Possession
Return of goods
 
 
1.32 CORPORATE AND OTHER LAWS 
(6) Delivering goods for carriage. 
Note: On the basis of reward, bailment can be classified into two types: 
a. Gratuitous Bailment: The word gratuitous means free of charge. So a 
gratuitous bailment is one when the provider of service does it gratuitously 
i.e. free of charge. Such bailment would be either for the exclusive benefits 
of bailor or bailee. 
b. Non-Gratuitous Bailment: Non gratuitous bailment means where both the 
parties get some benefit i.e. bailment for the benefit of both bailor & bailee 
 
 2. DUTIES OF A BAILOR 
Duties of Bailor: The duties of bailor are spelt out in a number of Sections 
[Section 150, 158, 159, 164].  These are categorized under the following headings: 
 
These are enumerated hereunder: 
(i) Bailor’s duty to disclose faults in goods bailed [Section 150]:  
Bailment
Gratuitous Bailment
for the exclusive 
benefit of bailor
for the exclusive 
benefit of the baillee
Non Gratutitous 
bailment
For the benefit of 
the bailor and the 
bailee
Duties of 
Bailor
•Disclose known facts
•Bear necessary expenses
•Indemnify bailee
•Bound to accept the goods
 
 
1.33 
 
BAILMENT AND PLEDGE 
a. In case of gratuitous bailment: 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; and if he does not make such disclosure, he is 
responsible for damage arising to the bailee directly from such faults.  
 Example 5: A lends a horse, which he knows to be vicious, to B. He 
does not disclose the fact that the horse is vicious. The horse runs 
away. B is thrown and injured. A is responsible to B for damage 
sustained.  
b. In case of non- gratuitous bailment: If the goods are bailed for hire, 
the bailor is responsible for such damage, whether he was or was not 
aware of the existence of such faults in the goods bailed 
 Example 6: A hires a carriage of B. The carriage is unsafe, though B is 
not aware of it, and A is injured. B is responsible to A for the injury. 
 In Hyman & Wife v. Nye & Sons (1881), A hired from B a carriage along 
with a pair of horses and a driver for a specific journey. During the 
journey a bolt in the under-part of the carriage broke away. As a result 
of this, the carriage became upset and A was injured. It was held that B 
was liable to pay damages to A for the injury sustained by him. The 
court observed that it was the bailor’s duty to supply a carriage fit for 
the purpose for which it was hired. 
 Sometimes, the goods bailed are of dangerous nature (e.g., 
explosives). In such cases it is the duty of the bailor to disclose the 
nature of goods. [Great Northern Ry’ case (1932)] 
(ii) Duty to pay necessary expenses [Section 158]:  
a. In case of Gratuitous bailment: Where, by the conditions of the 
bailment, the goods are to be kept or to be carried, or to have work 
done upon them by the bailee for the bailor, and the bailee is to 
receive no remuneration (gratuitous bailment), the bailor shall repay 
to the bailee the necessary expenses incurred by him and any 
extraordinary expenses incurred by him for the purpose of the 
bailment.  
b. In case of non-gratuitous bailment the bailor is liable to pay the 
extraordinary expenses incurred by the bailee.