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Bailment and Pledge

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    RIGHTS OF BAILEE 1. Right to deliver goods to one incase of several joint owners If the goods are bailed by multiple owners and the bailment contract does not specify specifically the owner to whom the goods must be delivered, in such case the bailee can deliver the goods to any owner without the consent of all. 2. Right not to be held responsible on redelivery of goods to the Bailor without title If the bailor does not have a title to the goods and the bailee delivers the good to the good to the bailor in good faith then the bailee is not held responsible to the owner in such delivery. 3.

    Right to stop delivery of goods to bailor If there is a conflict between the bailor and the other person ( third party) claiming the delivery of goods then the bailor has the right to stop the delivery of goods through court. 4. Right to file suit against the wrongdoers. If the third party deprives the bailee of the possession , use of the goods or does any harm to the goods , the bailee is entitled to remedies and compensation by filing a case against the third party. 5. Right of “Particular Lien” The bailee has the right to retain goods and not deliver the goods until and unless all the lawful charges are paid by the bailor.

    BAILEE’S RIGHT OF LIEN Lien refers to the right of bailee to retain/avoid delivery of goods to bailor, owner of the goods, until and unless, the claims such as debts are settled. This proposes two things A) The bailee is in righteous possession of goods or securities in the ordinary course of business. B) The bailor is obliged to satisfy some legal claims such as debt to the bailee Right of lien may be conferred through statue, contract or by a general course of dealings between two parties. There are two types of lien. One is “general” and the other is “specific”

    A) General lien It refers to the right to retain all goods or property to the bailee/owner until and unless all the legal claims are satisfied by the bailee. For example – X delivers his watch for repairs to Y. Y can retain the watch until and unless X does not pay fully for repair charges. B) Specific lien It refers to the right to retain only those goods upon which the bailee has a claim. Foe example – X delivers a cloth to the tailor for stitching a coat. Tailor promises to deliver the cloth to X and also give one month credit.

    In such a case, tailor cannot retain the goods until the tailor is paid. FINDER OF THE GOODS The finder of the goods is subjected to same responsibilities as that of bailee. However, the ownership rests on the bailee. The finder is just in possession of the goods RIGHTS OF THE FINDER OF THE GOODS. 1. Right of lien If the finder has voluntarily incurred expenses related with finding the owner and preserving the goods, the finder has the right to retain the goods until and unless the compensation is provided by the bailee. However, if the owner of the goods has offered a specific reward ith regards to lost goods the the finder has right to sue for such rewards and retain the goods until and unless the reward is provided to the finder. 2. Right of sale If a good that is commonly subject of sale is lost, and the owner cannot be found out with a reasonable diligence or if owner refuses to pay all the lawful charges to the finders, the finder may see the goods if A) the good is perishable and is in the process of loosing its value. B) the expenses incurred with finding the owner and preserving the goods amounts to 2/3rd of the value OBLIGATION OF FINDER

    Various obligation must be fulfilled by the finder with regards to found goods according to the bailment contract. They are as follows 1. The finder must take reasonable care of goods found. However, he shall not be responsible for the loss of goods despite such care. 2. The finder cannot use the goods for his personal purpose. 3. The finder must not mix his goods with the found goods. 4. He should exercise reasonable diligence in finding the owner of the goods oe else he will be held for trespass. TERMINATION OF BAILMENT Bailment contract comes to an end in following cases 1. The bailment contract has expired. 2.

    The purpose of bailment contract is accomplished. 3. If misuse of goods takes place under the bailment contract. 4. When the subject matter of bailment is destroyed. 5. On the change of the subject matter of bailment which makes the bailment contract impossible to operate. 6. On the death of bailor or bailee. 7. When the goods are required to return before the specified time. PLEDGE According to Indian Contract Act 1872, pledge can be defined as “ the bailment of goods as a security foe payment of debt or performance of promise”. In pledge, the bailor is called the “pawner/pledgor” and the bailee is called the “pawnee/pledgee”.

    For example – Raiesh hands over his mobile set to jeevan as secuirity against a loan of Rs 5000. A pledge takes place when the goods are delivered to pawnee by pawner as a security against the advance. The delivery of goods may be “constructive” or “active”. In constructive delivery, the goods are delivered to the bailee with the sole purpose of security and which will be returned back after the pledgor meets his obligation. In active delivery, the possession of goods remain with A pledge is always a bailment whereas every bailment is not a pledge. An essential difference between pledge and bailment is with their objectives.

    A pledge is created with an objective of delivering goods as a security against some obligation or settlement. A bailment is created in order to entrust the possession of goods for safe custody or repairs,etc. Rights of Pawner 1. Right to claim goods back. Pawner has the right to claim back goods after he meets the obligation. 2. Defaulting Pawner’s right to redeem Debt. If the Pawner does not meet his obligation within the stipulated time, he has the right to redeem the goods pledge at any subsequent time before the actual sales is made but he must satisfy the obligation and in addition pay any expenses arising from the default. . Right to ensure preservation and maintenance of goods pledged. The Pawner has the right to ensure preservation and maintenance of goods pledged because Pawnee as a bailee owes such duties under the law. If damages or loss occurs with the goods pledged, Pawnee has the right to claim such damages or losses. In addition to the above rights, Pawner has the right to receive reasonable notice if the Pawnee intends to sell the goods pledged. If such notice is not made, then Pawner has the right to claim loss arising out of it.

    The Pawner also has the right to any surplus made by the Pawnee after the pledged goods are sold and debts are paid off. DUTIES OF PAWNER There are various duties that Pawner must fulfill. They are 1. The Pawner must disclose any faults or extraordinary risks in the goods pledged. 2. The Pawner is responsible to meet any extraordinary expenditure incurred by Pawnee for the preservation and maintenance of goods pledged. 3. The Pawner is responsible for any shortfalls in the debt if the pledged goods does not recover the entire amount. RIGHTS OF PAWNEE 1. Right of retainer of the goods.

    The Pawnee has the right to retain the goods pledged until all the obligations such as debt, interest and expenses arising out of preservation of goods are fulfilled by the Pawner. 2. Right where the Pawner makes default. If the Pawner does not fulfill his obligation within the stipulated time, Pawnee can exercise any of the following rights. A) Pawnee can bring suit against the pawner and retain the goods pledged as collateral security. B) Pawnee can sell the goods giving reasonable notice to the Pawner. In case, the sale of the goods pledged does not meet the obligation, the Pawnee can proceed for the balance to the Pawner.

    If, on the other hand, the surplus is made then such surplus should be accounted for Pawner. A reasonable notice must be given to the pledgor so that pledgor can meet his obligation as a last chance or see if the pledged goods fetches right amount and check if surplus or deficit arises out of sale. 3) Pawnee has the right to recover any loss arising out of defective goods pledged if he is not informed of such defects or extraordinary risks in advance by the Pawner 4) Pawnee has the right to claim any damages arising out of defective title of the goods. DUTIES OF PAWNEE There are various duties that Pawnee needs to perform.

    They are as follows 1. He is required to take as much care of goods pledged as a person of ordinary prudence would, under similar circumstances, take of his own goods, of similar nature. 2. He must not use the pledged goods for personal purpose or any unauthorized purpose. 3. He is required to return the pledged goods to the Pawner after the obligations are settled. 4. He is required to deliver any accruals to the goods as in case of surplus arising out of the sale of pledged goods. PLEDGE BY NON OWNERS. Generally, a valid pledge is created by the owner of the goods. However, there are some exceptions to this rule.

    They are as follows 1. Pledge by a Merchantile Agent A Merchantile Agent means an agent in customary course of business with authority either to sell goods or consign goods for the purpose of sale, or to buy goods, or to raise money on security of goods. If a merchantile agent is in possession of goods or documents of title of goods, he can create a valid pledge with the consent of owner of the goods. For a valid pledge by a merchantile agent, following conditions must be satisfied. A) Good faith The Pawnee must act in good faith and must not at time of pledge notice that the pawner has no authority to pledge the goods.

    B) Acting in ordinary course of business The merchantile agent must act in ordinary course of business. If the pledge takes place out of ordinary course of business then it is considered to be an invalid pledge. 2. Pledge by seller or buyer in possession after sale. Under section 30 of Sale of the Goods Act, a seller in possession of goods after sale, and a buyer, who obtains the possession of the goods with consent of seller before sale can create a valid pledge. For a valid pledge, the pawnee must act in good faith and without the notice of previous sale of goods or of the lien of seller over the goods. . Pledge by a person in possession under a voidable contract can create a valid pledge provided that the contract is not cancelled before the pledge and pawnee acts in good faith and without the notice of pawner’s defect of the title. 4. Pledge by co-owner in possession One of the several joint owners of goods can create a valid pledge with the consent of rest of the owners in possession of goods. 5. Pledge by person having limited interest Where the person has only a limited interest, the pledge is valid to the extent of the interest.

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