Category Archives: Contract – II



Duties/Responsibilities of a Bailee ?

Category : Contract – II

  1. Duty to take reasonable care
    In English law the duties of a gratuitous and non-gratuitous bailee are different. However, in Indian law, Section 151 treats all kinds of bailees the same with respect to the duty. It says that in all cases of bailment, the bailee is bound to take as much care of the goods bailed to him as a man of ordinary prudence would, under similar circumstances take, of his own goods of the same bulk, quality, and value as the goods bailed. The bailee must treat the goods as his own in terms of care. However, this does not mean that if the bailor is generally careless about his own goods, he can be careless about the bailed goods as well. He must take care of the goods as any person of ordinary prudence would of his things.

    In Blount vs War Office 1953, a house belonging to the plaintiff was requisitioned by the War Office. He was allowed to keep his certain articles in a room of the house, which he locked. The troops who occupied the house were not well controlled and broke into the room causing damage and theft of the articles. It was held that War office did not take care of the house as an owner would and held the War Office liable for the loss.

    Bailee, when not liable for loss etc. for thing bailed –
    As per section 152, in absence of a special contract, the bailee is not responsible for loss, destruction, or deterioration of the thing bailed, if he has taken the amount of care as described in section 151. This means that if the bailee has taken as much care of the goods as any owner of ordinary prudence would take of his goods, then the bailee will not be liable for the loss, destruction, or deterioration of the goods. No fixed rule regarding how much care is sufficient can be laid down and the nature, quality, and bulk of goods will be taken into consideration to find out if proper care was taken or not. In Gopal Singh vs Punjab National Bank, AIR 1976, Delhi HC held that on the account of partition of the country, when a bank had to flee along with mass exodus from Pakistan to India, the bank was not liable for the goods bailed to it in Pakistan.

    If the bailee has taken sufficient care in the security of the goods, then he will not be liable if they are stolen. However, negligence in security, for example leaving a bicycle unlocked on the street, would cause the bailee to be liable. In Join & Son vs Comeron 1922, the plaintiff stayed in a hotel and kept his belonging in his room, which were stolen. The hotel was held liable because they did not take care of its security as an owner would.

    If loss is caused due to the servant of the bailee, the bailee would be liable if the servant’s act is within the scope of his employment.

    Special Contract
    The extent of this responsibility can be changed by a contract between the bailor and the bailee. However, it is still debatable whether the responsibility can be reduce or it can be increased by a contract.  Section 152 opens with, “In absence of special contract”, which is interpreted by Punjab and Haryana HC, as the bailee can escape his responsibility by way of a contract with the bailor. However, in another case Gujarat HC held that the bank was liable for loss of bales of cotton kept in its custody irrespective of the clause that absolved the bank of all liability. This seems to be fair because no one can get a license to be negligent and a minimum standard of care is expected from everybody.

    2. Duty not to make unauthorized use (Section 154)
    Section 154
    says that if the bailee makes any use of the goods bailed which is not according to the conditions of the bailment, he is liable to make compensation to the bailor for any damage arising to the goods from or during such use of them.
    Illustration – A lends horse to B for his own riding only. B allows C, a member of his family, to ride the horse. C rides with care but the horse is injured. B is liable to compensate A for the injury to the horse.
    A hires a horse in Calcutta from B expressly to march to Benares. A rides with care but marches to Cuttack instead. The horse accidentally falls and is injured. A is liable to make compensation to B.

    Thus, we can see that bailee is supposed to use the goods only as per the purpose of the bailment. If the bailee makes any unauthorized use of the goods, he will be held absolutely liable for any damages.

    3. Duty not to mix (Section 155-157)
    The bailee should maintain the separate identity of the bailor’s goods. He should not mix his goods with bailor’s good without bailor’s consent. If he does so, and if the goods are separable, he is responsible for separating them and if they are not separable, he will be liable to compensate the bailor for his loss.  For example, A bails 100 bales of cotton with a particular mark to B. B, without A’s consent, mixes them with his own. A is entitled to have his 100 bales returned and B is bound to bear all expenses for separation. But if A bails a barrel of Cape flour worth Rs 45 to B and B mixes it with country flour worth Rs 25, B is liable to A for the loss of his flour.

    4. Duty to return (Section 160)
    Section 160 –
    It is the duty of the bailee to return or deliver according to the bailor’s directions, 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.

    If the bailee keeps the goods after the expiry of the time for which they were bailed or after the purpose for which they were bailed has been accomplished, it will be at bailee’s risk and he will be responsible for any loss or damage to the goods arising howsoever.
    In Shaw & Co vs Symmons & Sons 1971, the plaintiff gave certain books to the defendant to be bound. The defendant bound them but did not return them within reasonable time. Subsequently, the books were burnt in an accidental file. The defendants were held liable for the loss of books.

    5. Duty to return increase (Section 163)
    As per Section 163, in absence of any contract to the contrary, the bailee is bound to deliver to the bailor, or according to his directions, any increase of profit which may have accrued from the goods bailed.
    Illustration – A leaves a cow in the custody of B to be taken care of. The cow has a calf. B is bound to deliver the calf as well as the cow to B.

    6. Duty not to set up jus tertii (Section 166)
    As per Section 166 if the bailor has no title and the bailee, in good faith returns the goods back to the bailor or as per the directions of the bailor, he is not responsible to the owner in respect of such delivery.  Thus, once the bailee takes the goods from the bailor, he agrees that the goods belong to the bailor and he must return them only to the bailor. He cannot deny redelivery to the bailor on the ground that the bailor is not the owner.

    If there is true owner of the goods, he can apply to the court to stop the delivery of the goods from the bailee to the bailor. This right is given to the true owner in section 167.

 


RIGHTS OF BAILEE ?

Category : Contract – II

  1. Right to return goods to one of the joint owners without consent of all:

Where several joint owners of goods bail them, the bailee may deliver them back to, or dispose them of according to the directions of one joint owner without the consent of all, in the absence of any agreement to the contrary (Sec. 165).

  1. Rights of immunity against delivery of goods to the bailor if he has no title to the goods:

If the bailor has no title to the goods, and the bailee, in good faith, delivers them back to, or according to the direction of the bailor, the bailee is not responsible to the owner in respect of such delivery (Sec. 166).

  1. Right to seek directions of the Court where a third person claims the goods bailed:

If a person other than the bailor, claims the goods bailed, the bailee may apply to the Court to stop the delivery of the goods to the bailor and to decide the title of the goods.

  1. Right of lien:

Where the bailee expends labour and skill in respect of the goods bailed, he has, in the absence of a contract to the contrary, a right to retain such goods until he receives the remuneration for the services rendered in respect of such goods (Sec. 170).

  1. Right of action against third parties:

If a third person wrongfully deprives the use or possession of the goods, or injures them, the bailee is entitled to such remedies as the owner might have used in the like if no bailment had been made. (Sec. 180).

  1. Right to share compensation obtained by such suits:

Any compensation received from such suit shall be shared by the bailor and bailee in accordance with their interests.

 

Right of Lien (Section 170-171)
In general, Lien means the right to keep the possession of the property of a person until that person clear the debts. In case of bailment, the bailee has the right to keep the possession of the property of the bailor until the bailor pays lawful charges to the bailee. Thus, right of Lien is probably the most important of rights of a bailee because it gives the bailee the power to get paid for his services.

Lien is of two kinds –  Particular and General.

Particular Lien
This means that the lien holder has a right to keep possession of only that particular property for which the charges are owed. For example, A gives a horse and a bicycle to B. A agrees to pay B charges for training the horse and no charges for keeping the bicycle. Now, if A fails to pay charges for the horse, B is entitled to keep possession only of the horse and not of the bicycle. He must return the bicycle.
Section 170 gives this right to the bailee. It says that where the bailee has, in accordance with the purpose of the bailment, rendered any service involving the exercise of labor or skill in respect of the goods bailed, he has, in absense of a contract to the contrary, a right to retain such goods until he receives due remuneration for the services he has rendered in respect of them.

Illustrations – A delivers a rough diamond to B to be cut and polished, which is accordingly done. B is entitled to keep the diamond until charges for his services are paid.
A gives cloth to B, a tailor, to make into a cloth. B promises to deliver the coat as soon as it is done and also to give 3 months credit for the price. B is not entitled to keep the coat until he is paid.

Conditions for Particular Lien –

  1. Exercise of labor or skill –  This right is subject to the condition that the bailee has exercised labor or skill in respect of the goods. Further, it has been frequently pointed out that the labor or skill must be such as improves the goods. This, in Hutton vs Car Maintenance Co 1915, it was held that a job master has no lien for feeding and keeping the horse in his stable but a horse trainer does get a lien upon the horse.
  2. Labor or skill exercised must be for the purpose of the bailment – Any services rendered that are beyond the purpose of the bailment do not give a right of lien. For example, A bails his car to B to repair Engine. But B repairs tires instead. B will not get the right of lien.
  3. Labor or skill exercised must be in respect of the goods – As mentioned before, the bailee gets a right of lien only upon the goods upon which the service was performed.

General Lien – 
As opposed to Particular Lien, General Lien gives a right to the bailee to keep the possession of any goods for any amount due in respect of any goods. Section 171 says that, bankers, factors, wharfingers, attorneys of a High Court, and policy brokers 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; but no other persons have a right to retain, as a security for such balance, goods bailed to them, unless there is an express contract to that effect.
Thus, this right is only available to bankers, factors, wharfingers, attorneys of high court, and policy brokers. However, this right can be given to the bailee by making an express contract between the bailor and the bailee.


Difference between Bailment and Pledge ?

Category : Contract – II

Sr. No 

Bailment

 

Pledge

 

1

 

Sections 148 to 171 of the Indian Contract Act 1872 deals with bailment

 

Sections 172 to 181 of the Indian Contract Act deals with Pledge.

 

 

2

 

Meaning: The term bailment is derived from the French word ‘Bailor’, which means ‘to deliver. It means possession voluntarily from one person to another.

 

Meaning:  Pledge is a special kind of bailment. If the goods are bailed as a security for payment of a debt or performance of a promise, it is called Pledge.

 

 

3

 

Definition: Delivery of goods by Bailor to Bailee for a definite purpose on condition of their return or disposal, when purpose is accepted. (Section.148, I.C.A)

 

Definition: The Bailment of goods as security for payment of a debt or performance of a promise is called pledge. (Section.178, I.C.A)

 

 

4

 

Example:  Sam delivers a cloth to John, a tailor making a shirt . The contract between Sam and John is bailment

 

Example: If a Farmer delivers to bank 50 bags of wheat as security for obtaining a loan, it is called pledge.

5 

It is made for any purpose

 

It is made for specific purpose

6 

The Bailee can use the goods

 

Pledgee cannot use the goods 

 

7

 

The Bailee has no right to sell the goods bailed

 

The Pledgee / Pawnee has a right to sell the goods pledged if the pledger could not redeem them within the stipulated period.

 

8

 

 

Bailee can exercise lien on goods only for labour and service

 

Pledgee can exercise lien even for nonpayment of interest.


Difference between Indemnity and Guarantee ?

Category : Contract – II

BASIS FOR COMPARISONINDEMNITY

Section 124

GUARANTEE

Section 126

1.MeaningA contract in which one party promises to another that he will compensate him for any loss suffered by him by the act of the promisor or the third party.A contract to perform the promise, or discharge the liability, of a third person in case of his default. it is the contract of guarantee.
2.Defined inSection 124 of Indian Contract Act, 1872Section 126 of Indian Contract Act, 1872
3.PartiesTwo, i.e. indemnifier and indemnified

It is a bipartite agreement between the indemnifier and indemnity-holder.

Three, i.e. creditor, principal debtor and surety

It is a tripartite agreement between the Creditor, Principal Debtor, and Surety.ety

4.Number of ContractsOne

There is only one contract in a contract of indemnity – between the indemnifier and the indemnity holder.

Three

There are three contracts in a contract of guaratee – an original contract between Creditor and Principal Debtor, a contract of guarantee between creditor and surety, and an implied contract of indemnity between the surety and the principal debtor.

5.Degree of liability of the promisorPrimary

Liability of the indemnifier is primary to the contract.

Secondary

Liability of the surety is co-extensive with that of the principal debtor although it remains in suspended animation until the principal debtor defaults. Thus, it is secondary to the contract and consequenty if the principal debtor is not liable, the surety will also not be liable.

6.PurposeTo compensate for the loss

The reason for a contract of indemnity is to make good on a loss if there is any.

To give assurance to the promise

the reason for a contract of guarantee is to enable a third person get credit.

7.Maturity of LiabilityThe liability of the indemnifier arises only on the happening of a contingency.Liability already exists.

There is usually an existing debt or duty, the performance of which is guaranteed by the surety.

8.RIGHT OVER THIRD PARTYOnce the indemnifier fulfills his liability, he does not get any right over any third party. He can only sue the indemnity-holder in his own name.Once the guarantor fulfills his liabilty by paying any debt to the creditor, he steps into the shoes of the creditor and gets all the rights that the creditor had over the principal debtor.
9. Liability of third partyAn indemnifier cannot sue a third party for loss in his own name, because there is no privity of contract. He can do so only if there is an assignment in his favour.A surety, on discharging the debt due by the principal debtor, steps into the shoes of the creditor. He can proceed against the principal debtor in his own right
10. Initiative of contractContract gets formed upon indemnifier`s interestContract gets formed upon principal debtor`s interest
11.Type of contractContract between the indemnifier and the indemnity holder is express and specific.Contract between surety and principal debtor is implied and between creditor and principal debtor is express.