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8/3/2019 MODULE 2 BL

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BAILMENT AND PLEDGE

MODULE 2


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DEFINITION

According to Section 148 of the Contract Act A bailmentis the deliveryofgoods byone person toanotherforsome purpose, uponacontract that theyshall, when thepurpose isaccomplished, be returnedorotherwise

disposedofaccording to the directionsof the persondelivering them.

Some ofthe examplesofbailment are- Acloth given toatailorforstitching, a watch given toashop forrepairing,afriendlending his bicycle toanotherfriendforridingit

and jewelry takenonrent forwearingit to party. The persondelivering the goodsiscalled the Bailorand

the person to whom the goodsare deliverediscalled theBailee118.


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Illustration 1

Ram sends his car to the garage for

repair. In this case Ram is the bailor andthe garage owner is the bailee. The

garage owner (bailee) has to repair the car

and then hand it over to Ram (bailor).


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The following are the essential

features of Bailment: Movable goods: The goodsin bailment are goodsasdefinedinsection 2 (7) of the sale ofgoodsAct, 1930, which means everykindofmovable propertyotherthanmoney. Immovable propertylike landand buildingsare not consideredasgoods.

Delivery of goods: Section 149 of the Indiancontract act 1872

explains the mode ofdeliveryofgoods. It states that there may betwomodesofdelivery.Actualdeliveryandconstructive delivery. Inactualdelivery the bailorhandsoverphysical possessionofgoodsto the bailee andinconstructive delivery the bailordoesnot handoverphysical possessionofgoods but doessomething which hasthe same effect ofputting the goodsin possessionofthe bailee.

Some purpose: The deliveryofgoodsfrom bailorto bailee isdone

toaccomplish some purpose. Ifgoodsare delivered bymistakewithout any purpose then there isno bailment.

Return of goods:Afterthe purpose forwhich the goods were bailedto the bailee has beenfulfilled the goods have to be returned to thebailor.


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RIGHTS AND DUTIES OF

BAILOR AND BAILEE Duties of a Bailor

(1) To disclose known facts: The bailor should disclose the known faults about the goods,which he/she has bailed to the bailee. If the bailor does not disclose the defects then he/sheis liable for any damage caused to the bailee due to such defects in the goods.

(2) To incur extraordinary expenses of bailment: The bailee is responsible to bear ordinary andreasonable expenses of the bailment but for any extraordinary expenses it is the bailor whois responsible.

(3) To indemnify bailee for loss in case of premature termination of gratuitous bailment: If thegratuitous bailment is terminated by the bailor before the specified time then any loss thebailee incurs due to such termination shall not be born by the bailor. However if the losssuffered by the bailee exceeds the benefit he/she has derived from bailment then in such acase the bailor shall indemnify the bailee.

(4) To receive back the goods: once the purpose has been fulfilled for which the

goods were bailed out it becomes the duty of the bailor to receive back his/her goods

from the bailee. He cannot refuse to take back the goods. However if the bailor refuses totake back the goods then the bailee is entitled to receive compensation for the expenseshe/she incurs in custody of goods.

(5) To indemnify the bailee: If the title of the good is defective and due to that the bailee suffersa loss then the bailor is responsible to the bailee for the loss suffered by him/her


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Duties of a Bailee

(1) To take reasonable care of the goods: It is the dutyof the bailee to take reasonable care of the goodsbailed to him/her by the bailor. According to

section 151 of the Indian Contract Act 1872 thebailee is to take care of the goods as a man ofordinary prudence would, under similarcircumstances, take of his own goods of the samebulk, quality and value as the goods bailed. Section152 states that if, in spite of taking all thereasonable care the goods are damaged ordestroyed in any way then the bailee is not liablefor the loss, destruction or the deterioration of thegoods bailed.

(2) Not to make any unauthorized use of goods: The

bailee is not to use the goods in a manner, which isinconsistent with the terms of the contract. Ifhe/she uses the goods in an inconsistent mannerthen he/she is liable for any loss or damage madeto the goods bailed.


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(3) Not to mix goods bailed with his/her own goods: The bailee is tokeep the goods bailed to him/herseparatelyfrom his/herowngoods.Ifthe bailee mixes the goods with his/hergoods- With Bailorsconsent- insuch acase both the bailorand the bailee shall have aproportionate interest in the mixture produceddue tomixingof

goods.(4) To return the goods: The bailee is bound toreturn the bailedgoods to the bailoronce the purpose forwhich the goods werebailed has beenfulfilled.

(5) To return any accretion to the goods: Ifduring the periodofbailment any profit oradditioninvalue hasaccruedfrom the goodsbailed thenit is the dutyofthe bailee toreturnsuch profit orincrease

invalue to the bailor.


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Rights of Bailor

(1) Duties of a Bailee: The duties of a bailee are the rights of a bailor. Thebailor can enforce by suit all the duties of the bailee as his/herrights121.

(2) Right to terminate the contract: According to section 153 of the IndianContract Act the bailor can at anytime terminate the contract ofbailment if he/she finds that the bailee has done an act, which isinconsistent with the terms of the contract of bailment.

(3) Right to demand return of goods at any time in case of gratuitousbailment:

According to section 159 of the Indian Contract Act in case the bailor

has lent the goods gratuitously to the bailee the bailor has a right toterminate the contract anytime before the expiry of the period.However if the termination causes loss to the bailee and the loss is inexcess of the benefit derived by him/her then the bailor has toindemnify the bailees loss.

(4) Compensation from a wrongdoer: According to section 180 of theIndian Contract Act if a third person wrongfully deprives the bailee

from the rightful use or possession of bailed goods or does them anyinjury or damage then the bailor or the bailee can bring a suit againstthat person for such deprivation or injury.


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Rights of Bailee

1 Duties of a Bailor: The duties of a bailor are

the rights of a bailee. The bailee can enforceby suit all the duties of the bailor as his/her

rights122.

2 Right to deliver goods to one of several joint

bailors: According to section 165 of theIndian Contract Act if the goods have been

bailed by several joint owners, the bailee has

a right to deliver them to, or according to the

directions of, one joint owner without the

consent of all, in the absence of any

agreement to the contrary.


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3 Right to deliver goods, in good faith, to bailor withouttitle: According tosection 166 of the Indian Contract Actthe bailee hasaright todeliver the goods, ingoodfaith,to the bailor without title, without incurringanyliability

towards the true owner.4 Right of lien: Lienmeans the right toretain possession

ofthe propertyorgoods, which belongs toanotherperson until that person pays the duesorclaims.Thebailee can exercise the right tolienonly till the goodsare

in his/hercustody.Assoonas the bailee loses thepossessionofgoods he/she loses the right tolien.


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PLEDGE

Definition:-

According tosection 172 of the Indian

Contract Act when bailment ofgoodsisdone assecurityforpayment ofadebt or

performance ofa promise it iscalled

pledge. Incase ofacontract ofpledge the

bailoriscalled the pledgerorpawnerandthe bailee iscalled the pledgee orpawnee.


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Illustration: Ramnath a farmer took loan of

rupees fifty thousand from the

moneylender for his daughters wedding

and he kept his cow with the moneylender

as a security for payment of debt. In this

case Ramnath is the pledger,

moneylender is the pledgee and the cow isthe good that has been pledged for the

performance of the promise.


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RIGHTS AND DUTIES OF

PAWNOR AND PAWNEERights of a Pawnee / Pledgee(1) Right of retainer: According to section 173 the

Pawnee has the right to retain the

goods pledged with him /her if the Pawnor / Pledger

does not repay the dues or doesnot perform the promise. The Pawnee may alsoretain the goods till the Pawnor pays

the interest due on the debt.

(2) Right of retainer for subsequent advances:

According to section 174 of the Indian Contract Act ifthe pawnee lends money to the same pawner afterthe date of the pledge then the pawnees right ofretention of goods extends to subsequent advances.


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(3) Right to extraordinary expenses:

According tosection 175 the Pawnee is

entitled toreceive from the pawnor

extraordinary expensesincurred by himfor

the safe keepingof the goods pledged

with him.Though he hasnoright toretain

the goodsfornon-payment ofsuchexpenses but he/she cansue the Pawnor

forthe recoveryofsuch expenses.


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(4) Right against true owner, when thePawnors title is defective: According tosection 178-Aif the Pawnorhasgot thepossessionofgoods which he /she has pledged

with the Pawnee underavoidable contract (byfraud, misrepresentation, undue influence andcoercion)126 and the contract hasnot beenrescindedat the time ofpledge, the pawneeacquiresagood title to the goods.The pawnee

getsagood title only when he actsingoodfaithanddoesnot have the knowledge ofthePawnorsdefect oftitle.


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(5) Has a right to recover from the Pawnor anydeficiency arising on the sale of the goods and isliable to the Pawnor to return any surplus, if any,realized on the sale of goods: In thiscase if the

pawnorfails torepay within the due date then thepawnee hasaright tosell the goods pawnedandrecover the moneyfromit. Incase the sale proceedsaremore than the loanamount then the pawnee isliable toreturn the surplus to the pawnorandifthe sale proceeds

are less than the loanamount then the pawnee canrecover the deficient amount from the pawnor.


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Law ofAgency

It isimportant toknow what exactlyisagency?Agencyisarelationship between two peoplewhere one iscalled the principaland the otheris

called the agent. DEFINITION

According to Section 182 ofthe Indian ContractAct 1872 anagent isa person employed todo

anyact foranotherortorepresent anotherindealings with third persons.The personforwhomsuch act isdone, orwhoissorepresented, iscalled the principal.


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Illustration: Sukrita a resident of Delhiwanted to buy a house in Shimla so sheapproached a property dealer and asked

him to purchase a house for her. Theproperty dealer bought a house from MrNagendra in Shimla according to thebudget and the other specifications given

by Sukrita. In this case Sukrita is theprincipal, the property dealer is the agentand Mr Nagendra is the third party.


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Who can be an agent?

One can become anagent even without having thecontractualcapacity therefore evenaminorora personofunsoundmindcan become anagent. Whethertheagent has the contractualcapacityordoesnot have the

contractualcapacityit is the principal who would be heldliable to the third partyforthe actsofthe agent. Howeverit is the agent with contractualcapacity who would beresponsible to the principalforhis/heractsandnot theagent without contractualcapacity therefore it isin the

interest of the principal toappoint only those agents whohave the contractualcapacity.


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Illustration 1: Badruddin a tailor sent his traineeRamzan who was twenty one-year old to hiscustomer Neeta to deliver a kurti. On the way

Ramzan lost the Kurti. Hence it is Badruddinwho is responsible to compensate Neeta for herlost Kurti and not Ramzan however Ramzan isresponsible to Badruddin for losing the kurti thusBadruddin if he wants can deduct from amzans

salary the cost of the Kurti or can take any otheraction to penalize Ramzan for hisirresponsibility.


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Characteristics of Agency

1 Agreement between principal and agent: It

isimportant that there be anagreement as

agencydependsonagreement andnot

necessarilyoncontract.Acontract cannot beformed with minorbecause anagreement with a

minorisvoid but anagreement ofagency with

minoris possible because between the principal

and the third personany personmay beappointedasanagent whetherit be aminorora

personofunsoundmind.


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2 Intention of the agent to act on behalf of the principal: it isimportant that the person (agent) intends toact on behalfofanother(principal) only thenagencymayarise.

3 Whatever the principal can do personally he/she can do itthrough his/her agent: The agent can performall those activities

which the principalisliable to perform howeverthe agent cannotperformacts which are personalincharacterorare annexed topublicoffice such asmarriage anddutyofamagistrate.

4 He who does an act through another does it by himself/herself: The actsofanagent are the actsofthe principal.Theprincipalisliable to the third partyforthe actsdone by the agent.

5 No consideration required for agency:According tosection 185

ofthe Indian ContractAct noconsiderationisnecessary tocreate anagency.The fact that the principal hasagreed to be represented bythe agent isasufficient detriment to the principal tosupport thecontract ofagency.


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CREATION OF AGENCY

Agencycan be createdinanyofthe

followingmanner:

The agent getsauthorityfrom theprincipal.The authoritycan be givenin two

ways. Eitherit can be expresslygivenor

the authoritycan be implied. Section 187

ofthe Indian Contract Act defines expressandimpliedauthorityas under:


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1 Express authority: Anauthorityissaid

to be express whenit isgiven by words

spokenorwritten.The authority enables

the agent to bind the principal byacts

done within the scope ofhis/herauthority.

The writtencontract ofagencyis the

powerofattorney whereinone personempowers the othertorepresent him/her,

oract in his/hersteadforcertain purposes.


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2 Implied authority:Animpliedauthorityarisesfrom the conduct,situationorrelationship ofthe parties. It isinferredfrom thecircumstancesof the case.The agencyarises when the principalconducts himself/ herselftowards the personalleged to be theagent to the third partiesinsuch amanner, asif the principal hadconceded to the appointment of that personasagent.Thisformofagencycan be formedinanyof the followingmanner.

(a) Agency in Emergency: According tosection 189 ofthe IndianContractAct anagent hasauthorityinan emergency, todoallsuchactsforthe purpose ofprotecting his/ herprincipalfromlossaswould be done bya personofordinary prudence in his/herowncase, undersimilarcircumstances.The agent while protecting the

principalfromlossmay exceed his/ herauthority thusgivingrise toagencyofnecessity provided (1) He / She wasnot ina position tocommunicate with the principal (2) Had takenallreasonable careandnecessarysteps to protect the interestsof the principal.And (3)hadacted bonafide.


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(b) Agency by Necessity: Sometimesincertain urgentcircumstances the law confersanauthorityona persontoact asanagent forthe benefit ofanother, there beingnoopportunityofcommunicating with that other. Suchagencyiscalledagencyofnecessity.

3 Agency by Estoppel: At times the principal by his/ herconduct createsanimpressionin the mindofa thirdperson that the agent hasanauthority toact on his/herbehalf. Insuch case the principalisliable towards thethird personfor the actsdone by the agent, on the

groundof the applicationof the law ofestoppel.Thebasisof the actionis what appears to the third person tobe anauthority, i.e.apparent orostensible authorityconferredon the agent.


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4 Agency by Holding out: Such anagencyis

basedon the doctrine ofholdingout which isa

part ofthe law ofestoppel. In thiscase also the

alleged principalis bound by the actsofthesupposedagent, ifhe /she hasinduced third

persons to believe that theyare done with

his/herauthority. But, unlike an agency by

estoppel agency by holdingoutrequiressomeaffirmative orpositive act orconduct by the

principal to establish agencysubsequently.


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3 Agency by Ratification: Sometimesa

personmayact asanagent ofsomeone

anddoesanact on his/herbehalffor

which he/she didnot have the authority

and that someone binds himself/ herself

forthe actsdone by the agent thenit is

calledagencycreated byratification.


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RIGHTS AND DUTIES OF AN

AGENT Duties of an agent

(1) Duty to follow principals directions or customs: Accordingto Section 211 of the Indian Contract Act the first duty of everyagent is to act within the scope of the authority conferred uponhim/her and performs the agency according to the directions

given by the principal. When the agent acts otherwise and lossis sustained the agent must make it good to the principal and ifany profit accrues then the agent must account for it.

(2) Duty to carry out the work with reasonable skill anddiligence. According to Section 212 of the Indian Contract Actthe agent must carry the work of agency with reasonablediligence and to the best of his/her skill.

(3) Duty to render accounts: According to Section 213 of theIndian Contract Act it is the duty of an agent to keep properaccounts of his/her principals money or property and renderthem to him /her on demand, or periodically if so provided inthe agreement.


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(4) Duty to communicate: According tosection 214 incase ofanydifficultythe agent shouldcommunicate with his/herprincipalandseekinstructionsfrom him/herbefore takinganystepsinfacing the difficultyoremergency.

(5) Duty not to deal on his/her own account: According to Section 215and 216 the agent must not dealon his/herownaccount that means that hemust buyorsellgoodsonlyon behalfofhis/herprincipal. Ifthe agentviolates thisrule then the principalmayrepudiate the transactionandcanalsoclaimfrom the agent any benefit, which may have resulted to the agentfrom the transaction.

(6) Duty not to make any profit out of his/her agency except his/herremuneration:According tosection 217 and 218 anagent must not makeanysecret profit out of the agency.The agent must pay to his/herprincipalallmoney, which he/she may have receivedon principalsaccount.

(7) Duty on termination of agency by principals death or insanity:According tosection 209 whenanagencyis terminated by the death of theprincipalordue to his/hermind becoming unsound, the agent must on behalfofthe legalrepresentativesofthe principal take allreasonable stepsfortheprotectionand preservationofthe interests entrusted to him/her.

(8) Duty not to delegate authority: According tosection 190 subject tocertain exceptions150 anagent cannot delegate his/herauthority toanotherperson. He/she has to performall the work himself/ herself.


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Rights of an agent:

(1) Right of retainer:According tosection 217 ofthe IndianContractAct the agent has the right toretainout ofsumsreceivedonaccount of the principalforthe moneydue to himself/ herselfinrespect ofhis/herremunerationoradvancesmade orexpensesproperlyincurred by himinconducting the businessofagency.

(2) Right to receive remuneration:According tosection 219 and220 the agent is entitled toreceive his/heragreedremunerationandifnothingisagreed, toareasonable remuneration, unless he/sheagrees toact gratuitously. In the absence ofanyspecialcontract theright toclaimremunerationarisesonly when the agent hasdonewhat he/she had undertaken todo.The agent canclaimremunerationonce the work has beencompleted even though the

contract isnot executedonaccount ofbreach eitherby the principalorthe third party.


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(3) Right of lien: According tosection 221 of the IndianContract Act anagent has the right toretaingoods,papersandotherproperty, whethermovable or

immovable, of the principalreceived by him/heruntil theamount due to himself/herselfforcommission,disbursementsandservicesinrespect of the same hasbeen paidoraccountedforto him/ her.The lienisaparticularlien but byaspecialcontract the agent may

have agenerallien151. (4) Right to be indemnified: According tosection 222 of

the Indian Contract Act anagent hasall the right to beindemnifiedagainst the consequencesofalllawfulactsdone by him/herin exercise of the authorityconferred

upon him/her.The agent also hasaright to beindemnifiedagainst the consequencesofactsdone ingoodfaith.Though it turnsout to be injurious to therightsof the third persons (section 223).


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(5) Right to compensation: According tosection 225 the agent has the right to be

compensatedforinjuriessustained byhim/herdue to the principalsneglect orwant ofskill.

(6) Right of stoppage of goods intransit: Anagent hasaright tostop thegoodsin transit to the principalifhe/shehas bought goods eitherwith his/herown

moneyorbyincurringa personalliabilityforthe price and the principal has becomeinsolvent.


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TERMINATION OF AGENCY

Anagencycan be terminatedorcan be brought toan end byanyof the followingways:

1 Byact of the parties

2 Byoperationoflaw

Agencycan be terminated by the act of the partiesin the following ways:

(1) By Revocation of Agents authority: According tosection 203 the principalcan

revoke the authorityof the agent at any time before the agent has exercised his/herauthoritysoas to bind the principal, unless the agencyisirrevocable (agencycannotbe terminated).

(2) By Agreement: Anagencycan be terminatedat any time bymutualagreementbetween the principaland the agent.

(3) By Renunciation by the agent: Anagencycan be terminated byan expressrenunciation by the agent because a personcannot be compelled tocontinue asagent against his/herwill.According tosection 206 the agent must give areasonable

notice ofrenunciation to the principalotherwise he/she will be liable tocompensatethe principalforanydamage resulting thereby. If the agencyisforafixed periodandthe agent renouncesit without sufficient cause before the expiryof the period, he/shewill have tocompensate the principalfor the resultingloss, ifany.


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Agencycanalso be terminated byoperationoflaw in

the followingcircumstances:

(1) By the completion of the business of agency: According tosection 201 anagencyautomatically terminates when the purpose forwhich agency wascreatedisfulfilled.

(2) By expiry of time: If the agencyisforafixed term, the expirationof the term putsan end to the agency, even though the businessof the agencymaynot have beencompleted.

(3) Death and insanity of the principal or the agent: According tosection 201 anagencyis terminatedautomaticallyon the death orinsanityof the principalor the

agent.Aftercoming toknow about the principalsdeath orinsanityalthough theagency terminates but the agent must take allreasonable stepsfor the protectionofthe interestsof the principal.

(4) By insolvency of the principal: According tosection 201 of the Indian ContractAct agency terminates when the principal becomesinsolvent.The sectionissilent onthe point whetheragency terminatesornot when the Agent becomesinsolvent.

(5) By destruction of the subject matter: when the agencyiscreated todeal with asubject matterand when that subject mattergetsdestroyed the agencyautomatically

terminates. (6) By dissolution of a company: When the principalor the agent isanincorporated

company, the agencyautomatically terminatesafter the companygetsdissolved.

(7) Principal or the agent becoming an alien enemy: If the principalandagent arenationalsof twodifferent countriesanda warbreaksout between the twocountriesthe agencygets terminated. If theystillcontinue the agency then they would be calledalien enemiesand theirrelationship ofagency will be called unlawful.


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Other classification of agents is as follows: Factor:As per the section 2 ofsale ofgoodsact, there isanagent knownas Mercantile Agent.As

the name suggest he is the one who worksforthe business (merchandize) of the principal.AFactorisone type ofamercantile agent whosellsgoodson behalfofhis principal. He has wideauthorityanddiscretionary powers tosellgoods uponsuch termsandconditionsas he thinksproper. He in broadertermsrelieves his principalfrom the burdenofhis work. Ifafactordoesany

act which is beyond hisauthority, but which is within the scope ofhisapparent authority, then hisprincipalis bound bysuch act.

Broker:A brokerisaspecial type ofmercantile agent whoactsasamiddleman between thebuyerand the seller. We cansay that he is employed to bringabout contractualrelationshipbetween the principaland the third party. He usuallygetscommissionforthe work performed. Hisfunction ends when he brings the two parties together. He isneverin possessionof the subject,therefore cannot exercise the right oflien.

Auctioneer:Auctionis usuallya publicsale ofgoodsmade in the highest ofseveral bidders.Anauctioneerisamercantile agent whoisappointed tosellgoodson behalfofprincipal,

compensatedin termsofcommission. CommissionAgents:Acommissionagent isgenerally, appointedforsellingorbuyinggoodson

behalfofhis principal. Such typesofagents belongs toasomewhat indefinite classofagents.He/She tries tosecure buyerforasellerofagoodsandsellersfora buyerofgoodsandreceivesacommissioninreturnforhis workon the actualsales price.

Del Credere Agents:A Del Credere agent isamercantile agent whois employed tosellgoodsonbehalfofhis principal. He undertakes toguarantee the payment ofduesinconsiderationforanextracommission. We cansay that besides beingamercantile agent adelcredere agent findshimselfinto the shoesofaguarantoras well.

ForwardingAgents: Forwardingagentsrenderservicesofcollectinggoodsfrom theirprincipalsandforwarding the same toshippingcompanies.Asforeign trade proceduresare more complexthat the proceduresofhome trade, the service offorwardingagents hence helps the producersand exporters toagreat extent.

ClearingAgents:Asforwardingagents help the exportersofgoods, clearingagents help theimportersofgoods.Theycomplete variouscomplicatedcustomsand exchange formalitiesonbehalfof the importers whoappoint them.

IndentingAgents:Anindentingagent isacommissionagent who procuresasale orpurchase onbehalfofhis principal with amerchant abroadforacommissionat the rate mentionedin theindent. He isanimportant mercantile agent whofacilitates the distributionofgoodsat internationallevel.

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