12.6 Bailment and Pledge (Ss. 148-181)

12.6 Bailment and Pledge

Bailment is the branch of contract law that a trial court applies whenever goods are in someone else's hands: a car in a garage, jewellery with a bank, cotton with a ginning mill, a bullock left in a pound. Pledge is the sub-species of bailment used as security, and it dominates the recovery docket. Both are heavily examined because their rules are compact and precise.

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Bailment: Definition and Essentials (Sections 148-149)

Section 148 — a bailment is the delivery of goods 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 directions of the person delivering them. The deliverer is the bailor; the person to whom they are delivered is the bailee.

• Three essentials: (i) delivery of possession — mere custody without possession, as in the case of a servant holding his master's goods, is not bailment; (ii) delivery for some purpose; and (iii) an obligation to return the same goods, either in their original form or in an altered form, and not merely goods of the same kind.
• Explanation to Section 148: where a person already in possession of goods contracts to hold them as bailee, he becomes a bailee although the goods were not delivered by way of bailment. This covers a seller who retains possession as bailee for the buyer.
• Section 149 — delivery to the bailee may be made by doing anything which has the effect of putting the goods in the possession of the bailee or of any person authorised to hold them on his behalf. This is constructive delivery, of which the classic instance is handing over the keys to a godown.
• Money deposited in a bank is not a bailment, because the bank is not bound to return the identical notes; the relationship is one of debtor and creditor.

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Duties of the Bailor

Section 159 — a gratuitous bailment may be terminated at any time by the bailor, even before the stated time has expired; but if the bailee has acted on the loan in such a way that premature return would cause him loss exceeding the benefit derived, the bailor must indemnify him.

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Duties of the Bailee

• Section 151 — the uniform standard of care. In all cases of bailment the bailee is bound to take as much care of the goods bailed to him as a person of ordinary prudence would, under similar circumstances, take of his own goods of the same bulk, quality and value. Note that the Act draws no distinction between a gratuitous bailee and a bailee for reward — a departure from the graded English standards, and a favourite examination point.
• Section 152 — the bailee is not responsible for loss, destruction or deterioration of the thing bailed, in the absence of a special contract, if he has taken the amount of care described in Section 151.
• Section 153 — a contract of bailment is voidable at the option of the bailor if the bailee does any act inconsistent with the conditions of the bailment.
• Section 154 — unauthorised use. If the bailee makes any use of the goods inconsistent with the conditions of the bailment, he is liable to make compensation for any damage arising to the goods from or during such use, even if the loss arises from an accident or an act of God.
• Sections 155-157 — mixture of goods. With the bailor's consent, both have an interest in the mixture in proportion to their shares (155). Without consent, where the goods can be separated, the property remains in the parties but the bailee bears the expense of separation and any damage (156). Where they cannot be separated, the bailor is entitled to compensation for the loss of his goods (157).
• Sections 160-161 — return of the goods. The bailee must return or deliver them according to the bailor's directions on the expiry of the time or the accomplishment of the purpose, without demand; if he fails, he is responsible for any loss, destruction or deterioration from that time, even without negligence.
• Section 163 — accretions. In the absence of a contract to the contrary, the bailee is bound to deliver to the bailor any increase or profit which may have accrued from the goods bailed — the calf born to the bailed cow belongs to the bailor.
• Sections 166-167 — a bailee who in good faith returns the goods to the bailor is not liable to the true owner; but where a third person claims the goods, he may apply to the court to stop delivery and decide the title.

Finder of Goods (Sections 71, 168-169)

A person who finds goods belonging to another and takes them into his custody is subject to the same responsibility as a bailee (Section 71). He may retain the goods against the owner until he receives compensation for trouble and expense (Section 168), and may sue for a reward that has been offered. Under Section 169 he may sell the thing found when the owner cannot with reasonable diligence be found, or refuses to pay the lawful charges, where the thing is in danger of perishing or losing the greater part of its value, or where the lawful charges amount to two-thirds of its value.

Lien of the Bailee

• Section 170 — particular lien: where the bailee has, in accordance with the purpose of the bailment, rendered any service involving the exercise of labour or skill in respect of the goods bailed, he has, in the absence of a contract to the contrary, a right to retain those goods until he receives due remuneration. A tailor who stitches cloth may retain the garment; a person who merely stores goods may not.
• Section 171 — general lien: bankers, factors, wharfingers, attorneys of a High Court and policy-brokers may, in the absence of a contract to the contrary, retain as security for a general balance of account any goods bailed to them. The list is exhaustive; any other bailee acquires a general lien only by express contract.

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Pledge (Sections 172-181)

Section 172 — the bailment of goods as security for payment of a debt or performance of a promise is called a pledge. The bailor is the pawnor and the bailee the pawnee.

Pledge by a Person Who Is Not the Owner

The general rule is nemo dat quod non habet, but the Act creates three protections for a pawnee who acts in good faith:

• Section 178 — pledge by a mercantile agent in possession of the goods or the documents of title with the owner's consent: the pledge is valid provided the pawnee acts in good faith and has no notice at the time of the pledge that the pawnor had no authority.
• Section 178A — pledge by a person in possession under a voidable contract: where the pawnor obtained possession under a contract voidable under Section 19 or 19A but the contract had not been rescinded at the time of the pledge, the pawnee acquires good title, provided he acts in good faith and without notice of the pawnor's defect of title.
• Section 179 — pledge where the pawnor has only a limited interest: the pledge is valid to the extent of that interest.

[!TIP] The single most tested proposition in this topic is Section 176: on default, the pawnee must choose between suing on the debt while retaining the goods as collateral security, and selling the goods after reasonable notice. A sale without reasonable notice is void as against the pawnor, and the pawnee is liable in damages, even if the price obtained was fair.