Page 105 - DMGT102_MERCANTILE_LAWS_I

Unit 8: Contract of Bailment and Pledge

Introduction Notes

In last unit, you studied about contract of guarantee and contract of indemnity. At one time
or another, we enter into a legal relationship, called bailment and pledge. Bailments are quite
common in business also. Traders often store their surplus goods in warehouses; and utilize the
services of cold storages for keeping their goods to be taken back as and when required; and
factory owners often send machinery back to vendors for repairs. Also, goods are pledged for
securing loans. The sections quoted in this unit refer to the Indian Contract Act, 1872.

8.1 Definition of Bailment and its Kinds
Let us first understand the term bailment.

8.1.1 Definition of Bailment (S.148)
Bailment is defined as the “delivery of goods by one to another person 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 person delivering them”. The person delivering the goods is called
the ‘bailor’ and the person to whom the goods are delivered is called the ‘bailee’. The explanation
to the above Section points out that delivery of possession is not necessary, where one person,
already in possession of goods contracts to hold them as bailee.
The bailee is under an obligation to re-deliver the goods, in their original or altered form, as soon
as the time of use for, or condition on which they were bailed, has elapsed or been performed.
Let’s illustrate, (i) A delivers some clothes to B, a dry cleaner, for dry cleaning. (ii) A delivers a
wrist watch to B for repairs. (iii) A lends his book to B for reading. (iv) A delivers a suit-length
to a tailor for stitching. (v) A delivers some gold biscuits to B, a jeweler, for making jewellery.
(vi) Delivery of goods to a carrier for the purpose of carrying them from one place to another.
(vii) Delivery of goods as security for the repayment of loan and interest thereon, i.e., pledge.
From the definition of bailment, the following characteristics should be noted:

1. Delivery of goods: The essence of bailment is delivery of goods by one person to another
for some temporary purpose. Delivery of goods may, however, be actual or constructive.
Actual delivery may be made by handing over goods to the bailee. Constructive delivery
may be made by doing something which has the effect of putting the goods in the possession
of the intended bailee or any person authorized to hold them on his behalf (s.149).

Example:
(i) A, holding goods on behalf of B, agrees to hold them on behalf of C, there is a constructive
transfer of possession from C to A.
(ii) A an owner of a scooter, sells it to B, who leaves the scooter in the possession of A.
A becomes a bailee, although originally he was the owner.
It needs to be noted that bailment is concerned with goods only. Current money, i.e., the
legal tender (but not old and rare coins) are not goods. A ‘deposit of money’, therefore, is
not bailment.
Bailment is based on a contract. In bailment, the delivery of goods is upon a contract that
when the purpose is accomplished, they shall be returned to the bailor. For example, where
a watch is delivered to a watch repairer for repair, it is agreed that it will be returned, after
repair, on the receipt of the agreed or reasonable charges.
Though bailment is usually based on a contract, there are certain exceptions, e.g., the case
of a finder of lost goods. The finder of lost goods is treated as a bailee of the lost article,

though obviously, there is no contract between the finder and the real owner (s.168).

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