Lecture 6 Law of Bailment and Pledge.docx

**Law of Bailment and Pledge** **Contract of Bailment Definition** Bailment is a legal concept where one party temporarily transfers possession of personal property to another party for a specific purpose, with an expectation of getting the property back. Example: A person may lend their car to...

**Law of Bailment and Pledge** **Contract of Bailment Definition** Bailment is a legal concept where one party temporarily transfers possession of personal property to another party for a specific purpose, with an expectation of getting the property back. Example: A person may lend their car to a friend (bailment) ***Bailment*** is a legal relationship in which one person (the bailor) delivers personal property to another person (the bailee). This contract outlines the responsibilities, duties, and liabilities of both parties during the period of possession. A contract of bailment is a legally binding agreement between a bailor and a bailee, outlining the terms and conditions for the temporary transfer of possession of goods. The person delivering the goods is called the \"bailor\". The person to whom they are delivered is called the \"bailee\". For example, when you leave your car at a valet parking service, you enter into a contract of bailment. The valet (bailee) takes temporary possession of your car with the understanding that they will return it to you when you request it. Or, when you leave your clothes at a dry cleaner\'s, you enter into a contract of bailment. The dry cleaner agrees to take care of your clothes and return them in good condition. Bailor\'s Duty of Disclosure: The bailor must disclose any defects or hidden dangers in the bailed goods that could harm the bailee. Arif lends a horse to Belal, which he knows to be vicious. He does not disclose this fact and the horse runs away leaving Belal thrown and injured. Arif is responsible to Belal for the injury. The bailor is bound to disclose extraordinary risks in the goods bailed and if he does not make such disclosure, he is responsible for damage arising to the bailee directly from such faults. **Duty of Bailee:** The bailee must take reasonable care of the property and use it only for the specified purpose and return it in the same condition. The level of care depends on the nature of the bailment. Let\'s consider a simple example involving two parties: Alice and Bob. Alice owns a valuable painting and decides to lend it to Bob for an art exhibition. They both agree that Bob will return the painting in the same condition after the exhibition ends. *About Reasonable Care:* 1. Bob must ensure that the painting is kept in a secure and controlled environment to prevent any damage. 2. He should install proper security measures, such as surveillance cameras and alarm systems, to protect the painting from theft. 3. The painting should be handled with care when moving it to and from the exhibition space. *About Specified Purpose:* 1. Bob must use the painting solely for the purpose of the art exhibition. 2. He should not use the painting for any other purpose, such as lending it to another person or displaying it in a different exhibition without Alice\'s consent. *About Returning it in the Same Condition:* 1. After the exhibition, Bob must return the painting to Alice in the same condition as it was received. 2. If the painting is damaged, lost, or stolen while in Bob\'s care, he must be held liable for this. If Bob fails to protect the painting and it gets damaged during the exhibition, he would be in breach of his duty as a bailee and may have to compensate Alice for the damage. Key Points: The bailee (Bob) must take reasonable care of the property (painting). The bailee must use the property only for the specified purpose (art exhibition). The bailee must return the property in the same condition to the bailor (Alice). The level of care depends on the nature of the bailment and the value of the property. In this case, the painting is valuable, so a higher level of care is expected from Bob. **Termination of Contract of Bailment:** The contract of bailment can be terminated by - Mutual agreement - Fulfillment of the purpose - expiration of the agreed-upon time - by a court order. Let\'s consider a simple example involving a bailment agreement between two parties: Jane (the bailor) and Tom (the bailee). Scenario: Jane owns a set of antique furniture and agrees to lend it to Tom for his newly opened café. They agree that Tom will return the furniture after one year or earlier if the café no longer needs it. *Mutual agreement:* After six months, Tom decides to redecorate his café and no longer needs the antique furniture. Jane and Tom mutually agree to terminate the bailment contract early. Tom returns the furniture to Jane. *Fulfillment of the Purpose:* If Tom uses the furniture for the café and then decides to close the café after eight months, the purpose of the bailment is fulfilled. Tom returns the furniture to Jane, terminating the bailment contract. *Expiration of the Agreed-Upon Time:* If the one-year period agreed upon in the bailment contract expires, Tom is obligated to return the furniture to Jane. Once Tom returns the furniture after the one-year term, the bailment contract is terminated. *Court Order:* If there is a legal dispute between Jane and Tom or if there is a specific legal reason that requires the termination of the bailment, a court may issue an order to terminate the bailment contract. For example, if Jane discovers that Tom is using the furniture in a way that was not agreed upon and this causes damage to the furniture, Jane can seek a court order to terminate the bailment and have the furniture returned immediately. **Bailee When Not Liable for Loss (Section 152)** A bailee is someone who temporarily holds someone else\'s property. According to Section 152, if there is no special agreement stating otherwise, the bailee is not responsible for any loss, damage, or deterioration of the property if they have taken the level of care specified in Section 151. Example: John gives his watch to a repair shop for fixing. The repair shop is the bailee, and John is the bailor. If the repair shop takes reasonable care of the watch as described in Section 151 and the watch is still accidentally damaged, the repair shop is not liable for the damage. **Liability of Bailee Making Unauthorized Use of Goods (Section 154)** According to Section 154, if a bailee uses the property in a way that was not agreed upon, they are responsible for any damage that occurs during or because of this unauthorized use. Example: John leaves his car with a valet service, instructing them to park it in their garage. If the valet instead uses the car to run personal errands and the car gets damaged, the valet service is liable for the damages because they used the car in an unauthorized manner. **Suits by Bailees or Bailors against wrong-doers:** Definition: When a third party wrongfully interferes with the bailment (e.g., theft, damage), the bailee or bailor can sue the wrongdoer for damages or return of the goods. If someone steals property that was bailed to you, you can take legal action against the thief to recover damages or recover of the property. For example, a bailee entrusted with a laptop has it stolen due to the negligence of a security guard, both the bailee and the bailor may sue the security guard for damages. **Contract of Pledge** **Definition:** Pledge is a type of bailment where personal property is delivered as security for a debt or obligation. In a pledge, the pawnee (creditor) holds the property as security until the debtor fulfills the obligation. In a pledge, the property is given as collateral to secure a debt or obligation, and if the debt is not repaid, the pledgee (pawnee) has the right to sell the goods to recover the debt. *Example:* When you pawn your valuable watch to a pawn shop in exchange for a loan, you enter into a contract of pledge. Or, If you borrow money from a pawnbroker and provide your jewelry as collateral, you enter into a contract of pledge. If you repay the debt, the pawnbroker returns your jewelry; otherwise, they may sell it to recover the debt. **Pawnee\'s Right as Retainer:** The pawnee (creditor) has the right to retain the pledged goods until the debt is fully repaid. They cannot use or sell the goods unless the pawnor defaults on the debt. *Example:* If you pawn your watch to a pawn shop as collateral for a loan, the pawnbroker has the right to retain possession of the watch until you repay the loan. **Pawnee\'s Right where Pawner Makes Default:** If the pawner (debtor) fails to meet the obligation (e.g., repay the loan), the pawnee has the right to sell the pledged property to recover the debt. If you don\'t repay the loan to the pawn shop within the specified time, the pawnbroker can sell your pledged item to recoup the loan amount. Any surplus is returned to the pawnor, and any shortfall is recoverable from them. **Finder of Goods-Status in Law** **Definition:** A finder of goods is someone who discovers lost or abandoned property and takes possession of it. A finder of lost or abandoned goods becomes their possessor but not necessarily their owner. *Example:* Sarah finds a wallet on the street. She takes possession of it and becomes its possessor, but not its owner. Sarah should try to find the owner by looking for identification in the wallet or reporting it to the authorities. If the owner cannot be found after reasonable efforts, Sarah may be allowed to keep the wallet. Laws vary, but typically, finders of lost property have a duty to make reasonable efforts to locate the rightful owner or report it to the authorities. If the owner cannot be found, the finder may have a claim to the property.