Contracts-II

28.03.2019

Bailment (Finder of Goods)

- When a person, finds a goods, they don’t usually give it back or give it to the police.

- Finder is a person who finds the goods.

- Possession of goods comes to the finder. If you choose to take possession, it is construed as delivery.

- Implied delivery, assumed.

Section 71: A person who finds goods belonging to another, and takes them into his custody, is subject to
the same responsibility as a bailee.

- Does not become a bailee, but is subject to same responsibilities.

- What sort of responsibilities.

1. To take reasonable efforts to find the true owner of the goods: Reasonable efforts, depends on
value and quality.

2. Until such owner is found, reasonable care of goods shall be taken: Treat the goods as if they
were one’s own.

- Obligation of person, publish for three weeks, lost item, in the area in which the phone was found.
Minimum requirement.

- Bailee does not have a right to sell, but retain.

Section 168: The finder of goods has no right to sue the owner for compensation for trouble and expense
voluntarily incurred by him to preserve the goods and to find out the owner; but he may retain the goods
against the owner until he receives such compensation; and where the owner has offered a specific reward
for the return of goods lost, the finder may sue for such reward, and may retain the goods until he receives it.

- Find something, expenses incurred, but person refuse to take it, but the founder took it voluntarily
and expense were undertaken voluntarily, assumption it has to be returned, doesn’t mean I will have
action against such.

- Finder of goods has a right of lien against the true owner, if his dues are not paid.

- But he does not have right of action, can’t sue for what expenses he’s occurred.

- Specific reward-open offer/general offer-accepted by way of performance-no communication in itself

is not necessary.

- Right to sue for specific reward.

Examples:

A drops his wallet at a public place. B sees the wallet and keeps it in his pocket. After reaching home, B
looks up the wallet and finds A’s driving license which has his address. B goes to A’s place to return the
wallet. A says to B, “You are awesome, B! I promise to pay you Rs. 1000 for this deed.” B says to A, “I
accept. You are awesome too, A!” Can B sue A to claim Rs. 5000?

Solution: Contract-1, lack of consideration, contract without consideration is void but past consideration, sec
25(2), contract will be valid even if there is no consideration.

Section 169: When a thing which is “commonly the subject of sale” is lost, if the owner cannot with
reasonable diligence be found, or if he refuses, upon demand, to pay the lawful charges of the finder, the
finder may sell it:

(1) when the thing is in danger of perishing or of losing the greater part of its value, or,

(2) When the lawful charges of the finder, in respect of the thing found, amount to two thirds of its value.

- Goods are perishable.

- 2/3rd of its value.

- Courts are silent on ‘Commonly subject of sale’, they say depends on different times. It means all the
goods. Liberal interpretation. No case law on exception.

- ‘losing the greater part of its value’: Finder can’t be expected to keep it for life, every consumable item is
capable of losing a greater part. (exceptions like diamonds, shares, gems, etc are not included). After a
reasonable period of time and after making due efforts, the finder can sell it.

Pledge

Bailment and pledge are absolutely identical, barring some aspects. ‘Girvi’

*Banker’s lien- Multiple transactions, security, But for transaction 1-bailed goods, and loan was granted.
Not for any other transaction, security was not given, but bank may retain trans. 1 security, for adjusting
dues of trans. 2 & 3, General balance of accounts.

Section 171- Goods are retain, but they are actually pledged.

Difference btw. Pledge and Bailment

Bailee has a right of retention, but they cannot sell off the goods. Under pledge, bailee is able to sell the
goods. In pledge, you have a right to sell also.

Section 172: The bailment of goods as security for payment of a debt or performance of a promise is called
‘pledge.’ The bailor is in this case called the ‘Pawnor’. The bailee is called the ‘pawnee.’

- Bailment, for a specific purpose which is security for payment of a debt/loan/contract to perform a
contract.
Section 173: The pawnee may retain the goods pledged, not only for payment of the debt or the
performance of the promise, but for the interests of the debt, and all necessary expenses incurred by him in
respect of the possession or for the preservation of the goods pledged.

- Goods as security, right of a bailee/pawnee/bank’s for interest of debt. When each and every penny
of the debt has been satisfied.

- Interest on debts and any expenses to preserve goods, shall be paid back fully.

Example:

A pledged 500 tons of wheat to HDFC Bank to secure a loan of Rs. 5 crore. The wheat was lying in a
warehouse owned by A. Once the deal was struck with HDFC Bank, the only keys to the warehouse were
given to a representative of the HDFC Bank. The Bank, in order to secure the goods, posted two watchmen
(their fee being Rs. 10,000 per month) and installed 20 CCTV Cameras (costing Rs. 80,000) to protect the
th
warehouse. A repaid Rs. 5 crore to the Bank on the last day of the 5 month (which was the last date to
repay the loan in fact). Is the Bank liable to release the wheat under Section 173.

Solution: Bank will release, until each and every penny has been paid.

Section 174: The pawnee shall not, in the absence of a contract to that effect, retain the goods pledged for
any debt or promise other than the debt or promise for which they are pledged; but such contract, in the
absence of anything to the contrary, shall be presumed in regard to subsequent advances made by the
pawnee.

- 171 and 174, respect to banker’s, are absolutely contradictory.

- In the favour of banks, General Vs. Specific section, go with specific section. In 171, banker may
retain but in 174 it says pawnee may retain. In 171, a specific kind of bailee has been recognized, so
it’s more specific, because special kind of bailee has been identified and gave them this right. Section
174 to applies to all bailees, which is not a bank, so it is more generic. Banker’s, irrespective of 174,
have a general right to retain goods, for a general balance of accounts. 171 wins.

Section 175: The pawnee is entitled to receive from the pawnor extraordinary expenses incurred by him for
the preservation of the goods pledged.

- 173 says necessary expenses-right to retain for such expenses

- 175 says extraordinary expenses- not right to retain but right to sue

- 173 r/w 175

- “Receive”: Right to get, and if not received right to sue.

- Necessary and Extraordinary

What parties to a contract, could have expected to happen. Differentiated by way of reasonableness.
Thin line of difference, and in every case it will depend.

Examples:

A secures Rs. 10,000 as a loan and as security gives away his horse to B. Under the pledge, B is permitted to
ride the horse for 2 hours in a day. While B is riding it, the horse falls and is injured. There’s no fault of B in
this accident and in fact B himself got slightly injured in this accident. Now, B takes the horse to a
veterinarian (a professional who deals with the injury of animals), who prescribes few medicines to be taken
by the horse. B incurs expenses worth Rs. 5000 for all this. A has now repaid the loan. B, however, does not
return the horse to A arguing that he’s spent Rs. 5000 for the “necessary” up keeping of the horse and
therefore he has a right to retain it, until fully paid up under Section 173. A insists that these are
extraordinary expenses under Section 175 and he has no right to retain the horse. What do you think?

Solution: Reasonable contemplation. Common possibility among number of possibilities. What the parties
could have expected at the time of entering into the contract of pledge. Reasonable person would have taken
the horse to the doctor.

Standard of necessity not to be examined, but more on the ground where the parties contemplated this that
this or this might not happen. Expect, horse may be injured, but to what extent. Will it be grave or
substantial? If it goes beyond normal circumstances, it will become extraordinary. Damage goes beyond
expectation. Looking at the money that was involved, seems a little far-fetched, out of the ordinary, because
50% that means injury was so grave so as to amount to such high rate. Parties contemplated expenses of
such.

It was held extraordinary.

Counter: The loan is 10,000 and expenditure is 5000. The amount of expenses is 50% of the loan and that it
is extraordinary.

Section 176: If the pawnor makes default in payment of the debt, or performance at the stipulated time of the
promise, in respect of which the goods were pledged, the pawnee may bring a suit against the pawnor upon
the debt or promise, and retain the goods pledged as a collateral security; or he may sell the thing pledged,
on giving the pawnor reasonable notice of sale.

If the proceeds of such sale are less than the amount due in respect of the debt or promise, the pawnor is still
liable to pay the balance. If the proceeds of the sale are greater than the amount due, the pawnee shall pay
over the surplus to the pawnor.

- ‘or’ means two options with the pawnee. To bring suit or sell the thing.

- If he has to sue, he must retain the goods. If you lose the good, u can’t sue.

- Sell goods giving reasonable notice.

Section 177: If a time is stipulated for the payment of the debt, or the performance of the promise, for which
the pledge is made, and the pawnor makes default in payment of the debt or performance of the promise at
the stipulated time, he may redeem the goods pledged at any subsequent time before the actual sale of them;
but he must, in that case, pay in addition, any expenses which have arisen from his default.

- Goods can be redeemed before the actual sale after paying everything owed.

Lallan Prasad V Rahmat Ali

- Loan was taken of 20,000. Promise to pledge the goods at a later date, they were not actually
pledged. Filed a suit to get his loan back. He doesn’t have the goods. The goods shall be returned, but
the person fails to say or prove the existence of the goods.

- Issue 1: Goods were pledged or not? On evidence, it was proved goods were pledged. Valid pledge.

- Court concludes you don’t have the goods.

- Can such a suit be decreed when the pawnee is not in a position to hand over the goods?
 - No, suit cannot be decreed if goods are not with pawnee, then asking for loan pawnor will have to
pay double his loan amount. Section 176, double-punishment not allowed.

Haridas Mundra Vs. National and Grindlays

- Section 176

- Overdraft account of appellant with the respondent bank. He used to withdraw money. He had
pledged certain share certificates with the bank. There was a default of appellant.

- Bank filed a suit against him. Bank vs. HM, suit pending and retained the goods.

- While the suit is pending, bank send a notice to HM. In the notice, Feb 18,1960 if u don’t pay we
will sell off the goods.

- Can the bank do both under 176?

- HM sent a reply to this notice, you can do only one thing under 176. Bank doesn’t give a fuck, they
will do what they want.

- ISSUE 1: HM files a suit against the bank then. You either sue or sell, can’t do both. He prays for a
decree restraining bank until the suit is complete.

- ISSUE 2: HM says they didn’t give reasonable notice under sec 176. Unreasonable notice, because a
reasonable notice shall have exact date, time and place of sale in the notice, for it to be called
reasonable, so as to enable to redeem them before the actual sale of them. How he is to fulfil this
right if he doesn’t know the exact timing and all.

- ANSWER 1: Court says that if proceeds are less, he can bring an action. You may file a suit, that
does not mean a right of lien is transferred to right of sale. Not alternative rights, they are not
exclusively mutual. Sell the thing, and if there is a difference suit may continue, if payment is
complete, suit will be dismissed.

- ANSWER 2: Reasonable notice of intended sale. If you don’t have the interpretation, bank will be
stuck. Advantage to defaulter, not important to give date, time and place, and pawnor may redeem
goods till the date is give. Only the date for intended sale.