Bailment and Pledge
Definition of Bailment
The nature of a bailment Bailment comes from the French word, ‘bailor’, which means to deliver.
The Contracts Act defines a bailment as ‘the delivery of goods by one person to another for some purpose, upon a contract that the goods shall when the purpose is accomplished, be returned or disposed of according to the direction of the person who delivered them’
The Contracts Act defines a bailor as ‘a person who delivers the goods and a bailee as a person to whom goods are delivered’
What is a Bailment Agreement?
There must be a transfer of possession of personal property from the bailor to the bailee and the eventual return or expectation of the return of the property bailed.
A bailment is a contractual relationship since the bailor and the bailee, either expressly or impliedly, bind themselves to act according to particular terms.
Unlike a contract of sale where there is an intentional transfer of ownership of the property in exchange for something for value, a contract of bailment involves only a transfer of possession: the bailee receives only possession but the ownership interests are with the bailor.
Only movable goods can be bailed.
Thus, a deposit of money in the bank is not a bailment since money is not goods. Similarly, a waiter’s custody of the hotel’s plates does not make him a bailee.
From the foregoing, it can be seen that there are three main characteristics of a bailment:
- Delivery of possession by one person to another;
- Delivery should be for some purpose; and
- Delivery must be upon a contract that when the purpose is accomplished, the goods should be returned to the bailor.
There are two main types of bailment;
- Mutual benefit bailment and,
- Gratuitous bailment
Mutual Benefit Bailment
What is a bailment for Mutual Benefit?
In this type of bailment, the bailee has to be paid for the services rendered and to have the bailed property returned to the bailor in good condition when the bailment ends.
Example of a Bailment
A bailment for the repair of a motor vehicle is a bailment for mutual benefit when the bailee receives a fee in exchange for his or her work.
Gratuitous Bailment
What is a Gratuitous Bailment?
In Coggs V Bernard (1703) 2 Ld Raym 909,
The defendant agreed to carry various brands of brandy belonging to the plaintiff from a certain market. The defendant’s undertaking was gratuitous since he was not offered any compensation for the work. As the brandy was being unloaded, a barrel was staved and 150 gallons were lost.
It was held that where the bailment is found to be for the benefit of the bailee, a higher duty of care is expected and even slight negligence is actionable.
Whether a transaction is a bailment or not depends on the facts of each case.
In Chhatrisha & Co. V Puranchand & Sons [1959] EA 746,
The appellants had arranged to store in the respondents’ go down a number of metal sheets. The representative signed a letter containing the conditions upon which the sheets were to be stored one of which exempted the respondents from liability for loss of the iron sheets.
The respondents were not warehousemen in the ordinary course of business. The appellants’ representative had unrestricted access to the go down and was able to take away such consignments as he wished without signing a receipt in favour of the respondents.
Subsequently, it was found that there was a shortage of sheets on the basis of quantities delivered and dispatched only part of which was accounted for the removal of sheets by the respondents with the knowledge and consent of the appellant’s representative.
The appellants sued for the value of the lost sheets alleging that the respondents were bailees and that they had not accounted for the shortage.
The trial judge held that there was no contract of bailment between the parties and that the appellants simply had a license to store the sheets in the respondents’ go down at their own risk.
The appellants sued for the value of the lost sheets alleging that the respondents were bailees and that they had not accounted for the shortage.
The trial judge held that there was no contract of bailment between the parties and that the appellants simply had a license to store the sheets in the respondents' go down at their own risk.
On appeal, it was held that the letter drawn by the respondents and signed by the appellants’ representative containing the terms upon which the sheets were to be stored imported a bailment.
Delivery of possession
Delivery of possession of goods is essential for a valid bailment.
There must be a transfer of possession of the bailed goods from the bailor to the bailee.
Possession means control over goods and an intention to exclude others from exercising control over the same goods. The bailee should have actual physical control of the property.
Delivery may be actual or constructive.
The delivery is actual where the bailor hands over the physical possession of the goods to the bailee.
For example, where X takes his car to Mungwe Garage for repair, he will have given actual possession to the garage owner.
The law treats constructive delivery as equivalent to actual possession.
Duties of the Bailee
Care of the Bailed Goods
The bailee has a duty to take reasonable care of the goods entrusted to him or her.
Even a gratuitous bailee must use such skill as he or she possesses or may be reasonably expected to possess.
Omission to exercise that skill may be regarded as negligence on his or her part.
The standard of care is that of a person of ordinary or common prudence and capable of managing or taking care of his or her own affairs or concerns, including property.
The bailee’s duty to take reasonable care of the goods deposited with him or her has been considered in a number of cases.
In Petro v Daniel S S. Kato [1952-1957] ULR 3,
the appellant mechanic was sued for ‘misappropriation’ of a car delivered to him for repair. It was badly damaged; the chassis frame was broken.
At first, it was intended to obtain another chassis frame and fit it in, but this was not forthcoming. There was a discussion about having the frame welded but this was not done and it was not clear whether the appellant ever understood to do it.
However, in September 1950, ten months after the car had been brought to the appellant, he wrote to the respondent stating that he was unable to repair it and calling upon him to take it away.
It was held that a demand on the owner to take his vehicle away does not absolve a bailee from his duty to take reasonable care of the goods while they remain in his possession.
That in deciding damages for loss of goods while in the hands of the bailee, depreciation up to the time of their deposit must be deducted from the purchase price, and if there is no evidence, the court will estimate the depreciation.
The court ordered the appellant to return the automobile in substantially the same condition in which he received it or pay shs. 3000.
In estimating the price for the car, the court cited the case of Singh v Kumbhar [1948] EACA 21, where a vehicle had been negligently allowed to deteriorate in the custody of a repairer and the then East Africa Court of Appeal reduced damages on the ground that the vehicle must be presumed to have deteriorated in value.
Another case in which the duty to take reasonable care of goods was considered is,
Mbale Exporters and Importers Ltd v Ibero (U) Ltd [2007] 1 ULR 421,
In this case, the plaintiff was a company based in Mbale engaged in the business of buying coffee from farmers and supplying it to exporters.
The defendant was based in Kampala and involved in buying, part-processing, and exporting coffee from Uganda. On Sunday, 19 December 1999, the plaintiff’s trailer turned up at the defendant’s premises in Kampala to deliver coffee.
The plaintiff’s driver convinced the defendant’s security guards who allowed him to park the trailer in the defendant’s yard pending the opening of the defendant’s business the following day. That night, the trailer was stolen from the defendant’s yard.
The plaintiff claimed that the trailer was carrying 650 bags of various grades of coffee worth US $ 84, 206, 906, which was supplied and delivered to the defendant under the two contracts.
In the alternative, the plaintiff pleaded that the defendant was a bailee and that it reneged on its duty of care as a bailee and thus was liable for the loss.
The defendant argued that since it never received any coffee, it was never liable as bailee or otherwise to pay for the coffee in question.
The Court of Appeal held that bailment can take place without consideration; it may be gratuitous. That once the respondent/defendant accepted the coffee, he assumed the duty to ensure that nothing happened to the goods (coffee) till they were sampled, weighed, or dealt with in any other way stipulated by the contract or until they were returned to the owner if they did not satisfy the terms of the contract.
Consequently, the respondent became a bailee and owed a duty to take care of the goods.
In United Garments Industry Ltd Civil Suit No. 1520 of 1975,
It was also held that a bailee owed a duty to the bailor to take reasonable care of the goods while they were in his custody so that they were not lost or damaged.
In Ruwenzori Coffee Curing Company Limited v Said [1970] EA 642,
The defendant undertook to reward the carriage by a lorry of bags of coffee for the plaintiff. During the night, the driver left the lorry unlocked and went to a restaurant about 100 yards from where it was packed.
There were two turn boys under the tarpaulin at the back of the lorry. The lorry was stolen and its load lost. The plaintiff sued for the value of the coffee.
The court held that it was an implied term of the contract of bailment that the defendant would take proper care of goods bailed. That the onus was on the defendant, as bailee to show that the loss was not due to any negligence on his part.
The court found that the defendant had failed to take adequate precautions in respect of the bailed goods and gave judgment to the plaintiff.
The court cited the English case of British Road Services Limited v Arthur Crutchley & Company Limited, where there was a loss of whisky by theft.
No alarm system was installed and the whisky was left visible by passersby. The security guard did not perform the full number of patrols as required.
It was held that it is an implied term of the contract of bailment that the defendants would themselves, or through their servants or agents, take proper care of the goods bailed.
That on the facts, the defendant’s system of protection was not adequate in relation to the special risks involved and, accordingly, they had failed to discharge the burden of proving that the loss of the whisky was not due to any negligence on their part.
In Giband v Great Eastern Railway [1921] 2 KB 426,
The defendant railway company contracted with the plaintiff to keep his goods in a cloakroom but it kept them elsewhere in the station and as result, they were stolen.
It was held that since the contract was to keep the goods in the cloakroom, and the defendant did otherwise, it was liable. It should be pointed out that a bailee’s duty does not end when the goods are lost or stolen. The bailee should take reasonable steps to recover the goods.
If he or she fails to do so, the burden of proof is on him or her to show that even if reasonable steps had been taken, the goods would not have been recovered.
In another case of Martin v London County Council [1947] 1 All ER 783,
The plaintiff sued the defendant's hospital for negligence in taking care of the plaintiff’s belongings because the jewelry of the plaintiff had been stolen from the custody of the hospital authority.
The court held that where a hospital takes possession of the patient’s belongings upon his admission to the hospital, it would be considered as bailee and would be liable for negligence.
However, where a bailee takes the amount of care required by law, he or she is not liable for loss, destruction, or deterioration of the bailed goods, unless there is a special contract to that effect.
Proper use of Bailed Goods
Section 95 of the Contracts Act provides that ‘[w]here a bailee makes use of the bailed goods contrary to the conditions of the bailment, the bailee is liable to compensate the bailor for any damage to the Goods arising from or during that use’.
Thus, the bailee must act in accordance with the terms of the bailment and use the goods in accordance with the directions of the bailor.
Should he or she use the goods without the authority of the bailor, then he or she will be liable for any damage caused to the goods.
Also Read: Mistake as a Vitiating Fa
Not to Mix the Goods
The bailee should not mix the goods bailed to him or her with other goods except with the consent of the bailor.
Where the goods are mixed with the consent of the bailor, both the bailor and the bailee shall have an interest in the mixed goods in proportion to their respective shares.
Where the bailee mixes the goods without the consent of the bailor, he or she will bear the expenses of separation of the goods and shall compensate the bailor for any damage or loss of the goods.
Return of the Goods
Section 98 of the Contracts Act, 2010 obliges the bailee to ‘return or deliver without demand from a bailor, according to the directions of the bailor, the bailed goods, as soon as the time for which the purposes for which the goods were bailed expires’
Thus, subject to the bailee’s lien as discussed below, the bailee must return the goods when the bailment comes to an end. The bailee shall also not deny or change the title of the bailor about the ownership of the goods.
Where the bailee does not return the goods as agreed, he or she will be responsible to the bailor for any loss, destruction, or deterioration of the goods from the time of failure to return or deliver the goods.
In Sylvan Kakugu v Trans Sahara International General HCCS No. 95 of 2005,
The plaintiff sought recovery of a motor vehicle worth $ 2, 200 or its equivalent in Uganda shillings and a refund of the value of goods worth $ 1, 150 that went missing in the vehicle, general damages, interest, and costs of the suit.
The vehicle was delivered to the defendant who was responsible for shipping it from the United Arab Emirates to Mombasa. It was held that as a bailee, the defendant was liable for the loss of the motor vehicle.
In yet another case of Mohanlal Mathuradas and Brothers v East African Navigators Ltd [1968] EA 186,
The plaintiffs contracted with the defendants for the carriage of goods by sea from Dar es Salaam to a purchaser from the plaintiffs at Rufiji. The goods were shipped on the defendant’s schooner subject to the terms and conditions of the Carriage by Sea Ordinance.
On the voyage, the schooner’s engine broke down beyond repair and the schooner drifted aground as a rock on a rather deserted stretch of coast of Mafia Island. The crew deserted the boat.
No effective attempts to salvage or protect the goods were made by the defendants. When a police party reached the shipwreck, some people were found looting it.
The goods were lost, and the plaintiffs sued for damages. The defendants argued that the property in the goods had passed to the purchaser from the plaintiffs and the purchaser alone could not sue and that the goods were lost through an expected peril.
The court held that the defendants were bailees for reward and were under a duty to deliver the goods safely to their destination. That the goods were lost because they were abandoned, and the defendants had not discharged the onus on them of showing that the loss was not due to any fault or neglect on their part.
In B.A.T. Kenya Ltd and Another v Express Transport Co. Ltd [1968] EA 171,
It was held that a common carrier is responsible for the safety of the goods in all events except if the loss or injury arose solely from an act of God or hostilities involving the State or from the fault of the consignor or inherent vice in the goods themselves.
A person holding goods under another contract, for example of the sale of goods may be treated as a bailee with the attendant obligation to return the goods.
According to the Act, ‘[w]here a person in possession of goods under another contract holds the goods as bailee, that person becomes a bailee under the existing contract and the owner becomes the bailor of goods although the goods may not have been delivered by way of bailment’.
For example, in HSGS Impex Uganda Ltd v Bakama Enterprises Ltd HCCS No. 787 of 2014,
The plaintiff supplied to the defendant 910 cartons of Panasonic batteries on credit. The first defendant issued cheques to the plaintiff.
Subsequently, a written agreement was executed between the plaintiff and the first defendant for the return of the batteries. The cheques were presented for payment and were returned unpaid (bounced).
The plaintiff recovered some of the batteries but failed to return the 705 cartons worth 89, 535, 000 shillings.
The court found that although initially there was a contract for the sale of goods, subsequently there was another contract whose effect was to impose obligations of a bailee upon the first defendant to inter alia, return the batteries to the plaintiff.
Return of profit
Unless there is a contract to the contrary, the bailee shall deliver to the bailor any increase or profit that may have accrued from the bailed goods. [Section 101]
Rights of the bailee
Recovery of Losses
The bailee may recover compensation for losses from the bailor where the latter was not entitled to make the bailment or to receive back the goods or to give directions.
Recovery of Expenses
Where the bailee is to receive no remuneration for keeping or carrying the goods or doing work on them, he or she is entitled to claim the necessary expenses incurred by him or her for the purpose of the bailment.
Remuneration and Lien
A bailee has a right to be remunerated for the services rendered or work done. He or she has a lien over the goods bailed to him or her.
What is a Lien?
A lien may be Particular or General.
A particular lien is available against the particular property in respect of which the bailee has spent labor and skill.
For example, a mechanic may retain a car until he or she is paid the charges for repair. Regarding a particular lien, the Act provides as follows;
Where a bailee, in accordance with the purpose of the bailment, renders any service involving the exercise of labour or skill in respect of the bailed goods, the bailee may, in the absence of a contract to the contrary, retain the goods until he or she receives the remuneration due, for the services rendered in respect of the goods'
Contracts Act No.7 2010
A particular lien is possessory in nature. Thus, if the possession is lost, the lien is also lost. The bailee can exercise the lien only when he or she has spent his or her labor and skill on the goods bailed. Thus, mere custody of goods does not give rise to a lien.
For example, X parks her car in Y’s garage for safe custody, and X fails to pay the rent. Y cannot retain the car. However, if Y repairs the car on instructions of X, and the latter does not pay the repair charges, Y can retain the car until payment is made.
The right of lien can also be exercised when the service or work has been rendered or done in time.
Finally, the lien can only be exercised when payment is due.
A General Lien on the other hand is the right of one person to retain goods that are in his possession belonging to another person until the promise or liability is discharged.
In this regard, the Act provides as follows: A banker, a broker, a warehouse keeper, an advocate, an insurance broker, or any other person authorized by law may, in the absence of a contract to the contrary, retain as security for a general balance of the account, any goods bailed to him or her. [Section 109 (1)]
The Act is clear: this type of lien is available only to bankers, brokers, warehouse keepers, advocates, and insurance brokers. Thus, any other person can exercise a general lien only under an express contract to that effect.
This lien also does not apply to properties deposited for safe custody or for a specific purpose.
Claim Against a Third Party
Where a third party wrongfully deprives a bailee of the use of bailed goods, the bailee may sue for deprivation or damage.
When the bailee obtains compensation, it has to be handled in accordance with the interests of the bailor and bailee.
Termination of Bailment
A bailment may come to an end ‘where the bailee does any act with regard to the bailed goods, which is inconsistent with the conditions of the bailment’ [Section 94]
A Gratuitous Bailment may terminate where the goods bailed are returned; where the time of bailment expires; by agreement of the parties; where the subject matter of the bailment is destroyed; or upon the death of the bailor or bailee.
Bailment and Pledge
The Act defines a pledge as;
‘the bailment of goods as security for payment of a debt or performance of a promise’
Section 88 of the Contracts Act No 7 2010
There are two main parties to a pledge;
- Pledgor and a,
- Pledgee
Who is a Pledgor?
Who is a Pledgee?
Thus, a pledge is a bailment of goods.
The Bailment should be by or on behalf of the Debtor (Pledgor).
It should be the intention of the parties that the goods serve as security for a debt or the performance of a promise.
A Pledge may be in respect of goods, stocks, shares, documents of title to goods, or any other movable property.
There should be actual or constructive delivery of the goods from the pledgor to the pledgee. There should be a contract of pledge between the parties, which may or may not be expressed in writing.
The contract may be implied from the nature of the transaction or the circumstances of the case.
However, it is advisable to have a contract in writing because it facilitates an understanding of the terms and conditions thereof, clearly indicating the intention of the parties.
Albeit a pledge is a bailment, not every bailment is a pledge.
Thus, the question is;
What is the difference between a Bailment and a Pledge?
In a bailment, the bailee has no right to sell the goods while with a pledge, the pledgee has the right to sell the goods if the pledgor fails to pay the debt.
In a bailment, consideration may be present while with a pledge it must exist. Another difference is that whereas in a bailment the bailee can use the goods for a specific purpose, with a pledge, the pledgee has no right to use the goods.
Rights of a Pledgee
Retention of goods
A pledgee has the right to retain the pledged goods for the payment of a debt or the performance of a promise; the interest on the debt; and any necessary expenses incurred by him or her for the possession or preservation of the goods.
However, unless there is a contract to that effect, the pledgee shall not retain the pledged goods except for the purpose for which they are pledged.
Suit Against the Pledgor
The pledgee may bring a suit against the pledgor where the latter defaults on payment and retain the goods as collateral security.[Section 131 (1) (a)]
Selling the Goods
The pledgee may sell the goods after giving the pledgor reasonable notice of the sale. The nature and duration of the required notice depend upon the nature of the pledge and the circumstances of each case.
The notice must be clear and specific in its language, indicating the intention of the pledgee to dispose of the goods in question. If the pledgor does not receive reasonable notice, he or she has a right to claim damages that may accrue.
Where the pledgee has exercised his or her right of sale of goods and the proceeds of the sale are less than the amount due in respect of the debt, the pledgor is not liable to pay the balance.
However, where the proceeds are greater than the amount due, the pledgee shall pay the surplus to the pledgor.
Pledge by a Mercantile Agent
Section 113 (1) (b) of the Contracts Act provides as follows; 'Where a mercantile agent is with the consent of an owner, in possession of goods or the documents of title to goods, any pledge made by the mercantile agent while acting in the ordinary course of business of a mercantile agent, shall be valid as if the mercantile agent as expressly authorized by the owner of goods to make the pledge.'
A mercantile agent is defined by Section 2 of the Contracts Act as;
‘a mercantile agent having, in the customary course of his or her business as such agent, authority either to sell goods, or to consign goods for the purpose of sale, or to buy goods or to raise money on the security of goods’
The Act [Section 2] defines documents of title to goods as including;
[A]ny bill of lading, warehouse keeper’s certificate, warrant or order for the delivery of goods and any other document used in the ordinary course of business as proof of possession or control of goods or which authorizes or purports to authorize, either by endorsement or by delivery, the possessor of the document to transfer or receive goods represented by the document.
Thus, a mercantile agent has a right to pledge goods by transferring documents of title to another person.
For the pledge to be effective, a number of conditions must be met;
In the first instance, the pledgor must be a mercantile agent.
Secondly, he or she must be in possession of the goods or of documents of title as defined above with the consent of the owner.
Thirdly, he or she must have made the pledge in the ordinary course of business of a mercantile agent.
Fourthly, the pledgee must have acted in good faith and had no notice at the time of the contract that the mercantile agent had no authority to pledge.
Obligations of the Pledgee
- The Pledgee is obliged to take care of the goods pledged to him or her as a person of ordinary prudence would under similar circumstances do to his or her own goods of a similar nature.
- The Pledgee should not make unauthorized use of goods pledged to him or her.
- He or she should return the goods pledged to the debtor when the debt is repaid or the promise is performed.
Rights and Obligations of the Pledgor
- The Pledgor has the right to redeem the goods before they are sold by the pledgee. The right to redeem the collateral from the pledgee is firmly established in law.
The Act [Section 114 (1)] provides as follows:
'Where time is stipulated for the payment of a debt or the performance of a promise, for which a pledge is made and a pledgor defaults in the payment or the performance at the stipulated time, the pledgor may redeem the pledged goods at any subsequent time, before the actual sale of goods'
- Where the pledgor redeems the goods, he or she shall pay any expenses that may arise from his or her default to pay or perform at the agreed time.
The Pledgor is thus obliged to repay the debt regarding the pledge, including interest and other charges.
- The Pledgor is obliged to disclose to the pledgee any material faults or extraordinary risks involved in the goods to which the pledge might be exposed.
Failure to do so, the pledgee may sue for damages.
- The Pledgor is also responsible to the Pledgee for any defect in the Pledgor’s title to the goods.
- The Pledgor may also sue for any accruals to the goods pledged. If any loss is caused to the goods because of mishandling or negligence on the part of the pledgee, the pledgor has a right to sue for damages.
Finder of Goods
A person who finds goods belonging to another and takes them into his custody is subject to the same responsibility as a bailee.
He or she should try to find out the real owner of the goods and must not appropriate the property to his or her own use.
If the owner is traced, the finder must hand over the goods to him or her on demand.
Where the goods are still in the finder’s possession, he or she must take as much care of the goods as a man of ordinary prudence would, under similar circumstances take care of his own goods of similar nature.
The question is;
Is a Finder of Goods Entitled to Compensation for his or her Trouble?
However, where the owner offers a specific reward for the return of the lost goods, the finder may sue for compensation. [Section 106 (2) & (3)]
The finder may retain the goods until he or she receives the reward.
The finder of lost goods may sell the goods where he or she after exercising reasonable diligence fails to find the owner or the latter refuses to pay the lawful charges.[Section 107]
The finder can exercise the right of sale where: the goods are in danger of perishing or of losing the greater part of their value; or the lawful charges of the finder amount to two-thirds of the value of the goods.[Section 107(a)-(b)]
The finder is obliged to return the goods to the real owner when he or she receives reasonable compensation for the services he or she has rendered in respect of them.
Questions on Bailment and Pledge
H took his watch to P for repair. P agreed to repair the watch for 50,000 shillings and told H to collect it the next day.
P repaired the watch, then locked it away in his safe and properly secured the workshop for the night. That night, T broke into the workshop, forced the safe open, and stole H’s watch.
Advise whether P will be liable to H for this loss.
Would your answer be different if P had been tricked into handing over the watch to T, who has falsely claimed to be H’s servant and had produced a cleverly forged letter of authority from H to support his claim?
Again, would it make any difference to your answer if T had executed his fraud some six months after H delivered the watch to P, and in the interim period, P had constantly urged H to come and collect it?
1) Explain the rights and duties that may arise under bailment.
2) What is the test for a bailee’s liability when the bailed goods are not returned?
4) What liability does a bailee have for delivering defective goods to a bailee?
5) Jennifer takes her Toyota Harrier car to a garage for repair. What right (s) does the garage owner have if Jennifer does not pay for the work done?
6) Does delivery of a key to a store amount to transfer of possession of its contents? (Hint: Read Wrightson v McArthur and Hutchisons [1919] 2 KB 807; Hilton v Tucker (1888) 39 Ch D 669; Dublin City Distillery Ltd v Doherty [1914] AC 823).
7) S agrees to lend 2,000,000 shillings to T, an artist, on the security of some of T’s pictures, and T accordingly places these in an empty shed in his garden, locks the shed, and sends the only key to S with a letter stating that S can enter and remove the pictures whenever he wishes.
Consider the rights of the parties in the following circumstances:
a) T, pretending that he wishes to show the pictures to an admirer, obtains the key from S for an hour. T removes a picture and sells it to J.
b) The roof of the shed leaks and S, on learning of this, hands T the key and asks him to cover up the pictures. T takes the opportunity to remove a picture and sells it to F.
Citation: An Extract from Principles of Law of Contract By Ben Kiromba Twinomugisha