CA Foundation Solutions For Business Laws – Bailment And Pledge

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Bailment And Pledge Multiple Choice Questions And Answers

Question 1. Bailment involves

  1. Change of custody
  2. Change of possession
  3. Change of custody and possession both
  4. Neither change of custody nor possession.

Answer: 2. Change of possession

Question 2. Bailment means

  1. The goods are delivered by one person to another for some purpose to be specifically returned or otherwise disposed of as per the order of the bailor
  2. The goods delivered to be returned by way of an equivalent in money
  3. The goods delivered to be returned by way of an equivalent in other commodities
  4. All the above

Answer: 1. The goods are delivered by one person to another for some purpose to be specifically returned or otherwise disposed of as per the order of bailor

Question 3. ‘Bailee’ is a person

  1. Who delivers the goods
  2. To whom the goods are delivered
  3. Through whom the goods are delivered
  4. Any of the above depending on the circumstances.

Answer: 2. To whom the goods are delivered

Question 4. Bailor is a person

  1. Who delivers the goods
  2. To whom the goods are delivered
  3. Through whom the goods are delivered
  4. Who carries the goods

Answer: 1. Who delivers the goods

Question 5. __________ some purpose, is upon the delivery contract of goods, that they by one shall, person when the to another, purpose is accomplished, be returned or otherwise disposed of, according to the instructions of the person delivering them.

  1. Indemnity
  2. Bailment
  3. Guarantee
  4. Sale

Answer: 2. Bailment

Question 6. In a contract of bailment, the person who delivers the goods is called _______.

  1. Bailee
  2. Bailor
  3. Pledger
  4. Pledgee

Answer: 2. Bailor

Question 7. In a contract of bailment, the person to whom the goods are- delivered is called__________.

  1. Bailee
  2. Bailor
  3. (1) or (2)
  4. All of the above

Answer: 1. Bailee

Question 8. The contract of bailment may be

  1. Express
  2. Implied
  3. Deemed
  4. (1) or (2)

Answer: 4. (1) or (2)

Question 9. In a contract of bailment, there is the transfer of

  1. Ownership
  2. Possession
  3. Deemed ownership
  4. None of above

Answer: 2. Possession

Question 10. In a contract of bailment, delivery may be ________.

  1. Actual
  2. Constructive
  3. (1) or (2)
  4. None of above

Answer: 3. (1) or (2)

Question 11. In a contract of bailment goods.

  1. Constructive delivery
  2. Actual delivery
  3. Symbolic delivery
  4. Deemed delivery

Answer: 2. Actual delivery

Question 12. If no consideration passes from bailor to bailee it is known as _______.

  1. Gratuitous bailment
  2. Non-gratuitous bailment
  3. Deemed bailment
  4. Actual bailment

Answer: 1. Gratuitous bailment

Question 13. If some consideration passes from bailor to bailee it is known as.

  1. Gratuitous bailment
  2. Non-gratuitous bailment
  3. Deemed bailment
  4. Actual bailment

Answer: 2. Non-gratuitous bailment

Question 14. ________ is one in which neither the bailor nor the bailee is entitled to any remuneration.

  1. Gratuitous bailment
  2. Non-gratuitous bailment
  3. Deemed bailment
  4. Actual bailment

Answer: 1. Gratuitous bailment

Question 15. The duties of the bailor are

  1. In case of a gratuitous bailment – to disclose known faults to the bailee.
  2. In case of a non-gratuitous bailment – liable for damages whether or not he was aware of the existence of faults.
  3. To indemnify Bailee for loss when the bailor’s title is defective
  4. All of above

Answer: 4. All of the above

Question 16. The duties of the bailor are

  1. To receive back goods on termination of bailment.
  2. In case of a gratuitous bailment – not to disclose known fault to the bailee.
  3. In the case of a non-gratuitous bailment – no liability for damages whether or not he was aware of the existence of faults.
  4. All of above

Answer: 1. To receive back goods on termination of bailment.

Question 17. The duties of the bailor are

  1. In case of a gratuitous bailment – the bailor shall repay all necessary expenses incurred by the bailee for bailment.
  2. In case of non-gratuitous bailment – the bailor is liable only for extraordinary expenses.
  3. In case of a gratuitous bailment – to disclose known faults to the bailee.
  4. All of the above

Answer: 4. All of the above

Question 18. A hires a carriage of B. The carriage is unsafe though B does not know this. A is injured. Is B is liable to A for the injury?

  1. Yes. B is liable to A for the injury.
  2. No. B is not liable to A for the injury.
  3. Partly yes
  4. None of above

Answer: 1. Yes. B is liable to A for the injury.

Question 19. If the bailee does any act inconsistent with the conditions of bailment, concerning goods

  1. The contract becomes void
  2. The contract becomes voidable at the option of the bailee
  3. The contract becomes voidable at the option of the bailor
  4. The contract remains valid.

Answer: 3. The contract becomes voidable at the option of the bailor

Question 20. If the bailee mixes the goods of the bailor with his goods, without the consent of the bailor

  1. The bailee is liable to bear the expenses of separation of goods and damages arising therefrom if the goods can be separated or divided
  2. The bailee is liable to compensate the bailor for the loss of goods if the goods can not be separated
  3. Both (1) and (2)
  4. Neither (1) nor (2)

Answer: 3. Both (1) and (2)

Question 21. In case of a gratuitous bailment, the bailee is

  1. Entitled to necessary expenses incurred by him for bailment
  2. Not entitled to any expenses
  3. Entitled to necessary expenses and additional charges
  4. Either (2) or (3).

Answer: 3. Entitled to necessary expenses and additional charges

Question 22. Where the bailee, mixes the goods, bailed with his goods, with the bailor’s consent, both of them shall have interest in _______.

  1. Proportion to their shares in the mixture produced
  2. Proportion to 40:60 in the mixture produced
  3. Proportion to 60:40 in the mixture produced
  4. None of above

Answer: 1. Proportion to their shares in the mixture produced

Question 23. Where the bailee, mixes the goods bailed with his goods, without the bailor’s consent, _____ is bound to bear the expenses of separation or division, and also of any damage arising from the mixture.

  1. Bailor
  2. Bailee
  3. Third person
  4. A person separating the mixture

Answer: 2. Bailee

Question 24. The bailee must take as much care of the goods bailed to him as a _____ would take under similar circumstances of his goods of the same bulk, quality, and value as the goods bailed

  1. Man of extra-ordinary prudence
  2. Man of ordinary prudence
  3. Man of ordinary economic condition
  4. None of above

Answer: 2. Man of ordinary prudence

Question 25. The bailee is under a duty not to use the goods in an unauthorized manner or for unauthorized purposes.

  1. True
  2. False
  3. Partly true
  4. None of above

Answer: 1. True

Question 26. If the bailee uses the goods in an unauthorized manner or for unauthorized purposes, the bailor can _______.

  1. Terminate the bailment
  2. Claim damages for any loss
  3. (1)and (2)
  4. None of above

Answer: 3. (1)and (2)

Question 27. A lends his car to B for a drive-by only. B allows C, an expert driver, to drive the car. C drives the car with care but hits an electronic pole. The car Is a Dnmagod. A filed suits against B claiming damages. Will he succeed?

  1. Yes. B Is liable for the damages to A‘s car.
  2. No. B Is not liable for the damage to A’s car.
  3. Yes. C 13 a llnblo for the damage to A’s cor.
  4. None of above

Answer: 1. Yes. B Is liable for the damage to A‘s car.

Question 28. A hires a car in Delhi from B to go to Varanasi. A drives with care but meets with an accident while going to Haridwar. Advise B.

  1. Yes. A is liable for the damage to B’s car.
  2. No. A is not liable for the damage to B’s car.
  3. A should pay extra charges for going to Haridwar.
  4. None of above

Answer: 1. Yes. A is liable for the damage to B’s car.

Question 29. Bailee must not set up, ______ to the goods

  1. Perfect title
  2. An adverse title
  3. Defective title
  4. Deemed title

Answer: 2. An adverse title

Question 30. The bailee has to return the goods without demand _______.

  1. On the expiry of the time fixed
  2. When the purpose is accomplished
  3. (1) or (2)
  4. All of the above

Answer: 3. (1) or (2)

Question 31. Bailee is bound to take care of goods

  1. As an expert
  2. As a layman
  3. As a man of ordinary prudence
  4. Both (2) and (3)

Answer: 3. As a man of ordinary prudence

Question 32. The liability of bailee, as regards the goods is equivalent to that of

  1. Of a common carrier
  2. An innkeeper
  3. Both common carrier and innkeeper.
  4. Neither of common carrier nor innkeeper.

Answer: 3. Both common carrier and innkeeper.

Question 33. An agreement by a bailee purporting to exempt him wholly from liability for negligence is

  1. Valid
  2. Invalid
  3. Voidable
  4. Void.

Answer: 4. Void.

Question 34. After the expiry of time or accomplishment of the purpose of bailment

  1. The bailee is to return the goods without demand
  2. The bailee is to return the goods only on demand
  3. The bailee is to pay the money equivalent
  4. The bailee is to pay the equivalent in another commodity.

Answer: 1. The bailee is to return the goods without demand

Question 35. In case of bailment by joint owners

  1. The bailee has to deliver the goods to all the joint owners.
  2. The bailee has to deliver the goods to any one of the joint owners with the consent of other joint owners
  3. The bailee can deliver the goods to one of the joint owners even without the consent of other joint owners
  4. Ether (1) or (3).

Answer: 3. The bailee has to deliver the goods to any one of the joint owners with the consent of other joint owners

Question 36. If Bailee fails to return the goods, he shall be liable for any of the goods even without negligence on his part.

  1. Loss
  2. Destruction
  3. Deterioration
  4. Loss, destruction deterioration

Answer: 4. Loss, destruction, or deterioration

Question 37. In the absence of any contract to, the contrary, the bailee is not required to return to the bailor any increase, or profits which may have accrued from the goods bailed.

  1. False
  2. True
  3. Partly true
  4. None of above

Answer: 1. False

Question 38. If Ram leaves a cow in the custody of Shyam to be taken care of and the cow gets a calf, Shyam is bound is deliver _______ to Ram

  1. The cow
  2. The calf
  3. The cow as well as the calf
  4. Nothing

Answer: 3. The cow as well as the calf

Question 39. Is a right to retain the property of another for a general balance of accounts.

  1. Particular lien
  2. General lien
  3. Deemed lien
  4. Tangible lien

Answer: 2. General lien

Question 40. Is a right to retain those goods in respect of which bailee has some service involving the exercise of labor or skill.

  1. Particular lien
  2. General lien
  3. Deemed lien
  4. Tangible lien

Answer: 1. Particular lien

Question 41. The right of general lien can be exercised by

  1. Bankers
  2. Factor
  3. Wharfingers
  4. All of above

Answer: 4. All of the above

Question 42. The right of general lien can be exercised by

  1. Attorneys of the High Court
  2. Policy brokers.
  3. Bankers
  4. All of above

Answer: 4. All of the above

Question 43. A finder of goods is

  1. Entitled to claim compensation
  2. Entitled to retain the goods
  3. Not entitled to claim compensation and thus not entitled to retain the goods
  4. Both (1) and (2)

Answer: 4. Both (1) and (2)

Question 44. A finder of goods is

  1. Entitled to the specific reward offered by the owner for the return of goods
  2. Can retain the goods so long as the specific reward is not given by the owner
  3. Both (1) and (2)
  4. Either (1) or (2)

Answer: 3. Both (1) and (2)

Question 45. The position of a finder of lost goods is exactly that of a

  1. Bailoo
  2. Surety
  3. Consignee
  4. Consignor

Answer: 1. Bailoo

Question 46. Responsibility of finder of goods _______.

  1. He need not take care of goods as a man of ordinary prudence.
  2. He must not appropriate goods for his use.
  3. He can mix the goods with his goods.
  4. All of above

Answer: 2. He must not appropriate goods for his use.

Question 47. Responsibility of finder of goods ______.

  1. He must try to find out the true owner and restore goods to the owner when the owner is traced.
  2. He must not appropriate goods for his use.
  3. He must not mix the goods with his goods.
  4. All of above

Answer: 4. All of the above

Question 48. Rights of finder of goods: _______.

  1. He has a right to retain the goods until he receives compensation for trouble and expenses incurred in preserving the goods and finding out the owner.
  2. He cannot sue the owner for payment of any specific reward offered by the owner.
  3. He can’t sell the goods found at all.
  4. All of above

Answer: 1. He has a right to retain the goods until he receives compensation for trouble and expenses incurred in preserving the goods and finding out the
owner.

Question 49. Finder of goods can sell the goods found, if _________

  1. The owner cannot be found with reasonable diligence
  2. Owner, if found, does not pay the lawful expenses _______?
  3. Both (1) and (2)
  4. None of the above

Answer: 3. Both (1) and (2)

Question 50. The finder of goods can sell the goods found if the lawful charges of the finder, amount to ______ of the value of goods

  1. 2/3rd
  2. 1/3rd
  3. 1/4th
  4. 2/5th

Answer: 1. 2/3rd

Question 51. Ravi found a purse in a computer education center. He deposited the purse with the proprietor of the center so that the real owner could claim it. However, no one claimed the purse. Ravi wants the purse back. Can he succeed?

  1. Yes
  2. No
  3. Partly yes
  4. None of above

Answer: 1. Yes

Question 52. Pledge under Section 172 of the Indian Contract Act has been defined as

  1. A license to take possession of goods
  2. An agreement to give possession of goods
  3. Bailment of goods as a security for payment of a debt or for performance of a promise
  4. Both (1) and (2).

Answer: 3. Bailment of goods as a security for payment of a debt or for performance of a promise

Question 53. For pledge, delivery of possession of goods

  1. Has to be actual.
  2. May be constructive
  3. Either actual or constructive
  4. May be symbolic.

Answer: 3. Either actual or constructive

Question 54. In a pledge, the general property or ownership in ‘goods’

  1. Continues in pledgor
  2. Transferred to the pledgee
  3. Cannot be transferred to the pledgee
  4. Either (1) or (2)

Answer: 3. Cannot be transferred to the pledgee

Question 55. A pawnee, in the event of default in payment of debt by the pawner, has a right

  1. To retain the goods pledged as collateral security
  2. To sue the pawner
  3. To sell the goods pledged
  4. All of above

Answer: 4. All of the above

Question 56. The pawnee has a right to retain the goods pledged

  1. For payment of debt interest and all necessary expenses in respect of goods pledged
  2. For payment of debt other than the debt in respect of goods pledged
  3. For payment of interest and necessary expenses in respect of goods other than the one-pledged
  4. All the above.

Answer: 1. For payment of debt interest and all necessary expenses in respect of goods pledged

Question 57. The pawnee has no right to retain the goods

  1. For payment of necessary expenses in respect of goods pledged
  2. For payment of extraordinary expenses incurred in the preservation of goods
  3. For payment of debt or interest in respect of goods pledged
  4. None of the above.

Answer: 4. None of the above.

Question 58. If the pawner makes a default in payment of debt, at the stipulated time

  1. The pawnee has a right to sell the goods pledged without notice to the pawner
  2. The pawnee has a right to sell the goods pledged after giving reasonable notice of sale to the pawner
  3. Has no right to sell the goods pledged but has a right to retain the goods as collateral security for the debt
  4. Neither has a right to sell the goods nor retain the goods as collateral security but has a right to sue for pawner upon the debt

Answer: 2. The pawnee has a right to sell the goods pledged after giving reasonable notice of sale to the pawner

Question 59. Goods may be pledged

  1. By the owner of goods
  2. By the co-owner in possession
  3. By the person who is left with the goods for some special purpose
  4. All the above.

Answer: 4. All the above

Question 60. Which of the following is correct

  1. A pledge made by a mercantile agent is valid
  2. A pledge made by a person in possession under a voidable contract is valid
  3. A pledge by a person having a limited interest is valid to the extent of that interest
  4. All the above

Answer: 4. All the above

Question 61. Pledge is a bailment of goods as security for payment of a _______.

  1. Debt
  2. Performance of a promise
  3. (1) or (2)
  4. None of above

Answer: 3. (1) or (2)

Question 62. A pledge is a bailment for security.

  1. False
  2. True
  3. Partly true
  4. None of above

Answer: 2. True

Question 63. A person who pledges the goods is known as _______.

  1. Pledger
  2. Pawnor
  3. (1) or (2)
  4. Bailor

Answer: 3. (1) or (2)

Question 64. The person to whom goods are pledged is known as

  1. Pledgee
  2. Pawnee
  3. (1) or (2)
  4. Bailee

Answer: 3. (1) or (2)

Question 65. The essential ingredients of a pledge

  1. The property pledged should be delivered to the Pawnee
  2. Delivery should be in pursuance of a contract.
  3. Delivery should be for security.
  4. All of above

Answer: 4. All of the above

Question 66. Pawnee may retain the goods pledged for

  1. Payment of the debt or the performance of the promise
  2. Interest due on the debt
  3. All necessary expenses by him for possession or for
    preservation of goods pledged.
  4. All of above

Answer: 4. All of the above

Question 67. Where the Pawnee incurs necessary expenses to preserve the goods pledged with him, he is not entitled to receive such amount from the Pawnor

  1. False
  2. True
  3. Partly true
  4. None of above

Answer: 1. False

Question 68. The Pawnee may retain the goods pledged as collateral security, or sell the goods pledged by giving a reasonable notice to the pawnor.

  1. False
  2. True
  3. Partly true
  4. None of above

Answer: 2. True

Question 69. When there is a surplus on sale after due notice to the pawnor, the pawnee shall pay the excess to the pawnor. In case of a deficit, the pawnor shall be liable for the balance amount.

  1. False
  2. True
  3. Partly true
  4. None of above

Answer: 2. True

Question 70. Where the pawnee does not give reasonable notice to the pawnor, the sale is valid, but the pawnee is liable to pay damages to the pawnor.

  1. True
  2. False
  3. Partly true
  4. None of above

Answer: 1. True

Question 71. The general rule is that only the owner can create a valid pledge. However, even a non-owner can create a valid pledge: _______.

  1. A mercantile agent who has goods or of document of title
    to goods, with the consent of the owner
  2. When the pawnor has obtained possession of goods under a voidable contract by way of fraud, coercion, etc.
  3. Co-owner has goods with the consent of the other co-owner.
  4. All of the above

Answer: 4. All of the above

Distinguish Between Bailment And Pledge

Give four differences between Bailment and Pledge.

Answer:

Difference between Contract Bailment and Pledge

Bailment And Pledge Difference Between Contract Bailment And Pledge

Bailment And Pledge Descriptive Questions And Answers

Question 1. What are the rights available to the finder of lost goods under Section 168 and Section 169 of the Indian Contract Act, of 1872?

Answer:

The rights available to the finder of lost goods under Section 168 and Section 169 of the Indian Contract Act, of 1872

The finding is not keeping. The finder must make reasonable efforts to locate the real owner and may also spend reasonable money in taking care of the goods found. However, he earns’ certain rights also as against the goods found as well as the owner of those goods. His rights are:

  1. He has a right of lien over the goods for his expenses. But he has no right to sue the owner for any such compensation (Section 168).
  2. He can sue for any specific reward, that the owner has offered for the return of goods [Section 168].
  3. He can however sell the goods under the following circumstances
    • If the owner cannot with reasonable diligence be found;
    • If found, he refuses to pay the lawful charges of the finder;
    • If the goods are in danger of perishing or of losing the greater part of their value;
    • If the lawful charges of the finder, in respect of the goods found, amount to more than two-thirds of their value [Section 169].

Question 2. What is the liability of a bailee making unauthorized use of goods bailed?

Answer:

The liability of a bailee making unauthorized use of goods bailed

As per Section 1 54 of the Indian Contract Act, 1 881, if the bailee makes any use of the goods bailed, which is not according to the conditions of the bailment, he is liable to make compensation to the bailor for any damage arising to the goods from or during such use of, them.

Question 3. Whether a Pawnee has a right to retain the goods pledged.

Answer:

As per Sec. 173 of the Indian Contract Act, 1872, the Pawnee may retain the good pledged, not only for the payment of the debt or performances of the promise, but for the interest, of the debt, and all necessary expenses incurred by him in respect of the possession or for the preservation of the goods pledged.

As per Section 174, Pawnee has a right to retain goods pledged towards subsequent advances as well, however subject to such right being specifically contemplated in the contract.

Question 4. Examine the validity of the following statements under the provisions of the Indian Contract Act, of 1872. If the bailee does not use the goods according to the terms and conditions of bailment, the contract of bailment becomes void.

Answer:

This statement Is not valid

A contract of bailment is voidable at the option of the bailor if the bailee does not use the goods according to the terms and conditions of bailment. (Sec. 153).

Question 5. Ram, tho bailor, pledges a cinema projector and other accessories with Movie Association Co-operative Bank Limited, tho Halloo, for a loan. Ram requests the bank to allow the pledged goods to remain In his possession and promises to hold the same In trust for tho halloo and also further promises to hand over the possession of the same to the bank whenever demanded. Examining Iho provisions of tho Indian Contract Act, 1872 decide, whether a valid contract of pledge has been made between Ram, Iho bailor, and Bank, Iho bailee?

Answer:

Provision:

Contract of Pledge between Bailor and Bailee.

The problem is based on the provisions contained in Sec. 149 of the Indian Contract Act, of 1872. As per this section, the modes of delivery of goods are as follows:

  1. Actual
  2. Symbolic
  3. Constructive

Constructive delivery means doing any act which has the effect of putting the goods in the possession of a person who agrees to hold them as a bailee for some other person although transfer of possession of goods does not take place.

Present Case:

In the given problem, delivery is made by attornment to the bailee (bank) while goods remain in the custody of A shows that the delivery is constructive. The transaction was therefore a valid pledge.

Question 6. Amar balled 50 kg of high-quality sugar to Srljlth, who owned a Kirana shop, promising to give ₹ 200 at the time of taking back the bailed goods. Srijith’s employee, unaware of this, mixed the 50 kg of sugar belonging to Amar with the sugar In the shop and packed it for Salo when Srijlth was away. This came to light only when Amar came asking for the sugar he had bailed with Srljlth, as the price of the specific quality of sugar had trebled. What Is the remedy available to Amar?

Answer:

Provision:

As per Sec. 167 of the Indian Contract Act, 1872, If the bullae, without the consent of the bailor, also tho goods ol tho bailor with his goods, In such a manner that It Is Impossible to separate the goods balled from tho other goods and deliver thorn back, tho bailor Is entitled to be compensated by halloo for the loss of goods.

Present Case:

In this case, high-quality Sugar has been mixed by Srijith’s employees, and it is not possible to oopnrnto from own goods. So as per the above provisions Amur Is entitled to recover the loss of goods by way of compensation in money from Srijith.

Question 7. Srushti acquired a valuable diamond at a very low price by a voidable contract under the provisions of the Indian Contract Act, of 1872. The voidable contract was not rescinded. Srushti pledged the diamond to Mr. VK. Is this a valid pledge under the Indian Contract Act, of 1872?

Answer:

As per Section 178 A of the Indian Contract Act, 1 872, when the Pawnor has obtained possession of the goods pledged by him under a contract voidable under Section 19 or Section 19A, but the contract has not been rescinding at the time of the pledge, the Pawnee acquires a good title to the goods, provided he acts in good faith and without notice of the Pawnor’s defect of title.

Present Case:

In this case, Srushti was acquired. valuable diamond at a very low price by a voidable contract under the provisions of the Indian Contract Act, of 1872. The ‘ voidable contract was not rescinded. Srushti pledged the diamond to Mr. VK. As per the above provision, this is a valid pledge if Mr. VK acted in good faith and without notice of Srushti’s defect of title.

Question 8. Radheshyam borrowed a sum of from a Bank on the security of gold on 1.07.2019 under an agreement which contains a clause that the bank shall have a right of particular lien on the gold pledged with it. Radheshyam thereafter took an unsecured loan of ₹ 20,000 from the same bank on 1.08.2019 for three months. On 30.09.201 9 he repaid the entire secured loan of ₹ 50,000 and requested the bank to release the gold pledged with it. The Bank decided to continue the lien on the gold until the unsecured loan was fully repaid by Radheshyam. Decide whether the decision of the Bank is valid within the provisions of the Indian Contract Act, of 1872.

Answer:

General lien of bankers: According to section 171 of the Indian Contract Act, 1872, bankers, factors, wharfingers, attorneys of a High Court and policy brokers may.

  • In the absence of a contract to the contrary, retain, as a security for a general balance of account any goods bailed to them; but no other persons have a right to retain, as a security for such balance, goods bailed to them, unless there is an express contract to the effect.
  • Section 171 empowers the banker with a general right of lien in the absence of a contract whereby it is entitled to retain the goods belonging to another party until all the dues are discharged.
  • Here, in the first instance, the banker under an agreement has a right of particular lien on the gold pledged with it against the first secured loan of ₹ 50,000/-, which has already been fully repaid by Radheshyam.

Accordingly, the Bank’s decision to continue the lien on the gold until the unsecured loan of ₹ 20,000/- (which is the second loan) is not valid.

Question 9. Mr. Stefen owns a chicken firm near Gurgaon, where he breeds and sells eggs and live chickens to retail shops in Gurgaon. Mr. Flemming also owns a similar firm near Gurgaon, doing the same business. Mr. Flemming had to go back to his native place in Australia for one year. He needed money for travel so he pledged his firm to Mr. Stefen for one year received a deposit of ₹ 25 lakhs and went away. Then, the stock of live birds was 100,000 and eggs was 10,000. The condition was that when Flemming returned, he would repay the deposit and take possession of his firm with live birds and eggs. After one year Flemming came back and returned the deposit. At that time there were 109,000 live birds (the increase is due to the hatching of eggs out of 10,000 eggs he had left), and 15,000 eggs. Mr. Stefen agreed to return 100,000 live birds and 10,000 eggs only. State the duties of Mr. Stefen as Pawnee and advise Mr. Flemming about his rights in the given case.

Answer:

Duties of Pawnee:

  • Duty to take reasonable care of the pledged goods.
  • Duty not to make unauthorized use of pledged goods.
  • Duty to return the goods when the debt has been repaid or the promise has been performed.
  • Duty not to mix his goods with goods pledged.
  • Duty not to do any act which is inconsistent with the terms of the pledge.
  • Duty to return accretion to the goods, if any.

Duties of Mr. Stefen: Mr. Stefen (pawnee) is bound to deliver to Mr. Flemming (pawnor), any increase or profit (9,000 live birds and 5,000 eggs) that has occurred from the goods bailed (i.e. the live birds and eggs).

Rights of Mr. Flemming as a Pawnor:

As the bailor of goods, the Pawnor has all the rights of the bailor. Mr. Flemming is entitled to recover from Pawnee any increase in goods so pledged. Along with that he also has the right of redemption to the pledged goods which is enumerated under section 177 of the Act.

Question 10. Mr. Truth deposited 100 bags of groundnut in the factory of Mr. False for safekeeping. Mr. False mixed the ground-nut bags with the other ground-nut bags in the factory with the consent of Mr. Truth and consumed it to produce edible oil

  1. Whether Mr. Truth entitled to claim his share in the edible oil produced under the provisions of the Indian Contact Act, of 1872?
  2. What will be the consequences in case the ground-nut bag were mixed without the consent of Mr. Truth under the above-said Act?

Answer:

As per Section 155 of the Act if the Bailee, mixes the goods bailed with his goods, with the consent of the bailor, both the parties shall have an interest in proportion to their respective shares in the mixture thus produced.

  • As per Section 156 of the Act, if the bailee, without the consent of the bailor, mixes the goods bailed with his goods, the goods can be separated or divided.
  • The property in the goods remains in the parties respectively, but the bailee is bound to bear the expense of separation or division and any damage arising from the mixture.
  • As per Section 157 of the Act, if the bailee, without the consent of the bailor mixes the goods of the bailor with his goods in such a manner that it is impossible to separate the goods bailed from the other goods and to deliver them back, the bailor is entitled to be compensated by the bailee for loss of the goods.
  • In the preset case, Mr. False mixed the goods of ground nuts of Mr. True with other ground nut bags in the factory with the consent of Mr. Truth so as per the provisions of Section 155, Mr. Truth is entitled to claim his share in the edible oil produced.
  • In this case, Mr. False mixed ground nut bags without the consent of Mr. True, and also the edible oil which is produced from ground nuts is not separable, so as per the above provisions of Section 157.

Mr. True is entitled to receive compensation from Mr. False for the loss of ground nut bags.

Question 11. Kartik took his AC to Pratik, an electrician, for repair. Even after numerous follow-ups by Kartik, Pratik didn’t return the AC in a reasonable time even after repair. In the meantime, Pratik’s electric shop caught fire because of a short circuit, and the AC was destroyed. Decide, whether Pratik will be held liable under the provisions of the Indian Contract Act, 1872.

Answer:

As per Sec. 160 of the Indian Contract Act, 1872, the bailee must return the goods or deliver them according to the bailor’s direction as soon as the time for which the goods were bailed has expired or the purpose for which the goods were bailed has been accomplished.

As Per Sec. 161 of the Indian Contract Act, 1872, where a bailee fails to return the goods within the agreed time, he shall, be responsible to the bailor for any loss, destruction, or deterioration of the goods from that time, notwithstanding the exercise of reasonable care on his part.

Present Case:

Kartik took his AC to Pratik, an electrician, for repair. Even after numerous follow-ups by Kartik, Pratik didn’t return the AC in a reasonable time, even after repair. In the meantime, Pratik’s electric shop caught fire because of a short circuit, and the AC was destroyed.

Conclusion:

In the present case, Pratik is a fault for not returning the AC to Kartik, within a reasonable time. So, Pratik shall be liable to compensate Kartik for the loss incurred by Kartik due to Pratik’s default.

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