NATIONAL LAW UNIVERSITY ODISHA

CONTRACTS- II

Project On
BAILMENT AS AN EQUITABLE PRINCIPLE

SUBMITTED TO:
PROF. RANGEEN P. TRIPATHY,
ASST. PROF. OF LAW, NATIONAL LAW UNIVERSITY ODISHA

SUBMITTED BY- RAMESH KUMAR (2012/BALLB/040)

TABLE OF CONTENTS
TOPIC

PAGE NO

TABLE OF CASES. 3
LIST OF ABBREVIATION.4
RESEARCH QUESTIONS..5
HYPOTHESIS..6-7
INTRODUCTION8-9
UNJUST ENRICHMENT&EQUITABILITY.10-12
RELATIONSHIP BETWEEN BAILMENT AND
EQUITABLE PRINCIPLE..13
CONCLUSION.14
BIBLIOGRAPHY..15

TABLE OF CASES

Ultzen v Nicolls 1894 1 QB92

Bank of Bihar v State of Bihar 1971 SC 1210
Moses v Macfarlan 1760 2 Burr 1005
Bristol & West Building Society v Mothew 1998 Ch 1
Andrabell Ltd (Re) (1984)
Clough Mill v Martin 1985 1 WLR
Jwala v Pundlik 48 IC 970
Makhan v Ghulam 146 IC 194
Kunj Behari v Bhargava C. Bank ILR 40 ALL 522

LIST OF ABBREVIATIONS

QB --- QUEENS BENCH

SC --- SUPREME COURT
CH--- CHAPTER
WLR--- WEEKLY LAW REPORTS
ILR--- INDIAN LAW REPORT

RESEARCH QUESTIONS
Whether the doctrine of unjust enrichment applicable to
bailment?
Whether a pawnee is entitled to keep the goods as a
security interest and has the rights to sell the goods in
cases of default?
Whether only fiduciary relationships give rise to
equitable interest?
Whether the sections of Indian Contract of Act relating to
bailment successful in bringing the equitable principle
into force in cases of bailment?

Hypothesis
According to Section 148 a bailment is the delivery of goods from the possession of one
person known as the bailer to the possession of other person known as the Bailee. Hence the
essential features of bailment can be dissected as: 1) Delivery of goods 2) Contract between
the parties 3) Return of goods or their disposal as per the directions of the bailer. Bailment
usually is understood to be transfer of possession and not ownership on the mere ground that
the goods are delivered to the Bailee on one condition that they are to be returned to the bailer
after the completion of a certain period of time. Moreover we can also define bailment as
having custody of the goods without having being possessed them like in Ultzen v Nicolls1,
where a waiter took the coat of a customer and hung it at the desired place. A bailment was
said to have occurred because although the waiter was not in possession of the coat but he
took the custody of the coat and hence liable to a reasonable care. While the goods are in the
possession of the Bailee the Bailee is not allowed to make use of the goods unlike the
relationship between a lessee and lessor where the lessee is allowed to make use of the
property, unless mentioned otherwise. There are three types of bailment and the standard of
care differs according to the type of bailment we are dealing with----1) If the bailment
contract is for the mutual benefit of the bailer and Bailee then the Bailee is supposed to have
taken standard care that an ordinary prudence man would take. 2) If the bailment is for the
sole benefit of the bailer like finding a lost wallet then the Bailee should take reasonable care
to the property unless the property is transferred to the owner. 3) If the bailment is for the sole
benefit of the Bailee like borrowing your friends book for a month, then the Bailee should
take highest number of care. Bailment can be qualified as an equitable principle because
security interest is often attached to the contract of bailment. Security interest is the interest
often attached to the contract of bailment in the form of a property interested in order to
secure the performance of the obligation. Such security interest is usually found in case of
debt where a land or any property acts as a security interest. When the law recognises four
types of security interest like pledges, contractual liens, charges and mortgages, we can infer
from the definition that when the bailer is delivering the goods to the Bailee for a certain
period of time then along with that contract of bailment can exist a collateral contract of
security interest which will confer rights on the Bailee to sell the property interested if the
bailer fails to take the reasonable care to the goods hence kept to him for a specific period of
time. Equitable principle can hence be concluded as to put the Bailee back to the original
1 1894 1 QB92

position as to where he was previously i.e. status co enter which is what all contracts aim at.
My project will mainly aim at qualifying bailment as an equitable interest with reference to
security interest and case laws.

INTRODUCTION
Bailment contract confers a right on the Bailee to take a standard care that ordinary man of
prudence will take to the goods bailed to him. The Bailee must return the goods to the bailer
after a certain period of time and if the Bailee fails to do so then it becomes the responsibility
of the Bailee to be liable for any loss or destruction caused to the goods thereafter, immaterial
of the fact whether he was entitled to any care or not. If the goods are lost much before the
time of return then the liability of the Bailee will be confirmed within the ambid of Section
152 of the Indian Contract Act. But the question arises when the goods are still available with
the Bailee for return and still they are not returned within a specific period of time. The
Bailee becomes responsible for the destruction caused thereafter as it is necessary to put the
bailer in the same position as he was before he has bailed the goods to the Bailee. Bailment
becomes an equitable principle mainly in cases of debt performance as there is a chance of
the bailer to be at a loss if the Bailee fails to pay the debt. Section 172 of the Indian Contract
Act defines pledge which is kept as a security for the repayment of the goods to maintain
status co ente. The bailer in cases of pledge is known as the pawner and the Bailee is known
as the pawnee. To define bailment as a pledge it can be said that bailment is the delivery of
goods to the bailee bby the bailor. Now here when the bailor delivers the goods as a security
to the bailee in return of which he borrows money from the bailee for a certain period of time.
Now this property is known as the security interest as the bailor is interested in the property
and if the bailor fails to pay back the debt to the bailee within a certain period of time then the
bailee has all rights to sell off the property for his own interest to maintain his previous
position he would have been if he would not have lend the money. Bank of Bihar v State of
Bihar2 put focus on the rights of the pawnee where the Supreme Court said that the pawnee is
entitiled to detain the goods of the pawnor under Section 173 of the Indian Contract Act for
the interest of the debt and before the pawnee no other creditor of the pawnor is entitled to
seize the same goods due to some other reason. Here the pawnor took loan from bank
keeping in mortgage the sugar bags locked in his godown. The keys of the godown were
surrendered to the bank. State of Bihar roke open the godown and seized 5000 maunds of
sugar as per the orders of the Cane Commissioner. But Supreme Court ruled otherwise and
the Cane Commissioner i.e. state of Bihar were forced to pay back the 5000 maunds of sugar
to the bank i.e. Pawnee who has the right of status co ente at the first instance.3

2 1971 SC 1210

3 LAW OF CONTRACTS I&II by Prof G.C.V SUBBA RAO pg- 226, 230

UNJUST ENRICHMENT AND

EQUITABILITY
The doctrine of unjust enrichment is defined as a legal doctrine stating that if a person
receives money or other property through no effort of his own, at the expense of another, the
recipient should return the property to the rightful owner, even if the property was not
obtained illegally. Most courts will order that the property be returned if the party who has
suffered the loss brings a lawsuit.4 Unjust enrichment believes in the simple formula that
nobody should benefit from others loss and if it is the case that any person, through another
persons loss, have enriched himself then he has to restitute the same loss and maintain the
status co ente. The doctrine of unjust enrichment consists of three essential ingredients:
1. The plaintiff must have provided something valuable to the defendant and there is a
chance that the defendant can benefit out of that valuable thing.
2. The plaintiff never forcefully gave the valuables to the defendant. Instead the
defendant took the valuable in his free will and the defendant had the full knowledge
that the things are of great value.
3. The plaintiff also makes it clear to the defendant that the valuables given to him are as
a security and he is not entitled to make use of it, or possess it or enjoy its benefits.
There is a remedy for every damage caused due to the breach of contract and hence the
remedy of restitution is kept as a tool of corrective justice so that the plaintiff can be put in
the original position he was before giving the valuable to the defendant. In general the law of
restitution can be generated by two types of causative events i.e. wrongs and unjust
enrichment and other types of causative events which also generate an obligation to make
reinstatement.5
Bailment is considered as an equitable principle because even in bailment the pawnor is not
allowed to enrich himself at the cost of the money lend to him by the pawnee. No one can
unjustly enrich himself at another persons loss. So the pawnee should also have a security
which he can put to use to restore his previous position if the pawner fails to maintain the
contract and involves him in the breach of trust. The doctrine of unjust enrichment was
originated from the English law upon the principle of assumpsit or had and received and

4 UNJUST ENRICHMENT by G RADHIKA OVERVIEW

5 Supra 4

was propounded by Lord Mansfield in Moses v Macfarlan6 where it was said unjust
enrichment to be a kind of equitable action, to recover back money, which ought not in
justice to be kept, is very beneficial, and therefore much encouraged. It lies for money which,
ex aequo et bono, the defendant ought to refund: it does not lie for money paid by the
plaintiff, which is claimed by him as payable in point of honour and honesty, although it
could have been recovered from him by any course of law; as in payment of a debt barred by
the statute of limitation, or contracted during infancy, or to extent of principal and legal
interest upon an usurious contract, or, for money fairly lost at play: because in all these cases,
the defendant may retain it with a safe conscience, though by positive law he was barred from
recovering. But it lies for money paid by mistake; or upon consideration which happens to
fail; or for money got through imposition, (express or implied) or extortion; or oppression; or
an undue advantage taken of the plaintiffs situation, contrary to laws made for the protection
of persons under those circumstances. In one word the gist of this kind of action is that the
defendant, upon circumstances of the case, is obliged by the ties of natural justice and equity,
to refund the money.7
Equitability is required in every contract and in cases of bailment it is of utmost necessity that
the pawnor is not unjustly enriched by the money of the pawnee as it is something valuable
lend to the pawnor.
Bristol & West Building Society v Mothew 8 dealt with equitable principles and Millet LJ
observed that ..been concerned to circumvent the supposed rule that there must be a
fiduciary relationship or beneficial interest before resort may be had to the equitable rules.
In cases of fiduciary relationships the matter of trust comes into consideration that a bailor
gives books to the Bailee and they share a fiduciary relationship and hence then only the
Bailee is entitled to return the goods to him. Even if there is no fiduciary relationship then
also if the bailer has lend something to the Bailee the bailee must take reasonable care and
hence caution and return the goods to the bailor after the completion of a specific period of
time. Bailment has to been an issue and it has been widely discussed again in Henry Lennox
and Re Andrabell9 and browsing through these judgements clearly states that even if the
parties fighting for the invocation of equitable principle are bailor and bailee then also it must
6 1760 2 Burr 1005
7 Moses v Macfarlan 1760 2 Burr 1005
8 1998 Ch 1

not be seen whether they share a fiduciary relationship or not. Even if there is no fiduciary
relationship between the bailor and bailee and if circumstances provide that it must be
invoked then it is necessary to apply the equitable principle, irrespective of the relationship
that they share.10 In Clough Mill v Martin11, Goff LJ tried to again put emphasis on the fact
that the relationship is unimportant and observed that In performing this task, the concepts
such as bailment and fiduciary duty must not be allowed to be our masters, but must be
regarded as the tools of our trade. Hence it is proved once again that equitable principle is
mainly to prevent unjust enrichment which overlooks the criteria shared by the parties.
Similarly in case of bailment even if there is no fiduciary relationship between the parties
equitable principle can be associated with the concept of bailment because when the pawnee
is lending the valuable to the pawnor in exchange of some security then the pawnee actually
moves from his original position and even undertakes a risk of suffering loss or damage. So
there must be a way for the pawnee to restitute his original position even if the pawnor fails
to pay back the money to him.

9 Andrabell Ltd (Re)(1984)

10 http://www.herts.ac.uk/__data/assets/pdf_file/0007/38671/HLJ_V4I2_Davies.pdf
11 1985 1 WLR

RELATIONSHIP BETWEEN BAILMENT AND

EQUITABLE PRINCIPLE
Bailment in some cases is also recognised as pledge and there comes the concept of equitable
interest. Section 171 refers to the lien of bankers where the bank keeps a certain amount as
security to them in return of the goods or money bailed to the pawnor. We can also define it
that if a certain sum is due to the bank in one account, it may, under certain circumstances,
make available other moneys or moveables that come into his hands in another account and
thus reimburse itself in the former account. The goods that have been kept to the bank in the
form of a security in exchange of the money that the bank (pawnee) has given to the pawnor
will be taken care of by the bank and when the time of repayment comes if the pawnor fails
to pay the money back even after repeated reminder by the bank then under Section 176 of
the Indian Contract Act the bank can sell of the property to get back the money the bank once
provided. Under Section 172 the definition of the pledge gives certain power to the pawnee to
make the security kept to him in exchange of the money lent effectual to discharge the
obligation in cases of default.12 Hence Section 176 gives the power that 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 pledge as a collateral security; or he may sell
the thing pledged, on giving the pawnor reasonable notice of the 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 so due, the pawnee
shall pay over the surplus to the pawnor. 13 Equitable principle is brought into effect so that
none of the contracting parties suffer any kind of loss. When two parties are entering into a
contract then it is the duty of the parties not to breach the terms and conditions of the contract
and act accordingly. Still adverse situations happen and it is of utmost necessity that in cases
of default no party is unjustly enriched and equitability is maintained. So came the law of
restitution which helped equitability to come into force to a greater extent by putting the
plaintiff back in the original position where he would have been lest he would have not given
the valuable to the defendant.

12 DUTT ON CONTRACT Tenth Edition H.K. Saharay pg-796

13 http://www.indianlawcases.com/Act-Indian.Contract.Act,.1872-5288

CONCLUSION
Under Section 176 of the Indian Contract Act it is upon the pawnee whether to sell the
property kept to him as security in case of default or to bring a suit against the pawnor. If the
pawnee decides to sell the property then prior notice is to be served to the pawnor mentioning
the date of repayment of his debt and since he has failed to do so the pawnee wishes to sell
the property and in cases where the pawnee decides to bring a suit against the pawnor no
notice is required as mentioned in Jwala v Pundlik14 and Makhan v Ghulam15. But in
English law a particular day is present on which the repayment of the debt is to be done by
the pawnor and in cases of default the pawnee is at the liberty to sell off the property kept to
him as security and no prior notice is required to be given. The section does not contemplate
that the pawnee should give information to the pawnor about the actual date, time and place
of sale. The words he may sell..notice of sale mean an intention to sell and they do not
necessarily mean that a sale should be arranged beforehand and that due notice of all the
details should be given to the pawnor.16 The main purpose of the law is to give the pawnor
reasonable time to repay the debts he has taken and if even then he fails to do so then the
pawnee moves on in selling the property kept to him as security as observed in Kunj Behari
v Bhargava C. Bank17. This whole concept again focusses on the fact that equitability is one
of those principles which is brought into force for justice and more importantly to increase
the trust of people and encouraging them to enter into contracts because equitable principle
act as a guarantee to the pawnee that even in cases of default he will be restituted to his
original position, thus encouraging more loan.

14 48 IC 970
15 146 IC 194
16 Dutt on Contract Tenth Edition by H.K.Saharay pg-804
17 ILR 40 ALL 522

BIBLIOGRAPHY
BOOKS REFERRED
Dutt on Contract Tenth Edition by H.K.Saharay
UNJUST ENRICHMENT by G RADHIKA OVERVIEW
LAW OF CONTRACTS I&II by Prof G.C.V SUBBA RAO

WEBSITES REFERRED
http://www.indianlawcases.com/Act-Indian.Contract.Act,.1872-5288
http://www.contractstandards.com/document-checklists/intellectualproperty-security-a/grant-of-security-interest
http://www.jaani.net/resources/law_notes/property_law/02_Creation.pdf
http://www.contractstandards.com/document-checklists/intellectualproperty-security-a/grant-of-security-interest
http://www.herts.ac.uk/__data/assets/pdf_file/0007/38671/HLJ_V4I2_Da
vies.pdf