Bailment, Lien, and Pledges: Summary notes

 

Bailment is the delivery of goods from one person , the bailor, to another person, the bailee, on the condition express or implied in the contract that the goods shall be returned to the bailor as soon as the purpose for which they have bailed has been completed.

Since the essence of bailment is the delivery of goods for a stated purpose and their return on the competition of that purpose, it is only the possession that passes from the owner to the other party and not the ownership.

Types of bailment.

Bailment of goods may take the following forms:

  1. Deposit. This may take place when the owner deposits the goods in a cloakroom or left-luggage office for safe custody.
  2. Hire. The hirer of goods under the hire purchase agreement is responsible to exercise a reasonable care of goods as long as they remain in his possession.
  3. Loan. Sometimes the goods are left as a security with the money-lender for raising loan. The money lender is not allowed to bring the goods in his use, unless he was permitted to do so in the contract.
  4.  Deposit for work to be done. This type of bailment is very common, and takes place when the owner of the goods delivers the same for repair or alteration such as giving a watch for repair, or a portrait for Iraming.

Duties of the bailee include the following:

  1.  To take reasonable care of goods.
  2. He must take a reasonable care of goods, but if the loss is due to an Act of God, or violent robbery, the bailee is not liable.
  3.  The bailee must return the goods to the lawful owner on the expiry of the time fixed or when the purpose is accomplished.

Duties of the bailor include the following:

  1.  To disclose the faults, if any, in the goods bailed. If he fails to do so, he will be liable to pay damages to the bailee.
  2. The bailor must indemnify the bailee for any loss which the bailee may incurr due to the defective title of the bailor to the goods bailed.
  3.  Where the goods are bailed for a particular purpose, and the bailee in the due performance of bailment spends some money or uses his skill, he is entitled to exercise a lien on them as long as his claim in repsect of money or skill is not satisfied.

Pledge

A pledge like a contract of bailment is the delivery of goods to a moneylender on condition, express or implied, that the goods shall be returned to him as soon as the loan is repaid. The right of ownership in the goods pledged as a security remains in the owner, but the possession is transferred to the pledgee (person with whom the goods are pledged).

Pawnbrokers

These are persons licensed to carry on a money-lending business on accepting valuable articles as security for the repayment of a loan. They are governed in Kenya by its Pawnbrokers Act (Cap 529). The Act applies:

  1. to every loan by a pawnbroker of sixty shillings or under;
  2. to every loan by a pawnbroker of above sixty shillings and not above three hundred shillings except in relation to cases where a special contract respecting the terms of the loan is made between the pawnor and the pawn¬broker at the time of pawning.

The pawnor is entitled to redeem the goods pawned in the stipulated time or if no time is fixed, within a reasonable time after demand for payment has been made. If the pawnor does not redeem, the wnbroker a right to sell the articles pawned, but any excess obtained byp a sale must behas handed tothesell pawnor.

Billsof sale

A bill of sale is a document whereby the propert chattles (things) is transferred, either absolutely or conditionally by way ofin mortgage to secure the loan or the performance of some obligation. The ownership is transferred to the mortgagee (grantee ) while the goods remain in the possession of the mortgagor(grantor).

The Bills of Sale Act requires a bill of sale , given by way of security to be attested and registered within twenty-one days from the day on which it was executed. Failure to register renders the document fraudulent and void as against the creditor or the transferor.

Nature of lien

A lien is a right to hold the property or goods of another person as a security for the performance of an obligation. The purpose of a lien is to give security to a party who may have incurred expenses on behalf of other party.

Kinds of Liens. Liens are of three kinds:

  1.  Possessory lien. This is the right of a person in possession to retain the goods until he has been paid the money due to him. The person who has lien over the goods of the other person, does not normally have a right to sell. Possessory lien is of two kinds: (i) particular lien, and (ii) general lien.Particular lien entitles the lien holder to retain the goods until a debtarising in respect of such goods is paid. It exists as a security for the particular debt incurred.General lien is a right to detain any peoperty belonging to the other, and in the possession of the person trying to exercise the lien in respect of any payment lawfully due to him. For example an advocate may exer¬cise a general lien on all papers and documents of his client for his professional fee, but not for ordinary loan or advances.
  2.  Maritime lien. A maritime lien does not depend on possession. This attaches to a ship in connection with maritime liability. It is a right to have a ship or cargo therein realised and proceeds applied in satisfaction of the sum due to the person having the lien. The maritime liens are those of (i) salvors of property saved, (ii) of master for wages, (iii) of sailors for payment for services rendered, and (iv) of a ship damaged by a collision.
  3. Equitable lien. An equitable lien is the right to have certain specific prop¬erty dealt with in a specific manner. Common examples of equitable lien are the right of a partner to have the assets of his firm applied in the pay¬ment of the firm’s debts, and the claim of the trustee over the trust prop¬erty in respect of his expenses incurred in the administration of the trust.

Differences between a Guarantee and Indeminty contract.

A guarantee is a contract by one person to be answerable for the debt, default or miscarriage of another person, in case the latter should fail to perform his agreement. It differs from an indemnity contract in that:

  1. only two parties are necessary in the case of an indemnity, but three parties in the case of a guarantee;
  2. an indemnifier assumes a primary liability to make good a loss, whereas a guarantor is liable only in the event of a default by the principal debtor and is thus secondarily liable;
  3. an indemnity may be given verbally, but for a guarantee to be enforceable at law it must be evidenced in writing;
  4. a guarantor has no interet in the transaction apart from his promise.

Rights of a Guarantor:

  1. Against the Debtor. The surety or guarantor has a right before the payment has been made of compelling the debtor to relieve him from liability by paying off the debt. But if the guarantor pays the debt on default of the debtor, he is entitled to claim all sums with interest from him.
  2.  Against the Creditor.

(a)  At any time after the guaranteed debt has become due, and before he has been asked to pay it, he can require the creditor to call upon the debtor to pay , on the undertaking to indemnify the creditor against the cost, risk,and delay involved.

(b) If the guarantor (surety) pays the debt, he is entitled to all securities which the creditor may have against the debtor when the contract was made. On being sued by the creditor, he can plead any set off which the debtor may have against the creditor in respect of the debt to which he is a guarantor.

3 Against Co-guarantors. Sometimes it may happen that         thesame debt has been guaranteed by two or more guarantors. All the guarantors in this situation are required to contribute equally if the debtor defaults. In case one guarantor has paid more than his share under the guarantee, he has a right of seeking contribution from his co-guarantors.

Discharge of Contract of Guarantee.

A contract of guarantee is discharged in the following cases:

  1. Variation of terms. In a contract of guarantee any material alteration in the terms of agreement between the principal creditor and debtor with¬out the guarantor’s consent will have the effect of releasing the guarantor from liability under the guarantee.
  2. Extension of time. If without the consent of the guarantor the creditor extends the agreed time of repayment of the loan.
  3. Fraud. A guarantee which has been obtained by means of misrepresentation made by the creditor.
  4. Revocation. A continuing guarantee may be revoked by giving notice to the creditor for future transactions. The notice of guarantor’s death to the creditor also revokes the guarantee with respect to future transactions.
  5. Discharge of the debtor. If the principal debtor is discharged from his liability by the creditor, the guarantor is automatically discharged.
  6. Release of co- guarantor. Where the creditor expressly releases a co-guarantor, all other guarantors are discharged.
  7.  Rights of surety. If the creditor does any act_which is against the rights of the guarantor, the guarantor is discharged.
  8.  Limitation. Where the creditor fails to sue the debtor or the guarantorwithin the period of limitation, i.e. six years, the guarantor is discharged.
  9. Payment. If the principal debtor makes the payment on the due date, the guarantor is discharged.
(Visited 53 times, 1 visits today)

Leave a Reply

Your email address will not be published. Required fields are marked *