Thursday, July 7, 2011

Section 151 of the Contract Act 1872 (India and Pakistan)

Section 151 of the Contract Act 1872 says: “In all cases of bailment the bailee is bound to take as much care of the goods bailed to him as a man of ordinary prudence would, under similar circumstances, take of his own goods of the same bulk, quality and value as the goods bailed.”
1.       “Section 151 which refers to all kinds of bailment includes also pledges. Hence a pledge is also liable to the incidents of a bailment such as the duty to take requisite care” Thanwarin Noharsingh v. Darbarilal AIR 1952 Nagpur 8

2.       Bank claiming loss as pledged goods were damaged or destroyed due to natural decay while in custody of bank-…. Bank cannot disown liability 1998 …A clause in the pledge deed that the “pawnor shall be responsible for all losses, damages or deterioration of goods caused by theft, fire, rain, floods earthquake lighting, enemy action, international commotion or any other cause” does not exonerate the liability of the pawnee where goods were lost due to his negligence  because the clause provides him protection only when goods are lost due to causes beyond his control. 1998 (2) Guj LH 204

3.       Share certificates and bank transfer forms are goods.  Jamshed Naoroji Gamadia v. Maganlal Bankeylal AIR 1925 Bombay 314

4.       A pledge of the goods with the bank constituted the bank as a bailee. Gopal Singh v. Punjab National Bank AIR 1976 Delhi 115

5.       Loss of subject matter of the bailment is itself prima facie evidence of the negligence of the bailee bank, and when the evidence put forth by the ban did not explain the circumstances under which the articles were lost or nature of care taken by the bank to protect goods, then the bank has not rebutted the initial presumption of negligence against it.  The Bank is liable for the goods stolen from its custody. K. Chellapan Pillai v. Canara Bank (1991) 71 Com Cas 584 DB Kerala.

6.        “whereas a bank, as trustee, was bound to act in the same manner as a prudent man of business, a higher duty of care was owed by a bank trust corporation which carries on a specialized business of trust management”. Bartlett v. Barclays Trust Co Ltd [1980] Chap 515, [1980] 1 All ER 139

7.       “Thus the duty applies to interpreting, ascertaining and acting in accordance with the instructions of the customer. The standard of reasonable care and skill is an objective standard applicable to banks.” Encyclopaedia of Banking Law Volume I,  61.

8.       T.G. Reddy in "The Law relating to Banking" the care as required by the bailee has been discussed as follows (pages 81-82) :
"(IV)BailmentA bailment arises where personal property is delivered by one patry (the bailor) to another party (the bailee) on a condition express or implied that the property shall be returned to the bailor or disposed of in accordance c directions as soon as the purpose for which the bailment arose has been fulfillled. Bailment can exist independently of contract, though there is often a c set out the terms and conditions. Examples of bailment are hire-purchase, pledge, carriage of goods, delivery of goods for repair, etc. and the point at which c involved-safe custody. Warehousemen, of course, are bailees, but they are more concerned with the preservation of merchandise, than the safety of valuables, which is the banks' special is generally considered (though opinions to the contrary have been expressed) that bailment is not implied in the ordinary banker and customer relationship, i.e. there is no obligation on a bank to accept property from a customer for safe custody. Such facilities might be expressly agreed when the account is opened, but this would be exceptional, and normally safe custody items are accepted at the banks' discretion, so that they would be declined if they were too bulky, or undesirable for some other reason. Another unresolved difficulty is whether banks are gratuitous bailees, or bailees for hire or reward, because, a part from the special case of safe deposit facilities for which banks charge a periodical rental and which are available to the general public, banks do not make a special charge for safe custody services. It is argued that in so far as this may be borne in mind when assessing the commission to be debited to a customer's account, the bank maybe deemed to be a paid bailee. On the other hand, c who utilise the safe custody service may notbe charged any commission because of a substantial average credit balance on their account or the value of their connections. However, the difference has little practical effect, since banks take the same care of the items in their strong rooms whatever sort of bailee they may actually be. Legally, a gratuitous bailee is bound to take the same care of the property as a reasonably prudent man with the same facilities at his command would take in respect of similar goods of his own; whereas a paid bailee is expected to have the best possible safeguards and to exercise the same degree of care and skill as may reasonably be expected in the ordinary and proper course of a similar business to that for which he is paid. To counter modern criminal's scientific progress in safe breaking, banks are constantly improving their strong rooms at great expense and so their standard of care of customers' property entrusted to them for safe custody does not fall below that expected of a paid bailee. In Moynihan v. National Bank Ltd. (1969)Lady Moynihan sued for the loss of her jewels which were kept in a deed box at the bank and were stolen ina weekend raid on the bank's strong room. The bank denied negligence: however, during the hearing the case was settled for an undisclosed sum.Thus, the bank will not be liable if property held in safe custody is destroyed by fire or otherwise, lost or stolen unless there is negligence on the part of the bank, and the degree of negligence required to establish liability will depend on the relevant circumstances of the case, including what type of bailee the bank is held to be Customers should therefore be advised to insure the items they deposit; in fact, they will be quoted a lower premium by the insurers then would be the case if the items were kept on their own premises. If the bank seeks to exclude or limit its liability as bailee in any way then by the Unfair Contract Terms Act, 1977 (discussed in Chapter 1)the term or notice to that effect must satisfy the test of reasonableness."

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