Contract of Bailment under Indian Contract Act

Contract of bailment, according to Section 148 of Indian Contract act,1872, is the delivery of goods by one person to another for some purpose, upon a contract that they shall, when the purpose is complete, be returned or otherwise disposed of according to the directions of the person delivering them.

Manner of Creation of Contract of Bailment

1. Contract: –according to section 2(h) of the Indian Contract Act, 1872 a contract is an agreement creating and defining an obligation between two or more persons by one or more to acts or forbearance on the part of others. Bailment arises out of a settlement. The contract can be expressed or implied. Sometimes, bailment arises with no explicit settlement between the parties. E.g. A unearths the goods of B. This is a bailment with no contract by using A and B but imposed with the aid of the law.
2. Delivery of products:-bailment is established simplest whilst there is a transport of goods by means by means of one character to another. The transport of products means the transfer of proper possession and management of the goods however not the possession. Mere custody of goods without a right of possession will now not create a bailment. For instance, A went to B’s eating place for a reason eating there. Where A entered the eating lace, a waiter of the eating place took his coat without being requested and hung it on a hook at the back of A. When A rose to leave the restaurant, he observed that the coat was lacking. This held that B becomes bailee of the coat because the waiter had assumed ownership on his behalf.
3. Goods: – bailment may be constituted most effective of products. Goods approach the products as described in the Sales of Goods Act, 1930. According to this definition, each type of movable asset is apart from actionable claims and money-in items.
4. Purpose: – in bailment, the shipping of goods needs to be done for a few reasons. The purpose has to be unique and brief. The reason f transport can be safe custody, transportation, repair, and introduction of software by means of alternate inside the shape.

Case: Forbes Forbes Campbell and Co. Ltd. Vs. The Board of Trustees of the Port of Bombay and Metal Fabs India Pvt. Ltd.[1]

The court observed that the contract of bailment has arisen. Therefore, the bailee is entitled to the necessary expenses that have been incurred for the purpose of bailment. Under Section 158 of the Indian Contract Act, 1872, the bailor is liable to pay back the bailee, necessary expenses, incurred for the purpose of the contract of bailment.  Moreover, the bailor is held liable to pay the bailee, in case of a defect in his title.

• Return of goods or disposal of goods: – the return of products is a fundamental circumstance of the bailment. The bailee is beneath an obligation to go back to the products while the purpose is carried out. The goods should be back both to the bailor himself or disposed of in step with the directions of the bailor.

Difference Between Contract Of Bailment And Contract Of Pledge

To understand these terms completely, one needs to understand the contract of bailment and the parties to it defined under Section 148. Section 148 defines the contract of bailment as “a “bailment” is the delivery of goods by one person to another for some purpose, upon a contract that they shall, when the purpose is accomplished, be returned or otherwise disposed of according to the directions of the person delivering them.”

Here, the person delivering the goods is known as ‘bailor’ and to whom it is delivered is called ‘bailee’. It is also stated that if a person is already in possession of someone’s goods contracts to hold them as bailee and the owner becomes bailor even if the goods were not delivered through the way of bailment.

The contract of bailment has certain essentials. These are:[1]

• There must be an agreement between the bailor and Bailee.
• The delivery of goods must have taken place voluntarily and in accordance with the contract.
• In the bailment, the ownership of goods must remain with the bailor, and not transferred to the bailee or anyone else. If the ownership is transferred, then it does not remain in the contract of bailment.

Coming back to the contract of pledge, the bailor in the case of the pledge is known as the ‘pawnor’ (the person who delivers the goods as a security for repayment of loan or performance of a promise) and the bailee is known as ‘pawnee’ (to whom the goods are delivered).[2]

Illustration- ‘A’ borrows an amount of Rs. 1 Lakh from ‘B’ and keeps his gold ring as security for payment of the debt. Here, the bailment of the gold ring is the pledge and, ‘A’ is the pawnor and ‘B’ is the pawnee.

Chief Controlling Revenue vs Sudarsanam Picture[3]

In this case, – A film producer borrowed Rs 1 crore from a financier distributor and agreed to deliver the final prints of the film when ready. This Madras High Court This agreement was not a pledge and only an agreement because there was no actual transfer of possession of goods as security.

The pledge is often confused with bailment. But there is a thin line of distinction between them.[4] In a bailment, goods are handed over for a specific period of time, But, in a pledge, the goods or property is handed over as a surety for repayment of debt. Another point of difference between the two is that there may or may not be the presence of consideration in the contract of bailment but the consideration is present for sure in the contract of pledge.

Also, in the contract of bailment, the bailee can use the goods for a specified purpose, but, in the arrangement of pledge, the pawnee has no right to use the goods. In bailment the goods are delivered for the purpose of safekeeping or return, but in pledge, goods are delivered as a security against a loan.

Every pledge is a bailment, but every bailment is not a pledge.

Identification Of Contract of Bailment in Day To Day Life

1. Handing over the keys: – we frequently pass on the keys of numerous gadgets to specific people. For instance, while we skip on our house keys or the keys of a locker at our residence to any neighbour, t induces the settlement of bailment among the events, making one the bailor and the other the bailee. Even the act of turning in the keys of a bicycle or a motorcycle can set off the connection of bailment.
2. Parking lots: – parking masses may be both paid and unpaid. If the parking plenty is unpaid, then it will be a gratuitous bailment for the bailor. In that case, the owner will become the bailor and the proprietor of the parking zone turns into the Bailee. However, if the car parking zone provider is paid, then it turns into at the same time beneficial bailment for the events. The bailor gives attention to economic phrases which make the bailee liable to shield the item of bailment.
3. Repair or service: – bailment for restore offerings can amplify a plethora of goods from cars to machines. All the products that are difficult to regular wear and tear are challengedd to bailment on behalf of the bailor for repairing.
4. Lending items for use: – a contract of bailment which is beneficial only to the Bailee is also of the nature of gratuitous bailment. In this case, the bailment is beneficial to the Bailee. E.g. when a friend lends another friend a bike to be used for some time or a girl lends another girl her jewellery to be worn for some time.
5. Keeping of footwear: – in temples and gurudwara, there are frequently hooked-up rooms for maintaining the footwear earlier than getting into the premises. Most of such rooms provide services free of value. Such services are meant for permitting the safekeeping of the footwear of the human beings who have come to go to the temple. This is a case in which the bailment is useful solely to the bailor because the Bailee does now not get hold of whatever in return of the goods bailed or for preserving the secure custody of the goods.
6. Warehouse facilities: – warehousing facilities are included for agricultural products for usage in the offseason. The farmers keep their food grains within the warehouses. These saved meals-grains can be used later at the time when grains cannot be grown. The warehousing facility is beneficial solely for the bailor because the bailor gets more benefit from the system of warehousing than every person else.

Duties of Bailor and Bailee under Contract of Bailment

Case: Kaliaperumal vs. Visalakshmi[2]

The court held that possession is a vital component of bailment. However, in the present case, there was a re-delivery of the goods. Therefore, liabilities do not arise. Thus, it is the duty of the bailor to place the bailee into the possession of the goods.

Duties of Bailor

a)  Duty to disclose faults in the goods built: – in gratuitous bailment, a bailor could urge the Bailee will exchange the products at whatever time despite the fact that those bailments might have been for a specified time alternately end goal. It is the obligation of a bailor to reveal faults. Assuming that bailor fails flat unveil such faults that point he will make answerable for those harm initiated will merchandise alternately misfortune endured by those Bailee.

b)  Duty to indemnify the loss of Bailee: –gratuitous bailment is one where no consideration passes between the bailor and the Bailee. It is a bailment without any charge or reward. Non-gratuitous bailment is terminated by the death either of the bailor or of the Bailee.

c)  Duty to compensate the loss of the Bailee due to defective title: –if the Bailee makes such use of the goods which is contrary to the conditions of bailment, he is liable to make compensation to the bailor for any damage to the goods due to unauthorised use such liability arises even if unauthorised use was being made with care.

E.g.  A gives a car to B, and when B drive the car at the signal police will stop her and check her paper. The paper will not be belonging to A they have only PUC, and insurance. In this, the owner of the car is X party. Then all the loss or compensation will be paid by A.

d) Duty to take goods from the Bailee: – a bailor is under a duty to deliver goods as per contract. The delivery may be actual, symbolic constructive or delivery by attornment.

E.g.A agrees to give 500 chairs o hire on 15 July for the marriage ceremony of B’s daughters. A is bound to deliver the chairs on the day.

Duties of Bailee

1. Duty to take reasonable care: – in all kinds of bailment a Bailee is under a duty to take care of the goods bailed to him. He is bound to take as much care of the goods as a man of ordinary prudence, under similar circumstances, would take of his own goods of the same bulk, quality and value.

Case: – Martin v/s London country council [3]

In this case plaintiff was brought as a patient to a hospital on entry the handed over 2 pieces of jewellery and a cigarette to the hospital authority. This was stolen by a thief. The hospital authority was held liable as a Bailee, because they had failed in taking as much care of the nature of the article demanded.

• Duty not to make unauthorised use of goods bailed: – if the Bailee makes any use of 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.
• Duty not to mix goods with his own goods: – a Bailee must not mix the goods bailed with his own goods.

E.g. A bails 100 bales of cotton marked with a particular mark to B. B without A consent, mixes the 100 bales with other bales of his own, bearing a different mark. A is entitled to have his 100 bales returned and B is bound to bear all the expenses incurred in the separation of the bales, any other incidental damage.

•  Duty to return goods: – it is the duty of the Bailee to return or deliver according to the bailor’s directions, the goods bailed, without demand as soon as the time for which they were bailed has expired, or the purpose for which they were bailed has been accomplished.
• Duty not to setup adverse title on the goods- (sec.117 Indian evidence act,1872) no Bailee shall be permitted to deny that his bailor had, at the time of bailment authority to make such suit bailment. In other words, Bailee cannot deny the title and right of the bailor. Thus if the Bailee returns the goods to the bailor in good faith, he shall have no liability towards 3rd party who may be the real owner of the goods.

Rights of Bailor and Bailee under Contract of Bailment

Rights of Bailor

1. Right to terminate the contract of bailment: – a bailor has the right to claim compensation for damages arising from or during the unauthorised use of the goods bailed.
2. Right to seek the return of goods: –  in case of gratuitous bailment, the bailor has at any time a right to require the return of goods even though he lent it for a specified time or purpose. However, the bailor will be liable to pay Bailee for the loss exceeding the benefit derived from such bailment.
3. Right to enforce the right of Bailee: – the duties of the Bailee are the rights of the bailor. A bailor therefore may sue the Bailee for enforcement of his right.

Rights of the Bailee

1. Right to be indemnified: – in case of premature termination of bailment, the Bailee has right to be indemnified for the loss caused to him.
2. Right to claim compensation: – if Bailee suffered any damage due to the non-disclosure of defects in the goods bailed, Bailee has a right to claim the damages from the bailor.
3. Right to sue the wrongdoer: – if a 3^rd person wrongfully deprives the Bailee of the use or possession of the goods bailed, or does them any injury, the Bailee is entitled to use such remedies as the owner might have used in the like case if no bailment had been made, and either the bailor or the Bailee may bring a suit against a 3^rd person for such deprivation or injury.
4. Right to return goods to any one of the joint bailors: –  is several joint owners of goods bails them, the Bailee may deliver them back to or according to the directions of one joint owner without the consent of all in the absence of any agreement to the contrary.
5. Right to recover expenses: – in case of gratuitous bailment, the Bailee is entitled to claim necessary expenses incurred by him for the purpose of bailment.
6. Right against 3^rd party and owner: –  whatever is obtained by way of relief or compensation in any such suit shall, as between the bailor and the Bailee, be dealt with according to their respective interest.

Finder Of Goods As A Bailee

According to Section 71 Indian Contract act,1872, a person who unearths goods belonging to every other and takes them into his custody, is challenged to the equal responsibility as a Bailee. The finder of products is given unique privileges below the regulation. He is entitled to retain the goods as towards the entire international except the genuine proprietor thereof. He is, therefore like a custodian of goods found by means of him for and on behalf of the authentic proprietor. As and while the owner is located, he is to return the goods to him. He has to take all reasonable steps to discover the genuine owner.

Rights of the finder of goods

1. Right to retain goods: – the finder of the goods may return the goods to the owner but only when the original owner is found and the rewards is given. The finder of the goods may retain the goods against the whole world till the owner is found. However, the finder of the goods has no right to sue the owner for compensation for trouble and expenses voluntarily incurred by him to preserve the goods and find out the owner.
2. Right to claim reward: –  the finder of the goods can claim the specific reward which the owner has offered for the return of the goods as a man of ordinary prudence will seek for reward. He may sue for such prudence or reward and may retain the goods until he receives it.
3. Right to sell of goods:-  when a thing found is commonly the subject of sale and;- a) when the owner cannot be found.

b) when the owner refuses on demand to pay the lawful charges to the finder of goods.

The finder of goods can sell the things in following circumstances

1. If the thing is of perishing nature,
2. If the lawful charges of the finder amounts to 2/3^rd of its value.
3. Right of lien: – according to section 168 of Indian Contract Act, 1872 a finder has a right to retain possession of the goods until he receives reasonable compensation for expenses, incurred in connection with preservation of goods and finding out of the owner.

Liability Towards The True Owner

1. To take care of the goods found: –the finder of goods is bound to take as much care of the goods as a man of ordinary prudence would under similar circumstances the of his own goods of the same bulk, quality and value as the goods found.
2. Not to use: –the finder of the goods must not make use of the goods for any purpose. Use by him will be deemed to be unauthorised use of goods.
3. Not to mix goods: – he must not mix the goods found by him with his own goods.
4. To trace the owner and return the goods: –  he must take all necessary measures to trace the owner of the goods found and return the same to him.
5. Compensation in case of default: –  if by default of the finder of the goods, the goods are not returned to the owner, he is responsible for compensation of any loss or destruction of the goods to the owner. 

Right To Dispose Off Goods

A contract of bailment can be terminated or we can say that the goods can be disposed off only in the following circumstances:-

1. Expiry of specified period: In case the contract of bailment is made for a specific period of time. As soon as that period expires, the contract gets terminated.
2. Specific purpose: The goods are generally bailed to the bailee for a specific purpose. On the accomplishment of such purpose, the contract will automatically get terminated.
3. Termination of Gratuitous Bailment: In a contract of gratuitous bailment, the bailor has got right to demand return of goods even before the accomplishment of purpose or expiry of specific period of time. On the return of goods, the contract comes to an end.
4. Inconsistent use of goods: In case the bailee makes unauthorised or inconsistent use of goods bailed, the bailor may demand return of the goods and can seek termination of the contract.
5. Death of the bailor or bailee: A contract of bailment would come to an end in the event of death of bailor or bailee.

For more articles on Law of Contracts, Click Here.

For law notes, Click Here.

[1] AIR 2006 Bom 162.

[2] AIR 1938 Mad 32.

[3] (1947, k.b. 628)

Author: Kirti [Student; Banasthali University, Rajasthan]