This article is written by Rachit Garg and further updated by Arya Senapati This is an exhaustive article, aiming to give a brief introduction to the concept of bailment as per the Indian Contract Act, 1872. It also delves into various key aspects of the contractual relationships created through bailment and attempts to analyse modern forms of bailments as well.
Table of Contents
Introduction
There are various instances of bailment in our daily lives that arise from various forms of transactions. One common example of the same is when people leave their electrical appliances at an electricians repair shop for repair and upkeep. Here, the purpose of the bailment is repair of goods, the bailed goods are the appliances; the bailor is the one who owns the electrical appliances and the bailee is the one who keeps it for repair. This is one example of how the relationship of bailment is created with an assumption that the goods shall be returned once the purpose of the bailment is fulfilled.
Bailment relationships are found everywhere around us in our daily lives. Starting from courier services, to hiring a bike for a trip, to borrowing a book from a library to safe deposit boxes in banks, bailment like relationships are very important for the economic development and commercial transactions that mankind goes through every day.
Let us understand the concept in detail.
Meaning
The term bailment finds its origin from a french word “bailler” which means “to deliver”. Herein, the possession of a particular good is delivered for a specific purpose with an understanding that the goods shall be returned to the real owner after the purpose is fulfilled. Section 148 of the Indian Contract Act, 1872 defines bailment as the delivery of goods from bailor to bailee for a specified purpose and an understanding that once the purpose of bailment is fulfilled, it shall be returned to the real owner.
Who are the parties to the contract of bailment
Ideally, every contract of bailment has two parties. One of the parties is called as the bailor who is the real owner of the bailed goods and the other party who keeps the bailed goods in his custody for a specific purpose is referred to as the bailee.
General rules relating to bailment are mentioned in Chapter IX (Section 148-181) of the Indian Contract Act, 1872. In a general sense, bailment is treated as a special contract which consists of all the characteristics of a valid contract which should be present between the parties to make the contract valid and enforceable but in certain situations, a bailment can arise without the existence of an agreement or a contract. For example, finder of lost goods, i.e., whenever a person finds a good belonging to someone else and takes it into his custody, he assumes the role of a bailee and must take reasonable care of the goods till they are returned to the real owner
What goods can be bailed
Ideally, only the bailment of movable properties and goods are considered to be valid. As per the current legal regime, money, currencies and legal tenders cannot be considered as bailment. Therefore, if a person deposits money somewhere, it doesn’t create a relationship of bailment.
Essentials of bailment
Delivery of possession
One of the primary features of bailment involves the delivery of possession of the bailed goods. The delivery is done by the bailor to the bailee. During delivery, the specific purpose for which bailment is created is mentioned. Delivery of possession means that the bailee gets exclusive control over the bailed goods for a specific period. He can exclude the control of strangers and third parties over the bailed goods.
Section 149 of the Indian Contract Act, 1872 talks about the same. The delivery of possession with regards to bailment can be done through actual delivery or constructive delivery of possession. Goods can either be given directly to the bailee by the bailor, or the bailor can do some specific act which would consequently provide control of the goods to the bailee. The first situation is the actual delivery of goods and the second situation is the constructive delivery of goods. As per the decision given in the case of Kavita Trehan vs. Balsara Hygiene Product Ltd. (1991), delivery is sine qua non to bailment. The relationship of bailment is not possible without delivery of possession. As per law, the one who holds the de facto control of a good is said to be in possession of it.
For example, A person has kept some rare artefacts in a deposit box. Considering that the deposit box is too heavy to be delivered, the person simply gives the keys of the box to another person and in this situation, the relationship of bailment is created through constructive delivery of possession.
It is important to note that mere custody of goods is not equivalent to the possession of goods. In Reaves vs. Capper (1838), the Court of Common Pleas stated that a servant shall not be treated as a bailee if he holds the goods of his master due to the nature of his employment. For example, if the servant is carrying the shopping bags of the master, he cannot be treated as bailee because he holds the goods due to the nature of his relationship with the master.
Delivery upon contract
In an ideal case, the creation of an agreement or an enforceable contract is necessary to establish the relationship of bailment. In the absence of a contract, bailment is not considered to be valid in any means.
Exception: One of the exceptions that the court envisages in such a case is the relationship established between finder of lost goods and the real owner of the lost goods. Here, even though no contract exists between them, the finder of lost goods is bound by all the duties of the bailee if he keeps the goods in his custody voluntarily.
Delivery must be for some purpose
The contract of bailment must specify the purpose for which a good is bailed by the bailor to the bailee. For eg: laundry of clothes, repair of appliances, hire for use etc. If the purpose is not mentioned and the contract doesn’t envisage the return of goods after the fulfilment of the purpose, a relationship of bailment is not created.
Return of goods
One of the most important clauses in a bailment agreement is regarding the return of goods after the purpose for which they were bailed is fulfilled. If there is no such clause, the agreement cannot be treated as a bailment. If the goods returned by the bailee are supposed to be similar to the goods bailed but not the exact goods bailed, then also the contract of bailment is considered invalid.
For example, a dry cleaner receives certain clothing items for laundry and dry cleaning. Once he has completed the process, he is under an obligation to return the clothes to the real owner.
Furthermore, if the bailor has given any specific mode of return or any instructions as to how the bailee must return the goods, he is obliged to adhere to them.
In Sheo Singh Rai And Anr. vs. The Secretary Of State For India(1880), a man, for the purpose of cancelling and consolidating nine government promissory notes into a single note of Rs. 48000, went to a Treasury Officer. Later, the notes were misappropriated by a servant at the treasury and the man filed a suit against the state to hold it responsible as a bailee. He failed to claim damages from the state as there existed no bailment between him and the state. The rationale behind this decision was that without delivery of goods and a promise to return the same, a bailment cannot be created. Therefore, the government was not bound to return the notes.
Classification of bailment
Largely, bailments are two types in their nature based on various grounds of classification:
On the basis of remuneration
Gratuitous bailment
Gratuitous bailment refers to a situation where a good is bailed by the bailor to the bailee without any consideration or without the expectation of receiving any benefit from the transaction.
For instance: when a friend borrows a book for reading from another, there is no money involved and therefore it is a gratuitous act.
Non-Gratuitous bailment
In situations where a consideration is involved, the bailment becomes non-gratuitous due to the existence of a benefit which is derived from the transaction.
For instance: When a person hires a bike from a bike hiring service and pays a certain amount of money for a specific period, it is considered as a non-gratuitous bailment.
On the basis of benefits to the parties
For the exclusive benefit of the bailor
In such situations, the bailor receives the benefit and the bailee has no benefit arising from the transaction in any manner.
For example, leaving your belongings with a neighbour for safekeeping when going out.
For the exclusive benefit of the bailee
In such situations, the bailee is the one who receives a benefit but the bailor gets no consideration for the same. For example, when a person lends their bike to a friend.
For the mutual benefit of both of them
In such a situation, both parties derive some benefits out of transaction and agreement. The bailor gets a service and the bailee gets consideration or vice versa. For example, if a person provides his clothes to a laundry service for cleaning, the person gets clean clothes as a service and the laundry company gets payment as consideration.
Duties/rights of bailor and bailee
Duties of bailor
Disclose known faults
Irrespective of the fact that goods bailed were done gratuitously or with consideration, it is the duty of the bailor to disclose faults which are within his knowledge in the bailed goods. Failure to disclose makes the bailor liable for all the loss or damage incurred by the bailee which are linked to the undisclosed fault. The bailor must indemnify the bailee for all such losses. Especially in the case of non-gratuitous bailment, the bailor is liable for all the faults, be it known or unknown to him.
Examples:
- Hari lends his bike to Shyam for a day trip. Hari was aware that his bike is faulty due to the brakes not working properly. Shyam met with an accident due to the fault brakes. Hari is liable for covering the medical costs and other damages incurred by Shyam.
- Rahul provided his bike to Rakesh for a racing competition. The bike caught fire due to certain faults in it. Rakesh sustained multiple severe injuries and burns due to the accident. Rahul is responsible for the injury incurred by Rakesh.
Bear expenses of bailment
In case of non-gratuitous bailment
Bailor is expected to bear all the extraordinary expenses but the bailee is bound to bear all the ordinary and reasonable expenses of the bailment.
Example: A leaves his dog with B, a professional dog trainer, for a week as he is going out of town. B is being paid for the same so A is not required to bear the ordinary expenses. However, the dog suffered from high fever and B had to call a doctor. A has to repay all the medical expenses born by B.
In case of gratuitous bailment
In cases of gratuitous bailment, the bailor has a duty to pay for all the necessary expenses that are incurred by the bailee to upkeep of the bailed goods.
Example: A gives his pet dog to B to keep him safe as A is going out for a trip. Considering B is not getting any payment from A, A has to pay for all ordinary expenses like the food of the dog. In a situation where the dog gets sick and B incurs the medical costs for treatment, then A has to compensate B for the same.
Indemnify bailee
According to Section 159, in case of gratuitous bailment, the bailor can terminate bailment at any time even if the bailment was for a specific time or purpose. However, in cases of early termination of bailment, the bailor has to indemnify the bailee for any loss that he may face due to the abrupt termination of the transaction.
Example: Akash lends his car to his friend Rakesh for a family trip of 7 days. Rakesh fills petrol in the car for 7 days. After 3 days, Akash calls Rakesh and demands the return of his car. In such a situation, Akash is liable to compensate Rakesh for the 4 days of petrol that is left unused in the car.
Indemnify the bailee when he suffers due to the title of bailor to the goods being defective
According to Section 164, the bailor is liable to indemnify the bailee in case the bailor has a defective or imperfect title on the bailed goods which leads to injury or damages to the bailee.
Example: A hires a car from B. A pays 5000 Rs for 7 days. A goes for a family trip but on the fourth day, the police authorities seize the car from A. A later finds out that the car B gave him was a stolen car and B did not have any ownership over the same. B therefore is liable to indemnify A for the loss or damage sustained by B.
Receive back the goods
Once the term of the bailment expires or the purpose of the bailment is fulfilled, the bailor has a duty to get back the goods from the bailee. In case, the bailor refuses to take back the goods, he must pay certain compensations to the bailee for keeping the goods in his custody.
Example: Anish had given his dog to a professional dog kennel provider for two weeks as he was going out for a trip. He paid Rs. 200 per week to the service provider. His trip got extended to another week. In such a situation, he has to pay an extra Rs. 200 for the additional period for which the service provider had to keep the dog.
Duties of the bailee
Take reasonable care of the goods bailed
As per Section 151, it is irrelevant if the bailment is for consideration or not, the bailee is responsible to take reasonable due care of the bailed goods in the same manner in which he would take care of his own goods. He has the responsibility in the standard of what a man of ordinary prudence would do to protect his own goods. In case, there is a breach of duty, the bailee is responsible for compensating the bailor for any damage that he may sustain.
Example: A had given his dog to B, a service provider for safe keep. A had paid an amount of Rs. 100 per day for ten days. B had by mistake left his gates open. The dog was stolen from his property. It was proved that this happened due to the negligence of B. Therefore, B is liable to repay A for his loss.
No unauthorised use of goods
As per the Section 154, if due to the fact that the bailee uses the goods bailed in a manner inconsistent with the terms of the contract then he will be held liable in case there is any damage to the good, even if he was not negligent or the damage resulted from an unforeseeable accident.
Example: Ramesh lends a book to Suresh for exam preparation. Suresh gives the book to Susmita. Susmita’s negligence leads the book to be damaged. Suresh is liable to compensate Ramesh for the book as Ramesh had lent the book to him for his private preparation and not to lend to someone else.
Not mix bailed goods with his own goods
The bailee has a duty not to mix the bailed goods belonging to the bailor with his own goods. The bailee must keep the goods separately and prevent their admixture. Here are the details:
- As per Section 155, if bailor consents to mixing of the good, both the bailor and the bailee shall derive proportionate interest in the mixture thus created.
- As per Section 156, if the goods are mixed without the consent of the bailor, and the goods can be separated and divided, then the bailee has to bear the costs of the separation.
- As per Section 157, if the mixture is done without the consent of the bailor and the goods cannot be separated then the bailee has a duty to compensate the bailor for the loss of the goods.
Return any accretion to the goods
Whenever the contract doesn’t clearly specify that any profit arising from the bailed goods will be possessed by the bailee, the general rule is that the bailee shall return the profit from the bailed goods arising during the tenure of the bailment, to the bailor.
Example: Ramesh bailed his cow to Suresh for a week. The cow gave birth to a calf during the time period. Ramesh has a right to get back the calf from Suresh after the termination of bailment. That is an established right of the bailor.
Return the goods
Once the period of bailment is over or the purpose for which the bailment was created is fulfilled, the bailee has a duty to return the bailed goods to the bailor.
Rights of the bailor
Enforcement of rights
Bailor has a right by law to file a suit for enforcing his rights provided as per statute.
Avoidance of contract
According to Section 153, if the bailee does anything which is inconsistent with the terms of bailment, then, the bailor can terminate the bailment.
Example: A bailed his car to B for his private trip. B lends the car to C for riding. The terms of the contract get broken. A can terminate the contract.
Return of goods lent gratuitously
In situations where the goods have been bailed or lent gratuitously, then in such a situation the bailor has a right to get back the goods after the purpose of the bailment has been fulfilled or the term expires. On the contrary, in a situation where the goods lead to an excess of loss as compared to profit, then the bailor has to indemnify the bailee.
Compensation from a wrong-doer
If the bailee is wrongfully deprived of the possession of the bailed goods either by stealing or by any act of a stranger to the contract or any third party, then both the bailor and the bailee have a right to file a suit for recovery of possession and compensation.
Rights of the bailee
Delivery of goods to bailor without title
According to Section 166, if bailor has no title over the bailed goods and the bailee gets to know that then the bailee can return the goods as per the direction of the bailor and in case delivery doesn’t happen, then the bailee is not liable.
Can apply to a court to stop delivery
According to Section 167, if a situation arises when the ownership of the bailed goods is claimed by a third party, then the bailee can stop the delivery of the goods to the bailor by applying to the court for deciding the actual title of the bailed goods and then make the delivery to the rightful owner.
Right against trespass
According to Section 180, in a situation where the bailee is deprived of the possession of the bailed goods through theft or any other means, the bailee has the right to file a suit for recovery of suit and for compensation.
Bailee’s lien
Right to lien means that in a situation where the bailor must pay a certain amount to the bailee as indemnification or any other matter, the bailee has the right to keep the bailed goods with him even after the expiration of bailment, till the time the bailor pays the certain amount.
In the case of Tilendra Nath Mahanta vs. United Bank Of India (2001), it was held that lien is largely of two types. General lien refers to the rights of bankers, factors, wharfingers, attorneys and policy-brokers to retain in form of security, any goods bailed to them, till the balance of their account is paid completely or to their satisfaction. Particular lien is a right to retain a particular asset as a security, till the debtor repays his entire debt. General lien applies to all the assets of the debtor.
Non-statutory bailment
Even though Section 148 of the Indian Contract Act deals with the statutory aspect of bailment as a contract made between two parties, it excludes any mention of the aspects of non-contractual bailments from its provisions. Bailment has been understood as a sui generis (of its own kind) concept which basically entails that an action against the bailee cannot be made through an action founded in contract or tort but it has to be an action on its own. Liabilities of a bailee arise from having possession of goods of others and taking reasonable care of them without being dependent upon the existence of a contract or not. The idea of bailment without the necessity of a contract is a daily new concept which constitutes all forms of bailment created by a voluntary or involuntary act of taking custody of other’s goods.
The earlier understanding of bailment was limited to a contractual relationship arising from an agreement to take custody of someone else’s goods and was dependent upon mutual consent of the parties to the contract. In simple terms, the present idea of non-contractual bailment arises from the act of one to take away someone else’s goods either voluntarily or involuntarily without having formed a contractual relationship. If a person takes custody of another’s belongings without creating a formal agreement, it also amounts to bailment.
This was held in the case of Ultzen vs. Nicholas (1894), wherein the above view was upheld by the Court of Common Pleas. In this matter, the plaintiff had visited a restaurant and the waiter of the restaurant took his coat and hung it on the hook. The plaintiff had not requested him to do so. After finishing his dinner, when the plaintiff started to leave, he found his coat missing. The plaintiff sued the establishment and argued that when the waiter took his coat from him without his request, he became the bailee of his coat and had the duty of taking reasonable care of the same. It was held that even though the waiter acted in courtesy to the customer, when he took the voluntary possession of someone else’s goods, he became obligated to return the same to the one he took it from. Therefore, there was a non-contractual bailment relationship between the customer and the waiter, who assumed physical control over the goods, assumed the duty to take reasonable care of it. Hence, the restaurant is liable for the loss of goods and must pay damages to the customer.
Involuntary bailment is the other form of non-contractual bailment. In cases of involuntary bailment, the connotation is simply of accident. In the traditional form of bailment, there is a voluntary delivery of possession but in involuntary bailment, possession comes to bailee through an accident. A bailment arising out of accidental circumstances is an involuntary bailment and in such a situation, the bailee doesn’t consent to possession of the good. Considering that this form of bailment lacks the pre-mediated consent, it is also known as non-contractual-consensus bailment.
Example: A went to a shop and due to her negligence, left her purse there. When the shopkeeper finds the purse, he is instantly obligated to take reasonable care of the same and then return it to A. This principle is also enshrined under Section 71 of the Indian Contract Act which deals with the concept of “finder of goods”.
Finder of goods as a bailee
While dealing with quasi-contracts or situations that resemble a contract like relationship without meeting all the relevant essentials of a contract, the Indian Contract Act deals with the concept of finder of goods which resemble a bailment relationship without having a contract in place. The provision states that a person who finds goods belonging to someone else and decides to take them into his custody will have the same responsibilities as that of a bailee. This provision forms an exception to the essential condition of delivery upon contract as mentioned under the provisions of bailment in the Indian Contract Act. The effect of this provision results in the retroactive imposition of contractual terms on both the actual owner and the finder of the goods without taking consent as a necessary implication for forming the contract. Even though it violates the very essentials of a contract, it is still relevant and holds legal significance as a quasi-contract.
Essentially, the quasi-contractual relationship formed between the owner and the finder of lost goods has been envisaged under Section 71 is such that the finder is a bailee and the owner is the bailor with pari passu responsibilities and duties. These responsibilities burden the finder even when he doesn’t consent to it.
Duties of finder of goods
Considering that the finder of goods is treated as a bailee, he has similar duties as that of a bailee.
Duty to take reasonable care
Section 152 of the Indian Contract Act specifies that when a special contract is formed mentioning the responsibilities of parties, a bailee is protected against legal suit to recover any loss that the bailor has suffered in relation to the goods in custody of the bailee. This arises only when the bailee proves that he has taken reasonable care of the goods in a manner that is expected from a man of ordinary prudence and reason. A standard level of reasonable care and act to prevent or mitigate risk is expected from the bailee or the finder of goods. It implies that a finder of goods is responsible for taking due care of the lost goods that he finds and takes into his custody similar to a bailee in a contractual bailment. Any loss that the owner of the goods suffers, he won’t be entitled to recover it from the finder if the finder proves that he has taken reasonable care of the lost goods after finding them.
Duty to not make any unauthorised use
In a contractual bailment, the bailor mentions specifically the ways in which the bailed goods can be used and the bailee has a duty to not use the bailed goods in any other manner. Use of bailed goods in a manner which is not authorised by the bailor leads to breach of duty. Considering that in an involuntary bailment, the finder of goods has no opportunity to get such authorisation from the bailor, he shall be responsible for using the lost goods carefully and avoid making any use at all unless absolutely necessary to protect the goods from any damage or peril. Therefore, it is extremely important to understand that this duty based on the facts and circumstances of the case after the judge use his/ her prudence on the matter
Duty to not mix
Admixture of bailed goods with goods belonging to the bailee is prohibited in contractual bailment. Similarly, the finder of lost goods has a duty to not mix anything to the goods he found. In case mixture happens, it is clear that there is no consent of the actual owner for doing so and therefore, the finder is responsible for bearing the consequences. When a mixture is created without consent, if the goods are separable, then they must be separated and the original proportion must be returned to the owner and the cost of separation is borne by the finder. If the goods cannot be separated then the finder of goods has the responsibility to compensate the owner for any damage or loss sustained by him from such breach of duty and the value of the good. A finder of goods faces similar liabilities as that of a bailee in such situations.
Duty to return goods
Just like a bailee has a strict duty to return the goods bailed to him, a finder of goods also has a duty to take all reasonable action to find the real owner of the lost goods and return the goods to him. The finder of goods has to conduct a reasonable search of the owner after taking possession of the goods. The time and manner of return will be specified by the owner if he is found. The finder of goods must also return any profits which arose from the goods while they are in his custody. So from the moment the finder found the lost goods, till the moment it was returned, any profits which must have accrued from the lost goods must be returned by the finder to the real owner. Eg: If a farmer finds a pregnant cow in his farmland and the cow delivers the calf while in custody of the farmer, then the farmer has to return both the cow and the calf to the real owner.
Rights of the finder of the goods
Considering the quasi-contractual relationship between the finder of lost goods and the real owner of the goods, he also has certain rights flowing from the transaction.
Right to sue for specific reward offered and to impose lien
As per Section 168 of the Indian Contract Act, the finder of lost goods is prevented from suing the owner of the goods to receive compensation for the time and finances spent by him to find and locate the real owner and return the said goods to him. The reason behind this is that law presumes that such an act is done by pure goodwill and voluntarily. In contrast, if the owner has specified a particular reward for return of the good, the finder can sue to claim that specific reward only and impose a lien till that amount is paid or the reward is received by him.
Right to sell the found goods in certain cases
As per Section 169 of the Indian Contract Act, a finder of lost goods which is commonly sold in the market can sell the same if the owner cannot be found after exercising reasonable diligence and care to find the owner or when the owner refuses to pay the specified reward to the finder of the goods. In such a situation, the finder may sell it on two conditions. First, the good is of perishable nature and is in danger of perishing and losing the greater part of its value or when the lawful charges specified by the owner to the founder with regard to the good found amounts to two third of the value of the found goods. Only when there is a situation where at least one of these criteria is fulfilled, the finder gains the right to sell the goods for benefit or compensation. This narrow limit is provided to sell the goods so as to ensure the practice of prevention of unjust enrichment in part of the finder of the goods. The unhindered freedom to make sale of a lost good by the finder would lead to a situation of “finders keepers” and prevent the real owner from benefiting from the goods that belonged to him and allow a situation of unjust benefit to the finder. Therefore it is necessary to create a balance by having such provisions in place which would prevent any unjust enrichment and balance the rights of the parties.
To sum it all up, it is evident through analysis that the relationship between the finder of the lost good and the owner of the good is that it resembles a contract and therefore is known as a quasi-contractual relationship. The duties and responsibilities are similar to that of a bailor and a bailee and therefore, rights and liabilities arise from the moment the finder takes the goods into his custody and exists till the moment the goods are returned to the real owner of the lost goods. Even without the existence of consent, non-contractual relationships can therefore exist.
Tabular comparison between bailor and bailee
There are various differences between the bailor and the bailee based on different criterias. Here’s a tabular comparison between the both.
| Category | Bailor | Bailee |
| Definition | In a contract of bailment, the party that delivers the goods for a specific purpose is called the bailor. Usually, the bailor is the owner of the goods bailed. | In a contract of bailment, the party to whom possession of the goods is transferred or goods are delivered to for a specific purpose is called the bailee. |
| Rights | The bailor has the right to seek the return of the bailed goods from the bailee after the expiry of time period or fulfilment of the purpose of bailment. | The bailee has a right to retain possession of the good for the specific period till the purpose is fulfilled. The bailee also has the right to indemnity for all the loss arising from a situation where the bailor prematurely terminates the contract of bailment or for injury due to undisclosed material defects in the bailed goods. |
| Duty | The bailor has a duty to disclose all faults and material defects in the goods bailed to the bailee to prevent any injury. | The bailee has a duty to take reasonable care of the goods bailed and not mix them with his own goods. |
| Ownership | Usually, the bailee retains the ownerships of the bailed goods during bailment. | Only retains possession for a specific period. Ownership is not transferred. |
| Liable for | Damages or injury that the bailee might face due to undisclosed faults or material defects. | Loss of goods or damage to the bailed goods due to lack of exercising reasonable standard of care. |
How is bailment different from the sale of the good
Bailment differs from sale of goods in the primary notion that sale involves a transfer of ownership of the goods between the vendor and the purchaser but in case of a bailment, ownership stays intact with the real owner and only possession of the goods is transferred for a specific purpose.
| Category | Sales of Goods | Bailment |
| Definition | Sales of goods refers to transfer of ownership of a good for a price paid. | Bailment is the transfer of possession of bailed goods for a specific purpose |
| Ownership | Ownership is absolutely transferred to the buyer/ purchaser of the goods | Only possession is transferred for a specific purpose and ownership remains with bailer |
| Consideration | A consideration is paid for purchasing the goods | Can be with or without consideration |
| Need | The permanent transfer of ownership of a good | For specific purposes like safekeeping, repair, hire for personal use etc. |
| Return | Goods once sold cannot be returned to the buyer unless there’s a specific reason. | Goods are retired after the specific purpose is fulfilled. |
| Example | Sale of vehicles, groceries, jewelleries etc. | Giving a grinder for repair, a dog for safekeeping, hiring a car for a trip. |
Difference between bailment and pledge
| Category | Bailment | Pledge |
| Definition | Bailment is a transfer of goods for bailor to bailee for a specified purpose with an implied condition of return after the purpose is fulfilled. | A species of bailment where possession of goods is transferred to be kept as a security for a debt/ performance of a promise. |
| Parties | Bailor and Bailee | Pledger and Pledgee or Pawnor and Pawnee |
| Need | Various needs like safe keeping, repair of goods, hire for personal use etc. | Security |
| Ownership | Bailor retains the ownership of the goods bailed | Pledger retains ownership of the goods pledges |
| Selling of goods | Baile is not allowed to sell the goods bailed | Pledgee has a right to sell goods when the pledger fails at repaying the debt or fulfilling his obligation. |
| Return | Bailed goods are returned to the bailor after the purpose is fulfilled | Pledged goods are returned to the pledgee after the debt is repaid or the obligation is fulfilled. |
| Lien | Bailee’s lien only arises when he has incurred any extraordinary expenses or for indemnification. | Pledgee has a right to lien till debt is repaid or obligation fulfilled. |
Safe deposits as bailments
In the Indian scenario, it is a general legal position that unless and until there exists a contract or agreement in place, the relationship of bailment cannot be recognised. The formal agreement must ascertain exclusive and actual possession of the bailed goods. The position of Indian courts differ in this aspect as per the above cases. In such a situation, safe deposit boxes are not recognised as creating a relationship of bailment.
The relationship shared between a customer and the service provider when it comes to safe deposit boxes is not that of a bailment unless there exists a contract which binds the service provider to take reasonable care of the bailed goods kept in the safe deposit boxes. While hiring a safe deposit box, the goods are generally presumed to be entrusted to the bank. The delivery of goods is done through vaults in the premises of the bank and it is not delivered to the bank directly.
The relationship between the customer of a safe deposit box and the service provider can be compared to the relationship between a tenant and a landlord. A landlord is not said to have any sort of control over the property which belongs to his tenant personally but simply tenders the tenant with a place to store the goods and keep those at his will and his control. In such a situation, even when the landlord has the duty to take reasonable care of the property and the premises belonging to him and leased out to the tenant but the same duty is not manifested upon the belongings of the tenant kept in the premises of the rented property belonging to the landlord.
In a similar manner, banks have a duty to take care of the premises of the bank and protect them at all costs but they cannot be said to have the duty to take reasonable care and due diligence of the property of the customers kept in the safe deposit boxes. Unless the bank has been given direct possession of the contents in the form of real and exclusive possession through the creation of an agreement of bailment existing between the two parties, it cannot be said to have a duty to take reasonable care of the contents of the safe deposit boxes assigned to the customers.
In the American context, there is a difference in terms of the legal position when it comes to the relationship shared between the customer and the provider of safe deposit boxes. There exists a presumption in favour of the customers in the American context. There exists a presupposed notion that there is a non contractual bailment or a quasi contractual relationship between the customer and the bank in terms of the contents kept in the safe deposit boxes. The general rule followed in the American context is that when there is any confusion relating to the liability of a bank in relation to the safekeeping of the bailed goods kept in safe deposit boxes, the decision will largely swing against the bank. The reason behind such a presumption is that there is a larger bargaining power in the hands of the bank as they are the ones responsible for drafting the terms of the agreement which leads to the creation of a bailment relationship between the customer and the provider of safe deposit boxes.
In the case of Goldbaum vs. Bank Leumi Trust Co (1982), it was decided that the bank cannot be permitted to exculpate its liability arising from a contract simply because of the fact that there exists no written agreement which defines their relationship in the nature of a bailment. It was contended that even though in the American legal system, a contract a bailment is presumed even in the absence of a written formal agreement, it is a necessary implication that the bank must practise a greater standard of care and cannot ignore the set standards at any costs. This standard of care was set to be higher in the case of Roberts vs. Stuyvesant Safe-Deposit Co (1890), wherein the safe deposit box service provider was held liable for negligence in exercise due care and standard of responsibility expected to be used by them. This was held when government officials were allowed to seize the contents of the safe deposit boxes. In this case, there existed no explicit agreement between the customer and service provider creating a bailment relationship but the presumption of a contractual relationship worked against the bank.
In the Indian context, the leading case is the case of Atul Mehra vs. Bank of Maharashtra (2002). In this case, the appellant had hired a safe deposit box and the service provider was the respondent bank. The appellant had stored certain gold ornaments and jewelleries in the safe deposit boxes of the bank. The bank was robbed and that led to all of the lockers being tampered and the goods being stolen away. It was observed that the bank did not meet the adequate standards of security procedures and guidelines which they were supposed to. The strong room is supposed to be made out of metallic elements and concrete but in this case it had a wooden body which was easier to break and steal. The appellant argued that considering there exists a relationship of bailment between him and the bank where the bank acts as a bailee, the bank should have taken reasonable care of the contents in the safe deposit box. Due to failure to adhere to a reasonable standard of care, the bank is liable to compensate the customer for the stolen goods. The bank, on the contrary, argued that there exists a tenant-landlord relationship between them and the customers and therefore, they have no liability towards protecting the goods without having exclusive possession or knowledge of the same.
The Apex Court held that the relationship of a bailment cannot commence without the bailee having knowledge and exclusive control over the goods. Since there was no written contract or agreement between the parties, it cannot be said that the bank was a bailee to the customer/ appellant. The bank, therefore, has no liability in such a situation.
Cases related to non-contractual bailment
Ram Gulam vs. Government of UP (1949)
Facts
In this case, the suit arose on the matter of recovery of certain ornaments or the price of the said ornaments from the Government of Uttar Pradesh. The appellant, whose property was stolen was subsequently recovered through search and seizure procedure by the police and after they were recovered, they were kept in the custody of the Collectorate. It was later stolen from the collectorate and left untraced.
The appellant sued the government for restoration of his property or for an equivalent value of the property. The appellant contented that since the agent of the government was unable to perform his duty as a bailee, the government has the liability to pay the value of the stolen property by application of the Doctrine of Respondeat Superior. This doctrine basically states that a master or a principal will be liable for actions of the servant or the agent done in the course of employment. As per the arguments of the appellant, by taking the stolen goods which belonged to him into custody, the government assumed the role of a bailee even if no agreement existed. It is the duty of a bailee to take reasonable care of the property in his custody that belongs to the bailor. In such a situation, the bailee is liable for any loss incurred to the bailor due to his negligence or breach of duty.
Issue
Two primary issues were framed in this case:
- The first one being whether the government of Uttar Pradesh has any liability towards the appellant in the nature of a bailee and if so, has it failed to exercise reasonable care towards the things in its possession.
- The second issue was whether or not the government should indemnify the appellants due to the principle of torts which states that a master is liable for the tortious acts of his servants (vicarious liability). These were the two primary issues framed by the court.
Held
As per Section 151 and 152 of the Indian Contract Act, the burden lies on a bailee to take reasonable care of the goods bailed to him. In all of the cases relating to bailment, a bailee is responsible to take as much care of goods bailed to him as any man of ordinary prudence will take under such circumstances. It is also the duty of a bailee to return the goods after the fulfilment of the purpose.
In this case, the Allahabad High Court overlooked the first issue regarding bailment but paid serious importance to the second issue of tortious liability. The High Court regarding the issue of bailment took the position that in the lack of a contractual agreement, there exists no relationship of bailment between the government and the appellant. The High Court strictly held that the government cannot be treated as a bailee of the appellant. Coming to the second issue, the High Court stated that as per the doctrine of Respondeat Superior, a master is liable for the tortious acts of the servant if it happens during the legitimate scope of employment. The High Court stated that the act of the police to keep the property in possession is the discharge of duty by law. The government is therefore not liable for the tort as well.
The Lasalgaon Merchants Co-Operative Bank vs. Prabhudas Hathibhai And Ors. (1965)
Facts
In this case a partnership firm had pledged certain goods to the bank who is the plaintiff. The pledged goods were kept in a godown which belonged to the partnership firm and the bank simply held the keys to the godown and kept it locked. The goods were seized by the Income Tax Department for non-payment of certain taxes liable to be paid by a certain partner of the firm. The goods were still in the same godown when the keys were given to the police. Due to heavy rainfall, there was a leakage in the roof of the godown and the goods stores were damaged.
Held
The Bombay High Court held that the present case would not fall under the protection of Force Majeure or Act of God as the damage was not due to any unexpected force out of the control of the respondent. The Bombay High Court held that by taking the goods into its custody or possession, the government stands in the position of a bailee. The court ordered the respondent to prove that they had exercised reasonable standard of care as the bailee is expected to do. The respondents were unable to prove the fact that they had taken reasonable care of the good and therefore the Court held the government liable as they had failed to discharge the statutory duties of a bailee. The court differed from the position taken in the Ram Gulam case and stated that a government is a bailee when it takes any goods into its possession irrespective of the existence of a contract or not. Therefore, this case is a landmark decision in the arena of non-contractual bailment relationship which places the government in the position of bailee and attaches the same liabilities to it as it prescribes for a bailee under a contractual setup.
State of Gujarat vs. Memon Mahomed (1967)
Facts
In this case, the trucks of the plaintiff were seized by the authorities of the customs department due to non-payment of import duties which were imposed on the vehicle of the plaintiff. The plaintiff sought to set aside the order by filing a suit in front of a tribunal. The Revenue Tribunal granted the prayer and ordered the seizure to be set aside, and also ordered that the vehicles must be re-delivered to the plaintiff. The plaintiff sought the vehicles to be delivered to him but came to know that they were disposed of as per the order of a magistrate. The aggrieved plaintiff claimed damages of Rs. 32,000 in exchange of the vehicle that he had lost. The claim of the plaintiff was denied and he appealed the decision in the Apex Court.
Held
The Apex Court, in this case, relied on the decision taken in the previous case and stated that non-contractual bailments are recognised in India. The moment the government confiscated the vehicle of the plaintiff, they put themselves in the position of a bailee and by assuming that role, they became responsible for taking reasonable care of the vehicle. By selling the vehicles even after the order of confiscation was set aside, the government authorities have failed to take reasonable care of the bailed goods and therefore are liable for paying the damages to the plaintiff due to the loss of goods.
The Apex Court also substantiated the judgement by addressing Section 71 of the Indian Contract Act which treats the finder of goods as bailee even without the existence of the contract. The Apex Court made it clear that even without consent to create an agreement, if a person/ authority, voluntarily takes possession of a good belonging to someone else, they assume the role of a bailee and have the same liabilities and rights as that of a bailee in a contractual bailment relationship as specified in the Indian Contract Act.
Recommendations of the 13th Indian law Commission
In the 13th Law Commission Report, the question that arose during discussion was whether there can be a bailment whenever a person takes goods belonging to another into his possession without the existence of a contract of bailment. Considering the provisions that the Indian Contract Act provides no mention regarding non-contractual bailment and the decisions given by courts vary in terms of interpretation, the Law Commission decided that it is important to address these issues to avoid any kind of confusion. The Law Commission report stated that it is important to understand quasi contractual relationships before addressing the issue of non-contractual bailment. Quasi contracts are obligations imposed on parties by the operation of law or process of law without the existence of a prior contract or an agreement between the parties. These contracts are considered valid even without having some of the necessary elements required to create a valid contract. The duty imposed on a finder of goods is an example of quasi contracts.
As per the 13th Law Commission Report, the present definition of bailment should not be changed but rather a separate section must be inserted to address the elements which are quasi-contractual in nature. It must state that the bailor and bailee under contract, express or implied, have the same rights and liabilities as they do under a contractual bailment relationship. Thus, this Report addressed the need for the acceptance of non-contractual bailment under the folds of the Indian Contract Act by enacting a separate provision for better application and avoiding any kinds of confusion when it comes to application and interpretation of the provisions. This acknowledged the validity of non-contractual bailment in the Indian legal regime.
Landmark cases related to bailment in India
Union of India vs. Udho Ram & Sons (1963)
Facts
In this case, specific goods were sent from Kolkata to Delhi through railway by the M/s Radha Ram Sohan Lal. Certain items of the storage were stolen during transit and did not reach the plaintiff. The plaintiff then sued for the compensation of the same. The Supreme Court inferred that the train left Howrah station at 1:30 AM and the carriages which carried the goods were properly secured and sealed but the doors of certain carriages which stored the goods were slammed when the train arrived and that opened one seal and a rivet in just two hours. This led to the theft. It was found out that the train did not conduct any due diligence and there was no surveillance of the wagons of the train.
Issues
Was there a breach of duty to take reasonable care on the part of the train authorities?
Decision
Due to all these factors, the defendants were held liable as they did not adhere to the reasonable standard of care that they were expected to take in such a situation. The defendant had a duty to prevent the theft from happening and by not exercising reasonable due diligence, it did not adhere to the reasonable expectations. Therefore, the defendant is liable.
Kolkata Credit Corporation Ltd. vs. Prince Peter of Greece (1963)
Facts
In this case, a car which was sent for repair was damaged due to fire. The garage where the car was kept was a brick and mortar building which was surrounded by wooden planks but the garage did not only store cars with gasoline but also other combustible materials like paint thinners etc. A part of the garage was used for cooking and the cooking area was separated from the garage using wood. The safety measures taken by the garage owner were found to be inadequate. The space where the car belonging to the plaintiff was stored could not be opened for a long time even after the fire broke because the keys to the room were not functional.
Issue
Whether the owner of the garage took reasonable care of the bailed car like a man of ordinary prudence would take care of his own goods?
Decision
It was held that the defendant garage owner had failed to exercise due diligence and could not exercise reasonable amount of care which he was supposed to as the bailee of the car. The defendant pleaded that he took care of the car just like he did of his own property in the same space which caught fire. He pleaded that his own belongings also burned down due to the accident and therefore he must be absolved of all liabilities. The Apex Court did not consider this as a valid defence and held that he was liable to exercise reasonable care of the belongings and his failure makes him liable to compensate the bailee for losses incurred.
Surya Pharmaceutical Limited vs. Air India Limited (2008)
Facts
In this case, the plaintiff was a pharmaceutical company who filed a suit on the airline company for losing the shipment. The plaintiff had sent a package of medicines and other drugs via the airlines to another location. During transit, the aircraft lost these goods. The plaintiff contended that the aircraft was in the position of bailee and should have exercised reasonable care of the goods. Considering that the bailee failed to exercise due care and diligence of the goods in transit, they should be held liable for compensating the plaintiff of any loss incurred by him due to the bailee’s negligence. The defendant airlines company argued that they had a separate agreement with the plaintiff which stated that the extent of liability would be 20$ for each 1 kg of goods lost.
Issues
Whether it is valid to have a separate agreement which limits the liability of the bailee?
Decision
The Apex Court held that the existence of a separate agreement which limits the liability of the carrier is not valid. It is against public policy and therefore is void as per law. The airline company failed to exercise due care and caution and therefore was held liable to compensate the pharmaceutical company for loss of goods in transit.
Mahesh Minz vs. State of Jharkhand (2009)
Facts
In this case, in this case, the complainant along with his wife, Smt. Kala Srivastava were joint lessees of lockers leased out to them by the Punjab National Bank, Ranchi. The complainant used the locker last on 22.02.2002 and stored certain gold items in the locker. On the day of the incident the complainant with his son and daughter in law went to open the locker and found the gold articles missing. He found out that the gold locker could be easily opened and reported the incident to the police.
Issue
Whether there exists a bailment contract between the bank and the complainant?
Held
The Jharkhand High Court held that by hiring a locker, a transaction similar to landlord and tenant is created but there must be a consideration of the fact that a banker can always open the locker by using the master key and the hirer of the locker cannot open the locker without the help of the bank. The hirer also has a time limitation but the banker has no such limitation. Therefore in such situations, if all the conditions of a bailment as per Section 148 of the Indian Contract Act is fulfilled, a relationship of bailment can be established between the banker and hirer.
Deficiencies in bailment law
The law of bailment under the Indian Contract Act leaves many loopholes unaddressed which leads to confusions in application and interpretation. It fails to address various types of situations or complicated positions. Some of them are as follows:
When the bailed goods are unfit for intended use
The Indian Contract Act stays silent on what shall be the recourse of the bailee when the goods bailed to him are unfit for the intended use. Intended use refers to the application or act for which the bailed goods were hired in the first place. For eg. If a bailee hires a printing press machine for printing a book but later realises that the machine can only be used for printing pamphlets of anything with less workload, what shall be the recourse in such a situation. Should the bailee get back the price paid by him for hiring the machine and return the machine to the bailor? Does the bailor have a duty to inform the bailee before hire that the goods can be used only for these specific purposes? Is it fair to assume that the bailor can think of all possible uses of specific nature and then inform them to the bailee? These questions are left unaddressed.
As per the general rule, every hired item comes with an implicit guarantee that they will serve the intended purpose for which they were hired in the first place. If this guarantee is violated, the hiring fee which was supposed to be paid is not due anymore. There should be broad regulations in place to address what shall be the recourse in such situations. Utmost caution must be exercised since implicit obligations and unsaid contractual requirements are important considerations when specific things are hired. A contract is violated when it is later found that the goods hired for a particular use are not suitable for that particular use.
Liability of the bailee for the carelessness of the servant
This is an interesting proposition which presents an intersection of torts and contract law. In the law of torts, the concept of vicarious liability states that a master shall be liable for the actions of the servant done in the natural course of employment. As per the Indian Contract Act, a bailee is liable for the damages caused by the negligent acts of his servant with regards to the bailed goods or property in custody of the bailee but such a liability does not extend to the damage caused by the acts of third parties which could not have been foreseen by the bailee. Even so, a bailee cannot be held liable for damages to the bailed goods caused by the acts of his servant beyond the course of employment. In the case of Taj Mahal Hotel vs United India Insurance Co.Ltd(2019) it was held that in a situation where valet parking services are given by a hotel, the hotel is only liable if a valet or staff takes possession of the car and removes it from the owner’s control without his consent. However, if a car is stolen by a stranger despite the due care exercised by the hotel, it will not be liable for the same as the theft was beyond their control. In such situations, a careful assessment of the bailee’s liabilities is necessary. Even though the law leaves certain ambiguities in interpretation regarding the extent of a bailee’s liability, it gets ascertained on a case to case basis so as to determine the liabilities in relation to the facts and circumstances around the case. Therefore, it is important to tread this area with absolute caution.
Quantum of damages
When it comes to measuring the amount of damages in cases of bailment and breach of duty, the measure is not solely dependent on the suit as they are fulfilled in various other means as well. In a circumstance where a contract has been breached and the terms are not fulfilled, the criteria of presumption is used to bring the complaining party as close as possible to the position he was before based on the principles of equity and good conscience. The market value of the bailed goods is an important criteria for determining the damages or the amount to be paid as compensation. While adjudging the extent of the bailor’s claim for the loss of the bailed goods, the market value at which the bailed goods is sold is considered.
The problem which arises in such a method is that when items similar or comparable to the bailed goods are not available in the market, the courts have no resort to determine the bailee’s claims on the monetary value of the compensation or the damages available. In such situations, largely the bailee’s offer is taken into consideration for determining the merits of the case. The pattern changes based on new rulings of the court which deal with such situations. It is important to have direct and clear provisions in place to ascertain the claims for damages and compensation made by the bailiff in such cases. This would avoid lengthy litigation and help in faster resolution of suits and disputes. Such clarity in matters also prevents dissatisfaction amongst bailiffs and helps courts meet the ends of justice.
Conclusion
Contracts of bailment are unique transactional relationships created by contracts and agreements between parties for fulfilling various purposes. Therefore, they are necessary for human civilisation to ensure that the transactions and the goods forming the subject matter of the transaction are well protected in every manner. They constitute all essential ingredients of a valid contract. While traditionally, bailment has been viewed as a relationship formed by the existence of a contract, its present understanding is changing quite a lot with non-contractual bailment relationships being recognised with quasi-contractual obligations. With the change of time and creation of various forms of services for making human lives easier, newer forms of bailments emerge and must be considered in the folds of contractual relationships for better implementation of the legal provisions.
Frequently Asked Questions (FAQ’s)
What are the essentials for creating a bailment?
Existence of the bailed goods, delivery of possession of the goods, mention of the purpose for which goods are bailed and condition for return of the goods are some of the essentials for creating a bailment.
What happens when the bailed goods in possession of the bailee gets stolen?
If the theft occurred due to the negligence of the bailee and it is proven that the bailee did not exercise reasonable standard of care, then the bailee must compensate the bailor for the loss of his goods.
When profit accrues from a bailed good, who gets to keep it?
Unless a contract to the contrary exists, any accretion or profit arising from the bailed goods belongs to the bailor and must be returned to him.
When should the bailed goods be returned to the bailor?
The bailed goods are usually returned after the purpose for which they were delivered gets fulfilled or the period of bailment expires.
Can a relationship of bailment be created without any agreement?
As a general rule, bailment requires the existence of a contract but in certain cases, the Courts have recognised bailment relationships without any agreement. For eg: when a person finds lost goods belonging to someone else and takes them into custody, he becomes the bailee for the goods.
References
- https://uk.practicallaw.thomsonreuters.com/9-381-8490?transitionType=Default&contextData=(sc.Default)
- https://lawcolloquy.com/journals/non-contractual-bailment-a-glance-at-statutory-bailment-snegpriya.pdf
- https://sites.nd.edu/bruce-huber/files/2022/02/Reading-assignment-Feb-14.pdf
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