This article is written by Rachit Garg from the University of Petroleum and Energy Studies, Dehradun. This is an exhaustive article, aiming to give a brief introduction to the concept of bailment as per the Indian Contract Act, 1872.
There are many cases of bailment in our day to day life. For example, in the case of laundry, we give our clothes for getting washed. Once they are washed, they are to be returned back to us. We place the other person in temporary possession of our clothes for a specific purpose and there is an express or implied understanding between the two to return the good once the purpose has been fulfilled.
The word ‘bailment’, is derived from ‘bailler’, a french word which means ‘to deliver’. Bailment has been defined under the Section 148 of the Indian Contract Act, 1872, according to which Bailment involves the delivery of goods from one person to another for a specific purpose and upon a contract, when the purpose is fulfilled, the good has to be returned or dealt with on the direction of the person who has delivered the goods.
Who are the parties to the contract of Bailment?
There are generally two parties to the contract of Bailment. The person who is the owner and delivers the good is called ‘bailor’ while the person to whom the goods are delivered is called ‘bailee’.
General rules relating to Bailment are mentioned in Chapter IX (Section 148-181) of the Indian Contract Act, 1872. Bailment is a type of a special contract, so all essential elements of a valid contract like consent, competency, etc are required for it to be valid. But, a valid bailment can arise even without a valid contract between the two parties, for example, a lost good finder becomes a bailee and has the responsibility to return it to its owner, the bailer, even if no contract exists between them.
How is Bailment different from the sale of the good?
Sales involve the transfer of the ownership of the good in exchange for something of value while on the other hand, Bailment involves the transfer of the possession of the good, not the ownership.
What goods can be bailed?
Only the goods that are of movable nature can be bailed. However, current money or legal tender cannot be bailed and deposition of money will not be counted as bailment as money is not a good and the same money will not be delivered back to the client.
Delivery of Possession
There must be a delivery of goods, which means, delivery of possession of the goods by the bailer to the bailee to fulfill the purpose of bailment. Possession refers to exercising control over the good and excluding any other person to do the same.
Section 149 of the Indian Contract Act, 1872 talks about the same. The delivery of possession can either be actual or constructive. It means that either the good can directly be put in the actual physical possession of the bailee or put the bailee in a position of power over such goods that can be physically possessed later, if possible. In constructive delivery, the bailor gives the bailee means of accessing the custody of the good and not its actual delivery.
For example, C has a rare coin locked safe deposit box. As the delivery of a safe deposit box is impossible, when C, bailor, gives the key of the deposit box for the bailment of the coin to A, bailee, it would be considered as constructive delivery.
It is important to note that mere custody of goods is not equivalent to the possession of goods. In Reaves v. Capper, it was held that a servant can be in the custody of the goods because of the nature of his job but that does not mean he is in possession of the goods. For example, a servant holding his master’s umbrella is not a bailee.
Delivery upon Contract
There must be a contract between the bailor and the bailee for such transfer or good and its return. If there is no contract, there cannot be bailment. Moreover, the contract can either be expressed or implied.
Exception: If the good is lost, the finder of good will be seen as the bailee even if there was no contract of Bailment or delivery of goods under a contract. A finder of goods is a person who found a lost good belonging to someone else and keeps it under his possession until the owner of the good is found. This leads to an involuntary form of Bailment contract between them. The finder has all rights and duties that of a bailee.
Delivery must be for some purpose
It is essential that there must be a purpose for which the delivery of the goods takes place. If after the completion of the purpose of bailment the good is not accounted for, then bailment cannot arise. This is an important feature as it separates it from other relations like agency, etc..
Return of goods
After the completion of the purpose, the good must be delivered to the bailor or dealt with as per his instructions. If he/she is not bound to return the good then there is no bailment. Even if there is an agreement to return an equivalent and not the same good, it will not amount to bailment.
For example, a tailor receives a saree for stitching as he is the bailee. After the saree has been stitched, the tailor is supposed to return it to the bailor.
Moreover, it is necessary for the bailee to follow the instruction given by the bailor for the purpose of the return of the good if any.
In Secy of state v. Sheo Singh Rai, 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 as there is no Bailment without delivery of good and a promise to return the same and the government was not bound to return the same notes or deal with them in accordance with the wishes of the man.
Classification of Bailment
Bailment can be broadly categorized into two types:
On the basis of Remuneration
When a bailment is made without any consideration of benefit to the bailor or to the bailee, it is referred to as gratuitous bailment. In simple terms, it is a bailment without any consideration.
For example, when one lends a book to a friend free of cost.
When generally there is a consideration for bailment between the bailor and the bailee then it is referred to as non-gratuitous bailment.
For example, when someone gets a book issued from a library in exchange for a fee.
On the basis of benefits to the parties
For the exclusive benefit of the bailor
In this case, the bailor delivers his/her good to the bailee for safe custody. There is no benefit/benefit for the bailee.
For example, leaving a pet with a neighbour when going out.
For the exclusive benefit of the bailee
In this case, the bailor delivers a good for the benefit of the bailee. For example, a friend borrowing our car for a week.
For the mutual benefit of them both
In this case, the bailor deliver his good to the bailee for consideration and both the parties get benefit out of bailment,
For example, giving a bike for repair to a mechanic, for which the mechanic gets paid.
Duties/Rights of Bailor and bailee
Duties of Bailor
Disclose known faults
It does not matter whether the goods are gratuitously or non-gratuitously bailed, the bailor has a duty to disclose all the known faults about that good that is being bailed to the bailee. Failing to do so would make the bailor liable to indemnify the bailee for all the damages caused to him directly from this fault. However, it is important to note that in the case of non-gratuitous bailment, the bailor is responsible even for those faults from which he/she is not aware.
- A lends his bike to B. A is aware of the fact that the bike’s brakes are not working properly and fails to inform the same to B. B met with an accident and is severely injured. A is liable to pay B for the damages sustained.
- Raj hires a racing car from Shyam to participate in a racing competition. During the race, the car caught fire. Raj was unable to extinguish it as the fire-fighting equipment was out of order, due to which he sustained injuries. Therefore, Shyam is responsible to pay Raj even if he was not aware of the fact that fire-fighting equipment was out of order.
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
The bailor is required to pay all the necessary expenses incurred by the bailee for the purpose of bailment for the delivered goods.
Example: A lends his dog to B, a close friend, for a week as he is going out of town. A is not paying anything to B to take care of his dog so he needs to pay him for all the ordinary expenses born by B to feed the dog for a week. However, if the dog gets sick and suffers from high fever, A has to pay B for all the additional medical expenses incurred by him.
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, the bailor is required to indemnify the bailee if the losses incurred by him due to the premature termination exceed the benefits he derived out of the bailment.
Example: A lends his car to B, a friend for a week as B has to go out of town for a family gathering. As B has not paid any charges for bailment, he fills 30 litres of petrol in the car for the drive. Suddenly after 4 days, A calls B to give his car back. So, B can demand from A value of petrol remaining in the car after 4 days.
Indemnify the bailee when he suffers due to the title of bailor to the goods being defective
According to Section 164, the bailor has to indemnify the bailee if even after knowing that he is not entitled to the good and makes bailment due to which, the bailee suffers losses.
Example: A lends his car to B, a customer for a week as B has to go out of town for a family gathering. B has already paid an advance of Rs 5000 to A. However, after 4 days, the police seized the car from B as it was stolen and belonged to C. B had to arrange a new car for the same purpose and has to pay a higher rent. B can claim from the amount he has already paid and also the higher rent he had to pay for the new car.
Receive back the goods
After the expiration of the term of the bailment or when the purpose is fulfilled, the bailor has a duty to receive the goods back from the bailee. However, if the bailor refuses to do the same, he will be entitled to pay the bailee compensation for the necessary expenses of custody and care.
Example: A bailed his dog to B for one week at the daily charge of Rs. 100. A visited B to receive his dog after 25 days. He has to pay the additional charges for 18 pays. However, if this had been a gratuitous bailment, A would have been required to pay the ordinary and extraordinary expenses for 18 extra days.
Duties of the Bailee
Take Reasonable Care of the Goods Bailed
As per Section 151, irrespective of the fact that the bailment is gratuitous or non-gratuitous, the bailee has a duty to take reasonable care of the goods bailed similar to a man of ordinary prudence would. However, according to Section 152, if even after reasonable care the goods are damaged or destroyed, the bailee is not liable for the loss of the bailed goods.
Example: A bailed his dog to B for a week at a daily charge of Rs. 100. As A came to B to reserve the dog after a week, he finds out the dog was stolen from B. If it is proved by B that he took reasonable care of the dog but still the dog was stolen, then he will not be held responsible, but, if however, A proves that B didn’t take reasonable care, say left the dog unchained, B would be responsible for the same.
No Unauthorized use of goods
As per the Section 154, if due to the fact that the bailee uses the good 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: A lends his car to B for him to drive only. B allows C, her cousin to drive the car. C rides the car with care but still ends up in an accident, damaging the car. B is liable to compensate A for the damages caused to the car.
Not mix goods bailed with own goods
The bailee must not mix the bailed goods with his own goods and must keep them separately. If however, he mixes the bailed goods with his own then:
- According to Section 155, if mixed with the consent of the bailor, both of them will have a proportionate interest in the mixture produced.
- As per Section 156, if mixed without the consent of the bailor, and if it can be mixed/divided, the bailor has to bear all the expenses for the same and damages caused due to the mixture.
- According to Section 157, if mixed without the consent of the bailor, and if the mixture is beyond separation, the bailee is required to compensate the bailor for the loss of the goods.
Return any Accretion to the goods
In the absence of any contract for the same, any profit which may have accrued from the goods bailed, the same must be delivered to the bailor.
Example: A bailed his cow to B for a week. The cow gave birth to a calf during this period. The bailee must deliver the calf along with the cow to A at the time of delivery.
Return the goods
After the time for which the good has bailed is expired, or the purpose has been fulfilled, the bailee must return it to the bailor as per his direction.
Rights of the Bailor
Enforcement of rights
The bailer, by suit, can enforce all the liabilities or duties of the bailee.
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 horse to B for his own riding only. B allowed C to ride the horse, violating the terms of bailment. A can terminate bailment.
Return of goods lent gratuitously
In case the goods are lent gratuitously, the bailor has the right to demand their return whenever he sees fit, even though they were lent for a specific period of time or purpose. However, he needs to indemnify the bailee in case the losses exceed the benefit derived from the use of such a good due to premature termination of bailment.
Compensation from a wrong-doer
If the bailee is wrongfully deprived by any third party of the use or possession of goods bailed and does them any injury, the bailor or the bailee has the right to bring a suit against the third person for the injury.
Rights of the Bailee
Delivery of goods to bailor without title
According to Section 166, if the bailor has no title to the goods bailed, then the bailee, in good faith, can deliver them back to the bailor according to his directions, if any, the bailee will not be responsible for such delivery.
Can apply to a court to stop delivery
According to Section 167, if there is a situation in which a third person claims the goods bailed to the bailee, then the bailee can stop the delivery of such goods to the bailor by applying to the court and decide the title of the goods.
Right against trespass
According to Section 180, if the bailee is deprived of the use of the goods bailed by any third party, the bailee has the right to bring an action against the third party.
When the bailee is not paid charges with respect to the goods bailed he has the right to retain the goods. This right is referred to as ‘particular lien’.
Contract of bailment involves the transfer of possession of the good from the bailor to the bailee for the specific purpose and both, the bailor and the bailee, have been confronted with some rights and duties which are necessary for them to follow whenever seem suitable. Also, for the contract of bailment to be valid, all the essential features need to be fulfilled. Moreover, bailment of goods is different from the sale of goods as bailment is involved with the transfer of possession while the sale is involved with the transfer of ownership.
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