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This article is written by Dewesh Kumar Vinod, a student of NLSIU, Bangalore. In this article, the author explains what are safe deposit boxes and whether renting them is bailment or not.

Introduction

Today in India, essentially every commercial bank makes safe deposit amenities accessible for a little price, either through a division of the bank or through an auxiliary or partnered safe deposit company. The usage of safe deposit services is at an all-time high and like never before, Indians are utilizing safe deposit services and bank safe store vaults for storing their valuables. 

This increased demand has also led to an increase in the number of legal issues which directly pertain to the responsibilities and rights of customers and their banks. It is therefore essential to study the legal nuances of the relationship of the bank and its safe deposit customer. 

This paper focuses upon scrutinizing the nature of the relationship between customers of the vault service and such service providers and tries to understand the legal stand taken by the legislations regarding the same by analysing the conclusions reached at by the courts in this regard. It also undertakes a brief study of the American laws regarding the complications that may arise with the legal relationship of the aforementioned nature, and tries to understand parallelly the stand taken by the courts of the two different judicial setups (American and Indian) regarding treating this relationship as that of bailment.

Renting a safe deposit box: Bailment or not?

In our everyday lives, when we give our clothes for laundry, or when we leave our car with the mechanic for repairing purposes, or in any such case instance where we transfer the possession of any of our articles temporarily, for a specific purpose, which then have to be returned back in the prescribed manner and the prescribed time period (if any), we are indulging in the process of bailment.  

Section 148, in the Indian Contract Act, 1872, defines bailment as “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”. For a contract of bailment to come into existence, there should be an intention on the part of the bailor, to deliver the “control” or the “possession” of the bailed goods to the bailee. Having the mere custody of goods does not amount to a delivery of possession. For instance, a guest, having the “physical custody” of a glass during a party, cannot be said to have “possession” of the same, and hence, a bailor-bailee relationship does not exist between the guest and the host. This distinction becomes significant in answering the questions regarding the legal status of the relationships between the customers of the safe deposit box services and these service providers. 

In the Indian context, it is a general legal standing that unless and until there exists a formal agreement, granting an exclusive and actual possession of the contents of the safe deposit case, no transfer of possession will be assumed to have taken place. Hence, there is a presumption against the existence of a relationship of bailment between a customer of the safe deposit boxes and the service provider and the responsibility to prove the existence of a duty to safeguard the contents of the safe deposit box by the virtue of a contract of bailment, falls upon the customer. In case of hiring a safe deposit box, the goods are in no manner, entrusted to the bank. The delivery of the goods is done to the premises of the bank (by utilizing the vault or the box within the premise) and not to the bank itself. This legal relationship is analogous to the relationship between a landlord and a tenant. A landlord cannot be said to have a control over the personal property of the tenant, but merely provides the tenant with a place to store their property. Therefore, even though the landlord might be obligated to exercise ordinary care to protect the premises of the rented property, the landlord cannot be expected to extend this care to protecting the personal property of the tenant. Similarly, banks are required to exercise ordinary care to protect their premises, but they cannot be expected to protect the contents of every safe deposit box, unless the bank has been given actual and exclusive possession, leading to an existence of an agreement of bailment between the two. 

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The American legal stand

In the American context, however, the legal status on this issue favours the customers and there is a presupposition in the favour of the existence of a contract of bailment between the customer and the bank. In fact, in case of any ambiguity regarding the liability of the bank, it is to be held against them, because they were the ones who framed the agreement. Late nineteenth century was the time period when it became commonplace for banks to provide safe deposit services and most of them did so in a casual manner, without getting involved in much documentation. Where the relationship between these parties was not described, whether in writing or in oral form, it was almost held invariably by the courts that their relationship was that of bailment. It was reasoned that the innate nature of the transaction and the primary cause for which safe-deposit boxes are taken on rent, impose upon the service providers, such duties which might have been imposed if it were a case of bailment. 

In Goldbaum v. Bank Leumi Trust Co, it was held that the bank should not be allowed to exculpate itself from a contractual liability only because of the fact that there existed no written agreement defining the relationship between the two parties. It was argued that even though a contract of bailment is said to have been formed in the absence of an agreement contrary to it, it is implied that the bank could practice a higher standard of care, but cannot reduce the required standard of care on its part. The bar of the required standard of care on the part of the safe deposit company was set even higher in the case of Roberts v. Stuyvesant Safe-Deposit Co. In this case the safe deposit box provider company was held liable for “being negligent in exercising the amount of care that was diligently required on their part”, for allowing government officials to seize the contents of the safe deposit box. Even though there was no explicit agreement of bailment between the two parties, the court held that since the plaintiff had relied on the safe deposit boxes provided by that company to store their assets, therefore allowing government officials to access and seize those assets (despite them having warrants regarding the same) construes negligence on the part of the company.

Analysis of the judicial stand taken by the Indian courts

In trying to establish a conceptually clearer picture to answer the questions pertaining to the relationship between a safe deposit box service provider and a customer, Indian courts have time and again laid down a few essential requirements which ought to be met in order to recognize this legal relationship as one of bailment. 

The case of Kalliaperumal Pillai v Visalakshmi, played a very significant role in interpreting the meaning of “possession” and laid down that true “possession” is to be determined by the ultimate “control” over those goods and not the custody of the same. Similarly, in another very significant case which is Tilendra Nath Mahanta Vs. United Bank of India and ors., it was noted that the money deposited can never be said to have been “bailed” as money does not qualify as a “good” and the money given back to the client is not the same that had been deposited by the client. 

But the landmark case on this issue is Atul Mehra v Bank of Maharashtra, which laid down the current legal stand of our judicial system on the question of the relationship between a hirer of the safe deposit box and a provider of the same. The appellant had hired a safe deposit box in the respondent’s bank and had deposited some jewellery in the same. Respondent’s bank was robbed, and all of the lockers, including the appellants’ were broken and the goods were taken away. It turned out that the bank had not followed the security guidelines and the strong room, which should’ve been made with hard metallic elements and concrete, had a wooden framework. The appellant argued that since this was a case of bailment as these ornaments were in possession of the bank, and the bank as a bailee had failed to take reasonable care under section 151 of the Indian Contract Act, the appellant should be reimbursed for the same. The bank, on the other hand tried to argue that they had a legal relationship resembling that of a landlord-tenant, and they should not be held liable for not safeguarding something which they had no exclusive possession or knowledge of. The court in this case, reaffirmed the reliance of the previous courts on Mohinder Singh Nanda v Bank of Maharashtra, and laid down the proposition that a relationship of bailment cannot arise without the bailee knowing and controlling the goods exclusively. There existed no contract between the appellant and the respondent, informing and giving control to the bank, over the contents of the safe deposit box.

Since the bank was totally unaware of the quality, quantity and the value of the jewellery kept in the safe deposit box, the bank cannot be said to have been given “entrustment” or “control” of the contents of the box, and therefore there was no transfer of possession. Hence, a case of bailment wouldn’t arise by a mere hiring of a safe deposit box, unless and until the bank has exclusive knowledge and possession of the contents of the box. 

Critical Analysis of the judgement 

The propositions held in this case have a few legal loopholes which banks might figure out and use to absolve themselves of any liability arising out of their own negligence. The test of exclusive information and possession as laid down in this judgement, requires a bank to have knowledge and access of the contents of the locker. There might arise a case, where an individual might hire a safe deposit box and not inform the bank about its contents, neither give them access to the same. Even in that case, if the bank is somehow able to break into the safe deposit box and access its contents, it might be able to side-line any contractual obligation just by the virtue of the fact that there was no “exclusive transfer of information and possession” from the customer to the bank. 

Secondly, the bank should have had a general sense of the fact that their lockers are used by customers to store very valuable goods, including jewellery. Not following the security guidelines and constructing a strong room made of wooden plies indicates that the bank was negligent in securing the strong room itself, let alone the safe deposit boxes and their contents. Even if the landlord-tenant argument of the bank is to be taken into consideration, the respondent had a responsibility to safeguard the premises of the bank, including the strong room, just as a landlord would be expected to protect the premises of the property given on rent. The bank should not have been able to get away merely because there was no “explicit responsibility” on its part. 

Lastly, this proposition held by the courts might provide an escape to the banks who are generally the drafters of such agreements. Since the general populace is not aware of every such principle laid down by the courts, the banks might come with a clause which would warrant that the customers never transfer the “exclusive possession of the contents of the safe deposit box”, which on the face of it might even appease the customer, but would provide the banks with a very easy escape from a liability arising out of any negligence on their part. 

Conclusion

This article focused upon analysing the position of the Indian courts on the question of the existent relationship between the safe deposit boxes and the customers of the same. In doing so we took an account of the American legal stand on this question too. 

The loopholes that come with this stand taken by the courts can be grossly misused by the banks and the safe deposit box service providers. The presumption against the existence of a relationship of bailment in the absence of an explicit agreement, might give rise to a multitude of problems to the customers. This problem might be solved by adopting the American legal stand and presuming the existence of a bailment, so that the banks are forced to raise the required standard of care. Taking into account the fact that the banks generally have the upper hand in such cases, as they are generally the drafters of such agreements, shifting this onus on them would also push them to be more comprehensive and assiduous while drafting these agreements. While setting any legal question, the courts should try to ensure that any decision or any legal principle that they lay down, should not provide an opportunity to misappropriate the same into exploiting the general populace.  

References

 

  1. Bhuwalka Brothers Ltd. v Dunichand Rateria, (1952) AIR Cal 740.
  2. Richard A. Lord, ‘The Legal Relationship between the Bank and its Safe Deposit Customer’ (1983) 5(2) Campbell Law Review <https://scholarship.law.campbell.edu/clr/vol5/iss2/1/ > accessed 12 May 2020.
  3. Roberts v. Stuyvesant Safe-Deposit Co.
  4. Kalliaperumal Pillai v Visalakshmi.
  5. Tilendra Nath Mahanta Vs. United Bank of India and ours.
  6. Atul Mehra v Bank of Maharashtra.
  7. Mohinder Singh Nanda v Bank of Maharashtra.
  8. Indian Contract Act, 1872. 

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