At one time or another, we enter into a legal relationship, called bailment and pledge. Bailments are quite common in business also. Traders often store their surplus goods in warehouses; and utilize the services of cold storages for keeping their goods to be taken back as and when required; and factory owners often send machinery back to vendors for repairs. Also, goods are pledged for securing loans.
Chapter IX (Section 148 – 181) of the Indian Contract Act, 1872 deals with the general rules relating to bailment. The Chapter is not exhaustive on the topic of bailment – there are various other Acts which deal with other types of bailment like the Carriers Act, 1865, the Railways Act, 1890, the Carriage of Goods by Sea Act, 1925.
The word bailment is derived from the French word ‘baillier’ which means ‘to deliver’. Bailment implies a sort of relationship in which the personal property of one person temporarily goes into the possession of another. The ownership of the articles or goods is in one person and the possession in another. Delivering a cycle, watch or any other article for repair, or leaving a cycle or car, etc., at a stand, are all familiar situations which create the relationship of bailment. Thus, bailment is a subject of considerable public importance.
According to section 148, a “bailment “ is 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 off according to the directions of the person delivering them.
Explanation:- if a person already in possession of the goods of another contracts to hold them as bailee, and the owner becomes the bailor of such goods, although they may have been delivered by the way of bailment .hence,
Examples of Bailment :-
Bailments may be, classified into six kinds as follows:
Bailment can be classified as gratuitous and non-gratuitous bailment on the basis of whether the parties are getting or not getting some value out of the contract of bailment.
A Bailment made without any Consideration for the benefit of the bailor or for the benefit of the bailee is called Gratuitous Bailment. In simple words A bailment with no consideration is Gratuitous bailment. When there is no consideration involved in the contract of bailment it is called gratuitous bailment.
For example, when you lend your cycle to your friend so that he can have 3 ride or when you borrow his books to read, it is a case of gratuitous bailment because no exchange of money or any other consideration is involved. Neither you nor your friend would be entitled to any remuneration here. No hire charges are paid by bailee; andNo custody charges are paid by bailor.
Non-Gratuitous is a bailment for reward. It is for the benefit of both the bailor and bailee. A contract of bailment which involves some consideration passing between bailor and bailee, is called a non-gratuitous bailment.
For example, if your friend hired a cycle from a cycle shop or you borrowed a book from a bookshop on hire, this would be a case of non-gratuitous bailment. Hire charges are paid by bailee; or Custody charges are paid by bailor.
The possession of goods must transfer from one person to another. Delivery is not same as custody. For example, a servant holding his master’s umbrella is not a bailee but only a custodian. The goods must be handed over to the bailee for whatever is the purpose of the bailment.
In Ultzen vs Nicols 1894, the plaintiff went to a restaurant for dining. When he entered the room, the waiter took his coat and hung it on a hook behind him. When the plaintiff arose to leave, the coat was gone. It was held that the waiter voluntarily took the responsibility of keeping the coat while the customer was dining and was thus a bailee. Therefore, he was liable to return it.
Contrasting this case with Kaliaperumal Pillai vs Visalakshmi AIR 1938, we can see the meaning of delivery. In this case, a woman gave some gold to a jeweler to make jewelery. Every evening she used to take the unfinished jewels, put it in a box, lock the box and take the keys of the box with her while leaving the box at the goldsmith. One morning, when the opened the box the gold was gone. It was held that, in the night, the possession of the gold was not with the jeweler but with the plaintiff because she locked the box and kept the keys with her.
As the explanation to section 148 says, even if a person already has the possession of goods that he does not own, he can become a bailee by entering into a contract with the bailor. In such a case, the actual act of delivery is not done but is considered to be valid for bailment.
As per section 149, the delivery to the bailee may be made by doing anything which has the effect of putting the goods in the possession of the intended bailee or of any person authorized to hold them on his behalf. This means that the delivery can be made to either the bailee or to any other person whom the baliee authorizes. This person can be the bailor himself. This gives us two types of delivery - Actual and Constructive.
In actual delivery, the physical possession of the goods is handed over to the bailee while in constructive delivery the possession of the goods remains with the bailor upon authorization of the bailee. In other words, the bailee authorizes the person to keep possession of the goods.
In Bank of Chittor vs Narsimbulu AIR 1966, a person pledged cinema projector with the bank but the bank allowed him to keep the projector so as to keep the cinema hall running. AP HC held that this was constructive delivery because something was done that changed the legal possession of the projector. Even though the physical possession was with the person, the legal possession was with the bank.
For a valid bailment, the delivery must be done upon a contract that the goods will be returned when the purpose is accomplished. If the goods are given without any contract, there is no bailment. In Ram Gulam vs Govt. of UP AIR 1950, plaintiffs ornaments were seized by police on the suspicion that they were stolen. The ornaments were later on stolen from the custody or police and the plaintiff sued the govt. for returning the ornaments. It was held that the goods were not given to the police under any contract and thus there was no bailment.
However, this decision was criticized and finally, in State of Gujarat vs Menon Mohammad AIR 1967, SC held that bailment can happen even without an explicit contract. In this case, certain motor vehicles were seized by the State under Sea Customs Act, which were then damaged. SC held that the govt. was indeed the bailee and the State was responsible for proper care of the goods.
The delivery of goods is not permanent. The possession is given to the bailee only on the condition that he will either return the goods or dispose them according to the wishes of the bailer after the purpose for which the goods were given. For example, when the stitching is complete, the tailor is supposed to return the garment to the bailor. If the bailee is not bound to return the goods to the bailor, then the relationship between them is not of bailment. This is a key feature of bailment that distinguishes it from other type of relations such as agency. J Shetty of SC in U Co. Bank vs Hem Chandra Sarkar 1990, observed that the distinguishing feature between a bailment and an agency is that the bailee does not represent the bailor. He merely exercises some rights of the bailor over the bailed property. The bailee cannot bind the bailor by his acts. Thus, a banker who was holding the goods on behalf of its account holder for the purpose of delivering them to his customers against payment, was only a bailee and not an agent.
As such Indian Contract Act, 1872 does not provide for Rights of a Bailor. But Rights of a Bailor is same as Duties of the Bailee i.e. Rights of Bailor = Duties of Bailee. A bailor has the following rights.
You have just now read the duties of the bailee. Duties of the bailee are the rights of the bailor. Since Right of the bailor is same as the right of the Bailee, therefore on the fulfilment of all duties of Bailee the bailor’s right is accomplished.
For example, when the bailee returns the goods bailed, he should also return all natural accretions to the goads. This is a duty of the bailee and it is the right of the bailor to receive all-natural accretions in the goods baited, when the goods are returned to him. For example, it is the duty of the Bailee to give the accretions and it is the right of bailor to demand the same.
It is an inherent right of the bailor to claim damages for any loss that might have been caused to the goods bailed, due to the bailee's negligence (Section 151). If the Bailee fails to take care of the goods, the bailor has the right to claim damages for such loss. (Section 151)
If the bailee does any act, in respect of the goods bailed, which is inconsistent with the terms of bailment, the bailor has a right to avoid the contract. For example, A lends his car to B for Bs personal use. B starts using the car as a taxi. A can avoid the contract (Section 153). If the Bailee does not comply with the terms of the contract and acts in a negligent manner in such case the bailor has the right to rescind the contract. (Section 153) The bailor has a right to terminate the contract of bailment if the bailee does any act with the goods bailed to him. which is inconsistent with the terms of the contract. For example- bailor gives his tonga to bailee for his personal use, but he uses it for carrying passengers.
If any damage is caused to the goods bailed because of the unauthorised use of the goods. The bailor has a right to claim compensation from the bailee. In the same way the bailor has (right to claim: compensation, if, some loss is caused to the goods bailed, due to unauthorised mixing by bailee, of bailee's own goods with the goods of the bailor (Sections 154. 155 and 156). If the Bailee uses the goods for an unauthorized purpose or mixes the goods which cause loss of goods in such case bailor has the right to claim compensation.
Compensation for goods - If the bailee has mixed the goods of the bailor with someone other goods not belonging to bailor without the consent of the bailor and bailors goods cannot be separated from the other goods, the bailor has a right to get reasonable compensation from bailee for his goods.
Compensation for unauthorised use - If the bailee make’s any use of the goods bailed, which is not in accordance to the conditions of the bailment, the bailor has a right to get Compensation from the bailee for any damage arising to the goods from or during such unauthorized use of the goods.
Compensation for delay in time-According to the Contract Act, the bailee is responsible to return, deliver or to tender the goods to the bailor at a proper time. If he fails to do the bailor has a right to get compensation from bailee for any loss, destruction or deterioration of the goods due to such delay in time.
The bailor has a right to get back the goods bailed by him as soon as the purpose of bailment is accomplished. If the bailee fails to do so, is entitled to get reasonable compensation from the bailee.
It is a right of the bailor to compel the bailee, to return the goods hailed, when the time of bailment has expired or when that purpose for which the goods were bailed has been accomplished. You have just now read that in the case of a gratuitous bailment, even if the goods have been bailed for a fixed time or for a fixed purpose, the bailor has a right to compel the bailee to return them, before the agreed time. It is the duty of the Bailee to return the goods and the bailor has the right to demand the same.
The bailor has a right to share with bailee any profit earned from the goods bailed if it is so provided by the contract.
If the bailee has mixed the goods of bailor with someone other goods not belonging to bailor without the consent of the bailor, the bailor has a right to get from bailee the expenses which he has to bear for the separation of his goods from others.
A bailor may give his property to the bailee either without any consideration or reward or for a consideration or reward. In the former case, he is called a gratuitous bailor, while in the latter, a bailor for reward. The duties in both the cases are slightly different. Section 150 specifies the duties for both kinds of bailor. It says that the bailor is bound to disclose any faults in the goods bailed that the bailor is aware of, and which materially interfere with the use of them or which expose the bailee to extraordinary risk. This means that if there is a fault with the goods which may cause harm to the bailee, the bailor must tell it to the bailee.
For example, if a person bails his scooter to his friend and if the person knows that the brakes are loose, then he must tell this to the friend. Otherwise, the bailor will be responsible for damages arising directly out of the faults to the bailee. But the bailor is not bound to tell the bailee about the fault if the bailor himself does not know about it.
Section 150 imposes a bigger responsibility to the non-gratuitous bailor since he is making a profit out of the bailment. A non gratuitous bailor is responsible for any damage that happens to the bailee directly because of the fault of the goods irrespective of whether the bailor knew about it or not.
In Hyman and Wife vs Nye & Sons 1881, the plaintiff hired a carriage from the defendant. During the journey, a bolt in the under part of carriage broke, causing an accident in which the plaintiff was injured. The defendants were held liable even though they did not know about the condition of the bolt.
In English law the duties of a gratuitous and non-gratuitous bailee are different. However, in Indian law, Section 151 treats all kinds of bailees the same with respect to the duty. It says that in all cases of bailment, the bailee is bound to take as much care of the goods bailed to him as a man of ordinary prudence would, under similar circumstances take, of his own goods of the same bulk, quality, and value as the goods bailed. The bailee must treat the goods as his own in terms of care. However, this does not mean that if the bailor is generally careless about his own goods, he can be careless about the bailed goods as well. He must take care of the goods as any person of ordinary prudence would of his things.
In Blount vs War Office 1953, a house belonging to the plaintiff was requisitioned by the War Office. He was allowed to keep his certain articles in a room of the house, which he locked. The troops who occupied the house were not well controlled and broke into the room causing damage and theft of the articles. It was held that War office did not take care of the house as an owner would and held the War Office liable for the loss.
As per section 152, in absence of a special contract, the bailee is not responsible for loss, destruction, or deterioration of the thing bailed, if he has taken the amount of care as described in section 151. This means that if the bailee has taken as much care of the goods as any owner of ordinary prudence would take of his goods, then the bailee will not be liable for the loss, destruction, or deterioration of the goods. No fixed rule regarding how much care is sufficient can be laid down and the nature, quality, and bulk of goods will be taken into consideration to find out if proper care was taken or not.
In Gopal Singh vs Punjab National Bank, AIR 1976, Delhi HC held that on the account of partition of the country, when a bank had to flee along with mass exodus from Pakistan to India, the bank was not liable for the goods bailed to it in Pakistan.
If the bailee has taken sufficient care in the security of the goods, then he will not be liable if they are stolen. However, negligence in security, for example leaving a bicycle unlocked on the street, would cause the bailee to be liable. In Join & Son vs Comeron 1922, the plaintiff stayed in a hotel and kept his belonging in his room, which were stolen. The hotel was held liable because they did not take care of its security as an owner would.
If loss is caused due to the servant of the bailee, the bailee would be liable if the servant’s act is within the scope of his employment.
The extent of this responsibility can be changed by a contract between the bailor and the bailee. However, it is still debatable whether the responsibility can be reduce or it can be increased by a contract. Section 152 opens with, “In absence of special contract”, which is interpreted by Punjab and Haryana HC, as the bailee can escape his responsibility by way of a contract with the bailor. However, in another case Gujarat HC held that the bank was liable for loss of bales of cotton kept in its custody irrespective of the clause that absolved the bank of all liability. This seems to be fair because no one can get a license to be negligent and a minimum standard of care is expected from everybody.
Section 154 says that if the bailee makes any use of the goods bailed which is not according to the conditions of the bailment, he is liable to make compensation to the bailor for any damage arising to the goods from or during such use of them.
Illustration - A lends horse to B for his own riding only. B allows C, a member of his family, to ride the horse. C rides with care but the horse is injured. B is liable to compensate A for the injury to the horse.
A hires a horse in Calcutta from B expressly to march to Benares. A rides with care but marches to Cuttack instead. The horse accidentally falls and is injured. A is liable to make compensation to B.
Thus, we can see that bailee is supposed to use the goods only as per the purpose of the bailment. If the bailee makes any unauthorized use of the goods, he will be held absolutely liable for any damages.
Section 155-157 The bailee should maintain the separate identity of the bailor’s goods. He should not mix his goods with bailor’s good without bailor’s consent. If he does so, and if the goods are separable, he is responsible for separating them and if they are not separable, he will be liable to compensate the bailor for his loss.
For example, A bails 100 bales of cotton with a particular mark to B. B, without A’s consent, mixes them with his own. A is entitled to have his 100 bales returned and B is bound to bear all expenses for separation. But if A bails a barrel of Cape flour worth Rs 45 to B and B mixes it with country flour worth Rs 25, B is liable to A for the loss of his flour.
Section 160 It is the duty of the bailee to return or deliver according to the bailor’s directions, the goods bailed, without demand, as soon as the time for which they were bailed has expired or the purpose for which they were bailed has been accomplished.
If the bailee keeps the goods after the expiry of the time for which they were bailed or after the purpose for which they were bailed has been accomplished, it will be at bailee’s risk and he will be responsible for any loss or damage to the goods arising howsoever. In Shaw & Co vs Symmons & Sons 1971, the plaintiff gave certain books to the defendant to be bound. The defendant bound them but did not return them within reasonable time. Subsequently, the books were burnt in an accidental file. The defendants were held liable for the loss of books.
As per Section 163, in absence of any contract to the contrary, the bailee is bound to deliver to the bailor, or according to his directions, any increase of profit which may have accrued from the goods bailed.
Illustration - A leaves a cow in the custody of B to be taken care of. The cow has a calf. B is bound to deliver the calf as well as the cow to B.
As per Section 166 if the bailor has no title and the bailee, in good faith returns the goods back to the bailor or as per the directions of the bailor, he is not responsible to the owner in respect of such delivery. Thus, once the bailee takes the goods from the bailor, he agrees that the goods belong to the bailor and he must return them only to the bailor. He cannot deny redelivery to the bailor on the ground that the bailor is not the owner.
If there is true owner of the goods, he can apply to the court to stop the delivery of the goods from the bailee to the bailor. This right is given to the true owner in section 167.
The bailee is entitled to lawful charges for providing his service. As per Section 158 where by conditions of the bailment, the goods are to be kept or to be carried or to have work done upon them by the bailee for the bailor and the bailee is to receive no remuneration, the bailor shall repay to the bailee the necessary expenses incurred by him for the purpose of bailment. Thus, a bailee is entitled to recover the charges as agreed upon, or if there is no such agreement, the bailee is entitled to all lawful expenses according to this section.
In Surya Investment Co vs STC AIR 1987, STC hired a storage tank from the plaintiff. On account of a dispute, STC appointed a special officer to take charge of the tank, who delivered the contents as per directions of STC. Thus, the plaintiff lost his possession and with it, his right of lien. SC held that the plaintiff is entitled to the charges even if he loses his right of lien because the bailor has enjoyed bailee’s services.
As per section 164, the bailor is responsible to the bailee for any loss which the bailee may sustain by reason that the bailor was not entitled to make the bailment, or to receive back the goods, or to give directions respecting them. This means that if the bailor had no right to bail the goods and if still bails them, he will be responsible for any loss that the bailee may incur because of this.
Section 170-171 In general, Lien means the right to keep the possession of the property of a person until that person clear the debts. In case of bailment, the bailee has the right to keep the possession of the property of the bailor until the bailor pays lawful charges to the bailee. Thus, right of Lien is probably the most important of rights of a bailee because it gives the bailee the power to get paid for his services.
Lien is of two kinds - Particular and General.
This means that the lien holder has a right to keep possession of only that particular property for which the charges are owed. For example, A gives a horse and a bicycle to B. A agrees to pay B charges for training the horse and no charges for keeping the bicycle. Now, if A fails to pay charges for the horse, B is entitled to keep possession only of the horse and not of the bicycle. He must return the bicycle.
Section 170 gives this right to the bailee. It says that where the bailee has, in accordance with the purpose of the bailment, rendered any service involving the exercise of labor or skill in respect of the goods bailed, he has, in absense of a contract to the contrary, a right to retain such goods until he receives due remuneration for the services he has rendered in respect of them.
As opposed to Particular Lien, General Lien gives a right to the bailee to keep the possession of any goods for any amount due in respect of any goods. Section 171 says that, bankers, factors, wharfingers, attorneys of a High Court, and policy brokers may, in the absence of a contract to the contrary, retain as a security for a general balance of account, any goods bailed to them; but no other persons have a right to retain, as a security for such balance, goods bailed to them, unless there is an express contract to that effect.
Thus, this right is only available to bankers, factors, wharfingers, attorneys of high court, and policy brokers. However, this right can be given to the bailee by making an express contract between the bailor and the bailee.
|Bailee’s particular lien||Bailee’s general lien|
|Particular lien gives right to retain only such goods in respect of which charges due remain unpaid.||General lien gives right to retain any goods belonging to another person for any amount due from him.|
|Particular lien can be exercised only when some labour or skill has been expended on the goods, resulting in an increase in value of goods.||General lien may be exercised even though no labour or skill has been expended on the goods.|
|Every bailee is entitled to particular lien.||General lien can be exercised by only such persons as are specified u/s 171. e.g., bankers, factors, wharfingers, Attomeys of High Court, policy brokers. Any other bailee may exercise general lien if there is an agreement to this effect.|
Section 180 enables a bailee to sue any person who has wrongfully deprived him of the use or possession of the goods bailed or has done them any injury. The bailee’s rights and remedies against the wrong doer are same as those of the owner. An action may be brought either by the bailor or the bailee.
Thus, in Umarani Sen vs Sudhir Kumar AIR 1984, a firm which had consigned the goods, of which it was a bailee, with a carrier, was allowed to sue the carrier for loss of the goods.
A contract of bailment terminates or comes to an end under the following circumstances:
Where bailment is for a specific period, it comes to an end on the expiry of the specified period.
Example: A room cooler is hired by X from Y for a period of 6 months. On the expiry of 6 months X must return the cooler.
In case, bailment is for specifi c purpose it terminates as soon as the purpose is accomplished.
If the bailee does any act with regard to the goods bailed, inconsistent with the conditions of the bailment, the bailer may terminate the bailment (S.153).
Example: A lets to B for hire a horse for his own riding. B drives the horse in his carriage. A shall have the option to terminate the bailment.
Section.159 :However, if premature termination causes any loss to the bailee exceeding the benefit derived from the bailment, the bailer must indemnify. Further, a gratuitous bailment terminates by the death of either the bailer or the bailee (S.162)
Finding is not owning. A finder of lost goods is treated as the bailee of the goods found as such and is charged with the responsibilities of a bailee, besides the responsibility of exercising reasonable efforts in finding the real owner. However, he enjoys certain rights also. His rights are summed up hereunder
If a person finds something, he does not automatically become the owner of that thing. He, in fact, becomes a special kind of a baliee in the sense that he has to keep the thing until the owner is found. He should take care of the thing just like a bailee. Section 168 and 169 describe the rights of such finder of goods.
Section 168 - The finder of goods has no right to sue the owner for compensation for trouble and expense voluntarily incurred by him to preserve the goods and to find out the owner; but he may retain the goods against the owner until he receives such compensation; and where the owner has offered a specific reward for the return of goods lost, the finder may sue for such reward, and may retain the goods until he receives it.
Thus, if the finder has incurred expenses in finding the owner and/or in maintaining the goods voluntarily, he can retain the possession of the goods until the owner pays the expense to him, though the finder cannot sue the owner for the expense. His only remedy is to keep the goods. Further, if the owner has promised a reward for the return of the goods, the finder is entitled to the rewards, and he can even sue the owner for the reward. He can retain the goods as well until the reward is received.
As per Section 169, the finder of the goods can even sell the goods if they are of common objects of sale, in the following conditions -