What is Contract of Bailment under Indian Contract Act?

Introduction

The concept of bailment plays a pivotal role in contract law, facilitating the temporary transfer of goods from one party to another for a specific purpose. As per Section 148 of the Indian Contract Act, 1872, bailment refers to the delivery of goods by one person (the bailor) to another (the bailee) for a specific purpose, under the condition that the goods shall be returned upon the fulfillment of the purpose. Understanding bailment in Indian Contract Act is essential for law students and legal professionals, as it governs various commercial and legal transactions. This article will explain the essentials of bailment, its types, characteristics, principles, and how it differs from pledge. We will also discuss the rights and duties of the bailor and bailee.

Define Bailment under Section 148

Section 148 of the Indian Contract Act 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.”

Key Points:

• Bailor: The person who delivers the goods.
• Bailee: The person to whom the goods are delivered for a specific purpose.
• Purpose: The goods are transferred for a specific purpose, which could be for safekeeping, repair, or use.

Example:
A gives his watch to B for repair. Here, A is the bailor, B is the bailee, and the purpose of the bailment is the repair of the watch. Once the repair is completed, B must return the watch to A.

A bailment is the delivery of goods by one person to another for some purpose, upon a contract that they shall, when the purpose is accomplished, be returned or otherwise disposed of according to the directions of the person delivering them.

• Based on Benefit
  • Exclusive benefit of Bailor: J, neighbour of K, agrees to look after K’s per while he is out of station. K is benefited.
  • Exclusive benefit of Bailee: Z lends a book to Y for reading. Y is benefited.
  • Mutual Benefit of both: A hires furniture from B, by payment of hire charges, Both A and B are benefited
• Based on Reward
  • Gratuitous Bailment: Neither      Bailor nor Bailee gets any remuneration, e.g. A lends his book to his are friend.
  • Non gratuitous Bailment: Bailor or Bailee gets remuneration e.g. G gives his television set for repair to H, a technician. H gets paid for the job

ESSENTIALS OF A VALID CONTRACT OF BAILMENT (Sec.148)

• Contractual Relationship:
  Bailment arises from an express or implied contract. The delivery of goods must be based on mutual consent between the bailor and bailee.

• Delivery of Possession:
  The possession of goods must be transferred from the bailor to the bailee. The ownership, however, remains with the bailor. The delivery can be actual (physical transfer) or constructive (symbolic transfer of control).

  Example: A gives his car to B for safekeeping. Even though the car is in B’s possession, A remains the owner.

• Purpose:
  The goods are transferred for a specific, agreed-upon purpose. Once the purpose is fulfilled, the bailee is bound to return or dispose of the goods as directed by the bailor.

• Return of Goods:
  Upon the fulfillment of the purpose, the bailee must return the exact goods to the bailor. If the bailee fails to do so, they may be held liable for breach of contract.

  • The delivery of goods must be conditiona
  • The condition shall be that the goods shall be –
    • returned (either in original form or in any altered from); or
    • disposed of according to the directions of the bailor, when the purpose is accomplished.

What are the 7 Essential Elements of a Valid Contract?

Modes of Delivery (Sec.149) The Indian Contract Act 1872 Notes

• Actual delivery
  Transfer of physical possession of goods from one person to another .

• Symbolic delivery
  • Physical possession of goods is not actually transferred.
  • A person does some act resulting in transfer of possession to any other person.

Examples:

• Delivery of keys of a car to a friend
• Delivery of a railway receipt.

• Constructive delivery If –
  • A person is already in possession of goods of owner.
  • Such person contracts to hold the goods as a bailee for a third person.
    Then –
    Such person becomes the bailee, and the third person becomes the bailor.

Types of Bailment

The types of bailment are classified based on the benefit derived from the contract and the nature of the goods delivered:

1. Gratuitous Bailment:
   This type of bailment is made without any reward or benefit to the bailee. The bailor voluntarily delivers the goods for a specific purpose, and the bailee is not compensated.

   Example: A gives his books to B for safekeeping without any charge.

2. Non-Gratuitous Bailment:
   This is a commercial bailment where both the bailor and bailee derive benefits. The bailee may be compensated for services rendered, such as safekeeping, repair, or transportation.

   Example: A hires B to transport goods from one city to another. B receives payment for his services.

3. Bailment for Safe Custody:
   In this type of bailment, the bailor hands over the goods to the bailee for safekeeping.

   Example: A gives his jewelry to a bank locker for safe custody.

4. Bailment for Use:
   The goods are bailed for a temporary use by the bailee, after which they must be returned.

   Example: A lends his bicycle to B for a week.

5. Bailment for Repair or Maintenance:
   In this bailment, the goods are delivered to the bailee for repair or maintenance and are returned after the service is completed.

   Example: A leaves his car with a mechanic for repairs.

Duties of a Bailor  (Sec. 150, 158, 159 and 164)

Disclose faults in goods [Sec. 150]:

Bailor is bound to disclose to Bailee, faults in the goods bailed, of which he has knowledge. He should also disclose such information which – (a) materially interferes with the use of goods, or (b) expose the Bailee to extraordinary risk.

Liability for Defects in Goods

In case of Gratuitous bailment	In case of Non – Gratuitous Bailment
Bailor is liable only for those losses which arise due to non – disclosed risks.	Bailor is liable for damages whether or not he was aware of the existence of faults.

Example: A owning a motorcycle, allows B, his friend, to take it for a joy ride. A knows that its brakes were not proper but does not disclose it to B. B meets with an accident. A is liable to compensate B for damages. But when A had lent the motorcycle on hire, he is liable to B even if he did not know of the failure of his brakes.

Bear expenses [Sec.158]

Expenses of Bailment

In case of Gratuitous bailment	In case of Non – Gratuitous Bailment
Bailor     shall     repay    to    Bailee,     all necessary expenses incurred by him for the purpose of Bailment.	Bailor is liable to repay only extra – ordinary expenses, and not the ordinary expenses.

Example: M lends his car to N and it runs out of petrol. N can recover the amount paid for refueling (ordinary expenses). If in case, the car suffers a breakdown, N can recover such charges as are paid by him in bringing it back to condition (extra – ordinary expenses). He M hired the car to N, he shall be liable only for the repair charges, being extra ordinary expenses.

• Indemnify the bailee for defective title
  The bailor shall indemnify the bailee for any loss caused to bailee due to defective title of bailor.

• Indemnify the bailee for premature termination If –
  • the bailment is gratuitous ; and
  • for a specific period.

Then –

• the bailor may compel the bailee to return the goods before expiry of the peiod of bailment; but
• the bailor shall indemnify the bailee for any loss incurred by the bailee.

• Receive back the goods
  • It is the duty of the bailor to receive back the goods, when returned by bailee.
  • If the bailor wrongfully refuses to receive back the goods, he shall be liable to pay ordinary expenses of custody of goods incurred by the bailee.

Duties of a Bailee (Sec.151 to 157)

Take reasonable care

The bailee must take such case of goods as a man of ordinary prudence would take care of his own goods. The bailee shall not be liable for any loss or destruction of goods, if –

• • • he is not negligent; or
    • the loss was caused due to an act of God or other unavoidable reasons.

Not to make unauthorized use of goods

The bailee must not make any unauthorized use of the goods.

• • If the bailee makes any unauthorized use of goods, then –
    • the bailment becomes voidable at the option of the bailor; and
    • the bailee shall be liable for any loss or damage even if such loss is caused due to an act of God or other unavoidable reasons.

Goods are mixed with bailor’s consent

The parties shall have a proportionate interest in such mixture.

Goods are mixed without bailor’s consent, but the goods are separable

• The bailee shall pay the expenses of separation.
• The bailee shall pay damage incurred by the bailor.

Goods are mixed without bailor’s consent, and goods are not separable

The bailee shall compensate the bailor for any loss caused to him.

Return the goods

• • The bailee must return the goods, without waiting for demand from bailor, if –
    • the time specified in the contract has expired ; or
    • the purpose specified in the contract is accomplished.
  • If the goods are not so returned, then –
    • the goods shall be at the risk of the bailee;
    • the bailee shall be liable for any loss or damage, even if such loss is caused without any fault or negligence of the bailee or due to an act of God or other unavoidable reasons.

Return accretion to goods

The bailee must return to the bailor any accretion (i.e., addition) to the goods bailed.

Not to set up an adverse title

The bailee has no right to allege that the bailor had no authority to bail the goods.

Rights of a Bailor (Sec. 153, 159, 163, 180, 181)

• Terminate the bailment If –
  The bailee does any act inconsistent with the terms and conditions of the contract of bailment.
  Then –
  The bailment becomes voidable at the option of the bailor.

To know more about Voidable agreement visit here

• Demand back the goods If –
  The bailment is gratuitous; and For a specific period.
  Then –
  • the bailor may compel the bailee to return the goods before expiry of the period of bailment; and
  • the bailor shall indemnify the bailee for any loss incurred by the bailee.

• File suit against wrongdoer
  The bailor has the right to sue –
  • A third party who does any damages to the goods; or
  • A third party who deprives the bailee from using the goods

• Sue the bailee
  The bailor may sue the bailee to enforce his duties.

Rights of a Bailee (Sec. 165, 166, 167, 170, 180)

• Right to compensation
  The bailee has the right to be indemnified by the bailor, if –
  • The bailor has no title to the goods; and
  • As a consequence, the bailee suffers some loss.

• Return the goods
  • It is the duty as well as the right of the bailee to return the goods to the bailor.
  • In case of joint bailor, the goods may be returned to any of joint bailors.

• Recover charges incurred
  Extra ordinary expenses
  • The bailor is liable to pay the extraordinary expenses.
  • The bailee may recover the extraordinary expenses paid by him.
  • Ordinary expenses
    If the bailment is gratuitous, the bailor is liable to pay the ordinary necessary expenses, i.e., the bailee has the right to recover the ordinary necessary expenses incurred by him.

• Suit for deciding the title
  The bailee may apply to the Court for deciding the title to goods, if a person other than the bailor claims that the goods belong to him.

• File suit against wrongdoer
  The bailee has the right to sue –
  • A third party who does any damages to the goods; or
  • A third party who deprives the bailee from using the goods.

• Right of lien
  The bailee has the right to retain the goods delivered to him until the charges due to him are paid by the bailor.

Principles of Bailment

The principles of bailment focus on the obligations and liabilities of both the bailor and the bailee:

1. Reasonable Care:
   The bailee must take the same level of care of the bailed goods as a reasonable person would take of their own goods.

2. No Unauthorised Use:
   The bailee must not use the bailed goods for any purpose other than what was agreed upon. If the bailee uses the goods without authorization, they can be held liable for any resulting damage.

3. Return of Goods:
   The bailee must return the bailed goods as soon as the purpose is fulfilled or the agreed time period ends.

Difference Between Bailment and Pledge

While bailment and pledge are both contracts involving the transfer of goods, there are key differences:

Aspect	Bailment	Pledge
Purpose	Goods are delivered for safekeeping, use, or repair.	Goods are delivered as security for a debt.
Parties Involved	Bailor and Bailee	Pawnor and Pawnee
Return of Goods	Goods are returned after the purpose is fulfilled.	Goods are returned when the debt is repaid.
Right to Sell	Bailee cannot sell the goods.	Pawnee can sell the goods in case of default by pawnor.

 

Latest Case Law on Bailment

Tata Motors Ltd. v. State of Haryana (2021)
In this case, the court held that the bailee is responsible for taking reasonable care of the bailed goods. The court ruled that a transport company (bailee) was liable for the damage caused to goods in transit due to its negligence. This case reaffirmed the duty of care imposed on bailees under the Indian Contract Act.

Distinction Between Bailee’s Particular and General Lien

Basis of distinction	Bailee’s particular lien	Bailee’s general lien
Natural of right    Condition for exercising lien       Right to whom?	Particular lien gives right to retain only such goods in respect of which charges due remain unpaid. 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. Every bailee is entitled to particular lien.	General lien gives right to retain any goods belonging to another person for any amount due from him. General lien may be exercised even though no labour or skill has been expended on the goods.     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.

TERMINATION OF BAILMENT (Sec.153, 159 and 162)

Situation	Explanation	Example
1. Expiry of specified period	When bailment is for specific period it terminates on the expiry of the specified period	Z lends a moped to Y for a period of 3 months Aprill- June. The Bailment terminates by the end of June
2. Accomplishment of specified purpose	Where bailment is for a specified purpose, it terminates when such purpose is accomplished.	G hires tables and chairs, utensils, etc. from H for organizing his son’s engagement. G shall return them once the engagement functions are over.
3. Bailee’s act inconsistent with conditions	When bailee does some act which is inconsistent with the terms and conditions of bailment, the Bailor may terminate the bailment.	J gives his car to K keeping it in K’s garage. K gives it to his son for racing. J can terminate the bailment.
4. Destruction of subject matter	When goods bailed are destroyed, Bailment comes to an end.	K hires a cycle from L. When the cycle is damaged beyond repair in an accident, bailment ends.
5. Gratuitous Bailment	Gratuitous Bailment can be terminated at any time. Also, a Gratuitous Bailment ends by the death  of  either  Bailor or Bailee. (Sec162)	Note: Where premature termination of bailment by the Bailor, causes loss to the Bailee exceeding the benefits derived by him, the Bailor shall indemnify the Bailee.

Finder of Goods (Sec. 71, 168 and 169)

• Finder of lost goods [Sec 71]
  A person, who finds goods belonging to another and takes them into his custody, is subject to the same responsibility as a Bailee.

• Implied Agreement
  There is an agreement, implied by law between finder and owner of goods.

• Duties of Finder
  A finder of lost goods is treated as Bailee of goods found. His duties are –
  • To take initiative to find the real owner of the goods,
  • To take reasonable care of the goods found,
  • Not to put the goods found for his personal use, and
  • Not to mix the goods found with his own goods.

• Rights of Finder:

Suit for specific reward [Sec.168]

Right of Sale [Sec.169]

Finder of goods is not entitled to sue that owner for compensation for trouble and expenses voluntarily incurred in – (a) preserving the goods, or (b) finding out the owner. However, he is entitled to – (a)  Lien: Retain the goods against the owner till he receives such compensation (b)  Suit: Sue the owner for payment of any specific reward offered by the owner for the return of goods lost, and retains the goods till payment of such reward.

If a thing which is commonly the subject of sale is lost, and Owner cannot be found with reasonable diligence, [or]Owner, if found, does not pay the lawful charges of the Finder. Then, Finder of Goods is entitled to sell the same when – (a)   the thing is in danger of perishing, or (b)  the thing is in danger of losing the greater part of its value, or (c)   The lawful charges of finder, amount to 2/3rd of the value of the thing lost and found.