Rishabh Soni authored this article, and it was updated by Dilpreet Kaur Kharbanda. This piece explores the concept of the contract of bailment under the Indian Contract Act, 1872. It delves into the rights, duties, and responsibilities of both bailors and bailees, and touches upon the role of the finder of goods, who is also considered a bailee under the Act. Additionally, the article draws distinctions between bailment and other concepts like deposit, sale, pledge, and mortgage.
Introduction
The idea of bailment often quietly integrates into our daily routines, even when we don’t notice it. Simply put, a contract of bailment involves temporarily transferring possession of goods or property from one person to another for a specific purpose, with the understanding that the property is to be returned or otherwise handled as instructed by the owner once the purpose is achieved.
For instance, when we send clothes to the dry cleaners, we expect them to be washed and returned in a satisfactory condition. Similarly, when we leave our cars with valet services or in paid parking lots, the service providers are responsible for ensuring that our vehicles are returned to us in the same condition as when they were handed over.
The legal intricacies of bailment under the Indian Contract Act, 1872, are examined in this article. Let’s begin by understanding the essence of bailment before exploring the broader concept, its essentials, the parties involved, their rights and duties, and relevant legal precedents.
Meaning of Bailment
Bailment is defined in Section 148 of the Indian Contract Act, 1872. It is described as the delivery of goods by one person to another for a specific purpose, with the stipulation that these goods are to be returned once the purpose is fulfilled. The person delivering the goods is known as the ‘bailor,’ and the recipient is the ‘bailee.’ However, if the owner retains control over the goods, it does not constitute bailment.
For example, if ‘A’ gives his car to ‘B,’ a neighbor, for ten days but keeps a key with himself and uses the car during this period, it does not represent bailment as ‘A’ maintains control over the property.
Essentials of a Contract of Bailment
Existence of a Valid Contract
The foundation of bailment is the existence of a valid contract, which implies that goods are to be returned once the purpose is fulfilled. This contract can be expressed or implied, written or oral. A finder of lost goods is also regarded as a bailee, even if no formal contract exists between him and the owner.
Temporary Delivery of Goods
Bailment revolves around the temporary delivery of goods, where the bailee cannot have permanent possession. Delivery can occur through actual (physical transfer) or constructive delivery (symbolic transfer), signifying the goods are placed in the bailee’s possession or someone authorized by them. There must be a change in possession, granting the bailee exclusive rights. In the case of Kavita Trehan & Ors. vs. Balsara Hygiene Products Ltd. (1992), the focus was on the requirement of delivering goods to the bailee, emphasizing that a change of possession is crucial for bailment.
Return of Particular Goods
After fulfilling the purpose, the bailee must return the goods to the bailor. Failure to return or unauthorized use of the goods can lead to a breach of contract and potential claims for damages. Returning the goods is not just a formality but the foundation of the bailment arrangement. A case in point is Re, Gangaram AIR 1943 Nag 168, where the court held that a contract of bailment cannot exist without the obligation to return the particular goods.
Parties to Bailment
In a bailment contract, there are primarily two parties: the ‘bailor’ and the ‘bailee.’
Bailor
The bailor is the owner of the goods or property who temporarily transfers possession to another person. Ownership remains with the bailor, but physical custody is given to the bailee for a specific period or purpose.
Illustration: Abha, before moving to Bangalore, asks her friend Ashi to store her laptop temporarily. Abha is the bailor because she transfers possession of her laptop to Ashi, expecting its return upon her return.
Bailee
The bailee is the person or entity to whom the goods are delivered temporarily. They are responsible for the goods’ care during the specified period and must follow the bailor’s directions if provided.
Illustration: ‘X’ gives jewelry to a jeweler for polishing. The jeweler agrees to return the jewelry in two days. The jeweler is the bailee, receiving the jewelry for a particular purpose and responsible for returning it after the agreed period.
Types of Bailments
The Indian Contract Act, 1872, categorizes bailment based on purpose, reward, and the receiver of benefits.
Based on Purpose
Deposit
Deposit involves the simple bailment of goods for a particular use.
Example: ‘A’ gives his computer to ‘B’ for seven days, constituting a deposit.
Hire
Goods are delivered to the bailee for hire.
Example: ‘A’ rents his car to ‘B’ for seven days at Rs. 700 per day, constituting a hire.
Pawn/Pledge
Goods are delivered as security for a loan.
Example: ‘A’ takes a loan from a bank and provides house papers as security, constituting a pledge.
Based on Benefit
Exclusive Benefit of the Bailor
The bailment is primarily for the bailor’s benefit, and the bailee does not gain.
Example: ‘A’ asks ‘B’ to keep jewelry for safekeeping while on vacation, without compensation, benefiting only the bailor.
Exclusive Benefit of Bailee
The bailment is primarily for the bailee’s benefit, with no gain for the bailor.
Example: ‘A’ lends his bike to ‘B,’ who benefits from its use, with no gain for ‘B.’
Mutual Benefit of Both Bailor and Bailee
Both parties gain from the bailment.
Example: ‘A’ gives an unstitched suit to a tailor for stitching. Both benefit: ‘A’ gets the suit stitched, and the tailor gets paid.
Based on Reward
Gratuitous Bailment
No monetary exchange occurs, and either party can revoke the bailment at will. The bailee must take reasonable care of the goods, but liability for damages occurs only if negligence is proved.
Example: ‘A’ lends her farmhouse keys to ‘B’ for a wedding, with no payment expected, constituting gratuitous bailment.
Non-Gratuitous Bailment
Both parties benefit and derive consideration from one another. Usually, some monetary exchange occurs.
Example: A car owner brings a vehicle for maintenance and pays the mechanic, who benefits from the payment for services rendered.
Duties and Liabilities of a Bailor
Disclose Faults in the Goods Bailed
Section 150 of the Indian Contract Act, 1872, requires the bailor to disclose known defects in the goods bailed. Failure to do so results in liability for any damages the bailee incurs. This responsibility is heightened in non-gratuitous bailments.
Example: ‘A’ gives a car with faulty brakes to ‘B.’ If an accident occurs, ‘A’ is liable for damages.
Duty to Pay Necessary Expenses
Section 158 stipulates that the bailor must reimburse the bailee for necessary expenses incurred during the bailment.
Duty to Indemnify the Bailee
Under Section 159, if the bailor requires the return of goods before the agreed period, they must compensate the bailee for any loss incurred.
Bailor’s Responsibility to the Bailee
Section 164 holds the bailor accountable for losses the bailee incurs due to the bailor’s actions or instructions.
Duty to Claim Back the Goods
The bailor must accept the goods when returned by the bailee. Failure to do so results in liability for potential damage to the goods.
Duties and Liabilities of a Bailee
Duty to Take Care of the Goods Bailed
Section 151 requires the bailee to take the same care of the goods as a prudent person would take of their own goods. If they do so, they are not liable for any loss or damage.
Duty Not to Make Unauthorized Use of Goods
Section 153 makes the bailment voidable if the bailee uses the goods unauthorized. Section 154 holds the bailee liable for any loss or damage caused by unauthorized use.
Example: Aman hires a car to go to Mussoorie but takes it to Ladakh and causes damage. Aman is liable for the damage.
Not to Mix Goods
Sections 155, 156, and 157 address scenarios where the bailee mixes the bailed goods with their own, holding them responsible for separation costs and damages.
Return the Goods Bailed
Section 160 requires the bailee to return the goods after the time limit expires or the purpose is fulfilled. Section 161 holds the bailee liable for any loss if they fail to do so.
Return Accretion to Goods
Section 163 mandates that any increase in the bailed goods must be returned along with the original goods.
Not to Set Up an Adverse Title
The bailee cannot contest the bailor’s title to the goods or claim adverse ownership.
Rights of the Bailor
Termination of Bailment
Section 153 allows the bailor to terminate the bailment if the bailee violates the contract terms.
Restoration of Goods
Section 159 allows the bailor to demand the return of goods in a gratuitous bailment, compensating the bailee for losses incurred.
File Suit Against the Wrongdoer
Section 180 allows the bailor to take legal action against third parties who destroy the goods or hinder their use.
Rights of Bailee
Right to Compensation
Section 164 entitles the bailee to compensation if the bailor lacked authority over the goods.
Right to Apply to the Court
Section 167 allows the bailee to seek court intervention if someone else claims ownership of the goods.
File Suit Against the Wrongdoer
Section 180 grants the bailee the right to sue anyone who damages the goods or obstructs their use.
Right of Lien
A bailee has the right to retain possession of goods until charges for services rendered are paid.
Particular Lien
Section 170 allows a bailee to retain goods for charges related to services performed on those goods.
General Lien
Section 171 grants certain professionals, like bankers and attorneys, a general lien to retain goods until all claims or accounts against the owner are settled.
Finder of Goods
Section 71 of the Indian Contract Act, 1872, outlines the responsibilities of a finder of goods, treating them as a bailee with duties to care for the goods and attempt to find the owner.
Rights of Finder of Goods
Sections 168 and 169 detail the rights of finders, including the right to sue for a reward and the right to retain or sell the goods under specific conditions.
Termination of Bailment
Expiry of Agreed/Specified Period
Bailment ends when the specified period expires.
Accomplishment/Fulfillment of the Specified Purpose
Bailment terminates when the purpose is achieved.
Bailee Acts Inconsistently with the Terms of the Contract
Section 153 allows termination if the bailee acts inconsistently with the contract terms.
Destruction of Subject Matter
Bailment ends if the goods are destroyed or rendered useless.
Gratuitous Bailment
Gratuitous bailment can be terminated at any time by the bailor and ends upon the death of either party under Section 162.
Differences Between Bailment and Other Concepts
Difference Between Bailment and Deposit
Bailment involves the delivery of goods for a specific purpose, with a potential for gratuitous arrangements, whereas deposits focus on safekeeping with consideration.
Difference Between Bailment and Sale
Bailment involves temporary possession without transferring ownership, while a sale involves transferring ownership with consideration.
Difference Between Bailment and Pledge
Bailment involves transferring possession without the right to sell, whereas a pledge involves transferring goods as security with the pawnee’s right to sell if the pawnor defaults.
Difference Between Bailment and Mortgage
Bailment involves movable property, while a mortgage involves transferring interest in immovable property as security for a loan.
Important Cases Under Contract of Bailment
Ram Gulam vs. Government of Uttar Pradesh (1950)
The court ruled that the government was not liable as a bailee since there was no valid contract of bailment.
Lasalgaon Merchants Co-operative vs. Prabhudas Hathibhai and Ors. (1966)
The court held the government liable as a bailee, highlighting the duty of care, even in cases of illegal seizure.
State of Bombay (Now Gujarat) vs. Memon Mahomed Haji Hasan (1967)
The court held the state liable as a bailee for failing to take care of seized vehicles.
Kavita Trehan vs. Balsara Hygiene Products Ltd. (1992)
The court recognized the appellants’ role similar to a bailee and highlighted their duty to safeguard the goods.
Atul Mehra And Anr. vs. Bank of Maharashtra (2002)
The court ruled that renting a locker does not create a bailment relationship without evidence of entrustment.
Conclusion
The Indian Contract Act, 1872, provides a comprehensive legal framework for various types of bailments, emphasizing fairness, accountability, and mutual benefit. It carefully outlines the rights and duties of parties involved, distinguishing bailment from deposit, sale, pledge, and mortgage, establishing bailment as a broader concept.
Frequently Asked Questions (FAQs)
What is the difference between a general lien and a particular lien?
A particular lien allows a bailee to retain goods worked upon until charges are paid, while a general lien allows certain professionals to retain goods until any debt owed by the owner is settled.
Can a hotel be held liable for the theft of a guest’s car from their valet parking service?
Yes, a hotel can be held liable due to the implied contract of bailment created when a guest hands over their car keys to the valet service, as highlighted in the case of Taj Mahal Hotel vs. United India Insurance Company Ltd (2018).
