Bailment under Indian Contract Act, 1872

Introduction:

The Indian Contract Act, 1872, hereinafter referred to as the Act, deals with Bailment in Chapter IX, from Sec 148 to Sec 181. Bailment refers to the delivery of something from one person to another for a particular purpose, and what has been delivered must be returned once the specific purpose is fulfilled. It is defined under Sec 148 of the Act.

The word bailment has been derived from the French word, ‘baillier’, which means ‘to deliver’. This involves exchange in possession of goods for some specific purpose, but only the possession and not the ownership.

Sec 148 of the Act defines bailment as the delivery of goods by a person to another due to a contract for a particular purpose, in which when the purpose is accomplished, the goods are returned or otherwise disposed of according to the directions of the person delivering them.[1]

Bailment is the transaction, Bailor is the one who delivers the goods, while Bailee is the one who receives the goods that are being delivered for a particular purpose.

Other transactions in which bailment may be created, and where the property is delivered to the bailee include instances like:

• Lease agreement with respect to a personal property, where bailee gains the right to use the bailor’s property.
• An agreement to repair the bailor’s property.
• Lending of the bailor’s property for certain use.
• An agreement for storage, transportation, and/or safekeeping of bailor’s property.

Essentials of Bailment

1. Delivery of goods for some purpose
2. Delivery upon contract
3. Return of the bailed goods after the specific purpose has been fulfilled or, the disposal has been done according to the bailor’s directions.

It is essential here to note, that there are two kinds of delivery of possession- Actual and Constructive.

In an Actual delivery, the actual possession of the movable goods is handed over to the bailee by the deliverer/ bailor, while in a Constructive delivery, only responsibility is given to the bailee, not actual possession.

Case Laws

Delivery of Goods for Some Purpose

Atul Mehra v. Bank of Maharashtra[2]

The Said Bank, in this case, offered the facility to its account holders for the safe deposit of their belongings, and they also ensured and stated that the lockers were built in such that they were theft-proof. Atul Mehra along with other account holders of the bank availed this facility of the locker. A theft occurred, and Atul Mehra lost around INR 4 lakhs.

The court in this case held that there was no contract of bailment between the Bank and Atul Mehra, as the bank doesn’t have full and absolute knowledge of the nature of goods kept in the locker. Therefore, the court held that Atul Mehra wasn’t entitled to compensation for the stolen goods, however, some amount of compensation must be granted to those who availed the locker facility, as the bank promised them all safety of their goods. Furthermore, the court said that the hiring of the locker was completely different from a transaction of bailment, and also said that ‘mere custody of goods isn’t the same as delivery of possession’.

Delivery upon a Contract

An inconsistency to this essential of bailment is the finder of goods. Therefore, if a person deposits or delivers goods under circumstances that are stressful, like situations involving floods, riots, etc. under a mistake of identity, then it is treated as bailment unless the bailee has taken reasonable care to ascertain the identity of the bailor.

The Lasalgaon Merchants Bank v. Prabhudas Hathibhai[3]

In this case, several packages of tobacco were kept in the storehouse of a partnership firm, and these packages were pledged to the plaintiff bank. Some partners of the concerned firm had defaulted with their tax dues and therefore a tax official instructed seizure of the goods belonging to the firm accordingly, and the officials locked the storehouse. The tax department handed over the key of the locked storehouse to the police. When the police were in possession of the key of the storehouse, the roof of the storehouse leaked due to heavy rain, and the same damaged the said tobacco packages. In this case, the court held that the government officials had the duty to take due care of the goods, as any rational/ prudent manager would have done. It was held that the government in this case was the bailee and had the burden to prove that due care was taken. The heavy rains in the said case were considered foreseeable and the court held the government liable.

Return of Goods after the purpose is achieved or their Disposal according to Bailor’s Directions

Ethel Olive Martin v. The London City Council[4]

A person on a bike meets with an accident and is taken to the hospital, where it was said that the biker would need to be operated on. For the same reason, the ornaments on the patient/ biker were removed and kept in the hospital safe. The staff was made aware of the presence of the ornaments in the locker, but when the ornaments were supposed to be returned, the staff went on to say that the ornaments had been lost. The court held that the hospital was liable, as there was a contract of bailment.

Kinds of Bailment

Based on the reward, bailment is of two kinds. They are:

1. Gratuitous Bailment: In this kind, neither the bailee nor the bailor is entitled to remuneration. For example: Lending a book to a friend.
2. Non-gratuitous Bailment: In this kind, either the bailor or the bailee is entitled to remuneration/reward. For example- paying the tailor for the service provided.

Duties, Liabilities, and Rights of the Bailor and Bailee

Bailor:

• Duties: Sec 149, 150
• Liabilities: Sec 150, 158, 159, 164
• Rights: Sec 154, 155, 156, 157, 159, 160, 161

Bailee:

• Duties: Sec 151, 154, 156, 157, 159, 160
• Liabilities: Sec 152, 154, 156, 157, 159, 160, 161, 163
• Rights: Sec 149, 150, 155, 158, 159, 164, 170, 171

Duties of Bailor

Sec 149: Delivery to bailee how made.

By doing anything that has the effect of putting goods to possession of intended bailee or a person authorized by him.[5]

Sec 150: Duty to disclose faults in goods bailed.

The bailor is bound to disclose faults, which he/ she is aware of in goods that are bailed. The faults should be of the nature that materially interferes with the use of the goods or expose the bailee to certain extraordinary risks. If such disclosure is not made by the bailor, then he/ she is responsible for any damage caused as a result of non- disclosure. If the goods are bailed for hire, the bailor is responsible for such loss, immaterial of whether or the bailor was aware of the default or not.[6]

Case Law:

Hyman v. Nye and Sons[7]

In this case, the plaintiff hired a carriage and horses from the defendant for a particular journey. The carriage was defective and the defect injured the plaintiff. The defendant was held liable.

Liabilities of Bailor

Sec 150: Duty to disclose faults in goods bailed. (discussed in Duties of Bailor)

Sec 158: Repayment by bailor of necessary expenses.

If the conditions of bailment include goods to be kept or carried for some work to be done by the bailee for the bailor, then bailee must receive remuneration for the same. The bailor must repay the bailee for the necessary expenses made by him for the purpose of bailment.[8]

Sec 159: Restoration of goods gratuitously.

A thing under use may require the return of the same at any given point, if the loan in case was gratuitous, even though it was lent for a certain time and specific purpose. But, in case the borrower has made it clear in the faith of such a loan that the return of the same before the specifications would cost him a loss, and if the lender compels the return, then the borrower shall be indemnified for the early return.[9]

Sec 164: Bailor’s responsibility to Bailee.

Responsibility for a loss that bailee might have sustained due to the bailor not being entitled to make the contract of bailment, or to receive the returned goods or to give directions regarding the same.[10]

Rights of Bailor

Sec 154:  Liability of bailee making unauthorized use of goods bailed.

If the bailee makes use of goods bailed against the contract of bailment, then he/she is liable to make compensation to the bailor for damage done due to the use of that particular good against the contract.[11]

For example, ‘A’ lends an ebony wood violin to ‘B’ only for the use of the violin by him, but ‘B’ allowed a family member to play the ebony wood violin, and in due course, the violin was injured. ‘B’ is liable to make compensation to ‘A’.

Sec 155: Effect of mixture, with bailor’s consent, of his goods with bailee’s.

If goods are mixed by the bailee with the bailor’s consent, then both the bailor and the bailee will have an interest that is proportionate to their respective shares in the said mixture.[12]

Sec 156: Effect of mixture, without bailor’s consent when the goods can be separated.

If goods are mixed,  but without the consent of the bailor, and they of the nature that they can be divided/ separated, then the goods remains with the parties respectively, but if any damage arises from such mixture, then bailee is bound to and has the duty to bear the expense of separation and also the damage caused.[13]

For example, ‘A’ bails 100 Kashmiri apples marked with a particular sign to ‘B’, and ‘B’ without consent of ‘A’ mixes these 100 Kashmiri apples with other ordinary apples, then in such cases, ‘A’ is entitled to have his Kashmiri apples back and ‘B’ is bound to bear all expenses incurred in separation of the apples, and other damage, if any caused.

Sec 157: Effect of mixture, without bailor’s consent, when the goods cannot be separated.

In such cases, the Bailor/deliverer of goods is entitled to receive compensation from the bailee for any loss incurred due to such mixing.[14]

Sec 159: Restoration of goods gratuitously. (discussed in Liabilities of Bailor)

Sec 160: Return of goods bailed, on expiration of time or accomplishment of purpose- The bailor has the right to give directions to the bailee with respect to the return of the goods bailed, and the manner in which they must be returned. The bailee has a duty to return the goods in the manner prescribed by the bailor.[15]

Sec 161: Bailee’s responsibility when goods are not duly returned.

If due to any default of the bailee the goods are not returned back to the bailor in the proper time and manner, then the bailee is responsible for any loss to Bailor’s goods.[16]

Duties of Bailee

Sec 151: Care to be taken by Bailee.

Bailee is bound to take care of the goods in a manner that a rational man of ordinary prudence is expected to take under similar circumstances.[17]

Sec 154: Liability of bailee making unauthorized use of goods bailed. (discussed in Rights of Bailor)

Sec 156: Effect of mixture, without bailor’s consent when the goods can be separated. (discussed in Rights of Bailor)

Sec 157: Effect of mixture, without bailor’s consent, when the goods cannot be separated. (discussed in Rights of Bailor)

Sec 159: Restoration of goods gratuitously. (discussed in Liabilities of Bailor)

Case Law:

Union of India v. M/S Udho Ram and Sons[18]

Goods were consigned by Radha Ran from Calcutta to Delhi by rail, and the railway receipt of the same was endorsed in favor of Udho Ram and Sons. Some goods from this consignment were stolen and some were damaged during transit, and the same was delivered to Udho Ram and Sons. They brought a suit to recover compensation for the same. The Railway Police were questioned and the court held that they were negligent and that they had the responsibility to compensate.

Liabilities of Bailee

Sec 152: Bailee when not liable for loss etc. for thing bailed.

In absence of any special contract, if due care has been taken according to Sec151, then bailee shall not be liable.[19]

Sec 154: Liability of bailee making unauthorized use of goods bailed. (discussed in Rights of Bailor)

Sec 156: Effect of mixture, without bailor’s consent when the goods can be separated. (discussed in Rights of Bailor)

Sec 157: Effect of mixture, without bailor’s consent, when the goods cannot be separated. (discussed in Rights of Bailor)

Sec 159: Restoration of goods gratuitously. (discussed in Liabilities of Bailor)

Sec 160: Return of goods bailed, on expiration of time or accomplishment of purpose. (discussed in Rights of Bailor)

Sec 161: Bailee’s responsibility when goods are not duly returned. (discussed in Rights of Bailor)

Case Law:

Sunder Lal v. Ram Sarup[20]

A woodshop was hired under a written agreement that the shop would be returned in the same condition as it was received in, and that the hirer would be liable for any damage or loss caused to the shop in due course. The shop got burnt by a mob during communal rights in the city. The court in this case held that there was no negligence and that the hirer was not liable for the damage.

Rights of Bailee

Sec 149: Delivery to bailee how made. (discussed in duties of Bailor)

Sec 150: Duty to disclose faults in goods bailed. (discussed in Duties of Bailor)

Sec 155: Effect of mixture, with bailor’s consent, of his goods with bailee’s. (discussed in Rights of Bailor)

Sec 158: Repayment by bailor of necessary expenses. (discussed in Liabilities of Bailor)

Sec 159: Restoration of goods gratuitously. (discussed in Liabilities of Bailor)

Sec 164: Bailor’s responsibility to Bailee. (discussed in Liabilities of Bailor)

Sec 170: Bailee’s particular lien.

Where the bailee has, rendered any service involving the exercise of labor or skill in respect of the goods bailed, in accordance with the contract of bailment, and has done so in the absence of a special contract to the contrary, then the bailee has a right to retain the goods until he/ she receives due remuneration for the services that he/ she has rendered in respect of the contract of bailment.[21]

For example, If a rough diamond is delivered to a jeweler to be cut and polished, and if the same is done, then the jeweler has the right to retain the diamond until he is paid for the services rendered.

Sec 171: General lien of bankers, factors, wharfingers, attorneys, and policy brokers.[22]

1. General lien of bankers: The right of lien comes into force when a person submits the documents as a security for the purpose of loan. In such cases, if the person is unable to repay the loan, then the bank can retain the documents.
2. General lien of factors: Defined under section 2(a) of Sale of Goods Act, 1930 as a mercantile agent. If a factor incurs loss or expenses for which the principal refuses to pay, then the factor is entitled to retain those goods.
3. General lien of wharfinger: Wharfinger is someone who is in charge of the wharf (stage of loading alongside the sea). A wharfinger may exercise his right to lien and retain the goods in case the owner does not pay wharf charges.
4. General lien of attorney: Initially the attorney-client relationship was considered as a contract of bailment, where the attorney could retain the entrusted documents, but in the case of R D Saxena v. Balram Prasad Sharma[23] , the court held that the attorney had no lien over the documents entrusted by the client related to the litigation.
5. General lien of policy brokers: The insurance agent has the right of general lien and can exercise the same until the balance of accounts due from a client is cleared.

Conclusion

Thus, after looking into the provisions related to bailment under the Indian Contract Act, 1872 in-depth, we can conclude that bailment is the delivery of something from one person to another for a specific purpose. The delivered of goods must be returned after the fulfillment of the specific purpose.

It is important to understand that bailment is different from a pledge in the sense of the presence of a specific/particular purpose. A contract of bailment can be terminated by the operation of law or the act of the involved parties.

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References:

[1] Indian Contract Act, 1872, No. 9 0f 1872 amended up to No. 4 of 2013, Sec 148.

[2] AIR 2003 P&H 11.

[3] AIR 1966 Bom 134.

[4] LT 13/2774 (U.K.).

[5] Indian Contract Act, 1872, No. 9 0f 1872 amended up to No. 4 of 2013, Sec 149.

[6] Indian Contract Act, 1872, No. 9 0f 1872 amended up to No. 4 of 2013, Sec 150.

[7] (1881) 6 QBD 685 (U.K.).

[8] Indian Contract Act, 1872, No. 9 0f 1872 amended up to No. 4 of 2013, Sec 158.

[9] Indian Contract Act, 1872, No. 9 0f 1872 amended up to No. 4 of 2013, Sec 159.

[10] Indian Contract Act, 1872, No. 9 0f 1872 amended up to No. 4 of 2013, Sec 164.

[11] Indian Contract Act, 1872, No. 9 0f 1872 amended up to No. 4 of 2013, Sec 154.

[12] Indian Contract Act, 1872, No. 9 0f 1872 amended up to No. 4 of 2013, Sec 155.

[13] Indian Contract Act, 1872, No. 9 0f 1872 amended up to No. 4 of 2013, Sec 156.

[14] Indian Contract Act, 1872, No. 9 0f 1872 amended up to No. 4 of 2013, Sec 157.

[15] Indian Contract Act, 1872, No. 9 0f 1872 amended up to No. 4 of 2013, Sec 160.

[16] Indian Contract Act, 1872, No. 9 0f 1872 amended up to No. 4 of 2013, Sec 161.

[17] Indian Contract Act, 1872, No. 9 0f 1872 amended up to No. 4 of 2013, Sec 151.

[18] 1963 SCR (2) 702.

[19] Indian Contract Act, 1872, No. 9 0f 1872 amended up to No. 4 of 2013, Sec 152.

[20] AIR 1952 All 205.

[21] Indian Contract Act, 1872, No. 9 0f 1872 amended up to No. 4 of 2013, Sec 170.

[22] Indian Contract Act, 1872, No. 9 0f 1872 amended up to No. 4 of 2013, Sec 171.

[23] AIR 2000 SC 2912.