CONTRACT OF BAILMENT

UNIT III
Bailment is derived from the French word ‘bailer’ means ‘to deliver a thing under a control’
its a relationship in common law where physical possession but not ownership of personal
property, is transferred from one person to another for a specific reason or purpose with a
condition to return goods when the purpose is over otherwise disposed of according to the
direction of the owner.

The person who delivers the goods is known as the ‘Bailor’ and the person who receives the
goods is known as ‘Bailee’ and the transaction is known as ‘bailment’ and the relation
between them is defined in Section 148 of the Indian Contract Act. Bailment is a voluntary
delivery of goods for a temporary purpose ‘on the understanding that they are to be returned
in specie in the same or substitute form.

Section-148: ‘BAILMENT’,’BAILOR’ and BAILEE’ definition:

‘Bailment’, ‘Bailor’ and ‘Bailee’ defined.—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. The person delivering the goods is called the ‘Bailor’. The person to whom
they are delivered is called the ‘Bailee’. —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. The person delivering the goods is called the ‘Bailor’. The person to whom
they are delivered is called the ‘Bailee’.”

Explanation.—If a person is already in possession of the goods of other contracts to hold

them as a Bailee, he thereby becomes the Bailee, and the owner becomes the bailor of such
goods, although they may not have been delivered by way of Bailment.

A seller of goods becomes a bailee if the goods continue to be in his possession after sale is
complete. Here the original possession of goods was with the seller as the owner of the
said goods and after the sale, his possession is converted into a contract of bailment.

ESSENTIALS OF A CONTRACT OF BAILMENT

There are three essential elements to constitute a contract of bailment:

1. Delivery of Goods i.e. Delivery of Possession

2. Delivery should be upon Contract
3. Delivery should be upon some purpose and Return of Goods
I. Delivery of Goods i.e. Delivery of Possession:

Here the delivery of goods means delivery of possession which is essential for bailment. The
transfer of possession of the bailed goods from bailor to bailee for whatever is the purpose of
bailment must be distinguished from mere custody. One who has custody without possession
of goods is not a bailee.

As per Section 149, the delivery can also be made to the bailee by doing anything which has
the effect of putting the bailed goods in the possession of the intended bailee or any person
authorized by him for this purpose. Thus, the delivery of possession may be of two types:

1. Actual Delivery:

Also known as physical delivery, where the delivery takes place when the goods are
physically handed over by the bailor to the bailee.

Illustration: X, the bailor gives his car in the service center to Y the bailee. Here, there is
actual delivery of possession by X.

2. Constructive delivery:

When some action is taken to mean handing over of the physical possession of goods, though
in fact no physical transfer of goods is made at that time.

Example: delivery of railway tickets, or bill of lading amounts to constructive delivery.

II.Delivery should be upon Contract:

As mentioned above, the delivery of the goods from the bailor to the bailee must be after a
contract is created between both the parties. The contract should have the details of the
transfer of the goods and its return. However, the contract can either be “expressly signed by
the parties” or “implied by the parties.

The exception to the delivery upon contract:

A finder of goods is treated as a bailee even if there is no contract of Bailment or delivery of

goods under a contract. (section 71)

III.Return of goods

After the purpose for which the goods were bailed is complete, the bailee will have to return
the goods to the bailor. The method and the way of return will be as per the contract or
bailor’s wish. As mentioned in 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.”

CLASSIFICATION BASED ON REWARD:

1. Gratuitous Bailment:

Gratuitous bailment is one where no consideration passes between the bailor and the bailee.
No mutual benefits will be acted upon by both parties in the contract.

2. Non – Gratuitous Bailment:

non-gratuitous bailment is one where consideration passes between the bailor and the bailee.
In this case both parties get mutual benefits.

Classification based on Benefit:

1. Bailment for the Exclusive benefit of the Bailor:

A bailment in which goods are delivered by the bailor to the bailee only for the exclusive
benefit of the bailor himself.

Illustration: A give his valuable goods to his relative B for safe custody without any charges.
This is a bailment for the exclusive benefit of the bailor ‘A’.

2. Bailment for the Exclusive benefit of the Bailee:

This is a bailment in which goods are delivered by the bailor to the bailee only for the
exclusive benefit of the bailee.

Illustration: X lent his car to his friend Y, for the temporary use without any charges. This is
the bailment for the exclusive benefit of the bailee ‘Y’.

3. Bailment for the Mutual Benefit of the Bailor and the Bailee:

This is a bailment in which goods are delivered by the bailor to the bailee only for the
exclusive benefit of the bailee.

DUTIES OF A BAILOR:

Duties of a bailor are as follows:

1. To disclose faults in goods

It is the bailor’s responsibility to inform the bailee of all the faults in the goods. If the bailor
fails to do so, he is liable to the bailee for any loss caused by that fault.

For example: ‘X’ took a car from ‘Y’ to go for a vacation. ‘Y’ was aware that the brakes
weren’t working properly. However, he didn’t inform ‘X’ about it. ‘X’ is involved in an
accident due to the failure of brakes. ‘Y’ will be liable for all the losses ‘X’ faced in this
accident.

2. To cover necessary and extraordinary expenses(Section 150)

The bailor has to pay the bailee all the necessary and extraordinary expenses incurred by the
bailee to safeguard the goods bailed.
For example: ‘A’ gave his cat to his friend ‘B’ when he had to travel for work. ‘A’ will have
to pay the expenses incurred in the cat’s daily necessities such as food, shelter, etc. ‘A’ will
also have to pay any extraordinary expense like doctor’s bill, daycare, etc. if it was necessary
to keep the cat safe.

i. It is the duty of the bailor to indemnify the bailee for the cost incurred due to the
defective title of goods bailed to the bailee. Section 159 and 164)

For example, Mr. A. lends his horse to Mr. B., a friend, for a few days. While the
feeding charges are to be paid by ‘B’. But if the horse meets with an accident ‘A’ will
have to repay ‘B’ medical expenses incurred by Mr. B

ii. It is the duty of the bailor to accept the goods after the purpose for which such
bailed goods were bailed is accomplished.

DUTIES OF THE BAILEE:

1. To take proper care of the goods

As per Section 151 of the Indian Contract Act, 1872, “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 goods of the same bulk, quantity and value as the
goods bailed.”

For example: ‘A’ bailed his vehicle with ‘B’ for one week. If due to negligence of ‘B’, ‘A’s
vehicle is damaged, ‘B’ will be liable to compensate for the same. However, if the vehicle is
damaged due to some act of god such as an earthquake or a flood, ‘B’ will not be liable for
such loss.

2. To use the goods for authorised purpose only

It is the bailee’s responsibility to use the goods only for the authorised purpose under a
contract. If it is found that the goods are used for unauthorised purposes, the entire contract
can be declared void by the bailor.

‘A’ lends a 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 accidentally falls and is injured. ‘B’ is liable
to make compensation to ‘A’ for the injury caused to the horse.

3. Not to mix the goods bailed with his own goods

All the goods bailed should be kept separately and safely by the bailee as it ensures the safe
return of the goods.

However, there are a few provisions related to the mixing of bailed goods.
 I. Section 155: If the bailee, with the consent of the bailor, mixes the goods of the
bailor with his own goods, the bailor and the bailee shall have an interest, in
proportion to their respective shares, in the mixture thus produced.
II. Section 156: If the bailee, without the consent of the bailor, mixes the goods of the
bailor with his own goods, and the goods can be separated or divided, the property in
the goods remains in the parties respectively; but the bailee is bound to bear the
expense of separation or division, and any damage arising from the mixture.
III. Section 157: If the bailee, without the consent of the bailor, mixes the goods of the
bailor with his own goods in such a manner that it is impossible to separate the goods
bailed from the other goods and deliver them back, the bailor is entitled to be
compensated by the bailee for the loss of the goods.

4. To return any profits arised from the goods

If during the course of bailment, any profit has arisen from the bailed goods, the same should
be transferred to the bailor by the bailee.

Example: ‘A’ bails his cow with ‘B’ for a period of 7 days. The cow gives milk daily. ‘B’
sold this milk during the period of bailment. The profit earned by ‘B’ during the sale of milk
must be returned to ‘A’ while returning the goods.

5. To return the goods

The bailee must return the goods to the bailor once the purpose of the bailment is
accomplished or the term of the contract expires. This return must be as per the bailor’s
discretion.

RIGHTS OF BAILOR:

The rights of Bailor are as follows:

1. Right to claim damages if bailee makes wrongful use (Section 154)

For example: ‘X’ bailed his vehicle to ‘Y’ for one month. In the contract, it was agreed that
‘Y’ can use the vehicle for his personal use. However, ‘Y’ let his brother ‘Z’ drive the
vehicle, and ‘Z’ crashed the vehicle. Now, ‘Y’ will be liable for the damage done to the
vehicle.

2. To terminate the contract

As per Section 153 of the Act, “A contract of bailment is voidable at the option of the bailor,
if the bailee does any act with regard to the goods bailed, inconsistent with the conditions of
the bailment.”

Illustration: ‘A’ lets ‘B’, for hire, a horse for his own riding. ‘B’ drives the horse in his
carriage. This is, at the option of ‘A’, a termination of the bailment.
 3. To receive any profits arised from the goods(155)

The bailor is entitled to any profit that arises from the goods when they are bailed. If the
bailee refuses to pay such profits to the bailor, he may take appropriate action against the
bailee to recover such an amount.

4. To get the goods returned on expiry of contract(160-161)

The bailor has a right to receive the bailed goods upon expiry of contract. However, in case
of a gratuitous bailment, the bailor can redeem the goods before the expiry of the contract. In
any such situation, if the bailee incurs loss due to early return of the goods, the bailor is liable
for the same.

RIGHTS OF THE BAILEE:

1. To receive compensation

The bailee is entitled to receive compensation for losses suffered due to any defect in the
goods. In case of gratuitous bailment, if the bailor asks for the goods to be returned before the
expiry of contract and the bailee suffers loss because of this return, he can claim for
compensation against those losses from the bailor.

2. To receive expenses incurred

The bailor has to pay the bailee all the expenses incurred for the caretaking of the goods
bailed. The bailee is also entitled to receive any extraordinary expenses spent by him during
the term of bailment of the goods.

3. To stop delivery of goods

The bailee is given the right to stop the delivery of goods if the bailee is of the knowledge
that the bailor doesn’t have a title over the goods. The bailee can also stop the same if any
third party claims their title over the goods

4. To lien the bailed goods

A lien is a legal right against the assets that are used as collateral to satisfy the debt. The
bailee has been given the right to lien the bailed goods if the bailor has withheld any
compensation or payment that he is liable to do.
POSITION OF FINDERS OF GOODS

A finder of goods is treated as a bailee even if there is no contract of Bailment or delivery of

goods under a contract. (section 71)

Duties of the finder:

1. To keep the goods safe.

2. Not use these goods for personal use.
3. Take adequate efforts to find the real owner of the goods.
4. Make sure that the goods are delivered to its real owner once found.

Rights of the finder:

To be compensated for the expenses and trouble taken to keep the goods safe and find the
owner. (Section 168)

1. To sell the goods if:

2. The goods are of perishing nature.
3. The owner could not be found.

RELEVANT CASE LAWS

Kaliaperumal Pillai v. Visalakshmi, AIR 1937 Mad 32

Facts of the case

In this case, the plaintiff hired the defendant to make new jewellery for her. Her old jewels
had to be melted and the gold obtained from that was to be used to make this new jewellery.
Every evening, the defendant would return the half-made jewellery to the plaintiff. Plaintiff
would lock that jewellery in her box and leave it in the defendant’s room. However, the
Plaintiff took the key to that box. One night, the jewels were stolen. The defendant was held
liable by the plaintiff as he was the bailor of the goods.

Judgement of the Court

It was held that the respondent was not liable as he did not have legal possession of the goods
while they were stolen. The relationship was of bailment between both the parties but it
ended as soon as the plaintiff locked the goods in the box and took the keys with herself.
Merely leaving the box at the defendant’s house does not constitute bailment.

Atul Mehra v. Bank of Maharashtra, 2002

Facts of the case

In this case, the plaintiff had hired a locker in the respondent’s Bank on 15th January, 1986.
The strong room in the bank was broken into by miscreants and the contents of the locker
were stolen. The plaintiff claimed that jewellery worth Rs. 4,26,160 was deposited in the
locker. On 9th January, 1989, an FIR was filled. The plaintiff pointed out that this loss was
due to negligence and misconduct of the respondent. Also, it was alleged that the strong room
was not made of adequate material and could be easily broken into.

Judgement of the Court

It was held that exclusive possession of the goods is sine qua non(extremely essential) in the
case of bailment. Therefore, mere hiring of a locker would not constitute bailment. It was also
stated that reasonable care and damages come into question when the bailee is made aware of
the contents of the locker and exclusive possession of the same is given to the bailee. Here,
neither was done, and hence, the judgement was in the favour of the respondent(bank).

Taj Mahal Hotel v. United India Insurance Ltd., 2019

Facts of the case

In this case, on 01st August, 1998, a Maruti Suzuki Zen was parked in the respondent’s hotel
and the owner gave his car for the valet parking service. When the owner returned to get his
car back, he learned that his car was stolen. A complaint against the thief was lodged but the
car was nowhere to be found. Respondent hotel’s valet parking service had stated that
‘parking of vehicles was at the owner’s own risk inside and outside the hotel premises and in
case of theft, loss or damage the hotel will not be liable.’ The plaintiff company paid a sum of
Rs 2,80,000 to the car owner in order to settle the insurance claimed by him. The plaintiff
company sued the respondent hotel for negligence.

Judgement of the Court

It was held by the supreme court that the theft of the car was a result of the respondent’s
negligence and the respondent would be liable. The supreme court stated that the respondent
cannot exclude its liability for negligence towards the vehicle parked in the respondent’s
parking. The consideration, in this case, would be free parking to the customer for using the
respondent’s services. It can be inferred that if the general rule of bailment is applied, the
bailee(hotel) will be liable if there is a loss of goods(vehicle) due to its negligence.

New India Assurance Co. Ltd v. The Delhi Development Authority, 1991

Facts of the case

In this case, the defendant owns and runs a truck parking centre known as Idle Truck Parking
Centre in Delhi. The owner of a truck had parked his truck at Idle Truck Parking Centre on
8th June, 1987. A receipt was issued for Rs 3 for the safekeeping of the truck for 24 hours.
The truck owner had insured his truck with the plaintiff in this case. On the night of 8th June,
the truck was stolen from the parking centre. The owner raised a claim with the plaintiff
which was settled for Rs 2,91,500. The plaintiff now sued the defendant to recover that
amount as the loss of the truck was due to negligence of the owner. The defendant claimed
that they were not liable as the possession was not transferred to them as the driver of the
truck slept inside the truck that night.

Judgement of the Court

It was held that the defendant was liable to pay the plaintiff. The essential element here was
the transfer of possession. The possession was said to be transferred when the plaintiff issued
a receipt for safe-keeping of the vehicle for the said night. For the contracted period, the
defendant should have shown reasonable care towards the vehicle which failed to do so.