Q.

Bailment
Introduction
There are various instances of bailment in our daily lives that arise from various
forms of transactions. One common example of the same is when people leave
their electrical appliances at an electricians repair shop for repair and upkeep.
Here, the purpose of the bailment is repair of goods, the bailed goods are the
appliances; the bailor is the one who owns the electrical appliances and the bailee
is the one who keeps it for repair. This is one example of how the relationship of
bailment is created with an assumption that the goods shall be returned once the
purpose of the bailment is fulfilled.

Bailment relationships are found everywhere around us in our daily lives. Starting
from courier services, to hiring a bike for a trip, to borrowing a book from a library
to safe deposit boxes in banks, bailment like relationships are very important for
the economic development and commercial transactions that mankind goes
through every day.

Relevant provisions

Ss. 148

1. Meaning
The term bailment finds its origin from a french word “bailler” which means “to
deliver”.
Herein, the possession of a particular good is delivered for a specific purpose with
an understanding that the goods shall be returned to the real owner after the
purpose is fulfilled.

2. Definition
Section 148 of the Contract Act, 1872 defines bailment as, the delivery of
goods from bailor to bailee for a specified purpose and an understanding that
once the purpose of bailment is fulfilled, it shall be returned to the real owner.

3. Who are the parties to the contract of bailment

Ideally, every contract of bailment has two parties.
i. Bailor :- One of the parties is called as the bailor who is the real owner of
the bailed goods and
ii. Bailee:- The other party who keeps the bailed goods in his custody for a
specific purpose is referred to as the bailee.

4. General rules relating to bailment

General rules relating to bailment are mentioned in Chapter IX (Section 148-
181) of the Contract Act, 1872.
● In a general sense, bailment is treated as a special contract which consists
of all the characteristics of a valid contract which should be present between
the parties to make the contract valid and enforceable
● In certain situations, a bailment can arise without the existence of an
agreement or a contract.

For example,
 finder of lost goods, i.e., whenever a person finds a good belonging to
someone else and takes it into his custody, he assumes the role of a bailee
and must take reasonable care of the goods till they are returned to the real
owner.

5. What goods can be bailed

Ideally, only the bailment of movable properties and goods are considered to
be valid. As per the current legal regime, money, currencies and legal
tenders cannot be considered as bailment. Therefore, if a person deposits
money somewhere, it doesn’t create a relationship of bailment.

6. Essentials of bailment

I. Delivery of possession Section 149 of the Contract Act, 1872

i. One of the primary features of bailment involves the delivery of possession

of the bailed goods.
ii. The delivery is done by the bailor to the bailee.
iii. During delivery, the specific purpose for which bailment is created is
mentioned.
iv. Delivery of possession means that the bailee gets exclusive control over the
bailed goods for a specific period.
v. Section 149 of the Contract Act, 1872 talks about the same. The delivery of
possession with regards to bailment can be done through actual delivery or
constructive delivery of possession.
vi. Goods can either be given directly to the bailee by the bailor, or the bailor
can do some specific act which would consequently provide control of the
goods to the bailee.
vii. The first situation is the actual delivery of goods and the second situation is
the constructive delivery of goods.
viii. The relationship of bailment is not possible without delivery of possession.
As per law, the one who holds the de facto control of a good is said to be in
possession of it.
ix. A servant shall not be treated as a bailee if he holds the goods of his master
due to the nature of his employment. For example, if the servant is carrying
the shopping bags of the master, he cannot be treated as bailee because he
holds the goods due to the nature of his relationship with the master.

II. Delivery upon contract

In an ideal case, the creation of an agreement or an enforceable contract is

necessary to establish the relationship of bailment. In the absence of a
contract, bailment is not considered to be valid in any means.
Exception:
One of the exceptions that the court envisages in such a case is the
relationship established between finder of lost goods and the real owner of
the lost goods. Here, even though no contract exists between them, the
finder of lost goods is bound by all the duties of the bailee if he keeps the
goods in his custody voluntarily.
III. Delivery must be for some purpose

● The contract of bailment must specify the purpose for which a good is bailed
by the bailor to the bailee.
● For example: laundry of clothes, repair of appliances, hire for use etc.
● If the purpose is not mentioned and the contract doesn’t envisage the return
of goods after the fulfillment of the purpose, a relationship of bailment is not
created.

IV. Return of goods

● One of the most important clauses in a bailment agreement is regarding the

return of goods after the purpose for which they were bailed is fulfilled.
● If there is no such clause, the agreement cannot be treated as a bailment. If
the goods returned by the bailee are supposed to be similar to the goods
bailed but not the exact goods bailed, then also the contract of bailment is
considered invalid.
● If the bailor has given any specific mode of return or any instructions as to
how the bailee must return the goods, he is obliged to adhere to them.

For example, a dry cleaner receives certain clothing items for laundry and dry
cleaning. Once he has completed the process, he is under an obligation to
return the clothes to the real owner.

7. Classification of bailment

Largely, bailments are two types in their nature based on various grounds of
classification:

I. On the basis of remuneration

i. Gratuitous bailment
Gratuitous bailment refers to a situation where a good is bailed by the bailor
to the bailee without any consideration or without the expectation of
receiving any benefit from the transaction.

For instance: when a friend borrows a book for reading from another, there
is no money involved and therefore it is a gratuitous act.

ii. Non-Gratuitous bailment

In situations where a consideration is involved, the bailment becomes non-
gratuitous due to the existence of a benefit which is derived from the
transaction.

For instance: When a person hires a bike from a bike hiring service and
pays a certain amount of money for a specific period, it is considered as a
non-gratuitous bailment.
II. On the basis of benefits to the parties

i. For the exclusive benefit of the bailor

In such situations, the bailor receives the benefit and the bailee has no
benefit arising from the transaction in any manner.
For example,
leaving your belongings with a neighbour for safekeeping when going out.

ii. For the exclusive benefit of the bailee

In such situations, the bailee is the one who receives a benefit but the bailor
gets no consideration for the same.
For example,
when a person lends their bike to a friend.

iii. For the mutual benefit of both of them

In such a situation, both parties derive some benefits out of transaction and
agreement. The bailor gets a service and the bailee gets consideration or
vice versa.
For example,
if a person provides his clothes to a laundry service for cleaning, the person
gets clean clothes as a service and the laundry company gets payment as
consideration.

8. Duties/rights of bailor and bailee

I. Duties of bailor

i. Disclose known faults

● Irrespective of the fact that goods bailed were done gratuitously or with
consideration, it is the duty of the bailor to disclose faults which are within
his knowledge in the bailed goods.
● Failure to disclose makes the bailor liable for all the loss or damage
incurred by the bailee which are linked to the undisclosed fault.
● The bailor must indemnify the bailee for all such losses. Especially in the
case of non-gratuitous bailment, the bailor is liable for all the faults, be it
known or unknown to him.

ii. Bear expenses of bailment

In case of non-gratuitous bailment

Bailor is expected to bear all the extraordinary expenses but the bailee is
bound to bear all the ordinary and reasonable expenses of the bailment.
Example:
A leaves his dog with B, a professional dog trainer, for a week as he is going
out of town. B is being paid for the same so A is not required to bear the
ordinary expenses. However, the dog suffered from high fever and B had to
call a doctor. A has to repay all the medical expenses born by B.
 In case of gratuitous bailment
In cases of gratuitous bailment, the bailor has a duty to pay for all the
necessary expenses that are incurred by the bailee to upkeep of the bailed
goods.
Example:
A gives his pet dog to B to keep him safe as A is going out for a trip.
Considering B is not getting any payment from A, A has to pay for all
ordinary expenses like the food of the dog. In a situation where the dog gets
sick and B incurs the medical costs for treatment, then A has to compensate
B for the same.

iii. Indemnify bailee ( Section 159)

● According to Section 159,
in case of gratuitous bailment, the bailor can terminate bailment at any time
even if the bailment was for a specific time or purpose. However, in cases of
early termination of bailment, the bailor has to indemnify the bailee for any
loss that he may face due to the abrupt termination of the transaction.
Example:
Ali lends his car to his friend Babar for a family trip of 7 days. Babar fills
petrol in the car for 7 days. After 3 days, Ali calls Babar and demands the
return of his car. In such a situation, Ali is liable to compensate Babar for the
4 days of petrol that is left unused in the car.

● Indemnify the bailee when he suffers due to the title of bailor to the
goods being defective

According to Section 164, the bailor is liable to indemnify the bailee in

case the bailor has a defective or imperfect title on the bailed goods which
leads to injury or damages to the bailee.
Example:
A hires a car from B. A pays 5000 Rs for 7 days. A goes for a family trip but
on the fourth day, the police authorities seize the car from A. A later finds out
that the car B gave him was a stolen car and B did not have any ownership
over the same. B therefore is liable to indemnify A for the loss or damage
sustained by B.

iv. Receive back the goods

Once the term of the bailment expires or the purpose of the bailment is
fulfilled, the bailor has a duty to get back the goods from the bailee. In case,
the bailor refuses to take back the goods, he must pay certain
compensations to the bailee for keeping the goods in his custody.
Example:
Ali had given his dog to a professional dog kennel provider for two weeks as
he was going out for a trip. He paid Rs. 200 per week to the service
provider. His trip got extended to another week. In such a situation, he has
to pay an extra Rs. 200 for the additional period for which the service
provider had to keep the dog.

II. Duties of the bailee

 i. Take reasonable care of the goods bailed
As per Section 151, it is irrelevant if the bailment is for consideration or not,
the bailee is responsible to take reasonable due care of the bailed goods in
the same manner in which he would take care of his own goods. He has the
responsibility in the standard of what a man of ordinary prudence would do
to protect his own goods. In case, there is a breach of duty, the bailee is
responsible for compensating the bailor for any damage that he may sustain.
Example:
A had given his dog to B, a service provider for safe keep. A had paid an
amount of Rs. 100 per day for ten days. B had by mistake left his gates
open. The dog was stolen from his property. It was proved that this
happened due to the negligence of B. Therefore, B is liable to repay A for his
loss.

ii. No unauthorised use of goods

As per the Section 154, if due to the fact that the bailee uses the goods
bailed in a manner inconsistent with the terms of the contract then he will be
held liable in case there is any damage to the good, even if he was not
negligent or the damage resulted from an unforeseeable accident.
Example:
Ramesh lends a book to Suresh for exam preparation. Suresh gives the
book to Susmita. Susmita’s negligence leads the book to be damaged.
Suresh is liable to compensate Ramesh for the book as Ramesh had lent
the book to him for his private preparation and not to lend to someone else.

iii. Not mix bailed goods with his own goods

The bailee has a duty not to mix the bailed goods belonging to the bailor with
his own goods. The bailee must keep the goods separately and prevent their
admixture. Here are the details:

● As per Section 155, if bailor consents to mixing of the good, both the bailor
and the bailee shall derive proportionate interest in the mixture thus
created.
● As per Section 156, if the goods are mixed without the consent of the bailor,
and the goods can be separated and divided, then the bailee has to bear the
costs of the separation.
● As per Section 157, if the mixture is done without the consent of the bailor
and the goods cannot be separated then the bailee has a duty to
compensate the bailor for the loss of the goods.

iv. Return any accretion to the goods

Whenever the contract doesn’t clearly specify that any profit arising from the
bailed goods will be possessed by the bailee, the general rule is that the
bailee shall return the profit from the bailed goods arising during the tenure
of the bailment, to the bailor.
Example:
Ali bailed his cow to Babar for a week. The cow gave birth to a calf during
the time period. Ali has a right to get back the calf from Babar after the
termination of bailment. That is an established right of the bailor.
 v. Return the goods
Once the period of bailment is over or the purpose for which the bailment
was created is fulfilled, the bailee has a duty to return the bailed goods to
the bailor.

9. Rights of the bailor

i. Enforcement of rights
Bailor has a right by law to file a suit for enforcing his rights provided as per
statute.

ii. Avoidance of contract

According to Section 153, if the bailee does anything which is inconsistent
with the terms of bailment, then, the bailor can terminate the bailment.
Example:
A bailed his car to B for his private trip. B lends the car to C for riding. The
terms of the contract get broken. A can terminate the contract.

iii. Return of goods lent gratuitously

In situations where the goods have been bailed or lent gratuitously, then in
such a situation the bailor has a right to get back the goods after the purpose of
the bailment has been fulfilled or the term expires. On the contrary, in a
situation where the goods lead to an excess of loss as compared to profit, then
the bailor has to indemnify the bailee.

iv. Compensation from a wrong-doer

If the bailee is wrongfully deprived of the possession of the bailed goods either
by stealing or by any act of a stranger to the contract or any third party, then
both the bailor and the bailee have a right to file a suit for recovery of
possession and compensation.

10. Rights of the bailee

i. Delivery of goods to bailor without title

According to Section 166, if bailor has no title over the bailed goods and the
bailee gets to know that then the bailee can return the goods as per the
direction of the bailor and in case delivery doesn’t happen, then the bailee is
not liable.

ii. Can apply to a court to stop delivery

According to Section 167, if a situation arises when the ownership of the
bailed goods is claimed by a third party, then the bailee can stop the delivery of
the goods to the bailor by applying to the court for deciding the actual title of the
bailed goods and then make the delivery to the rightful owner.
iii. Right against trespass
According to Section 180, in a situation where the bailee is deprived of the
possession of the bailed goods through theft or any other means, the bailee
has the right to file a suit for recovery of suit and for compensation.

iv. Bailee’s lien

Right to lien means that in a situation where the bailor must pay a certain
amount to the bailee as indemnification or any other matter, the bailee has the
right to keep the bailed goods with him even after the expiration of bailment, till
the time the bailor pays the certain amount.