Contract of Bailment

Definition
According to Section 148 of the Contract Act "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,
by 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,' and the transaction is called the 'bailment.'
Kinds of Bailment
Bailment may be classified from the point of view of (i) benefit, and (ii) reward to the parties.
I.From benefit point of View.
1. Bailment for the exclusive benefit of the bailor, e.g., bailor leaves goods in the safe custody of
the bailee without any compensation to be paid.
2. Bailment for the exclusive benefit of the bailee, e.g., a loan of some article. Thus where A
borrows B's fountain pen to use in the examination hall, the bailment is for the sole benefit of A,
the bailee.
3. Bailment for the mutual benefit of the bailor and the bailee. It is the most common type of
bailment. Contracts for repair, hire, etc., fall within this class, wherein the bailor receives the
benefit of service and the bailee benefits by the receipt of the agreed charges.
II.From 'reward' point of view:
1. Gratuitous bailment:
It is one in which neither the bailor nor the bailee is entitled to any remuneration, e.g., loan of a
book to a friend, depositing of goods for safe custody without any charge.
2. Non-gratuitous bailment:
It is also called as a 'bailment for reward." Here, either the bailor or the bailee is entitled to a
remuneration, e.g., motor car let out for hire, cloth given for tailoring for charges.
Duties of Bailee
1.Duty to take reasonable care of goods delivered to him:
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 own goods .
The bailee is not an insurer of goods bailed to him. If in spite of reasonable care, the goods are
lost or destroyed or deteriorated, without any negligence on his part, he is not liable in respect of
any damage to the is open to parties to increase or decrease the obligations of the bailee in the
matter of care by special contract.
Example:
(a) A hired a horse for the purpose of riding to the exhibition ground .On the exhibition ground
the horse was frightened by crowd ran into a ditch and injured itself. The bailee (ie.. A) of the
horse was not to be blamed for accident. He is not liable for the injury to the horse
2. Duty not to make unauthorised use of goods entrusted to him (Sec. 154):
It is the duty of the bailee to use the goods strictly in accordance with the terms of the bailment.
If he makes an unauthorised use of the goods, he his liable to make compensation to the bailor
for any damage arising to the over goods from or during such use of them.
Example:
(a) A lends a horse to B for his own riding only. B allows C, a member of his family,to ride the
horse.C rideswith care ,but horse accidently is injured. B is liable to make compensation to A for
the injury done to the horse.
(d) A goldsmith accompanied by his wife went from his village to another village to attend a
marriage. The goldsmith took with him some ornaments entrusted to his care by customers. The
object was to enable his wife to wear the ornaments at the marriage. On the way a gang of
robbers attacked them and took away all their goods including the ornaments. The goldsmith was
held liable to the customers for the price of ornaments because he had made an unauthorised use
of the goods entrusted to his care.
3. Duty not to mix goods bailed with his own goods;
It is also the duty of a bailee that he should not mix his own goods with those of the bailor,
without bailor's consent. If the goods are mixed with the consent of the bailor, there is no breach
of duty and the bailor and the bailee shall have an interest, in proportion to their respective
shares, in the mixture thus produced (Sec. 155). But if the bailee, without the consent of the
bailor, mixes up his own goods with those of the bailor, whether intentionally or accidentally, the
following rules apply:
(a) Where 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 expenses of separation as well as any damage
arising from the mixture (Sec. 156).
ILLUSTRATION : A bails 100 bales of cotton marked with a particular mark to B. B. without
A's consent, mixes the 100 bales with other bales of his own, bearing a different mark. A is
entitled to have his 100 bales returned, and B is bound to bear all the expenses incurred in the
separation of the bales, and any other incidental damage.
(b) Where the goods mixed cannot be separated, the bailee must compensate the bailor for his
loss .
ILLUSTRATION : A bails a barrel of Cape flour worth Rs 45 to B. B, without A's consent mixes
the flour with country flour of his own, worth only Rs 25 a barrel. B must compensate A for the
loss of his flour.
4. Duty to return the goods:
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." Where there are several joint
bailors, the bailee may return the goods to any one of the joint owners
When the bailee fails to return the goods at the proper time, he becomes responsible to the bailor
for any loss, destruction or deterioration of the goods from that time
ILLUSTRATION. A hires a horse from B for one week. But A defaults in returning the horse on
the due date. The horse dies one day after the expiry of the period of bailment without any fault
on A's part. A is liable for the price of the horse to B, along with damages for the delay. (If the
horse dies within one week, ie, before the expiry of the period of bailment without A's
negligence, A is not liable for the price.)
5. Duty to deliver any accretion to the goods :
It is the duty of the bailee to deliver to the bailor any natural increase or profit accruing from the
goods bailed, unless there is a contract to the contrary.
ILLUSTRATION : A leaves a cow in the custody of B to be taken care of. The cow has a calf. B
is bound to deliver the calf as well as the cow to A.
Duties of Bailor
A bailor is the person who delivers the goods. His duties are as follows:
1. Duty to disclose faults in goods bailed;
The Section makes a distinction between a gratuitous bailor and a bailor for reward and provides
as follows:
(a) A gratuitous bailor is bound to disclose to the bailee all those faults in the goods bailed, of
which he is aware and which materially interfere with the use of them, or expose the bailee to
extraordinary risks, and if he fails to do so, he will be liable to pay such damages to the bailee as
may have resulted directly from the faults. A gratuitous bailor will not be liable for damages
arising to the bailee from defects of which he was ignorant.
ILLUSTRATION :A lends a horse, which he knows to be vicious, to B. He does not disclose the
fact that the horse is vicious. The horse runs away. B is thrown and injured. A is responsible to B
for damage sustained.
(b) A bailor for reward is responsible for all defects in the goods bailed whether he is aware of
the defects or not, if he does not disclose them to the bailee. Unlike a gratuitous bailor, ignorance
of the defects is no defence for him.
ILLUSTRATION :A hires a carriage of B. The carriage is unsafe though B is not aware of it, and
A is injured. B is responsible to A for the injury. (If the carriage were lent gratuitously, B would
not be liable under the circumstances. Similarly, had B told the fault to A, then also he would not
be liable.)
2. Duty to repay necessary expenses in case of gratuitous bailment
Where, by the conditions of the bailment, the goods are to be kept or to be carried or to have
work done upon them by the bailee for the bailor, and the bailee is to receive no remuneration, it
is the duty of the bailor to repay all the necessary expenses incurred by the bailee for the purpose
of the bailment. Thus where a horse is bailed without reward for safe custody, it is the duty of the
bailor to reimburse the bailee for usual feeding expenses of the horse as well as for the medical
expenses, if any,
3. Duty to repay any extraordinary expenses in case of non-gratuitous bailment: Where
under the terms of the bailment, the bailee is to receive remuneration for his services, it is the
duty of the bailor to bear extraordinary expenses, if any, incurred by the bailee in relation to the
thing bailed. In such a bailment the bailor is not to bear the ordinary or usual expenses. Thus
where a horse is bailed for safe custody and the bailee is to receive Rs 80 per day as custody
charges, the bailor is not liable to repay the bailee the ordinary expenses of feeding the horse.
But if during the bailee's custody the horse falls ill without any negligence on his part, the bailor
must repay the bailee the medical expenses incurred in connection with the treatment of the
horse, these being extraordinary expenses.
4. Duty to indemnify bailee :
A bailor is also bound to indemnify the bailee for any loss suffered by the bailee, by reason of
the fact that the bailor was not entitled to bail the goods because of the defective title.
ILLUSTRATION: A gives his neighbour's scooter to B for use without the neighbour's
permission. The neighbour sues B and receives compensation. A is bound to indemnify B for his
losses.
5. Duty to receive back the goods;
It is the duty of the bailor to receive back the goods when the bailee returns them after the time
of bailment has expired or the purpose of bailment has been accomplished. If the bailor refuses
to take delivery of goods when it is offered at the proper time, the bailee can claim compensation
for all necessary expenses of, and incidental to, the safe custody.
Rights of Bailee
1. Enforcement of bailor's duties:
(1) Right to claim damages for loss arising from the undisclosed faults in the goods bailed
(2) Right to claim reimbursement for extraordinary expenses incurred in relation to the thing
bailed
(3) Right to indemnity for any loss suffered by him by reason of defective title of the bailor to
the goods bailed.
(4) Right to claim compensation for expenses incurred for the safe custody of the goods if the
bailor has wrongfully refused to take delivery of them after the term of bailment is over.

2. Right to deliver goods to one of several joint bailors :

Where goods have been bailed by several joint owners, the bailee has a right to deliver them to,
or according to the directions of, one joint owner without the consent of all, in the absence of any
agreement to the contrary.
3. Right to deliver goods, in good faith, to bailor without title :
 The bailee has a right to deliver the goods, in good faith, to the bailor without title, without
incurring any liability towards the true owner.
4. Right of lien:
The right to retain possession of the property or goods belonging to another until some debt or
claim is paid is called right to lien.
ILLUSTRATION : A delivers a rough diamond to B, a jeweller, to be cut and polished which is
accordingly done. B is entitled to retain the stone till he is paid for the services he has rendered.
ILLUSTRATION.:A gives his watch to B for repair. B promises A to deliver the watch on the
third day. But B takes one week to repair it. B is not entitled to retain the watch until he is paid.
Rights of Bailor
1. Enforcement of bailee's duties:
(i) Right to claim damages for loss caused to the goods bailed by bailee's negligence.
(ii) Right to claim compensation for any damage arising from or during unauthorised use of the
goods bailed .
(i) Right to claim compensation for any loss caused by the un-authorised mixing of goods bailed
with his own goods
. (iv) Right to demand return of goods as soon as the time for which they were bailed has
expired, or the purpose for which they were bailed has been accomplished.
v) Right to claim any natural accretion to the goods bailed .
2. Right to terminate bailment if the bailee uses the goods wrong-fully :
The bailor has a right to terminate the bailment, if the bailee does, with regard to the goods
bailed, any act which is inconsistent with the terms of the bailment, although the term of
bailment has not expired or the purpose of bailment has not been accomplished.

ILLUSTRATION : A gives on hire to B a horse for his own riding B drives the horse in his
carriage. The contract of bailment is voidable at the option of A.
3. Right to demand return of goods at any time in case of gratuitous bailment :
 When the goods are lent without reward , the bailor can demand their return whenever he
pleases even though he lent them for a specified purpose or time .
Termination of Bailment
A contract of bailment terminates under the following circumstances:
1. If the bailment is for a 'specified period, the bailment terminates as soon as the stipulated
period expires.
2. If the bailment is for a 'specific purpose, the bailment terminates as soon as the purpose is
fulfilled.
3. If the bailee does any act with regard to the goods bailed, which is inconsistent with the terms
of bailment, the bailment may be terminated by the bailor even though the term of bailment has
not expired or the purpose of bailment has not been accomplished.
4. A gratuitous bailment can be terminated by the bailor at any time, even before the specified
time or before the purpose is achieved, subject to the limitation that where such termination
causes loss in excess of benefit actually derived by the bailee, the bailor must indemnify the
bailee.
5. A gratuitous bailment is terminated by the death either of the bailor or of the bailee
PLEDGE OR PAWN
"The bailment of goods as security for payment of a debt or performance of a promise is called
'pledge'. The bailor in this case is called the 'pawnor.' The bailee is called the 'pawnee' .
ILLUSTRATION. A borrows Rs 100 from B and keeps his watch as security for payment of the
debt. The bailment of watch is called a pledge.
Thus a pledge is only a special kind of bailment. Here goods are deposited with a lender or
promisee as security for the repayment of a loan or performance of a promise.

Distinction between Bailment and Pledge

Feature Bailment Pledge

Defined As Section 148 of Indian Contract Section 172 of Indian Contract
Per Act, 1872 Act, 1872
Bailment refers to the transfer of Pledge is the transfer of
Definition
possession of a good from the possession of a good as
 security for a debt or
bailor to the bailee.
obligation.
Three parties are involved: the
Parties Two parties are involved: the
pledgor, the pledgee, and the
Involved bailor and the bailee.
debtor.
The purpose is usually for the
The purpose is to secure a debt
Purpose safekeeping, repair, or use of the
or obligation.
good.
Return of The good is returned after the The good is returned after the
Good agreed purpose is fulfilled. debt is repaid.
The bailee cannot use the good The pledgee has the right to
Rights of the
for any purpose other than the sell the good if the debt is not
Possessor
agreed one. repaid.
The risk of loss generally falls on The risk of loss falls on the
Risk of Loss
the bailee. pledgor.

Rights of Pawnee
Pawnee has the following rights:
 Pawnee has a right to retain the goods pledged until payment of debt, interest and any
other expense incurred for maintenance of such goods. For example, X pledges his gold
jewelry for some loan from a bank. In such a case bank has all the rights to retain the gold
jewelry not only for adjustment of loan amount but also for payment of interest accrued on
such loan amount.
 Pawnee has a right to file a suit for recovery of debt while retaining the goods pledged as
security.
 He has a right to sue for the sale of goods pledged and the payment of money due to him.
 Pawnee has a right to seek reimbursement of extraordinary expenses incurred. However,
he cannot retain goods with him in such a case.
 Pawnee has a right to sell the goods after giving reasonable notice and time to pawnor.
Pawnee can sue pawnor for deficiency, if any, after the sale of such goods. Also, if there is
any surplus on sale of goods pawnee must return it to pawnor.
Rights of Pawnor
In case pawnee makes any unauthorized sale of goods pledged without giving proper notice
and time to pawnor than pawnor has following rights:
 Right to file a suit for redemption of goods by making payment of debt.
 Right to claim for damages and loss on the ground of conversion.
Duties of Pawnee
A pawnee's duties may be enumerated as follows:
1. To take reasonable care of the goods pledged.
2. Not to make any unauthorised use of the goods pledged.
3. Not to mix the goods pledged with his own goods.
4. Not to do any act in violation of the terms of the contract of pledge and of the provisions of
the Contract Act. For example, he should not sell the goods pledged without a reasonable notice
to the pawnor.
5. To return the goods pledged on receipt of his full dues.
6. To deliver any accretion to the goods pledged e.g., bonus shares must also be delivered where
shares from the subject-matter of pledge.
Duties of Pawnor

1. To compensate the pawnee for any extraordinary expenses incurred him.

2. To meet his obligation on stipulated date and comply with the terms of contract.