BUSINESS LAW – 2

What is Bailment?

The word ‘Bailment’ is derived from French word ‘baillier’ which means to deliver.
According to Section 14 of Indian Contract Act 1872, a “Bailment’ is the delivery of goods by
one person to another for some purpose, with a condition to return the goods when the purpose is
over or otherwise disposed off according to the direction of the person delivering them.

Parties in bailment contract

Bailor- The person delivering the goods is called the bailor.

Bailee- The person to whom the goods are delivered is called the bailee.

Essential Elements of a valid bailment

1. Agreement between bailor and bailee:

There must be an agreement between the bailor and bailee. This agreement may be express
or implied. However, a bailment may be implied by law as it happens in the case of finder of
lost goods.
2. Delivery of goods:
In bailment, it is necessary that the goods should be delivered to the bailee. It is the
essence of the contract of bailment. It is further necessary that the possession of the goods
should be voluntarily transferred and is in the accordance with the contract.
3. Ownership not change:
In a bailment the ownership remains with the bailor and is not transferred to the bailee or
anyone as because if the ownership is transferred then it is not a bailment contract. It
becomes a contract of sale.
4. Only movable goods:
Bailment is only for movable goods and not for immovable goods.
5. Delivery for some purpose:
The goods must be delivered to the bailee for some purpose. The purpose could be the safe
custody, use of the goods, transportation of the goods, repair of the goods etc.

6. Change in forms:

If the goods which are bailed are changed like a cloth is converted into a shirt than still the
contract remains a bailment.

7. Return of goods:
The goods shall be returned to the bailor or disposed off according to his direction.
Who is Bailor?
A bailor is the person who gives goods or property to another person, called the
bailee. The bailor retains ownership of the goods, but the bailee is responsible for their
safekeeping and return.
Rights of a bailor
1. If the bailee has not taken reasonable care (in the absence of any special contract or
special care) the bailor has a right to claim damages for the loss, destruction, or
deterioration of the goods bailed.
2. If the bailee uses the goods in an unauthorized manner, the bailor can terminate the
contract of bailment before the completion of the bailment. A contract of bailment is
regarded as a voidable contract in such an event the bailee cannot sue the bailor for a
breach of contract. Rights of a bailor.
3. If the bailee without the consent of the bailor mixes bailor’s goods with his own
goods and the goods cannot be separated, the bailor has a right to claim
compensation from bailee for the loss of the goods.
4. The bailor has a right to demand return of goods after the completion of the purpose
or after the expiry of period of bailment.
5. If the bailee does not return or deliver the goods according to the bailor’s directions,
after the accomplishment of purpose or after the expiry of period of bailment, the
bailor has a right to claim compensation for any loss, destruction and deterioration of
goods from that time.
6. In the absence of contract to the contrary, the bailor has a right to demand any
increase or profit which may have occurred from the goods bailed.

Duties of Bailor
1. It is the duty of the bailor to disclose the known defects in the goods. If the bailor fails to
disclose such defects and as a result, if the bailee suffers from any loss. The bailor
should compensate the bailee for such loss. In case of gratuitous Bailment If the bailor
fails to disclose such defect then the bailor is liable to indemnify bailee for such loss. In
case of non gratuitous bailment. If the bailee suffers any loss Due to any defect in the
goods, the bailor is liable to indemnify Bailee for such loss whether he knows that defect
or not.
2. The bailor must repay to the bailee all the necessary expenses which the bailee has
already incurred for the purpose of bailment in the case of gratuitous bailment. But in
case of non gratuitous bailment, the bailor is liable to repay the extra-ordinary expenses
incurred by the bailee.
3. If the bailor does not have any title to deliver the goods to the bailee, he would be liable
to indemnify to the bailee for any loss which the bailee has paid to the original owner.
4. If the bailor wrongfully refuse to receive back the goods, he shall be liable to pay
necessary expenses incurred by the bailee for keeping this goods safely

Who is a bailee?
A bailee is a person or entity that is given possession of another person's property for a
specific purpose. The bailee is responsible for returning the property to the owner, or bailor,
when the purpose is complete.
Duties of bailee
1. The bailee should take reasonable care of the goods which are in his possession. The
degree of care required by the bailee is similar to that of a man of ordinary prudence
would take of his own goods under the similar circumstances. If he has taken such care,
he is not liable, even if the goods are lost or damaged. He is also not liable for the
destruction or the loss of goods due to an act of god.
2. The bailee should not use the goods for an unauthorized purpose. He can use the goods
as per the terms and condition of the bailment. If the bailee makes any unauthorized use
of goods he shall be liable for any loss on any unauthorized use of goods. The bailor
may terminate the contract of bailment. In other words the contract of bailment becomes
voidable.
3. (a) 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 Duties of Bailee. Duty to take care of the
good. In the absence of any contract to contrary, the bailee is bound to return any extra
profit occurred from goods bailed.
4. The bailee must not do any act which is inconsistent with the title of the bailor. He must
not set up his own title or a third parties title on the goods bailed to him.