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CONTRACT OF BAILMENT
Points to be Covered
• Definition and Essentials
• Parties to a contract of Bailment
• Rights and Duties of Bailor and Bailee
• Finder of goods—as a Bailee
• Liability towards the true owner
• Obligation to keep the goods safe
• Rights to dispose of the goods
• Lien of a Bailee
• Particular lien
• General lien
General Meaning
• “The temporary control over articles/ goods for a purpose”
• “It is generally a contractual relationship either expressly or implied,
between two parties to act according to particular terms.”
• “Transfer of possession of the property not ownership interests.”
• “Once the purpose for which the property has been delivered is
accomplished, the property is returned to the owner or disposed as
per the contract.”
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 already in possession of the goods
of another contract 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.
Essentials of a Contract of Bailment
1. Delivery of Possession
• Putting the goods in possession of the bailee
• Different from a mere “custody”
• Goods must be handed over for whatever purpose the bailment is for
• An old customer went into a restaurant for dinner, when he entered
the room a waiter took his coat, without being asked and hung it on a
hook behind him. Later on the coat found to be missing: The
restaurant keeper liable as bailee
• Delivery needed to constitute bailment. Any bailment will come to an
end once the bailor was put in possession of the good ( eg. The lady and
the goldsmith)
• Bank locker: whether Bailment?
Types of Delivery
1. Actual/ Physical Delivery – Transfer of physical possession from one
person to another.
Constructive Delivery – Person already in possession of goods- holds it
for some other person. No change in physical possession, but something
is done which gives effect of putting them in the possession of the other
person.
Example: A sells his watch to B, B asks A to hold his watch for one month
and deliver at his home after one month. After this A becomes the Bailee
and B the Bailor.
• Where the bailor has done everything to put the goods in the hands of
the bailee, liability of bailee begins.
• Delivery to agent equally applicable
2. Presence of Contract – delivery must be made for some purpose
and upon a contract that when the purpose is accomplished the goods
must be returned
• contradicting opinion in India
• English Law accepts even no contractual obligations
• Ram Gulam vs Govt. of U.P., AIR 1950 All 106 – police recovered
goods of the plaintiff and they were stolen while in their possession
– Court held no contract as the police while keeping the goods in
possession was acting in discharge of obligations imposed by law.
Thus, No Bailment.
• L.M. Co-operative Bank v. Prabhudas Hathibai, AIR 1966 Bom. 134-
In this case the goods were seized by the Income Tax Officer. The
godown locked and keys kept in possession. Due to heavy rains and
leakage in the godown goods damaged. Court held that it was the
duty of the Government to take care as a Bailee. View accepted by
SC in State of Gujarat v Memon Hasan and further cases
3. Delivery should be upon some Purpose
Types of Bailment
• Gratuitous Bailment – Goods are delivered by the bailor to the bailee
without any reward .
Eg: Lending a book to a friend for reading. ( Exclusive benefit of either
of the party)
• National Bank of Lahore vs. Sohan Lal (AIR 1962 Punjab 534)
The bank had one key of the Locker and the customer the other. The bank manager
fraudulently fled the livers, so that the locker could be opened without the
customer’s key.
Issue : Bailment or not?
Held: Yes. Bank’s Key was necessary and they had the duty to take care. Also, bank
was vicariously liable for the manager.
• Mere hiring of bank locker, not Bailment (Also held in Atul Mehra vs. Bank of
Maharashtra – AIR 2003 P. & H. 11)
RIGHTS & DUTIES OF BAILOR
Duties –
• To disclose faults in the goods bailed (S. 150)
• Repayment, by bailor, of necessary expenses (S. 158)
• Restoration of the Goods lent Gratuitously and Indemnity
(S. 159)
• Responsibility Towards Bailee (S. 164)
DUTIES OF THE BAILOR
To disclose faults in the goods bailed (S. 150)
1) The bailor is bound to disclose to the bailee faults in the goods bailed, of
which the bailor is aware, and which materially interfere with the use of
them, or expose the bailee to extraordinary risks; and if he does not make
such disclosure, he is responsible for damage arising to the bailee directly
from such faults.
2) If the goods are bailed for hire, the bailor is responsible for such damage,
whether he was or was not aware of the existence of such faults in the goods
bailed.
If you hire a zoom car and met with an accident due to faulty
brakes, but the bailor company was not aware of the
defaults. Can you claim Damages?
- you can claim damages.
2) Repayment by bailor of necessary expenses- S. 158.
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,
the bailor shall repay to the bailee the necessary expenses incurred by
him for the purpose of the bailment.
The lender of a thing for use may at any time require its return, if
the loan was gratuitous, even though he lent it for a specified time
or purpose.
But, if, on the faith of such loan made for a specified time or
purpose,
the borrower has acted in such a manner that the return would
cause him loss exceeding the benefit actually derived by him from the
loan,
the lender must, if he compels the return, indemnify the borrower
for the amount in which the loss so occasioned exceeds the benefit so
derived.
Eg: You and your friends have planned a road trip to Goa during the
15th August holiday. Your car breaks down and so you borrow your
friend’s spare car for the road trip. You make all your bookings and
travel arrangements. On 14th August your friend calls for the car back.
You inform him about your trip but he compels you to return the car.
Can you seek indemnification?
He has a duty under S. 159 to indemnify you.
4) Bailor' s responsibility to bailee – S. 164 -
The bailor is responsible to the bailee for any loss which the
bailee may sustain by reason that the bailor was not entitled
to make the bailment, or to receive back the goods or to give
directions, respecting them.
Eg. A is not the owner of the good and the original owner sues
the bailee, the bailee is entitled to recover costs from A.
Duties –
1. To take care of the goods (S. 151)
2. To act in conformity with the terms and conditions of the
contract (S. 153)
3. Not to make unauthorized use of the goods (S. 154)
4. Not to mix the goods which bailed with his own goods (S.
155, 156, 157)
5. To return the goods bailed, after the purpose is accomplished
(S. 160)
6. Responsibility when the goods are not duly returned (161)
7. Duty to return increased profits on the goods bailed (163)
1) S. 151 - Care to be taken by bailee –
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 of the same bulk,
quality and value as the goods bailed.
No cast- iron standard can be laid down for measure of care due from a bailee and
nature and amount of care must vary with the posture of each case
Held: SC held that the railway did not take due care: - firstly, they did not prove from
record that the protection police which escorted the train was sufficient in strength
and secondly, unlike a prudent man the protection police keep an eye on wagons
particularly when the train stopped to prevent the theft of the goods. Defendants held
liable.
• Needless to say that an ordinary person traveling in a train would be
particular is keeping an eye on his goods especially when the train stops.
It is not therefore imposing a higher standard of care on the railway
administration when it is said that its staff, and especially the railway
protection police specially deputed for the purpose of seeing that no
loss takes place to the goods, should get down from the wagon and keep
an eye on the wagons in the train in order to see that no unauthorised
person gets at the goods.
• The burden of proof that he took reasonable care and did not act
negligently lies on the bailee: if the bailee places before court evidence
to show that he undertook all reasonable care, to avoid damages
reasonably foreseeable or had taken reasonable precautions to obviate
risks reasonably apprehended, he would be absolved
Gopal Singh Hira Singh vs Punjab National Bank ( AIR 1976 Delhi 115)
Section 154 Read with S. 153 – If bailee does not conform to the terms
of the contract – the contract is voidable at the option of the bailor.
Duty of Bailee and Right of the Bailor
3) In a contract of bailment the bailee should maintain the identity of the
bailor’s goods.
S. 155 - Effect of mixture with bailor's consent of his goods with bailee's -
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. (to the extent mixed)
S. 156 - Effect of mixture without bailor' s consent, when the goods can be
separated –
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.
Illustration
157. Effect of mixture, without bailor' s consent, when the goods
cannot be separated –
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.
Discussion:
1. A bails 50 bags of cement of Ambuja Co. to B. without A' s consent, B mixes
the 50 bags of cement with other bags of his own from a different company.
A is entitled to have his 50 bags returned, and B is bound to bear all the
expense incurred in the separation of the bags (additional labour), and any
other incidental damage.
2. Above example – if B opened all the bags and mixed the cement with his, this
would be inseparable and now if A asks for his cement.. What will happen?
B will have to pay A for the entire cement.
4) S. 160 - Return of goods bailed on expiration of time or accomplishment of
purpose-
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.
Obligation on bailee:
a) Once the purpose is served
b) the time expired
c) The duty to deliver the goods back to the bailor or give them to whom he was
directed to under the contract
d) Even if not demanded so by the bailor
e) Unless there is a contract to the contrary – if bailee has been told to return
when the bailor demands or bailor will himself collect them (This also the
Court has interpreted to be done within reasonable time)
Rights –
1. Right to recover necessary expenses – S. 158
2. Right to recover compensation (when bailee not entitled to make the
bailment) – S. 164
3. Right against third party – Right to subrogation – S. 180
4. Instances when bailee not liable – S. 152
5. Right to delivery to one co-owner without the consent of all - 165 +
166
6. Right to Lien – S. 170 & S. 171
Rights of Bailee
S. 165 - Bailment by several joint owners –
If several joint owners of goods bail them, the bailee may deliver them back
to, or according to the directions of, one joint owner without the consent of
all, in the absence of any agreement to the contrary.
Duty not to set up “jus tertii”
Right to Lien – This right to retain the goods until the charges due in respect
of the goods are paid is called “Lien”.
S. 170 & 171 – Lien is the right to retain the goods till the dues are cleared.
Two types – General and Particular
S. 170 - Bailee' s ‘particular’ lien-
Particular – Only that good can be retained with regard to which the services were rendered
“Where the bailee has, in accordance with the purpose of the bailment, rendered any service
involving the exercise of labour or skill in respect of the goods bailed, he has, in the absence of
a contract to the contrary, a right to retain such goods until he receives due remuneration for
the services he has rendered in respect of them.”
Essentials –
1. The bailee should have rendered some service involving exercise of labour or skill in
respect of the goods bailed (Factual)
2. Such services should be in accordance with the terms of the contract
3. No contract b/w parties excluding lien
4. Goods in possession of the Bailee
5. Services performed in due time
Right of Lien may be lost in the cases of
1. Loss of possession
2. Payment of due amount
3. Waiver of amount
4. Accepting security instead of Lien
5. Unauthorized use
1. Bankers –retain any of the debtor’s goods in the bank’s possession until any debt due from the
debtor, whether in connection with the retained goods/ securities or otherwise, has been paid.
Eg. Goods supplied as security for a loan and now a credit card bill is pending – the bank
has the right to exercise lien over those goods even though they have no connection
with the outstanding bill.
1. Factors - S. 122 - Agents entrusted with possession of goods for the purpose to sell the goods –
can retain if his charges are not paid as long as goods were given to him in the capacity of an
agent in the ordinary course of business
2. Wharfingers – Warf - permanent structure on the shore or bank of a river where ships are
docked to load and unload cargo. Wharfinger – the owner or manager of the wharf – right to
lien the goods bailed to him until his charges for use of wharf are not paid.
3. Attorneys – BCI Rules – prohibit advocates from adjusting the fees against his own personal
liability of the client. He is entitled to money from the money paid in the court but not by
retaining papers and litigation files. ( Refer R.D Saxena vs Balram Prasad)
4. Policy broker – Like an insurance agent. Right to lien can be exercised.
General Lien of Bankers
• K. Sita v Corporation Bank (AIR 1999 A.P 367)
• Facts: Petitioner pledged some gold ornaments and took a particular loan
from the bank. Later on, he took another subsequent loan. He paid the first
loan but, failed to pay the second.
• Issue: was there any power of the bank to exercise General Lien over the gold
ornaments which were given as a security for the first loan and not the
second.
• Held: Yes. The Bank can retain the pledged ornaments if the debtor has not
cleared another loan advanced.
• A banker can exercise lien over the Fixed Deposits which had been given to
the Bank by a customer to avail an overdraft facility.
• as held in - Shivam Construction co. vs Vijaya Bank (AIR 1997 Guj. 24)
• Also held in – Punjab National Bank vs Satyapal (AIR 1956 Punjab 118)
PARTICULAR LIEN GENERAL LIEN
Available against those goods in respect of which Available against all goods
charge were due
Purpose: Remuneration for services Also for general balancing the debt amount
Available only when service involving Labour and Available even when no such service has been
skill has been involved rendered
Discussion: 100 cloth pieces given to a tailor. Payment for 60
suits made 40 left.
• S.168 - Right of finder of goods, may sue for specific reward offered.—
1. The finder of goods has no right to sue the owner for compensation for trouble
and expense voluntarily incurred by him to preserve the goods and to find out
the owner; but he may retain the goods until he receives such compensation
2. where the owner has offered a specific reward for the return of goods lost, the
finder may sue for such reward, and may retain the goods until he receives it.
(Sue for rewards)
• S. 169 - When finder of thing commonly on sale may sell it.—
• Duties of a finder:
-Find the owner with reasonable diligence
-demand the owner, to pay the lawful charges of the finder