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MODULE 2

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?

S. 149. Delivery to bailee how made


The delivery to the bailee may be made by doing anything which has the
effect of putting the goods in the possession of the intended bailee or of
any person authorized to hold them on his behalf.

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)

• Non – Gratuitous bailment – Where bailor & bailee is entitled to


reward for bailment. E.g. A car let out for hire, Gold given to goldsmith
for making jewellery for charges.
• Kaliaporumal Pillai vs. Visalakshmi (AIR 1938 Mad. 32)
Facts: Lady wanted to convert her old jewelley into new. Every evening, as soon as
the gold-smiths' work for the day was over, the she used to receive the half made
jewels from the goldsmiths, put them into a box and lock. One night, Goods were
stolen.
Held: No bailment. As she did not hand over hand over the possession.

• 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

Where there is a right there is a corresponding duty on


another. Thus, the rights of the bailor are the duties of the
bailee and vice versa.

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.

S. 150 is divided into – A gratuitous Bailor –


A bailor for reward – non-gratuitous
Illustrations
• 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. Is A responsible to B for damage
sustained?: Yes

• A hires a carriage of B. The carriage is unsafe, though B is not


aware of it, and A is injured. Is B responsible to A for the injury? :
Yes
• Second part of S. 150 – imposes higher duty on the bailor
since the bailor is drawing a profit from such bailment
such as giving costumes on rent.
• Whether aware or not, the bailor is liable
• No defense of lack of knowledge
• Reed v Dean: implied undertaking that the motor launch was
as fit for the purpose for which it was hired as reasonable
care and skill could make it

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.

Eg. A wants to supply rice to a company. B, his friend, volunteers to


keep the rice in his godown for a month before sale. After storing the
rice, A gives the keys to B to keep it safely.
B undertakes measures to keep godown rodent free. He is further asked
by A after a month to deliver the rice to his shop in the other village as
he is travelling. Repayment?
- B can recover both the costs of maintenance as well as
delivering the rice.
Where Bailment is for the benefit of Bailee, in reference
to the expenses : If in using the thing the borrower is put to
any expense this must be borne by himself, bailee
compellable to bear ordinary expenses

Discussion: A lends his car to B for a trip to Goa. Can B


recover the expenses incurred by him in getting the cleaning
and servicing of the car done?
A lends his horse to a friend B for carriage for a week, Can B
recover the expenses borne on feeding the horse?
3) Indemnity in cases of Restoration of goods lent gratuitously S. 159.

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.

• Bailee has to be acting in good faith


• Overlap with S. 158 – necessary expenses but there the
expenses are to fulfil the valid bailment.
• Under S. 164 are losses which bailee suffers due to
unauthorized bailment.
Rights of Bailor
1. To avoid the contract (S. 153) -

S. 153 - Termination of bailment by bailee' s act inconsistent


with conditions-

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 to B, for hire, a car for his own driving. B


runs the car as a taxi. Can bailment be terminated? Yes
2. Right to claim increase in profit
S. 163 - Bailor entitled to increase or profit from goods bailed-
In the absence of any contract to the contrary, the bailee is bound
to deliver to the bailor, or according to his directions, any increase
or profit which may have accrued from the goods bailed.
Eg. 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.
3. Right to Subrogation and sue–
S. 180 - Suit by bailor or bailee against wrong-doer-
If a third person wrongfully deprives the bailee of the use or
possession of the goods bailed, or does them any injury, the bailee is
entitled to use such remedies as the owner might have used in the
like case if no bailment had been made; and either the bailor or the
bailee may bring a suit against a third person for such deprivation or
injury.

Discussion: If A gives a watch to B and C steals it from B, who has the


right to sue?
- Both. The right to sue is of the bailee and he can file for all such
actions which the bailor has under the law and similarly, the bailor can
without the bailee suing, sue C for theft.
RIGHTS & DUTIES OF THE BAILEE

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.

• Bailee responsible for every kind of bailment (gratuitous/non-


gratuitous) if negligent: Uniform standard of care
• The burden of proof that he took reasonable care and did not act
negligently lies on the bailee.
• Bailee cannot be made liable for events beyond his control but
the Court will always infer what was reasonable and prudent –
Depends on facts
• Difference in care depends on difference in goods Eg : for
protecting gold and in protecting a book
• Section 152 :
Bailee when not liable for loss, etc., of thing bailed.—The bailee, in the absence of
any special contract, is not responsible for the loss, destruction or deterioration of
the thing bailed, if he has taken the amount of care of it described in section 151.

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

Union of India v Udho Ram & Sons, AIR 1963 SC 422 –


Facts: Articles were stolen while in rail transit – theft when the train stopped for 15
mins at a station - plaintiff brought action to recover compensation.

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)

Facts: Goods pledged before 1946, after partition that branch


became part of Pakistan. Bank failed to return the goods. Bank
pleaded that the goods have been destroyed by the rioters.
Held: The obligation of the bank to take of the goods must be seen
in the context of the extraordinary situation that developed. And
thus, bank is not liable for the negligence.

Is a contract exempting the Bailee from the Liability Valid ?


2) S. 154 - Liability of bailee making unauthorized use of goods bailee –
If the bailee makes any use of the goods bailed, which is not according
to the conditions of the bailment, he is liable to make compensation to
the bailor for any damage arising to the goods from or during such use
of them.
Discussion:
(a) A lends a car to B for his own riding only. B allows C, a member of his
family, to drive the car. C drives with care, but the car by chance
meets with an accident and damages the car.
B is liable.
(b) A hires a horse in Calcutta from B expressly to march to Benares. A
rides with due care, but marches to Cuttack instead. The horse
accidentally falls and is injured.
A is liable to make compensation to B for the injury to the horse.
c) You lend a watch to your friend to be worn for the party. She wears it
to class and loses it.
You can claim damages from your friend.

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)

Extension to this is S. 161 – loss, destruction or deterioration to goods if not


delivered will make the bailee liable for it.
S. 161 Bailee's responsibility when goods are not duly returned –
If, by the default of the bailee, the goods are not returned, delivered or
tendered at the proper time, he is responsible to the bailor for any loss,
destruction or deterioration of the goods from that time.

J.K. Oil Mills vs. Union of India (AIR 1976 SC 227)


Facts: The appellants consignment of mustard was being transported by the
respondent from Kanpur to Calcutta. On reaching Calcutta, but before
delivery to the Appellant, it was seized by the Food Inspector on the doubts
of being adulterated and was destroyed by the orders of the Calcutta High
Court.
Issue: Was the respondent liable for the failure of delivery of the goods and
their destruction?
Held: NO. The loss and the damage was not due to the misconducts of the
respondent.
Rights of Bailee

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”

S. 166 - Bailee not responsible on re-delivery to bailor without title-


If the bailor has no title to the goods, and the bailee, in good faith, delivers
them back to, or according to the directions of the bailor, the bailee is not
responsible to the owner in respect of such delivery
Discussion: A delivers a rough diamond to B, a jeweller, to be cut and
polished, which is accordingly done. A comes to B to collect the Diamond. B
asks for the money for the services rendered, A refuses. What option does
B, the Bailee has? Is he bound to deliver the goods and then seek
compensation?
B is entitled to retain the stone till he is paid for the services he has
rendered.

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

Discussion: A gives, cloth to B, a tailor, to make into a coat. B promises A to


deliver the coat as soon as it is finished, and to give a three months credit
for the price. Is B entitled to ask for payment after he delivers?
B is not entitled to retain the coat until he is paid
Rights of Bailee

S. 171 - General lien of bankers, factors, wharfingers, attorneys and policy-


brokers-
A right to retain all the goods for security for the general balance of account
until the full satisfaction of the claim dues whether in respect of those goods
or any other goods. Unless there is a contract to the contrary.
Available to: (1) Bankers
(2) Factors
(3) wharfingers
(4) attorneys of a High Court
(5) policy-brokers
They may retain the goods as a security for a general balance of account.
But no other persons have such a right, unless there is an express contract to
that effect.
Rights of Bailee

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 to every Bailee Available for specific people

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.

• Does the Tailor has a right to lien?


By law, the tailor can exercise only a particular lien with
regard to the 40 suits and has to return the 60 suits.
• However, if general lien was contracted for, and tailor also
has 10 shirts under his possession. He has the right to
exercise the Lien over?
The Tailor could retain all 100 or the 60 suits until the
bailor paid for the 40 suits. If some other goods like the 10
shirts are in his possession, he could retain those as well.
FINDER OF GOODS

• Finder – when goods don’t belong to him.


• Acts as a Bailee without a Contract, all rights and duties of bailee applicable

• 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

• The finder may sell it—


1. when the thing is in danger of perishing
2. when the lawful charges of the finder, in respect of the thing found, amount
to two-thirds of its value
Third Party rights
• Rights against a Third Person : Section 180, Subrogation
• Rights of a Third Person : Section 167 :
• Rights of a third person claiming goods bailed: If a person, other than the bailor, claims
goods bailed he may apply to the Court to stop delivery of the goods to the bailor, and to
decide the title to the goods.