CONTRACT OF BAILMENT

Bailment is a type of special contract and thus, all basic requirements of contract like consent of
parties, competency, etc are applicable to any contract of Bailment. A bailment is usually created by
an agreement between the bailor and bailee. Section 148 specifically talks of bailment via a contract.
But a valid bailment can also arise in absence of express contracts or from invalid or voidable
contracts.

In bailment, neither the property nor the ownership of the goods involved is transferred at any point.
Only the temporary possession of the bailed goods is transferred and the ownership of such goods
remains with the bailor. The bailor can demand to have the property returned to him at any time.

Only ‘goods’ can be bailed and thus, only movable goods can be the subject matter of bailment.
Current money or legal tender cannot be bailed. Deposition of money in a bank is not bailment as
money is not ‘goods’ and the same money is not returned to the client. But the coins and notes that are
no longer legal tender and are more or less just objects of curiosity, then they can be bailed.

What are all the essentials?

Section 148 of the Indian Contract Act, 1872 makes it very clear that there are three essential features
of Bailment, namely:

‘Bailment’, ‘bailor’ and ‘bailee’ defined.—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’.”

1) Delivery of Possession

2) Delivery upon Contract

3) Delivery for a purpose and Return of Goods

I
1) Delivery of Possession: The delivery of possession of goods is essential for bailment. There must
be transfer of possession of the bailed goods from bailor to bailee and the goods must be handed over
to the bailee for whatever is the purpose of bailment. Here, possession means control over goods and
an intention to exclude others from exercising similar control over the same goods. Thus, the bailee
must have actual physical control of the property with the intent to possess it for a valid bailment.

As per Section 149, the delivery can also be made to the bailee by doing anything which has the effect
of putting the bailed goods in the possession of the intended bailee or any person authorized by him
for this purpose.

Thus, the delivery of possession can be actual or constructive. The delivery may either put the bailee
in the actual physical possession of the goods or put the bailee in a position of power over such goods
that may be possessed later. The essential of a bailment is the delivery of goods for a temporary
purpose.

Mere custody of goods is not the same as delivery of possession. A guest who uses the goods of the
host during a party is not a bailee. Similarly, it was held in Reaves vs. Capper [1838 5 Bing NC 136]
that a servant in custody of certain goods by the nature of his job is not a bailee. Similarly, a servant
holding his master’s umbrella is not a bailee but is a custodian.

Similarly, hiring and storing goods in a bank locker by itself is not bailment thought there is delivery
of goods to the bank premises. The goods are in no way entrusted to the bank. A bank cannot be
presumed to know what goods are stored in any given locker at all the times. If a bank is given actual
and exclusive possession of the property inside a locker by the person who hired the locker, only then
can bailment under Section 148 can be presumed.

In Atul Mehra vs. Bank of Maharashtra [AIR 2003 P&H 11], it was held that mere hiring of a
bank’s locker and storing things in it would not constitute a bailment.

But the position changes completely if the locker in the safe deposit vault of the bank can be operated
even without the key of the customer. National Bank of Lahore vs. Sohan Lal [AIR 1962 Punj. 534]
- A hired a locker in a bank and kept some of his valuables in it. He was given one key to open the
locker. But the bank manager of the particular branch had fraudulently filed the levers of the locks of
the lockers. Thus, the lockers could be opened even without the key of the customers. A’s valuables
went missing. A’s control over the valuables in that locker had gone because the locker could be
operated even without A’s key. The bank was liable for the loss of A’s belongings from the locker as
it became a bailee.

Thus, it is clear that the nature of possession is very important to determine whether a delivery is for
bailment or not. If the owner continues to have control over the goods, there can be no bailment.

To create a bailment, the bailee must intend to possess and in some way physically possess or control
the bailed goods or property. In a situation where a person keeps the goods in possession of another
person but in fact, continues to have control over such goods, there is no delivery for the purpose of
bailment.

The delivery of possession does not mean that the bailee now represents the bailor with respected to
the bailed goods. The bailee only has certain power over the property of the bailor with his
permission. The bailee has no power to make contracts on behalf of the bailor or make the bailor
liable for his own acts with the goods bailed.

Example: If a person delivers his damaged car to a garage for repair under his insurance policy, the
insurance company becomes a bailee and the garage a sub-bailee. If the car is stolen from the garage
or destroyed by fire in the garage, both – the insurance company and the garage will be liable to the
owner of the car, the bailor.

Delivery of possession, as required for bailment, can be made in two ways – Actual or
Constructive.

a) Actual Delivery: Here, the bailor hands over the physical possession of the goods to the bailee.

Example: A’s watch is broken. When he leaves his watch at the showroom for repair, he has given
actual delivery of possession of goods to the showroom.

b) Constructive Delivery: Constructive delivery is an action that the law treats as the equivalent of
actual delivery. It can be difficult to deliver intangible

In constructive delivery, the physical possession of the goods may not be handed over. The possession
of the goods may remain with the bailor with the consent or authorization of the bailee. In
constructive delivery, an action on part of the bailor merely puts the bailee in position of power with
respect to the bailed goods. The bailor gives the bailee the means of access to taking custody of it,
without its actual delivery.

Example: A has rare coins in a locked safe-deposit box. Delivery of a safe deposit box is not possible.
When he hands over the keys to the box to B, it is taken as constructive delivery for purpose of
bailment.

Section 149 specifically deals with constructive delivery of goods. It states that anything done which
has the effect of putting the goods in the possession of the intended bailee or any other person
authorized to hold them on his behalf is to be treated as constructive delivery of the goods.

Constructive delivery is legal fiction – thus, a legal delivery is presumed even where the delivery of
the actual goods has not taken place. Even the delivery of a railway receipt is taken as the equivalent
of delivery of the goods.
In Bank of Chittor vs. Narsimbulu [AIR 1966 AP 163], a person pledged cinema projector with the
bank but the bank allowed him to keep the projector so as to keep the cinema hall functional. It was
held that there was constructive delivery because action on part of the bailor had changed the legal
character of the possession of the projector. Even though the actual and physical possession was with
the person, the legal possession was with the bank, the bailee.

II
2) Delivery upon Contract:

i. It is necessary that the goods are delivered to the bailee and returned to the bailor when the purpose
is accomplished upon a contract. This means there should a contract between the two parties for such
transaction of delivery and subsequent return (is important). If there is no contract, there is no
bailment. The contract giving rise to bailment can be express or implied.

ii. Property deposited in a court under orders is not property delivered under a contract. Such delivery
or transfer does not constitute bailment.

Exception to the delivery upon contract:

A finder of goods is treated as a bailee even if there is no contract of Bailment or delivery of goods
under a contract. A finder of the goods is a person who finds the goods belonging to some other
person and keeps them under his protection till the actual owner of the goods is found. An involuntary
contract of bailment arises and the finder automatically becomes bailee even in absence of bailment
by the bailor – the owner of the lost goods. Since the person is in the position of the bailee, he has all
the rights and duties of a bailee.

English Law India

There can be bailment without a contract. If a The Law Commission of India in its 13th report
person deposits or delivers the goods under suggested that bailment without contract should
stressful circumstance like fire flood, riots or if also be included in the Indian Contract Act,
the person who is depositing the goods is 1872 but no concrete steps have been taken as
incapable of appreciating the value of the action, yet. Presently, the Indian Courts have taken the
it is still regarded as bailment despite the position that bailment can exist without a
absence of a contract. Delivery of goods to contract. In some of these cases, even the
another under a mistake of identity of the person government has been held liable as a bailor
is also treated as bailment without a contract as despite the absence of a contract.
long as the bailor took reasonable care to
ascertain the identity.
The case of Lasalgoan Merchants Bank vs. Prabhudas Hathibhai is one the first where the Courts
started imposing the obligations of a bailee even without a contract. In State of Gujarat vs. Memom
Mahomed, the Supreme Court of India accepted this view and stated that “…Bailment is dealt with
by the Contract Act only in cases where it arises from a contract, but it is not correct to say that there
cannot be bailment without an enforceable contract.”

III
3) Delivery for a purpose and Return of Goods: There has to be a purpose for the bailment of
goods and it is mandatory that once such purpose is accomplishes, the goods have to be returned to
the bailor or be disposed off per his instructions. Bailment cannot arise if the goods are not to be
specially accounted for after completion of such task or purpose. This is a feature of bailment that
distinguishes it from other relations like agency, etc.

The third essential of bailment –

a) The delivery of goods must be for some specific task or performance. Delivery of goods in
bailment is not permanent. There has to be a purpose for the bailment of goods and it is
mandatory that once such purpose is accomplishes, the goods have to be returned to the bailor
or be disposed off per his instructions.

Eg. A tailor is given a cloth for stitching a shirt, a watch repair shop is given a watch to mend it.

b) That the goods must be returned to the bailor or be taken care of as per the instructions of the
bailor. If a person is not bound to return the goods to another, then the relationship between them is
not of bailment. If there is an agreement to return the equivalent and not the same goods, it is not
bailment. An agent who collects money on behalf of his principal is not a bailee because he is not
liable to return the same money and coins.

Example: A tailor who receives a cloth for stitching is the bailee in this case. The tailor is supposed
to return the finished garment to the customer, the bailor, once the garment has been stitched.

c) Return of goods in specie is also essential. The same goods that were bailed must be returned to the
bailor in the same condition after the accomplishment of purpose as they were handed over to the
bailee in the beginning. Any accruals to the goods must also be handed over. If an animal gives birth
during the period of bailment, the bailee must return the animal with the offspring at the conclusion of
the bailment.
The bailor can give other directions as to the disposal or return of the bailed goods. In case of such
agreement or instructions, the bailee must immediately dispose the goods after completion of purpose
as per the directions.

If the goods are not returned or dealt as per the directions of the bailor there is no bailment. For
example, depositing money into bank by a customer does not give rise to a contract of bailment
because the bank is not bound to return the same notes and coins to the customer. This same point was
also made in the case of Ichcha Dhanji vs.Natha [1888 13 Bom 338]

In Secy of State vs. Sheo Singh Rai [1880 ILR 2 All 756], a man delivered nine government
promissory notes to the Treasury Officer at Meerut for cancellation and consolidation into a single
note of Rupees 48,000 only. The notes were misappropriated by the servants of the Treasury Officer.
The man sued the State to hold it responsible as a bailee. But the action failed as there can be no
bailment without delivery of goods and a promise to the return the same. The government was in no
way bound to return the same notes or dispose the surrendered notes in accordance with the
instructions of the man.