LAW 202 SECTION: L2004

CONTRACT OF BAILMENT, RIGHTS AND

DUTIES OF BAILOR AND BAILEE

Submitted To: Dr. Ajay Sharma

(Faculty of Law)

Submitted By: Sagorika Basu

Registration No :12011119
 ACKNOWLEDGEMENT

At the outset, I would like to express my heartfelt gratitude and thank my Course Instructor,
DR. AJAY SHARMA, for instilling confidence in me. I am indeed privileged having been
taught in a prestigious institution like LOVELY PROFESSIONAL UNIVERSITY. I would
also like to express my gratitude to my other Course Instructors, Mentor, family, and friends
for their uncanny help and support.

-SAGORIKA BASU
INTRODUCTION

The word “bailment” has been derived from the French word “ballier” which
means “to deliver”. In general, Bailment means the delivery of goods of a person
to whom permission is given to have the goods of another person.

The contracts of bailment come under a special class of contract and are dealt
under Sections 148 to 181 of the Indian Contract Act, 1872. Though the Contract
Act covers the general principles related to contracts of bailment but it does not
deal with all types of bailment. The Carriers Act, 1865, The Carriage Act of
Goods by Sea Act, 1925 and The Railways Act, 1890, are the few Acts which
deal with special types of bailment.

According to Section 148 of the Indian Contract Act,1872 “Bailment means 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 “bailer” and the person to whom
they are delivered is called the "bailee”.

Illustrations

1. Sanju delivers a piece of cloth to Manju, a tailor, to be stitched into a suit. There
is a contract of bailment between Sanju and Manju.

2. 'Z' lends a novel to Y' to be returned after a month. There is a contract of

bailment between ‘Z' and 'Y'.

3. Nitank sold some goods to Tina who left them in the possession of Nitank. The
relationship between Nitank and Tina is that of a bailment.
ESSENTIAL FEATURES OF BAILMENT

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.

In the case of Ultzen Vs. Nicols 1, the plaintiff went to an old restaurant. There his
coat was taken by the waiter. When the plaintiff rose to leave, his coat was
missing. Even though the conduct of the waiter was gratuitous. The restaurant is
held liable as a bailee.

In another case of Kaliaperumal Pillai Vs. Visalakshmi2, the madras high court
In contrast to this, when a bank was given a jewellery box for safe custody, a
contract of bailment arose. The bank would be liable for any loss of content. 3

1
1894 1 Q.B. 92
2
AIR 1938 Mad 32.
3
Jagdish Chandra Trikha Vs. Punjab National Bank, AIR 1966 AP 163.
  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. Capper4 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. In Atul Mehra vs. Bank
of Maharashtra5 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. 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.

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.

4
132 ER 1057
5
AIR 2003 P&H 11
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 a 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. In Bank of Chittor vs. Narasimhulu 6, 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.

 Delivery upon Contract: 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 be a contract between the two parties for
such transaction of delivery and subsequent return. If there is no contract,
there is no bailment. The contract giving rise to bailment can be expressed
or implied. 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

6
AIR 1966 AP 163
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,

The case of Lasalgaon Merchants Bank vs. Prabhudas Hathibhai 7 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 8, 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."

 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
accomplished, the goods have to be returned to the bailor or be disposed of
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 is twofold –

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 accomplished,
the goods have to be returned to the bailor or be disposed of per his instructions.

7
AIR 1966 Bom 134
8
1967 AIR 1885, 1967 SCR (3) 938
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.

c) Return of goods in bailment 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 of the goods after completion of purpose as per the directions.
KINDS OF BAILMENT

Bailment may be classified from the point of views of (i) benefits and (ii) reward
to the parties.

Kinds 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 repairs, hire, etc., fall within
this class, wherein the bailor receives the benefit of service and the bailee
benefits by the receipt of the agreed changes.

Kinds 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 a ‘bailment for reward.’ Here,

either the bailor or the bailee is entitled to remuneration, e.g., motor car let out
for hire, cloth given for tailoring for charges.
EFFECTS ON BAILMENT

Gratuitous Bailment Non-Gratuitous Bailment

Consideration There is no Consideration The bailor provides

since the bailment is done consideration to the Bailee or
Gratuitously which means vice versa as the terms of the
that it is done with love and contract say. Since there is
affection. Since love and transfer of consideration
affection cannot be seen as between the two parties. It is
consideration so the called a Non gratuitous
Gratuitous Bailment is a no Bailment since it is not done
consideration Bailment. gratuitously

Termination of Contract The bailor can terminate the Unilateral termination of

contract of Bailment at any contract by the bailor may
time. amount to breach of the
contract. Therefore, bailment
cannot be terminated at any
time.

Liability The bailor must disclose all The bailor must disclose all
the faults known to him the faults known to him or
which are material or may not known to him. Thus,
expose the bailee to there is a high degree of
extraordinary risk. liability involved here
 because of this being a
bailment with consideration.

Damages The bailor shall be liable for The Bailor is responsible for
the non-disclosure of the the non-disclosure of all the
fault only if the faults were faults which were known or
known to him. not known to him. So the
damages are accordingly
settled.

Expenses The bailor is liable to The bailor is only liable for

reimburse all necessary as the extraordinary expenses
well as extraordinary and the bailee needs to bear
expenses relating to the the necessary expenses.
bailment.

Death The bailment comes to an The contract continues

end with the death of the irrespective of the death of
bailor or the bailee. the bailor or the bailee.
RIGHTS & DUTIES OF A BAILOR & A BAILEE

BAILOR: A bailor is an individual who temporarily gives up the possession

but not ownership of a good or other property under a bailment. The bailor
gives the possession of the good or property to another individual, known as the
bailee.

BAILEE: A bailee is an individual who gains possession, but not ownership, of

a good or other property. The bailee is also known as a custodian, is given with
the possession of the good or property by another individual known as the
bailor.

This relationship, in legal terms as a bailment, is based on a contractual

agreement between the bailor and the bailee. The bailment specifies the terms
and purpose of the change in custody and is outlined in writing such as a receipt
or chit.

Duties of a Bailor

 Duty to disclose faults (Section 150) In case of gratuitous bailment, the

bailor is expected to disclose to the bailee all the defects known to him
and which would get in the way with the use of goods bailed whereas A
non-gratuitous bailment or bailment for reward, however, carries a
greater responsibility on the part of bailor. He will be liable even if he
didn’t know the defects.

Example: A lends his horse, which he knows to be frisky, to B. He does not

disclose the fact that the horse is frisky, When B tries to ride it, the horse throws
him off its back, and B is injured. A is responsible to B for injury sustained to
B.

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

of it, and A is injured. B is still responsible to A for the injury.

 Bear necessary expenses of bailment (Section 158): The bailor has to

bear any unordinary expenses incurred under contract of bailment. In case
of bailment for consideration, when the goods are required to be carried
or kept or some work is done in relation to them by the bailee, the bailor
is required to repay all the expenses incurred by the bailee to him.

CASE: Rasiklal Kantilal and Co. v. Board of Trustee of Port of Bombay 9

In this case, it was held that if the bailor has such an obligation to pay the
bailee, any person claiming through the bailor must necessarily be bound by
such an obligation unless the bailee releases such person from such an
obligation.

 Indemnify the bailee for incurring loss when bailment is terminated

prior to its term (Section 159): A bailment for consideration can be
terminated at any time by the bailor even when the bailment was for a
specific purpose or time. Any loss accrued to the bailee from such
termination shall not more than the benefit derived from the bailment. In
case the loss is more than the benefit, the bailee shall be indemnified by
the bailor.

9
AIR 2017 SC 1283
 Duty to claim back the goods bailed: The bailor is bound to accept the
goods returned by the bailee in accordance with the terms of bailment. If
he refuses or fails to accept back the goods, if offered at a proper time and
at a proper place, without any reasonable ground, he will be responsible
for any damage to the goods and not the bailee.

 Indemnification of the bailee (Section 164): If the bailor's title to the

goods is defective and he is not entitled to make bailment and the bailee
suffers any loss or damage as a consequence, the bailor will be liable for
such loss or damage.
Duties of a Bailee

 Take reasonable care of the goods (Section 151): “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,
tale of his goods of the same bulk, quality and values as the goods
bailed”.10 This section lays down a uniform standard of care for "all cases
of bailment".

This means that the bailee is responsible to take care of goods as a

reasonable would take of his goods of the same value, quality. 11 Thus if the
bailee takes due care of the goods, then he is not liable for deterioration of
goods.

English law divides bailee into two categories only; (1) Gratuitous bailee
and (2) Bailee for a reward. A gratuitous bailee is only liable for any loss
or damage to the goods only in case of gross negligence by him. But the
present trend is towards a simple negligence. This was backed in the case
of Blount Vs. War Office 12 , where the plaintiff's house was requisitioned
by the war office. He was allowed to store a few articles in the storeroom.
But the troops stationed there, without proper control, broke in the
storeroom and stole some goods. The war office was held liable.

In India, section 151 prescribes a uniform standard of care in all cases of

bailment. If a bailee's care falls below this standard then he is held liable.
Contrary to this, section 152, which says- “the bailee in absence of any

10
Supra,4.
11
‘Duties of Bailor and Bailee’,<https://www.toppr.com/guides/business-laws-cs/indian-contract-act-
1872/duties-of-bailee-and-bailor/> accessed on 1 March 2021.
12
(1953) 1 WLR 736.
 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”, provides for situation when a bailee is not liable.

In Gopal Singh Vs Punjab National Bank13, where on account of the

partition of India and Pakistan, a bank had to flee to India. The bank was
not held liable. It was said that- no cast-iron standard can be laid down for
the measure of care due from a bailee and the nature and amount of care
must vary with the posture of each case.

The burden of proof is on bailee to show that he had taken reasonable care
and precaution that must be taken as per section 151. If he can produce
evidence before the court of his innocence, then he will not be held liable.
This principle was established when a port authority was held liable in the
absence of proof that they took as much care of the goods landed at their
port as satisfied the requirement of Section 151. 14
CASE: KAVITA TREHAN V. BALSARA HYGIENE PRODUCTS LIMITED 15

In this case, it was held that 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.

1. Not use the goods inconsistently with the contract (Section 154):
Section 154, Liability of bailee making unauthorized use of goods bailed,

13
AIR 1976 Del 115.
14
Chittagong Port Authority Vs. Mohd. Ishqque, (1983) 35 DLR (AD) 364.

15
AIR 1992 Del 103
 states that “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” 16. This means that if a bailee uses the goods for
any unauthorized purpose, then he will be liable for any damage sustained
to the goods. Even the act of god or inevitable act cannot be claimed as a
defense.
This principle is further backed in the case of Alias Vs. E.M. Paul17, where
a vehicle was delivered to a workshop for repair. The owner of the
workshop allowed an unlicensed employee to drive the car. While driving
the car, he caused an accident and the victim died. The bailee was held
liable as the owner of the vehicle.
Example 1: A lends a horse to B for his own riding only. B allows C, a
member of his family to ride the horse. C rides with care, but the horse
accidentally falls and is injured. B is liable to make compensation to A for the
injury done to the horse.

Example 2: A hires a horse in Calcutta from B expressly to march to Banaras.

A ride 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.

 Not to mix the goods bailed with his own goods (Section 155, 156):
The bailee has a duty not to mix his goods with the goods of the bailor
and shall keep them separate. If he does so:
○ with the consent of the bailor, the bailor and the bailee shall have
an equal proportion of interest in this mixture of goods.

16
Supra,4.
17
AIR 2004 Ker 214.
 o without the consent of the bailor, the bailee has to bear the
expenses of division and separation and the damages arising from
such mixture, if the goods can be divided/separated.
■ without the consent of the bailor, the bailee shall compensate
the bailor for the loss if the goods mixed.

 Not to set up an adverse title: The bailee shall not hold the goods for the
bailor on behalf of him as per Section 117 of the Evidence Act, 1872. The
bailee cannot deny the rights of the bailor to have the goods and receive
them back. The bailor is bound to prove that the other person had a right
to goods as against the bailor if he delivers them to a person other than
the bailor.

 Return accretion to the goods (Section 163): The bailer shall deliver any
increase or profit accredit as section 163 says that- "in the absence of any
contract to the contrary, the bailee is bound to deliver to the bailor,
according to his directions, any increase or profit which may have accrued
from the goods bailed"18. It simply means that any profit or increase from
the items bailed, during the time of bailment, must be given to bailor by
the bailee. In the case of Standard Chartered Bank Vs custodian 19, where
shares and securities were pledged with a bank and the bank received bonus
shares and dividends and interest in respect thereof, it was held that the
bank could not be compelled to handover such increment unless the pledge
securities were redeemed.

18
Supra,4
19
AIR 2000 SC 1488.
 Example: A leaves a hen in the custody of B to be taken care of. The hen
delivers a chick in the custody of B. B is bound to return the hen as well as
the chick to A.

 Return the goods (Section 161): when the purpose of bailment of goods
is accomplished, then bailee must return those goods to the bailor. this
has to be done without any demand. But if the bailee keeps the goods,
then he is responsible for all the loss and damage sustained by the bailor.
this principle is defined under section 161, which states that- "If by the
fault 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." 20.
In Shaw & Co Vs. Sons21 the defendant, a bookbinder was supposed to
return books to the plaintiff. He failed to do so and, in a fire, those books
were destroyed. The court held that he was responsible for the loss
incurred by the plaintiff.
But section 159, restoration of goods lent gratuitously, states that if goods
are bailed gratuitously, but the bailor needs them back, even though he
has bailed them for a specific time. This bounds the bailee to return the
goods, but in the process, he may incur some loss, damage. This damage
is to be indemnified by the bailor. 22 In certain cases like death, the
gratuitous bailment is terminated. 23

20
Supra,4
21
(1917) 1 KB 799.
22
Avtar Singh, Business Law (first edition published in 1973) 173.
23
Supra,29.
 Rights of a Bailor

 Right to enforce bailee’s performance: Since the bailor delivers goods

to the bailee for some specific purpose, the former, especially in case of
non-gratuitous bailment, has an elemental right to achieve that purpose or
obtain the benefit (i.e., performance) through the latter.

Example, if X delivers a suit length to Y, his tailor, to stitch a suit for

him, X (bailor) will see that the tailor does the needful in the desired
manner.

 Compensation from wrongdoer (Section 180): If a bailee is deprived of

the use or possession of the goods bailed by a third person wrongfully or
if the goods are damaged, the bailee or bailor has a right to sue the third
person for such damage or deprivation.

 Avoidance of Contract (Section 153): The bailor has a right to terminate

the bailment if the bailee doesn't any act inconsistent with the terms of the
bailment with regard to the goods bailed.

Example: A lets his horse to B, for hire, for his own riding. B drives the horse
in his carriage. This is, at the option of A, a termination of bailment.

 Return of goods (Section 159): When the goods are lent for
consideration, the bailor has a right to demand their return as and when he
wants even if he lent them for a specific period of time or purpose.
 Rights of a Bailee

 Delivery to one of several joint bailors of the goods bailed (Section

165): If goods of several joint owners are being bailed, the bailee may
deliver them back to one joint owner without the consent of all owners
when there is no agreement to the contrary.

 Bailee's Lien (Section 170): When the charges incurred by the bailee in
regard to the goods bailed are not paid to him, he has a right to lien i.e.
right to retain the goods with him.

Example 1: 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.

 Delivery of goods to bailor without title (Section 166): If any person

other than the bailor claims the goods bailed, the bailee has a right to
apply to Court to prevent the delivery of goods to the bailor and to decide
the title of such goods.

 Right to take action against trespassers (Section 180): If any third

person deprives the bailee wrongfully of the possession or use of goods
bailed to him, the Bailee can file a suit against that person in respect of
the goods bailed.
 Conclusion

The bailee has to perform according to the obligations laid down in the contract
of bailment and as per the law of the land. He is being inconsistent or negligent
while performing his obligation or duty would make him liable under various
provisions of law. In each contract of law, he has a certain uniform or fixed
obligations to comply with, and he cannot part with those basic obligations even
if a contract does not provide for any such obligations. These obligations are the
essence of a bailment contract. The obligations might differ depending on the
facts but there are certain duties which are implied, and reasonable care is to be
taken by the bailee. The bailee’s responsibility towards the goods bailed can be
increased by way of providing provisions in that regard but it cannot be lowered
down, i.e., he cannot repudiate his responsibility.
 Bibliography

BOOKS

● Dr.R.K. BANGIA, Contract-II, 7th ed.2017, Allahabad Law Agency

● Avtar Singh & R.C Vastav, The Principles of Law of Contract, 1st
edition, Bloomsbury India

● The Indian Contract Act,1872 Bare Act, Lexis Nexis

WEBSITE

● https://www.investopedia.com/terms/b/bailment.asp

● https://www.toppr.com/guides/business-laws-cs/indian-contract-act-
1872/contract-of-bailment pledge/

● https://www.lawnn.com/contract-of-bailment/

● http://wordpress.com/
● https://blog.ipleaders.in/what-is-the-contract-of-bailment/