CONTRACT LAW II

Topic: “RIGHTS AND LIABILITIES OF A BAILEE”

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 INDEX

INTRODUCTION ............................................................................................. 3
1.1 What is Bailment? .................................................................................. 3
1.2 What is a ‘Bailor’ and a ‘Bailee’? ........................................................... 4
1.3 Essentials of Bailment: ........................................................................... 4
1.4 According to Sections involved in this project : ...................................... 6
Liabilities and Duties of a Bailee ...................................................................... 7
2.1 Take care of the goods bailed : .............................................................. 7
2.2 Not to make unauthorised use : ............................................................. 7
2.3 Must not mix up the goods with his own goods : .................................... 8
2.4 To return the goods: ............................................................................... 9
2.5 To return any increase or profit from the goods : ................................. 10
2.6 Must not set up an adverse title : ......................................................... 10
Rights of a Bailee .......................................................................................... 11
3.1 Enforcement of rights: .......................................................................... 11
3.2 To know faults in the goods bailed to him: ........................................... 11
3.3 Claim proportionate share in goods mixed: .......................................... 11
3.4 Claim expenses of bailment: ................................................................ 11
3.5 Gratuitous bailee to claim indemnity : .................................................. 11
3.6 Claim Compensation : .......................................................................... 12
3.7 Bailee’s particular Lien : ....................................................................... 12
3.8 Wrongful deprivation of goods – .......................................................... 12
Case Laws ..................................................................................................... 13
Conclusion ..................................................................................................... 15
Bibliography ................................................................................................... 16

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 INTRODUCTION
The Indian Contract Act, 1872 provides the law relating to contracts in India and
is the act regulating Indian contract law. The Act is based on the principles of
English Common Law. It is a central act and hence is applicable to all the states
of India. It determines the circumstances in which promises made by the parties
to a contract shall be legally binding. Under According to Section 2(h), the
Indian Contract Act defines a contract as an agreement which is enforceable
by law.

Indian Contract Act, 1872 contains two types of Contracts. One are the ‘General
contracts’ from According to Section 1- 75. However, the According to Sections
from 124 onwards include the ‘Special Contracts’ such as Contract of
Indemnity, Contract of Guarantee, Bailment, Pledge and Agency. These
contracts need not essentially fulfil all the essentials of a valid contract
mentioned in According to Section 25 of the Indian Contract act, 1872. Even if
all these essentials are not fulfilled, a legally binding agreement can be made.
For instance, Consideration is an essential for a valid contract, however,
consideration is not required to develop a contract of agency.

The project discusses the contract of Bailment specifically focussing on the

Rights and liabilities of a Bailee in the contract of bailment.

1.1 What is Bailment?

We come across contracts of bailment in our daily life but it is ignored that this
act is regulated by a detailed legislation as this one.

Bailment is a special Contract which is included in the Act from According to

Section 148- 171 and According to Section 180 and 181.

According to The Indian Contract Act,1872 1, Section 148, "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.

1 The Indian Contract Act, 1872, s. 148

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1.2 What is a ‘Bailor’ and a ‘Bailee’?

Bailor:- The person delivering the goods is called ‘Bailor’.

Bailee:- The person to whom they (goods) are delivered is ‘Bailee’.

For instance, when you give your watch to a mobile shop to get it repaired, you
are the ‘Bailor’ and the repairer is the ‘bailee’. The latter is to repair the watch
and return it to the Bailor or dispose it as per the instructions of the bailor. 2

1.3 Essentials of Bailment:

The contract of bailment needs to fulfil the following essentials:

a) Delivery of Possession:
There must be temporary delivery of the possession of goods - the main
characteristic of a bailment is that the delivery contemplated is for a
temporary purpose. There can be no bailment if the whole property is
transferred and the thing delivered is not to be specifically returned or
accounted for nor where the delivery of property is for an equivalent in
money or other commodity, if so, it is a sale or exchange not bailment.
According to s. 149 of the act, delivery is of two kinds - Actual and
Constructive. Actual delivery may be made by handing over something to
the bailee. Constructive or Symbolic delivery may be made by doing
something which has the effect of putting the goods in the possession of the
intended bailee or of any person authorised to hold them on his behalf.
Thus, the delivery of a document of title i.e. Railway Receipt may amount to
the delivery of goods contained therein.
It may be noted that bailment involves change of possession. Mere custody
without possession does not create the relation of a bailor and bailee, for
instance, a servant in possession of his master's goods, or a guest using his
host's goods, cannot be called a bailee.3

2 ‘Bailment: Its Essentials and Kinds’, legal Point, at

https://legalpoint-india.blogspot.com/2016/02/bailment-its-essentials-and-kinds.html, (8th
September, 2019)
3 ‘Bialment’, BFA, at https://businessfinancearticles.org/bailment#Temporary_Purpose, (9th

Septe,mber, 2019)

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 Similarly in the case of Kalya Perimal v. Visalakshmi4- A jeweller was
engaged by a lady to melt old jewellery and make new ornaments. This work
was done at the jeweller’s house under the lady's supervision. Every
evening. the lady would lock the half made jewellery into a box, leave the
box in the jeweller's house, but take its key with her. One night, the jewels
were stolen. On a suit filed by the lady, the question arose whether the
jeweller were in the possession of the jeweller or of the lady, and it was held
that the circumstances, there was a re-delivery of the jewels to the lady
every evening. and that they could not be said to be in the possession of the
jeweller when they were stolen.
According to the explanation given in According to Section 148 of The Indian
Contract Act, 1872 , but, if a person is already in possession of the goods
of another and contracts to hold them as a bailee, he thereby becomes the
bailee, and the owner becomes the bailor of such goods, although they have
not been delivered to him by way of bailment.

b) The delivery of goods should be upon a contract –

In bailment, the delivery of goods is upon a contract that when the purpose
is accomplished, they shall be returned. But it may be noted that though
bailment is usually based on a contract. According to s. 168 there are some
exceptions, for instance, in the case of a finder of goods There is no contract
'between the finder of a lost article and its owner; nonetheless, the finder in
law as a bailee of the lost article.

c) Delivery of goods should be for a specific purpose –

Bailment has to be for a specific purpose and the goods are returned subject
to completion of this purpose. However, when the goods are not to be
retuned or disposed, this type of relation is not called that of bailor and
bailee. The purpose may vary from safe-keeping or safe custody to repairing
or changing the form of the goods.
For instance:
o A leaves his suit-case with a Railway Cloak Room for safe custody.

4
Kalya Perimal v. Visalakshmi ,AIR 1938 Mad 32.

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 o A gives his watch for repair to a watch-maker.
o A gives a piece of cloth to a tailor for stitching it into a shirt.

d) Return of goods –
For a transaction of bailment, it is necessary that the same goods must be
returned.
Where money is deposited in a savings bank account or any other account,
it is not a transaction of bailment because the bank is not going to return the
same currency notes but will return only an equivalent amount. However,
where money or valuables are kept in safe custody, it will amount to a
transaction of bailment as these will be returned in specie.
It should be noted that return of goods in specie does not mean that their
form cannot change. For example, old ornaments can be changed into new
one. A piece of cloth can be stitched into a shirt.

1.4 According to Sections involved in this project :

The project involves S. 151, 152, 153, 154, 155, 156, 157, 158, 160, 161, 163,
164, 170, 180 and 181 of The Indian Contract Act, 1872.

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 Liabilities and Duties of a
Bailee
The liabilities and duties of the bailee are as follows:

2.1 Take care of the goods bailed :

According to Section 151 of Indian Contract Act, 1872 provides5,

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 good bailed. It will not make any
difference whether the bailment is gratuitous for reward. If any loss is caused
to the goods, in spite of such reasonable care by the bailee, he shall not be
liable for the loss. Bailee shall be held liable for losses arising due to his
negligence.

For instance:

➢ Rampal v.Gauri Shanker6, A delivered to B certain gold ornaments for

safe custody. B kept the ornaments in a locked safe and kept the key in
the case box in the same room. The room was on the ground and was
locked from outside, and therefore, was easily accessible to burglars.
The ornaments were stolen. It was held that the bailee did not take
reasonable care, and therefore, was liable for the loss.
➢ Shanti Lal v. Takechand7, A deposited his goods in B’s godown. On
account of unprecedented floods, a part of the goods were damaged.
Held, B is not liable for the loss

A bailee is liable to compensate the bailor for any damages done to the thing
bailed by the negligence of his servants acting in the course of the employment.

2.2 Not to make unauthorised use :

5 The Indian Contract Act, 1872, S. 151.

6 Rampal v.Gauri Shanker, AIR 1952 Nag. 81.
7 Shanti Lal v. Takechand, AIR 1985 SC 28.

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According to S. 153 of Indian Contract Act, 18728,

Bailee must use the goods according to the conditions of the contract of
bailment or the directions of the bailor. He shall be held liable for compensation
to the bailor if any damage is caused to the goods because of his unauthorised
use. Bailee must not do any act with regard to the goods bailed which is
inconsistent with the terms of the bailment, otherwise the contract shall become
voidable at the option of the bailor and bailee shall be held liable to compensate
and damages caused to the goods.

For instance, A lends his 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
accidently falls and is injured. What remedy has A against B ?

S. 154 of Indian Contract Act, 1872, “ 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. —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."

A can claim damages from B for the injury caused to the horse from an
unauthorised use. B in this case has failed to use the horse according to the
conditions of bailment, and therefore, he shall be liable to pay compensation to
the bailor for the damages caused to the horse because of his unauthorised
use.9

2.3 Must not mix up the goods with his own goods :

8 The Indian Contract Act, 1872, S. 153.

9 ‘Bailment’, Legal Services India, at http://www.legalservicesindia.com/article/964/Contract--
II:-Bailment.html, (9th September, 2019).

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According to S. 155, 156 and 157 of Indian Contract Act, 1872,

According to Section 155 provides that bailee is not entitled to mix up the goods
bailed with his own goods except with the consent of the bailor. If he, with the
consent of the bailor, mixes the goods bailed with his own goods, both the
parties shall have an interest in proportion to their respective shares in the
mixture thus produced.

According to Section 156 provides that if the bailee, without the consent of the
bailor, mixes the goods bailed with his own goods and the goods can be
separated or divided, the property in the goods remains in the parties
respectively bailee is bound to bear the expenses of separation and division
and any damage arising from the mixture.

According to Section 157 provides that 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 to deliver
them back, the bailor is entitled to compensation by the bailee for loss of the
goods.10

For instance,

➢ A bails two bales of cotton marked with a particular mark to B. B, without A’s
consent, mixes the 100 bales of his own, bearing a different mark. A is
entitled to have his 100 bales returned, and B is bound to bear all the
expenses in the separation of the bales and any other incidental damages.

A bails a barrel of cape flour worth Rs. 45 to B. B without A’s consent, mixed
the flour with country flour with country flour of his own, worth only Rs. 25 a
barrel. B must compensate A for his flour.

2.4 To return the goods:

According to S. 160 of Indian Contract Act, 187211, “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,

10 ‘Bailment’, Legal Services India, at http://www.legalservicesindia.com/article/964/Contract--

II:-Bailment.html, (9th September, 2019).
11
The Indian Contract Act, 1872, S. 160.

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or the purpose for which they were bailed has been accomplished. —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."

Bailee must return or deliver the goods bailed according to the direction of the
bailor, on the expiry of the time of bailment or on the accomplishment of the
purpose of bailment.

According to S. 161 of Indian Contract Act, 187212, “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.”

Bailee shall be responsible to the bailor for any loss, destruction or deterioration
of the goods from of the date of the expiry of the contract of bailment, if he fails
to return deliver or tender the goods at the proper time.

2.5 To return any increase or profit from the goods :

According to S. 163 of Indian Contract Act, 187213, “

Bailee is bound to deliver to the bailor any increase or profit which he might
have incurred from the goods bailed, provided the contract does not provide
otherwise.

For instance, A leaves a cow in the custody of B. The cow gives birth a calf. B
is bound to deliver the calf as well as the cow to A.

2.6 Must not set up an adverse title :

Bailee must not set up a title adverse to that of the bailor. He must hold the
goods on behalf of and for the bailor. He cannot deny the title of the bailor.

12
The Indian Contract Act, 1872, S. 161.
13The Indian Contract Act, 1872, S. 163.

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 Rights of a Bailee
The bailee has the following rights:

3.1 Enforcement of rights:

The bailee may enforce the duties and liabilities of the bailor.

3.2 To know faults in the goods bailed to him:

According to Sec 150, The bailee has a right to know the faults in the goods
bailed to him, of which the bailor is aware and which materially interfere with
the use of them. Or expose the bailee to extraordinary risks. If the bailor does
not make such disclosures, bailee is entitled to receive damages arising directly
from such faults.
(This is a corresponding duty of the bailor to disclosure faults discussed above
under duties and liabilities of the bailor).

3.3 Claim proportionate share in goods mixed:

According to Sec 155, if the bailee mixes the goods of the bailor with his own
goods with the consent of the bailor, the bailor has a right to claim proportionate
share in the goods so mixed.

3.4 Claim expenses of bailment:

According to Sec 158, where the goods are bailed and the work is to be carried
on by the bailee and the bailee is to receive no remuneration, the bailee is
entitled to claim necessary expenses incurred by him. This right can be claimed
by gratuitous bailee.

3.5 Gratuitous bailee to claim indemnity :

According to Sec 159, where the bailee is gratuitous and the bailor demands
back the return of goods before the time agreed upon or before the purpose is

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accomplished, the bailee is entitled to be indemnified by the bailor if he is put
to any loss caused by earlier demand.

3.6 Claim Compensation :

According to Sec 164, if the bailor’s title to the goods was defective by reason
of which he was not entitled to make the bailment, or to receive back of the
goods or to give directions regarding them, the bailee is entitled to claim
compensation for any loss which he may thereby sustain.

3.7 Bailee’s particular Lien :

According to Sec 170, where the bailee has, in accordance with the purpose
of 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.

For instance,

➢ 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 rendered.
➢ A gives cloth to B, a tailor to make into a coat promises A to deliver the coat
as soon as it is finished and to give A three months’ credit for the price. B is
not entitled to retain the coat until he is paid.

3.8 Wrongful deprivation of goods –

According to Section 180 & 181, if a third person wrongfully deprives the bailee
of the use or possession of the goods bailed, or does them an injury, the bailee
is entitled to use such remedies as the owner might have used in the like case

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as if no bailment had been made. Either the bailee or the bailor may bring a suit
against a third person for such deprivation of injury.

The right which belongs to the owner is given to the bailee under this According
to Section by virtue of his possession over the goods, if any person wrongly
deprives him of the use or possession of the goods bailed to him, or causes
any injury to such goods.14

Whatever is obtained by way of relief or compensation in any such suit shall,

as between the bailor and the bailee, be dealt with according to their respective
interests.

Case Laws
i. In Alias v. E.M. Patil15,
Where a vehicle was delivered to a workshop for repair and the owner
of the workshop allowed an unlicensed employee to drive the vehicle

14‘Bialment’, BFA, at https://businessfinancearticles.org/bailment#Temporary_Purpose, (9th

Septe,mber, 2019)

15 Alias v. E.M. Patil, AIR 2004 Ker 214.

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 and he caused an accident resulting in the death of a person, it was held
that the bailee was liable to compensate the deceased as also the owner
of the vehicle because it was an unauthorised use of the vehicle and the
liability was absolute. “The insurer was also liable to pay compensation
to the deceased and recover indemnity from the vehicle owner.”

ii. In Shaw & Co. v. Symmons & Sons16,

The plaintiff entrusted books to the defendant, a bookbinder, to be
bound, the latter promising to return them within a reasonable time. The
plaintiff having required the defendant to deliver the whole of the books
then bound, the defendant failed to deliver them within a reasonable time
and they were subsequently burnt in an accidental fire on his premises.

The defendant was held liable in damages for the loss of the books.
When the loss takes place while the bailee’s wrongful act is in operation,
there is no question of any defence like “act of God” or “inevitable
accident” being set up. He is liable in any case.

iii. In Dhian Singh Sobha Singh v. Union of India17,

When the purpose of bailment is accomplished or the time for which the
goods were bailed has expired, the bailee should return the goods tothe
bailor without demand

.
iv. In Hutton v. Car Maintenance Co18.,
The owner of a motor car gave it to a company to maintain it on a fixed
annual payment. An amount having become due for maintenance
charges, the company claimed lien on the car. It was held that in as much
as what the company did was not to improve the car‘ but only to maintain
it in its former condition, the company had no lien on the car. Similarly,
where a bailee claimed lien for storage of sugar, it was held that such

16
Shaw & Co. v. Symmons & Sons, [1917] 1 KB 799.
17
Dhian Singh Sobha Singh v. Union of India, AIR 2006 Bom 311.
18
Hutton v. Car Maintenance Co., [1915] 1 Ch 21.

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 custody, not being a service involving the exercise of Labour or skill
within the meaning of Section 170, the bailee was not entitled to lien. On
the same reasoning, a person to whom cattle are given for grazing does
not have the right of lien on them for his charges.

v. In Surya Investment Co. v. State Trading Corporation of India Private

Ltd.,19
The Calcutta High Court has laid down that this right is not linked with
the right of lien. Lien can be exercised only as long as possession is
retained whereas the right to Charges remains alive even when
possession has been parted with. In this case the State Trading
Corporation had hired the plaintiff‘s storage tank for storing its oil. On
account of a dispute, the STC appointed a Special officer who took
charge of the tank and delivered its contents to others as directed. The
plaintiff thus lost possession of the oil and with it his lien, but his right to
charges for protection and storage of the oil survived. The court said that
the bailor had enjoyed the benefit of the bailee’s services.“

Conclusion
The bailment contract embodying general principles of the law of bailments
governs the rights and duties of the bailor and bailee. The duty of care that must
be exercised by a bailee varies, depending on the type of bailment.

In a bailment for mutual benefit, the bailee must take reasonable care of the
bailed property. A bailee who fails to do so may be held liable for any damages
incurred from his or her negligence. When a bailor receives the sole benefit
from the bailment, the bailee has a lesser duty to care for the property and is

19
Surya Investment Co. v. State Trading Corporation of India Private Ltd., AIR 1987 Cal 46.

15
financially responsible only if he or she has been grossly negligent or has acted
in bad faith in taking care of the property. In contrast, a bailee for whose sole
benefit property has been bailed must exercise extraordinary care for the
property. The bailee can use the property only in the manner authorized by the
terms of the bailment. The bailee is liable for all injuries to the property from
failure to properly care for or use it.

Once the purpose of the bailment has been completed, the bailee usually must
return the property to the bailor, or account for it, depending upon the terms of
the contract. If, through no fault of his or her own, the return of the property is
delayed or becomes impossible—for example, when it is lost during the course
of the bailment or when a hurricane blows the property into the ocean—the
bailee will not be held liable for non-delivery on demand. In all other situations,
however, the bailee will be responsible for the tort of conversion for unjustifiable
failure to redeliver the property as well as its unauthorized use.

The provisions of the bailment contract may restrict the liability of a bailee for
negligent care or unauthorized use of the property. Such terms may not,
however, absolve the bailee from all liability for the consequences of his or her
own fraud or negligence. The bailor must have notice of all such limitations on
liability. The restrictions will be enforced in any action brought for damages as
long as the contract does not violate the law or public policy. Similarly, a bailee
may extend his or her liability to the bailor by contract provision.

Bibliography
• Avatar Singh, ‘ Contract and Specific Relief’, Eastern Book Company,
2017
• Bialment’,BFA, at
https://businessfinancearticles.org/bailment#Temporary_Purpose,
• Bailment’, Legal Services India, at
http://www.legalservicesindia.com/article/964/Contract--II:-
Bailment.html.

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• ‘Bailment: Its Essentials and Kinds’, legal Point, at https://legalpoint-
india.blogspot.com/2016/02/bailment-its-essentials-and-kinds.html.

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