Bailment- Meaning and Introduction

Table of Contents
 Introduction
 Meaning
o Who are the parties to the contract of Bailment?
o How is Bailment different from the sale of the good?
o What goods can be bailed?
 Essential Features
o Delivery of Possession
o Delivery upon Contract
o Delivery must be for some purpose
o Return of goods
 Classification of Bailment
o On the basis of Remuneration
 Gratuitous Bailment
 Non-Gratuitous Bailment
o On the basis of benefits to the parties
 For the exclusive benefit of the bailor
 For the exclusive benefit of the bailee
 For the mutual benefit of them both
 Duties/Rights of Bailor and bailee
o Duties of Bailor
 Disclose known faults
 Bear expenses of bailment
 In case of Non-Gratuitous Bailment
 In case of Gratuitous Bailment
 Indemnify Bailee
 Indemnify the bailee when he suffers due to the title of bailor to
the goods being defective
 Receive back the goods
o Duties of the Bailee
 Take Reasonable Care of the Goods Bailed
 No Unauthorized use of goods
 Not mix goods bailed with own goods
 Return any Accretion to the goods
 Return the goods
o Rights of the Bailor
 Enforcement of rights
 Avoidance of Contract
 Return of goods lent gratuitously
 Compensation from a wrong-doer
o Rights of the Bailee
 Delivery of goods to bailor without title
 Can apply to a court to stop delivery
 Right against trespass
 Bailee’s lien
 Conclusion


Introduction

There are many cases of bailment in our day to day life. For example, in the case
of laundry, we give our clothes for getting washed. Once they are washed, they are to be
returned back to us. We place the other person in temporary possession of our clothes
for a specific purpose and there is an express or implied understanding between the two
to return the good once the purpose has been fulfilled.

Meaning

The word ‘bailment’, is derived from ‘bailler’, a french word which means ‘to
deliver’. Bailment has been defined under the Section 148 of the Indian Contract Act,
1872, according to which Bailment involves the delivery of goods from one person to
another for a specific purpose and upon a contract, when the purpose is fulfilled, the
good has to be returned or dealt with on the direction of the person who has delivered
the goods.

Who are the parties to the contract of Bailment?

There are generally two parties to the contract of Bailment. The person who is the owner
and delivers the good is called ‘bailor’ while the person to whom the goods are delivered
is called ‘bailee’.

General rules relating to Bailment are mentioned in Chapter IX (Section 148-181) of

the Indian Contract Act, 1872. Bailment is a type of a special contract, so all essential
elements of a valid contract like consent, competency, etc are required for it to be valid.
But, a valid bailment can arise even without a valid contract between the two parties, for
example, a lost good finder becomes a bailee and has the responsibility to return it to its
owner, the bailer, even if no contract exists between them.

How is Bailment different from the sale of the good?

Sales involve the transfer of the ownership of the good in exchange for something of
value while on the other hand, Bailment involves the transfer of the possession of the
good, not the ownership.

What goods can be bailed?

Only the goods that are of movable nature can be bailed. However, current money or
legal tender cannot be bailed and deposition of money will not be counted as bailment as
money is not a good and the same money will not be delivered back to the client.
Essential Features

Delivery of Possession

There must be a delivery of goods, which means, delivery of possession of the goods by
the bailer to the bailee to fulfill the purpose of bailment. Possession refers to exercising
control over the good and excluding any other person to do the same.

Section 149 of the Indian Contract Act, 1872 talks about the same. The delivery of
possession can either be actual or constructive. It means that either the good can
directly be put in the actual physical possession of the bailee or put the bailee in a
position of power over such goods that can be physically possessed later, if possible. In
constructive delivery, the bailor gives the bailee means of accessing the custody of the
good and not its actual delivery.

For example, C has a rare coin locked safe deposit box. As the delivery of a safe deposit
box is impossible, when C, bailor, gives the key of the deposit box for the bailment of
the coin to A, bailee, it would be considered as constructive delivery.

It is important to note that mere custody of goods is not equivalent to the possession of
goods. In Reaves v. Capper, it was held that a servant can be in the custody of the
goods because of the nature of his job but that does not mean he is in possession of the
goods. For example, a servant holding his master’s umbrella is not a bailee.

Delivery upon Contract

There must be a contract between the bailor and the bailee for such transfer or good and
its return. If there is no contract, there cannot be bailment. Moreover, the contract can
either be expressed or implied.

Exception: If the good is lost, the finder of good will be seen as the bailee even if there
was no contract of Bailment or delivery of goods under a contract. A finder of goods is a
person who found a lost good belonging to someone else and keeps it under his
possession until the owner of the good is found. This leads to an involuntary form of
Bailment contract between them. The finder has all rights and duties that of a bailee.

Delivery must be for some purpose

It is essential that there must be a purpose for which the delivery of the goods takes
place. If after the completion of the purpose of bailment the good is not accounted for,
then bailment cannot arise. This is an important feature as it separates it from other
relations like agency, etc..
Return of goods

After the completion of the purpose, the good must be delivered to the bailor or dealt
with as per his instructions. If he/she is not bound to return the good then there is no
bailment. Even if there is an agreement to return an equivalent and not the same good,
it will not amount to bailment.

For example, a tailor receives a saree for stitching as he is the bailee. After the saree
has been stitched, the tailor is supposed to return it to the bailor.

Moreover, it is necessary for the bailee to follow the instruction given by the bailor for
the purpose of the return of the good if any.

In Secy of state v. Sheo Singh Rai, a man, for the purpose of cancelling and
consolidating nine government promissory notes into a single note of Rs. 48000, went to
a Treasury Officer. Later, the notes were misappropriated by a servant at the treasury
and the man filed a suit against the State to hold it responsible as a bailee. He failed as
there is no Bailment without delivery of good and a promise to return the same and the
government was not bound to return the same notes or deal with them in accordance
with the wishes of the man.

Classification of Bailment

Bailment can be broadly categorized into two types:

On the basis of Remuneration

Gratuitous Bailment

When a bailment is made without any consideration of benefit to the bailor or to the
bailee, it is referred to as gratuitous bailment. In simple terms, it is a bailment without
any consideration.

For example, when one lends a book to a friend free of cost.

Non-Gratuitous Bailment

When generally there is a consideration for bailment between the bailor and the bailee
then it is referred to as non-gratuitous bailment.

For example, when someone gets a book issued from a library in exchange for a fee.

On the basis of benefits to the parties

For the exclusive benefit of the bailor

In this case, the bailor delivers his/her good to the bailee for safe custody. There is no
benefit/benefit for the bailee.

For example, leaving a pet with a neighbour when going out.

For the exclusive benefit of the bailee

In this case, the bailor delivers a good for the benefit of the bailee. For example, a friend
borrowing our car for a week.

For the mutual benefit of them both

In this case, the bailor deliver his good to the bailee for consideration and both the
parties get benefit out of bailment,

For example, giving a bike for repair to a mechanic, for which the mechanic gets paid.

Duties/Rights of Bailor and bailee

Duties of Bailor

Disclose known faults

It does not matter whether the goods are gratuitously or non-gratuitously bailed, the
bailor has a duty to disclose all the known faults about that good that is being bailed to
the bailee. Failing to do so would make the bailor liable to indemnify the bailee for all the
damages caused to him directly from this fault. However, it is important to note that in
the case of non-gratuitous bailment, the bailor is responsible even for those faults from
which he/she is not aware.

Examples:

1. A lends his bike to B. A is aware of the fact that the bike’s brakes are not working
properly and fails to inform the same to B. B met with an accident and is severely
injured. A is liable to pay B for the damages sustained.
2. Raj hires a racing car from Shyam to participate in a racing competition. During
the race, the car caught fire. Raj was unable to extinguish it as the fire-fighting
equipment was out of order, due to which he sustained injuries. Therefore, Shyam
is responsible to pay Raj even if he was not aware of the fact that fire-fighting
equipment was out of order.
Bear expenses of bailment

In case of Non-Gratuitous Bailment

Bailor is expected to bear all the extraordinary expenses but the bailee is bound to bear
all the ordinary and reasonable expenses of the bailment.

Example: A leaves his dog with B, a professional dog trainer, for a week as he is going
out of town. B is being paid for the same so A is not required to bear the ordinary
expenses. However, the dog suffered from high fever and B had to call a doctor. A has to
repay all the medical expenses born by B.

In case of Gratuitous Bailment

The bailor is required to pay all the necessary expenses incurred by the bailee for the
purpose of bailment for the delivered goods.

Example: A lends his dog to B, a close friend, for a week as he is going out of town. A is
not paying anything to B to take care of his dog so he needs to pay him for all the
ordinary expenses born by B to feed the dog for a week. However, if the dog gets sick
and suffers from high fever, A has to pay B for all the additional medical expenses
incurred by him.

Indemnify Bailee

According to Section 159, in case of gratuitous bailment, the bailor can terminate
bailment at any time even if the bailment was for a specific time or purpose. However,
the bailor is required to indemnify the bailee if the losses incurred by him due to the
premature termination exceed the benefits he derived out of the bailment.

Example: A lends his car to B, a friend for a week as B has to go out of town for a family
gathering. As B has not paid any charges for bailment, he fills 30 litres of petrol in the
car for the drive. Suddenly after 4 days, A calls B to give his car back. So, B can demand
from A value of petrol remaining in the car after 4 days.

Indemnify the bailee when he suffers due to the title of bailor to the goods being defective

According to Section 164, the bailor has to indemnify the bailee if even after knowing
that he is not entitled to the good and makes bailment due to which, the bailee suffers
losses.

Example: A lends his car to B, a customer for a week as B has to go out of town for a
family gathering. B has already paid an advance of Rs 5000 to A. However, after 4 days,
the police seized the car from B as it was stolen and belonged to C. B had to arrange a
new car for the same purpose and has to pay a higher rent. B can claim from the
amount he has already paid and also the higher rent he had to pay for the new car.
Receive back the goods

After the expiration of the term of the bailment or when the purpose is fulfilled, the
bailor has a duty to receive the goods back from the bailee. However, if the bailor
refuses to do the same, he will be entitled to pay the bailee compensation for the
necessary expenses of custody and care.

Example: A bailed his dog to B for one week at the daily charge of Rs. 100. A visited B to
receive his dog after 25 days. He has to pay the additional charges for 18 pays.
However, if this had been a gratuitous bailment, A would have been required to pay the
ordinary and extraordinary expenses for 18 extra days.

Duties of the Bailee

Take Reasonable Care of the Goods Bailed

As per Section 151, irrespective of the fact that the bailment is gratuitous or non-
gratuitous, the bailee has a duty to take reasonable care of the goods bailed similar to a
man of ordinary prudence would. However, according to Section 152, if even after
reasonable care the goods are damaged or destroyed, the bailee is not liable for the loss
of the bailed goods.

Example: A bailed his dog to B for a week at a daily charge of Rs. 100. As A came to B
to reserve the dog after a week, he finds out the dog was stolen from B. If it is proved
by B that he took reasonable care of the dog but still the dog was stolen, then he will not
be held responsible, but, if however, A proves that B didn’t take reasonable care, say left
the dog unchained, B would be responsible for the same.

No Unauthorized use of goods

As per the Section 154, if due to the fact that the bailee uses the good bailed in a
manner inconsistent with the terms of the contract then he will be held liable in case
there is any damage to the good, even if he was not negligent or the damage resulted
from an unforeseeable accident.

Example: A lends his car to B for him to drive only. B allows C, her cousin to drive the
car. C rides the car with care but still ends up in an accident, damaging the car. B is
liable to compensate A for the damages caused to the car.

Not mix goods bailed with own goods

The bailee must not mix the bailed goods with his own goods and must keep them
separately. If however, he mixes the bailed goods with his own then:

1. According to Section 155, if mixed with the consent of the bailor, both of them will
have a proportionate interest in the mixture produced.
 2. As per Section 156, if mixed without the consent of the bailor, and if it can be
mixed/divided, the bailor has to bear all the expenses for the same and damages
caused due to the mixture.
3. According to Section 157, if mixed without the consent of the bailor, and if the
mixture is beyond separation, the bailee is required to compensate the bailor for
the loss of the goods.

Return any Accretion to the goods

In the absence of any contract for the same, any profit which may have accrued from
the goods bailed, the same must be delivered to the bailor.

Example: A bailed his cow to B for a week. The cow gave birth to a calf during this
period. The bailee must deliver the calf along with the cow to A at the time of delivery.

Return the goods

After the time for which the good has bailed is expired, or the purpose has been fulfilled,
the bailee must return it to the bailor as per his direction.

Rights of the Bailor

Enforcement of rights

The bailer, by suit, can enforce all the liabilities or duties of the bailee.

Avoidance of Contract

According to Section 153, if the bailee does anything which is inconsistent with the terms
of bailment, then, the bailor can terminate the bailment.

Example: A bailed his horse to B for his own riding only. B allowed C to ride the horse,
violating the terms of bailment. A can terminate bailment.

Return of goods lent gratuitously

In case the goods are lent gratuitously, the bailor has the right to demand their return
whenever he sees fit, even though they were lent for a specific period of time or
purpose. However, he needs to indemnify the bailee in case the losses exceed the
benefit derived from the use of such a good due to premature termination of bailment.

Compensation from a wrong-doer

If the bailee is wrongfully deprived by any third party of the use or possession of goods
bailed and does them any injury, the bailor or the bailee has the right to bring a suit
against the third person for the injury.

Rights of the Bailee

Delivery of goods to bailor without title

According to Section 166, if the bailor has no title to the goods bailed, then the bailee, in
good faith, can deliver them back to the bailor according to his directions, if any, the
bailee will not be responsible for such delivery.

Can apply to a court to stop delivery

According to Section 167, if there is a situation in which a third person claims the goods
bailed to the bailee, then the bailee can stop the delivery of such goods to the bailor by
applying to the court and decide the title of the goods.

Right against trespass

According to Section 180, if the bailee is deprived of the use of the goods bailed by any
third party, the bailee has the right to bring an action against the third party.

Bailee’s lien

When the bailee is not paid charges with respect to the goods bailed he has the right to
retain the goods. This right is referred to as ‘particular lien’.

Conclusion

Contract of bailment involves the transfer of possession of the good from the bailor to
the bailee for the specific purpose and both, the bailor and the bailee, have been
confronted with some rights and duties which are necessary for them to follow whenever
seem suitable. Also, for the contract of bailment to be valid, all the essential features
need to be fulfilled. Moreover, bailment of goods is different from the sale of goods as
bailment is involved with the transfer of possession while the sale is involved with the
transfer of ownership.

Contract of bailment and pledge

Table of Contents
 What is a contract of bailment
o Essentials features of a contract of bailment
 A valid contract
 Delivery of possession
 Delivery upon contract
 Purpose
 Return of goods
o Duties of the bailor and the bailee
 Duties of the bailor:
 Duties of the bailee:
o Rights of the bailor and the bailee
 Rights of the bailor:
 Rights of the bailee:
o Different types of lien are:
 Particular lien:
 General lien:
o Relevant case laws
 Kaliaperumal Pillai v. Visalakshmi, AIR 1937 Mad 32
 Atul Mehra v. Bank of Maharashtra, 2002
 Taj Mahal Hotel v. United India Insurance Ltd., 2019
 New India Assurance Co. Ltd v. The Delhi Development
Authority, 1991
 Tilendra Nath Mahanta v. United Bank Of India And Ors.,
2001
 Contract of pledge
o Essential features of a contract of pledge
 A valid contract
 Delivery of possession
 Ownership cannot be transferred
 Security against debt
 Return of goods on repayment
o Duties of the pawnor and the pawnee
 Duties of the pawnor:
 Duties of the pawnee:
o Rights of the pawnor and the pawnee
 Rights of the pawnor:
 Rights of the pawnee:
o Relevant case laws
 Lallan Prasad v. Rahmat Ali and Anr., 1996
 The Morvi Mercantile Bank Ltd. And Anr. v. Union of India,
1965
 K. M. Hidayathulla v. the Bank of India, 2001
 Difference between a contract of bailment and pledge
 Conclusion
 References
What is a contract of bailment

Bailment is defined in Section 148 of the Indian Contract Act, 1872 as, “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 who delivers the
goods is called the ‘Bailor’ and the person who receives the goods for the specific
purpose is called the ‘Bailee’. It is a special type of contract which is covered under
Chapter IX(Sections 148-171) of the Indian Contract Act, 1872.

Essentials features of a contract of bailment

A valid contract

As mentioned above, bailment is a special type of contract. Hence, all the essential
elements of a valid contract must be present in it. The essential elements such as offer,
consideration, contractual capacity, intention, etc. must be a part of the bailment.
Without the presence of these essential elements , the contract cannot be enforceable in
a court of law. However, out of these, a contract of bailment can be valid without
consideration.

There are two types of bailment.

 Gratuitous Bailment: Bailment without any consideration.

 Non-Gratuitous Bailment: Bailment with consideration.

Delivery of possession

If you read the definition of bailment, you will understand that the most essential
element of a contract of bailment is the delivery of goods from one person to another. As
per Section 149 of the Act, “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 authorised to hold them on his behalf.” The delivery of the goods can be
actual as well as constructive. Actual delivery means the goods are physically delivered
by the bailor in the possession of bailee. Constructive delivery means that the goods are
not expressly delivered but a few actions imply that the bailee is given the possession of
the goods. It is important to note that the actual transfer of possession is necessary for
bailment. Only giving the custody of the goods to a person does not make him the
bailee.

Delivery upon contract

As mentioned above, the delivery of the goods from the bailor to the bailee must be
after a contract is created between both the parties. The contract should have the details
of the transfer of the goods and its return. However, the contract can either be
“expressly signed by the parties” or “implied by the parties.

Exception: Lost goods found

When lost goods are found by a third party, they act as the bailee of such goods.

Duties of the finder:

1. To keep the goods safe.

2. Not use these goods for personal use.
3. Take adequate efforts to find the real owner of the goods.
4. Make sure that the goods are delivered to its real owner once found.

Rights of the finder:

1. To be compensated for the expenses and trouble taken to keep the goods safe
and find the owner. (Section 168)
2. To sell the goods if:

1. The goods are of perishing nature.

2. The owner could not be found.
However, the proceeds from the sale must be transferred to the owner/bailor of the
goods. (Section 169)

Purpose

There must be a specific purpose for which the goods are transferred from the bailor to
the bailee. As per Section 153 & 154, the contract of bailment might be terminated if the
bailee acts inconsistently or makes unauthorised use of the goods. Specific purpose is
very important and the parties should abide by the contract.

Return of goods

After the purpose for which the goods were bailed is complete, the bailee will have to
return the goods to the bailor. The method and the way of return will be as per the
contract or bailor’s wish. As mentioned in Section 160, “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.”

Duties of the bailor and the bailee

Duties of the bailor:

1. To disclose faults in goods

It is the bailor’s responsibility to inform the bailee of all the faults in the goods. If the
bailor fails to do so, he is liable to the bailee for any loss caused by that fault.

For example: ‘X’ took a car from ‘Y’ to go for a vacation. ‘Y’ was aware that the brakes
weren’t working properly. However, he didn’t inform ‘X’ about it. ‘X’ is involved in an
accident due to the failure of brakes. ‘Y’ will be liable for all the losses ‘X’ faced in this
accident.

2. To cover necessary and extraordinary expenses

The bailor has to pay the bailee all the necessary and extraordinary expenses incurred
by the bailee to safeguard the goods bailed.

For example: ‘A’ gave his cat to his friend ‘B’ when he had to travel for work. ‘A’ will
have to pay the expenses incurred in the cat’s daily necessities such as food, shelter,
etc. ‘A’ will also have to pay any extraordinary expense like doctor’s bill, daycare, etc. if
it was necessary to keep the cat safe.

3. To indemnify the bailee of all the losses

The bailor has to indemnify any loss incurred by the bailee if the bailor asks for his goods
before the agreed time in the contract as per Section 159 of the Indian Contract Act. As
per Section 164, the bailee can also claim losses from the bailor if the bailor intentionally
bails goods with a defective title.

4. To collect the bailed goods

The bailor must collect his goods once the time for which the goods were bailed is
expired. If the bailor fails to collect the goods on the expiry of the bailment period, he
will be liable to pay for any losses incurred by the bailee.

For example: ‘X’ bailed his dog with ‘Y’ for a week, and returned after 10 days to get his
dog back. ‘X’ will be liable to pay ‘Y’, the expenses incurred for the safekeeping of the
dog for those 3 extra days.

Duties of the bailee:

To take proper care of the goods

As per Section 151 of the Indian Contract Act, 1872, “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 goods of the same bulk, quantity and
value as the goods bailed.” However, in Section 152, it is stated that “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.”

For example: ‘A’ bailed his vehicle with ‘B’ for one week. If due to negligence of ‘B’, ‘A’s
vehicle is damaged, ‘B’ will be liable to compensate for the same. However, if the vehicle
is damaged due to some act of god such as an earthquake or a flood, ‘B’ will not be
liable for such loss.

To use the goods for authorised purpose only

It is the bailee’s responsibility to use the goods only for the authorised purpose under a
contract. If it is found that the goods are used for unauthorised purposes, the entire
contract can be declared void by the bailor. As per Section 154, “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.”

Some examples:

(a) ‘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 caused to the horse.

(b) ‘A’ hires a horse in Calcutta from ‘B’ expressly to march to Banaras. 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 caused to the horse.

To keep the bailed goods separate

All the goods bailed should be kept separately and safely by the bailee as it ensures the
safe return of the goods. However, there are a few provisions related to the mixing of
bailed goods.

1. Section 155: 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.
2. Section 156: 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.
3. Section 157: 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.

To return any profits arised from the goods

If during the course of bailment, any profit has arisen from the bailed goods, the same
should be transferred to the bailor by the bailee.

Example: ‘A’ bails his cow with ‘B’ for a period of 7 days. The cow gives milk daily. ‘B’
sold this milk during the period of bailment. The profit earned by ‘B’ during the sale of
milk must be returned to ‘A’ while returning the goods.
To return the goods

The bailee must return the goods to the bailor once the purpose of the bailment is
accomplished or the term of the contract expires. This return must be as per the bailor’s
discretion.

Rights of the bailor and the bailee

Rights of the bailor:

To be compensated against unauthorised use

If the bailee uses the goods for a purpose that isn’t authorised under the contract, he
should be liable for any damage that arises from such use.

For example: ‘X’ bailed his vehicle to ‘Y’ for one month. In the contract, it was agreed
that ‘Y’ can use the vehicle for his personal use. However, ‘Y’ let his brother ‘Z’ drive the
vehicle, and ‘Z’ crashed the vehicle. Now, ‘Y’ will be liable for the damage done to the
vehicle.

To terminate the contract

As per Section 153 of the Act, “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 ‘B’, for hire, a horse for his own riding. ‘B’ drives the horse in his
carriage. This is, at the option of ‘A’, a termination of the bailment.

To receive any profits arised from the goods

The bailor is entitled to any profit that arises from the goods when they are bailed. If the
bailee refuses to pay such profits to the bailor, he may take appropriate action against
the bailee to recover such an amount.

To get the goods returned on expiry of contract

The bailor has a right to receive the bailed goods upon expiry of contract. However, in
case of a gratuitous bailment, the bailor can redeem the goods before the expiry of the
contract. In any such situation, if the bailee incurs loss due to early return of the goods,
the bailor is liable for the same.

Rights of the bailee:

To receive compensation

The bailee is entitled to receive compensation for losses suffered due to any defect in the
goods. In case of gratuitous bailment, if the bailor asks for the goods to be returned
before the expiry of contract and the bailee suffers loss because of this return, he can
claim for compensation against those losses from the bailor.

To receive expenses incurred

The bailor has to pay the bailee all the expenses incurred for the caretaking of the goods
bailed. The bailee is also entitled to receive any extraordinary expenses spent by him
during the term of bailment of the goods.

To stop delivery of goods

The bailee is given the right to stop the delivery of goods if the bailee is of the
knowledge that the bailor doesn’t have a title over the goods. The bailee can also stop
the same if any third party claims their title over the goods.

To lien the bailed goods

A lien is a legal right against the assets that are used as collateral to satisfy the debt.
The bailee has been given the right to lien the bailed goods if the bailor has withheld any
compensation or payment that he is liable to do.

Different types of lien are:

Particular lien:

As per Section 170 of the Indian Contract Act, 1872, “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.”

For example: “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.

General lien:

As per Section 171 of the Indian Contract Act, 1872, “Bankers, factors, wharfingers,
attorneys of a High Court and policy-brokers may, in the absence of a contract to the
contrary, retain as a security for a general balance of account, any goods bailed to them;
but no other persons have a right to retain, as a security for such balance, goods bailed
to them, unless there is an express contract to that effect.”
For example: “A” borrows Rs. 1000 from the bank without security. Later he takes one
more loan of Rs 5000 from the same bank against a security of gold. “A” pays back Rs.
5000 but yet has not paid Rs 1000. So the bank can retain gold (general balance of the
account) for the previous loan.

Relevant case laws

Kaliaperumal Pillai v. Visalakshmi, AIR 1937 Mad 32

Facts of the case

In this case, the plaintiff hired the defendant to make new jewellery for her. Her old
jewels had to be melted and the gold obtained from that was to be used to make this
new jewellery. Every evening, the defendant would return the half-made jewellery to the
plaintiff. Plaintiff would lock that jewellery in her box and leave it in the defendant’s
room. However, the Plaintiff took the key to that box. One night, the jewels were stolen.
The defendant was held liable by the plaintiff as he was the bailor of the goods.

Issues involved in the case

If the delivery was legally valid as bailment under Section 149 of the Indian Contract
Act, 1872?

Judgement of the Court

It was held that the respondent was not liable as he did not have legal possession of the
goods while they were stolen. The relationship was of bailment between both the parties
but it ended as soon as the plaintiff locked the goods in the box and took the keys with
herself. Merely leaving the box at the defendant’s house does not constitute bailment.

Atul Mehra v. Bank of Maharashtra, 2002

Facts of the case

In this case, the plaintiff had hired a locker in the respondent’s Bank on 15th January,
1986. The strong room in the bank was broken into by miscreants and the contents of
the locker were stolen. The plaintiff claimed that jewellery worth Rs. 4,26,160 was
deposited in the locker. On 9th January, 1989, an FIR was filled. The plaintiff pointed out
that this loss was due to negligence and misconduct of the respondent. Also, it was
alleged that the strong room was not made of adequate material and could be easily
broken into.

Issues involved in the case

 1. Whether the loss suffered was due to misconduct and negligence of the
respondent?
2. Whether the respondent has a contractual liability to repay the losses?
3. Would the relationship between the plaintiff and the respondent fall within the
purview of bailment as defined in Section 148 of the Indian Contract Act,
1872?

Judgement of the Court

It was held that exclusive possession of the goods is sine qua non(extremely essential)
in the case of bailment. Therefore, mere hiring of a locker would not constitute bailment.
It was also stated that reasonable care and damages come into question when the bailee
is made aware of the contents of the locker and exclusive possession of the same is
given to the bailee. Here, neither was done, and hence, the judgement was in the favour
of the respondent(bank).

Taj Mahal Hotel v. United India Insurance Ltd., 2019

Facts of the case

In this case, on 01st August, 1998, a Maruti Suzuki Zen was parked in the respondent’s
hotel and the owner gave his car for the valet parking service. When the owner returned
to get his car back, he learned that his car was stolen. A complaint against the thief was
lodged but the car was nowhere to be found. Respondent hotel’s valet parking service
had stated that ‘parking of vehicles was at the owner’s own risk inside and outside the
hotel premises and in case of theft, loss or damage the hotel will not be liable.’ The
plaintiff company paid a sum of Rs 2,80,000 to the car owner in order to settle the
insurance claimed by him. The plaintiff company sued the respondent hotel for
negligence.

Issues involved in the case

1. Whether this was a case of bailment?

2. Was the hotel liable for negligence under the law of bailment?
3. Was the car owner eligible for compensation due to the absence of
consideration between both parties?

Judgement of the Court

It was held by the supreme court that the theft of the car was a result of the
respondent’s negligence and the respondent would be liable. The supreme court stated
that the respondent cannot exclude its liability for negligence towards the vehicle parked
in the respondent’s parking. The consideration, in this case, would be free parking to the
customer for using the respondent’s services. It can be inferred that if the general rule of
bailment is applied, the bailee(hotel) will be liable if there is a loss of goods(vehicle) due
to its negligence.
New India Assurance Co. Ltd v. The Delhi Development Authority, 1991

Facts of the case

In this case, the defendant owns and runs a truck parking centre known as Idle Truck
Parking Centre in Delhi. The owner of a truck had parked his truck at Idle Truck Parking
Centre on 8th June, 1987. A receipt was issued for Rs 3 for the safekeeping of the truck
for 24 hours. The truck owner had insured his truck with the plaintiff in this case. On the
night of 8th June, the truck was stolen from the parking centre. The owner raised a claim
with the plaintiff which was settled for Rs 2,91,500. The plaintiff now sued the defendant
to recover that amount as the loss of the truck was due to negligence of the owner. The
defendant claimed that they were not liable as the possession was not transferred to
them as the driver of the truck slept inside the truck that night.

Issues involved in the case

1. Was the vehicle’s possession transferred to the defendant?

2. Is the defendant liable for the loss of the plaintiff?

Judgement of the Court

It was held that the defendant was liable to pay the plaintiff. The essential element here
was the transfer of possession. The possession was said to be transferred when the
plaintiff issued a receipt for safe-keeping of the vehicle for the said night. For the
contracted period, the defendant should have shown reasonable care towards the vehicle
which failed to do so.

Tilendra Nath Mahanta v. United Bank Of India And Ors., 2001

Facts of the case

In this case, the petitioner was a retired school teacher. He had opened a Savings A/C at
Naharkatia Branch of the United Bank of India(respondent) and had a few Fixed Deposits
in that bank. His son was a clerk at the same bank. The petitioner also had a joint
account with his son in the bank. It was found that the son was involved in a few
fraudulent transactions. To recover the losses, the respondent froze the joint account.
Along with that, the respondent also froze the petitioner’s savings A/C and stopped the
returns on the FDRs. The respondent claimed that as per Section 171 of the Indian
Contract Act, 1872 the respondent had a lien over the petitioner’s savings A/C and his
deposits in the bank.

Issue involved in the case

Whether the Respondent has a lien over the FDR’s and the accounts of the person whose
joint account is under investigation?
Judgement of the Court

It was held that the respondent could not freeze the accounts of the petitioner and hold
his FDRs as a lien. It was stated that the money deposited in the banks is a loan to the
bank by the depositors. The money returned to the depositor is never the same. Also, it
was held that ‘money’ does not account as a good under bailment.

Contract of pledge

Contract of pledge is a subset of a contract of bailment. Here, the goods bailed are kept
as a security for a debt or a performance of a promise. Pledge is defined in Section
172 of the Indian Contract Act,1872 as “The bailment of goods as security for payment
of a debt or performance of a promise is called ‘pledge’. The bailor is in this case called
the ‘pawnor’. The bailee is called ‘pawnee’.” It is covered under Chapter IX (Section 172-
Section 181) of the Indian Contract Act, 1872.

Essential features of a contract of pledge

A valid contract

Similar to the contract of bailment, all the basic essentials of a valid contract should be
present in a contract of pledge. Without these elements, the contract will be void and
won’t be enforceable in a court of law.

Delivery of possession

It is necessary that the possession of goods be delivered from the pawnor to the
pawnee. As mentioned in the definition, pledge is a bailment and this is an essential
element of bailment. The delivery can be either actual or constructive. However, there
might be exceptions where the possession remains with the pawnor.

Ownership cannot be transferred

In the case of pledge, mere possession of the goods is transferred to the pawnee. The
pawnor of the goods is still the owner. The pawnee has possession of the goods but has
limited interest in the goods.

Security against debt

The goods must be pledged as security against an outstanding debt of the pawnor. This
outstanding debt can also be a promise for specific performance.

Return of goods on repayment

Once the debtor the specific performance against which goods are pledged as security is
repaid or completed, the goods must be returned to the pawnor in the manner specified
by him.

Duties of the pawnor and the pawnee

Duties of the pawnor:

To compensate expenses

The pawnor has the responsibility to compensate the pawnee for all the ordinary and
extraordinary expenses made by the pawnee in order to ensure the well-being of the
pledged goods.

To repay the entire amount due along with interest

The pawnor has to repay the amount which is due to the pawnee. This amount is the
total of the principal amount as well as any interest accrued on that amount during the
course of the contract.

To disclose all the faults in the goods

The pawnor before entering into a contract has to disclose all the faults in the goods to
the pawnee. If the pawnee incurs any loss later due to those faults, the pawnor will be
liable for those.

Duties of the pawnee:

To take reasonable care of the goods

It is the pawnee’s responsibility to take care of the goods that are pledged. The care
taken by the pawnee must be just, fair and reasonable. It should be as the pawnee took
care of his personal belongings. If due to negligence of the pawnee, the goods are
damaged, he will be liable to compensate the pawnor.

For example: If ‘A’ pledges his watch with ‘B’ for a sum of Rs. 100. Then ‘B’ must take
reasonable care of A’s watch as if it is B’s own watch. The condition of the watch should
not deteriorate or be worse than at the time when it was pledged.

To use the goods only for authorised purpose

The pawnee can use the goods pledged if only it is authorised by the pawnor. If the
goods are used for any purpose that is not authorised, the pawnee will have to
compensate the pawnor against the same.
For example: ‘A’ pledges his car with ‘B’. ‘A’ authorises ‘B’ to use the car for his personal
use. ‘B’ allows his cousin ‘C’ to drive the car and the car then gets damaged. ‘B’ will have
to compensate ‘A’ for the damages

To return the goods

As per the contract, once the amount against which the goods are pledged is repaid, the
goods must be returned to the pawnor. This return must be as mentioned in the contract
or as per the pawnor’s directions.

To return any profits arised from the goods

If at any time during the contract, the pawnee earns profit from the pledged goods, the
same shall be returned to the pawnor during the termination of the contract.

Example: ‘X’ pledged his property with ‘Y’. The property was given on rent to ‘Z’. The
rent received on the property must be returned to ‘X’.

To keep the goods separate

It is the pawnee’s duty to keep the pledged goods separate from his own goods. If he
mixes the pledged goods, all expenses to separate them will be borne by the pawnee. If
separating is not possible, the pawnee will be liable for all the damages.

Rights of the pawnor and the pawnee

Rights of the pawnor:

To redeem the goods

As per Section 177 of the Act, ”If a time is stipulated for the payment of the debt, or
performance of the promise, for which the pledge is made, and the pawnor makes
default in payment of the debt or performance of the promise at the stipulated time, he
may redeem the goods pledged at any subsequent time before the actual sale of them,
but he must, in that case, pay, in addition, any expenses which have arisen from his
default.”

For example: ‘A’ gave his watch to ‘B’ as a security against INR 800 that is due. They
agreed that the amount should be repaid within 1 month. If ‘A’ fails to do so, he can
redeem his watch even after the expiry of the contract given that ‘B’ has not yet sold the
watch. However, if ‘B’ had to incur any expenses to safekeep that watch, the same will
have to be paid by ‘A’.

To get the goods back

Once the pawnor pays back the amount due along with the interest to the pawnee, he
has the right to get the goods back. After clearing the entire due against which the
goods were held as security, the pawnee cannot retain the pledged goods.

Rights of the pawnee:

To retain the goods

The pawnee has the right to retain the goods until the amount owed by the pawnor is
paid in full or the promise is completely performed. This amount includes the expenses
incurred by the pawnee as well as any interest accrued on that amount. This is
mentioned in Section 173 of the Act.

For example: ‘A’ pledged his house with a bank for a loan of INR 2,50,000. The interest
on the same was INR 10,000. The bank can retain the pledged house until ‘A’ repays the
entire amount along with the interest i.e. INR 2,60,000.

As per Section 174,”The pawnee shall not, in the absence of a contract to that effect,
retain the goods pledged for any debt or promise other than the debt or promise for
which they are pledged; but such contract, in the absence of anything to the contrary,
shall be presumed in regard to subsequent advances made by the pawnee.’”

To get compensation for extraordinary expenses

It is implied that the pawnor will be liable to pay for all the necessary expenses needed
for the safekeeping of the goods. As per Section 175, if any extraordinary expenses
arise, the pawnor will only be liable for the same as well. However, the pawnee cannot
retain the goods for non-payment of such expenses.

To sell the goods

As mentioned in Section 176, “If the pawnor makes default in payment of the debt, or
performance; at the stipulated time or the promise, in respect of which the goods were
pledged, the pawnee may bring a suit against the pawnor upon the debt or promise, and
retain the goods pledged as a collateral security; or he may sell the thing pledged, on
giving the pawnor reasonable notice of the sale.” It is important to note that the pawnor
must be given proper and enough notice before selling the goods. It is further
mentioned, “If the proceeds of such sale are less than the amount due in respect of the
debt or promise, the pawnor is still liable to pay the balance. If the proceeds of the sale
are greater than the amount so due, the pawnee shall pay over the surplus to the
pawnor.”

For example: ‘X’ pledged his watch with ‘Y’ as security against INR 10,000. ‘X’ defaulted
the payment even after enough notices. ‘Y’ went to sell his watch. If the watch is sold
above INR 10,000, the surplus amount must be returned to ‘Y’. However, if the watch is
sold for less, ‘X’ will still be liable for the difference.

Relevant case laws

Lallan Prasad v. Rahmat Ali and Anr., 1996

Facts of the case

In this case, the plaintiff advanced INR 20,000 to the defendant against a promissory
note and a receipt. An agreement was signed by both the parties where the defendant
agreed to pledge his aeroscapes as collateral against his debt. As per their agreement,
the defendant had to deliver the aeroscapes to the appellant and the goods would
remain in his custody.

The plaintiff filed a lawsuit claiming that the above-mentioned goods were never
delivered to be in his custody and therefore, this agreement cannot be considered as a
contract of pledge. He claimed that he was entitled to recover the amount loaned by
him.

Issue involved in the case

1. Whether pledged goods were delivered in the plaintiff’s custody?

2. Was the plaintiff entitled to any compensation as he claimed that there was no
contract of pledge since the goods were not delivered?

Judgement of the Court

The judgement was in the favour of the defendant. It was held by the Supreme Court
that the pledged goods were delivered to the plaintiff. This meant that this agreement
did ripen into a contract of pledge. The Court also stated that the plaintiff was not
entitled to any compensation on his stance that the goods were never pledged to him.

The Morvi Mercantile Bank Ltd. And Anr. v. Union of India, 1965

Facts of the case

In this case, a firm operating in Mumbai entrusted their goods worth INR 35,500 to
Railways for its delivery to Delhi. The firm got their receipt for these goods from the
Railways. In order to get an advance of INR 20,000 from the plaintiff, the firm pledged
these receipts as collateral for the same.

The goods were lost by the railways and they offered to compensate with certain parcels
to the plaintiff. The plaintiff rejected this and claimed that those weren’t the goods that
were pledged to them. The plaintiff, hence, sued the railways to recover INR 35,500
against the value of goods pledged to them including the damages.

Issues involved in the case

1. Whether railway receipts can be considered as valid goods under contract of

pledge?
 2. Whether the plaintiff was the pawnee of the goods or the documents of the
good’s title?
3. Whether the plaintiff could sue for the entire value of the goods or only what
was advanced by him?

Judgement of the Court

The Supreme Court of India ruled in favour of the plaintiff. It was held that railway
receipts can be valid as goods under a contract of pledge. It was also held that the
plaintiff was the pawnee of the goods and not merely its documents of title. It was
stated that since the pawnee in a contract of pledge has the authority as the owner of
the goods, the plaintiff will be allowed to sue for the entire value of the goods and not
just the amount he has advanced.

K. M. Hidayathulla v. the Bank of India, 2001

Facts of the case

In this case, on 10th December, 1993, the petitioner pledged certain gold jewels with
the respondent. These jewels were pledged against a certain amount. The petitioner
failed to repay the amount within the agreed time. The bank held an auction for the
jewels on 20th May, 1997 to recover the debt. The petitioner claimed that as per Section
176, the bank had the right to either file a suit against him for recovery or sell the jewels
via an auction after giving reasonable notice to the petitioner, however, it must have
taken place within the prescribed time for filing the suit.

Issues involved in the case

1. Whether any such condition was mentioned in Section 176 of the Act?
2. Whether the pawnee could auction the goods after the prescribed period?

Judgement of the Court

The judgement passed by the Madras High Court was in the favour of the bank. It was
held that the bank had two remedies; either to file a suit for recovering the debt or
selling the goods after reasonable notices to the pawnor. It was found that there was no
connection between the two remedies. Merely because the period for filing a suit had
passed, it did not mean that the other alternatives could not be used. It was held that if
the pawnee resorted to any alternate course of sale, the prescribed period should be
extended for the same.

Difference between a contract of bailment and pledge

Contracts of bailment and pledge are special types of contracts that are regulated under
the Indian Contract Act, 1872.

Contract of Bailment Point of Contract of Pledge

 difference

When certain goods are transferred from one When certain goods are transferred from one party to
party to another for a specific purpose, it is another as a security against a debt, it is called a contract
Meaning
called a contract of bailment. of pledge.

It is covered under Sections 148-171 of the It is covered under Sections 172-179 of the Indian
Provisions
Indian Contract Act, 1872. Contract Act, 1872.

The sole purpose for bailing the goods is for

The sole purpose to enter into a contract of pledge is for
the safe custody of the goods or repairs, at
Purpose security against a debt.
most times.

The party which bails the goods is known as The party which pledges their goods is known as the
the ‘bailor’ and the party with whom the ‘pawnor’ or the ‘pledger’ and the party which receives
Parties
goods are bailed is known as the ‘bailee’. the goods is known as the ‘pawnee’ or the ‘pledgee’.

The presence of consideration in a contract of The presence of consideration in a contract of pledge is

Consideration
bailment is mandatory. mandatory.

The goods cannot be sold by the bailee in such

Right to sell The goods may be sold by the pawnee or the pledgee.
contracts.

The goods can be used by the bailee only for

The goods cannot be used by the pawnee or the
specific purposes known to both the parties or
Right to use pledgee.
not otherwise.

Conclusion

It is true that we don’t even realise that we enter into these contracts in our life.
Contracts of bailment is a field which has been entered by arguably the most number of
people unknowingly. Even when we simply give our product to be serviced, we enter into
a Contract of bailment with the other party.

After analysing and understanding the essentials and differences between contracts of
bailment and contracts of pledge, I can conclude that the scope of bailment contracts is
very wide. However, contracts of pledge are very limited in nature. After looking at the
similarities between both, we can deduce that all the contracts of pledge are contracts of
bailment but not all contracts of bailment are contracts of pledge.