Topic: Contract of Bailment

SM-III-Special Contract

By: Dr. Kanan Divetia

Symbiosis Law School, NOIDA
 Topics:
TOPICS: TOPICS:
✓Introduction ✓Rights and Duties of Bailor
✓Meaning ✓Rights and Duties of Bailee
✓Definition ✓Finder of Goods
✓Essentials of Bailment ✓Types of Lien
✓Kinds of Bailment oParticular Lien
oGeneral Lien
 Introduction
The bailment word is derived from the French word
“ballier” which means “to deliver” and the Latin verb
“bajulare” meaning “to bear the burden.”
In general, Bailment means the delivery of goods from one
person to another.
The contracts of bailment come under a special class of
contract and are dealt under sections 148 to 171 of the
Indian Contract Act, 1872.
 Introduction
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, 1875, The Carriage Act of Goods by Sea
Act, 1925, The Railways Act, 1890, The Multimodal
Transportation of Goods Act, 1993 etc are the few Acts
which deal with special types of bailment.
 Meaning of Bailment
Bailment implies a sort of relationship in which the
property of one person temporarily goes into the
possession of another.
The ownership of the articles or goods is in one person and
the possession in another.
Bailment means ‘handing over’ or ‘change of possession’. It
is the delivery of goods by one person to another for some
purpose upon a contract.
 Meaning
Examples: Delivering a car, watch or any other article for
repair, leaving a cycle or a bike in parking area, depositing
luggage in a cloakroom, delivering a gold to the goldsmith
for making ornaments, delivering garments to the dry-
cleaner, delivering goods for carriage, warehousing or
storage and etc.
Thus bailment is a subject of considerable public
importance.
 Meaning
A bailment is the relationship established when someone entrusts his property
temporarily to someone else without intending to give up title.
Although bailment has often been said to arise only through a contract, the
modern definition does not require that there be an agreement. One widely
quoted definition holds that a bailment is “the rightful possession of goods by
one who is not the owner.
It is the element of lawful possession, however created, and the duty to
account for the thing as the property of another, that creates the bailment,
regardless of whether such possession is based upon contract in the ordinary
sense or not.”Zuppa v. Hertz, 268 A.2d 364 (N.J. 1970).
 Definition
Section 148:A ‘bailment’ is the delivery of goods by one person to
another for some purpose, upon a contract that they shall, when
the purpose is accomplished, be returned or otherwise disposed of
according to the directions of the person delivering them. The
person delivering the goods is called the ‘bailor’. The person to
whom they are delivered is called the ‘bailee’."
Explanation.—If a person is already in possession of the goods of
other contracts to hold them as a bailee, he thereby becomes the
bailee, and the owner becomes the bailor of such goods, although
they may not have been delivered by way of bailment.
 Essentials of a valid Bailment
1. Two Parties ie. Bailor and the Bailee
Bailor is the person who delivers the goods and bailee is the person to whom the goods are
delivered.
2. Delivery of possession of goods (Goods defined under section 2(7) of the Sale of Goods Act,
1930 (Bailment is only for movable goods)
➢Ultzen v. Nicols (1894) 1 QB 92
Two Types of Delivery of possession of goods:
(a) Actual Delivery and
(b) Constructive Delivery
➢Bank of Chittoor v. Narasimbulu AIR 1966 AP 163
Essential Elements for a valid Bailment
3.. Delivery should be upon contract. Contract can be express as well
as implied.
➢Ram Gulam v Govt of U.P AIR 1950 All 206
➢Lasalgaon Merchants Coop Bank Ltd. v. Prabhudas Hathibhai AIR
1966 Bom 134
➢State of Gujarat v. Memon Mahmed Haji Hasan AIR 1967 SC 1885.
4. Delivery should be upon some Purpose
5. Return of Goods
 Types of Bailment
(A) On the basis of reward:
(i) Gratuitous Bailment: It is the bailment of goods without any charges or reward. The bailee
is not required to pay any charges for the bailment.
(ii) Non-Gratuitous Bailment: It is a bailment for some charges or reward. The bailor is
required to pay some charges to the bailee. (Mutual Benefit)
(B) On the basis of benefit:
(i) Bailment for the exclusive benefit of the bailor
(ii) Bailment for the exclusive benefit of the bailee
(iii) Bailment for mutual benefit of both bailor and bailee
 Rights and Duties of Bailor
Duties of Bailor:
(i) Bailor’s duty to disclose faults in goods bailed:
150. Bailor’s duty to disclose faults in goods bailed.—The bailor is bound to disclose to the
bailee faults in the goods bailed,
of which the bailor is aware, and which materially interfere with the use of them, or expose
the bailee to extraordinary risks;
and if he does not make such disclosure, he is responsible for damage arising to the bailee
directly from such faults.
If such goods are bailed for hire, the bailor is responsible for such damage, whether he was
or was not aware of the existence of such faults in the goods bailed. (Reed v. Dean (1949) 1
KB 188)
 Duties of Bailor
158. Repayment, by bailor, of necessary expenses.—Where, by
the conditions of the bailment,
the goods are to be kept or to be carried, or to have work done
upon them by the bailee for the bailor, and the bailee is to receive
no remuneration,
the bailor shall repay to the bailee the necessary expenses
incurred by him for the purpose of the bailment.
 Duties of Bailor
164. Bailor’s responsibility to bailee for defective title.—The
bailor is responsible to the bailee for any loss which the bailee
may sustain by reason that
the bailor was not entitled to
▪make the bailment, or
▪to receive back the goods, or
▪to give directions respecting them.
 Duties of Bailor
➢Where the bailment is gratuitous, the bailor must reimburse the
bailee for any expenditure incurred in keeping the goods.
➢The Bailor should reimburse any expense which the bailee may
incur by way of loss in the process of returning the goods or
complying with other directions for returning the goods.
➢The bailor must compensate the bailee for the loss or damage
suffered by the bailee that is in excess of the benefit received,
where he had lent the goods gratuitously and decides to terminate
the bailment before the expiry of the period of bailment.
 Duties of Bailor
➢The bailor is bound to accept the goods after
the purpose is accomplished. If bailor fails, he
is responsible for any loss or damage to the
goods and has to reimburse for expenses
incurred by the bailee for keeping the goods
safely.
 Rights of Bailor
➢Right to enforce duties of the bailee and claim
damages
➢Rights to terminate the contract
➢Right to demand back the goods
➢File suit against the wrong doer and sue the bailee
➢Right to claim increased profits
 Rights of Bailor
153. Termination of bailment by bailee’s act inconsistent with conditions.—A
contract of bailment is voidable at the option of the bailor,
if the bailee does any act with regard to the goods bailed,
inconsistent with the conditions of the bailment.
Termination of bailment may take place in the following circumstances:
➢Act done inconsistent with the condition of bailment
➢Period of Bailment expires
➢Demand of return of goods
➢Death of bailee
 Rights of Bailor
154. Liability of bailee making unauthorised use of goods
bailed.—If the bailee makes any use of the goods bailed
which is not according to the conditions of the bailment,
he (bailee) is liable to make compensation to the bailor for any
damage arising to the goods
from or during such use of them.
Alias v. E.M. Patil AIR 2004 Ker 214
 Rights of Bailor
155. Effect of mixture, with bailor’s consent, of his goods with
bailee’s.—If the bailee, with the consent of the bailor,
mixes the goods of the bailor with his own goods,
the bailor and the bailee shall have an interest,
in proportion to their respective shares,
in the mixture thus produced.
Here, bailee mixes the goods with the consent of the Bailor
 Rights of Bailor
156. Effect of mixture, without bailor’s consent, when the goods can be
separated.—If the bailee, without the consent of the bailor, mixes the goods
of the bailor with his own goods,
and the goods can be separated or divided,
the property in the goods remains in the parties respectively;
but the bailee is bound to bear the expense of separation or division, and any
damage arising from the mixture.
Here, bailee mixes the goods without the consent of the Bailor wherein the
goods can be separable, in this situation he will bear the expenses for
separating the goods.
 Rights of Bailor
157. Effect of mixture, without bailor’s consent, when the goods cannot be
separated.—If the bailee, without the consent of the bailor, mixes the goods
of the bailor with his own goods in such a manner that
it is impossible to separate the goods bailed from the other goods and
deliver them back,
the bailor is entitled to be compensated by the bailee for the loss of the
goods.
Here, bailee mixes the goods without the consent of the Bailor wherein the
goods are not separable, in this situation he is entitled to compensate the
bailor for the loss of the goods.
 Rights of Bailor
163. Bailor entitled to increase or profit from goods bailed.—In
the absence of any contract to the contrary,
the bailee is bound to deliver to the bailor, or according to his
directions,
any increase or profit which may have accrued from the goods
bailed.
 Rights of Bailor
Bailor in the case of gratuitous bailment has a right to
Demand the goods back even before the expiry of the period of
bailment.
If in the process, loss is caused to the bailee, bailor is bound to
compensate.(Duty of the bailor)
 Duties of Bailee
Care to be taken by bailee (Section 151): In all the cases of
bailment,
the bailee is bound to take as much care of the goods bailed to him
as a man of ordinary prudence would,
under similar circumstances, take of his own goods of the same
bulk, quality and value as the goods bailed.
 Duties of Bailee
Bailee when not liable for loss, etc. of thing bailed (Section 152):
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.
 Duties of Bailee
▪No unauthorised use of the goods: Bailee has no right to make
unauthorised use of goods bailed. (Section 153 and 154)
▪If the bailee makes any inconsistent use of goods then-
▪The bailment becomes voidable at the option of the bailor as per
section 153 and
▪The bailee shall be liable for any loss or damages even if that is
caused by any act of God or any other unavoidable reasons as per
section 154
 Duties of Bailee
▪No right to mix the goods bailed: Bailee has no right to mix the goods bailed with his own
goods without the consent of the bailor.
▪Return of goods bailed on expiration of time or accomplishment of purpose (Section 160): It is
the duty of 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.
If not he will be liable for any loss or damages (section 161)
 Duties of Bailee
▪Bailee’s responsibility when goods are not duly returned (Section 161) : If, by
the default of the bailee, the goods are not returned, delivered or tendered at
the proper time, he is responsible to the bailor for any loss, destruction or
deterioration of the goods from that time.
▪Bailment by several joint owners (Section 165): If several joint owners of
goods bail them, the bailee may deliver them back to, or according to the
directions of, one joint owner without the consent of all, in the absence of any
agreement to the contrary.
▪Bailee has a duty to return any extra profit accruing from goods bailed.
 Rights of Bailee
➢Compensation for loss arising on non-disclosure of
defects
➢Right to indemnity
➢Recover charges incurred (suit etc for title)
➢Return the goods
➢Right of lien and others
 Rights of Bailee
(i) To
claim compensation for any loss arising from non-disclosure of
known defects in the goods.
(2) Section 166: To claim indemnification for any loss or damage as
a result of defective title.
(3) If the bailor has no title to the goods, and the bailee in goods
faith, delivers them back to, or according to the directions of the
bailor, the bailee is not responsible to the owner in respect of such
delivery.
 Rights of Bailee
(4) Right of Lien: Bailee has a right to retain the goods where charges due in respect of goods
retained have not been paid but only those goods for which the bailee has to receive his
fees/remuneration.
Section 180 and 181 are both for Bailor and the Bailee:
Suit by bailor and bailee against wrong doers (Section 180):
If a third person wrongfully deprives the bailee of the use or possession of goods bailed, or
does them any injury,
The bailee is entitled to use such remedies as the owner might have used in the like case if no
bailment had been made;
And either the bailor or the bailee may bring a suit against a third person for such deprivation
or injury.
 Rights of Bailee
Section 181- Apportionment of relief or
compensation obtained by such suits- 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.
 Finder of Goods (Section 168-169)
Right to recover expenses: (Section 168)
▪The Finder of goods can recover expenses incurred by him for finding the true owner and
preserving the goods.
▪But he has no right to sue the owner for compensation for trouble and expense voluntarily
incurred by him
▪But he may retain the goods against the owner until he receives such compensation.
▪Right to recover the reward:
▪Where the owner has offered a specific reward for the return of goods lost,
▪The finder may sue for such reward, and may retain the goods until he receives it.
 Finder of Goods (Section 168-169)
Right of Sale of Goods (Section 169)
Conditions to sell:
➢When the true owner cannot with reasonable diligence be found
➢Or he refuses to pay the lawful charges of the finder then-
Additional conditions:
➢The goods are in danger of perishing or of losing the greater part of its value, or
➢When the lawful charges of the finder in respect of the thing found, amount to two-thirds of
its value
 Types of Lien (Section 170 and 171)
Types of Lien or Bailee’s Lien:
(1) Particular Lien and
(2)General Lien
(1) Bailee’s Particular Lien (Section 170)
▪Where the bailee has rendered any services for the bailed goods
▪By involving the exercise of labour or skill
▪Then he has a right to retain such goods until he receives due remuneration for the services or
if bailor refuses to pay him
 Particular Lien (Section 170)
▪No right to sue but if he delivers without receiving his remuneration, he can
sue the bailor and lien is waived but if the bailee does not complete the work
within the time agreed then lien is lost.
▪Right of Lien – when lost
➢When the bailee has finished the work within time-frame, he can exercise his
right of lien, but if he has not finished the work within time-frame, he cannot
exercise his right of lien. Ie the Right of Lien is lost.
 General Lien (Section 171)
▪General Lien of Bankers, Factors, wharfingers, attorneys and policy makers:
▪Bankers, factors, wharfingers, attorneys of High Court and policy brokers may,
▪ in absence of a contract to contrary,
▪Retain as a security for a general balance of account,
▪Any goods bailed to them,
▪But no other person have a right to retain, as a security for such balance,
goods bailed to them,
▪Unless there is an express contract to that effect.
 Difference between Particular Lien and
General Lien
No. Particular Lien General Lien
1. Particular lien implies a right of the bailee General lien alludes to the right to keep possession
to retain specific goods bailed for non- of goods belonging to other against general
payment of amount. balance of account.

2. Available Only against the goods, in which Available against Any goods, in respect of which
skill and labour is exercised. the amount is due to another person.

3. Particular lien is automatic. General Lien is not automatic but is recognized

through an agreement
 Difference between Particular Lien and
General Lien
No. General Lien Particular Lien
4. The holder of goods has no right to sell On the other hand, in the case of particular lien the
the goods to discharge the amount bailee can not sell the goods to realize his/her
unpaid, in the case of general lien. debts, however, in special conditions, the right is
conferred.

5. General Lien is most commonly exercised As against this, the particular lien is employed by a
by bankers, wharfingers, factors, policy bailee, unpaid seller, finder of goods, pledgee,
brokers, attorneys, et partner, agent, etc.