Contract Law – II

Date- 04/01-07/01
Topic – Specific Contract

• Indemnity ( Save a person from loss)

Indian ( Human activity only) but English law ( human+ natural both).
a. Contract of Indemnity – Chapter VIII of the ICA, 1872 talks about
indemnity.
b. Indemnity in English law means a promise to save a person
harmless from the consequences of an act. This promise may be
expressed or implied.
c. This principle was laid down in an English case Adamson v.
Jarvis.

Case law – Adamson v. Jarvis ( section 223 )

Here the plaintiff was an auctioneer. He sold certain cattle on the
instructions of the defendant. Subsequently, it came to the knowledge
that the cattle didn’t belong to the defendant, but to another person,
who made auctioneer liable and the auctioneer in his turn sued the
defendant for indemnity for the loss he had thus suffered by acting on
the defendant's direction. In this case, the English court has held that
the plaintiff having acted on the request of the defendant was entitled
to assume that if what he did turn out to be wrongful he would be
indemnified by the defendant.
Indian law
Section 124 of the ICA, 1872 defines contract of indemnity in very short
as the contract by which one party promises to save other from loss
caused to him by the conduct of promisor himself or, by the conduct
of any other person.
Indemnifier – the person who gives the indemnity.
Indemnity holder – the person for whom the protection of indemnity is
given.

• Essentials
1. There must be 2 parties called indemnifier and indemnity holder
or indemnified.
2. There must be a promise.
3. Loss must be caused by human agency i.e. by the promisor
himself or by any other person.
Section 124 excludes loss arising from natural events like fire. This
point is the distinction between Indian law from English law.
4. This promise of indemnity may be either expressed or implied.

This definition also excludes the situation in Adamson v. Jarvis case.

The situation under the English case law is covered by section 223
of ICA which provides for indemnity between principal and agent.

• Rights of indemnity holder

There are three important rights of indemnity holder as are provided
under section 125 as –
1. All damages which the indemnity holder be compelled to pay
in any suit in respect of any matter to which the promise of
indemnity applies.

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 2. All costs which the indemnity holder may be compelled to pay
in bringing or defending the suit provided he didn’t contravene
the order of the promisor and acted in such a way as would be
prudent to act in the absence of contract of indemnity.
3. All sums which the indemnity holder may have paid under the
terms of compromise of such suit. If the compromise is not
contrary to the orders of promisor and was one which would
have been prudent for the promise to make in the absence of
any contract of indemnity.

• Duty to compensate arise

One important question that arise in this connection is when
indemnifier become liable to pay or, when indemnity holder is entitled
to recover his indemnity.
The answer to this question is that the original English rule says that the
indemnity is payable only after the indemnity holder had suffered
actual loss by paying off the claim.
This rule was laid in Indian cases also.
Case laws – Sakshyam Sundar v. Chandumal
Rangnath v. Pachusao

In these cases, Court has held that it’s necessary for the indemnity
holder to be damnified ( suffering from loss) before he could be
indemnified.
The other view as laid down in case of Gajanan Moreshwar Vs
Moreshwar Madan . The Bombay High Court has taken a different view
and held it’s not necessary for the indemnity holder to be damnified
before he could be indemnified. This decision is supported HCs such
as Kolkata HC in the case Praful kumar v. GB Singh, Madras HC in the

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case of Ramalingha v. Unnamalai, Patna HC in the case of Chunni Bai
v. Nathu Bai.

13th law commission, 1958 on page 51 also recommended the view as

expressed by Bombay High Court in the case of Gajanan Moreshwar's
case.

Date – 08/01/2025
• Contract of Guarantee

:- Chapter VIII , Sections 126-147.

COG defined under section 126.
• Perform the promise
• Discharge of liability
• Default of third person

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 • Contract of Guarantee
Chapter VIII, Sections 126-147 of the Indian Contract Act, 1872 lays
down the provisions relating to the Contract of Guarantee.
Section 126 defines Contract of Guarantee as the contract to perform
the promise, or discharge the liability, of a third person in case of his
default. The person who gives the guarantee is called the “surety”, the
person in respect of whose default the guarantee is given is called the
“principal debtor”, and the person to whom the guarantee is given is
called the “creditor”. A guarantee may be either oral or written.

Date: 09/01

Essentials of Contract of Guarantee

• There must be three parties namely Principal debtor, Creditor
and Surety.

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 • There must be a principal debt. Debt is the life blood of Contract
of Guarantee. In the case of Manju & Mahadev v. Shivappa, it
was held that if there is no principal debt, there can be no valid
guarantee. The principal debt must be a valid debt.
• Consideration : Section 127 provides for consideration for
guarantee. It says Anything done, or any promise made, for the
benefit of the principal debtor, may be a sufficient consideration
to the surety for giving the guarantee.
Illustration - (a) B requests A to sell and deliver to him goods on
credit. A agrees to do so, provided C will guarantee the payment
of the price of the goods. C promises to guarantee the payment
in consideration of A’s promise to deliver the goods. This is a
sufficient consideration for C’s promise
• There must be a tripartite contract between the parties namely
two expressed contract i.e. between A&B and B&C and one
implied contract i.e. A&C.
• Default : The Contract of Guarantee comes into existence on the
default made by the principal debtor ( third party). Liability
incurred independently of a default is not within the definition of
guarantee.
Case law : Brikmyr v. Darnell
Here, two person approach a shop. One has said to the
shopkeeper “ let him have the goods, I will be your paymaster”.
Here, the court has held that this is the case of independent
liability because for the purpose of contract of guarantee,
default is must.
• Mode : Section 126 of ICA further provides that a contract may
be either oral or written.
• Misrepresentation or Concealment : There should not be any
misrepresentation or Concealments with regard to the facts
under the contract of guarantee. Misrepresentation or

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 Concealment renders the contract as invalid by virtue of Section
142&143 respectively.

Case law – Coutts & co. V. Brown lecky

In this case, it was held that a debt of a minor was a void debt and
therefore the surety is not liable.

Indian context
Case law – Krishiva v. Shripet
It was held that where a minor’s debt has been knowingly guaranteed
the surety should be held liable even though the debt is void.

• Liability of Surety
Section 128 of ICA, 1872 provides that the liability of the surety is co-
extensive with that of the principal debtor, unless it is otherwise
provided by the contract.
The term co-extensive means similar. In easy terms, the liability of
surety is exactly the same as the liability of principal debtor, not less
or more.

“The sentence unless it is otherwise provided by the contract is well

explained under section 144 of ICA.”

Where there is condition precedent to the surety's liability, he will not

liable unless that condition is first fulfilled.

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Section 144 of ICA provides that Where a person gives a guarantee
upon a contract that the creditor shall not act upon it until another
person has jointed in it as co-surety, the guarantee is not valid if that
other person does not join.

• Proceedings against Surety without exhausting remedies against

principal debtors

Case law :- Bank of Bihar v. Damodar Prasad

The trial court decreed that the bank shall enforce the guarantee in
question only after having exhausted its remedies against the
principal debtor. The Patna HC had confirmed the decree but the
Supreme Court over ruled it and held that even if the principal debtor
is sound, solvent and alive, the creditor could proceed against the
surety.

Case law: Union of India v. Manku Narayan

In this case, the Hon'ble SC had held that the creditor must proceed
against the mortgage property first and then only against the surety
for the balance even if the decree is a composite one against the
principal debtor, mortgaged property and the guarantor.

However, this decision is overruled by Supreme Court in the case of

State Bank of India v. INDEXPORT REGISTERED , the SC has held that the
creditor can move against the surety in the first instance and then
against the mortgage property. In this case, the Hon’ble SC has cited
the following passage from 'Chitty on Contract’. The surety may be
proceeded against without first proceeding against the principal
debtor.

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 • In case of Death of Principal Debtor
If the principal debtor dies, there are three options available :
1. As the principal debtor dies, so the contract of guarantee
becomes void.
2. The debt may be recovered from the representatives of principal
debtor.
3. The surety may be proceeded against.

If both dies i.e. the surety and the principal debtor, the liability goes to
the representatives of principal debtor and surety.

• Surety’s right to limit his liability or, make it conditional

Surety is entitled to limit his liability if he desire up to his own capacity
it is open to him to place a limit upon his liability. He may expressly
declare his guarantee to the limited to a fixed amount.

Case law :- Hobson Us Boss

In this case surety limited his liability in this following sentence my
liability shall not exceed more than 250 the mean time P.D become
defaulter. Creditor asked for fell amount from surety. Court says that
surety will not liable fully, only for 250.
This is known as limited liability guarantee.

• Discharge of surety from liability

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Surety is said to be discharged from liability when his liability comes
to an end.
There are following modes four the discharge of sureties liability:

1. By notice of revocation by the surely

Revocation mean Section 130 of ICA provides that in case of
continuing guarantee it may be revoked by the surety, as to the future
transaction, by notice to the creditor.

2. By death of surety
Section 131 of ICA provides that the death of the surety operates in the
absence of any contract to the contrary; as a revocation, of
continuing guarantee so far as regards Future transaction.

3. By Variance in terms of contract

Section 133 provides that a surety is held discharged when without his
consent the creditor makes any change in nature or term of his
contract with P.D. the surety is discharged as soon as the original
contract is altered without his consent.

If the variance is in the favor of the surety then he is not discharged

from liability this has been laid down in case of M.S Anirudhan vs Th.
Travancore bank Iimited.

In this case SC has held that following three as essential ingredient of

the variance –
1. Change in the contract
2. Change was not within the knowledge of guarantor

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 3. Change is against the interest of guarantor

Case law :- Holms v. Brunskill ( English case law )

4. By release or, discharge of Principal Debtor

Section 134 of ICA talks about discharge of surety by release or,
discharge of Principal Debtor. It says that the surety is discharged by
any contract between creditor and P.D by which principal Debtor is
released or, by any act or, Omission of the creditor, the legal
consequence of which is the discharge of P.D.

Case law : Karan Singh v. Tek Chand

In this case the creditor accepts a compromise and releases the PD
and hence the surety also discharged from liability.

5. When Creditor compromise, gives time or, agree not to sue PD

Section 135 provides for three modes of discharge from liability –

a) Composition ( compromise)
If the creditor makes a compromise with P.D without consulting the
surety the latter or, surety is discharged.

b) Promise to give more time

The creditor have no right to give time to the P.D even though
manifestly for the benefit of the surety, without the consent of the
surety. If the creditor promises to extend the time for payment by P.D
then also surety is discharged from liability.

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 c) Promise not to sue P.D
Here, if the creditor under an agreement with the principal debtor
promises not to sue him. Then, the surety is discharged.
Section 137 of ICA further provides that mere forbearance on the part
of the creditor to sue the principal debtor or, to enforce any other
remedy against him doesn’t in the absence of any provision in the
guarantee to the contrary discharge the surety.
This section says that mere forbearance to sue doesn’t discharge the
surety but omission to sue the principal debtor within the period of
limitations definitely discharges him. Hence, according to section
134 , the surety is discharged but section 137 says mere forbearance
to sue doesn’t discharge the surety and hence, in a case of Mahant
Singh v. Yu Ba Yi, Lord Porter said that a failure to sue the principal
debtor until recovery is barred by the statutes of limitations doesn’t
operate as a discharge of the surety in England. The same view
prevails in most of the High Courts in India.

6. By impairing Surety’s remedy

This is another mode of discharge of surety from liability. This is dealt
under section 139 of ICA. Section 139 says that If the creditor does any
act which is inconsistent with the right of the surety, or omits to do any
act which his duty to the surety requires him to do, and the eventual
remedy of the surety himself against the principal debtor is thereby
impaired, the surety is discharged.

The surety is entitled after paying of the creditor, to his indemnity from
the principal debtor. If the creditor's act or omission deprives the
surety of the benefit of this remedy, the surety is discharged.

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Case law :- State bank of Saurashtra v. CR Raja
State bank of Saurashtra releases a loan in favor of principal debtor
and principal debtor have some goods lying in the godown. Principal
debtor raises it as security. Loan was also guaranteed by C.R Raja. The
goods delivered to Saurashtra bank. In the mean time, bank
committed negligence and the whole of goods were stolen. This was
not informed to the surety. Principal debtor became defaulter.
Saurashtra bank proceeded against surety.
Here, the court said that if the creditor doesn’t fulfill his duty properly,
the surety will be discharged from the liability up to the extent of value
of the security.

• When Surety will not be discharged

There are three conditions under Indian contract whereby the surety
is not discharged.

1. Section 136 ( Surety not discharged when agreement made with

third person to give time to principal debtor.)
: Where a contract to give time to the principal debtor is made by
the creditor with a third person, and not with the principal debtor,
the surety is not discharged.

2. Section 137 (Creditor’s forbearance to sue does not discharge

surety)
: Mere forbearance on the part of the creditor to sue the principal
debtor or to enforce any other remedy against him, dies not, in the
absence of any provision in the guarantee to the contrary, discharge
the surety.

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 3. Section 138 ( Release of one co-surety doesn’t discharge other)
: Where there are co-sureties, a release by the creditor of one of them
does not discharge the others neither does set free the surety so
released from his responsibility to the other sureties.

These questions can come in Examination.

Question 1. What is contract of guarantee and points out some rights
of Surety?
Question 2. Define contract of guarantee and give provisions whereby
the surety will not be discharged.
Question 3. What is contract of guarantee and points out provisions
whereby the surety will be discharged.

• Rights of surety
Right of surety may be categorized under three heads –

1. Right against principal debtor

The surety have two rights against principal debtor –

A. Right of Subrogation
: Section 140 of ICA deals with right of subrogation. It simply says that
when the surety has paid all that he is liable to pay on behalf of
principal debtor, he is invested all the rights which the creditor had
against the principal debtor. So, here the surety steps into the sue of
creditor.

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This right is not available to surety in the beginning but it’s available to
him only when he pays all that he is liable to pay on behalf of principal
debtor.
In other words, it can be rightly said that the right of the surety is co-
extensive with that of the Creditor.

Case law : In re L Iron Ore Co. Ltd.

In this case, company was tenant in the premises of a landlord. Rent
was guaranteed by the director. The company becomes defaulter.
Landlord proceeded against the director. Director pays the whole rent
that was due by the company. After that director files a suit against
the company for the recovery of the rent.
The court has held that when the director fulfills the liability of the
company, then the right of landlord shifts to the director after the
landlord gets the rent from the director.

In an Indian case, Amritlal Govardhan lallan v. State Bank of

Travancore
In this case, the Apex court of India also recognized the right of
subrogation.

Note : However, when the principal debtor becomes insolvent, the

right of subrogation becomes useless.

• Right before payment

The surety has got certain right before the payment to creditor on
behalf of principle debtor. The Calcutta high court has examine this
principle in the case of Mamta Ghose v. United industrial bank.

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Here the surety found that the amount having become due the
principal debtor started disposing his personal property one after
other, the surety after paying may cease them and short a temporary
injunction to prevent the principal debtor from doing so. The court
granted the injunction.

Sukumar chakravarty justice said that if in any sue if it is proved by

affidavit or otherwise the defendant threatened or is about to remove
or dispose of his property with intend to fraud , the court may grant a
temporary injunction to restrain such act or to gave such other order
for the purpose of staying or preventing the removal or disposition of
the property.

B. Right of indemnity
: This right is available to the surety under sec. 15 of ICA according to
which in every contract of guarantee there is an implied promise to
principal debtor. This right enables the surety to recover from the
surety whatever sum he has fully paid under the guarantee but not
sum which he pays wrongfully.

2. Right against Creditor

There are three rights of surety against the creditor –

A. Right to securities
: Section 141 of ICA provides for the right to securities of surety against
the creditor – A surety is entitled to the benefit of every security which
the creditor has against the principal debtor at the time when the
contract of suretyship entered into, whether the surety knows of the
existence of such security or not; and if the creditor loses, or without

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the consent of the existence of such security or not; and if the creditor
loses, or without the consent of the surety, parts with such security, the
surety, the surety is discharged to the extent of the value of the
security.
This right is available only when the surety pays all dues on behalf of
principal debtor. The knowledge of security to the surety is immaterial.
If surety doesn’t know about the security, then also he has right to have
the security.

Case law : Amritlal v. State Bank of Travancore

In this case, Hon'ble SC made a distinction between English and Indian
Law on Section 141. The court said that section 141 has limited the
security right to securities held by the creditor at the date of his
becoming surety but the English rule is that the surety is entitled to
securities given to the creditor both before and after the contract of
guarantee.

B. Right to share reduction

It is not recognized in Indian law. It’s a concept of English law. In an
English case – Hobson v. Boss, in this case creditor releases a loan of
£650 in favor of principal debtor. This loan was guaranteed by two
sureties - S1 & S2. Both limited the liability by £250. Principal debtor
become insolvent. As both the sureties limited their liability to £250 and
so both give £250 to creditor. Hence, over all received £500.
Subsequently, the creditor received a sum of £650 from a receiver. The
court has held that the creditor must return the amount he received
from the sureties.

C. Right to set off

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This right also doesn’t have statutory recognition under Indian law.
Illustration : Creditor owes ₹10000 to principal debtor, in the same time
principal debtor took a loan of ₹20000 from the creditor and this loan
is guaranteed by surety. Further, principal debtor become insolvent.
Creditor sues the surety. This right says that if the creditor sues the
surety, the surety may have the benefit of the set-off, if any the
principal debtor had against the creditor. He is entitled to use the
defense of the debtor against the creditor.

3. Right against Co-surety :-

Where a debt or loan has been guaranteed by two or more person,
they are called co sureties, these co sureties have rights against each
others –
A. Right on releasing the co surety
: This right of surety against co-surety is incorporated under section 138
of ICA. This section says that the creditor may at his will release any
one of the co-surety from his liability. But that will not operate as a
discharge of other co-surety. However the released co-surety will
remain liable to the others for contribution in the event of default.
B. Right to contribute
:This right is incorporate under sections 146 and 147 of ICA.
Illustration: Creditor releases a loan of ₹10000 in favor of principal
debtor. This loan is jointly guaranteed by two sureties – S1 & S2 in the
mean time P.D become insolvent. Surety 1 paid all the loan of ₹10000
alone. Sec 146 says that the other surety i.e. S2 is liable to contribute
equally. S1 has right to take contribution from S2.
Sec. 147 says that co-sureties who are bound in different sums are
liable to pay equally so far as the limits of there respective obligations
permits.

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Illustration A of sec 147 :

• Continuing guarantee:-
Section 129 of ICA provides that the guarantee which extend to a
series of transaction is called a continuing guarantee.

Case law : Kay vs Groves

In this case the guarantee was in the form “I hereby agree to be
answerable to Kay for the amount of 5 snacks of sheet flour to T,
payable in 1 month”
5 snacks were delivered and T paid for them. Further supplies were
made during the same month for which T failed to pay. Here the surety
was sued. The court held that it was not a continuing guarantee and
therefore, there was no liability for parcel delivered for various
subsequent.

Case law : Durga Priya Chaudhary vs Durga Pada Roy

In this case Hon’ble Calcutta HC has held that a guarantee for the
conduct of servant appointed to collect rent to be a continuing
guarantee.
A continuing guarantee as to future transaction may be revoke either
by notice of revocation by surety (sec. 130) or by death of surety
(under sec. 131)

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 • Difference between Contract of Guarantee and Indemnity

Basis Contract of Guarantee Contract of Indemnity

No. of Parties Three: Principal Debtor, Two: Indemnifier and

Creditor, and Indemnified.
Guarantor.
Purpose To provide security to Reimbursement of loss or,
the creditor for the damage suffered.
repayment of a debt or
performance of an
obligation.
No. of Contracts Three contracts: (1) Only one contract between
Between creditor and the indemnifier and the
debtor, (2) Between indemnified.
creditor and guarantor,
(3) Between guarantor
and debtor.
Liability Secondary liability Primary liability (Indemnifier is
(Guarantor is liable only directly liable when loss
if the debtor defaults). occurs).
Example A bank guarantees a An insurance company
loan for a borrower. If agrees to compensate a
the borrower defaults, policyholder for losses due to
the bank (guarantor) an accident.
will pay the lender.

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Bailment ( Section 148 )

Contract of bailment is another specific after contract of guarantee.

It’s defined under section 148 of ICA, and defined 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 delivering the goods is called the
‘bailor’. The person to whom they are delivered is called the ‘bailee’.

Section 148 further defines –

• Goods – the term goods defined under section 2(7) of sale of
goods act, 1930. According to which goods means every kind of
movable property other than actionable claims and money; and
includes stock and shares, growing crops, grass, and things
attached to or forming part of the land which are agreed to be
severed before sale or under the contract of sale.
Therefore keeping money in bank is not a bailment.
For example – A delivers a watch to B for repair upon fulfillment of
purpose i.e. repair of watch , it’s to be returned to A. This is a contract
of bailment. Here, A is bailor and B us bailee.

• Essentials of contract of bailment

There are following essentials of contract of bailment –
1. There must be two parties.
2. There must be delivery of possession.
3. Delivery must be of goods.
4. Delivery should be upon a contract.
5. Delivery should be upon some purpose.

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 One of the most important ingredient of bailment is the delivery of
possession by one person to another. It is distinguished from a mere
custody. The goods must be handed over to the Bailee for whatever
is the purpose of bailment.
Sec 149 of Indian contract act provides that the delivery to the
Bailee maybe made by doing anything which has the effect of
putting the goods in the possession of the intended Bailee or of any
other person authorized to hold them on his behalf.

• Kinds of Delivery of Goods:-

There are two kinds of Delivery of Goods:-
Actual delivery:- In actual delivery the bailer hands over to the
Bailee the physical possessions of the goods, that is called actual
delivery.
Constructive delivery:- When there is no chain of physical
possession, goods remaining where they are, but something is
done which has the effect of putting them in the possession of the
Bailee.
Actual delivery is visible whereas constructive delivery is not visible.

Case law : Ultegn vs Nicolas

In this case the plaintiff was a regular visitor of a restaurant. One
day when the plaintiff entered into the restaurant, the waiter took
off the coat of the plaintiff and hanged the coat on the bolt. After
taking a delicious dinner when the plaintiff start leaving the
restaurant, he didn’t found the coat. He filed a complaint for the
breach of bailment. Restaurant contented that there is no delivery
of goods by the plaintiff and hence there is no bailment.

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 Held: the court held that there is intention to deliver the
goods(coat). Bailment was proved and compensation was
allowed.
Case law : K. Pillai vs Visa Laxmi
In this case,K.pillai was a goldsmith. Visa laxmi was owner of some
jewellery. she handed over to the goldsmith certain jewels for the
purpose of being melted and utilized for making new jewels. Every
evening, she used to visit the showroom and check the half made
new ornaments. She used to store old ornaments in a box and lock
the box and took the key with her. One day, ornaments were lost
from the locker. Visa laxmi filed a suit against goldsmith for
compensation.

Lower court considered it a contract of bailment. But the high court

overruled the lower court decision and held that k.pillai is not
responsible. High court observed that possession is delivered but
duty to take care is still retained with visa Laxmi and hence, it’s not
a contract of bailment.

Case law : Fazal v. Salamat rai

This case is an illustration of constructive delivery. In this case,
dispute is between two parties. Court in order to solve the dispute
ordered Fazal to give some money to salamat rai. Fazal couldn’t
give money at that time. Court start executing the decree. Court
delivers animals to salamat rai under the execution of decree. In
the mean time, the amount was given by Fazal but the animals
were lost from the possession of salamat rai. Fazal filed a suit against
salamat rai. Salamat rai contended that goods never delivered for
the purpose of Bailment.

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 Held – Court held that it’s also a delivery of possession. It’s
constructive delivery of goods.

Case law : N. R. S. Iyer v. New India insurance company

In this case, Plaintiff, Mr. Iyer was owner the 4 wheeler. He insure the
the 4 wheeler with the insurance company ( defendant). One day,
iyer met an accident. Car damaged and insurance company
found the damage correct. Company asked iyer to entrust the car
to garage. Iyer delivered the car to garage on behalf of company.
In mean time, car was stolen. Mr. Iyer filed a suit against insurance
company under contract of Bailment. Insurance company
contended that there is no delivery of goods.
Held – Court held that there’s actually physical hand over of the car
and therefore, it’s a delivery of possession of the car. Hence, the
insurance company is liable for the loss.

• Delivery upon a Contract

The delivery of goods should be made upon a contract that when the
purpose is accomplished the goods shall be returned to the Bailor.

Case law : Ram Gulam v. Government of Uttar Pradesh

In this case, Ram Gulam has jewelry. One day, all jewellery has stolen.
Ram gulam informed the police. Police found the jewellery. When ram
gulam reached police station, he was said that the jewellery was
stolen from the custody of police. Ram gulam contended that it’s a
contract of Bailment.

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Government of Uttar Pradesh contended that according to section
148, Bailment is delivery of goods in terms of contract. There is no
contract between ram gulam and police.
Held – Allahabad HC has upheld the decision of lower court and held
that without contractual obligation there can be no contract of
Bailment. The court further observed that the obligation of a Bailee is
a contractual obligation and springs only from the contract of
Bailment. It can’t arise independently of a contract.

However, in certain circumstances there can be a case of Bailment

even without any contract. For example – In case of Finder of lost
Goods, there is no contract between the finder of goods and the
owner of goods but still in the eyes of law the finder is treated as a
Bailee of lost article.

Date : 18/02/2025
Case law : State of Gujarat vs Menan Mohammad
In this case respondent menan was arrested by custom officer
vehicles and goods were seized by custom officer. In the mean time
they took the goods and vehicle. Both are stolen from the possession
of custom officer. It was contented by the custom officer that there’s
no delivery upon a contract and therefore it’s not a case of bailment
and hence no liability should be incurred upon them.
Held: The Supreme court has held that even if no contract exists
between menan mohammad and state of Gujarat there is a contract
of bailment. Court further said that bailment is dealt with by the
contract act only in cases where it arises from a contract but its not
correct to say that there can’t be a bailment without an enforceable
contract.

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Case law : B.K.D Patil vs. State of Mysore:
The fact of this case is exactly same as that of Ram Gulam’s case. The
supreme court has held that the state is responsible as Bailee. B.K.D
Patil is entitled to get compensation.

• Delivery should be upon some purpose:

The goods should be delivered for some specific purpose and it’s
subject to the condition that when the purpose is accomplished the
goods will be returned to the bailor or disposed off according to his
directions. If the person to whom the goods are delivered is not bound
to return then return them to the person delivering them or to deal with
them according to his directions, their relationship will not be that of
bailor and Bailee.

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