CONTRACT OF BAILMENT, INDIAN CONTRACT ACT, 1872

Authored By – Amisha Patel, Silver Law College (Mahatma Jyotiba Phule Rohilkhand University)

A) Introduction

The concept of bailment is an essential aspect of contract law. A contract of bailment is one of the four specific contracts governed by the Indian Contract Act, 1872. It is a legal agreement in which the owner of a specific good delivers it to another party for a specific purpose with the promise that the good will be returned once the purpose is fulfilled or disposed of as per the instructions of the owner.

This concept is widely used in day-to-day transactions such as lending a room to a tenant, lending a car for repair, depositing goods in a warehouse, or giving clothes for ironing, among others.

Keywords: Bailment, Contract Act, Agreement, Section 148, Bailor, Bailee

B) Definition

According to Section 148 of the Indian Contract Act, 1872:

“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 fulfilled, 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 the delivery of goods is made is called the bailee.
  • The contract mandates that the goods must be returned after the agreed purpose is accomplished.
  • Bailment applies only to movable goods such as vehicles, horses, etc., while immovable goods such as property are not included in bailment.
  • An agreement of bailment can either be oral or written.
  • Both parties must be competent to contract, i.e., they must be above the age of majority.

C) Essential Elements of a Bailment

For a contract of bailment to be valid, the following essential elements must be present:

1. Delivery of Possession of Goods

The bailor must deliver the goods to the bailee. Section 149 of the Indian Contract Act discusses the delivery of possession (Kavita Trehan v. Balsara Hygiene Products Ltd.). The delivery of goods can be either:

  • Actual Delivery – Physically handing over the goods.
  • Constructive Delivery – Symbolic transfer, such as handing over the keys of a vehicle.

2. No Transfer of Ownership

In a contract of bailment, only the possession of goods is transferred to the bailee, while the actual ownership remains with the bailor. Transfer of possession does not equate to a transfer of ownership.

3. Purpose of Bailment

The goods must be delivered for a specific purpose, such as repair, hire/rent for use, or safekeeping. Bailment occurs when both parties agree upon the specified purpose.

4. Goods Must Be Returned

The bailee must return the goods to the bailor once the purpose is accomplished, as per the guidelines of the bailor. A contract cannot be considered as bailment if there is no clause for returning the goods. Additionally, if the bailor has prescribed a specific mode or method of return, the bailee is obliged to follow it.

5. Consent of Both Parties

Like any other valid contract under the Indian Contract Act, a contract of bailment requires the consent of both parties. All other essentials of a general contract, such as consideration and lawful object, must also be fulfilled for a bailment to be valid.

D) Types of Bailment

Bailment can be classified based on reward and benefit.

1. On the Basis of Reward

  • Gratuitous Bailment – A bailment where no reward or charge is required from the bailor. Here, the bailee is not required to pay any charge or consideration to the bailor.

    • Example: A student gives his book to his friend to read without asking for anything in return.

  • Non-Gratuitous Bailment – A bailment for some reward or charge. The bailee must pay the bailor specific charges or reward.

    • Example: A car rental company lends a car to a tourist, and the tourist is required to pay rental charges to the company.

2. On the Basis of Benefit

  • Bailment for the sole benefit of the Bailor – The bailee gets no benefit from it.
  • Bailment for the sole benefit of the Bailee – The bailor gets no benefit.
  • Bailment for the mutual benefit of both the Bailor and Bailee – Both parties are equally benefited.

A contract of bailment creates rights, duties, and liabilities for both the bailor and bailee, and both parties are legally bound to fulfill their obligations.

E) Duties of a Bailor

1. Duty to Disclose Defects (Section 150)

  • If the goods have any defect, and the bailor is aware that it can cause damage to the bailee, the bailor must inform the bailee.
  • If the bailor fails to disclose defects, and the bailee suffers damage due to the defect, the bailor will be liable to compensate for any loss.

2. Duty to Bear Necessary Expenses (Section 158)

  • In the case of a gratuitous bailment, where there is no consideration, the bailor must pay reasonable expenses incurred by the bailee in taking care of the goods.

3. Duty to Indemnify the Bailee

  • If the bailor delivers defective goods (intentionally or unknowingly) or lacks complete authority to bail the goods, and the bailee suffers a loss, the bailor must compensate the bailee.

4. Duty to Take Back the Delivery of Goods

  • Once the purpose of bailment is fulfilled, the bailor must take possession of the goods. The bailor cannot refuse to take back the goods from the bailee.

5. Duty Not to Terminate the Bailment Unreasonably

  • If the bailee has paid charges and incurred expenses or losses, the bailor must not arbitrarily terminate the bailment.

F) RIGHTS OF THE BAILOR

1. Right to Demand Return of Goods

  • Once the purpose of bailment is fulfilled, the bailor can demand the goods to be returned.
  • He can also demand the return of goods after the expiration of the agreed time period.

2. Right to Claim Compensation

  • If the bailee fails to take proper care of the goods or misuses the goods for unlawful purposes, the bailor has the right to claim compensation for any loss or damage caused to the goods.

3. Right to Terminate Bailment

  • If the bailee does not follow the guidelines given by the bailor or violates the terms and conditions of the agreement, the bailor can terminate the contract at his will.
  • The bailor can also terminate the bailment if the bailee misuses the goods.

4. Right to Sue the Bailee for Loss

  • If the goods get damaged or lost due to the negligence of the bailee in handling them, and it causes a loss to the bailor, he has the right to sue the bailee for damages.

G) DUTIES OF THE BAILEE (SECTION 151-161)

1. Duty to Take Reasonable Care of the Goods (Section 151 and 152)

  • It is the duty of the bailee to take the same level of care of the goods as he would take care of his own goods. (Calcutta Credit Corporation Ltd. v. Prince Peter of Greece)
  • If the bailee fails to take reasonable care and the goods get lost or damaged, he will be held liable for the loss.

2. Duty Not to Exceed the Authority to Use (Section 154)

  • The bailee is authorized to use the goods only for the agreed purpose mentioned in the agreement and not beyond that.
  • If the bailee misuses the goods, causing damage or loss, he will be held responsible.

3. Duty to Return Goods (Section 160 and 161)

  • The bailee must return the goods once the purpose of bailment is accomplished.
  • He is obliged to return the goods after the agreed time period of bailment expires.
  • The bailee will be liable for any loss if he fails to return the goods on time.

4. Duty Not to Mix Goods with Other Goods (Section 155-157)

  • If the bailee mixes the goods of the bailor with his own goods without the bailor’s permission:
    • If the goods are separable, the bailee must bear the cost of separation.
    • If the goods are inseparable, the bailor may claim compensation from the bailee.

5. Duty to Return Profits or Increase in Goods (Section 161)

  • If the bailed goods generate additional value or profits, the bailee should return the additional gains to the bailor.

H) RIGHTS OF THE BAILEE

1. Right to Recover Necessary Expenses (Section 158)

  • In the case of gratuitous bailment, the bailee has the right to claim reimbursement for the necessary expenses incurred to maintain the bailed goods.

2. Right to Ask for Compensation

  • If the bailee suffers loss or damages because the bailor delivered defective goods, he can claim compensation from the bailor for the loss suffered.

3. Right to Retain Goods (Section 170 and 171)

  • If the bailor fails to pay lawful charges or rewards to the bailee, the bailee can retain the goods until full payment is made.
  • For instance, if a person gives his motorbike for repair to a garage owner, the person giving the bike is the bailor, and the garage owner is the bailee. After the bike is repaired, the bailor must pay the repair cost. If he fails to do so, the garage owner can retain the motorbike until full payment is made.
  • However, the garage owner (bailee) is not authorized to sell the motorbike without the bailor’s permission or unless allowed by law.

4. Right to Recover Losses Caused Due to Bailor’s Negligence

  • If the bailee suffers losses because the bailor did not disclose defects in the goods, he has the right to claim compensation from the bailor.

I) SIGNIFICANT CASES RELATED TO THE CONTRACT OF BAILMENT

1. Indian Oil Corporation Limited vs. Amritsar Gas Service (1991)

  • This case dealt with the issue of whether the oil company was liable for the loss of goods in the custody of the bailee.
  • The court ruled that the oil company was responsible for the safe custody of the goods in its possession.
  • It reinforced the duty of the bailee to take reasonable care of the goods.

2. K.K. Verma vs. Union of India (1954)

  • The court discussed the liability of the bailee when goods get damaged due to his negligence.
  • The ruling emphasized that if the bailee fails to take reasonable care of the goods and they get damaged, the bailee will be held liable for the loss.

3. Kavita Trehan vs. Balsara Hygiene Products Limited (1992)

  • The Supreme Court in this case decided that one of the essential requirements of bailment is the delivery of goods by the bailor to the bailee.
  • If there is no transfer of possession, there is no bailment.

J) CONCLUSION & COMMENTS

Bailment is a type of contract that allows a person to transfer possession of his goods to another individual for temporary safekeeping. This legal relationship between the bailor and the bailee is based on trust, allowing one to hand over his belongings for safekeeping.

Bailment is generally beneficial to both parties: the bailor’s assets are safeguarded, and the bailee receives compensation for maintaining or repairing the goods. Bailment differs from sales, as in sales, complete ownership of goods is transferred, whereas, in bailment, only possession is transferred, and ownership remains with the bailor.

A bailment contract can be formed either in writing or orally. The laws governing bailment are as significant as any other contract laws, as they specify the essential elements of bailment, the rights and liabilities of both parties, and the remedies available in case of any damage or dispute. Bailment is a secure means of holding assets, and many commercial businesses operate based on trust, just as common individuals entrust banks with their money for safekeeping.

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