By Jalaj Tokas
Published on: September 7, 2021, at 19:01 IST
Introduction
It is famously said that “Until the Contract is signed, nothing is real.” We all come across such words, don’t we? When was the last time you entered into a contract? Now, most of us are left contemplating as we try to recall the last time, we made one. What if you were told that you just entered one while buying groceries at the supermarket or while getting your car serviced at the station? Difficult to digest, isn’t it? Each one of us enters into a contract every day, sometimes several times a day.
Well, we all engage ourselves into dozens of activities governed by contracts every day, usually without realizing the legal relationships we are engaging in. Contracts, therefore, govern most of the aspects of our day-to-day lives. Hence, they are considered as one of the fundamental ways in which our society is ordered. Therefore, it won’t be wrong to conclude that contracts are part and parcel of our lives.
An important and an indispensable aspect of contracts is- Contract of Bailment. Bailment is basically a legal relationship borne out of a contract wherein the physical possession of a property is transferred from one individual to another, subject to certain rights and duties of both the parties. However, bailment doesn’t necessarily depend upon a contract inter partes,[i] as it is subject to certain exceptions under special circumstances. Contracts of bailment form a special class of contract.
Thus, the concept of bailment has always occupied a peculiar place in our law.[ii] But, to understand it better we first need to define it.
What is Bailment?
The etymological meaning of bailment has been derived from the French word ‘bailer’, which means ‘to deliver’. Bailment has been defined under Section 148 of The Indian Contract Act, 1872 stating:
“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 be disposed off in accordance to the directions of the person delivering them. The person delivering the goods is called the ‘bailor’. While the person to whom they are being delivered is called the ‘bailee’.”[iii]
It further states that a person who is already in possession of the goods, under a contract to hold them, thereby becomes the bailee, and the owner becomes the bailor of such goods, not necessarily to be delivered by way of bailment. Therefore, bailment involves a change in possession, not ownership, from one person to another. In other words, bailment is a unique type of contract which arises from the delivery of goods from the bailor to the bailee.
Classification of Bailment
Bailment can be classified into two types on the basis of remuneration.
- Gratuitous Bailment
When goods are bailed without any consideration to either the bailor or bailee, the bailment is called a Gratuitous Bailment. No mutual benefit exists between the parties. The bailor repays all expenses incurred by the bailee while the goods were bailed to him.
For example, If A requests a favor from B to wash his clothes, free of any cost. Here, A is the bailor and B is the bailee.
- Non- Gratuitous Bailment
When goods are bailed for a consideration between the bailor and bailee, such bailment is called a Non-Gratuitous Bailment. Mutual benefit exists between the bailor and bailee. The bailor is bound to repay only the extra-ordinary expenses that the bailee incurred during the bailment.
For example, If A pays a fee to B, a laundry owner, to wash his clothes in return. Here, A is the bailor and B is the bailee.
What are the essentials of Bailment?
A bailment is a contract and therefore the valid essentials of a contract are pre-requisites to its creation and enforcement. However, there exist certain other conditions which are essential in forming the contract of bailment. Some of them have been mentioned below-
- Delivery upon Contract
Bailment is based upon a contract which is enforceable by law. It could either be an express or an implied one. However, consideration is not necessary for forming a contract of bailment.
- Delivery for some Purpose
Goods are always bailed for a specific purpose and not otherwise.
- Ownership
The ownership of the goods, in a contract of bailment, always remains with the bailor.
- Delivery of Possession
The delivery of goods, to the bailee, can be made by doing something which has the effect of putting the goods in possession of the bailee or any other person authorized to hold the goods on his behalf.[iv] It is necessary to distinguish it from mere custody as a person who has the custody of goods rather than the possession is not called a bailee.
In Kanhaiyalal Vs Badrilal[v], the Court held that the bailor was entitled to sue in the right of his property but that an action in right of possession belonged only to the bailee. However, it was contended that this rule applied only to a case where the bailor had the property while the bailee enjoyed the possession.
- Moveable Property
Property is bailed only for all moveable property in goods and not for immoveable property or money.
Apart from the mentioned essentials, both the bailor and bailee are entitled to legal rights while being bound by certain legal duties at the same time.
What are the Rights of Bailor?
- Enforcement of duties
A bailor can legally enforce all duties of the bailee.
- Termination of Contract
A contract of bailment is voidable at the discretion of the bailor; if the bailee does any act or indulges in any act which is inconsistent with the conditions of bailment.[vi]
- Demand returns of goods from the bailee
Once the purpose of the contract is served, the bailor has every right to demand back the goods or ask them to be disposed off according to his (bailor) discretion.
This issue was raised when the Court in Managing Director of Pasari Mills Ltd Vs Sardarmal Amolakchand[vii] held that if the goods are not returned or tendered on an appropriate time, then the bailee is liable to the bailor for any loss, damage or deterioration of the goods from that very moment. Hence, the cause of action arises when the bailee fails to comply with the bailor’s demand.
What are the Duties of Bailor?
- Duty to disclose defects in the goods bailed
Irrespective of the type of bailment, the bailor has a duty to disclose all defects/faults in the goods bailed to the bailee.
- Reimbursement of any necessary expenses in case of a Gratuitous Bailment
- To repay any extraordinary expenses incurred by the bailee in case of a Non-Gratuitous Bailment.
- To indemnify a bailee
The bailor has a duty to indemnify the bailee for any cost incurred by the bailee which may have arisen due to a defective title of the goods.
- To receive back the goods
It is the duty of the bailor to receive back the goods once the purpose for which they were bailed is served.
What are the Rights of Bailee?
A bailee can exercise certain rights which are as follows:
- Injunction Order.
- Suit against a third person.
- Claim damages
- Reimbursement for extra-ordinary expenses.
- Indemnity for loss due to defective title.
- Compensation for expenses.
- Delivery of the goods to anyone of several joint bailors.
- No liability towards the true owner.
- Right of Lien.
Developing on the same, it was held in Surya Investment Company Vs State Trading Corporation of India Ltd[viii] that a bailee’s right of lien arises out of its possession and is lost with the loss of possession.
What are the Duties of Bailee?
A bailee is bound to follow to fulfill certain duties which are as follows
- Take care of the goods bailed.
- Not to make unauthorized use of goods.
- Not to mix up the bailed goods with his own goods.
- Deliver any accretion/profit earned on the bailed goods.
- Return the property in goods to the bailor.
- Not to set up an adverse title.
The Court in The Madras and Southern Mahratta Railway Co. Ltd. Vs Haridoss Banmalidoss[ix] held that the bailee owed a duty to return or deliver the goods according to the bailor’s discretion as soon as the time for which they were bailed expired or the purpose for which they were bailed was accomplished.
The Position of Finder of Lost Goods under Bailment
The finder of lost goods is a person who finds goods belonging to another and takes them into his own custody.[x] The person finds himself in a position of a bailee. In other words, the finder of the goods is subject to the same responsibilities and liabilities as that of the bailee of goods.
He can retain possession of the goods until the true owner is found. He is entitled to the right of lien if the owner after offering a specific reward for the return of lost goods, refuses/fails to pay it. The finder can even sell the goods found if they are of perishable nature and if he is unable to trace the actual owner of the goods.
Termination of Bailment
A contract of bailment can be terminated in the following scenarios-
- If the bailment is for a stipulated or specified period, then the bailment terminates after time period is over.
- If the bailment is for a specific purpose, then bailment terminates upon its fulfillment.
As it was seen in Sundaram Motors Private Limited Vs The State of Mysore[xi], that a contract of bailment is completed as soon as the purpose for which the goods were bailed is served and it ends as soon as the goods are delivered back to the owner. A bailee, at no instance, is capable of conveying any title to the goods bailed.
- If the bailee does any inconsistent act under the contract.
- A bailor can terminate a gratuitous bailment at any point of time, according to his desire.
- Also, a gratuitous bailment terminates upon death of either the bailor or the bailee.
Conclusion
In India, bailment is dealt under Sections 148-181 of The Indian Contract Act, 1872. It can be termed as an act of voluntarily placing personal property in goods of oneself in the temporary custody or control of other for certain purpose, upon the fulfillment of which they shall be transferred back to the original owner in the altered or unaltered form as and when demanded.
The article mentions various rights and duties of the parties involved along with other essentials. However, what we often miss out upon is the fact that the essence of bailment is not the contract which accompanies it, but it is the delivery of goods upon the condition to redeliver them. In other words, the transaction is essentially one of conveyance and not one out of contract. Deducing it further, bailment doesn’t exist until there is a passing of possession. The theoretical writings available on bailment have somewhat neglected the importance of the passing of possession.
However, we must remember that the existence of a bailment is not an issue in Courts, the extent of the bailee’s liability almost always is.[xii] Attention has thus been given to the contractual aspects and implications of bailment. Much ingenuity has gone into distinguishing various types of bailments and the liabilities related to them as they are of much more relevance today.
Coming to the aspect as to why understanding the concept of bailment is important. As it is evident, we all are somewhere in our lives found to be engaging in some sort of contract every now and then. Therefore, it becomes necessary on our parts to be fully aware of our rights and duties which we owe towards each other. With proper awareness and knowledge one can definitely understand and practically apply these concepts better in his/her life which in-turn helps us in minimizing chaos and become responsible for our acts and thoughts.
References
[i] It is Latin for “between the parties”.
[ii] N.E Palmer, “Gratuitous Bailment: Contract or Tort?” The International and Comparative Law Quarterly, vol. 24, no. 3, 1975, pp. 565–572. Available at: jstor.org (last visited on Sept 3, 2021).
[iii] The Indian Contract Act, 1872, s 148.
[iv] The Indian Contract Act, 1872, s 149.
[v] Kanhaiyalal Vs Badrilal AIR 1965 Raj 121.
[vi] The Indian Contract Act, 1872, s 153.
[vii] Managing Director of Pasari Mills Ltd Vs Sardarmal Amolakchand AIR 1960 MP 175.
[viii] Surya Investment Company Vs State Trading Corporation of India Ltd AIR 1987 Cal 46.
[ix] The Madras and Southern Mahratta Railway Co. Ltd. Vs Haridoss Banmalidoss (1918) ILR 41 Mad 871.
[x] The Indian Contract Act, 1872, s 71.
[xi] Sundaram Motors Private Limited Vs The State Of Mysore 1967 19 STC 290 Kar.
[xii] A.E.S. Tay, “BAILMENT AND THE DEPOSIT FOR SAFE-KEEPING.” Malaya Law Review, vol. 6, no. 2, 1964, pp. 229–249. Available at: jstor.org (last visited on Sept 4, 2021).