Contract of bailment – An in-depth analysis

This Article is written by Pratham Bhatt.

Table of Contents

Introduction.

Contracts can be of various types depending upon the various situations that arise during a business transaction. A special contract is a type of contract that requires the wax seal of the signer attached with it. Under the Indian Contract Act of 1872, special contracts are covered from sections 125 to 238. Contracts of Agency, Contracts of Indemnity, Guarantee and Bailment are all examples of Special contracts. The article focuses on Contracts of bailment as a special contract, its definition, essentials and the rights and duties of the parties involved.

Definition of ‘bailment’

The simple act of delivering goods to an individual (bailee) for a fixed purpose without any transfer of ownership is known as a bailment. The parties involved in a bailment agreement are the –

Bailor – The one who delivers the goods, &

Bailee – The person to whom the goods are delivered.

Any bailment gives rise to a situation in which there is an owner of the property and there is a possessor of the property, provided both can never be the same. In the relationship of the bailee and the bailor, there is the actual transfer of possession of the property for a fixed purpose but no transfer of ownership. An example of bailment is the delivery of garments and clothing to the dry-cleaner by “A”. Here “A” makes the delivery and becomes the bailor whereas the dry cleaner becomes the bailee.

Essentials to a contract of bailment.

Section 148 of the Indian Contract Act defines a contract of bailment as the delivery of goods by one person to another for some purpose upon a contract. There are various criteria that have to be met so that a contract can be called a bailment. These criteria/essentials are as follows:

‘goods’ means specific movable property –The property being transferred by the bailor to the bailee has to be specific and definite.
The delivery of possession – The “delivery of possession” is the most important characteristic of a contract of bailment. In any case it has to be distinguished from mere custody of the property. {Reeves v. Capper, 1838}.
Delivery upon contract – The temporary delivery of goods has to be for a specific purpose, upon a contract and the goods have to be returned to the bailor by the bailee after the completion of the said purpose. The contract can be both implied and express. The delivery can also be constructive in nature.
Delivery should be upon same purpose AND
There should be a return of the specific goods.

On the basis of reward.

On the basis of benefit.

Bailments are further divided into two types based on the reward. They are – Gratuitous bailment – When a bailment constitutes of no benefit, neither to the bailor nor to the bailee, it is known as gratuitous bailments. non-gratuitous bailment – When the bailment comprises of the benefit of bailment, it is known as non-gratuitous bailments.

On the basis of benefits to the parties involved, bailment can be further divided into three more types. They are – Bailments that benefit the bailee – Such bailments are only beneficial for the bailee, for example, your colleague borrows your laptop from you. Bailments that benefit the bailor –Such bailments are only beneficial to the bailor, for example, the valet service at any hotel. Bailments that benefit both – Such bailments benefit both the parties involved, for example, any pay and park.

Types of Bailment

The Rights and Duties of a Bailee

Like the parties in any contract, the bailee and bailor have to perform certain duties with respect to the rights of the opposite party. The Rights of a bailee are as follows –

The right to remuneration and expenses –Section 158 of the Indian Contract Act focuses on the repayment of the bailee. For the work done on the movable property by the bailee, he has to be compensated by the bailor by all means necessary. Section 158 comes into play when there are no specifics regarding compensation in the agreement.
Right to recover compensation from the bailor –Section 164 states that the bailor is solely responsible for compensating the bailee in case of any loss bore by the bailee while working on the delivered goods or while delivering them back to the bailor.
The right of ‘lien’ –Section 170 and 171 state that lien is a right possessed by the bailee by which they can retain or hold back the goods delivered by the bailor and refuse to hand them over till the due compensation or remuneration is provided. There are 2 kinds of lien –
General lien – According toSection 171, general lien of the bankers, attorneys and policy brokers is the power possessed by them in retaining a general balance of the account, or any goods as a security of remuneration.
Particular lien –Section 170 states that the bailee is allowed to retain the very goods upon which service was done and remuneration was due.

The duties of a bailee are as follows –

Duty of maintaining reasonable care
Duty to not misuse the goods
Duty to not mix the goods in any way
Duty to safely return the goods back to the bailor.

Just like the bailee, the bailor is entitled to various rights in a contract of bailment provided that he dutifully completes all his obligations towards the bailee. The rights of a bailor are as follows –

Right to enforce duties of the bailee –In case of any neglect of duties by the bailee, the bailor has the right to bring action upon him.
Right to terminate the contract – Section 153 enables the bailor to cancel the contract in case of any fault committed by the bailee.
Right to claim damages – Section 154 gives the bailor the power to seek compensation from the bailee in case of any misuse of the goods delivered to him.
Right to claim proportionate share – when goods are mixed with other goods with the consent of the bailor, then the bailor and bailee are both entitled to a fair share and interest in the end product. (155).
Right to claim damages in case of mixing of goods –If the delivered goods are mixed without the consent of the bailor, then he is entitled to claim damages (156).
Right to claim a return of goods (160 & 161) –Goods are delivered to the bailee for a specific purpose. Once this purpose is achieved, the bailor is entitled to claim a return of the goods.
Right to claim a return of goods lent gratuitously – Section 159 states that the bailor can claim a return on the goods that he lent gratuitously at any time he wants.
Right to recover increase –if there is any gain made from the goods bailed by the bailor then he/she is entitled to the profit (163).
Right to get compensation – if damage is caused to the goods bailed by the actions of any third party, then the bailor is entitled to seek damages from the wrongdoer.

The duties of a bailor are as follows –

Bailors are of two types. The 2 types are gratuitous bailor and non-gratuitous bailor. The bailor who lends his goods without any charge is known as a gratuitous bailor. The bailor who lends his goods with a fixed charge is known as a non-gratuitous bailor. Their duties are as follows –

Duty of the bailor to disclose faults in the product –Section 150 states that the bailor is bound to disclose any faults in the product bailed in order to make the bailee aware of any risks involved. If any damage happens, then the bailor can be held liable.
Duty to compensate the bailor – Section 164 states that the bailor has to compensate the bailee for any expenses incurred or any loss sustained while the goods were in possession of the bailee.

References –Singh A, (2017), Contract and Specific relief (Twelfth edition), EBC Publishers.

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