This article is written by Aniket Anand, student of BA.LL.B. 4th Semester, RNB Global University, Bikaner
Introduction Of Bailment
The legal arrangement between two parties in which assets or property are transferred from a bailor to a bailee is known as a bailment. In this arrangement, the bailor retains ownership but gives the bailee temporary physical possession of a piece of personal property. There are three types of bailments, each of which has advantages for the bailor, bailee, or both.
Bailments are a regular occurrence in our daily interactions, including those with our banks. Bailments, in which the owner of securities transfers them to a third party for short sale, are also frequent in the financial industry. Failure to adhere to the terms and conditions of a bailment may result in legal disputes because they are contractual agreements.
Illustrations
If A gives his neighbour B the use of his car for 11 days, but he also keeps one key for himself and drives the car during that time. As A retains ownership of the property bailed, this will not be a case of bailment.
Essentials conditions for contract of bailment
Existence Of Valid Contract
The presence of a valid contract is a prerequisite for a bailment, which means that the goods must be returned once the purpose has been achieved. Even though there may not be an existing contract between him and the actual owner, the finder of lost property is also known as the bailee.
Goods Are Delivered Temporarily
the bailee is not permitted to take possession of the goods permanently. This is the foundation of the entire bailment concept. Deliveries of goods can be made through physical delivery or constructive delivery, which entails taking action that puts the goods in the possession of the bailee or any other person he has authorized.
Return Of Specific Goods
After the intended use of the goods has passed, the bailee is obligated to return them to the bailor. It won’t be a bailment if the person doesn’t return the goods.
Bailment Types
Deposit is the straightforward loaning of goods by one man to another for a specific purpose.
For instance, if A lends B his computer for seven days, that will constitute a deposit.
Goods delivered to the bailee for hire are included in the term “hire.”
For instance, if A rents out his car to B for seven days at a rate of Rs. 700 per day, that is a hire.
When goods are given to another person as collateral for a loan, this is referred to as a pledge or pawn.
As an illustration, if A takes out a loan from the Bank and keeps the title to his home with the Bank as security, that is an example of a pledge.
Duties of a bailor
To Mention Product Flaws
It is the bailor’s duty to disclose to the bailee any defects in the goods. The bailor is responsible to the bailee for any loss brought on by that failure if he fails to do so.
As an illustration, “X” borrowed a car from “Y” to travel. The brakes weren’t operating properly, and ‘Y’ was aware of this. He didn’t tell ‘X’ about it, though. The failure of the brakes causes “X” to be involved in an accident. ‘Y’ will be responsible for all losses ‘X’ incurred as a result of this accident.
To Pay For Unexpected But Necessary Costs
All necessary and extraordinary costs incurred by the bailee to protect the goods bailed must be covered by the bailor.
To Compensate The Bailee For All Losses
According to Section 159 of the Indian Contract Act, if the bailor requests his goods before the time specified in the contract, the bailee will be responsible for any losses incurred by the bailor. If the bailor knowingly releases goods with a defective title, the bailee may also make a claim against the bailor for losses under Section 164.
To obtain the bailed items
Once the period for which the goods were bailed has passed, the bailor must retrieve his property. The bailor will be responsible for covering any losses incurred by the bailee if the goods are not collected when the bailment period expires.
For instance, “X” left his dog with “Y” for a week and came back after 10 days to retrieve his pet. “X” will be responsible for covering “Y costs “‘s for keeping the dog for an additional 3 days.
Duties Of The Bailee:
To Treat The Goods With Care
“In all 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 goods of the same bulk, quantity, and value as the goods bailed,” states Section 151 of the Indian Contract Act, 1872. The bailee, in the absence of any special contract, is not liable for the loss, destruction, or deterioration of the thing bailed if he has taken the level of care described in Section 151, according to Section 152.
For instance, “A” bailed his car out with “B” for a week. If “B” is negligent and damages “A’s vehicle,” “B” will be responsible for making up the difference. However, “B” will not be responsible for any losses if the vehicle is damaged as a result of a divine act, such as an earthquake or a flood.
Use the products only for authorized purposes
It is the bailee’s duty to use the goods only as specified by the terms of the contract. The bailor has the right to void the entire contract if it is discovered that the goods were used unlawfully. According to Section 154, “If the bailee uses the goods bailed in any manner inconsistent with the terms of the bailment, he is liable to pay compensation to the bailor for any damage to the goods arising from or during such use of them.”
Some examples:
(A) “A” lends “B” a horse, but only for personal use. B gives his family member C permission to ride the horse. Although “C” rides carefully, the horse injures itself after accidentally falling. B is responsible for paying “A” compensation for the harm done to the horse.
(b) In order to march to Banaras, “A” specifically hires a horse from “B” in Calcutta. Although A rides carefully, she marches to Cuttack. Accidentally falling, the horse sustains damage. A is responsible for paying B compensation for the harm done to the horse.
To Keep The Bailed Goods Apart
The bailee should store each item that has been bailed separately and securely as this will ensure the items’ safe return. There are a few restrictions on combining bailed goods, though.
According to Section 155, if the bailee mixes the bailor’s goods with his own goods with the bailor’s permission, both the bailor and the bailee will have a share in the resulting mixture proportionate to their respective shares.
Section 156: If the bailee mixes the bailor’s goods with his own without the bailor’s consent and the goods can be divided or separated, the parties will each retain their respective ownership of the goods,
However, the bailee is required to pay for any damage caused by the mixture as well as any costs associated with separation or division.
According to Section 157, the bailor is entitled to compensation from the bailee for the loss of the goods if the bailee mixes the goods of the bailor with his own goods without the bailor’s consent in a way that makes it impossible to separate the goods bailed from the other goods and deliver them back.
To Return Any Earnings From The Goods
Any profit made from the bailed goods during the bailment process must be transferred by the bailee to the bailor.
Example: For seven days, “A” and “B” bail his cow. Each day the cow produces milk. Throughout the bailment period, “B” sold this milk. When returning the goods, “B” must pay “A” the profit it made from the sale of milk.
Returning the items
Upon completion of the bailment’s intended purpose or the conclusion of the contract’s term, the bailee is obligated to return the goods to the bailor. The bailor must have discretion in how to return the money.
Rights of the bailor
To be compensated against unauthorised use
If the bailee uses the goods for a purpose that isn’t authorised under the contract, he should be liable for any damage that arises from such use.
For example: ‘X’ bailed his vehicle to ‘Y’ for one month. In the contract, it was agreed that ‘Y’ can use the vehicle for his personal use. However, ‘Y’ let his brother ‘Z’ drive the vehicle, and ‘Z’ crashed the vehicle. Now, ‘Y’ will be liable for the damage done to the vehicle.
To terminate the contract
As per Section 153 of the Act, “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.”
Illustration: ‘A’ lets ‘B’, for hire, a horse for his own riding. ‘B’ drives the horse in his carriage. This is, at the option of ‘A’, a termination of the bailment.
To receive any profits arise from the goods
The bailor is entitled to any profit that arises from the goods when they are bailed. If the bailee refuses to pay such profits to the bailor, he may take appropriate action against the bailee to recover such an amount.
To get the goods returned on expiry of contract
The bailor has a right to receive the bailed goods upon expiry of contract. However, in case of a gratuitous bailment, the bailor can redeem the goods before the expiry of the contract. In any such situation, if the bailee incurs loss due to early return of the goods, the bailor is liable for the same.
Bailee’s Rights
The right to compensation
Any losses incurred as a result of a product defect must be compensated for by the bailee. In the case of a gratuitous bailment, the bailee may seek compensation from the bailor for his losses if the bailor requests that the goods be returned before the contract’s expiration and the return causes him loss.
To Be Paid For Costs Incurred
All costs incurred for caring for the goods bailed must be covered by the bailor and paid to the bailee. Additionally, the bailee is entitled to reimbursement for any extraordinary costs incurred during the goods’ period of bailment.
To Halt The Shipment Of Goods
If the bailee knows that the bailor lacks ownership of the goods, he or she has the right to stop delivery of the goods. In the event that a third party asserts ownership of the goods, the bailee may also halt the transaction.
To Encumber The Bailed Goods
Lien
A lien is a legitimate claim made against the property used to secure the debt. If the bailor has failed to make any required payments or compensation, the bailee has the authority to place a lien on the bailed goods.
Types of lien
Particular lien
In accordance with Section 170 of the Indian Contract Act, 1872, “Where the bailee has, in pursuance of the bailment, rendered any service involving the exercise of labor or skill in respect of the goods bailed, he has, in the absence of a contract to the contrary, a right to retain such goods until he receives due compensation for the services he has rendered in respect of them.”
For instance, “A” delivers a rough diamond to “B,” a jeweller, who cuts and polishes it as required. The stone may be kept by “B” up until he receives payment for the services he has provided.
General lien
General lien: Section 171 of the Indian Contract Act, 1872 states that “Bankers, factors, wharfingers, attorneys of a High Court, and policy-brokers may, in the absence of a contract to the contrary, retain any goods bailed to them as a security for a general balance of account; but no other persons have a right to retain, as a security for such balance, any goods bailed to them, unless there is an express contract to that effect.”
For instance, “A” obtains a Rs. 1000 secured loan from the bank. Later, he obtains a loan of Rs. 5000 from the same bank using gold as collateral. “A” reimburses Rs. 5000 but still owes Rs. 1000. So that the bank can keep the gold.
Relevant case laws
Visalakshmi v. Kaliaperumal Pillai, AIR 1937 Mad 32
FACTS
The plaintiff in this case paid the defendant to create new jewellery for her. Her old jewellery had to be melted down, and the resulting gold was used to create this new jewellery. The defendant would give the plaintiff the partially finished jewellery every evening. That jewellery would be locked in the plaintiff’s jewellery box and left in the defendant’s room. The Plaintiff did, however, take the key to that box. The jewels were taken one evening. Because he was the bailor of the goods, the plaintiff held the defendant liable.
Issues related to the case
If the delivery met the requirements of Section 149 of the Indian Contract Act of 1872 as a bailment?
Decision of the Court
It was decided that the respondent was not responsible because he was not in lawful possession of the stolen goods. The parties had a bailment arrangement, but it was terminated when the plaintiff locked the items in the box and took the keys with her. Bailment is not the act of simply leaving the box at the defendant’s residence.
United India Insurance Ltd. v. Taj Mahal Hotel, 2019
FACTS
In this instance, a Maruti Suzuki Zen was parked in the respondent’s hotel on August 1st, 1998, and the owner donated his vehicle to the valet parking service. The owner discovered that his car had been stolen when he went back to retrieve it. Although a report of theft was made, the car was never located. Parking of vehicles was “at the owner’s own risk inside and outside the hotel premises and in case of theft, loss or damage the hotel will not be liable,” according to the valet parking policy of the respondent hotel.
The plaintiff company settled the car owner’s insurance claim by giving him a payment of Rs 2,80,000. The respondent hotel was sued by the plaintiff company for negligence.
Problems related to the case
Whether a bailment case had occurred here?
Was the hotel accountable for negligence under bailment law?
Was the car owner entitled to compensation as a result of the parties’ lack of consideration?
Decision of the Court
The supreme court ruled that the respondent would be responsible for the car theft because the respondent was negligent and caused it. According to the supreme court, the respondent cannot disavow its responsibility for negligence towards the car that was parked in its lot. In this instance, the customer would receive free parking as payment for using the respondent’s services. If the general rule of bailment is applied, it can be assumed that the bailee (hotel) will be held accountable if a loss of goods (vehicle) occurs as a result of its negligence.
Bank of Maharashtra v. Atul Mehra, 2002
FACTS
In this case, on January 15, 1986, the plaintiff had rented a locker from the bank of the respondent. Criminals broke into the bank’s strong room, stealing the locker’s contents in the process. According to the plaintiff, the locker contained jewellery worth Rs. 4,26,160. The 9th of January 1989 saw the filing of a FIR. The plaintiff emphasized that the respondent’s negligence and misconduct were to blame for this loss. Additionally, it was claimed that the strong room was made of inferior materials and was easily breachable.
Problems related to the case
Whether the respondent’s negligence and wrongdoing were to blame for the loss?
Does the respondent have a legal obligation to make good on the losses?
Should the bailment described in Section 148 of the Indian Contract Act, 1872, apply to the relationship between the plaintiff and the respondent?
Decision of the Court
It was decided that in the case of bailment, exclusive possession of the goods is sine qua non (extremely necessary). So, simply renting a locker would not qualify as bailment. Additionally, it was stated that when the bailee is made aware of the contents of the locker and is granted exclusive possession of the same, reasonable care and damages are called into question.
Here, neither was done, so the respondent was given a favourable respondent(bank).
