Bailment and Pledge | Business Laws for CA Foundation PDF Download

Essential Features of the Contract of Bailment

There are certain features of the Contract of bailment; a few of the key essential features are examined below.

A Valid Contract

A bailment contract is a distinctive form of agreement that necessitates the presence of essential elements for its validity. These crucial components comprise offer and acceptance, lawful consideration, the capacity of the parties involved, and their legal intentions. Without these elements, the contract lacks enforceability under the law. However, certain cases allow for a valid contract of bailment without strict adherence to these elements. There are two categorized types of bailment:

• Gratuitous Bailment: Bailment without consideration.
• Non-Gratuitous Bailment: Bailment with consideration.

Delivery of Possession

In a bailment contract, the delivery of goods can take two forms: actual delivery and constructive delivery. Actual delivery involves the physical transfer of goods from the bailor to the possession of the bailee. Conversely, constructive delivery does not entail a physical handover of goods; instead, certain actions or circumstances indicate that the bailee has been granted custody of the goods.

Delivery Upon Contract

Following the establishment of a contract, the goods are transferred from the bailor to the bailee. The contract should contain specific provisions regarding the process of transfer and the subsequent return of the goods. A contract of bailment can be formally executed through express signatures of the parties or verbally agreed upon by the involved parties.

Exception - Lost Goods Found

If a third party or a stranger discovers lost goods, the individual who finds the goods assumes the role of the bailee for the found items.

Duties of The Finder of Lost Goods
The duties of the finder of lost goods are defined below.

• The individual who discovers lost goods should make an effort to safeguard the items.
• The finder of lost goods is obligated to return them to the rightful owner.
• Using the lost goods for personal purposes is not permissible.
• The finder of lost goods must make diligent efforts to locate the owner of the lost items.

Rights of The Finder of Lost Goods
The entitlements of the finder of lost goods are outlined as follows:

• The individual who discovers lost goods is entitled to reimbursement for the expenses incurred in caring for the lost items.
• Compensation is also warranted for the efforts exerted in safeguarding the goods and locating the rightful owner.
• The finder of lost goods has the right to sell the items if they are perishable in nature and the owner cannot be identified.

Purpose

There must be a specific goal to transfer the goods from the bailor to the bailee. The Contractbailment contract is terminated if the bailee makes unauthorized use of the goods. A particular purpose is very vital in the case of the bailment of goods. A bailee cannot use the goods other than for the purpose that has been stated in the Contract.

Return of Goods
Upon the accomplishment of the intended purpose for which the goods were transferred from the bailor to the bailee, the goods are subsequently returned to the bailor. The bailee is obliged to return the goods to the bailor according to the specified instructions, without the need for a formal demand, promptly upon the expiration of the contractual period.

Duties of The Bailor and The Bailee
In the Contract of bailment, there are certain duties of the bailor and the bailee that they need to follow. A few of the critical points are stated below.

Duties of The Bailor
The duties of the bailor are explained briefly below.

• To reveal faults in goods - It is the duty of the bailor to disclose the faults in the good if there are any. If the bailor fails to do so, then in case of loss, the bailor is liable.
• To cover necessary and extraordinary expenses - All the expenses, whether necessary or extraordinary, that the bailee has incurred to keep the goods safe, then the bailor is liable to cover those expenses.
• Indemnify the bailee of all the losses - If the bailor asks to return the goods before the contract's fixed time, he has to indemnify the losses incurred to the bailee.
• To collect the bailed goods - The bailor's responsibility is to collect the goods after the expiration of the specified date. If the date has expired and the bailor did not collect the goods, then he is liable for what has been incurred to the bailee.

Duties of The Bailee
In the Contract of Bailment, there are certain duties that Bailey needs to follow; a few of the key points are revealed below.

To Take Proper Care of Goods
Section 151 of the Indian Contract Act 1872 defines that the bailee is required to take care of the goods bailed to him as of his own. But in section 152, it has been stated that in the absence of any kind of special Contract, the bailee is not liable for the loss or collapse of the goods bailed if he has taken care of the goods as stated in the Contract.

To Use The Goods For The Authorized Purpose Only
It is the responsibility of the bailee to use the goods only for the purpose stated in the Contract. If the bailor finds out that the bailee is using the goods for unauthorized Purposes, then the bailor can declare the contract void.

To Keep The Bailed Goods Separate

• The bailee is responsible for safely returning the goods to the bailor and is obligated to keep the goods separate. There are specific provisions regarding the mingling of goods:
• According to Section 155, with the bailor's consent, the bailee can blend his goods with the bailor's goods. Both the bailor and the bailee must have an interest in the resulting mixture.
• As per Section 156, if the bailee combines the goods without the bailor's consent, and if the goods can be separated, the bailee is accountable for the expenses of partition or division, as well as any losses incurred due to the blending of the goods.
• Under Section 157, if the bailee mixes the goods without the bailor's consent, and separation is not possible, the bailee is liable to compensate for the damages and remunerate the bailor.

Return The Goods

Once the bailment's purpose is fulfilled, the bailee must return the goods to the bailor.

Rights of The Bailor

• The entitlements of the bailor in a bailment contract are delineated below -
• The bailor is entitled to reimbursement if the bailee utilizes the goods without authorization.
• If the bailee neglects the goods bailed and deviates from the terms of the bailment contract, the bailor has the option to terminate the contract.
• The bailor has the right to receive any profits generated when the goods are bailed.
• The bailor is entitled to the return of the goods upon the expiration of the bailment contract.

Rights of Bailee

• The bailee is entitled to compensation for losses incurred as a result of defects in the goods.
• The bailee has the right to be reimbursed for significant expenses incurred on behalf of the bailed goods.
• The bailee has the authority to suspend the delivery of goods upon discovering that the bailor lacks proper title.

Should the bailor withhold compensation and neglect to cover any expenses for which he is liable, the bailee has the prerogative to exercise a lien on the bailed goods. Various types of liens are delineated below.

• Particular lien - This type of lien pertains to a specific property. The bailee can retain the goods until the charges related to that specific property are settled.
• General lien - When the lien is not specific to a particular property but applies to debts within the general account, it is referred to as a general lien.