Duties of Bailor and Bailee | Law of Contracts - CLAT PG PDF Download

Duties of Bailor 

A bailor has certain responsibilities when it comes to the goods they lend or lease. These duties are outlined in the Indian Contract Act, 1872, and vary depending on whether the bailment is gratuitous (without payment) or non-gratuitous (for hire).

 1. Duty to Disclose Defects 

•  Gratuitous Bailment:  The bailor must inform the bailee of any defects in the goods that could affect their use or pose significant risks. Failing to do so can make the bailor liable for damages.
•  Non-Gratuitous Bailment (Bailment for Reward):  When goods are lent for hire, the bailor is responsible for any injuries caused by defects in the goods, regardless of their knowledge of the defect.

 Example:  In the case of Hyman v Nye & Sons, the court ruled that the defendant was liable for the plaintiff's injuries caused by a defective carriage, regardless of whether the defendant knew about the defect.

 Disclose Faults in Goods [Sec. 150] 

• The bailor must inform the bailee about any known faults in the goods that could significantly affect their use or expose the bailee to unusual risks.
• If the bailor fails to disclose such faults, they are responsible for any damages incurred by the bailee due to these faults.

 Example:  If A lends a horse known to be dangerous to B without disclosing this fact, and B gets injured when the horse runs away, A is liable for B's injuries.

Liability for Defects in Goods

 Gratuitous Bailment 

• In gratuitous bailment, the bailor is only liable for losses that arise due to non-disclosed risks.

 Non-Gratuitous Bailment 

• In non-gratuitous bailment, the bailor is liable for damages regardless of whether they were aware of the faults.

 Example: 

• If A owns a motorcycle and allows B, a friend, to take it for a joy ride, A is liable for damages if B has an accident due to faulty brakes, even if A did not disclose the issue. However, if A rented the motorcycle to B, A would be liable regardless of his knowledge of the brake failure.

 Duty of Disclosure in Bailment 

• The law of bailment requires the bailor to disclose any defects in the goods being bailed. The bailor must inform the bailee of any defects that could affect the use of the goods or pose a risk to the bailee.

 Types of Bailment: 

•  Gratuitous Bailment:  In gratuitous bailment, where neither party receives a reward, the bailor is obligated to disclose all known defects that would interfere with the use of the goods. If the bailor fails to disclose these defects and the bailee suffers a loss as a result, the bailor is liable to compensate the bailee for the damages incurred.
•  Non-Gratuitous Bailment:  In non-gratuitous bailment, where the bailor receives a reward, the bailor has a duty to ensure that the goods are in a suitable condition for their intended use. The bailor is responsible for all defects in the goods, regardless of whether they are aware of the defects. If the bailee suffers a loss due to defects in the goods, the bailor is liable for the damages.

 Example of Gratuitous Bailment: 

• For instance, if A, the owner of a scooter, lends it to B, his friend, for a joy ride, and A is aware that the scooter's brakes are malfunctioning but fails to inform B, A is liable for any damages if B has an accident due to the faulty brakes.

 Example of Non-Gratuitous Bailment: 

• In a scenario where A hires B to transport certain chemicals to Bombay, and these chemicals are sensitive to temperature changes, A is responsible for ensuring that the chemicals are safe for transport, regardless of whether he informs B about the temperature requirements. If the chemicals burst during transit and cause harm to B, A is liable for the damages.

 Duty of Disclosure (Section 150) 

• According to the second part of Section 150 of the Indian Contract Act, if the bailor fails to disclose faults in the bailed goods to the bailee, he is accountable for damages incurred by the bailee due to such faults.
• For example:
•  (a)  If A lends a horse, knowing it to be dangerous, to B without disclosing its vicious nature, and the horse causes injury to B, A is liable for B's injuries.
•  (b)  If A hires a carriage from B, and the carriage is unsafe unbeknownst to B, resulting in A's injury, B is liable for A's injuries.

 Duty to Bear Expenses (Section 158) 

• Section 158 of the Indian Contract Act states that when the conditions of bailment require the bailee to keep, carry, or perform work on the goods for the bailor without any remuneration, the bailor is obligated to reimburse the bailee for the necessary expenses incurred in the process of bailment.
• The general principle in bailments where the bailee does not receive any payment is that the bailor should cover the standard expenses of keeping, carrying, or performing work on the goods by the bailee for the bailor. The bailor is responsible for reimbursing all necessary expenses incurred by the bailee for the purpose of bailment.
• For instance, if A, a farmer, entrusts some gold to his friend B, a goldsmith, to create a gold ring without any payment to B for the task, A is obliged to reimburse B for any expenses incurred in the process of making the ring.

 In cases of non-gratuitous bailments  , where the bailee is to receive remuneration, the bailor is responsible for extraordinary expenses incurred by the bailee. However, the bailor is not liable for ordinary or usual expenses.

 For example  , if a horse is lent for a journey, the bailee is responsible for feeding the horse. However, if the horse falls ill and requires medical expenses, or if the horse is stolen and expenses are incurred for its recovery, the bailor is responsible for those expenses.

 Expenses of Bailment 

 1. Gratuitous Bailment: 

• In the case of gratuitous bailment, the bailor is obligated to reimburse the bailee for all necessary expenses incurred during the bailment process.

 2. Non-Gratuitous Bailment: 

• In non-gratuitous bailment, the bailor is only liable to repay extraordinary expenses, not ordinary ones.
•  Example:  If M lends his car to N and it runs out of petrol, N can recover the cost of refueling (ordinary expense). However, if the car breaks down and N incurs repair costs (extraordinary expenses), he can recover those charges. If M had rented the car to N, he would only be responsible for the repair charges, as they are extraordinary expenses.

 Duty to Indemnify the Bailee 

 1. Indemnifying Loss (Section 159):  Indemnity refers to the commitment to compensate for a loss. According to Section 159 of the Indian Contract Act 1872, the bailor is obligated to indemnify the bailee for any loss incurred under the contract.

 2. Return of Loaned Item:  The lender of a borrowed item can request its return at any time if the loan was gratuitous, regardless of a specified time or purpose. However, if the borrower has made significant commitments based on the loan's terms, the lender must indemnify the borrower for any losses exceeding the benefits derived from the loan.

 3. Duty to Indemnify for Defective Title:  The bailor is responsible for indemnifying the bailee for any losses resulting from a defective title. This is because the bailor lacked the authority to make the bailment, receive the goods back, or give instructions regarding the bailed items.

 Example:  If A borrows a bicycle from B for one hour, and B mistakenly gives A a bicycle belonging to C, and A faces legal consequences while using it, A can claim reimbursement from B for all expenses incurred to resolve the situation.

 4. Duty to Bear Risks: 

• The bailor is responsible for bearing the risks of loss, deterioration, and destruction of the bailed items, as long as the bailee has taken reasonable care to protect the goods from such risks.

 5. Duty to Receive Back the Goods: 

• It is the responsibility of the bailor to receive the goods back from the bailee when they are returned in accordance with the terms of the bailment.
• If the bailor unreasonably refuses to take back the goods when offered at a proper time and place, the bailee can claim compensation from the bailor for all necessary and incidental expenses incurred in keeping and protecting the goods.

 6. Damages for Defect in Bailor's Title (Section 164): 

• The bailor is liable to the bailee for any loss suffered by the bailee due to the bailor's lack of entitlement to make the bailment, receive the goods back, or give directions regarding them.
•  Indemnify the Bailee for Defective Title:  The bailor must indemnify the bailee for any loss caused by the bailor's defective title.
•  Indemnify the Bailee for Premature Termination:  If the bailment is gratuitous and for a specific period, the bailor can force the bailee to return the goods before the agreed period. However, the bailor must compensate the bailee for any losses incurred.

 7. Putting Bailee into Possession (Section 149): 

• Delivery to the bailee can be accomplished by any action that effectively places the goods in the possession of the intended bailee or someone authorized to hold them on the bailee's behalf.
• In the case of Kaliaperumal V. Visalakshmi (1938) AIR 1938 Mad 32, the Madras High Court emphasized that delivery is a crucial element of bailment.

 Bailee's Duties under the Indian Contract Act, 1872 

• The bailee must take care of the goods bailed to them as a person of ordinary prudence would take care of their own goods of similar bulk, quality, and value.
• This standard of care applies regardless of whether the bailment is gratuitous or for reward.
• If the bailee fails to take reasonable care and the goods suffer loss, they can be held liable for negligence.
• However, the standard of care can be increased through a contract between the bailor and bailee.
• In the absence of such a contract, if the bailee takes care as an ordinary prudent person would, they are not responsible for loss, destruction, or deterioration of the goods.
•  Example:  If A gives a diamond ring to B for safekeeping without any reward, B should store it securely, like in a safe, rather than just in their room. Similarly, if a cow is given for safekeeping, it should be kept in a properly enclosed backyard, regardless of whether it is a gratuitous or rewarded bailment.

 2) Duty Not to Make Unauthorized Use of Goods 

• The bailee must use the bailed goods only as per the terms of the bailment. If the bailee uses the goods in a manner not agreed upon, the bailor has the right to void the contract and claim damages for any harm caused to the goods.
• Even if the bailee takes reasonable care, making unauthorized use can lead to liability.
•  Example:  If A lends his car to B to drive from Hyderabad to Delhi, and B deviates from the agreed terms, such as allowing a friend C to drive or changing the destination to Calcutta, A can claim compensation for any damages to the car.

 3) Duty Not to Mix Bailor's Goods with Own Goods 

• The bailee must keep the bailor's goods separate from their own. If the bailee mixes the goods with their own without the bailor's consent, different scenarios can arise:
• If the goods can be separated, the bailee bears the cost of separation and any damages from the mixture.
• If the goods cannot be separated, the bailor may claim damages for the loss of goods.
•  Example:  If A bails 100 bales of cotton to B, and B mixes them with his own bales without A's consent, A is entitled to his 100 bales back, and B must bear the costs of separation and any damages.

 4) Duty Not to Set Up Adverse Title 

• The bailee must not act in a way that contradicts the bailor's title to the goods. They should not assert their own title or that of a third party over the bailed goods.

 5) Duty to Return the Goods 

• Bailee must return or deliver the goods as per the bailor's instructions, without demand, either at the end of the specified time or upon completion of the purpose for which the goods were bailed.
• If the bailee fails to return or deliver the goods as directed, they become liable for any loss, destruction, or deterioration of the goods from that point on, regardless of negligence.
•  Example:  If a bookbinder keeps books beyond the allowed time for binding and they get lost in a fire, the binder is liable.
• In gratuitous bailment, the bailee must return the goods whenever demanded by the bailor, even if the goods were lent for a specific time or purpose. However, if the borrower has acted in a way that returning the goods before the agreed time would cause them more loss than benefit, the lender must indemnify the borrower for the excess loss.

 6) Duty to Return Accretions to the Goods 

• Unless otherwise agreed, the bailee must return any increase or profit that has accrued from the bailed goods to the bailor, or as per the bailor's instructions.
•  Example:  If A leaves a cow with B for care, and the cow has a calf, B must return both the cow and the calf to A.
• Accretions that have come from the bailed goods are considered part of the bailed goods, and the bailor has the right to such accretions. These accretions should be handed over to the bailor along with the bailed goods.
•  Example:  If A leaves a cow with B and the cow gives birth to a calf, B is obligated to return both the cow and the calf to A. (  Section 163  )