Concept of Bailment | Civil Law for Judiciary Exams PDF Download

Manner of Creation of Contract of Bailment

• Contract: An agreement creating and defining an obligation between two or more persons. Bailment can be expressed or implied. For example, when A finds B's lost goods, a bailment is created without a direct agreement.
• Delivery of Goods: Bailment occurs when goods are transferred from one person to another, transferring possession and control but not ownership.
• Goods: Bailment involves movable assets as defined in the Sales of Goods Act, excluding actionable claims and money.
• Purpose: Goods are delivered for specific, temporary reasons such as safekeeping, transportation, or repair.

Return of Goods in a Contract of Bailment

• The bailee is obligated to return the goods after the purpose is fulfilled or dispose of them according to the bailor's instructions.
• Contract of bailment is the delivery of goods by one person to another for a specific purpose, with an agreement for their return or disposal. One example is when A leaves coat at B's restaurant, creating a bailment. The bailee must return the goods or follow the bailor's instructions, as seen in the case of Forbes Forbes Campbell and Co. Ltd. vs. The Board of Trustees of the Port of Bombay and Metal Fabs India Pvt. Ltd.

Understanding the Difference Between Contract of Bailment and Contract of Pledge

To fully grasp these concepts, it's essential to comprehend the contract of bailment and the involved parties as defined under Section 148. According to Section 148, a "bailment" refers to the delivery of goods from one person to another for a specific purpose, with an agreement that they will be returned or disposed of as per the instructions of the delivering party.

The individual delivering the goods is termed the 'bailor,' while the recipient is known as the 'bailee.' It's important to note that if a person already in possession of someone else's goods agrees to hold them as a bailee, the owner automatically becomes the bailor, even if the goods weren't delivered through traditional bailment.

Main Essentials of a Contract of Bailment:

• There must be a clear agreement between the bailor and bailee.
• The delivery of goods must be voluntary and in line with the contract.
• The ownership of goods should remain with the bailor during the bailment, not transferred to the bailee or anyone else.

Switching gears to the contract of pledge, the bailor in this scenario is termed the 'pawnor' (individual offering goods as security for debt repayment), whereas the bailee is referred to as the 'pawnee.'

Illustration: 'A' borrows Rs. 1 Lakh from 'B' and pledges their gold ring as security. Here, the bailment of the gold ring represents a pledge, with 'A' acting as the pawnor and 'B' as the pawnee.

An Example Differentiating Bailment and Pledge:

• In bailment, goods are handed over for a specific duration, while in a pledge, goods are given as security for debt repayment.
• Consideration may or may not be present in a bailment contract, but it's a requirement in a pledge.
• The bailee can use goods in bailment for a specific purpose, unlike in a pledge where the pawnee cannot utilize the goods.
• Bailment involves safekeeping or return of goods, whereas pledge involves goods as security against a loan.

Remember, every pledge is a form of bailment, but not every bailment constitutes a pledge.

Identification Of Contract of Bailment in Day To Day Life

• Handing over the keys: When we entrust keys to someone, like house keys or locker keys, a bailment relationship is formed. For example, lending the keys to our house to a neighbor establishes a bailment, with one party being the bailor and the other the bailee.
• Parking lots: Parking lots, whether paid or unpaid, can exemplify bailment. In unpaid parking lots, the owner acts as the bailor while the parking lot owner becomes the bailee. On the other hand, in paid parking lots, it becomes a mutual beneficial bailment where the bailee is responsible for safeguarding the parked vehicle.
• Repair or service: Bailment for repair services covers a wide range of items from cars to machinery. Goods subject to wear and tear are often entrusted for repair on behalf of the bailor.
• Lending items for use: This type of bailment benefits the bailee. For instance, when a friend lends another friend a bike for temporary use, it constitutes a gratuitous bailment beneficial to the bailee.
• Keeping of footwear: Temples and gurudwaras provide rooms for storing footwear before entering the premises. This service, meant for safekeeping, is solely beneficial to the bailor as the bailee receives no compensation for custody.
• Warehouse facilities: Warehousing facilities, often used for storing agricultural products off-season, primarily benefit the bailor. Farmers storing food grains in warehouses gain advantages when the grains cannot be grown, making the warehousing system advantageous for the bailor.

Duties of Bailor and Bailee under Contract of Bailment

Duties of Bailor

• Duty to disclose faults in the goods: In a gratuitous bailment, the bailor must inform the bailee of any faults in the goods. Failure to disclose such faults makes the bailor liable for any resulting damage to the goods or loss suffered by the bailee.
• Duty to indemnify the loss of the bailee: In a non-gratuitous bailment where no payment is involved, the bailor is responsible for compensating the bailee for any losses incurred.
• Duty to compensate for bailee's loss due to defective title: If the bailee uses the goods in a way that violates the terms of the bailment, they must compensate the bailor for any damage caused by unauthorized use.
• Duty to take goods from the bailee: The bailor is obligated to retrieve the goods as per the agreement, whether through actual delivery or other specified means.

Duties of Bailee

• Duty to take reasonable care: The bailee must exercise reasonable care over the bailed goods, equivalent to how a prudent individual would care for their own goods of similar nature and value.
• Duty not to make unauthorized use of goods: The bailee is liable for any damage resulting from unauthorized use of the goods bailed to them.
• Duty not to mix goods with their own: The bailee should not mix the bailed goods with their personal property.
• Duty to return goods: It is the bailee's responsibility to promptly return the goods to the bailor once the bailment period ends or the purpose of the bailment is fulfilled.
• Duty not to claim adverse title: The bailee cannot dispute the bailor's ownership rights over the goods. Returning the goods in good faith absolves the bailee of liability towards any third party claiming ownership.

These duties are crucial elements of the relationship between bailor and bailee, outlining their respective responsibilities and obligations in a bailment agreement. Examples and cases help illustrate the practical application of these duties in various scenarios, ensuring clarity and understanding.

Rights of Bailor and Bailee under Contract of Bailment

Rights of Bailor

• Right to Terminate the Contract of Bailment: The bailor holds the right to end the bailment agreement and can seek compensation for any damages resulting from the unauthorized use of the bailed goods.
• Right to Request Return of Goods: In cases of gratuitous bailment, the bailor can demand the return of goods at any time, even if they were initially lent for a specific period or purpose. However, the bailor may need to compensate the bailee for losses exceeding the benefits gained from the bailment.
• Right to Enforce the Bailee's Duties: The responsibilities of the bailee represent the rights of the bailor. Therefore, the bailor has the authority to take legal action against the bailee to enforce these rights.

Rights of the Bailee

• Right to Compensation for Premature Termination: If a bailment is ended before its intended time, the Bailee has the right to be compensated for any resulting loss.
• Right to Claim Damages: If the Bailee faces harm due to undisclosed defects in the bailed goods, they can demand compensation from the bailor.
• Right to Legal Recourse: If a third party unlawfully interferes with the Bailee's possession or use of the bailed goods, the Bailee can take legal action against the wrongdoer. This right allows the Bailee to seek remedies that the owner would have sought if the goods were not under bailment.
• Right to Return Goods to Joint Owners: When multiple owners jointly bail goods, the Bailee can return them to one joint owner without needing consent from all, unless there is a specific agreement stating otherwise.
• Right to Recover Expenses: In cases of gratuitous bailment, the Bailee can request reimbursement for necessary expenses incurred during the bailment period.
• Right against Third Parties and Owners: Any relief or compensation acquired in legal proceedings against a third party will be distributed based on the interests of the bailor and the Bailee.

Finder Of Goods As A Bailee

• A person who discovers goods belonging to another and takes them into his custody is considered a Bailee under Section 71 of the Indian Contract Act, 1872.
• The finder of goods enjoys specific privileges under the law. He can retain the goods against the whole world except the true owner.
• Essentially, the finder acts as a custodian of the goods found, holding them on behalf of the rightful owner.
• Upon locating the owner, the finder must return the goods to the rightful owner and take all necessary steps to identify the true owner.

Rights of the finder of goods

• Right to retain goods: The finder of the goods has the right to keep the goods until the original owner is located, and a reward is given. The goods can be held by the finder against anyone until the owner is identified. However, the finder cannot legally demand compensation from the owner for any trouble or expenses incurred in preserving the goods or finding the owner.
• Right to claim reward: The finder of the goods can ask for the reward that the owner has promised for returning the goods, which a reasonable person would expect. They have the right to take legal action to claim the reward and can keep the goods until they receive it.
• Right to sell goods: If the found item is commonly sold and either the owner cannot be located or refuses to pay the lawful charges to the finder, the finder has the right to sell the goods.

By understanding these rights, we can explore them further with some examples:

• Retaining goods: For instance, if you find a lost wallet on the street, you have the right to hold onto it until you locate the owner and they offer you a reward for returning it.
• Claiming reward: Imagine finding a missing pet with a reward poster offering money for its safe return. You can claim this reward once you reunite the pet with its owner.
• Selling goods: In a situation where you find a valuable antique item with no identification, and efforts to locate the owner fail, you may have the right to sell the item if the legal conditions are met.

Understanding the rights of the finder of goods is essential in navigating situations involving lost or misplaced items, ensuring clarity and fairness in dealing with such circumstances.

Finding Goods and Selling Circumstances

• If an item is perishable, the finder has the right to sell it.
• If the legitimate expenses incurred by the finder amount to two-thirds of the item's value, they can sell it.
• Right of Lien: As per Section 168 of the Indian Contract Act, 1872, a finder possesses the right to withhold the goods until receiving reasonable compensation for expenses related to preserving the goods and locating the owner.

This means that in situations where goods are at risk of spoiling or the finder has borne significant expenses while protecting and identifying the owner of the goods, the finder is permitted to sell the items. For instance, if a finder discovers a valuable antique clock that is deteriorating rapidly, they can sell it to prevent its loss. Similarly, if the finder incurs substantial costs in safeguarding and attempting to find the owner of an item, they have the right to sell it to cover their expenses. These legal provisions offer protection to finders and establish clear guidelines for their actions in such circumstances.

Liability Towards The True Owner

• To care for found goods: The discoverer of goods must handle them with the same level of care that a reasonable person would use for their own goods of similar size, quality, and value.
• Avoiding use: The finder is prohibited from using the discovered goods for any purpose as it would be considered unauthorized use.
• Preventing mixing: It is essential that the finder does not mix the found goods with their personal belongings.
• Tracing and returning goods: The finder is obligated to make every effort to locate the rightful owner of the found goods and return them promptly.
• Compensation for defaults: If the finder fails to return the goods to the owner due to negligence, they are accountable for compensating the owner for any loss or damage incurred.

Understanding the Right to Dispose of Goods in a Contract of Bailment

In the realm of contracts of bailment, the right to dispose of goods is a crucial element that governs the termination of such agreements. Let's delve into the circumstances under which a contract of bailment can be terminated:

• Expiry of Specified Period: When a contract of bailment is established for a specific duration, its termination naturally occurs upon the expiration of that set period.
• Specific Purpose: Goods are often bailed to the bailee for a particular reason. Once this purpose is fulfilled, the contract is automatically concluded.
• Termination of Gratuitous Bailment: In cases of gratuitous bailment, the bailor retains the right to request the return of goods even before the purpose is achieved or the specified period ends. The contract ends upon the goods' return.
• Inconsistent Use of Goods: If the bailee misuses or utilizes the goods in a manner inconsistent with the agreement, the bailor can demand the return of the goods, leading to the termination of the contract.
• Death of the Bailor or Bailee: The unfortunate event of the death of either the bailor or bailee results in the termination of the contract of bailment.