Contract of Bailment: Introduction and Essentials | Law of Contracts - CLAT PG PDF Download

Bailment 

Chapter IX (Section 148 - 181) of the Indian Contract Act, 1872 deals with the general rules relating to bailment and Pledge. The Chapter is not exhaustive on the topic of bailment - there are various other Acts which deal with other types of bailment like the Carriers Act, 1865, the Railways Act, 1890, the Carriage of Goods by Sea Act, 1925.

 Definition of Bailment in Different Contexts 

•  Halsbury’s Laws of England: Bailment is seen as the delivery of personal chattels in trust, based on a contract (either express or implied). The expectation is that the trust will be properly executed, and the chattels will be returned either in their original state or a modified form once the purpose or condition for which they were bailed is fulfilled.
•  Justice Blackstone's Definition: Bailment is described as the delivery of goods in trust under a contract, whether explicit or implicit, with the expectation that the bailee will faithfully execute the terms of the trust.

 What is Bailment? 

•  Bailment  is a specific type of contract outlined in Section 148  of the Indian Contract Act, 1872.
• The term "bailment" comes from the French word  "bailer,"  which means  "to deliver." 
• Essentially, bailment involves the  "handing over" or "changing possession" of goods  from one person to another for a specific purpose.

 Key Aspects of Bailment: 

•  Delivery of Goods: Bailment involves the delivery of goods from one party to another.
•  Specific Purpose: The goods are delivered for a specific purpose, as agreed upon in the contract.
•  Reimbursement or Disposal: The bailee is expected to return the goods once the purpose is fulfilled or dispose of them according to the bailor's instructions.

 Parties Involved in Bailment: 

•  Bailor: The person who delivers the goods.
•  Bailee: The person to whom the goods are given.
•  Bailed Property: The property that is being bailed.

 Definition - Contract of Bailment (Sec. 148) 

•  Bailment refers to the delivery of goods from one person to another for a specific purpose, with the understanding that the goods will be returned or disposed of according to the instructions of the person delivering them once the purpose is fulfilled.
• The person delivering the goods is known as the "bailor," while the person receiving the goods is called the "bailee." 

 Example: 

• When a man takes his clothes to a dry cleaner, he is the bailor, and the dry cleaner becomes the bailee. The purpose of bailment in this case is to get the clothes cleaned. The dry cleaner is responsible for keeping the clothes safe and returning them to the bailor after the cleaning is done.

 Section 148 Explanation 

•  Section 148  of the law states that if a person already in possession of someone else's goods agrees to hold those goods as a bailee, they become the bailee even if the goods were not initially delivered to them through bailment.
• For instance, a seller of goods becomes a bailee if the goods remain in their possession after the sale is completed. In this case, the seller's possession of the goods changes from ownership to a contract of bailment.

 Example: 

• If A sells his motorcycle to B, and B leaves the motorcycle in A's possession while he is out of town, A becomes the bailee even though he was the original owner of the motorcycle.

 Bailment Explained 

• Bailment can be understood as "the delivery of goods to another person for a specific purpose." Only movable goods can be the subject matter of bailment.
•  Current money or legal tender  cannot be bailed. For example, depositing money in a bank is not considered bailment because money is not classified as "goods," and the same money is not returned to the client.
• However, coins and notes that are no longer legal tender and are treated more as objects of curiosity can be bailed.

 Distinction Between Mere Custody and Delivery of Possession 

• Mere custody of goods does not equate to delivery of possession.
• For instance, a guest using the host's goods during a party is not considered a bailee.
• Similarly, a servant holding certain goods as part of their job is not a bailee but merely a custodian.
• Hiring and storing goods in a bank locker alone does not constitute bailment, as the goods are not entrusted to the bank.
• A bank cannot be assumed to know the contents of every locker at all times.
• Bailment under Section 148 can only be presumed if the bank has actual and exclusive possession of the property inside the locker.

 Case Example: Atul Mehra vs. Bank of Maharashtra 

• In this case, it was determined that merely hiring a bank locker and storing items in it does not establish bailment.
• However, the situation changes if the bank's safe deposit vault locker can be accessed without the customer's key.

 Example: 

• Suppose A rents a locker in a bank and stores valuable items in it. He is given one key to access the locker. However, the bank manager fraudulently alters the locks of the lockers, allowing them to be opened without the customers' keys.
• A's valuables go missing because his control over the items in the locker was compromised. Since the locker could be accessed without A's key, the bank became liable for the loss of A's belongings.

 Comparison with National Bank of Lahore vs. Sohan Lai 

• This case is similar to the example mentioned above.
• It highlights the importance of the nature of possession in determining whether a delivery constitutes bailment.
• If the owner retains control over the goods, bailment does not exist.
• To establish bailment, the bailee must intend to possess and have some level of physical possession or control over the bailed goods or property.
• If a person keeps goods in the possession of another but retains control over them, there is no delivery for the purpose of bailment.
• Delivery of possession does not imply that the bailee represents the bailor concerning the bailed goods.
• The bailee only has certain powers over the bailor's property with permission.
• The bailee cannot make contracts on behalf of the bailor or hold the bailor liable for their actions regarding the bailed goods.

 Example: 

• If a person gives their damaged car to a garage for repairs under an insurance policy, the insurance company becomes the bailee, and the garage acts as a sub-bailee.
• If the car gets stolen or damaged by fire while in the garage, both the insurance company and the garage are liable to the car owner, who is the bailor.

 Essential Elements of Bailment 

•  Contract: A contract is necessary, which can be either expressed or implied. This contract involves the delivery of goods for a specific purpose.
•  Goods: Bailment applies only to movable goods, not immovable goods or money.
•  Delivery: There must be a delivery of goods from one person to another.
•  Purpose of Delivery: The goods must be delivered for a specific purpose, which can be expressed or implied.
•  Transfer of Possession: The delivery of goods must be conditional, with the condition being that the goods will be returned (in original or altered form) or disposed of according to the bailor's directions once the purpose is fulfilled.
•  Ownership: Ownership is not transferred to the bailee; the bailor remains the owner. The bailee is obligated to return the same goods and not different ones.
•  Return or Disposal of Goods: Exception: Depositing money in a bank does not constitute bailment because the bank returns different notes. In bailment, the same goods must be returned.

 Delivery of Possession of Goods 

• Delivery of goods from one person to another for a specific purpose is a crucial aspect of bailment. As per Section 149 of the Indian Contract Act, 1872, delivering to the bailee can be accomplished by any action that places the goods in the possession of the intended bailee or someone authorized to hold them on the bailee's behalf.
• It is essential that the goods are handed over to the bailee, as this is the core of the bailment contract. Additionally, bailment can only involve movable goods, and the transfer of possession must be voluntary and in line with the agreement.
• For instance, if a thief forces a homeowner to hand over valuables under threat, the transfer of possession occurs, but it does not constitute bailment because the delivery is not voluntary.
• The goods must be entrusted to the bailee for the specific purpose of bailment, and once this condition is met, bailment is established regardless of the method of delivery.
• In the case of  Ultzen v. Nicols  , a restaurant was held liable as a bailee when a waiter, without being asked, took and hung a customer's coat. This act, though possibly a voluntary courtesy, created a bailment relationship.
• In  Kaliaperumal V. Visalakshmi (1938) AIR 1938 Mad 32  , a goldsmith melting old jewelry for a lady was not held liable for the loss of ornaments because there was no effective delivery of the box's contents to him. The court emphasized that delivery of possession is vital for establishing bailment.

 Hiring of Locker - Not Bailment 

 A. Tul Mehra v. Bank of Maharashtra 

• In this case, it was determined that the hiring of a bank locker does not constitute bailment as defined under Section 148.
• Bailment requires the exclusive possession of the property to be given by the hirer to the bailee. In the case of a bank locker, the bank cannot know the quantity, quality, or value of the goods stored inside.
• Therefore, the court ruled that hiring a locker is a transaction fundamentally different from bailment.