Modes of Delivery and Non-Contractual Bailments | Law of Contracts - CLAT PG PDF Download

Modes of Delivery (Section 149)

Delivery of possession can be categorized into actual or constructive modes.

 1. Actual Delivery 

Actual delivery involves the physical transfer of possession of goods from one person to another. In this scenario, the bailor hands over the physical possession of the goods to the bailee.

 Example:  When A leaves his broken watch at the showroom for repair, he is giving actual delivery of possession of the goods to the showroom.

 2. Symbolic Delivery 

In symbolic delivery, physical possession of goods is not actually transferred. Instead, a person performs an act that results in the transfer of possession to another person.

 Examples:  Delivery of keys of a car to a friend, delivery of a railway receipt.

 3. Constructive Delivery 

• Constructive delivery occurs when a person, already in possession of someone else's goods, contracts to hold those goods as a bailee for a third person. In this case, the person becomes the bailee, and the third person becomes the bailor.
• Constructive delivery is considered equivalent to actual delivery, even though physical possession may not change hands. It involves putting the bailee in a position of power over the bailed goods without their actual delivery. For instance, if A has rare coins in a locked safe-deposit box and hands over the keys to B, it is considered constructive delivery.
• Section 149 specifically addresses constructive delivery of goods, stating that any action that puts the goods in the possession of the intended bailee or an authorized person is treated as constructive delivery. It is a legal fiction where delivery is presumed even without the actual goods being handed over. For example, the delivery of a railway receipt is considered equivalent to the delivery of goods.
• In the case of Bank of Chittor vs. Narsimbulu, constructive delivery was established when a person pledged a cinema projector with the bank, but the bank allowed him to keep the projector to keep the cinema hall functional. Although physical possession remained with the person, legal possession was with the bank, the bailee.
• Other cases related to constructive delivery include Morvi Mercantile Bank v. UOI, Fazal v. Salamat Rai, and N R Srinivasa Iyer v. New India Assurance Company Ltd.

 Agreement in Bailment 

The essential requirement for creating a bailment is the existence of an agreement between the bailor and the bailee. The bailor is the person who bails the goods, and the bailee is the person to whom the goods are bailed. This agreement can be either express or implied.

 Key Points about Agreement in Bailment: 

•  Delivery of Goods upon Contract:  Bailment cannot exist without a contract. All conditions for a valid contract, such as competent parties, free consent, and lawful object, must be satisfied. The goods should be delivered to the bailee and returned to the bailor when the purpose is accomplished based on a contract.
•  Express or Implied Contract:  The contract giving rise to bailment can be either express or implied. Property deposited in a court under orders does not constitute bailment as it is not delivered under a contract.
•  Exception for Finder of Goods:  A finder of goods is considered a bailee even without a contract of bailment. When someone finds goods belonging to another person and keeps them until the actual owner is found, an involuntary contract of bailment arises. The finder has all the rights and duties of a bailee.
•  Purpose and Return of Goods:  Delivery of goods should be for a specific purpose, and upon a contract that ensures the goods will be returned to the bailor once the purpose is fulfilled. If a person's goods come into the possession of another without any contract, there is no bailment as defined in section 148.
•  Case Example:  In the case of Ram Gulam v. Govt, of U. P., the plaintiffs' stolen ornaments were recovered by the police and later stolen again while in police custody. The plaintiffs' action against the State for the loss was dismissed as there was no contract of bailment between the plaintiffs and the police. The government did not occupy the position of bailee and was not liable to indemnify the plaintiffs.

Non-Contractual Bailments 

 English law  recognizes bailment without a contract. While most instances of bailment involve a contract, it is not essential. For example, if goods are deposited under stressful circumstances like fire, flood, or riots, or if the depositor is incapable of understanding the value of the action, bailment can occur without a contract.

 Delivery of goods  to another under a mistake of identity is also considered bailment without a contract as long as the bailor took reasonable care to verify the identity.

 Present Position in India 

• The Law Commission of India proposed the inclusion of bailment without a contract in the Indian Contract Act, 1872, but no concrete action has been taken.
• Indian courts have recognized the existence of bailment without a contract. In some cases, even the government has been held liable as a bailor without a contract.
• The case of Lasalgoan Merchants Bank vs. Prabhudas Hathibhai marked one of the first instances where courts imposed bailee obligations without a contract.
• In the case of  State of Gujarat vs. Memon Mahomed Haji Hasan  , the Supreme Court of India affirmed that bailment can occur without an explicit contract. The court stated that bailment is addressed by the Contract Act only in cases arising from a contract, but it is incorrect to say that bailment cannot exist without an enforceable contract.
• The Supreme Court ruled that the government, having seized certain motor vehicles under the Sea Customs Act and subsequently damaging them, was the bailee responsible for the proper care of the goods.

 Purpose 

• In a bailment, the goods are delivered for a specific purpose, which is usually understood by both the bailor and the bailee. The relationship of bailor and bailee exists only if the person receiving the goods is obligated to return them or deal with them according to the bailor's instructions.
• The goods must be delivered with the intention of returning them or disposing of them as per the bailor's directions once the purpose is achieved. For example, when a customer gives a cloth to a tailor for making a shirt, the tailor is the bailee responsible for returning the finished garment to the customer.
• If the person receiving the goods is not bound to return them or follow the bailor's instructions, the relationship is not one of bailment. Similarly, if there is an agreement to return equivalent goods instead of the same ones, it does not constitute bailment. For instance, an agent collecting money on behalf of a principal is not a bailee because he is not required to return the same coins or notes.
• Return of goods in the same condition is essential in bailment. The bailee must return the exact goods that were borrowed, along with any additions, such as offspring in the case of an animal. The bailor can also provide specific instructions for the return or disposal of the bailed goods. If the goods are not returned or dealt with according to the bailor's instructions, there is no bailment.
• For example, when a customer deposits money in a bank, it does not create a contract of bailment because the bank is not obligated to return the same notes and coins to the customer. In the case of  Ichcha Dhanji v. Natha  , the court made a similar point.
• In  Secy of State v. Sheo Singh Rai  , a man delivered nine government promissory notes to the Treasury Officer for cancellation and consolidation into a single note of Rupees 48,000. The notes were misappropriated by the Treasury Officer's servants. The man sued the State, holding it responsible as a bailee. However, the action failed because there can be no bailment without delivery of goods and a promise to return the same. The government was not bound to return the same notes or dispose of the surrendered notes according to the man's instructions.

 Consideration 

• Delivery of the goods is the consideration.
• Legal liability arises out of the fact that the chattel has been delivered.

 Examples and Case Laws of Bailment 

 Introduction 

Bailment involves the delivery of goods from one party (the bailor) to another (the bailee) for a specific purpose, with the expectation that the goods will be returned once the purpose is fulfilled. This legal concept is illustrated through various examples and case laws that highlight the nuances of bailment agreements.

 Illustrations of Bailment 

• When a watch is given for repairs or diamonds are handed over to be set in a gold ring, these scenarios exemplify bailment. In such cases, the same watch or diamonds must be returned once the intended purpose is completed.
• A pledge of a jewel as security for a loan, gold jewels entrusted to a bank for safe keeping, and goods delivered to a railway company for transportation and delivery to the consignee are all instances of bailment.

 Case Law: L.M. Co-Operative Bank v. Prabhudas Hathibhai 

• In this case, packages of tobacco belonging to A were pledged to the plaintiff bank but remained in A's godown.
• The godown was locked, and the keys were handed over to the plaintiff bank.
• Due to A's non-payment of income-tax dues, the goods were attached by the Collector, despite remaining in the same godown.
• When heavy rains caused damage to the goods inside the godown, the state was held liable as a bailee, even though the goods were not in the Government's possession under a contract.

 Case Law: Coggs v Bernard (1703) 

• Coggs v Bernard is a significant case in English property and contract law, establishing the duties of a bailee—someone possessing property owned by another.
• In this case, William Bernard agreed to transport barrels of brandy belonging to John Coggs from Brooks Market to Water Street.
• The transportation was done without compensation.
• During unloading, a barrel was damaged, resulting in the loss of 150 gallons of brandy.
• Coggs sued Bernard for negligence, claiming that he failed to carry the barrels properly.
• The court ruled that a general bailee is only liable for damages if they were negligent, contrasting with the strict liability of common carriers.

 Case Law: B. Dutta, Senior Advocate v. Management of State (2010) 

• This case discussed the application of bailment laws when a customer pays to park their car in a parking lot, and the car is subsequently stolen or damaged.
• The court noted that the payment for food consumed in a hotel includes consideration for a contract of bailment from the consumer (bailor) to the hotel (bailee).
• In this particular case, the State Commission assumed that Respondent No. 2 had paid consideration for the contract, despite the Appellant hotel’s claim that he did not have dinner there that night.
• The State Commission ruled in favor of Respondent No. 1, directing the Appellant hotel to compensate him £2,80,000 (the value of the car) with interest at 12% per annum and £50,000 as litigation costs.
• Additionally, the Commission ordered the payment of £1,00,000 to Respondent No. 2 for the inconvenience and harassment he experienced.
• The State Commission also determined that Respondent No. 3, the insurer of the hotel, was not liable to indemnify the loss incurred by the Appellant hotel because the theft of the car had not been reported within the stipulated time.

 Case Law: Hyman & Wife V/S Nye & Sons 

• The plaintiff hired a carriage, a pair of horses, and a driver from the defendant for a specific journey.
• During the journey, a bolt in the carriage broke, causing the carriage to upset and the plaintiff to get injured.
• Justice Lindley held the defendant liable, stating that a person who lets out carriages is not responsible for all defects but must supply a carriage fit for the hired purpose.

 Case Law: Reed V/S Dean 

• The plaintiff rented a motor launch from the defendant for a holiday on the River Thames.
• The launch caught fire, and the plaintiffs were injured and suffered losses because they could not extinguish the fire due to faulty fire-fighting equipment.
• The court ruled that there was an implied obligation for the launch to be fit for the purpose for which it was rented, and the defendant was found liable.

 Case Law: Lyell V/S Ganga Das 

• Goods were consigned without disclosing their combustible nature.
• When a bailor delivers goods for carriage or another purpose, the bailee should be informed if the goods are dangerous.
• In the case of Atul Mehra v. Bank of Maharashtra, the court determined whether hiring lockers by the plaintiffs constituted actual delivery of possession to the defendants.
• This case, filed by Atul Mehra in the High Court of Punjab and Haryana, is significant in India as it establishes that merely hiring a bank locker does not create a contract of bailment.
• It was emphasized that for a contract of bailment to exist, the bailee must be aware of the locker’s contents to assess security, liability, and the nature of the goods.