BAILMENT – CONTRACT ACT 1872 (USEFUL STUFF FOR CA/CS/CMA AND COMMERCE ASPIRANTS)

 

BAILMENT (SECTION 148 OF INDIAN CONTRAC T ACT 1872)

A bailment is a transaction whereby one person delivers goods to another person for some purpose, upon a contract that they are, when the purpose is accomplished to be returned or  otherwise disposed of according to the directions of the person delivering them.

The person who delivers the goods is called the bailor and the person to whom they are delivered is called the bailee.

  • Essential Element of Bailment :
  • Bailment is based upon a contract. Sometimes it could be implied by law as it happens in the case of finder of lost goods.
  • It involves the delivery of goods from one person to another for some purposes.
  • Delivery involves change of possession from one person to another, and not change of ownership. In bailment, bailor continues to be the owner of goods as there is no change of ownership.
  • Bailment is only for movable goods and never for immovable property or money.
  • In bailment, possession of goods changes. Change of possession can happen by physical delivery or by any action which has the effect of placing the goods in the possession of bailee.
  • Bailee is obliged to return the goods physically to the bailor. The bailee cannot deliver other goods even if of the higher value.

Classification of Bailment on the basis of Consideration

  1. Gratuitous Bailment: A gratuitous bailment is one in which neither the bailor nor the bailee is entitled to any remuneration. Such a bailment may be for the exclusive benefit of the bailee, e.g. when A leaves his dog with a neighbour to be looked after in A’s absence on a holiday. It may again be for exclusive benefit of the bailee, e.g. where you lend your book to a friend of yours for a week. In neither case any charge is made.

A gratuitous bailment terminates by the death of either the bailor or the bailee(Section 162).

  1. Bailment for reward: This is for the mutual benefit of both the bailor and the bailee. For example, A lets out a motor-car for hire to B. A is the bailor and receives the hire charges and B is the bailee and gets the use of the car. Where, A hands over his goods to B, a carrier for carriage at a price, A is the bailor who enjoys the benefit of carriage and B is the bailee who receives a remuneration for carrying the goods.

Different forms of Bailment

  • Delivery of goods by one person to another to be held for the bailor’s use;
  • Goods given to a friend for his own use without any charge;
  • Hiring of goods;
  • Delivering goods to a creditor to serve as security for a loan;
  • Delivering goods for repair with or without remuneration;
  • Delivering goods for carriage.

Duties of Bailee

  • The bailee must take as much care of the goods bailed to him as a man of ordinary prudence would take under similar circumstances of his own goods of the same bulk, quality and value as the goods bailed.
  • The bailee is under a duty not to use the goods in an unauthorised manner or for unauthorised purpose.
  • He must keep the goods bailed to him separate from his own goods. If the bailee without the consent of the bailor, mixes the goods of the bailor with his own goods, and the goods can be separated or divided, the property in the goods remains in the parties respectively; but the bailee is bound to bear the expenses of separation, and any damages arising from the mixture.
  • He must not set up an adverse title to the goods.
  • It is the duty of the bailee to return the goods without demand on the expiry of the time fixed or when the purpose is accomplished.
  • In the absence of any contract to the contrary, the bailee must return to the bailor any increase, or profits which may have accrued from the goods bailed; for example, when A leaves a cow in the custody of B to be taken care of and the cow gets a calf, B is bound to deliver the cow as well as the calf to A.
  • If several joint owners of goods bail them, the bailee may deliver them back to, or according to the directions, one joint owner without the consent of all, in the absence of any agreement to the contrary.

Rights of Bailee

  • To claim compensation for any loss arising from non-disclosure of known defects in the goods.
  • To claim indemnification for any loss or damage as a result of defective title.
  • To deliver back the goods to joint bailors according to the agreement or directions.
  • If the bailor has no title to the goods, and the bailee, in good faith delivers them back to, or according to the directions of, the bailor, the bailee is not responsible to the owner in respect of such delivery.
  • To exercise his ‘right of lien’. This right of lien is a right to retain the goods and is exercisable where charges due in respect of goods retained have not been paid.
  • To take action against third parties if that party wrongfully denies the bailee of his right to use the goods.

Duties of Bailor

  • The bailor must disclose all the known faults in the goods and if he fails to do that, he will be liable for any damage resulting directly from the faults.
  • In the case of bailment for hire, a still greater responsibility is placed on the bailor. He will be liable even if he did not know of the defects.
  • It is the duty of the bailor to pay any extraordinary expenses incurred by the bailee.
  • The bailor is bound to indemnify the bailee for any cost or costs which the bailee may incur because of the defective title of the bailor of the goods bailed.
  • The bailor is bound to accept the goods after the purpose is accomplished.

Rights of Bailor

  • Right to enforce the duties of the bailee and claim for damages.
  • Right to terminate the contract in the event of inconsistent goods use of the goods bailed by the bailee.
  • Right to demand back the goods on expiry of the time for which the goods were bailed.
  • Right to claim the increase or profits, if any received by bailee in respect of the goods bailed.

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