LAW OF BAILMENT

MEANING OF CONTRACT
OF BAILMENT (Sec. 148)
PARTIES TO A CONTRACT
OF BAILMENT (Sec. 148)
ILLUSTRATION

BAILMENT BASED ON BENEFIT

ILLUSTRATION

BAILMENT BASED ON AWARD

ESSENTIALS OF A VALID CONTRACT

OF BAILMENT (Sec.148)

1. Delivery upon Contract

There must be a contract satisfying the

essentials of a valid contract.
The contract may be expressed or implied.
Delivery of goods should be made for some
purpose and upon a contract that when the
purpose is accomplished the goods shall be
returned

In Ram Gulamv Government of U.P [AIR

1950 All 206]

The plaintiffs ornaments having being stolen

were recovered by the police and, while in
police custody was stolen again. The plaintiffs
action against the State for the loss was
dismissed.
Because the ornaments were not made over to
the Govt. under any contract, the Govt. never
occupied the position of bailee to indemnify
the plaintiff.

2. Existence of Goods

 Bailment can be made of goods only.

4. Purpose of delivery

The goods must be delivered for some

purpose.
The purpose may be expressed or implied.

5. Return or disposal of goods

Conditional delivery
The delivery of goods must be
conditional

The condition shall be that the goods

shall be

returned (either in original form or in any

altered from); or
disposed of according to the directions of the
bailor, when the purpose is accomplished.

In Union Bank of India v K. V. Venugopalan,

[AIR 1990 Ker 223] ,a deposit of money with a
banker is not a bailment as he is not bound to
return the same notes and coins.

6. Delivery of Possession:
The most important characteristics is delivery
of possession and not mere custody. One who
has custody without possession like a servant
is not a bailee

In Ultzen v Nicolls, ([1894] 1 QB 92)

The plaintiff, an old customer, went into a
restaurant for the purpose of dining there.
When he entered the room a waiter took his
coat, without being asked, and hung it on a
hook behind him. When the plaintiff was
about to leave the coat was not found.
Even if the waiter did the act as a part of
courtesy, yet the restaurant keeper was held
liable as a bailee

In Kaliapermmal Pillai v Visalakshmi,

(AIR 1938 Mad 32)

A lady handed over to a goldsmith certain

jewels for the purpose of being melted and
utilised for making new jewels.Every evening
as soon as the goldsmiths work for the day
was over, the lady used to receive half- made
jewels from the goldsmith and put them into a
box in the goldsmiths room and kept the key
in her possession. The jewels were lost one
night. But the ladys action against the
goldsmith failed.

In Jagdish Chandra Trikha v PNB, [AIR

1998 Del 266]

If the jewellery box with the declared contents

was handed over to a bank for safe custody,
the relationship of bailment was constituted,
the bank was held for the loss of contents.

MODES OF DELIVERY (Sec.149)

Sec 149 deals with how the delivery to bailee

is made

1. Actual Delivery

Transfer of physical possession of goods

from one person to another
2. Constructive Delivery
If

A person is already in possession of goods

of owner.

Such person contracts to hold the goods as a

bailee for a third person.
Then

Such person becomes the bailee, and the

third
person becomes the bailor.

In Bank of Chittor v Narasimbulu, AIR

1966 AP 163

When a person pledged the projector

machinery of his cinema under an agreement
which allowed him to retain the machinery for
the use of the cinema.
Even though the bailor continued to remain in
possession, it was in the possession of the
bailee.
The legal character of the possession of the
goods changed eventhough physical transfer
did not take place.

DUTIES OF A BAILOR (Sec. 150, 158, 159

and 164)

1. Duty to Disclose faults in goods [Sec.

150]:

Bailor is bound to disclose to Bailee, faults

in the goods bailed, of which he has
knowledge. He should also disclose such
information which
(a) materially interferes with the use
of goods, or (b) expose the Bailee to
extraordinary risk.
LIABILITY FOR DEFECTS IN GOODS

 Example: A owning a motorcycle, allows B,

his friend, to take it for a joy ride. A knows
that its brakes were not proper but does not
disclose it to B. B meets with an accident. A
is liable to compensate B for damages. But
when A had lent the motorcycle on hire, he
is liable to B even if he did not know of the
failure of his brakes.

2. Duty to Bear expenses [Sec.158]

EXPENSES OF BAILMENT

4. Duty to Indemnify the bailee for

defective title [Sec 159]
The bailor shall indemnify the bailee
for any loss caused to bailee due to
defective title of bailor.
Indemnify the bailee for
premature termination
If
the bailment is gratuitous ; and
for a specific period.

Then
(a) the bailor may compel the bailee to
return the goods before expiry of the
period of bailment; but

(b) the bailor shall indemnify the

bailee for any loss incurred by the
bailee.

5. Duty to Receive back the goods

[Sec 164]
It is the duty of the bailor to receive

back the goods, when returned by

bailee.

If the bailor wrongfully refuses to

receive back the goods, he shall be

liable to pay ordinary expenses of
custody of goods incurred by the
bailee.

DUTIES OF A BAILEE
1. Duty to Take reasonable care
[Sec 151]
The bailee must take such case of
goods as a man of ordinary prudence
would take care of his own goods.
The bailee shall not be liable for any
loss or destruction of goods, if
(a) he is not negligent; or

(b) the loss was caused due to an

act of God or other unavoidable
reasons.

In the case of Kavita Trehan v Balsara

Hygiene Products Ltd, AIR 1992 Del 103
Court held that in all cases bailment bailee is
bound to take as much care of the gods bailed
to him as a man of ordinary prudence.

Railway Company as a Bailee

 The responsibility of Railway Company as a

career and also as a bailee commences from
the moment the goods are to the railway
and continues until the goods are unloaded
at the destination point[Union of Indiav
Sattur Nataraja Traders, AIR 1992 Kant
301]

Under Sec 152, Bailee in the abscence of any

special contract, is not responsible for the loss,
destruction or deterioration of the thing
bailed, if he has taken the amount of care as
described under Sec 151

2.Duty Not to make unauthorized use of

goods [Sec 153 & Sec154]
The bailee must not make any unauthorized
use of the goods.

 If the bailee makes any unauthorized use of

goods, then
(a) the bailment becomes voidable at the

option of the

bailor; and

(b) the bailee shall be liable for any loss or

damage .
In Allas v E.M. Patil, AIR 2004 Ker 214,
Where a vehicle was delivered to a workshop
for repair and the owner of the workshop
allowed an unlicensed employee to drive the
vehicle causing an accident resulting in death
of a person.
It was held that bailee was liable to
compensate as it was an unauthorised use

3. Duty Not to mix goods [Sec 155 - 157]

Goods are mixed with bailors

consent

The parties shall have a proportionate

interest in such mixture.
Goods are mixed without bailors

consent, but the goods are separable

The bailee shall pay the expenses of

separation.
The bailee shall pay damage incurred by the
bailor.

Eg: A bails 100 bales of cotton marked with a

particular mark to B. B without As consent,
mixes the 100 bales of his own, bearing a
different mark; A is entitled to have his 100
bales returned, and B is bound to bear all the
expenses incurred in the separation of the
bales, and any other incidental damage.

Goods are mixed without bailors

consent, and goods are not separable

The bailee shall compensate the bailor for

any loss caused to him.

Eg: A bails a barrel of Cape four worth Rs 45

to B.B, without As consent, mixes the flour
with country flour whih is only worth Rs. 25.
B must compensate for the whole loss.

4. Duty to Return the goods [Sec 160 &

165]
The bailee must return the goods,
without waiting for demand from bailor,
if

(a) the time specified in the contract has

expired ; or

(b) the purpose specified in the contract is

accomplished.

If the goods are not so returned, then

(a) the goods shall be at the risk of the

bailee;

(b) the bailee shall be liable for any loss or

damage,
even if such loss is caused without
any fault or
negligence of the bailee or due
to an act of God or other unavoidable reasons
In Shaw &Co v Symmons & Sons ([1971] 1
KB 799),

The bailor entrusted books to the bailee, to be

bound, the latter promising the return within
a reasonable time.

The plaintiff having required the defendant to

deliver the whole of the books then bound, the
defendant failed to return, the books got
subsequently burnt in an accidental fire.

The defendant was held liable in damages for

the loss of the books.

Bailment by several joint owners: If several

joint owners of goods bail them, the bailee may
deliver them back to, or according to the
directions of, one joint owner without the
consent of all, in the absence of any agreement
to the contrary [Sec 165]

The plaintiff having required the defendant to

deliver the whole of the books then bound, the
defendant failed to return, the books got
subsequently burnt in an accidental fire.
The defendant was held liable in damages for
the loss of the books.

Bailment by several joint owners: If several

joint owners of goods bail them, the bailee may
deliver them back to, or according to the
directions of, one joint owner without the
consent of all, in the absence of any agreement
to the contrary [Sec 165]

5. Duty to Return accretion to goods [Sec

163]

The bailee must return to the bailor any

accretion (i.e., addition) to the goods bailed.

A leaves a cow in the custody of B to be take

care of. The cow has a calf. B is bound to
deliver the calf as well as the cow to A.

6. Duty Not to set up an jus tertii

(claiming that goods belong to a third

party) [Sec 166- 167]

The bailee has no right to allege that the

bailor had no authority to bail the goods, as
against the bailors demand, the defence of
jus tertii
Even if there is a person who has a better
title to the goods than that of the bailor or
who claims ownership of the goods, the
bailee may safely return the goods to the
bailor and he will not be liable to the owner
for a conversation.

The person who claims the ownership may

apply to the court to prevent the bailee from
returning the goods to the bailor and to have
the question of the title decided.

But if the bailee has already delivered it to the

third person claiming ownership, and if the
bailer sues the bailee , he has to prove the
better title of the third person.

RIGHTS OF A BAILOR

1. Right to terminate the bailment

If

The bailee does any act inconsistent with

the terms and conditions of the contract of
bailment.
Then

The bailment becomes voidable at the

option of the bailor.

Eg: A lets to B for hire, a horse for his own

riding. B drives the horse in his carriage. This,
at the option of A, can terminate the bailment.

2. Right to file suit against wrongdoer

[Sec 180 - 181]

The bailor has the right to sue

A third party who does any damages to the

goods; or
A third party who deprives the bailee from
using the goods
The compensation obtained in any such suit
shall as between the bailor and bailee can be
dealt with accordingly to their respective
interest.

In Umarani Sen v Sudhir Kumar, AIR

1984 Cal 230

A firm had consigned certain goods with a

bailee along with a carrier, was allowed to sue
the carrier for the loss of the goods.

RIGHTS OF A BAILEE
.
1. Right to compensation [Sec 164]

The bailee has the right to be indemnified by

the bailor, if

The bailor has no title to the goods; and

as a consequence, the bailee suffers some
loss.

2. Return the goods

It is the duty as well as the right of the

bailee to return the goods to the bailor.
In case of joint bailor, the goods may be
returned to any of joint bailors.

3. Recover charges incurred [Sec 158]

Extra ordinary expenses

The bailor is liable to pay the extraordinary

expenses.
The bailee may recover the extraordinary
expenses paid by him.
Ordinary expenses

If the bailment is gratuitous, the bailor is

liable to pay the ordinary necessary
expenses, i.e., the bailee has the right to
recover the ordinary necessary expenses
incurred by him.

4. Right of lien [Sec170- 171]

The bailee has the right to retain the goods

delivered to him until the charges due to
him are paid by the bailor.

i. Particular Lien[Sec 170]

As a general rule a bailee is entitled only to
particular lien, which means the right to
retain only that particular property in respect
of which the charge is due

Eg. A delivers a rough diamond to B, a jeweler

to be cut and polished, which is accordingly
done. B is enitled to retain the stone till he is
paid for the services he has rendered

A gives cloth to B, a tailor to make into a coat,

B promises A to deliver the coat as soon as it
is finished, and to give a three months credit
for the price. B is entitled to retain the coat
until he has paid.

In Chand Mal v Ganda Sigh,(1885) Punj

Rec No60,

When a bailee claimed lien for storage of

sugar, it was held that such custody, not being
a service involving the exercise of labour or
skill, the bailee was not entitled to lien

In Tapeshwar Prasad & Co v R.C.& F. Ltd,

AIR 1990 All 214

Lien not allowed for storage of fertilizers

Thus he right is available subject to

certain conditions
1.the bailee must have rendered some services
involving the exercise of labour or skill in
respect of the goods bailed.
2. the skill or labour excercised by the bailee
must be such as to improve the goods

ii. General Lien [Sec 171]

The right to General lien is a special privilege
on certain kinds of bailee only:
a. Bankers
b. Factors.

c. Wharfingers.
d. Attorneys of a High Court,and
e. Policy Brokers

A. Bankers.
A general lien can be exercised by bankers,
attaches to all goods and securities deposited
with them as bankers by a customer or a third
person on a customers account, provided that
there is no contract express or implied
inconsistent with such lien

In State Bank of India v Goutami Devi

Gupta, (2003) I BC 165,

The surety is equally liable as a debtor and

therefore the lender bank would have lien on
the suretys fixed deposits and other amounts
lying on the bank

b. Factors:
Factor both in India and England means an
agent entrusted with possession of goods for
the purpose of selling them for his principal.
He is given the possession of the goods in the
ordinary course of his business for the purpose
of sale.
In E.H. Parakh v King Emperor, AIR 1926
Oudh 202,

Where a motor car is delivered to an agent for

sale, he was held entitled to retain the car
until his charges were paid.

(c) Wharfingers:
Wharf a place adjacent to water, used for
the purpose of loading and unloading goods
which is in transit via waterbody
Wharfinger- one who owns or keeps a wharf,
manages it.

A Wharfinger also has a general lien on the

goods bailed to him until his wharfage charges
are paid off.

(d) Attorneys of High Court:

An attorney who is engaged by a client is

entitled to general lien until the fee for his
professional service and other costs incurred
by him are paid.

In Balkesserbai v Narainji Walji, ILR

(1880) 4 Bom 352,

The attorney has got the right to hold the

paper entrusted to him subject to his lien for
cost.

But in R.D. Saxena v Balram Prasad

Sharma, (2000) 7 SCC 264,

The advocates has no right of lien over the

clients paper for their unpaid fee. The court
said that files containing copies of records
could not be equated with the goods referred
in Sec 171. Therefore, no scope for converting
case file into money. Thus an advocate cannot
place relaince on Sec 171.

TERMINATION OF BAILMENT

FINDER OF GOODS (Sec. 71, 168 and

169)

Finder of lost goods [Sec 71]

A person, who finds goods belonging to

another and takes them into his custody, is
subject to the same responsibility as a
Bailee.

Implied Agreement

There is an agreement, implied by law

between finder and owner of goods.

Duties of Finder
A finder of lost goods is treated as Bailee of
goods found. His duties are
(a) To take initiative to find the real owner of
the goods,
(b) To take reasonable care of the goods found,
.

(c) Not to put the goods found for his personal

use, and

(d) Not to mix the goods found with his own

goods.

In Binstead v Buck (1976)2 Win BI 117

A finder fed a dog for 20 weeks and claimed 20
shillings for the same. The court said that he
would be liable to pay the reward for keeping
it.

PLEDGE
MEANING OF PLEDGE, PAWNOR,
PAWNEE (Sec.172)

 ESSENTIALS A VALID CONTRACT OF

PLEDGE (Sec.172)

1. Contract

There must be a contract

The contract may be expressed or implied.

2.Goods

 Pledge can be made of goods only.

3. Delivery

There must be delivery of goods by one

person to another person.

4. Purpose of delivery
The goods must be delivered for some
purpose.
The purpose must be to deliver the goods as
security for
(a) payment of a debt; or
(b) performance of a promise.

5.Return of goods
The delivery of goods must be conditional
The condition shall be that the goods shall
be

returned (either in original form or in

altered form); or

 Disposed of according to the directions of

the pawnor when the purpose is
accomplished

RIGHTS OF PAWNEE (Sec.173 - 176)

1. Right of Retainer [Sec.173]

Pawnee may retain the goods pledged for
(a) payment of the debt or the
performance of

promise,

(b) any interest due on the debt; and

(c) all necessary expenses incurred by him

with
respect to possession or for
preservation of goods pledged.

In Bank of Bihar v State of Bihar,(1972) 3

SCC 196
1. A judgment has been obtained against the
pawnor of goods and execution proceedings
followed
2. on bankruptcy of the pawner , the pawnee is
a secured creditor with respect to things
pledged.

3. the goods which were under the pledge of a

bank were seized by the State.
4. it was held that the seizure could not
deprive the pledgee of his right to realise the
amount for which the goods were pledged and
therefore the state was bound to indemnify
the banker.

2. Retainer for subsequent advances

[Sec.174]

(a) Where the Pawnee lends money to the

Pawnor subsequently, after the date of pledge,
it shall be presumed that the he has a right of
retainer over the goods already pledged in
respect of the subsequent lending also.
(b) This presumption can be made invalid only
by an express provision to that effect.

2. Reimbursement of Expenses [Sec.175]

Where the Pawnee incurs extraordinary

expenses to preserve the goods pledged with
him, he is entitled to receive such amount
from the Pawnor.

3. Rights in case of default by Pawnor

[Sec.176]

(a) Suit: Pawnee may institute a suit against

Pawnor when there is a default in payment of

debt or performance of promise at the
stipulated time.
(b) Retention / Sale of goods: Pawnee may

(a) retain the goods pledged as collateral

security, or
b) sell the goods pledged by giving a
reasonable notice to the Pawnor.

.
(c) Surplus / Deficit on Sale : When there is
a surplus on sale, Pawnee shall pay the excess
to the Pawnor. In case of deficit, Pawnor shall
be liable for the balance amount.

(d) No Notice: Where the Pawnee does not

give a reasonable notice to the Pawnor, the
sale is valid, but Pawnee is liable to pay
damages to Pawnor.

In Lallan Prasad v Rahmat Ali (AIR 1967

SC 1322)

The defendant borrowed Rs. 20, 000 from the

plaintiff on a promissory note and gave him
aeroscrapes worth Rs 35,000 as security for
the loan. The plaintiff sued for repayment of
the loan, but was unable to produce the
security, having sold it, and therefore, his
action for the loan was rejected.

.
In Prabhat Bank Ltd. vs Babu Ram

Reasonable notice u/s 176 means that a notice

of intended sale of the security by the Creditor
within a certain date, so as to afford an
opportunity to the Debtor to pay the amount
within the time mentioned in the notice.
Notice of sale is essential and a clause in the
agreement excluding the requirement of
Notice is inconsistent with the Act & is void
and unenforceable.

4. Right against true owner of goods

[Sec.178A]

(a) Where the Pawnor has acquired possession

of pledged goods, under a voidable contract u/s
19 or 19A but contract has not been rescinded
at the time of pledge, the Pawnee acquires a
good title to the goods, against the true owner.

(b) The title of Pawnee is good only where

(a) he had no notice of the Pawnors defect
in title and

(b) he acts in good faith.

.
RIGHTS OF A PAWNOR (Sec.177)

1.Redeem the goods pledged

Meaning of redemption
Right to recover back the goods by making payment of the
debt or performance of promise.
Time for redemption
Where time of redemption is fixed, the pawnor may
exercise redemption
(a) within the time so fixed; or

(b) even after expiry of time so fixed, provided

the pawnee has not sold the good; and
the pawnee pays the pawnee all expenses arising on
account of his default.

Thus on satisfation of the debt or engagement

extinguishes the pawn and the pawnee on such
satisfaction, is bound to redeliver the property. The
pawnor has an absolute right to redeem the property
plegded upon the tender of the amount advanced

2. Enforce pawnees duties

The pawnor has the right to enforce the duties of

pawnee, if the pawnee fails to fulfill his duties.

3. Receive increase in goods

 The pawnor has the right to recover from pawnee

any increase in goods pledged.

4. Right to receive notice of sale

In case of default by the pawnor to pay the debt

or perform his promise, the pawnee has the right
to sell the goods, after giving a reasonable notice
to the pawnor. If the pawnee fails to give notice,
the pawnor has the right to recover the loss
incurred by him.

DUTIES OF A PAWNOR
(Sec.175)

1.Pay the debt

 The pawnor is liable to pay the debt or

perform his promise as the case may be.

2.Pay deficit on sale

If the pawnee sells the goods due to default

by the pawnor, the pawnor must pay the
deficit.

3. Pay extra ordinary expenses

The pawnor is liable to pay to the pawnee

any extraordinary expenses incurred by the
pawnee for preservation of goods.

4.Disclose faults in goods

The pawnor is liable to disclose all the

faults which
(a) are material for use of the goods; or
(b) may put the pawnee to extraordinary

risks.

5. Indemnify the pawnee

If loss is caused to the pawnee due to defect

in pawnors title to the goods, the pawnor
must indemnify the pawnee.

DUTIES OF PAWNEE
1. Not to use the goods

 The pawnee has no right to use the goods . However, he

may use the goods, if he has been so authorised by the
pawnor.

2. Return the goods

The pawnee must return the goods if the pawnor pays

the debt or performs his promise.

3. Take reasonable care

The pawnee must take such care of goods pledged as a

man of ordinary prudence would take care of his own
goods.

4.Not to mix goods

The pawnee must not mix his own goods with the goods
pledged.
5. Return increase in goods

The pawnee must return to the pawnor any accretion

to the goods pledged with him.

DIFFERNCE BETWEEN PLEDGE AND BAILMENT

BASIS

PLEDGE

BAILMENT