Bailment Under Indian Contract Law – Definition and Legal Cases

Bailment, as defined under Section 148 of the Indian Contract Act, 1872, refers to the delivery of goods by one person (the bailor) to another (the bailee) for a specific purpose, under a contract that the goods shall be returned once the purpose is fulfilled, or otherwise disposed of according to the instructions of the bailor.

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Table of Contents

1. Bailment
2. Essentials of Bailment
3. Kinds of Bailment
4. Sub-bailment
5. Consideration in Relation to Gratuitous Bailment
6. Difference Between Bailment and Sale
7. Difference Between Bailment and Licence
8. Duties of Bailee

1. Bailment

1.1 Definition of Bailment (Section 148)

In everyday life there are many instances of entrustment of goods or movable property by one person to another. For instance, a person may deliver cloth to a tailor for the purpose of stitching, a watch may be entrusted to a watch repairer for repairs, a book may be lent to a person for reading, goods may be delivered to a carrier for transshipment, an ornament may be entrusted to a jeweller for mending etc.

In all these cases, the delivery or entrustment of goods by one person to another is known as bailment.

‘Bailment’ is thus the legal relation that arises whenever movable property is delivered by one person to another, under an agreement by which the latter is under a duty to return the property to the former, or to dispose it, as the former directs. The essence of bailment is transfer of possession, ownership remaining with the bailor. There cannot be bailment of immovable property.

Section 148 of the Act defines bailment thus:

“A ‘bailment’ is the delivery of goods by one person to another for some purpose, upon a contract that they shall, when the purpose is accomplished, be returned or otherwise disposed of according to the directions of the person delivering them. The person delivering the goods is called the ‘bailor’. The person to whom they are delivered is called the bailee’.”

Examples:

1. A deposited his luggage in a cloak room at the railway station. This is a contract of bailment. In this example A is bailor and the railway administration is the bailee.
2. A gave his car to B, a car workshop owner, for repairs. This is a contract of bailment in which A is the bailor and B is the bailee.

The Explanation to the section states that,

“If a person is already in possession of goods of another, contracts to hold them as a bailee, he thereby becomes the bailee, and the owner becomes the bailor, of such goods although they may not have been delivered by way of bailment.”

For example, if A sells a particular scooter to B but B leaves it in A’s possession till he completes his other purchases, A becomes a bailee although earlier he was a owner.

Bailor-bailee relation may exist even though there is no contract between them as there can be bailment in case of goods seized. [State of Gujarat vs. Menon Mohammad Haji Hasan].

2. Essentials of Bailment

The following are the essential features of bailment:

2.1 Specific Movable Property

A bailer-bailee relation can arise only in case of a specific movable property. There cannot be bailment of immovable property.

2.2 Delivery of Goods for Change of Possession

The essence of bailment is transfer of possession, ownership remaining with the bailor, change of possession requires delivery of goods. According to S. 149,

“The delivery to the bailee may be made by doing which has the effect of putting the goods in the possession of the intended bailee or any other person authorised to hold them on his behalf.”

Delivery should involve change of possession in the legal sense of the term i.e. the bailee should have de fact control of the property. Mere custody does not involve change of possession. One who has custody without possession, like a servant, or a guest using his host’s goods is not a bailee.

Case (i) – In Indra Kumar vs. State of M.P. [AIR 1963 All 70], it was held that a mere fact that a person, who travels by a roadways bus is allowed to keep the luggage on the roof of the bus does not make it an implied contract to return the luggage at the destination; there being no entrustment nor bailment.

Case (ii) – In Sri Hanuman Steel Rolling Mills vs. CESC Ltd. [AIR 1996 Cal 449], it was held that supply of electricity meter to a consumer of electricity is one of the obligation in a contract for supply of energy to him, and therefore the contract is not of bailment of meter.

Case (iii) – In Ultzen vs. Nicols [(1894) 1 QB 92], A (the plaintiff) entered B’s (the defendant’s) restaurant to dine. His coat was taken by a waiter and hung on a hook behind A. While A was dining, his coat was stolen. In a suit by A, it was held that the proprietor of the restaurant was liable for the loss. The waiter, in this case, had taken possession of the coat and selected the place himself for its safe-keeping. He did act as servant under instruction from the owner to collect the coat and keep in a particular place. Hence, B, the owner of the restaurant had become the bailee.

2.2.1 Types of Delivery

Delivery means transfer of possession of a thing from one person to another. Delivery may be actual, symbolic or constructive. They are explained below:

1. Actual delivery. Actual delivery involves physically handing over the possession of the goods. For example, A hands over to B, a tailor, certain clothes for tailoring.
2. Symbolic delivery. When the means of getting the possession of goods are delivered, it is called symbolic delivery. For example, handing over the key of the godown is a symbolic delivery. Similarly, goods in transit, when they are on a railway, can be delivered by handing over the railway receipt representing the goods.
3. Constructive delivery. When a person who is already in possession of the goods agrees to hold them as a bailee, it is called constructive delivery.

Deposit of valuables in a bank locker is not bailment. Similarly, mere leaving of box in room in another person’s house, when key of the box is not handed over to him does not amount to delivery within the meaning of Section 149.

Case – In the leading case Kaliaperumal Pillai v. Visalakshmi [AIR 1948 Mad 32], a lady employed a goldsmith for the purpose of melting old jewellery and making new ones. Every evening, she used to receive the half-made jewels from the goldsmith, put them into a box, and lock it up. While the box was left in the room of the goldsmith, she used to retain the key herself. One night, the jewels were stolen, and the lady sued the goldsmith holding him liable as the bailee. It was held that, “Any bailment that could be gathered from the facts must be taken to have come to an end as soon as the plaintiff was put in possession of the melted gold. Delivery is necessary to constitute bailment. The mere leaving of box in room in the defendant’s house, when the plaintiff herself took away the key, cannot certainly amount to delivery within the meaning of the provision in Section 149.” This is an important case from examination point of view.

2.3 Delivery for Some Purpose and Usually Upon a Contract

Delivery of goods should be for some purpose. The goods may be lent or hired or deposited for safe custody or as security for a debt. Section 148 of the Act contemplates delivery based upon a contract. English law recognises bailment without contract. Usually the delivery of goods is the result of a contact. But this feature, though usual, is not essential. The supreme court has held that there can be bailment without a contract.

Case – In State of Gujarat vs. Menon Mohammad Haji Hasan [AIR 1967 SC 1885], the vehicles and goods belonging to M (the respondent) were seized by the Government pursuant to the power under the Sea Customs Act. M was not found guilty and the Government was directed to return the seized vehicles and the goods. But in the meanwhile the vehicles remained totally uncared for and parts of the vehicles were pilfered-away, leaving only the skeletons of the vehicles. The vehicles had become useless for all practical purposes. In an action by the owner, it was contended on behalf of the Government that the State was not the bailee. The Supreme Court rejected this contention. The Supreme Court said:

“Bailment is dealt with by the Contract Act only in cases where it arises from a contract but it is not correct to say that there cannot be a bailment without an enforceable contract.”

The owner was held entitled to demand the property seized or its value.

2.4 Obligation to Return the Goods or Dispose them According to Directions of the Bailor

The essence of bailment is the obligation of the bailee to return the goods or to dispose them according to the directions of the bailor. The directions for return or disposal of the goods may be given even after the accomplishment of the purpose of bailment. Even where the contract is silent about the return of the goods, there is an implied term in a bailment to return the goods within a reasonable time after the accomplishment of the purpose. It is not bailment if there is no obligation to return the same subject matter either in its original or in altered form.

Examples:

1. A deposits money with his banker. There is no bailment in this case as the banker is not bound to return the same currency notes and coins. The relationship between the banker and customer is that of debtor and creditor.
2. A farmer delivers grain to a miller to be used by him in his trade, and is entitled to claim an equal quantity of corn of like quality or its market price. It is not bailment.

3. Kinds of Bailment

Bailment may be classified from the point of view of (1) benefit, and (2) reward.

3.1 Classification of Bailment from ‘Benefit’ Point of View

(a) Bailment for the exclusive benefit of the bailor. In such a bailment there is benefit only to the bailor. For example, the gratuitous deposit of a thing with a bailee, who is to keep for the bailor.

(b) Bailment for the exclusive benefit of the bailee. In this case there is benefit only to the bailee. For example, the gratuitous loan of a thing by the bailor to the bailee for his use.

(c) Bailment for the mutual benefit of the bailor and the bailee. In this case bailment is for the benefit of both the bailor and the bailee. For example, the hire of a thing by the bailor to the bailee for reward or pledge of goods by the bailor to the bailee as security for loan.

3.2 Classification of Bailment from ‘Reward’ Point of View

(a) Gratuitous bailment – In case of gratuitous bailment, no compensation passes between the bailor and the bailee, that is, neither the bailor nor the bailee gets any remuneration. The examples of gratuitous bailment are:

1. the deposit of a chattel with a bailee for safe custody without any charge,
2. delivery of a chattel to the bailee who is to do something without reward for the bailee and
3. the gratuitous loan of a chattel or class notes by the bailor to the bailee for the use of the bailee.

(b) Non-gratuitous bailment or Bailment for reward – Non-gratuitous bailment is for reward for valuable consideration. In this case either the bailor or the bailee is entitled to remuneration. For example, bailment for hire. Bailment for hire may be hiring for use of the goods; hiring for safe custody, i.e., of services in keeping the goods; hiring for work on or with regard to the goods.

The following are the points of difference between gratuitous and non-gratuitous bailment:

Criteria	Gratuitous Bailment	Non-gratuitous Bailment
1. Remuneration	No remuneration passes between bailor and bailee.	Either the bailor or the bailee is entitled to remuneration.
2. Duty to disclose defects in the goods bailed	It is the duty of the bailor to disclose to the bailee known faults in the goods bailed (S. 150).	Bailor is responsible for damages arising to the bailee due to faults in the goods even if he himself was not aware of existence of such faults in the goods bailed.
3. Repayment of necessary expenses	It is the duty of the bailor to meet the necessary expenses incurred by the bailee for the purpose of bailment (S. 158).	Bailor has no duty to pay the necessary expenses.
4. Premature termination of bailment	If a gratuitous bailment is made for a specified time or purpose, and the bailor compels the return of the goods bailed even before the expiry of that time or accomplishment of the purpose, having a right to do so, he has to make good the loss in excess of the benefit suffered by the bailee due to such earlier demand of the good bailed (S. 159).	Bailor has no right to terminate the bailment before the expiry of the specified period or completion of the specified purpose.
5. Termination of bailment	Gratuitous bailment is terminated in case of death of the bailor or the bailee (S. 162).	Non-gratuitous bailment is not terminated in case of death of the bailor or the bailee.

4. Sub-bailment

A sub-bailee is a person to whom the actual possession of goods is transferred by someone who is not himself the owner of the goods, but has a present right to possession of them as a bailee of the owner (Halsbury’s Laws of England, fourth edition, reissue, vol. 2, para 1841). For example, a carrier might sub-bail by engaging another carrier as subcontractor.

5. Consideration in Relation to Gratuitous Bailment

Since the Act deals with bailment based upon a contract, it becomes necessary to discover consideration supporting the contract if bailment is gratuitous, i.e., either for the sole benefit of the bailor or of the bailee. For instance, if A deposited his silver plate with B for safe custody, and B accepts the same gratuitously, B becomes liable to A if the plate is not returned, or in the case of goods, if any damage is caused to them. The detriment suffered by the bailor in parting with the possession of the goods is sufficient consideration to support the promise on the part of the bailee to return the goods. Thus, even a gratuitous bailment is a valid contract.

6. Difference Between Bailment and Sale

Basis	Bailment	Sale
1. Transfer of  Ownership	Ownership is not transferred to the buyer; only possession is transferred.	Ownership is transferred to the buyer.
2. Return of Goods	The bailee is required to return the goods to the bailor or otherwise dispose them according to the directions of the bailor.	Goods are not required to be returned to  the seller.
3. Price	Bailment may be gratuitous or non-gratuitous.	The buyer is required to pay the price of goods purchased.
4. Contract	Bailment is usually upon on a contract. But there may be bailment without contract, e.g. in case of seizure of goods.	All the essentials of contract must be present in case of sale.
5. Timing of Delivery	Goods are usually delivered at the time of bailment.	Goods may or may not be delivered at the time of sale.
6. Statute	The Indian Contract Act, 1872 contains provisions for bailment.	The Sale of Goods Act, 1930 contains provisions relating to sale.

7. Difference Between Bailment and Licence

Bailment – Bailment is the delivery of goods by one person to another for some purpose, upon a contract that they shall, when the purpose is accomplished, be returned or otherwise disposed of according to the directions of the persons delivering them. It is the duty of the bailee to take reasonable care of the goods.

Contract of License – A contract of license is a contract whereby a person is allowed to enter or use or to place his goods in the premises belonging to another person. The goods are not delivered to the other party. There are two parties in such a contract:

1. Licensor and
2. Licensee.

The licensor is the person who authorises the use of the premises and licensee is the person who is authorised to enter or use or place the goods in the premises belonging to the licensor.

The questions whether a transaction amounts to bailment or some other species of contract, sometimes arises specially in the case of vehicles left on the land either gratuitously or on payment of a small charge.

The relationship between the owner of the parking lot and the owner of the car, where parking was at the owner’s risk, was held to be of licensor and licencee, and not that of bailor and bailee [Ashby vs. Tolhurst, (1937) 2 KB 242].

Case – In Ashby vs. Tolhurst [(1937) 2 KB 242], A (the plaintiff), the owner of a motor car, who went to see a horse race, parked his car in a private parking ground belonging to B (the defendant). On payment of a shilling, he got from the attendant a ticket on which was printed “Seaway Car Park, Car Park Ticket”. This ticket purported to absolve B from any liability for loss of or damage to cars. The attendant allowed a thief to drive away the car honestly believing that the thief represented A. The car was never recovered. In a suit by A for negligence based upon the duty of a bailee, it was held that in the absence of delivery, the relationship between the two was only that of a licensor and licensee, and not that of bailor and bailee.

In a landmark judgement the Supreme Court has held on 17th November, 2019 that hotels cannot deny compensation under the garb of “owner’s risk” clause to its guests or visitors for theft of vehicle parked through its staff or valet. The Apex Court said that valet parking at the hotel is unlike parking facility where it is the owner’s responsibility to find suitable parking spot, park the vehicle correctly, return, take out the vehicle upon display of the parking token/slip.

It held, “the hotel-owner cannot contract out of liability for its negligence or that of its servants in respect of a vehicle of its guest in any circumstance.”

8. Duties of Bailee

The duties of a bailee are as follows:

8.1 Duty to Take Reasonable Care of the Goods Delivered to Him (Section 151 and 152)

Section 151 has laid down a uniform standard care for all kinds of bailment. According to this section.

“In all cases of bailment the bailee is bound to take as much care of the goods bailed to him as a man of ordinary prudence would, under similar circumstances, take of his own goods of the same bulk, quality and value as the good bailed.”

The banker-bailee, gratuitous or for reward, is bound to take the same care of the property entrusted to him as a reasonably prudent man and careful man may fairly be expected to take of his own property of the like description.

Case: In the leading case Houghland v. R.R. Low (Luxury Couches) Ltd. [(1962) 1 QB 694], A (the plaintiff) was a passenger in one of B’s (the defendant’s) coaches. She had put her suitcase in the boot of the coach. The suitcase was stolen from the boot. B was held liable for damages as he failed to take reasonable care of the suitcase.

The bailee is not an insurer of the goods bailed to him. Section 152 states that,

“The bailee, in the absence of any special contract, is not responsible for the loss, destruction or deterioration of thing bailed, if he has taken the amount of care of it described in Section 151.”

Thus, if the bailee takes the care as is stipulated in S. 151, he is not responsible for any loss or damage to the goods bailed. The bailee is not liable for loss caused by State enemies, communal riots or by an act of God, that is, fire, lightening, flood etc.

Case (i) – In Rampal vs. Gaurishankar [AIR 1952 Nag 8], a bailee kept the bailor’s ornaments locked in a safe. But he kept the key in the cash-box in the same room which was situated on the ground floor. The room was locked from outside and was easily accessible to burglars by removing the latch. The ornaments were stolen from the safe by using the key from the cash box. The bailee was held liable for not taking reasonable care of the goods.

Case (ii) – In Shantilal v. Tara Chand [AIR 1933 All 158], bailee was held not liable for damage to the foodgrains caused by very heavy floods which was first of its kind in the history of the place.

8.2 Duty Not to Deviate from the Terms of the Contract (S. 153)

According to Section 153 of the Act,

“A contract of bailment is voidable at the option of the bailor, if the bailee does any act with regard to the goods bailed, inconsistent with the conditions of the bailment.”

Thus, any wrongful act committed by the bailee with regard to the goods bailed, will entitle the bailor to avoid the contract, and insist on the return of the goods bailed.

Example – (Illustration to S. 153). A lets B, for hire a horse for his own riding. B drives the horse in his carriage. This is, at the option of A, a termination of bailment.

If, according to the contract, the goods should be deposited at one place, and in fact, the goods are deposited at another place, the bailee will be liable for loss or damage to the goods, since his act is inconsistent with the conditions of bailment.