Contract of Bailment under the Indian Contract Act, 1872

Introduction

The Contract of Bailment is a fundamental concept under Chapter IX (Sections 148–181) of the Indian Contract Act, 1872, which governs the temporary transfer of possession of goods for a specific purpose. The concept of bailment is vital in commercial transactions, everyday dealings like storage, repair, transportation of goods, and even in banking. It establishes the rights, duties, and liabilities between two parties — the bailor (who delivers goods) and the bailee (who receives them for a specific purpose).

The essence of bailment lies in the delivery of possession, not ownership. The goods are returned after the purpose is accomplished, or otherwise dealt with according to the bailor’s directions.

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Definition and Meaning (Section 148)

“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.”

Thus, bailment involves:

1. Delivery of Goods
2. Purpose for Delivery
3. Return or Disposal after the purpose is completed

Key Elements of Bailment

1. Delivery of Possession:
   The goods must be delivered from the bailor to the bailee. This delivery can be:
   • Actual Delivery – physical transfer (e.g., giving a car for repair).
   • Constructive Delivery – symbolic or implied delivery (e.g., handing over keys or documents).
2. Purpose:
   The goods are delivered for a specific purpose such as repair, storage, transport, or safe custody.
3. Return or Disposal:
   After the purpose is achieved, the bailee must return or dispose of the goods as per the bailor’s directions.
4. Possession, Not Ownership:
   Ownership remains with the bailor; only temporary possession is transferred.

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Parties to a Contract of Bailment

• Bailor: The person who delivers the goods.
• Bailee: The person to whom goods are delivered for a specific purpose.

Example: If A gives his watch to B for repair, A is the bailor, and B is the bailee.

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Essential Features of Bailment

1. Valid Contract:
   A bailment must be based on a valid contract (express or implied).
2. Movable Property Only:
   Bailment applies only to movable goods, not to immovable property or money.
3. Transfer of Possession:
   Only possession transfers, not ownership.
4. Purpose:
   The delivery must be for a specific purpose, such as safe keeping, repair, transport, etc.
5. Return:
   The bailee must return or dispose of goods after the purpose is fulfilled.

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Kinds of Bailment

1. Gratuitous Bailment

Bailment made without any consideration.
Example: A lends his car to B for personal use without charge.

2. Non-Gratuitous (Commercial) Bailment

Bailment made for consideration or commercial purpose.
Example: Giving clothes to a dry cleaner or goods to a warehouse.

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Duties of the Bailor

1. To Disclose Faults (Section 150):
   The bailor must disclose known defects in goods that may expose the bailee to risk.
   • Example: If A lends a horse knowing it is vicious but does not inform B, A is liable for injuries to B.
2. To Bear Necessary Expenses (Section 158):
   In gratuitous bailment, the bailor must bear ordinary expenses.
3. To Indemnify the Bailee (Section 159):
   If the bailor terminates the gratuitous bailment before time, causing loss, he must indemnify the bailee.
4. To Receive Back Goods:
   After completion of the purpose, the bailor must accept the return of goods.

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Duties of the Bailee

1. To Take Reasonable Care (Section 151):
   The bailee must take the same care of goods as a prudent person would of his own goods.
   • Case: Ultzen v. Nicolls (1894) 1 QB 92 – A waiter who took charge of a customer’s coat was held liable for loss due to negligence.
2. Not to Make Unauthorized Use (Section 153):
   Unauthorized use makes the bailee liable and may terminate the bailment.
3. Not to Mix Bailor’s Goods (Sections 155–157):
   If mixed without consent, and inseparable, bailee must compensate for loss.
4. To Return Goods (Section 160):
   Goods must be returned or delivered according to bailor’s directions once purpose is done.
5. To Return Accretions (Section 163):
   Any increase or profit from the goods must be returned to the bailor.
   • Example: If a cow given on bailment gives birth to a calf, the calf must also be returned.

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Rights of the Bailor

1. Right to Demand Return:
   The bailor can demand goods back upon completion or termination.
2. Right to Terminate Contract (Section 153):
   If bailee acts inconsistent with terms, the bailor can terminate.
3. Right to Damages:
   For unauthorized use or negligence causing loss.
4. Right to Accretions:
   Entitled to any increase or profit from the goods.

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Rights of the Bailee

1. Right to Compensation (Section 159):
   For premature termination of gratuitous bailment causing loss.
2. Right to Reimbursement (Section 158):
   For necessary expenses incurred during bailment.
3. Right of Lien (Sections 170–171):
   • Particular Lien: Retain goods for payment related to those goods (e.g., tailor, mechanic).
   • General Lien: Retain any goods for general balance of account (e.g., bankers, factors, attorneys).
   • Case: Syndicate Bank v. Vijay Kumar, AIR 1992 SC 1066 – Bank’s right to retain goods until payment is a valid general lien.
4. Right to Sue Third Parties (Section 180):
   Bailee can sue third persons who cause damage to goods bailed.

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Termination of Bailment

A bailment terminates under the following circumstances:

1. Completion of Purpose.
2. Expiry of Period.
3. Inconsistent Act by Bailee.
4. Destruction of Subject Matter.
5. Death of Either Party (in case of gratuitous bailment).

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Finder of Goods (Sections 71–73)

A finder of goods is treated as a bailee under law and has similar rights and duties.

• Duties: To take reasonable care, find the owner, and return goods.
• Rights:
  • Lien: Right to retain goods for reasonable expenses.
  • Reward: Entitled to any announced reward.
  • Sale: May sell goods if owner cannot be found and goods are perishable or expenses exceed value.
  • Case: Hollins v. Fowler (1875) LR 7 HL 757 – Established principles of liability for conversion when a finder wrongfully disposes of goods.

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Difference between Bailment and Sale

Basis	Bailment	Sale
Transfer of Ownership	Ownership not transferred	Ownership transferred
Purpose	Temporary possession for specific purpose	Permanent transfer
Return of Goods	Mandatory	Not required
Consideration	May or may not exist	Always exists
Law Applicable	Indian Contract Act, 1872	Sale of Goods Act, 1930

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Important Case Laws

1. Coggs v. Bernard (1703) 2 Ld Raym 909
   This English case first recognized the principle that a bailee owes a duty of care, even in gratuitous bailment.
2. Chamberlain v. Lamb (1883) 3 N.S.W.L.R. 343
   Held that bailee’s unauthorized use of goods constitutes breach and renders him liable for damages.
3. Syndicate Bank v. Vijay Kumar, AIR 1992 SC 1066
   Affirmed the bank’s right of general lien as a bailee.
4. Ultzen v. Nicolls (1894) 1 QB 92
   Established that possession implies responsibility; even implied bailments create liability for negligence.
5. Bank of India v. Grange Hotels (1985)
   Reiterated bailee’s liability for loss of goods unless he proves absence of negligence.

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Conclusion

The Contract of Bailment serves as an essential legal mechanism that defines obligations between the bailor and the bailee. It emphasizes trust, possession, and care, ensuring protection of property in temporary custody. The Indian Contract Act, through Sections 148–181, provides a balanced framework that upholds fairness, accountability, and efficiency in all transactions involving movable goods.

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