Concept of Bailment

 Q.9. Define the terms "bailment", "bailor" and "bailee" giving illustrations. What are the duties of the bailor and bailee? What is the kind of care expected from the bailee according to Section 151 of the Contract Act?

Section 148 of the Indian Contract Act, of 1872 provides

 

"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'.

Explanation-If a person is already in possession of the goods of other, 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."

 

One of the requirements of bailment is delivery of goods to the bailee. Delivery of possession to the bailee is sine qua non of bailment. In order to constitute a bailment change of possession is necessary. Kavita Trehan v. Balsara Hygiene Products Ltd., AIR 1992 Del 103.

 

Bailment' is a technical term of the common law. Though etymologically it might mean any kind of handing over, it involves change of possession. One who has custody without possession, like a servant or guest using his host's goods, is not a bailee. On the whole, a bailment might be described as a delivery on condition to which the law usually attaches an obligation to re-deliver the goods or otherwise deal with them as directed, when the condition is satisfied, A.T. Trust Ltd. v. Trippunthura Devaswom, 1954 1C 305.

 

Section 151 of the Indian Contract Act provides

 

"Care to be taken by bailee.-In all cases the bailee is bound to take as much care of the goods bailed to himself as a man of ordinary prudence would, under similar circumstances, take of his own goods of the same bulk, quantity and value as the goods bailed."

 

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; Kavita Trehan v. Balsara Hygiene Products Ltd., AIR 1992 Del 103.

 

Under section 73 of the Railways Act, the responsibility of railway administration as a carrier and also as a bailee commences from the moment the goods are entrusted to the railway administration for transit to be carried by railway and continues until the goods are unloaded at the destination point. When the responsibility under section 73 of the Railways Act terminates, the responsibility of the railway administration under section 77 of Railways Act commences; Union of India v Sattur Nataraja Traders, AIR 1992 Kant 301.

 

Essential Elements of a Valid Bailment

The essential elements of bailments have been analysed in Chitty on Contracts, 23rd Edition, Vol. II, p. 77, in the following words: "The important feature of bailment is the transfer of possession of the thing to the bailee (on the acquisition of possession by him) so that the bailee is entitled to possessory remedies (such as trespass, detinue or conversion) against all strangers, and even in many cases, against the bailor himself. A bailment is more than a contract in that possession, a proprietary interest less than ownership, is transferred to, or acquired by the bailee, and many remedies in tort and crime become available to the bailee because he enjoys possession."

 

According to section 148, there are three essential elements of a valid bailment:

(1)   Delivery of goods by the bailor for some purpose;

(2)    Delivery of possession upon a contract; and

 

Delivery means transfer of goods from one person to another. Delivery may constructive, or symbolic. Transferring the key of a godown may be deemed to be delivery of the goods. If you want your jewels to be made into jewellery, but keep your jewels locked in a box at the jeweller's place, since the key of the box and control of the jewels remains with you, there is no bailment. (K. Pillai v. Visalakshmi) On the other hand, if you keep your valuables in a bank locker, but the manager has tampered with the lock of the locker in such a way that he can himself open the locker without your key, your control over locker is gone, the bank is the bailee of your valuables, and will be liable for loss to your valuables in the locker. (National Bank of Lahore v. Sohan Lal)

There need not be a formal arrangement for transfer of possession. If the plaintiff goes in the defendant's restaurant, and the waiter, without a request, takes the plaintiff's coat and hangs the same on a hook behind the plaintiff, this is bailment. If the coat is lost due to lack of care on the part of the defendant's servants, the defendant will be liable for the same. (Ultzen v. Nicols).

 

(3) Bailee bound to return goods or to dispose of according to the directions of bailor.

 Return of the goods after the purpose is achieved. In a bailment, the right of possession is transferred, and the goods shall, when the purpose is accomplished, be returned or otherwise disposed of according to the directions of the person delivering them. This element distinguishes bailment from other transactions like sale or gift, where the property in the goods is transferred, and the goods are not to be returned in any case. In a bailment, the thing is to be returned in the same or altered form. For example, the watch is returned after repairs, the cloth converted into a suit and given back. When money is deposited in a bank, it is not bailment, because the banker is not to return the same money to the depositor.

 

When the goods are delivered without the intention to take them back and the exact cost of the goods has been charged, it would be a transaction of sale rather than the contract of bailment. Thus, if empty beer bottles could be returned at the discretion of the customer, the deposit amount of bottles was liable to sales tax. (Kalyani Breweries Ltd. v. State of West Bengal-1998 S.C.)

 In United Breweries Ltd. v. State of Andhra Pradesh, (1997) 3 SCC 530: 1997 AIR SCW 1414, the appellants sold beer in bottles to the customers. The customers were required to pay cost of beer and to deposit a sum for bottle which was refundable. The customers were advised to collect empty bottles from the consumers and return them to the appellants and get back their deposit for the bottles. For this purpose the appellants issued circulars to its buyers. The circulars contained following main points:

(1) The refundable deposits were being collected on the bottles and the crates. (2) The appellant advised its customers to collect forty paise per bottle from the consumers as deposit.

 

(3) The customers were advised to collect the empty bottles from the consumers and return them to the appellant.

 

(4) The empty bottles and crates were to be taken back by the trucks of the appellant, the drivers of which were authorised to issue a receipt for the empties against which the appellant would issue credit notes. At the time of the next booking of the next consignment the customers would get advantage of the credit notes.

 

The above arrangement suggested that there was a continuous process by which the appellant would sell beer to its customers in bottles and crates and collect the sale price of the beer and also deposits for the crates and bottles. The customers in their terms, would sell beer to the consumers and apart from the price of the beer would also receive forty paise per bottle as deposit to ensure returns of the bottles. The bottles would ultimately be taken back by the appellant for which the trucks would be sent and the credit notes would be given to the customers for the return of the empty bottles and crates. This scheme of recycling the bottles and crates would keep down the costs and ultimately would have the effect of reducing the price of beer and encouraging the customers to buy beer in larger quantities. It was also found that as a matter of fact that the rate at which the customers were required to make the deposit of the beer bottles was less than the cost of the beer bottles. From the foregoing facts the Supreme Court came to the conclusion that the intention of the brewer did not appear to have been to sell the beer bottles, on the contrary the brewer was trying to ensure that the bottles in which the beer was supplied to consumer through its customers were brought back to it so that they could be used again. The Supreme Court therefore held that there was no sale of bottles but in clear terms it was a bailment.

Duties of the Bailor

There are two types of bailments – gratuitous bailment and non-gratuitous bailment/ bailment for reward.

A bailment without consideration is referred to as a gratuitous bailment. Neither the bailor nor the bailee has the entitlement to any pay or reward under such bailment arrangements. Such a bailment could be for either party’s sole interest.

Unlike gratuitous bailment, a non-gratuitous or a bailment for a reward involves some consideration between the bailor and the bailee. The goods shall be delivered to the reciprocal advantage of both parties in this scenario.

Duties of the bailor are as follows –

1. Duty to disclose faults in goods bailed

Section 150 describes the bailor’s duty to disclose faults in goods bailed. Whether the goods are bailed gratuitously or not, the bailor is obligated to reveal every known defect of the goods to the bailee. The bailor is responsible for this. In the absence of such a disclosure, the bailor would be obliged to compensate the bailee directly for any loss caused by that fault.

The following conditions have to be met in order to establish liability of the bailor –

a) He ought to be aware of the deficiency and bailee ought not to be aware of it.

b) The defect in the product must be such that it exposes the bailee to special risk or interferes considerably with the use of the goods.

However, it should be noted that the bailor is accountable for even those problems of which he/she is not aware in the case of a gratuitous bailment. The bailor’s responsibility is far greater in non-gratuitous bailment. He benefits from his occupation and consequently has the obligation to ensure that the goods he delivers are reasonably safe for bailment purposes. For him to assert that he was unaware of the defect is no defence. Section 150 states clearly that “if the goods are bailed for hire, the bailor is responsible for such damage, whether he was or was not aware of such faults in the goods bailed”. The bailor is responsible for such harm. He should evaluate the goods and remove problems that would have been revealed by reasonable scrutiny.

In Hyman & Wife v Nye & Sons, for a specified trip, the plaintiff rented a carriage, a horse-drawn pair and a driver from the defendant. The split bar had been dislodged, the carriage disrupted and the plaintiff hurt during the travel by a crack in the bottom of the rail carriage. Justice Lindley held the defendant responsible and said: “A person who lets out carriages is not responsible for all defects discoverable or not; he is not an insurer against all defects. But he is an insurer against all the defects which care and skill can guard against. His duty is to supply a carriage as fit for the purpose for which it is hired as care and skill can render it.”

Similarly in Reed v Dean, for a holiday in the Thames river, the plaintiffs hired the defendant’s motorboat launch. The launch caught fire, and the plaintiffs could not extinguish it, because the firefighting system was out of operation. They had been wounded and lost. The court found that it was assumed that the launch was fit as well as reasonably safe and operational for the purpose for which it had been commissioned. The defendant was therefore deemed responsible.

If a bailor gives goods to another person for transport or for some other reason and the items are harmful, the fact should be disclosed to the bailee.

2. Duty to bear expenses of bailment

In the instance of a non-gratuitous bailment, the bailor shall incur any exceptional costs, but the bailee shall bear all usual and reasonable expenses of the bailment. However, the bailor shall pay all costs necessary for the bailment of the delivered property if the bailment is gratuitous.

In Forbes Forbes Campbell and Co. Ltd. Vs. The Board of Trustees of the Port of Bombay and Metal Fabs India Pvt. Ltd., the Supreme Court noted that a bailment contract had arisen. The bailee therefore had the right to be compensated for the costs expended for bailment purposes.^[4]

3. Duty to compensate the bailee on premature termination

The bailor is obligated to compensate the loss sustained by the bailee for the maintenance of the contract by virtue of Section 159. At any given stage, if the bailment is gratuitous, the bailor may request the goods for usage, even though he has lent them for a set period or cause. Should, however, the bailee operate in a way that the return of the goods lent prior to the time set would eventually lead to damages beyond its actual advantage from the goods, the bailor must reimburse the bailee for the sum where the misfortune so caused exceeds the advantages so ascertained.

4. Duty to receive back the goods

At the conclusion of the bailment time or when the purpose is achieved, the bailor has a duty to receive goods from the bailee. However, if the bailor refuses to do the same, then he or she is obliged to reimburse the custody and care fees accrued.

Duties of the Bailee

1. Duty to take reasonable care of the goods bailed

Section 151 lays down this duty in the following terms: “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 goods bailed.” If the goods are damaged or destroyed even after reasonable care, the bailee shall not be responsible for the loss of the goods bailed.

In the case of Blount v War Office, the War Office requested a residence belonging to the plaintiff. In a strong room in the house the plaintiff was permitted to store some items, which he locked. Of the soldiers that were stationed there, some broke into the chamber and stole a number of silver plates. The War Office was deemed responsible. The court said: “There was a voluntary bailment of the goods to the defendants in the way of deposit and the standard of care required of them was reasonable care which a man would take of his own property. It is hard to believe that any reasonable man, who had valuable property of his own stored in those” “circumstances, would leave it to the tender mercies of seventy or eighty displaced persons of that type without taking any precaution. The Ministry was negligent.”

The expected standard of care of a gratuitous bailee is the same as that of a non-gratuitous bailee. In all cases of bailment, a uniform standard of care is to be maintained, that is, a level of care that a man of ordinary caution would take of his own property of the same sort and in similar conditions. If the care dedicated by the bailee drops below this standard, he will be responsible for loss of or damage to the property.

The burden of proof is on the bailee to demonstrate that he was reasonably careful and he is not responsible if he can prove this. If the bailee provides proof that he has taken reasonable care to avoid reasonably foreseeable damages, or had taken all reasonable efforts to avoid reasonably apprehended hazards, he would be waived from his liability.

2. Duty to use the goods only for the authorized purpose

Section 154 describes the liability of a bailee making unauthorized use of the goods bailed. It states “If the bailee makes any use of the goods bailed which is not according to the conditions of the bailment, he is liable to make compensation to the bailor for any damage arising to the goods from or during such use of them.”

The bailee shall utilize the goods only for the purposes for which they were bailed. The bailee would be entirely accountable for any loss or damage to the goods if the goods were used in an unauthorized manner. Even Act of God or inevitable accident could not be used as a defence.

In the case of Alias v EM. Patil, a vehicle was transported for repair to a workshop and the business owner permitted the vehicle to be driven by an unauthorized employee and caused the death of one person in an accident. As it was considered an unauthorized usage of the vehicle and the liability was deemed absolute, the bailee was obliged to recompense the deceased and also the car owner. The insurer also paid the deceased the compensation and recovered compensation from the owner of the vehicle.

3. Duty to not mix bailed goods with own goods

The bailee must safeguard the individual identification of the items of the bailor. Without the bailor’s approval, he should not combine his own products with the bailor’s. If the goods are blended with the bailor’s approval, both shall have a proportionate interest in the mixture generated. The bailee is bound to pay the costs of the separation and any damage arising from the mixing if the mixture is created without the approval of the bailor and when the commodities can be split or divided. But the bailee has to reimburse the bailor for his loss if the mixture cannot be separated.

4. Duty to return the goods

The bailee should return the items to the bailor without any request if the bailing purpose is achieved or the period of time for which the goods were bailed has expired. If he doesn’t do so, it will hold the items at his risk and he will be liable for any loss or damage to the goods.

In Shaw & Co. v Symmons & Sons, The plaintiff entrusted the defendant, a bookbinder, with books to be bound and the latter promised to deliver them in a fair amount of time. After the plaintiff requested the defendant to deliver all the books, the defendant could not deliver them within a reasonable amount of time and they were subsequently burned in his premises in an unintentional fire. The defendant was judged accountable for the destruction of the books. There is no issue of establishing any defence such as “act of God” or “inevitable accident” when the loss takes place while the wrong act of the bailee’s occurs. In every event, he is accountable.

 

Q.9.(b) The plaintiff handed over to the defendant certain jewels for the purpose of being melted and utilized for making new jewels. Every day as soon as the defendant's work for the day was over, the plaintiff used to receive half made jewels from the defendant and put them into a box in the defendant's room, without handing over the key to the defendant. One night the jewels were stolen from the defendant's room. Discuss the remedy available to the plaintiff if any.

Ans.  Bailment consists in delivery of goods, i.e., movable property, by one person, who is generally the owner of goods, to another person for some purpose. The goods are to be returned to their owner after to purpose in accomplished, or they are to be disposed of according to the directions of the person delivering them. For example, when you take a fan on hire, or give your suit for dry cleaning, or give a watch for repairs, or give a parcel to a carrier for being transported to some place, there is bailment in each case.

 

In a contract of bailment the person who delivers the goods is called the "bailer", and the person to whom the goods are delivered is called the "bailee".

 

The essentials of a bailment are

 

1. Delivery of goods for some purpose.

 

2. Return of the goods after the purpose is achieved, or their disposal according to the bailor's directions.

 

When a person keeps his goods in the premises of another person but himself continues to have the control over them, this is not sufficient delivery for being considered to be bailment. The facts of the above problem have been borrowed from the case of Kaliaporumal Pillai v. Visalakshmi, A.I.R. 1938 Mad. 32 in this case a lady took her old jewels to a goldsmith for being melted and being converted into new jewels. Every evening she used to receive the half-made jewels, put the same into a box and lock the same. She allowed the locked box to remain in the premises of the goldsmith but kept the key in her possession. One night the jewels were stolen. It was held that there was no bailment as she had not handed over the possession of the jewels to the goldsmith, and therefore, the goldsmith could not be made liable for the losses.

Q. 9(c) On B's request A lent gratuitously his scooter to B for his use for one week. After tow days A urgently needs his scooter and required its return from B. B refuses to return the goods unless he is indemnified for his damages (@ Rs. 100 per day, which he would suffer due to the premature delivery of the scooter. Decide the rights of A and tilde B in such a situation.

Ans.  In view of the provisions of Section 159, A can ask and compel B to return the scooter, since the lending was gratuitous at the request of B. However, if B can prove that on the faith of such lending for the specified time of seven days, he has acted in such a manner that the return of the scooter before the expiry of the agreed period would cause him loss exceeding the benefit actually derived by him with the help of the scooter, A is liable to indemnify B for the loss so occasioned which exceeds the benefit so derived. If the plea of B is accepted as it is, A is liable to identify B to the extent of Rs. 300 only