Contract of Bailment and Pledge

Contract of Bailment

Bailment means a delivery of goods from one person to another for a special purpose. Whereas, Pledge means delivery of goods as security for the payment of debt or performance of the promises. Therefore, Bailment & Pledge are two different contracts. Pledge is a special kind of bailment. Every pledge is a bailment but every bailment is not pledge. All about Bailment is explained under Section 575 to 584 in Chapter 8 of part 5 of the Civil Code, 2074, and about Pledge is explained in Chapter 9. 

The term 'Bailment', is derived from a French term 'Bailor' which means "to deliver or handing over".  A Bailment is a delivery of goods by a person to another for a definite purpose, in the condition that after the purpose is accomplished; the goods have to be returned. Bailment is the change of possession of goods, not a transfer of ownership of goods as in sale. 

The common illustrations of bailment are hiring of goods, furniture or cycle, etc. Delivering of cloth to a tailor for making suit, delivering a car or scooter for repairing and delivery dress to dry cleaner is the example of bailment. The person who delivers the goods is known as bailor. 

And the person to whom the goods are given is known as Bailee. And the property bailed is known as Bailed Property.

According to Section 575(1) of Civil Code, 2074, "a contract relating to bailment shall be deemed to have been concluded in case any person delivers any property to another person on a returnable the basis or for handing it over to any other person or selling it as ordered by him."

According to Section 148 of the Indian Contract Act, 1872, "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".

If a person gives some property to another person upon a contract that it shall be returned to him or otherwise disposed of or sold out according to the order of the person delivering it, the contract is said to be the contract of bailment. Thus a bailment is a delivery of goods on the condition that the recipient shall ultimately restore them to Bailor or dispose of them according to the directions of the Bailor.

Contract of Bailment 

Finder of Lost Goods (Rights and Duties)

Essentials of Bailment

• There shall be a contract between the parties(between bailor and bailee) for the delivery of goods,

• The goods shall be delivered for a special purpose only,

• Bailment can only be done for movable goods and not for immovable goods or money,

• There shall be a transfer of possession of goods,

• Ownership is not transferred to Bailee, therefore Bailor remains the owner,

• Bailee is bound to deliver the same goods back and not any other goods to the bailor.

Exception: The money deposited in the bank shall not account for bailment as the money returned by the bank would not be the same as identical notes. And it is one of the essentials of the bailment that the same goods are to be delivered back.

Types of Bailment

Bailment for the exclusive benefit of the bailor

In this case, the bailor delivers the goods for the exclusive benefits and the bailee does not derive any benefit out of it. For example, “A” leaves his cow with “B”, his neighbor to be looked after during A’s physical absence. In this case, A alone is being benefited by the bailment. Or, if you park your car in your neighbor's premises to be taken care of in your absence, you as a bailor derive the exclusive benefit from the bailment.

Bailment for the exclusive benefit of the bailee

This is the case where a bailor delivers the goods to the bailee for the exclusive benefits of the bailee and does not gain anything from the contract himself. For example, you lend your book to a friend of yours for a week without any charge or favor. In this case, the recipient of the book as a bailee is the sole beneficiary of this transaction of bailment.

Bailment for the benefit of the bailor and bailee

A bailment for the mutual benefit of the parties is created when there is an exchange of performances between the parties. A bailment for the repair of an item is a bailment for mutual benefit when the bailee receives a fee in exchange for his or her work.

Gratuitous Bailment

A bailment with no considerations is called a gratuitous bailment. In this kind of bailment, neither the bailor nor the bailee is entitled to any remuneration or reward. Such a bailment may be for the exclusive benefit of either party, i.e., the bailor or the bailee.

For example, A provides a book to his friend, B for reading without any charge. This is a gratuitous bailment.

Non-Gratuitous Bailment

Contrary to gratuitous bailment, a non-gratuitous bailment or bailment for reward is one that involves some consideration passing between the bailor and the bailee. Obviously, in this case, The delivery of goods takes place for the mutual benefit of both parties.

For example, “A” hires “B’s” car. Here B is the bailor and receives the hire charges and A is the bailee and enjoys the use of the car. Similarly, when you give your PC or laptop for repair to some techie, both you and the computer techie are going to be benefited by this contract – while you get your computer repaired, he gets his fees or charges.

Rights and duties of bailee and bailor

Bailment is a concept of the common law. Under Common law, a bailment is a process of placing personal property or goods in the temporary custody or control of another. For a valid bailment, the bailee must have actual physical control of the property with the intent to possess it. The bailee is generally not entitled to the use of the property during his possession. A bailor can demand the return of the property at any time.

The goods being fundamental for the contract of bailment as it forms the subject matter of bailment, the law has intended to protect and preserve the goods as well as the interest of the bailor in the goods. For this, the law has imposed various rights and duties to the bailee and recognized the rights of the bailor. Similarly, if there is loss or destruction in the goods while they were in the custody of bailee and bailee in all the causes is to be held responsible. Thus, to protect and preserve the property and interest of bailor the law has imposed certain duties to the bailee and gives rights to the bailor.

Rights and duties of Bailee

A bailee is a person to whom the goods are delivered for a specific purpose or for a specific time. In such a contract, the bailee has to perform certain duties along with definite rights. The Civil Code, 2074 has also provided some rights and duties to the bailee.

Duties of  Bailee

The major duties or responsibilities of baliess are as follows;

Take proper care of goods(Section 578(1))

According to section 151 of the Indian Contract Act, a bailee has to take care of goods bailed to him. Bailee should take care of these goods as an ordinary man will take care of his goods of the same value, quality, and quantity. 

Thus, if the bailee takes due care of goods then he will not be liable for any loss, deterioration of such goods. Also, the bailee needs to take the same degree of care of goods whether the bailment is for reward or gratuitous. However, the bailee is not liable for any loss due to the happening of any act by God or public enemy’s though he agrees to take special care of the goods.

Not to make unauthorized use(Section 578(3))

As per section 153, the Bailee shall not make any unauthorized use of goods bailed. In case he makes any unauthorized use, then the bailor can terminate the bailment. Bailee is bound to use the goods for a specific purpose only and not otherwise. 

If he uses the goods for any other purpose than what is agreed for, then the bailor has the right to terminate such bailment or is entitled with compensation for damage caused due to unauthorized use. 

Duty to pay compensation (Section 578(2))

If there is loss or destruction or depreciation or stolen, damaged, or harmed of the property of bailor because of the negligence or the mollified intention of the bailee, or his failure to taking care according to terms and conditions of the contract, the bailee must return the goods bailed and pay compensation equivalent to lose to the bailor. However, the bailee is not liable for any loss due to the happening of any act by God or public enemies though he agrees to take special care of the goods.

Duty not to mix bailor’s goods with his goods(Section 578(4))

It is the duty of the Bailee not to mix bailor’s goods with his own. But if he wants to do the same then he shall seek consent from the bailor for mixing of goods. If the bailor agrees for the mixing of the goods then the interest in the mixed goods shall be shared in proportion. 

In case, Bailee without the consent of bailor mixes the goods with his own then two situations arise: goods can be separated and goods can’t be separated. In the former case the Bailee has to bear the cost of separation and in the latter case since there is the loss of the goods, therefore, bailor shall be entitled with damages of such loss. 

Therefore in the case of mixture;

•       The bailor also has an interest in the mixture.

•       If the goods can be separated or divided, the property in the goods remains with both the parties. But, the bailee bears the expenses of separation or any damages arising from the mixture.

•       If it is not possible to separate the goods, the bailee shall compensate the bailor for the loss of goods.

•       But if it has happened because of natural calamities, an act of god, or by accident in such case if it can separate then bailee has to separate at his own cost but in case of not possible to separate then bailee is not responsible for any compensations.  

Not set adverse title

A bailee must not set an adverse title to the goods bailed. The bailee also could not further bail the goods already bailed by another for his benefit.

Duty to return the goods on the fulfillment of the purpose

Bailee’s duty is to  bound to return the goods once the purpose is achieved or on the expiry of the time period for which the goods were bailed. But if the Bailee makes default in returning the goods on proper time then he will be responsible for the loss, destruction, or deterioration of the goods if any.

Return increase or profits

A bailee shall return the goods along with any increase or profit accruing to the goods to the bailor, in the absence of any contract to the contrary.

For example, A leaves a hen in the custody of B. The hen gets a chick. B shall deliver the hen along with the chick to A.

Rights of  Bailee

Enforcement of bailor's duties

The duties of the Bailor are the rights of Bailee. And the Bailor has to fulfill the rights of  Bailee as his duty. The bailee can, by suit, enforce the duties of the bailor.

Right to delivery of goods to one of the several joint bailor

If several joint owners of goods bail them, the bailee may deliver them back to, or according to the direction of, one joint owner, without the consent of all, in the absence of any agreement to the contrary. No joint bailor can sue the bailee for such delivery of goods to only one joint bailor as per his convenience.

Right to delivery of goods to bailor without title

If the bailor has no title to the goods and the bailee in good faith delivers them as per the direction of the bailor, the bailee will not be liable for such delivery. No third person or true person can sue the bailee for such wrong delivery. By contrast, if he delivers the goods to the bailor without title and knowing that he is not a true owner then he is liable to deliver such goods to the real owner or third person.

Right to sue against wrongdoer or tress passers

The main right on the bailed goods is always of bailor and in case of any destruction in goods due to other wrongdoers, the bailor is entitled to sue. However, until the goods within the custody of bailee, such right can also be exercised by bailee too.

Right to reimbursement of expenses

If the bailee incurs expenses for taking reasonable care and ensuring the protection of the bailed goods, he has a right to claim reimbursement of such expenses from the bailor.

It may be noted that, in the case of gratuitous bailment, the bailee is entitled to reimburse all the necessary expenses whether they are ordinary or extraordinary expenses incurred by bailee if he has accepted the goods at the request of the bailor. But, in the case of non-gratuitous bailment, only extra-ordinary expenses cab be claimed.

Example: A lends his scooter to B, a friend for one week. The usual and ordinary expenses like the expenses for petrol and minor repairs etc., are to be borne by B himself. However, if any major defect occurs like a defect in the engine etc. A will have to repay B the repair charges incurred by B.

Right to recover the loss in case of defective title

Only the goods belonging to someone can be bailed by the real owner himself. So, if the goods with defective titles are bailed then bailee can claim all the damages from such to him.  

Right to lien

The right to possession of the property or goods belonging to another until some debt of claim is paid is called the right of lien. The Bailee may enjoy the right of special lien to the bailed goods. This right depends on the possession and will be lost as soon as possession is lost. Such right holds only on the bailee. 

Thus, to use the right of lien:

•       The good must be in the custody of bailee.

•       The bailee must incur some lawful expenses in the bailed goods.

•       The bailor still not paid these lawful expenses.

Right to be indemnified in case of premature termination

The bailor can demand his goods bailed at any time in the case of gratuitous bailment, but the bailee has a right to be indemnified if the bailor takes the goods back so that the loss exceeds the benefits derived by bailee.

Right and duties of Bailor

A person, who delivers his property or goods temporarily to another is called bailor. Under the contract of bailment, he has some rights and duties against and towards the bailee.

Rights of Bailor

The duties of bailee are the rights of the bailor. He can enjoy following rights against bailee:

·       Right to demand return of goods

·       Right to demand accretion to goods

·       Right to terminate the contract

·       Right to claim damages in case of negligence

·       Right to claim compensation in case of unauthorized use

·      The right to claim compensation in case of unauthorized retention of goods.

·     The right to claim the separation of goods and compensation in case of an unauthorized mixture of inseparable goods.

·     The right to claim compensation in case of an unauthorized mixture of separable goods.  

Duties of the bailor

The bailor owes the following duties to bailee in respect of the goods bailed out by him.

·       Duty to disclose faults

In the case of gratuitous bailment, the bailor is expected to disclose to the bailee all the defects known to him and which would get in the way with the use of goods bailed. A non-gratuitous bailment or bailment for reward, however, carries a greater responsibility on the part of the bailor. He will be liable even if he was not in the know of the defects. 

For example:

A lends his horse, which he knows to be frisky, to B. He does not disclose the fact that the horse is frisky. When B tries to ride it, the horse throws him off its back, and B is injured. A is responsible for B for injury sustained.

A hires a carriage of B, The carriage is unsafe, though B is not aware of it, and A is injured. B is still responsible for the injury.

·       Duty to repay bailee’s expenses

A bailor is bound to repay the bailee, expenses incurred by him for work done on the goods received under conditions of bailment, and for which he is not receiving any remuneration or deriving any benefit. In this regard.

For example, A leaves his Cow with B, a Friend for safe custody for one month where B had paid Rs.1000 per month to the helper for taking care of the cow. Here, A is bound to pay B the amount paid by him.

·       Duty to indemnify the bailee

The bailor is bound to make good the loss suffered by the bailee that is over the benefit derived, where he had delivered the goods gratuitously and compelled the bailee to return them before the expiry of the period of bailment.

·       Duty to compensate bailee for breach of warranty

Every contract of bailment warrants the bailee about the bailor’s title being defect-free. Thus, if bailee subsequently suffers any loss by the reason of the bailor’s title being defective, the bailor must compensate the bailee for breach of warranty.

·       Duty to compensate bailee for loss caused by premature termination

·       Duty to respect the bailee's right to lien.

·       Duty to receive back goods when returned by bailee.

·       To bear the risk of loss by the act of God.

TERMINATION OF BAILMENT

The termination of bailment is the state where the legal relationship of the parties to it lapses and the bailor and the bailee get freedom from performing their promises. No liability exists between the parties as to the result of the termination. There are various circumstances under which the contract of bailment is terminated.

·       When the period or purpose is over

In case the bailment is for a specific period or purpose, it is terminated on the expiry of that period or the completion of the purpose.

·       When the bailee makes unauthorized use of the goods

In case the bailee makes unauthorized use of the goods bailed, the bailment is voidable at the option of the bailor.

When the subject-matter is destroyed or becomes illegal

In case the subject-matter is destroyed or becomes illegal, the bailment is terminated.

·       At the will of the bailor

Where the bailment is gratuitous, it can be terminated merely at the will of the bailor. However, the termination should not cause loss to the bailee over the benefit derived by him. In case the loss exceeds the benefit derived by the bailee, the bailor must compensate the bailee for such a loss.

·       When the bailor or bailee dies

A gratuitous bailment is terminated by the death of the bailor or bailee.