- Bailment is the legal transfer of property or commodities from a bailor to a bailee, who forfeits possession but not ownership.
- A bailee must desire to physically possess the bailable property in order to create a bailment.
- Chapter IX of the Indian Contract Act, 1872 governs the law of bailments in India. Particularly Sections 148 to 181.
The word Bailment derives from the French term 'baillier', which translates to "to deliver."Bailment is a legal relationship in which the owner temporarily provides physical possession of private property or chattels but maintains ownership of it. The owner who cedes custody of a property is known as the "bailor," and the person who takes the property is known as the "bailee." The bailee is the person who holds personal property in confidence for the owner for a given period of time and for a specific cause, and who returns the property to the owner after the original purpose has been fulfilled. Bailment differs from a sale contract or a gift of property in that it simply includes the transfer of possession rather than ownership. The bailee must both desire to possess and physically possess the bailable property in order to constitute a bailment. Furthermore, unlike a lease or rental, where the lessor retains ownership with the lessee permitted to use the property, the bailee is often not permitted to utilize the property while it is in his hands.
In India, Sections 148-181 i.e., Chapter XI of the Indian Contract Act, 1862 govern the law of bailments. These sections provide for the definitions, duties, liabilities, and classifications of all matters relating to bailments in Indian law.
Bailment, as outlined under section 148 of the Indian Contract Act 1872, is the conveyance of goods by one person to another for a certain purpose, with the understanding that the commodities will be returned after the specific purpose is completed. This section also defines the terms bailor and bailee as the person delivering the goods and the person to whom goods are delivered respectively.
Section 149 defines how delivery to a bailee can be made. It states that delivery to the bailee can be accomplished by doing anything that has the effect of placing the bailed goods in the custody of the intended bailee or any authorized person by him for this objective
Essential Elements of a Bailment
For a transfer of property to be considered a bailment, certain essential conditions are required to be fulfilled.
- A primary prerequisite in a bailment is the existence of a legal contract, which means that property is to be recovered when the purpose is achieved. The contract may be an express or implied agreement between the bailee and the bailor.
- In the event of a bailment, the property must be delivered to the bailee. Furthermore, custody of the items must be transferred freely and in line with the contract. The delivery of the bailee's possession is the 'sine qua non' of bailment. A transfer of possession is required to form a bailment.
- Bailment is only available for moveable commodities, not immovable goods. It is not possible to bail out current money or legal cash. Money deposited in a bank is not bailment since money isn't really "goods or property" and cannot be delivered back to the user. However, currencies which are no longer legal tender and are considered antiquities can be bailed.
- The whole notion of bailment is based on the fact that the products are given for a limited or temporary time period and the bailee does not have permanent custody. Actual delivery of goods is possible, as is constructive delivery, which entails performing something that has the power to put the items in the custody of the bailee or any other person authorized by him.
- The delivery of products should serve a function such as safe custody, usage and transit of the items, maintenance, and so on.
- The bailee is obligated to restore the commodities to the bailor after the reason for which they were stolen has expired. It is not bailment if the individual does not return the things.
Rights and Duties of the Bailor and Bailee
Duties of Bailor
- Section 150 states that it is the duty of the bailor to disclose all faults in goods bailed. If the bailor fails to report such faults, he will be held liable for any harm to bailed items or loss to the bailee.
- Additionally, the bailor is obligated to cover the bailee's extraordinary expenditures incurred because of the bailment as enumerated in Section 158.
- The bailor has the duty to reimburse loss for early termination of bailment as per Section 159. If the title to deliver the goods is not within the bailor's grasp, the bailor is obligated to indemnify the bailee for any loss sustained that the bailee has provided to the original owner.
- Section 164 states the bailor is liable to the bailee for any damage incurred as a result of the bailor's inability to perform the bailment, receive the goods, or offer directives about them. The bailor is obligated to make good the damage sustained by the bailee if he was forced to return the items before the time of bailment expired.
- It is the bailor's responsibility to receive the commodities after the purpose for which they were bailed has been fulfilled. The bailor is obligated to accept the items after the bailee has returned them in line with the conditions of the arrangement. If he refuses to accept it at the appropriate time for whatever reason, he will be accountable for any loss that occurs to the products.
- It is the bailor's duty to compensate the bailee for any costs incurred as a result of the defective title of commodities bailed to the bailee.
Rights of Bailor
- Section 153 empowers the bailor with termination rights in the event of unauthorized use of goods. If the bailee makes an unlawful use of the goods, or if the bailee makes any use of the commodities bailed that is not in accordance with the terms of the bailment, the bailment contract may be terminated before its conclusion at the option of the bailor.
- Section 154 empowers the bailor with the right to claim damages from the bailee if they make wrongful use of the bailed good. The bailor has the right to be reimbursed for the losses to the bailed items if the bailee fails to take all necessary precautions to avoid the damage or loss as directed.
- The bailor has the right to demand separation of goods in event of an unauthorized mixture of goods as per Section 156. If the bailee combines the bailor's goods with his own commodities without the bailor's authorization and the goods may be separated, the bailor has the authority to claim his own goods upon separation.
- If the bailee, without the bailor's assent, mixes commodities of the bailor with his own good and they cannot be divided, the bailor has the right to recover from the bailee for the deficit of the goods under Section 157.
- The bailor has the right to insist on the return of goods when the purpose has been completed or the time of bailment has expired under Section 160.
- Section 161 states that if a bailee fails to return or deliver the goods according to the bailor's directives, even after the purpose has been accomplished or the period of bailment has expired, the bailor has the right to reimbursement for any loss, damage, or degradation of goods from that time.
- Section 163 provides the right to the bailor to receive from the bailee any natural increase or profit accruing from goods bailed unless there exists a contract to the contrary.
Duties of Bailee
- The bailee has the responsibility to take reasonable care of the things supplied to him under Section 151. In all cases of bailment, the bailee must take the greatest possible care of the goods delivered to him.
- Section 154 vests the bailee with the obligation not to make improper use of the goods entrusted to him. The section states that the bailee must utilize the relevant items exclusively in accordance with the terms of the bailment. If he makes unlawful use of the particular products, he may be held accountable to reimburse the manufacturer for any damage caused to the goods as a result of or during such usage. This responsibility is unassailable.
- The duty to not merge bailed goods together with his own is covered within Sections 155–157. It states that it is the bailee's responsibility not to combine his own goods with those of the bailor without the bailor's approval. If the various goods are combined with the bailor's consent, there is no violation of duty, and therefore the bailor and bailee have an interest, in proportion to their respective portions, in the mixture thus generated. If the goods cannot be separated, the bailee has to compensate the bailor for the loss faced.
- Section 160 holds that it is the bailee's obligation to come or deliver the respective items bailed, without complaint, as soon as the term for which they were bailed has elapsed or the purpose for which they were bailed has been fulfilled.
- Unless there is a contract to the contrary, it is the bailee's responsibility to provide the corresponding commodities to the bailor and any natural gain or profit flowing from goods bailed according to Section 163.
Rights of Bailee
- The bailee has the right to be informed about material flaws in the items bailed. According to Section 150, the bailor is required to disclose to the bailee any flaws in the goods bailed of which he is aware and which substantively interfere with their use or reveal the bailee to extraordinary risk, and if he fails to do so, he is liable for any damage arising directly from such flaws.
- The bailee has the right to claim a proportional part of the mixed commodities. According to Section 155, it is the bailee's responsibility not to combine the commodities bailed with his own without the bailor's approval. If the bailee, with the bailor's approval, combines the bailor's assets with his own goods, both the bailor and the bailee will have a stake in the resulting mixture in accordance with individual shares.
- The bailee has the right to seek compensation for any expenditures incurred. Section 158 gives the bailee the right to collect bailment charges.
- Section 159 proved the bailee with the right to be indemnified if gratuitous bailment is terminated. The bailor must compensate the bailee for the amount by which the damage caused exceeds the gain received.
- The bailee has the right to seek reimbursement from the bailor for any losses incurred. Section 164 states that the bailor is liable to the bailee for any damage incurred as a result of the bailor's inability to perform the bailment, receive back the goods, or issue directives about them.
- In the case of joint bailment under Section 165, the right to return bailed items to any of the bailors is conferred to the bailee. In the absence of any agreement to the contrary, the bailee may hand them back to, or pursuant to the directives of, one joint owner without the approval of all.
- Section 166 gives the bailee the right to deliver the commodities to the bailor if the bailor's title is deficient.
- The Bailee has the right to a remuneration lien according to Section 170. The term 'Lien' refers to a person's right to keep possession of items held by another until the possessor's rights against the owner are fulfilled.When the bailor bails the commodities to the bailee for a particular function and the bailee extends skill and labor on these commodities, the bailee has the right to keep the commodities until the bailor pays him his expenses for skill and labor. The right of lien occurs only when the bailee applies expertise and work to the items in order to add value to them.
An understanding of bailments and their various features and functions are essential to be able to distinguish them from other contracts of Transfer of Property such as sale or leases. As can be seen, a bailment is a contract in which specified goods are delivered to another for some function with the instruction that the items be returned or disposed of upon completion of the purpose. Bailment is not the same as a license or a sale. A bailment contract may be terminated by the parties or by the operation of the law. Leaving one’s car for valet parking is a common example of transfer of possession by way of a bailment.