A bailment is a voluntary transaction whereby one person delivers goods to another person for some purpose and when the purpose is accomplished it to be returned or otherwise disposed of according to the directions of the person delivering them (Section 148). The person who delivers the goods is called the bailor and the person to whom they are delivered is called the bailee. The ownership of the goods remains with the bailor and the bailee only gets the possession. Delivery of goods may be actual or constructive, e.g., where the key of a godown is handed over to another person, it amounts to delivery of goods in the godown.
There are two types of bailment:
- Gratuitous Bailment
A gratuitous bailment is one in which neither the bailor nor the bailee is entitled to any remuneration. Such a bailment may be for the exclusive benefit of the bailor or the bailee and as per Section 162 it is terminated at the death of either of the party. Section 159 states that in the case of the gratuitous bailment, the bailor or the lender may require the bailee to return the goods at any time, even before the expiration of the period of lending. Also, he can do so even before the fulfilment of the purpose of bailment. However, if the bailee or the borrower incurs any loss due to this act of the bailor, the bailor needs to indemnify him for the loss or damages.
- Bailment for Reward
It is for the mutual benefit of both the bailor and the bailee. For example: A hands over his goods to B for transporting them to Delhi. A has the benefit of transportation and B gets transportation charges. Thus, both of them are benefitted.
Duties of Bailee
The bailee owes the following duties in respect of the goods bailed to him:
- Taking good care of the goods as an ordinary prudent man would do under similar circumstances (Section 151).
- The bailee is under a duty not to use the goods in an unauthorised manner or for unauthorised purpose (Section 153). If the does so, the bailor can terminate the bailment and claim damages for any loss or damage caused by the unauthorized used (Section 154).
- He must keep the goods bailed to him separate from his own goods (Sections 155-157).
- He must not set up an adverse title to the goods.
- It is the duty of the bailee to return the goods without demand on the expiry of the time fixed or when the purpose is accomplished (Section 160). If he fails to return them, he shall be liable for any loss, destruction or deterioration of the goods even without negligence on his part (Section 161).
- In the absence of any contract to the contrary, the baliee must return to the bailor any increase, or profits which may have accrued from the goods bailed. (Section 163).
Duties of Bailor
The bailor has the following duties:
- The bailor must disclose all the known faults in the goods and if he fails to do that, he will be liable for any damage resulting directly from the faults (Section 150).
- It is the duty of the bailor to pay any extraordinary expenses incurred by the bailee. (Section 158).
- The bailor is bound to indemnify the bailee for any cost or costs which the bailee may incur because of the defective title of the bailor of the goods bailed (Section 164).
Termination of Bailment
Where the bailee wrongfully uses or dispose of the goods bailed, the bailor may determine the bailment (Section 153.)
As soon as the period of bailment expires or the object of the bailment has been achieved, the bailment comes to an end, and the bailee must return the goods to the bailor (Section 160). Bailment is terminated when the subject matter of bailment is destroyed or by reason of change in its nature, becomes incapable of use for the purpose of bailment.
A gratuitous bailment can be terminated by the bailor at any time, even before the agreed time, subject to the limitation that where termination before the agreed period causes loss in excess of benefit, the bailor must compensate the bailee (Section 159).
A gratuitous bailment terminates by the death of either the bailor or the bailee (Section 162).
Bailees Particular Lien (Section 170)
Where the goods are bailed for a particular purpose and the bailee in due performance of bailment, expands his skill and labour, he has in the absence of an agreement to the contrary a lien on the goods, i.e., the bailee can retain the goods until his charges in respect of labour and skill used on the goods are paid by the bailor. The right of lien arises only where labour and skill have been used so as to confer an additional value on the article.
General Lien (Section 171)
A general lien is the right to retain the property of another for a general balance of accounts.
Finder of Lost Goods
The position of a finder of lost goods is that in public or quasi-public place he is the bailee against the true owner and can retain the goods till the reward is received. In case of no reward, the finder has only a particular lien and can detain the goods until he receives compensation for the troubles and expenses incurred in preserving the property of the true owner. But he cannot file a suit for the recovery of the compensation (Section 168).
The finder has a right to sell the property –
- where the owner cannot with reasonable diligence be found
- when found, he refuses to pay the lawful charges of the finder
- if the thing is in danger of perishing or losing greater part of its value
- when the lawful charges of the finder for the preservation of goods and the finding out of the owner amounts to two-thirds of the value of the thing (Section 169).
Carrier as Bailee
A common carrier undertakes to carry goods of all persons safely and make good the losses unless it’s an act of god, who are willing to pay his usual or reasonable rates. Carriers by land including railways and carriers by inland navigation are common carriers whereas carriers by sea for hire are not and can limit their liability.
The liability of a hotel keeper is governed by Sections 151 and 152 of ICA and is that of an ordinary bailee with regard to the property of the guests. For example: C stayed in a room in a hotel which was in an insecure condition and the housekeeper had the knowledge of the same. Subsequently, some articles were stolen from his room. It was held that the hotel-keeper was liable as he should have taken reasonable steps to rectify the in secured condition of the rooms (Jan & San v. Caneron, (1922) 44 All. 735).
Pledge or pawn is a contract whereby an article is deposited with a lender of money or promisee as security for the repayment of a loan or performance of a promise. The bailor or depositor is called the Pawnor and the bailee or depositee the “Pawnee” (Section 172). Since pledge is a branch of bailment, the pawness is bound to take reasonable care of the goods pledged with him. Any kind of goods, valuables, documents or securities may be pledged. The Government securities, e.g., promissory notes must, however, be pledged by endorsement and delivery.
Rights of the Pawnee
- No property in goods pawned passes to the pawnee, but the pawnee gets a “special property to retain possession even against the true owner until the payment of the debt, interest on the debt, and any other expense incurred in respect of the possession or for preservation of the goods pledged” (Section 173). The pawnee must return the goods to the pawnor on the tender of all that is due to him and cannot confer a good title upon a bona fide purchaser for value.
- In default of payment of the debt or performance of the promise at the stipulated time, the pawnee may-
- file a suit for the recovery of the amount due to him while retaining the goods pledged as collateral security; or
- sue for the sale of the goods and the realization of money due to him; or
- himself sell the goods pawned, after giving reasonable notice to the pawnor, sue for the deficiency, if any, after the sale. (If the sale is made in execution of a decree, the pawnee may buy the goods at the sale. But he cannot sell them to himself in a sale made by himself under (iii) above. If after sale of the goods, there is surplus, the pawnee must pay it to the pawnor) (Section 176).
Rights of Pawnor
On default by pawnor to repay on the stipulated date, the pawnee may sell the goods after giving reasonable notice to the pawnor. If the pawnee makes an unauthorised sale without giving notice to the pawnor, the pawnor has the following rights:
- He can file a suit for redemption of goods by depositing the money treating the sale as if it had never taken place
- He can ask for damages on the ground of conversion.
Pledge by Non-owners
Ordinarily, the owner of the goods would pledge them to secure a loan, but the law permits under certain circumstances a pledge by a person who is not the owner but is in possession of the goods. Thus, a valid pledge may be created by the following non-owners:
- A mercantile agent: A mercantile agent can pledge if he is in possession of the goods with the consent of the owner and has the authority in the ordinary course of business. The pledge in valid if the pawnee is in good faith (Section 178).
- Pledge by seller or buyer in possession after sale: A seller, left in possession of goods sold, is no more the owner, but pledge by him will be valid, provided the pawnee acted in good faith and had no notice of the sale of goods to the buyer (Section 30 of The Sale of Goods Act 1930).
- Pledge where pawnor having limited interest: When the pawnor is not the owner of the goods but has a limited interest in the goods which he pawns, e.g., he is a mortgagee or he has a lien with respect of these goods, the pledge will be valid to the extent of such interest.
- Pledge by co-owner in possession: One of the several co-owners of goods in possession thereof with the assent of the other co-owners may create a valid pledge of the goods.
- Pledge by person in possession under a voidable contract: A person may obtain possession under a contract which is voidable at the option of the lawful owner on the ground of misrepresentation, fraud, etc. and may pledge the goods before the contract is avoided by the other party (Section 178A).