Bailment Under Sale of Goods

Introduction

In general parlance, various legal relationships are created as well as various transactions take place for the personal benefit. Such legal relationships can be formed either by binding the parties to perform in consonance with terms and conditions or by simply enter into a mutual agreement for the performance. As far as binding relationships are concerned, the contract is the appropriate way which has a binding force. Further, a contract can be of various forms. Among those, a bailment is prevalent.

The term bailment has been derived from the French word “bailer”, which means “to deliver” into the hands or possession of someone. Furthermore, in terms of legal parlance Bailment is a special contract wherein legal relationship is created by delivering mere physical possession of goods to a party by another for a specified time or until the fulfilment of purpose. In the same way, there are two parties, one who delivers goods i.e. Bailor and the other two whom goods are being delivered i.e., Bailee. The Bailment is different from sale of goods on the ground that here only possession is being transferred whereas, in the sale, ownership is being transferred. It is known as a special contract as it is for a specific purpose. After that purpose, the contract is deemed to terminate. Therefore, the bailment contract has statutory recognition under the Indian Contract Act, 1872 as well as Sales of Goods Act, 1930.

Further, the rights and duties of the parties to the contract have also been guaranteed by the statute for the regulation of all such bailment contracts which play a vital role. Under the Indian Contract Act, 1872, Chapter IX (Section 148 – 181) explicitly deals with the bailment and provide for general rules. However, these provisions are not exhaustive on the point of Bailment contracts. There are various other statutes which deal with other types of bailment such as Carriers Act, 1865, the Railways Act, 1890, the Carriage of Goods by Sea Act, 1925.

Essentials of bailment contract

Bailment can be of goods only

The most important element in bailment is that there must be goods which are being delivered. Goods are defined as all movable property except money and actionable claims under sec. 2(7) of the Sale Goods Act, 1930. Therefore, the deposition of money in bank cannot be termed as bailment as money is not good.[i]

Similarly, actionable claim such as Insurance Policy which is not secured by way of mortgage or hypothecation or pledge, Claim for arrear of rent is actionable claim since it is not secured on anything, Right to claim provident fund, Claim for unsecured debt and Claim in profit by partner in firm.

There must be valid contract

India recognizes bailment with contract only, means No contract, No bailment. The contract can be in any form either implied or express. It is important that there must be contract which must be a valid contract under the Indian Contract. There is one exception to it which is finder of goods. In case of finder of goods, as the finder has not entered into any contract of bailment, still he would be considered as Bailee.

This position is in India only that there must be a contract for bailment; it is not so under English law wherein there can be a bailment without a contract. The leading case on this behalf is Ram Gulam v. U.P. Government] wherein the court placed reliance on the point that where the property is under the custody of police so it cannot be held as bailment as there is no contract. 

In Lasalgoan Merchants Bank v. Prabhudas Hathibhai[iii] the Bombay High court recognised that there can be a bailment without a contract. Further, In State of Gujarat v. Memom Mahomed,[iv] The Supreme Court observed that it is the settled law in India that bailment can arise only when there is a contractual obligation between the parties, but the court recognised that with respect to the specific property, it can arise even in the absence of any enforceable contract.

Delivery of possession

Another important essential is delivery of possession. It can be termed as a transfer of mere possession of goods from bailor to the bailed. Possession is equivalent to physical control over goods through which a person can enjoy the right to use the property according to the directions of the bailor. The important aspect of how to deliver goods, section 149 of the Indian Contract Act, 1872 deals with that aspect by adding that deliver can be any by any mode which has the effect of putting the goods in possession of bailed. Therefore, delivery can be actual or constructive. Constructive delivery means the delivery which has been recognised by law as delivery though there is not actually handing over of goods. In Bank of Chittor vs. Narsimbulu[v], wherein the cinema projector was pledged with the bank but the projector remained in actual possession of the cinema hall. It was held that there was a constructive delivery of the projector through the actual and physical possession was with the person, the legal possession was with the bank, the bailed.

Specific purpose

This is that essential which makes it different from other transaction which states about the temporary nature of delivery of goods. In bailment, bailor does not transfer the title over the goods; he only transfers the possession for the purpose as stated before the delivery.

Return or disposition after purpose

As soon as the purpose of delivery of goods is accomplished, the goods must be returned back to the bailor. It is essential that the goods which were delivered must be returned without any changes. During the bailment, is anything is added to the goods then such thing must be returned.

For example, if an animal has been delivered to bail, and the animal gives birth then such offspring must also be returned with an animal. In bailment, the bailee is bound to return the goods according to the direction of the bailor.[vi] This is the reason; deposition of money into a bank is not bailment as there is no obligation or promise to return to money.[vii]

Rights and Duties of Bailor & Bailee

Duties of Bailor

Following are the duties, imposed on the bailor by the law

To disclose the faults in the goods bailed to the bailee

If the goods are faulty and defective and bailor has knowledge about that defect, so he is duty-bound to disclose about such a defect to the bailed to whom goods are delivered. If he fails to disclose, then he would be liable for the damage so caused due to nondisclosure of such a defect. In Hyman and Wife vs. Nye and Sons, The plaintiff hired a pair of horses and a driver from the defendant for a specific journey of a carriage. During the journey a bolt in the under-part of the carriage broke, the carriage was upset, and the plaintiff injured. Justice Lindley Held the defendant liable and observed that it was the bailor’s duty to supply a carriage fit for the purpose for which it was hired. Other than that, it is also the duty of bailor to disclose the nature of goods bailed.

Duty to bear extraordinary expenses

It is the duty of the bailor that he has to bear all the extraordinary expenses so incurred by the bailed under the contract of bailment for the purpose of fulfilling the condition so imposed by bailor.

Illustration: In the case where the taxi has been hired from bailor by bailed for the purpose of the journey. During the journey, if the major defect occurred in the engine them bailor has to bear such expenses. However, the usual and ordinary expenses such as the expenses for petrol and minor repairs, are to be borne by the bailee.

Duty of indemnifying the bailee

 There can be a situation where bailed suffers a loss due to the defective title hold by bailor, and then bailor has to indemnify the bailed for the loss suffered by him.  For example, Bailor delivered goods to bailed thereafter sold goods to other, now bailor has no title and bailed suffers a loss due to that, so bailor has to indemnify the bailee.

Duty to receive back the goods

It is the prime duty of the bailor to receive back the goods from the bailed on the expiry of the term of bailment or the fulfilment of the purpose of the bailment. If bailor does not receive back the goods, then bailor must pay compensation to bailed for necessary expenses so incurred by bailed for custody.

Duties of Bailee

Following are the duties of bailee

Duty to take ordinary care of the goods bailed as a prudent man

Bailee has to take reasonable care of the goods bailed to him. The proportion of care must be similar to that of a man of ordinary prudence. In Houghland v. R.R. Luxury Coarches, A passenger put her suit-case in the boot of the defendant’s luxury coaches from where it was lost. It was held defendant was liable for damages as failed to take reasonable care.

Further, In Martin v. London Country Council plaintiff was admitted in a hospital as a patient and delivered her jewellery for safe custody to the hospital staff. Thereafter, jewellery was stolen from a room where it was kept.  Defendant was held as liable as they were bailee and failed to exercise a care which was necessary.

General Duty

Bailee is duty bound to not to make unauthorized use of the goods, to not to mix the goods bailed with his own goods, to return the goods to the bailor, to return the increase in the goods bailed and to not to step an adverse title against the bailor.

Rights of Bailor

Bailor is entitled to terminate the bailment, to demand back the goods at any time, to file a suit against any wrong-doer and to file a suit for the enforcement of the duties imposed upon a bailee.

Rights of Bailee

Bailee is entitled to compensation, to return the goods to anyone of the joint bailers, to recover agreed charges, Right to file a suit to decide the title of the goods bailed, to file a suit against a wrong-doer and Right to a lien (to retain the goods which is in his possession until the charges for the service rendered have not been paid).

Differences

Bailment is different from the sale of goods. There are various aspects which make the bailment different from the mere sale. The first difference lies iliketransfer, to clarify bailment refers to the transfer of possession of goods for a specific purpose while in sale the ownership of goods is delivered to the buyer. The parties play a role in the bailment are bailor and bailed while in the sale; they are seller and buyer. In the sale, goods are delivered absolutely without any obligation to return while in bailment, goods must be returned to the bailor after the accomplishment of purpose. In a sale, consideration is necessary while there can be gratuitous bailment where goods are delivered without any consideration. At the time of bailment, directions, as to use and return, are given by bailor who delivers possession of goods to the bailee. There is no requirement of such directions by the seller as to use and return of goods as there is the transfer of ownership.

Conclusion

It can be concluded that Bailment is a special contract wherein a legal relationship is created by delivering of mere possession by one person to other, former is named as bailor and the later is named as bailee. The bailment transactions occur on daily basis in one way or the other. In bailment possession which implies the physical control so given to bailee for the purpose so stated or for time so specified. Bailment can be for consideration or without consideration. It is of equal importance to impose obligations on the parties so involve in bailment. In pursuant to that, duties of both the parties have been given under Indian Contract Act, 1872. Further, the rights are also provided by the Indian Contract Act, 1872 to maintain balance between rights and duties. It has been rightly observed that bailment is different from sale as bailment involves delivery of possession of goods; on the other hand sale refers to transfer of ownership.

Questions

Define bailment.

Answer- The term Bailment has been derived from the French word ‘bailler’ which means ‘to deliver into the hands of other’. Halsbury defines Bailment as, ‘delivery of goods upon contract in trust either express or implied, that the trust shall be duly executed and goods redelivered in either their original or altered form, as soon as the time of use has elapsed, or condition on which goods had been bailed has been performed. Justice Blackstone defines Bailment as ‘delivery of goods under the contract in trust, either expressed or implied, that the trust shall be faithfully executed on the part of the bailee. Under Indian Contract Act, 1872 bailment is defined as, “The contract under which goods are being delivered by one person to another for some purpose and after the fulfillment of purpose such goods must be returned or otherwise disposed of according to the directions of the person delivering them”.

Ques 2. Discuss the essentials of bailment.

Answer-The most important element in bailment is that there must be goods which are being delivered. Goods are defined as all movable property except money and actionable claims under sec. 2(7) of the Sale Goods Act, 1930. Therefore, the deposition of money in bank cannot be termed as bailment as money is not good. India recognizes bailment with contract only, means No contract, No bailment. Another important essential is delivery of possession. It can be termed as transfer of mere possession of goods from bailor to bailee. This is that essential which makes it different from other transaction which states about the temporary nature of delivery of goods. As soon as the purpose of delivery of goods is accomplished, the goods must be returned back to bailor.

Ques 3. Discuss the rights and duties of bailor and bailee.

Answer- Bailor has duty to disclose the faults in the goods bailed to the bailee, Duty to bear extraordinary expenses, Duty of indemnifying the bailee and Duty to receive back the goods. While the Bailee has duty to take ordinary care of the goods bailed as prudent man, to not to make unauthorized use of the goods, to not to mix the goods bailed with his own goods, to return the goods to the bailor, to return the increase in the goods bailed and to not to step an adverse title against the bailor. Bailor is entitled to terminate the bailment, to demand back the goods at any time, to file a suit against any wrong-doer and to file a suit for the enforcement of the duties imposed upon a bailee. While the Bailee is entitled to compensation, to return the goods to anyone of the joint bailers, to recover agreed charges and Right to file a suit to decide the title of the goods bailed.

Ques 4. Can there be bailment without contract.

Answer- India recognizes bailment with contract only, means No contract, No bailment. The contract can be in any form either implied or express. There is one exception to it which is finder of goods. In case of finder of goods, as the finder has not entered into any contract of bailment, still he would be considered as Bailee. The leading case on this behalf is Ram gulam v. U.P. government,[i] wherein the court placed reliance on the point that where property is under the custody of police so it cannot be held as bailment as there is no contract.  In Lasalgoan Merchants Bank v. Prabhudas Hathibhai[ii] the Bombay High court recognized that there can be bailment without contract. Further, In State of Gujarat v. Memom Mahomed,[iii] The Supreme Court observed that it is the settled law in India thatbailment can arise only when there is a contractual obligation between the parties, but court recognized that with respect to specific property, it can arise even in the absence of any enforceable contract.

Ques 5. What is the difference between Bailment and sale?

Answer- Bailment is different from the sale of goods. The first difference lies in the nature of transfer, to clarify bailment refers to the transfer of possession of goods for a specific purpose while in sale the ownership of goods is delivered to the buyer. The parties play a role in the bailment are bailor and bailee while in the sale, they are seller and buyer. In the sale, goods are delivered absolutely without any obligation to return while in bailment, goods must be returned to the bailor after the accomplishment of purpose. In the sale, consideration is necessary while there can be gratuitous bailment where goods are delivered without any consideration. At the time of bailment, directions, as to use and return, are given by bailor who delivers possession of goods to the bailee. There is no requirement of such directions by the seller as to use and return of goods as there is a transfer of ownership.

References:

[i] Chitty on Contract, Vol II, 21st Ed., p. 63.

[ii] AIR 1950 All.206.

[iii] AIR 1966 Bom 134.

[iv] AIR 1967 SC 1885.

[v] Bank of Chittor vs. Narsimbulu, AIR 1966 AP 163.

[vi] Secy of State vs. Sheo Singh Rai, 1880 ILR 2 All 756.

[vii]Ichcha Dhanji vs.Natha, 1888 13 Bom 338.

[viii] Section 150 of The Indian Contract Act, 1872.

[ix] 1881 LR 6 QBD 685.

[x] Great Northern Ry’.case (1932) 2 KB 742.

[xi] Section 158 of The Indian Contract Act, 1872.

[xii] Section 164 of The Indian Contract Act, 1872.

[xiii] Lakshmi Narain Balji Nath v. Secretary of state for India, AIR 1924 Cal. 92 at 95.

[xiv] Section 151 and 152 of The Indian Contract Act, 1872.

[xv] In Houghland v. R.R. Luxury Coarches (1962) 1QB 694.

[xvi] Martin v. London Country Council (1947) KB 628.

[xvii] Section 155 to 157 of The Indian Contract Act, 1872.

[xviii] Section 154 of The Indian Contract Act, 1872.

[xix] Section 160 of The Indian Contract Act, 1872.

[xx] Section 161 of The Indian Contract Act, 1872.

[xxi] Karnataka Electricity Board v Halappa, 1987 1 TAC 451.

[xxii] Section 170 and 171 of The Indian Contract Act, 1872.

[xxiii] AIR 1950 All.206.

[xxiv] AIR 1966 Bom 134.

[xxv] AIR 1967 SC 1885.

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