Section 148 of the Indian Contract Act 1872 states bailment. Under a contract of bailment, one person has the goods to the other for some purpose, and when the goal is fulfilled, the goods are returned to the owner. The person who has the goods is called a 'Bailor'. The person who accepts the goods for a specific goal is called 'Bailee.' In the Contract of bailment, the goods are kept as security for a debt or the performance of a promise as specified in the Contract. Section 172 of the Indian Contract Act limits that the bailment of goods for security or for payment of debt or version is viewed as a pledge. A contract of the pledge is regarded as the subset of a contract of bailment.

Contracts of bailment cover a very vital portion of the UGC NET exam. From this topic, we can expect at least 1-2 questions in the UGC NET exam as per the Commerce syllabus. Going through this article will help the students mark the right answers to the questions asked.

In this article, we will study the Contract of bailment and pledge, its essential features, duties, and rights of bailor, bailee & pawnor, and pawnee. We will also learn about the contrast between a contract of bailment and a contract of pledge.

In this article, learners will learn about the following:-

• Meaning of Bailment
• Types of Bailment
• Parties to Bailment
• Essential Features Of The Contract Of Bailment
• Duties Of The Bailor And The Bailee
• Rights of Bailor and Bailee
• Important Cases Under Contract of Bailment
• Contract Of Pledge-Introduction
• Essential Elements of a Contract Of Pledge
• Duties of Pawnor and Pawnee
• Rights of Pawnor and Pawnee
• Difference Between The Contract Of Bailment And Pledge

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Meaning of Bailment

Bailment is established as a legal relationship where one party (hereinafter referred to as the bailor) delivers certain goods to another party (the bailee) for some specific purpose, on the understanding that upon fulfilling that purpose, the goods shall be returned to the bailor or otherwise disposed of, according to the bailor's direction. Ownership of the goods remains with the bailor whereas the bailee only has possession. For a valid bailment, there must be a delivery of movable goods, a purpose, acceptance by the bailee, and an agreement (express or implied) between the parties. Some real-life examples of bailment include handing over clothes to a dry cleaner or leaving one's bike at a paid parking area. An important distinction of bailment is that it does not apply to the transaction of immovable property or money.

There can be several types of bailment depending upon the benefits and consideration under which they are categorized. Following are the main types:

Gratuitous Bailment

It refers to the bailment of goods delivered free of charge. It is a situation where neither party gains any monetary advantage. Usually, it is done for the sake of friendship or personal obligation. For example: Lending your suitcase to a friend for the trip.

Bailment for Reward (Bailment for Hire)

It is an arrangement whereby mutual benefits accrue. The bailee receives payment for keeping or using the goods. Providing clothes to a dry cleaner or parking a car in a paid garage is an example.

Pledge (Special Type of Bailment)

In this, the goods are delivered as security for the repayment of a loan or the performance of a promise. The bailee here is called the pledgee, and the bailor is the pawnor. An example would be pledging gold ornaments to a bank.

Involuntary Bailment

An involuntary bailment is created without any agreement. A person finds lost goods and accepts the temporary responsibility of looking after them. An example would be: Finding a wallet on the road, and keeping it safe until it can be returned.

Parties to a Contract of Bailment

Two parties are indispensable to every bailment transaction:

Bailor

Bailor shall mean the person who delivered the goods. The bailor has to be a person with lawful ownership or possession and has to fulfil the following obligations:

• Disclose any known defects in the goods.
• Bear the expenses in gratuitous bailment.
• Indemnify the bailee for any losses arising due to defective goods or inadequate title.

Bailee

Bailee is the person to whom delivery of the goods is made. The bailee possesses them temporarily, and the bailee is under the obligation to:

• Take reasonable care of the goods.
• Use goods solely for the agreed purpose.
• Return the goods or dispose of them as per the instructions.
• Not mix bailed goods with personal ones in any manner without consent.

The relationship that exists between bailor and bailee is based upon trust and legal binding, and duties therein are varied according to the nature of bailment.

Fig: contract of bailment

Essential Features Of The Contract Of Bailment

There are certain features of the Contract of bailment; a few of the key essential features are examined below.

A Valid Contract

A contract of bailment is a special type of Contract. The Essential elements of a valid contract must be present in it. Essential elements include offer and acceptance, lawful consideration, the parties' capacity and legal intentions. Without these elements, the Contract will not be enforceable by law. But a contract of bailment in certain cases can be valid without regard. There are two types of bailment, as stated below.

• One is bailment without consideration - Gratuitous Bailment
• Another one is bailment with consideration - Non - Gratuitous Bailment

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Delivery Of Possession

Delivery of goods in case of a bailment contract can be actual and constructive. Actual delivery of goods means the bailor physically gives goods to the position of the bailee. In the case of constructive delivery of goods, goods are not physically yielded, but a few actions imply that the bailee has been given custody of the goods.

Delivery Upon Contract

After creating a contract, the goods are relaid from the bailor to the bailee. The Contract must have details about the transfer and the return of the goods. Contract of bailment can be expressly signed by parties or told by the parties.

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Exception - Lost Goods Found

When the lost goods are found by a third party or a stranger, in that case, the founder of the goods acts as the bailee of the goods that are found.

Duties Of The Finder Of Lost Goods

The duties of the finder of lost goods are defined below.

• The finder of the Lost goods must try to keep the goods safe.
• The finder of Lost goods must ensure the goods are delivered to the real owner.
• She cannot use it for personal use.
• The finder of Lost goods must make crucial efforts to find the owner of the Lost goods.

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Rights Of The Finder Of Lost Goods

The rights of the finder of lost goods have been stated below.

• The founder of the Lost Goods must be paid for the expenses he has made on the Lost Goods.
• He must also be paid for his trouble to keep the goods safe and find the real owner.
• It is the right of the finder of Lost goods to sell the goods in case.
  • The goods are perishing in nature.
  • And the owner of the Lost goods could not be found.

Purpose

There must be a specific goal to transfer the goods from the bailor to the bailee. The Contractbailment contract is terminated if the bailee makes unauthorized use of the goods. A particular purpose is very vital in the case of the bailment of goods. A bailee cannot use the goods other than for the purpose that has been stated in the Contract.

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Return Of Goods

When the purpose is fulfilled, for which the goods were moved from the bailor to the bailee, then the goods are returned to the bailor. The bailee must return the goods to the bailor as per the directions, without demand, as soon as the contract period expires.

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Return The Goods

Once the bailment's purpose is fulfilled, the bailee must return the goods to the bailor.

Duties Of The Bailor And The Bailee

In the Contract of bailment, there are certain duties of the bailor and the bailee that they need to follow. A few of the critical points are stated below.

Duties Of The Bailor

The duties of the bailor are explained briefly below.

• To reveal faults in goods - It is the duty of the bailor to disclose the faults in the good if there are any. If the bailor fails to do so, then in case of loss, the bailor is liable.
• To cover necessary and extraordinary expenses - All the expenses, whether necessary or extraordinary, that the bailee has incurred to keep the goods safe, then the bailor is liable to cover those expenses.
• Indemnify the bailee of all the losses - If the bailor asks to return the goods before the contract's fixed time, he has to indemnify the losses incurred to the bailee.
• To collect the bailed goods - The bailor's responsibility is to collect the goods after the expiration of the specified date. If the date has expired and the bailor did not collect the goods, then he is liable for what has been incurred to the bailee.

Duties Of The Bailee

In the Contract of Bailment, there are certain duties that Bailey needs to follow; a few of the key points are revealed below.

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To Take Proper Care Of Goods

Section 151 of the Indian Contract Act 1872 defines that the bailee is required to take care of the goods bailed to him as of his own. But in section 152, it has been stated that in the absence of any kind of special Contract, the bailee is not liable for the loss or collapse of the goods bailed if he has taken care of the goods as stated in the Contract.

To Use The Goods For The Authorized Purpose Only

It is the responsibility of the bailee to use the goods only for the purpose stated in the Contract. If the bailor finds out that the bailee is using the goods for unauthorized Purposes, then the bailor can declare the contract void.

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To Keep The Bailed Goods Separate

The bailee has to return the goods to the bailor safely. He is liable to keep the goods separately.

• Section 155 - with the bailor's consent, the bailee can mix his own goods with the bailor's goods. In this case, the bailor and the bailee must be interested in the mixture produced.
• Section 156 - if the bailee mixes the goods without the bailor's consent, and the goods can be separated, the bailee is found to bear the expenses of partition or division or any losses due to the mixture of the goods.
• Section 157 - if the bailee mixes the goods without the bailor's consent and cannot be split in this case, the bailee is liable to cover the damage and pay the bailor.

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Rights Of The Bailor

• The rights of the bailor in the case of the Contract of bailment are stated below -
• The bailor has to be repaid if the bailee makes unauthorized use of the goods.
• If the belly does not act about the goods bailed and the bailee varies with the conditions of the Contract of the bailment, then the bailor can end the Contract.
• The bailor can receive any profits raised when the goods are bailed.
• It is the right of the bailor to receive the goods back on the expiry of the Contract of bailment.

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Rights of Bailor and Bailee

In a contract of bailment, both the bailor and the bailee are granted specific legal rights to protect their interests. These rights help ensure accountability, fair use, and proper return of goods involved in the bailment.

Rights Of Bailee

• It is the right of the bailee to receive compensation due to the losses suffered due to the defect in the goods.
• The bailee has the right to receive back the great expenses made by him for the bailed goods.
• The bailee has the right to stop the delivery of the goods when he finds out that the bailor does not have the title.

If the bailor withholds compensation and refuses to cover any expenses he is liable to pay, the bailee has the right to lien the bailed goods. There are different types of lien, as mentioned below.

• Particular lien - a particular lien is on a specific property. The bailee can retain the goods until the charges on that property are paid.
• General lien - when the lien on a property is not specific but for the debts on the general account, it is called a general lien.

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Important Cases Under Contract of Bailment

Let us take a look at landmark cases that helped shape the law of bailment in India and abroad:

Kaliaperumal Pillai v. Visalakshmi (AIR 1938 Mad 32)

• Facts: Plaintiff had given gold to the defendant (a goldsmith) to make some jewelry. Subsequently, the goldsmith died, and the gold was never recovered.
• Issue: Was there a valid contract of bailment?
• Judgment: It was held that the goldsmith was a bailee, and despite his death, the legal heirs were liable to return the goods.
• Significance: Reiterated the obligations of the bailee or his legal representatives to return the goods.

Ultzen v. Nicolls (1894) 1 QB 92

• Facts: The plaintiff had confidently deposited a coat with the defendant, a waiter at the restaurant, who failed to protect it.
• Issue: Was there a bailment relationship?
• Judgment: A bailment existed even in the absence of explicit delivery. The waiter, as bailee, was guilty of negligence. 
• Significance: Established that implied bailment can arise inferentially without express agreement.

Chandran v. Saravana Store (2011) 

• Facts: While shopping in a retail establishment, a consumer misplaced his helmet. He used a helmet rack provided by the shop.
• Issue: Was the store liable?
• Judgment: Yes, the store was deemed a gratuitous bailee and was accountable for the safe custody of the goods.
• Significance: Reinforced the duty of care even in gratuitous bailments. 

Sundaram Finance Ltd. v. NEPC India Ltd. (1999) 2 SCC 479

• Facts: NEPC obtained the lease of aircraft engines from Sundaram Finance but was in default and did not return them.
• Judgment: There was bailment in this relationship and NEPC was to return them or pay for the goods.
• Significance: Distinguished that commercial leasing, in instance of bailment, can arise if custody and return are required. 

Bank of Bihar v. State of Bihar (1971 AIR 1210)

• Facts: Goods pledged with a bank were wrongfully seized by the officials of the government.
• Issue: Did the state owe a duty of care as a bailee to the bank? 
• Judgment: Yes, once the state seized the goods, it was liable as a bailee for the goods. 
• Significance: Affirmed the concept of constructive bailment, wherein liability arises even if the possession was gained indirectly.

Contract Of Pledge - Introduction

In the Contract of pledge, the goods are kept as a security for a debt. Section 172 of the Indian Contract Act 1872 defines 'the bailment of the goods as security for a payment of a debt or performance of a promise is called pledge'. In this case, the bailor is known as the pawnor, and the bailee is called the pawnee.

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Essential Elements of a Contract Of Pledge

Certain Essential elements of a contract of the pledge have the utmost importance. A Few of the key essential points are discussed below -

• It needs to have all the essential elements of a valid contract.
• The possession of goods must be delivered from the pawnor to the pawnee. The delivery of the goods can be actual or constructive.
• In the case of a contract of pledge, the possession of the goods is transferred to the pawnee. The pawnor remains the owner of the goods.
• The goods are pledged against the outstanding debt of the pawnor. When the security is paid, then the pawnee must return the goods to the pawner in the specified manner.

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Duties of Pawnor and Pawnee

In a contract of pledge, the pawnor (pledgor) and the pawnee (pledgee) have defined duties to ensure the safekeeping and lawful handling of the pledged goods. These duties maintain trust and safeguard the interests of both parties involved.

Duties Of The Pawnor

The duties of a pawnor in the case of the Contract of the pledge are explained below.

• To compensate for the expenses - The pawnor must compensate all the ordinary and extraordinary expenses incurred by the pawnee for maintaining the well-being of the pledged goods.
• To repay the entire amount along with interest - It is the responsibility of the pawnor to repay the amount due to the pawnee. This amount could be the principal amount or the interest that has occurred during the Contract.
• To disclose the faults in the goods - Before entering into the Contract, the pawnor must state all the material facts and faults in the goods to the pawnee. If the pawnor does not disclose the faults and the pawnee suffers losses, the pawnor must cover all the damages.

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Duties of the Pawnee

A few of the important duties of the pawnee are stated below.

• To take reasonable care of the goods under consideration- The pawnee must take reasonable care of them and pledge them as his own. He should take care of the goods as his personal belongings. If any losses are incurred due to irresponsibility or negligence in the case of the pawnee, then he is liable to cover all the damages.
• To use the goods only for the authorized purpose - The pawnee must use the goods only for the purpose that has been stated in the Contract. If the pawnee uses the goods for unauthorized purposes, the pawnee must compensate for the damages.
• Return the goods - When the purpose of the Contract of the pledge is fulfilled, the pawnee must return the goods to the pawnor. The goods should be returned to the pawner as per his instructions.
• Return the profits arising from the goods - During the Contract of pledge, if any profits have been incurred on the pledged goods, then the pawnee must return the profits to the pawner.
• To keep the goods separate - The pawnee must keep the pledged goods separate from the pawnor's goods. In case the pawnee mixes his goods with the pawnor's goods, then the pawnee is liable for the expenses of the separation of goods.

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Rights of Pawnor and Pawnee

In a contract of pledge, both the pawnor and the pawnee are entitled to specific rights under law. These rights ensure legal protection and proper enforcement of the terms of the pledge agreement.

Rights Of The Pawnor

The rights that the pawnor needs to follow in the Contract of the pledge are stated below.

• To redeem the goods - suppose Ram has given a machine to Sushant as security for 1000 rupees. Both parties in this Contract agreed to repay the amount within 15 days. If Ram fails to pay Rs 1000 to Sushant within that stipulated time, then he can redeem his machine even after the expiration of the stipulated time because Sushant has not yet sold the machine. In this case, RAM is liable to pay the expenses that have been incurred by Sushant while safekeeping the machine.
• To get the goods back - Once the pawnor repays the amount, including the interest, then he has the right to get back the goods.

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Rights Of Pawnee

• To retain the good - the pawnee has the right to retain the goods until the amount is repaid by the pawnor. The amount might be the expenses incurred or any interest accrued on the pledged good.
• To get compensation for extraordinary expenses - The pawnor is liable to pay the ordinary and the extraordinary expenses that have been incurred by the pawnee while safekeeping the goods.
• To sell the goods - if the pawnor is not able to repay the loans within a specified time period, then the pawnee can keep the goods as Collateral security and sell the goods by giving the pawnor reasonable notice of the sale.

Difference Between The Contract Of Bailment And Pledge

Few of the common differences between the contract of bailment and pledge are discussed below.

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Conclusion

The contracts of bailment and pledge is a very wide and crucial concept. All contracts of the pledge are contracts of bailment, but all contracts of bailment are not contracts of the pledge. The contracts of bailment and pledges protect the interest of the parties to the Contract. It also gives a framework to form the Contract, and it has suggested rights and duties for the pawnor & pawnee and the bailor & bailee. The Contract of bailment and pledge also requires the Essentials of a valid contract; otherwise, the Contract will be invalid and not enforceable by law.

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Contract of Bailment Previous Year UGC NET Questions 

What is the primary definition of bailment according to Section 148 of the Indian Contract Act, 1872?

1. A legal arrangement where goods are permanently transferred from one person to another
   B. A temporary transfer of goods for a specific purpose with the intention of returning them
   C. An unconditional gift of goods without any expectations
   D. A contract for the sale of goods between two parties

Correct Answer: B: A temporary transfer of goods for a specific purpose with the intention of returning them