Chapter 1: Introduction

1.1. Background of the Study

Bailment is a common law term and involves the change of possession, i.e., delivery of goods or
personal property by one person to another, but the ownership remains unchanged. Chapter 9 of
The Indian Contract Act, 1872 deals with the sections regarding the Contract of Bailment.

Section 148 to Section 171 lays down the definitions, nature of the contract of bailment as well
as the rights, duties and liabilities of both the Bailor and the Bailee. Bailment, as per the Indian
Contract Act, 1872 imposes certain legal obligations on Bailee at the time of redelivery or
disposing of goods as directed by the Bailor.

The different sections provide for different duties of Bailee about the goods bailed to him. Duties
of Bailee also depend on upon the very object of the contract of bailment. The obligations of
Bailee on the goods bailed to him depend on the terms and conditions mentioned in the contract
he has entered into. In other words, his duty towards the goods arises at that time when the
purpose for which goods are bailed is completed. Such duties, if are not taken care of, may make
the Bailee liable (according to the contract). Also, there are certain bailment contracts which
exempt the Bailee from any obligation or liability.

A Bailee can serve as the overseer of an investment portfolio for a specified time period or can
be appointed to manage a rental property in the owner's absence. The Bailee ensures the assets
are kept safe until the owner of those assets is able to resume management, and cannot use them
at any time for personal reasons. Reasonable care must be exercised by the Bailee at all times.
Relationship is referred to in legal terms as a bailment, is based on a contractual agreement
between the Bailor and the Bailee. The bailment specifies the terms and purpose of the change in
custody and is outlined in writing such as a receipt or chit.

The Bailee is given custody of a piece of property, but cannot legally lay a claim of ownership to
it. This means the Bailor is still the rightful owner, even while the goods are in the Bailee's
possession. However, the Bailee is responsible for the property's safekeeping and the eventual
return of the goods. The Bailee is typically not entitled to use the goods or property.

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The Bailee has a certain responsibility to the Bailor to maintain the property in a safe condition.
Although this responsibility is not always clear and depends on the circumstances of the
bailment, courts have defined the responsibility to be one of "ordinary care" or the care that
prudent persons would exercise in caring for their own property.

The Bailee has a lien on the goods that he receives under the contract of bailment. When the
Bailor bails the goods to the Bailee for a particular purpose and the Bailee expands skill and
labor on these goods, he has a right to retain the goods until the Bailor pays him his charges in
respect of skill and labor.

In bailment, title does not change but stays with the Bailor. This is distinguished from
conditional sales, whereby title will transfer to the other party upon completion of certain
conditions, such as payment of the balance due. 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.

1.2. Problem Statement

This paper aims to explain the different duties of Bailee through a partial analysis of The Indian
Contract Act, 1872.

1.3. Objectives of the Study

The objectives of this paper are as follows:

 Analyse the Sections in The Indian Contract Act, 1872, which covers the duties of Bailee
 Analyse the standard of the care to be taken by Bailee in context of both Indian Law i.e.
Indian Contract Act 1872 and Common Law rules regarding bailment
 Explain the liabilities of Bailee
 Explain the rights of Bailee
 Explain the rights and duties of finder of lost goods
 Explain the remedies that can be adopted by Bailor

1.4. Research Questions

The paper looks to attain above mentioned objectives asking the following questions:

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• Which Sections in The Indian Contract Act cover duties of Bailee?

• What should be the standard of care that Bailee has to adopt to fulfill his responsibility?

• How are the roles of Bailor, Bailee and finder of lost goods interconnected in the issue?

1.5. Terminologies and salient points

1.5.1. Bailment

Bailment is a contract for delivering goods by one party to another to be held in trust for a
specific period and returned when the purpose is ended.

1.5.2. Bailor

Bailor is the party that delivers property to another.

1.5.3. Bailee

The Bailee, who is also called a custodian, is entrusted with the possession of the good or
property by another individual known as the Bailor.

Bailee an individual or entity that assumes control or temporary possession of the property of
another. In its most generic context, it is an individual (representing a business) who assumes
responsibility for another individual’s required presence at a legal proceeding in exchange for
holding that latter individual’s property. Bailee, however, are also involved in the execution of
legal arrangements, such as when they are assigned or hired to act as middlemen, holding a good
while other aspects of a process are carried out, such as deposit and clearing of a payment.

A Bailee does not obtain ownership rights to the property in his or her possession. The "no
benefit to Bailee" clause applies to commercial property and auto physical damage coverage. It
states that no one, other than the policyholder, who has custody of the insured property will
benefit from the policy.

The Bailee's relationship to the bailor is outlined in a contractual agreement known as a bailment.
The contract includes

 To whom goods are bailed

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  Bailee’s duties are to act in good faith. He is bound to use extraordinary diligence in
those contracts or bailments, where he alone receives the benefit, as in loans; he must
observe ordinary diligence of those bailments, which are beneficial to both parties, as
hiring; and he will be responsible for gross negligence in those bailments which are only
for the benefit of the Bailor. He is bound to return the property as soon as the purpose for
which it was bailed shall have been accomplished
 He has generally a right to retain and use the thing bailed, according to the contract, until
the object of the bailment shall have been accomplished
 A Bailee with a mere naked authority, having a right to remuneration for his trouble, but
coupled with no other interest, may support trespass for any injury, amounting to a
trespass, done while he was in the actual possession of the thing.

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 Chapter 2: Research Methodology
Any good research has a detailed research methodology, which is the specific procedures or used
to identify, select, process, and analyze information about the topic chosen. In this paper, the
methodology section aims to allow the reader to critically evaluate the study’s overall validity
and reliability.

2.1. Focus of the Methodology

The methodology section answers three main questions:

 How was the data collected or generated?

 How was it analysed?
 What were the lapses in the research?

2.2. Selection of study area

This paper is focusing on specific Sections of The Indian Contract Act, 1872. In order to explain
research questions in a more practical manner, many cases has been cited.

2.3. Research material collection

The research conducted for this paper is through secondary sources. This includes Law Journals,
Law firm blogs, Web articles, Case studies and the Law Archives of Bangladesh.

The paper has gathered information from the secondary source of data to get a more realistic idea
of the topic and improve the quality of the paper. The collected data has been acquired through
various rigorous hours of studying various articles which is our only source to obtain greater
depth of information about the topic. The secondary sources are the sweetener that will highlight
the paper through various expert opinions.

2.4. Limitations of the Paper

The paper has been conducted on a qualitative basis, thus all quantitative data has been kept
outside the study area. Furthermore, due to the shortage of time and the absence of primary

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sources, the paper may seemed rushed. However, it is to be noted, the research has been
conducted by a business undergraduate student, not a law student.

Chapter 3: Literature Review

Under The Indian Contract Act bailment is defined as the delivery of possession of goods from
one person to another for some purpose upon a contract. And when the purpose would be
completed, the goods would be returned or otherwise disposed of according to the direction of
the person who had delivered them.

The first important characteristic of bailment is “the delivery of possession” by one person to
another. Delivery of possession for this purpose should be differentiated from a mere “custody”.
But one who has custody without possession, like a servant, or a guest using his host’s goods is
not a Bailee. The goods must be handed over to the Bailee for whatever is the purpose of
bailment. Once this is done, a bailment arises, irrespective of the manner in which this happens.

The second and third important characteristic is that transfer of possession should be for some
“purpose”, must be “upon a contract” that when the purpose is accomplished the goods shall be
returned to the bailor. But, what happens when the goods are not returned to the Bailor after the
accomplishment of purpose?

So, if the purpose of the bailment is accomplished or the time for which the goods were bailed
has expired, the Bailee should return the goods to the Bailor without demand. If he fails to return
the goods, he will be liable for the loss or damage to the goods from the date of default. In
keeping with the provisions of Sections 151 and 152, a Bailee is excused from returning the
subject matter of the bailment to the Bailor where it has been taken away from him by authority
of law exercised through regular and valid proceedings.272

The Bailee would be liable if he is unable to return the goods because he might have lost the
goods due to negligence. However, he will be excused from his inability to return if the goods
are lost without his default.

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 Chapter 4: Discussion

4.1. The duties of Bailee according to The Indian Contract Act, 1872

The sections of The Indian Contract Act which cover the duties of Bailee are as follows.

151. Care to be taken by Bailee—In all cases of bailment the Bailee is bound to take as much
care of the goods bailed to him as a man of ordinary prudence would, under similar
circumstances, take of his own goods of the same bulk, quality and value as the goods bailed.

152. Bailee when not liable for loss, etc, of thing Bailee—The Bailee, in the absence of any
special contract, is not responsible for the loss, destruction or deterioration of the thing bailed, if
he has taken the amount of care of it described in section 151.

153. Termination of bailment by Bailee’s act inconsistent with conditions—A contract of

bailment is avoidable at the option of the Bailor, if the Bailee does any act with regard to the
goods bailed, inconsistent with the conditions of the bailment. For example, A lets to B, for hire,
a horse for his own riding. B drives the horse in his carriage. This is, at the option of A, a
termination of the bailment.

154. Liability of Bailee making unauthorized use of goods bailed—If the Bailee makes any
use of the goods bailed which is not according to the conditions of the bailment, he is liable to
make compensation to the Bailor for any damage arising to the goods from or during such use of
them. For example-

(a) A lends a horse to B for his own riding only. B allows C, a member of his family, to ride the
horse. C rides with care, but the horse accidentally falls and is injured. B is liable to make
compensation to A for the injury done to the horse.

(b) A hires a horse in Calcutta from B expressly to march to Benares. A rides with clue care, but
marches to Cuttack instead. The horse accidentally falls and is injured. A is liable to make
compensation to B for the injury to the horse.

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155. Effect of mixture, with Bailor’s consent, of his goods with Bailee’s—If the Bailee, with
the consent of the Bailor, mixes the goods of the Bailor with his own goods, the Bailor and the
Bailee shall have an interest, in proportion to their respective shares, in the mixture thus
produced.

156. Effect of mixture, without Bailor’s consent, when the goods can be separated—If the
Bailee, without the consent of the Bailor, mixes the goods of the Bailor with his own goods, and
the goods can be separated or divided, the property in the goods remains in the parties
respectively; but the Bailee is bound to bear the expense of separation or division, and any
damage arising from the mixture. For example, A bails 100 bales of cotton marked with a
particular mark to B. B, without A’s consent, mixes the 100 bales with other bales of his own,
bearing a different mark: A is entitled to have his 100 bales returned, and B is bound to bear all
the expense incurred in the separation of the bales, and any other incidental damage.

157. Effect of mixture, without Bailor’s consent, when the goods cannot be separated—If
the Bailee, without the consent of the Bailor, mixes the goods of the Bailor with his own goods,
in such a manner that it is impossible to separate the goods bailed from the other goods, and
deliver them back, the Bailor is entitled to be compensated by the Bailee for the loss of the
goods. For example, A bails a barrel of Cape flour worth Rs. 45 to B. B, without A‟s consent,
mixes the flour with country flour of his own, worth only Rs. 25 a barrel. B must compensate A
for the loss of his flour.

158. Repayment, by Bailor, of necessary expenses—Where, by the conditions of the bailment,

the goods are to be kept or to be carried, or to have work done upon them by the Bailee for the
Bailor, and the Bailee is to receive no remuneration, the Bailor shall repay to the Bailee the
necessary expenses incurred by him for the purpose of the bailment.

159. Restoration of goods lent gratuitously—The lender of a thing for use may at any time
require its return, if the loan was gratuitous, even though he lent it for a specified time or
purpose. But if, on the faith of such loan made for a specified time or purpose, the borrower has
acted in such a manner that the return of the thing lent before the time agreed upon would cause
him loss exceeding the benefit actually derived by him from the loan, the lender must, if he
compels the return, indemnify the borrower for the amount in which the loss so occasioned
exceeds the benefit so derived.

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160. Return of goods bailed, on expiration of time or accomplishment of purpose—It is the
duty of the Bailee to return, or deliver according to the Bailor’s directions, the goods bailed,
without demand, as soon as the time for which they were bailed has expired, or the purpose for
which they were bailed has been accomplished.

161. Bailee’s responsibility when goods are not duly returned—If, by the default of the
Bailee, the goods are not returned, delivered or tendered at the proper time, he is responsible to
the Bailor for any loss, destruction or deterioration of the goods from that time.2

162. Termination of gratuitous bailment by death—A gratuitous bailment is terminated by the

death either of the Bailor or of the Bailee.

163. Bailor entitled to increase or profit from goods bailed—In the absence of any contract to
the contrary, the Bailee is bound to deliver to the Bailor, or according to his directions, any
increase or profit which may have accrued from the goods bailed. Illustration A leaves a cow in
the custody of B to be taken care of. The cow has a calf. B is bound to deliver the calf as well as
the cow to A.

4.2. Standard of care to be taken by the Bailee

The contract of bailment imposes certain duties on Bailee. The first and most important duty of a
Bailee is to take care of the goods entrusted to him. The question is that what should be the
standard of care expected from the Bailee or the degree of negligence which should make him
responsible for any problem. There are two types of diligence defined under Common Law as
high degree of diligence, these are ordinary and slight diligence.

Common or ordinary diligence is defined as the degree of diligence which men in general,
exercise in their own concern. Sir William Jones defined it as, “the care which a person of
common prudence and capable of governing family, takes of his own concerns.”

High or great diligence is defined as extraordinary diligence or that which very prudent persons
take of their own concerns and slight diligence is that which persons of less than common
prudence take in their own concerns.

Under Indian Contract Act the care which has to be taken by the Bailee is defined under Section
151, provides that the Bailee is bound to take as much care of the goods as a man of ordinary

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prudence would take care of his own goods under similar situation. The degree of care is same
for all types of bailment, but the measure of care depend upon the facts of each case. This
section abolishes the difference in the amount of care required of various kinds of Bailee
under the English Law. Under English Law, in Coggs v. Bernard278, a distinction was made
between a mandate and a deposit where mandate was defined as the duty to use reasonable care
and deposit was defined as no liability except for gross negligence. However, later English
judicial opinion went into the favor of the view that the duty of every Bailee is to take reasonable
care. Therefore, the standard of care required is the standard demanded by the situations of each
particular case.

Again for example, silver was entrusted to a goldsmith for making jewelry and the silver was lost
despite taking great care for its safety. As silver was locked in almirah and a watchman was
employed for the security during night, it was held that the goldsmith took all the precautions
which can be taken by a prudent person and he was not negligent in keeping safety of silver. So,
goldsmith was absolved of his liability.

Even a gratuitous Bailee must use the skills he possesses regardless of profession or condition.
Not executing that skill that skill may be regarded as negligence on his part. In Gibaud v. Great
Eastern Railway281, a railway company contracts with plaintiff to keep his goods in cloakroom but
kept it elsewhere in the station and as result it is stolen. Court held that as the contract was to
keep the goods in cloakroom so the reliance was placed on the clause and hence defendant was
held liable.

Another interesting case is that of Morris v. C W Martin and Sons Ltd. 282, where the plaintiff
sent her mink stole to a furrier to be cleaned. The furrier told her that he himself would not clean
but he could arrange defendant to do this. The furrier accordingly, acting as principal and not
agent, made a contract with defendants to clean the plaintiff’s fur. When the fur was in the
possession of the defendants, the fur was stolen by the servant. The plaintiff sued the defendants.
The court of appeal held the defendants liable. The three members of the court made the verdict
on the basis of two principles that (1) when the defendants received the fur in order to clean it
they became Bailee for the reward, (2) as they were considered as Bailee, they owed a common
law duty to the plaintiff.

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In the case Bachraj Dugar v. Lalchand Todi283, the Assam High Court held that a custodian was
considered as Bailee and his possessions was held to be regulated by Contract act. And he has
the duty to pay the price for the loss of goods.

If the Bailee has wrongfully parted with the goods or lost it by negligence, it is no defence
for him to show that he is unable to return it, but if the accidental loss is without any
default on the part of the Bailee then he can be for his failure to return.

The fact that the standard of care differs from case to case and hence one standard cannot be set.
Due to this Bailee cannot say that many other Bailees have acted in the same way. In Gour
Chandra Mukherjee v. Andrew Yules Co-op Credit Society Ltd. 285 ,the director of a co-operative
society was entrusted with the society’s cash. He locked it and kept it according to the usual
practice. But the cash was stolen and his contention was that he followed the usual standard of
practice. In final verdict, court held him liable for his negligence and rejected his contention
because the practice was considered as insecure and risky.

There are also situations when Bailee loses his own goods along with those of Bailor’s and then
taking a defence that he was taking proper care of goods of Bailor the same way he was taking
care of his own goods. But it would not be considered as deciding factor. The negligent
behavior of Bailee towards his own good is no justification for his negligence towards
Bailor’s goods unless the Bailor was aware of his habits and knew what to expect from him. But
a minimum reasonable standard of care is required everywhere.

It was established in various cases that the extent of duty of care taken by a Bailee does not end
at a reasonable precaution to mitigate the risk but also extends to him taking all proper measures
to prevent any kind of harm to the good. There is one exception to this principle that when goods
are lost or stolen during a riot or due to natural causes, then the Bailee is not held liable for the
loss. In Shanti Lal v. Tara Chand Madan Gopal288, the Bailee was not held liable for the loss of
sacks of grain because, they all were taken away by the flood and he was unable to protect
them.

Similarly in, Gopal Singh v. Punjab National Bank289, goods were pledged with a bank as
security for loan. After the partition, the bank employees being mostly Hindus left their duty and
went back to India like many other Hindus, leaving the pledged property unattended. It was held

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that in the circumstances the bank would not be held liable under Section 151 for the loss of the
pledged goods or their value. Court also said that that the bank had acted as prudent person in
regard to one’s own property in the extraordinary situation that had arisen in Pakistan after the
partition of India.

Section 152 indicates that a Bailee may make a special contract increasing his responsibility. He
may by making a special agreement, increase his liability. But he cannot decrease the minimum
degree of care required under Section 151 by special contract. But in some cases, it has been held
that it is open to a Bailee to reduce his liability below the standard fixed by Section 151.

Similarly in Rampal Ramchand Aggarwal v. Gourishankar Hanuman Prasad 293, the plaintiff has
taken some loan from defendant and pledged his goods with the defendant. While the goods were
in custody of pledge, they were stolen. Plaintiff argued that as pledgee as has lost the goods now
there is no need to pay anything to anything to him. But court came with an observation that as
pledgee has taken ordinary care to protect the goods he would not be held liable as Bailee and he
may recover his debt and the loss of the goods falls on the owner.

In Common Law the position is somewhat different where the Bailee’s duty does not come to an
end, even when the goods are lost or stolen. A Bailee for reward ought to take such steps which
can be considered as reasonable and usual with a view to recovering the goods. If he fails to do
so, the burden of proof is on him to show that the reasonable efforts would not have been
successful.

In Canara Bank, Mannarkkad v. Bhavani Oil Company, Chemmannur 295, there was an exclusion
clause in a contract of bailment that the goods will be kept in the bank’s godown at the risk and
responsibility of the borrower. It was held that this did not cover the negligence on the part of the
bank, and the clause only covered ordinary care which was required to be taken under Section
151. The bank could not avoid its liability on account of its negligence resulting in loss of goods
which were in its possession.

As in every other contract, in English Law, a Bailee may abide by special agreement oral or
written, which can expand or limit his liability for the loss of goods. Hence his liability
depends upon the terms of contract. So, if the Bailee expresses to take care of goods to keep it

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safe, he enlarges the measure of his responsibility and he might be considered as the insurer of
goods.

4.3. Entities that are also considered as Bailee

Some entities other than individuals that are considered as Bailee are explained as follows

4.3.1. Common Carriers

A common carrier is one who carries or transports for hire as a business and not as a casual
occupation. He should promote himself as ready to carry goods for any person or to carry any
passenger, no matter who they may be. If a right of selection is given to him for whom to carry
and what to carry then he cannot be considered as common carrier. Common carriers may be by
land and inland navigators or they may be common carriers by sea.

The provision of Section 151 and 152 of the contract act does not apply to common carriers.
There was a dispute for the long time that whether common carriers should be considered as
Bailee. It was due to the Common Law rule that carriers are recognized as insurers of goods
which means that they were responsible for every injury to the goods occasioned by any means
whatsoever, except the act of God and the King’s enemies.

This question came in Bombay High court in 1878 in case of Kuverji Tulsidas v. Great Indian
Peninsular Railway Company299, it was held that the definition of bailment in section 148 was
large enough to include bailment for carriage. But later Privy Council held that the duties and
liabilities of common carriers in India should be governed by the principles of English Common
law in conjunction with the provisions of Carriers Act 1865, because if they would be considered
as Bailee then Carriers Act would be rendered nugatory.

Other carriers such as Carriage by Air both domestic and international, sea carriage and railway
carriage were considered as Bailee. These are discussed in detail by the researcher as:

4.3.2. Carriage by air

Carriage of goods by air for domestic flights is governed by the Carriage of Goods by Air Act,
1974, a legislation which is based on the provisions Warsaw convention of 1929 and Hague
Protocol of 1955 (amended provision of Warsaw convention 1929). According to these

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legislations, Bailee would be held liable for the lost good provided he proves that he and his
servants or agents have taken all necessary measures to avoid the loss of good or that it was
impossible for them to take such measures.

In Fothergill v. Monarch Airlines Ltd.301, the plaintiff travelled by air and his baggage was
damaged. The carriage was governed internationally by the Warsaw and Hague Conventions, the
defendant admitted the liability for the damage to the suitcase but rejected the claim for the
articles lost. As the plaintiff had only made a complaint about damage to his suitcase in time and
not of the loss of articles, the airline was not held responsible for the loss of articles.

Carriage by Sea There is a conflict of the decisions as to the liability of such carriers being
governed by the Common Law of England or the provisions of Section 151 and 152 of Contract
Act. The High Court of Calcutta in MacKillican v Compagnie Des Messageries Maritimes De
France 302, has held that foreign companies is not a common carrier but later in Hajee Ismail Sait
303
v. Compagnie Des Messageries Maritimes of France , Madras High Court held that they were
common carriers because they were foreign company, and that the liability of the company was
governed by the Common Law of England, ad not by the provisions of Contract Act (Section
151 and 152).

4.3.3. Railways

When goods are entrusted to the railways for carriage, its liability is that of a Bailee, and not of a
common carrier. Section 99306 of the Railway Act provides that the railway administration shall
be responsible as Bailee under Section 151, 152 and 161 for the loss of any consignment, and
therefore it must take as much care of the goods as a man of ordinary prudence. If the goods are
carried at the owner’s risk rate that is if goods are moved from one place to another at the
owner's risk, the owner must insure the goods while they are being moved, railway is not
responsible for loss except on proof of negligence or misconduct on the part of the
administration or any of its servants.

The National Rail Conditions of Carriage, published in 2000, no longer indicate when transport
begins and ends. There was a condition that states in case of passenger luggage a train company
will not be held liable for the loss of property that has been left behind on a train company’s
premises or one of its trains. It is the responsibility of Train Company to redeliver the goods to

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the person producing ticket on a reasonable request and within the reasonable time. If they
permit an unauthorized person to take away the goods from their custody it would be
fundamental breach of contract of bailment and they have to pay the damages to the real owner.

The obligation to return or deliver back the goods s implied in the contract of carriage. Railway
is not liable for the loss etc. of any consignment where a false description of the consignment is
given to the railway, or where a fraud has been committed by the consigner (Bailor).

In Union of India v. Udho Ram and Sons 308, it was found that precautions taken by Police
Protection Force were inadequate and inefficient because Protection Force moved out of the
guard’s van to keep an eye on the wagons when the train stopped at railway station and in the
meantime goods were lost and hence railway was held liable for their negligence.

In Union of India v. Lakshminarain Harnarain309, the goods were delivered to a wrong person on
producing a forged railway receipt. It was considered as mistake of railway and hence it was said
by the court that the law does not require Bailor to follow or trace and recover the goods. It is the
duty and responsibility of the railway as they were the Bailee. However, a railway administration
can’t be held liable in case of clever counterfeit, a forgery which could not be detected by the use
of reasonable diligence.

Wrong delivery is a loss and the railway is liable when the clerk makes the delivery without
comparing the entries in the railway receipt and delivery books. The responsibility is on the
railways to prove that no loss, destruction or deterioration or damage had taken place. They have
to show it not only during the transit but also within seven days subsequent to the termination of
transit and if they fail to do so, they would be held liable.

4.3.4. Innkeepers

An innkeeper has at common law a general lien for the unpaid amount of his bill, on all the
articles which the guest takes in his capacity as guest into the premises of innkeeper. The lien
exists to cover the price of the guest’s personal food and lodging while he is a guest but it does
not cover money lent to the guest by the innkeeper or the money spent by the innkeeper on
behalf of guest.

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The liability of an innkeeper should be governed by the provisions of Section 151 and 152, and
312
supported by a decision of Allahabad High Court in Jan and Sons v. A Cameron , it was
established that the case of an innkeeper is different from that of a common carrier. There was
nothing to show that the Common Law rule as to the liability of an innkeeper has been
recognized throughout India as in the case of innkeepers. Also there was no Indian enactment
related to innkeepers similar to the Carriers Act so provisions of section 151 and 152 will be
applied to regulate the innkeepers. This decision was approved by the thirteenth report of Law
Commission of India.

4.3.5. Hospitals

In this category anyone can be added where the transfer of possession happens. In Martin v.
313
London County Council , plaintiff sued the defendant, Hospital, for their negligence in taking
care of plaintiff’s belongings because the jewelry of plaintiff has been stolen from the custody of
Hospital authority. Hence it was established that when a hospital authority takes possession of
the patient’s belongings upon his admission to the hospital, they would be considered as Bailee
and would be held liable for any negligence under Section 151 and 152 of Indian Contract act.

4.4. Liabilities of Bailee

The difference between first and third party coverages is nowhere more evident than in the
bailees and processors class of business. Where does one coverage end and the other begin?
What are the responsibilities of the bailee and the bailor? What clauses identify whose policy has
primary coverage? These are some of the questions that will be addressed in this paper, which is
designed to help underwriters determine how best to cover the needs of the insured.

A Bailee is one to whom another person entrusts property. A bailment relationship exists when
that property is delivered for some special purpose, such as storage, safekeeping or to perform
some work or service on it. The parties to this arrangement are the Bailor — or customer who
owns or has title to the property, and the Bailee — who receives custody of the property.

In bailment, title does not change but stays with the Bailor. This is distinguished from
conditional sales, whereby title will transfer to the other party upon completion of certain
conditions, such as payment of the balance due.

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The Bailee has a certain responsibility to the Bailor to maintain the property in a safe condition.
Although this responsibility is not always clear and depends on the circumstances of the
bailment, courts have defined the responsibility to be one of "ordinary care" or the care that
prudent persons would exercise in caring for their own property.

The circumstances of the bailment and the nature of the property usually will be deciding factors
as to the degree of care a Bailee must exercise. For example, if the Bailee is performing a
gratuitous service, the degree of care expected would be less than if it were a Bailee-for-hire.
Likewise, greater care is required when the property is jewelry than when it's ordinary laundry.
The Bailee must anticipate the hazards to which the particular property would be exposed. In
general, however, the Bailee is not responsible for Acts of God.

Loss Control Guide to Public Warehouses, published in 1992

A distinctive type of bailee is the common carrier. The common carrier by law is held to a high
degree of care and is considered absolutely liable in most cases. An ordinary bailee would not be
considered liable for property damaged by fire unless due to the bailee's negligence; a common
carrier would be liable regardless of negligence (unless due to an Act of God or the Public
Enemy).

Although the non-carrier bailee must be guilty of negligence for the bailor to collect the value of
the lost or damaged property, the courts generally have taken the view that the bailor can make a
prima facie case for negligence if the property is not returned or returned in a damaged
condition. This is because the non-carrier bailee is in possession and in control of the given
property. The burden of proof can vary depending on state laws and the type of bailment (e.g.,
warehouse vs. garment contractor).

4.4.1. Extensions of Bailee liability

The liability of a Bailee can be extended in several ways. One way is by an oral or written
agreement. For example, a dry cleaner may assume responsibility for fire and windstorm (or
almost anything else) by so stating in the receipt given to the Bailor at the time the clothing is
received. The Bailee also may advertise that it has secured insurance for the benefit of the Bailor.
A Bailee also may unintentionally extend its liability by taking action outside the terms of the
bailment agreement.

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If, for instance, the Bailee states that property will be stored in a specified building or special
way, and then stores it differently and loss or damage results, the Bailee could be liable for a loss
which otherwise would not have been its responsibility.

4.4.2. Limits of Bailee Liability

A Bailee may attempt to limit liability as respects its negligence by limiting the dollar amount of
its liability. Normally the restriction is on the value of the property. For the purposes of the
bailment agreement, the Bailor may agree to accept a limited dollar value for the property that is
less than its real value. Usually in these cases the Bailor has other primary insurance in place that
would respond to losses. This type of limitation (similar to that used by common carriers when
issuing bills of lading) has been enforceable. However, if the Bailor does not want to accept the
value limitation, it may have the option of declaring a higher value on the property. If this
happens, the Bailee can charge an extra fee to reflect its increased responsibility. It is important
to note that courts will not uphold contracts in which the Bailor has agreed to waive all rights
against the Bailee for negligence. Nor may a Bailee make a disclaimer of responsibility for
certain losses (e.g., fire or theft) if in fact he/she is guilty of gross negligence. The definition of
gross negligence will vary by case and state.

There are two general types of Bailee liability risks: Assumed Liability and Liability Imposed by
Law. Underwriting considerations for both are outlined below.

In assumed liability the Bailee agrees to accept responsibility to insure the property of others in
its care, custody or control. The Bailee may accept full liability or may limit its liability to a
lesser value. Insurance for Assumed Liability is called first party or direct damage coverage.

In underwriting the Bailee, the property acquired and processes performed are the most
important factors in determining exposures to loss and the proper loss protection measures.
Procedures should be in place to assure that any pre-existing damage to property received by the
Bailee is identified.

A hold harmless agreement is essentially a transfer of liability due to negligence. It does not
eliminate liability; it merely shifts the financial responsibility from one party to another. A
Bailor, for instance, may agree in consideration of the repair charge, that a repair shop is not

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liable for specified occurrences such as fire. As a general rule, a Bailee may not use a hold-
harmless agreement to contract out of all its negligence, especially gross negligence.

Based on the type of property covered, burglary, theft, robbery and water damage can be major
causes of loss and demand appropriate loss prevention and control measures. If the property is a
target-item and susceptible to theft (e.g., jewelry, electrical appliances), proper security is highly
recommended; this can include UL-listed safes or vaults, UL-listed burglar alarm systems
connected to UL-certified central stations, guard service, etc. Also, too often underwriters may
assume all hazards are on the premises of the insured and overlook the exposure of a Bailee. In
assessing the transit risk underwriters should request information on type of carrier used, carrier's
responsibility, radius of operation, range of shipment values and security measures. (For further
details on this subject, see also IMUA's Motor Truck Cargo Guide to Loss Prevention, published
in 1990.)

For liability imposed by Law, anyone who takes custody of someone else's property is legally
liable for loss or damage to the property due to negligence. This is called third party liability and
insurance coverage is similar to that provided under liability or casualty policies. The coverage
provides legal defense in the event that the Bailee is sued by the property owner.

The Uniform Commercial Codes of each state outline the nature of liability imposed by law as
well as the basis on which such liability can be limited. Some states have voided Bailee
limitations of liability when not within the spirit of the code.

As in Assumed Liability, the property covered is an important factor in underwriting Liability

Imposed by Law. Protection against fire, theft, water damage and other hazards also applies.

The key in any coverage for liability imposed by law is the receipt, agreement or contract
between the Bailee and the Bailor. The document should spell out the duties, rights and
obligations of both parties, and should indicate the dollar amount that the Bailee would be liable
for in the event of a suit by the Bailor. It also should state that the Bailee assumes no liability for
the property in its care, custody or control or provides no insurance to the benefit of the property
owner. It is critical that the underwriter scrutinize the document to determine the exposure and
the extent of the Bailee's liability. Since this is essentially a negligence coverage, and in most
instances negligence has to be proven in court, it is important that the premises covered provide

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adequate physical protection and controls to prevent loss. Therefore underwriters should consider
ordering an inspection of the prospective insured's premises and any transporting operations.

4.5. Rights of Bailee

The rights of Bailee due to the duties performed are as follows

4.5.1. Right to know material faults in goods

The Bailee has right to know material faults in goods. According to Section 150 of the Indian
Contract Act, the Bailor is bound to disclose to the Bailee faults in the goods bailed, of which the
Bailor is aware and which materially interfere with the use of them or expose the Bailee to
extraordinary risk and if he does not make such disclosure he is responsible for damage arising to
the Bailee directly from such faults. For example:

(a) A lends a horse, which he knows to be vicious, to B. He does not disclose the fact that the
horse is vicious. The horse runs away. B is thrown and injured. A is responsible to B for damage
sustained.

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

4.5.2. Right to claim proportionate share in mixed goods

The Bailee has right to claim proportionate share in mixed goods. According to Section 155 of
the Indian Contract Act, 1872, it’s the duty of Bailee, not to mix the goods bailed with his own
goods without the consent of the Bailor. If the Bailee with the consent of the Bailor mixes the
goods of the Bailor with his own goods, the Bailor and the Bailee shall have an interest, in
proportion to their respective shares in the mixture thus produced.

4.5.3. Right to claim Lien for remuneration

The Bailee has right to claim lien for remuneration. The term 'Lien' means right of one person to
retain possession of goods owned by another until the possessor's claims against the owner have
been satisfied.

4.5.4. Right to recover compensation.

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The Bailee has right to recover compensation from the Bailor for the loss sustained. Section 164
of the Indian Contract Act says that the Bailor is responsible to the Bailee for any loss which the
Bailee may sustain the reason that the Bailor was not entitled to make the bailment or to receive
back the goods or to give directions, respecting them.

4.5.5. Right to claim damages

According to Section 150 and 164 of the Indian Contract Act, 1872 the Bailee has right to claim
damages due to defect in Bailor's title or faults in goods. Section 150 of the said Act says that the
Bailor is bound to disclose to the Bailee faults in the goods bailed of which the Bailor is aware
and which materially interfere with the use of them or expose the bailee to extraordinary risk and
if he does not make such disclosure he is responsible for damage arising to the bailee directly
from such faults.

4.5.6. Right to claim expenses of bailment

The Bailee has right to claim expenses of bailment Section 158 of the Indian Contract Act, 1872
confers on Bailee right to recover expenses of bailment.

4.5.7. Right to claim Indemnity

According to Section 159 of the Indian Contract Act the Bailee has right to claim indemnity.

4.6. Rights and duties of a finder of lost Goods as a Bailee

According to section 71 of the Indian Contract Act, 1872, the finder of lost goods means a
person who comes across the goods that are unclaimed or whose actual owner is not known.
Such a person has to take care of these lost goods as Bailee unless a true owner is found. He has
the same responsibility, rights and duties of that of a Bailee as per section 151 of the Indian
Contract Act, 1872. He is duty bound to return the goods to the actual owner. He has to take all
measures to find actual owners. He cannot refuse the delivery of goods else he will be liable for
non- delivery of goods. He is subject to all the duties of a Bailee, including a duty to return the
goods after the true owner is found. If he refuses to return, he could be made liable for
conversion. Section 168 and 169 of the Indian Contract Act, 1872. Confer certain rights on the
finder of goods.

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4.6.1. Right of lien

According to section 168 of the Indian Contract Act, 1872, a finder of goods has no right to sue
the owner for trouble and expenses voluntarily incurred by him to preserve the goods and to find
the owner. He has, however, the right of particular lien in respect of those goods. He may retain
the goods against the owner until he receives compensation for trouble and expense voluntarily
incurred by him to preserve the goods and to find the owner

4.6.2. Right of claiming the reward if announced by the owner

It has been noted above that the finder has the right to retain the goods until he is paid
compensation for trouble and expense voluntarily incurred by him to preserve the goods and find
the owner. In addition to that, where the owner has offered a specific reward for the return of
goods lost the finder may sue for such reward and also may retain the goods until he receives it.

If the goods have already been found voluntarily, and then the owner of the goods promises to
compensate the finder for his past voluntary services, the contract is binding and the owner is
bound to pay the promised amount.

4.6.3. Right to sell the goods found

The finder of the goods has also been given the right to sell the goods found by him under certain
circumstances mentioned in section 169. Such a right is available to the finder of the lost goods
when the following conditions are satisfied

 If the owner of the goods cannot be found; or if he refuses to pay the lawful charges of
the finder
 When the good is in danger of perishing its value; or when the lawful charges of the
founder in respect of the thing found amount to two-third of its value

4.6.4. Duties of a finder of loss of goods

If a person finds any lost goods he does not become the actual of those goods. He, in fact,
becomes a special kind of Bailee in the sense that he has to take care of the goods until the actual
owner of the goods is found. Thus he possesses same duties towards the lost goods as of a
Bailee, and therefore finder’s position has been considered along with bailment. Finder of goods
is a part of quasi contract or certain relation resembling to those created by a contract. Here it
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would be worth nothing that finder of goods has the same criteria of responsibilities and duties
towards the innocent parties as given to the Bailee. This is something which is mentioned in the
Indian Contract Act, 1872 under section 71.

4.7. Remedies for the Bailor

The Contract Act does not specify the extent of the Bailor’s remedies if the goods are not
forthcoming. He can have an action for damages against the Bailee, in contract as well as in tort.
The Bailor has further equitable rights. If a Bailee has unlawfully or negligently loses or parts
with possession, he will have to pay the damages for the value of lost goods.

When the Bailee has failed to return the goods, he is bound to make good their market value as
on the date of the liability. The liability under Section 161 arises only when the goods are not
duly returned by the Bailee due to his default. Under the Contract Act, Bailor may maintain an
action by filing a suit against wrongdoer.

A Bailor claiming damages for failure to take care by a person to whom section 151 may applies
may discharge his responsibility in two ways, first by showing that Bailee has failed to produce
before the court all the materials available to him under Section 106 Evidence Act 316 and can
ask the court to presume that if produced such materials as have gone against the Bailee and
second, by showing evidences against the Bailee that he was negligent in taking care of goods as
a prudent person.

In Trustee Madras Port Trust v. Home Insurance Co. Ltd. 318, a principle of law was settled that
in a case governed by Sections 151 and 152 the loss of goods entrusted to the Bailee is prima
facie evidence of his negligence. The burden of proof is therefore on the Bailee to disprove
negligence when loss is established.

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 Chapter 5: Findings
Some key findings of the paper are as follows

 The amount of dedication towards the responsibility is the same for all types of bailment
but the amount of care may vary from case to case.
 In cases like natural causes or accidental causes without any default, the Bailee will be
freed from any guilt whatsoever.
 Loss of goods of the Bailee himself cannot be an exception from the Bailee not being
charged.
 Not only individuals but also other collective entities are considered as Bailee and duties
of Bailee according to The Indian Contract Act, 1872, fall on him.
 Prior to taking responsibility, the Bailee himself has certain rights over the Bailor. Hence
the duties and rights of Bailment are interconnected.
 A finder of lost goods are imposed of the same duties as a Bailee with some additional
rights.

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 Chapter 6: Conclusion
The Bailee has to perform according to the obligations laid down in the contract of bailment and
as per the law of the land. He is being inconsistent or negligent while performing his obligation
or duty would make him liable under various provisions of law. In each contract of law, he has a
certain uniform or fixed obligations to comply with, and he cannot part with those basic
obligations even if a contract does not provide for any such obligations. These obligations are the
essence of bailment contract. The obligations might differ depending on the facts but there are
certain duties which are implied, and reasonable care is to be taken by the Bailee. The Bailee’s
responsibility towards the goods bailed can be increased by way of providing provisions in that
regard but it cannot be lowered down, i.e., he cannot repudiate his responsibility.

A Bailee is one to whom another person entrusts property. A bailment relationship exists when
that property is delivered for some special purpose, such as storage, safekeeping or to perform
some work or service on it. The parties to this arrangement are the Bailor — or customer who
owns or has title to the property, and the Bailee — who receives custody of the property. A
Bailee Legal Liability Policy is used to cover a Bailee that has limited the dollar amount of its
responsibility by receipt or is responsible only for its liability imposed by law.

A Bailee may attempt to limit liability as respects its negligence by limiting the dollar amount of
its liability. Normally the restriction is on the value of the property

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When the Bailee takes possession of a piece of property, he or she assumes a legal and fiduciary
responsibility for its safekeeping. As mentioned above, the Bailee is expected to take reasonable
care with the property, even if there is no fee involved.

The Bailee has a certain responsibility to the Bailor to maintain the property in a safe condition.
Although this responsibility is not always clear and depends on the circumstances of the
bailment, courts have defined the responsibility to be one of "ordinary care" or the care that
prudent persons would exercise in caring for their own property.

Bibliography and references

Case References

278 Coggs v. Bernard, (1703) 2 Ld Raym 909

281Gibaud v. Great Eastern Railway, [1921] 2 KB 426.

282 Morris v. C W Martin and Sons Ltd., [1966] 1 QB 716.

283 Bachraj Dugar v. Lalchand Todi, AIR 1962 Assam 23.

285 Gour Chandra Mukherjee v. Andrew Yules Co-op Credit Society Ltd., AIR 1977 Cal 336

288 Shanti Lal v. Tara Chand Madan Gopal, AIR 1933 All 158.

289 Gopal Singh v. Punjab National Bank, AIR 1976 Delhi 115

293 Rampal Ramchand Aggarwal v. Gourishankar Hanuman Prasad, AIR 1952 Nag 8.

295 Canara Bank, Mannarkkad v. Bhavani Oil Company, Chemmannur, AIR 2004 Ker 273

299 Kuverji Tulsidas v. Great Indian Peninsular Railway Company, (1878-1880) ILR 3-4 Bom
73

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301 Fothergill v. Monarch Airlines Ltd., [1980] 2 All ER 696

302 MacKillican v. Compagnie Des Messageries Maritimes De France, (1881) ILR 6-7 Cal 148.

303 Hajee Ismail Sait v. Compagnie Des Messageries Maritimes of France, (1905) ILR 28 Mad
400

308 Union of India v. Udho Ram and Sons, [1963] 2 SCR 702.

309 Union of India v. Lakshminarain Harnarain, AIR 1963 Raj. 162.

312 Jan and Sons v. A Cameron, AIR 1922 All 471.

313 Martin v. London County Council, [1947] 1 All ER 783

318 Trustee Madras Port Trust v. Home Insurance Co. Ltd., AIR 1980 Mad 48.

Other references

https://lawtimesjournal.in/contract-of-bailment-and-pledge/

https://www.srdlawnotes.com/2017/06/bailment-rights-of-bailee.html

https://www.toppr.com/guides/business-laws-cs/indian-contract-act-1872/duties-of-bailee-and-
bailor/

https://www.academia.edu/23071119/Duties_of_Bailee

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