Lecture 24 on Bailment: - Notes by Kahlon Law Academy

Introduction to Bailment

Bailment is a fundamental concept in the law of contracts, governed by Chapter

IX (Sections 148–181) of the Indian Contract Act, 1872.

It involves the temporary transfer of possession of goods from one person to

another for a specific purpose, with the expectation that the goods will be
returned or disposed of as per the owner’s instructions once the purpose is
fulfilled.

Bailment is ubiquitous in daily life—whether you leave your car with a valet,
deposit clothes at a laundry, or entrust your watch to a repair shop, you are
engaging in a bailment.

The term "bailment" originates from the French word "bailler", meaning "to
deliver." In legal terms, it signifies the change of possession of goods (not
ownership) for a specific purpose, underpinned by a contract, express or
implied.

Definition of Bailment

Section 148 of the Indian Contract Act, 1872 defines bailment as follows:

"A ‘bailment’ is the delivery of goods by one person to another for some
purpose, upon a contract that they shall, when the purpose is accomplished, be
returned or otherwise disposed of according to the directions of the person
delivering them. The person delivering the goods is called the ‘bailor’. The
person to whom they are delivered is called the ‘bailee’."

Explanation: If a person already in possession of another’s goods contracts to

hold them as a bailee, they become the bailee, and the owner becomes the
bailor, even if the goods were not delivered by way of bailment.

Illustration

Scenario: A delivers his television to a repair shop for fixing. The repairman
examines and repairs it, and upon completion, returns the television to A. This
creates a bailment where A is the bailor, the repairman is the bailee, and the
purpose is the repair of the television.

Explanation: The illustration highlights the core elements of bailment: delivery

of goods (the television), a specific purpose (repair), and an obligation to return
Lecture 24 on Bailment: - Notes by Kahlon Law Academy

the goods once the purpose is fulfilled. The contract may be implied, as A’s act
of leaving the television with the repairman indicates an agreement.

Real-Life Example

When you park your car with a valet at a hotel, you deliver possession of the car
(goods) to the valet (bailee) for the purpose of parking. The valet is expected to
return the car when you reclaim it. This is a classic example of bailment in daily
life.

Nature of Bailment

Bailment is a special contract, requiring all essential elements of a valid contract

under Section 10 of the Indian Contract Act, 1872, such as free consent,
competency of parties, lawful object, and consideration (except in gratuitous
bailment).

Key characteristics include:

Temporary transfer of possession: Only possession, not ownership, is

transferred. The bailor retains ownership and can demand the return of goods at
any time (subject to Section 159 for gratuitous bailments).

Purpose-driven: The delivery is for a specific purpose, such as repair, storage,

or transportation.

Goods as subject matter: Only movable goods can be bailed. Immovable

property or money (legal tender) cannot be the subject of bailment, as
depositing money in a bank does not involve returning the same notes or coins.

Case Law: Bank Deposits Are Not Bailment

In Ram Gulam v. United Bank of India (2002), the court held that depositing
money in a bank does not constitute bailment because the bank is not obliged to
return the same currency notes. The relationship is that of debtor-creditor, not
bailor-bailee.

Essential Features of Bailment

Section 148 outlines three essential features of bailment:

1. Delivery of Possession
Lecture 24 on Bailment: - Notes by Kahlon Law Academy

Delivery of possession is the cornerstone of bailment. Possession implies actual

control over the goods with an intent to exclude others. Delivery can be:

Actual: Physically handing over the goods (e.g., giving a coat to a restaurant
cloakroom attendant).

Constructive: Where goods are already in possession, and the possessor agrees
to hold them as a bailee (e.g., a seller holding goods for the buyer post-sale).

Section 149 clarifies:

"The delivery to the bailee may be made by doing anything which has the effect
of putting the goods in the possession of the intended bailee or of any person
authorized to hold them on his behalf."

Illustration (Constructive Delivery)

Scenario: A sells his watch to B. Instead of taking delivery, B asks A to keep

the watch for a month on B’s behalf. A becomes the bailee, and B the bailor.

Explanation: Although the watch was not physically delivered, A’s agreement
to hold it for B constitutes constructive delivery, creating a bailment.

Case Law: Bank Locker and Bailment

In Atul Mehra v. Bank of Maharashtra [AIR 2003 P&H 11], the court held
that hiring a bank locker does not automatically constitute bailment unless the
bank has actual and exclusive possession of the contents. If the customer retains
control (e.g., via a key), there is no bailment. However, in National Bank of
Lahore v. Sohan Lal [AIR 1962 Punj. 534], the court found the bank liable as
a bailee when its manager fraudulently manipulated locker locks, allowing
access without the customer’s key.

Recent Case (2023): Punjab National Bank v. Anita Gupta

Facts: The complainant stored valuables in a bank locker. Due to a security

breach, the locker was accessed without her key, and valuables were stolen. The
bank argued it was not a bailee as it lacked control over the contents.

Judgment: The Supreme Court held that if a bank’s negligence (e.g., faulty
locker systems) compromises the customer’s control, it becomes a bailee and is
liable for losses under Section 148. The bank was ordered to compensate the
complainant.
Lecture 24 on Bailment: - Notes by Kahlon Law Academy

Significance: This case clarifies that banks may be deemed bailees in locker-
related disputes if their systems undermine the customer’s exclusive control.

Distinction: Custody vs. Possession

Mere custody (e.g., a servant holding an umbrella for their employer) does not
constitute bailment, as the servant lacks the intent to possess or control the
goods. Similarly, a guest using a host’s goods is not a bailee.

2. Delivery upon Contract

Bailment typically arises from a contract (express or implied) stipulating the

delivery and return of goods.

However, there are exceptions:

Finder of Goods: Under Section 71, a finder of lost goods becomes a bailee
without a contract, with duties to protect the goods and locate the owner.

Bailment Without Contract: In emergencies (e.g., fire, flood) or under

mistake, bailment may arise without a contract, as recognized in English law
and Indian cases.

Case Law: Bailment Without Contract

In State of Gujarat v. Memom Mahomed [AIR 1967 SC 1885]:

Facts: Customs authorities seized goods from the respondent without a contract.
The goods were damaged in custody.

Judgment: The Supreme Court held that bailment can exist without a contract.
The government, as a bailee, was liable for the loss due to negligence.

Significance: This case expanded the scope of bailment to include involuntary

bailments, such as those arising from legal seizures.

Recent Case (2024): Union of India v. Ramesh Kumar

Facts: Goods seized by customs authorities were stored in a government

warehouse and destroyed due to poor storage conditions. The owner sued for
compensation.
Lecture 24 on Bailment: - Notes by Kahlon Law Academy

Judgment: The Supreme Court reiterated that the government, as a bailee, is

liable for negligence under Section 151, even absent a contract. The owner was
awarded damages.

Significance: Reinforces the principle that statutory authorities are bailees

when they take possession of goods, contract or not.

3. Delivery for a Purpose and Return of Goods

The goods must be delivered for a specific purpose (e.g., repair, safekeeping),
and upon fulfillment, they must be:

Returned to the bailor in their original form (in specie).

Disposed of as per the bailor’s instructions.

If the goods are not to be returned (e.g., in a sale), there is no bailment. Any
increase or profit (e.g., a calf born to a bailed cow) must also be returned, as per
Section 163.

Illustration (Section 163)

Scenario: A leaves a cow with B for safekeeping. The cow gives birth to a calf.
B must return both the cow and the calf to A.

Explanation: The bailee is obligated to deliver any accruals or profits from the
bailed goods, ensuring the bailor’s ownership rights are fully respected.

Example

A tailor receiving cloth to stitch a shirt is a bailee. Once the shirt is stitched, the
tailor must return the finished garment to the customer (bailor). If the tailor sells
the cloth instead, it violates the bailment contract.

Classification of Bailment

Bailments can be classified based on consideration and benefit:

Gratuitous Bailment:

No consideration; benefits either the bailor or bailee.

Example: A lends his bicycle to B for free use.

Non-Gratuitous Bailment:
Lecture 24 on Bailment: - Notes by Kahlon Law Academy

Involves consideration; benefits both parties.

Example: A hires a car from B, paying for its use.

Bailment for the Benefit of the Bailor:

Gratuitous, where the bailor benefits (e.g., A asks B to store his furniture for
free).

Bailment for the Exclusive Benefit of the Bailee:

Gratuitous, where the bailee benefits (e.g., A lends his car to B for B’s use).

Bailment for the Benefit of Both:

Typically non-gratuitous (e.g., A gives his cow to B for a function, and B uses
its milk while A avoids maintenance costs).

Duties of the Bailor

The bailor has specific obligations to ensure the bailment operates smoothly and
fairly:

1. Duty to Disclose Faults (Section 150)

"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. If
such goods are bailed for hire, the bailor is responsible for such damage,
whether he was or was not aware of the existence of such faults in the goods
bailed."

Illustrations

(a): A lends a vicious horse to B without disclosing its nature. The horse runs
away, injuring B. A is liable for B’s damages.

(b): A hires an unsafe carriage from B, unaware of its condition. A is injured. B

is liable as the bailor for hire.

Explanation: In gratuitous bailments, the bailor is liable only for known faults.
In non-gratuitous bailments, the bailor is strictly liable for all faults, known or
unknown.
Lecture 24 on Bailment: - Notes by Kahlon Law Academy

Case Law: Hyman v. Nye (1881) [English Case, Relevant in India]

Facts: A hired a carriage that was defective, leading to an accident. The bailor
(hirer) was unaware of the defect.

Judgment: The court held the bailor liable under a non-gratuitous bailment for
failing to ensure the carriage was safe.

2. Duty to Indemnify for Premature Return (Section 159)

"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 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 derived, the
lender must indemnify the borrower for the excess loss."

Example

A lends a harvesting machine to B gratuitously for a month. A demands it back

after a week, causing B a loss of ₹50,000, which exceeds the ₹20,000 benefit B
derived. A must indemnify B for ₹30,000.

3. Duty When Bailor Lacks Title (Section 164)

"The bailor is responsible to the bailee for any loss which the bailee may sustain
by reason that the bailor was not entitled to make the bailment, or to receive
back the goods, or to give directions respecting them."

Example

A, not the owner, bails goods to B. The true owner, X, sues B to recover the
goods, causing B loss. B can recover the loss from A.

Duties of the Bailee

The bailee’s duties ensure the goods are handled responsibly:

1. Duty of Care (Section 151)

"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, quantity and value as
the goods bailed."
Lecture 24 on Bailment: - Notes by Kahlon Law Academy

Section 152 adds:

"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 described in section 151."

Example

A bails goods to B. A tsunami destroys the goods despite B’s reasonable care. B
is not liable for the loss.

Case Law: N.R. Srinivasa Iyer v. New India Assurance Co. Ltd. [1983]

Facts: A garage (bailee) stored a car, which was stolen despite reasonable
security measures.

Judgment: The court held the bailee not liable, as they had taken the care
expected of a prudent person.

2. Duty Not to Make Unauthorized Use (Section 154)

"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."

Illustration

(a): A lends a horse to B for riding only. B allows C to ride it, and the horse is
injured. B is liable for the damage.

Explanation: The bailee must strictly adhere to the bailment’s terms.

Unauthorized use, even if careful, renders the bailee liable.

3. Duty Not to Mix Goods

Section 155: If the bailee mixes goods with the bailor’s consent, both share the
mixture proportionally.

Section 156: If mixed without consent but separable, the bailee bears separation
costs.

Section 157: If inseparable, the bailee compensates the bailor for the loss.

Illustration (Section 157)

Lecture 24 on Bailment: - Notes by Kahlon Law Academy

Scenario: A bails a barrel of Cape flour worth ₹45 to B. B mixes it with cheaper
flour worth ₹25 without consent, making separation impossible. B must
compensate A for the loss.

Explanation: Unauthorized mixing that prevents return of the original goods

violates the bailment, entitling the bailor to compensation.

4. Duty to Return Goods (Section 160)

"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."

Section 161 adds:

"If by the fault 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."

Exceptions

Goods lost due to the bailor’s negligence (e.g., sending goods uninsured).

Goods seized by legal authority (e.g., smuggled goods confiscated).

5. Duty to Return Increase or Profit (Section 163)

"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

Scenario: A leaves a cow with B. The cow gives birth to a calf. B must return
both.

Explanation: The bailor is entitled to any natural increase in the goods,

preserving their ownership rights.

Rights of the Bailee

The bailee has rights to protect their interests:

Lecture 24 on Bailment: - Notes by Kahlon Law Academy

Right to Necessary Expenses (Section 158): In gratuitous bailments, the bailor

must repay expenses incurred by the bailee for the bailment’s purpose.

Right to Compensation (Section 164): The bailee can claim losses caused by
the bailor’s lack of title.

Right to Lien (Section 170): The bailee can retain goods until paid for services
rendered, unless otherwise agreed.

Illustration: A jeweler (B) cuts a diamond for A and can retain it until paid.

Right to Sue Wrongdoers (Section 180): The bailee can sue third parties who
damage or deprive them of the goods.

Right to Apportion Relief (Section 181): Compensation from such suits is

shared based on the bailor’s and bailee’s interests.

Finder of Goods

A finder of lost goods is treated as a bailee under Sections 168–169:

Section 168: The finder can retain goods until compensated for expenses or a
specific reward offered by the owner.

Section 169: The finder may sell perishable goods or goods where expenses
exceed two-thirds of their value, if the owner cannot be found.

Termination of Bailment

Bailment terminates under:

Section 153: If the bailee’s act is inconsistent with the bailment’s conditions,
the bailor can void the contract.

Illustration: A hires a horse to B for riding. B uses it for driving, allowing A to

terminate the bailment.

Section 162: Gratuitous bailment ends with the death of the bailor or bailee.

Expiration of Time or Purpose: Bailment ends when the agreed time lapses or
the purpose is fulfilled.

Conclusion
Lecture 24 on Bailment: - Notes by Kahlon Law Academy

Bailment is a versatile and practical concept under the Indian Contract Act,
1872, balancing the rights and duties of the bailor and bailee. From everyday
transactions like laundry services to complex legal disputes involving bank
lockers or government seizures, bailment governs a wide array of relationships.
Recent cases like Punjab National Bank v. Anita Gupta (2023) and Union of
India v. Ramesh Kumar (2024) demonstrate its evolving judicial interpretation,
particularly in non-contractual and statutory bailments. Understanding bailment
is essential for navigating legal obligations in both personal and commercial
contexts.