Topic: Bailment Group Notes Group Number: 2
Number of Members: 6 Subject: Special Contracts Subject Code: LAW3101
Faculty Name: Professor Dr: Shinsa.P. Mathew College Name: VIT School of Law
Date: 20/11/2021
Group Members with their Register Numbers along with the topics covered by them:
Introduction:
Bailment refers to establishment of a legal relationship between the bailor and bailee. In bailment the personal property of one person temporarily goes into the possession of another by creating a contract. In simple terms the ownership of the articles or the goods lies with one person and the possession in another.
E.g.: A drycleaner receiving a coat for dry cleaning. In this case the ownership of the coat lies with the customer and the possession lies with the dry cleaner. This is a clear illustration of bailment.
Definition of Bailment as per The Indian Contract Act of 1872:
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:
Bailment in simple terms is a contract of mere transfer of possession. The role of bailor is the person who delivers the goods and the bailee is a person who accepts the delivery of goods.
Illustration:
A person giving clothes to the tailor for stitching in this case the customer who delivers the clothes is the bailor and tailor is the bailee who accepts the delivery of goods.
Actual or Constructive Delivery:
Section 149 of The Indian Contract Act 1872:
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.
The delivery of possession is thus of two kinds:
Actual Delivery
Constructive Delivery
Actual Delivery
When the bailor hands over to the bailee the physical possession of goods it is called actual delivery.
Constructive Delivery:
Constructive delivery is a type of delivery which takes place where there is no change in the physical possession of goods. In simple terms the goods remain there they are but there is transfer of mere ownership.
Case Laws:
Morvi mercantile Bank vs union of India
Delivery of a railway receipt amounts to delivery of goods.
Bank of Chittor vs Narasimbulu:
A person pledge to the projector machine of a cinema under an agreement which allowed him to retain the machinery for the use of cinema. The Andhra Pradesh high court held that in this case there is a mere transfer of legal ownership of the projector not the actual possession.
Fazal vs Salamat Rai
The defendant was holding the plaintiff’s mare under the execution of a degree. The plaintiff satisfied the decree and the court order the redelivery of the mare to the plaintiff. The defendant refused to do so unless his maintenance charges are being paid. The mare was stolen from his custody. The court held the defendant and liable.
N.R. Srinivasa Iyer vs New India Assurance Co Ltd:
The owner of a car involved in an accident while delivering it on the behalf of the insurance company to the nearest garage for repairs. This delivery was regarded as sufficient to constitute the insurance company as a Bailee and the garage owner as a sub bailee. They became responsible for the loss of the car in a fire on the premises
Essential Features of Bailment:
Delivery of Possession.
Delivery should be upon a contract.
Delivery should be upon a specific purpose.
Delivery of Possession
To understand possession, we must first distinguish between possession and custody. Custody in a literal meaning refers to the protective care or guardianship of exercised over something. Persons like servants or guest have custody over certain goods but they are not considered as a bailee.
The goods must be transferred to the bailee for whatever may be the purpose of bailment. Once this process is done irrespective of the manner the transfer has occurred it is a clear-cut case of bailment. Delivery of Possession is a first and foremost process in the contract of bailment.
Case Laws:
Ultzen vs Nichols:
An old customer went into an hotel for dining. When he entered the waitor took his coat without any request and he hanged it on the hook behind him. When the customer was about to leave, he asked for the coat but at that time the coat was stolen. The customer sued the hotel.
The court held that when the waiter takes the coat of the customer it is a case of bailment by fulfilling the first step of bailment delivery of possession. The delivery is made on a contract between the customer and the hotel management. The delivery is made on a specific purpose which is the custom of the hotel to accept coats of customers and place it in their stand for their convenience. So, the three features of bailment are proved here so the customer must be compensated by the hotel management for the existence of bailor and bailee relationship between them.
Kaliamperumal Pillai vs Visa Lakshmi:
A lady handed over certain quantity of Gold to the goldsmith for the purpose of melting it and making jewels out of it. Every day after when the goldsmith finishes his work, she would receive the half-made jewels and placed them in a box in the goldsmith’s place and locked it and had the key with herself. The jewels were lost one day. The lady sued the goldsmith. The court held that the contract of bailment comes to an end when the goods are delivered to the
exact owner. In this case the lady had received her half-made jewels so the term of bailment has come to an end. The goldsmith was not held liable.
Bank Locker:
On hiring of a bank locker and storing things in it would not essentially constitute as a bailment. The court said that in order to constitute it as a bailment it is necessary to show that actual and exclusive possession of the property was given by the hirer of the locker to the bank. It was when the question of reasonable care would arise. And it is difficult to know the quantity of jewels and to determine their value.
Case Laws:
Atul Mehra vs Bank of Maharashtra:
Things kept in the locker are not entrusted to the bank. The court found that there is no proof to prove that the bank has stolen the goods. The court held that there is no sufficient proof to prove that the lockers are weak. The customer was not allowed to claim damages.
Delivery should be upon a contract:
The delivery of goods should be made for some purpose and upon a contract that when the purpose is accomplished the goods shall be returned to the bailor. When a person's goods go is into the possession of another person without any contract there is no bailment as per section 148 of Indian Contract Act of 1872.
Ram Gulam vs Government of U.P:
The plaintiffs’ ornaments have been stolen and it was recovered by the police and while in the police custody the arguments were stolen again. The plaintiff filed a suit against the state. The plaintiff action against to the state for the loss incurred was dismissed and the court held that there was no relation of bailment between him and the state.
Non- contractual bailments:
English law recognises bailment without contract. The Bombay High court in its decision made in Laslagaon Merchants Corporation Bank vs Prabhudas
Hathibhai has taken the lead in imposing the obligation of a bailee without a contract.
Naik.J:
Where certain goods belonging to an individual are seized by the government it becomes a bailee even there is no contract between the government and the individual. Certain packages of tobacco lying in the godown of a partnership firm was pledged to the plaintiff Bank. Some of the partners have failed to clear their income tax dues so the income tax officer ordered the seizure of the goods. The officials accordingly locked the godown and handed over the keys to the police. There was a heavy rain due to which the roof the godown leaked and the tobacco was damaged. The firm filed a suit against the government.
The court held that heavy rains are not considered to be an act of God. The government stood in the position of bailee and it was for them to prove that they had taken reasonable care and measures to protect their goods and the damage was beyond their control. The court held that the government liable for the damages.
State of Gujarat vs Memon Mahomed Haji Hasan:
Certain motor vehicles and other goods belonging to the plaintiff was released by the state in exercise of its power under the Sea customs act. The goods under the custody of the state remained totally uncared. The plaintiff filed a suit against the state. The court held the case of Naik J as a precedent and declared the government to be liable for the damages caused.
After Ram Gulam vs Government of U.P in theft, recovery of ornaments by the police and their final disappearance from police custody in such instances the state was held liable to compensate the value of loss to the victim.
When the Port trust is required to store imported goods the relationship of bailor and bailee comes into existence. Under section 42 (6) of the major Port Trusts Act of 1963 the Port trust of a major port would be regarded as the bailee of the goods coming into its possession. The provisions of section 151 152 and 161 of the Indian Contract Act will also be applicable.
Contracts maybe express or implied:
A Contract can be express or implied.
Governor general of India in council vs Jubilee Mills limited:
Where with the consent of the station master the goods are stored on a railway companies’ platform where the wagons are not available the company was held liable when they were damaged by fire caused due to the spark emitted by an engine passing by.
Delivery should be upon a specific purpose:
Bailment of goods is always made for some purpose and when the purpose is accomplished the goods will be returned to the bailor or disposed according to the conditions of his mandate. If the person to whom the goods are delivered is not a bound to restore them to a person delivering them or to deal with these goods their relationship will not be as of a bailor and bailee.
Secretary of State vs Sheo Singh Rao:
The plaintiff delivered to the treasury officer at Meerut nine government promissory notes for the purpose of cancellation and consolidation into a single note worth of rupees 48000. The defendant's servants were appropriated the notes. The plaintiff filed a suit against the state to hold them responsible as Bailees. His action failed. It was held that there is no relation of bailment and less there is a delivery of goods and a promise to return. In this case it was held that the government was not bound to return the same notes or dispose it according to the conditions of the plaintiff.
Bailment compared with other similar relations:
Difference between agency and bailment is that in agency the bailee does not represent the bailor he merely exercises his powers and has certain powers in relation to the property of the bailor. Secondly the Bailee has no power to make the contracts on the behalf of the bailor nor he can make the bailor liable for the acts he does.
Case laws:
Icha Dhanji vs Natha:
A deposit of money with a banker is not a bailment and he is not bound to return the same notes and coins.
Union Bank of India vs K.V. Venugopalan:
A bank was not allowed to exercise the right of lien as a bailee on the money held under a fixed deposit.
Shankar Lal vs Bhura Lal
An agent who has collected money on behalf of his principle is not a bailee of the money for the same reason.
Applying this principle to the position of a banker who was holding the goods on behalf of the account holder and also for the purpose of delivering them to his customers against the payment the court held the bank was not an agent and remained as a Bailee only.
Bailment can be also distinguished from sale exchange or barter. In all these about transactions what is transferred is not a possession but also the ownership of the goods. Besides the person who purchases it has no obligation to return it.
Case laws:
Kalyani Breweries Ltd vs State of West Bengal
A transaction for the sale of beer bottles is not a contract of bailment.
Instalment Supply Ltd vs Union of India:
But a higher purchase transaction is a contract of bailment but it has two aspects bailment and element of sale.
Post office:
CIT vs P.M Rathod:
A post office is a bailee of the articles of the sender.
Duties Of A Bailor
Duty to disclose faults in goods bailed.
Duty to pay necessary expenses.
Duty to indemnify bailee for premature termination of bailment or defective title of bailor.
Duty to receive back goods.
DUTY TO DISCLOSE FAULTS IN GOODS BAILED (section 150) (Gratuitous bailor) (Non-Gratuitous Bailor)
Section 150 of Indian Penal Code states the duty of a bailor to disclose any kinds of faults in the goods bailed to the bailee
Gratuitous Bailment: -
section 150 paragraph 1 imposes a duty on bailor to disclose any defects or faults that which he is aware of that might interfere with the use of those goods or that which may put bailee at extraordinary risks and if he fails to disclose such faults then he would be liable for the damages caused to the bailee directly from such faults.
Non-Gratuitous Bailment: -
section 150 paragraph 2 says that if goods are bailed for hire then the bailor is liable for the damage caused by the faults in goods bailed whether the faults are known to the bailor or not. In the case of Hyman vs Nye & Sons the plaintiff hired a carriage along with horses from the defendant for a journey. The carriage was defective and due to the defect, the plaintiff got injured.
Since the goods are bailed for hire here the bailor is liable whether he knew about the faults in the carriage or not. Similarly In the case of Reed v Dean, the plaintiffs hired the defendant’s motorboat launch in River Thames but the launch caught fire, and the plaintiffs were unable to put it out, because the firefighting system not functional and they suffered injuries. The court found that it was assumed that the launch was fit as well as reasonably safe and operational for the purpose for which it had been hired. The defendant was held liable.
Duty To Pay Necessary Expenses (section 158)
The bailor has a duty to pay to the bailee for all the necessary expenses that had been incurred by him for the purpose of Bailment. This applies to both gratuitous and non-gratuitous Bailment, as even though in gratuitous Bailment there is no remuneration to be paid still the necessary expenses for the purpose of the Bailment can be recovered from the bailor. In the case of Forbes Campbell and Co. Ltd. Vs. The Board of Trustees of the Port of Bombay and Metal Fabs India Pvt. Ltd., the defendant’s consignment landed in port of Bombay (plaintiff)and the goods remained unclaimed even after multiple notices so the port authorities sold the consignment but yet the maintenance was still high so they claimed full amount from the defendant and the Supreme Court noted that a bailment contract had arisen. The bailee therefore had the right to be compensated for the costs expended for bailment purposes.
Duty To Indemnify Bailee For Premature Termination Of Bailment Or Defective Title Of Bailor (section 159,164)
According to Section 159, in the case of a gratuitous Bailment the bailor is allowed to ask the bailee to return the goods bailed at any time even though the goods were lent for a specific period of time or for a specific purpose. But still if the bailor asks to return the goods lent before the time specified and because of this there is a loss for the bailee and the loss is greater than the profit he would have got then the bailor is responsible to indemnify the bailee for the loss he suffered due to the premature return of goods
According to Section 164, under circumstances wherein the bailor is not entitled to make the Bailment or to receive back the goods, which may cause some loss to the bailee. So, the bailor has a duty to indemnify the bailee for loss caused by said reasons.
Under these 2 circumstances the bailor is liable to indemnify the bailee Duty To Receive Back The Goods (section 164)
The bailor has a duty to receive back the goods which he bailed after completion of the purpose of the Bailment or after the completion time of Bailment and if he doesn’t receive the goods back due to a defect in title or due to other circumstances then the bailor is liable to damages for the loss caused to the bailee. In the case of Great Northern railway Company vs.
Swaffeild, the defendant sent a horse by the plaintiff, the railways. The
defendant did not take delivery for several days when the horse arrived at its destination. Meanwhile the plaintiff incurred expenses in feeding and safeguarding the horse, so the court held that the plaintiff was entitled to claim damages and expenses.
Duties Of Bailee
A bailee has to observe the following duties:
Duty to take reasonable care of the goods bailed. (Secs. 151-152).
Duty not to make unauthorized use of the goods bailed. (Secs. 153-154).
Duty not to mix bailor's goods with his own goods. (Secs. 155-157).
Duty to return the goods on fulfilment of the purpose. (Secs. 159-161, 165- 167).
Duty to deliver to the bailor increase or profit on the goods bailed. (Section 163).
Duty to take reasonable care of the goods bailed (Secs. 151-152):
According to 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, quality and value as the goods bailed."
The standard of care required is that of a reasonable man. The amount of care to be taken should be such 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. This Section lays down a uniform duty of care for every kind of bailment, whether the same is for reward, or is merely gratuitous.
Bailee should act as a prudent man:
In Union of India v. Udho Ram & Sons, “certain goods were consigned by M/s Radha Ram Sohan Lal from Calcutta to Delhi by rail, and the Railway Receipt was endorsed in favour of the plaintiffs, M/s Udho Ram and Sons. Some of the
articles out of this consignment, having been stolen during transit, the same were not delivered to the plaintiffs. The plaintiffs brought an action to recover compensation for the same. The trial Court found that the wagon in which the goods were loaded was properly rivetted and sealed when the train left Howrah at 1.30 a.m., but seals and rivets of one of the doors of the wagon were found open when it reached Chandanpur station after about 2 hours. The theft took place at an in-between point when the train stopped there for the home signal at 2.05 a.m. for about 15 minutes. It was found that railway protection police were also there in the guard's van. The question which had arisen in this case was, could the railway authorities be considered to be negligent and guilty of failing to take due care as prescribed by Section 151, Indian Contract Act?
It was held that the railway did not take due care. Firstly, they did not prove from record that the railway protection polices which escorted the train was sufficient in strength, and secondly, that unlike a prudent man, the railway protection polices did not keep an eye on wagons, particularly when the train stopped, to prevent the theft of the goods. The defendants were held liable.
According to Section 151, the bailee should take such care of the goods as a man of ordinary prudence would take of his own goods. If the bailee has not acted like an ordinary prudent man, he cannot be excused by pleading that he had taken similar care of his own goods also, and his goods, have also been lost or damaged along with those of the bailor, or that the bailor had the knowledge that his goods were being kept in a negligent manner.
In Calcutta Credit Corporation Ltd. v. Prince Peter of Greece," a car received for repairs by an automobile garage was damaged by fire. The following facts came to be noted. The garage was a pucca structure, by wooden planks. In the garage were put not only vehicles containing petrol but also other combustibles like thinners and paints. The garage was partitioned by wooden walls and a part of it was allowed to be used for cooking purposes. There was inadequate arrangement for garage extinguishing the fire. The room in which plaintiff's car was kept could not be opened for 15 minutes after the fire was noticed, as the keys of the room were not available. It was held that the defendants had not taken due care and they were liable.
In this case, the defendants wanted to avoid the liability by pleading that they had taken the same amount of care of the plaintiff's car as of their own ones, and that should be deemed to be sufficient care. They further pleaded that the plaintiff had the knowledge that the defendants kept the cars in certain manner and law of estoppel should apply against him. Both the pleas were rejected, and it was observed:
"The words 'as a man of ordinary prudence would take of his own goods' do not mean that if the bailee's own goods are lost together with the bailed goods, kept at the same place, it necessarily shows that the bailee has taken the reasonable care required of him by law with respect to the bailed goods. Even a knowledge on the part of the bailor that the bailee keeps the goods in his possession in a particular manner would not stop the bailor from pleading that the bailee had failed to take the care required of him by statute. A plea of this nature, based on the maxim ‘Volenti non fit injuria' was rejected by the House of Lords in Barbant and Co. v. King. The only cases where the bailee would be immune are laid down, in India, expressly in Section 152 of the Contract Act, namely, "if he has taken the amount of the care of it as described in Section 151”.
It was also observed in this case that the degree of care needed varies with the kind of engagement, and therefore, "when a person undertakes such a job, the law not only requires that he should possess the requisite skill but also that he has the requisite plants and appliances and that his premises are also reasonably suitable for doing that job.”
When a carrier of goods transports jute in a boat which has leaks on its side and the goods get damaged, or a commission agent purchases Silver bars for his principal but keeps them at an unattended and unsafe place from where some of them are lost, or a guest's goods in a hotel room are stolen, while the room, to the knowledge of the hotel keeper, is in an insecure condition, there is lack of due care on the part of the bailee in each case, and he is liable for the damage caused to the bailor by his negligence.
Liability of bailee to pay compensation for damaged goods:
Where owner of vehicle had given vehicle for repair to automobile workshop. Vehicle was allowed by workshop owner to be driven by a person having no driving licence at the time of its repair. It amounted to unauthorized use by
bailee. Accident had occurred causing death of third-party Owner was entitled to recover damages from bailee. Victim was also entitled to get compensation from bailee. Further, held that since owner had entrusted vehicle to workshop, owner and accident happened when vehicle was being repaired, Insurance Company would also be liable to pay compensation.
Agreement exempting bailee from liability:
Whether a bailee can make a special contract to exempt himself from liability arising under Section 151 came in for consideration in some cases. The consensus appears to be in favour of the view that such a contract can be made. The M.P. High Court in Central Bank of India v. Grains & Gunny Agencies following Calcutta" and Madras" High Court decisions and the view of the majority of the judges on this point in the P.C. decision has held that a contract exempting a bailee from liability for any loss or damage due to the fault, carelessness or negligence of its staff binds the parties and is not unlawful as it is not hit by Section 23 of the Contract Act. According to facts in Central Bank of India v. Grains & Gunny Agencies, there was found to be negligence of the bailee's (pledgee banks) staff resulting in loss of goods and there was no agreement exempting the bailee from such liability, the bailee was held liable.
Bailee not liable when he takes due care:
According to Section 152 the Indian Contract Act, 1872:
"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”.
Section 151 describes the amount of care which a bailee is supposed to take. If he has taken due care, he will not be liable for any loss which may be caused to the goods bailed to him. If due care has not been taken and there is damage to the goods as a consequence of his negligence, he will be answerable for the same. When he is negligent, he cannot avoid the liability by pleading that his own goods have also been damaged along with the goods bailed, or the bailor was aware that the goods bailed were being kept in a negligent manner.
Bailee is required to take care of goods bailed to him as a man of ordinary prudence. Therefore, the bailee is not liable for the loss due to destruction of goods in accidental fire.
Hiring of bank lockers:
Amount of care to be taken depends upon the circumstances of particular case. What may otherwise be negligence may not be so under exceptional circumstances. This may be explained by the case of Gopal Singh Hira Singh v. Punjab National Bank. In this case, the plaintiff pledged certain goods with the Jahania office of the defendant bank in 1946. After the partition of the country in August, 1947, that area where branch of the bank was situated became part of Pakistan. The plaintiff firm brought an action for the recovery of more than 2 lakh rupees, being the value of the goods pledged and interest thereon, because the bank failed to return the goods pledged to the plaintiff firm, who had migrated to India. To avoid the liability, the defendant bank pleaded that the goods pledged had been plundered or destroyed by the rioters in the course of riots which happened to be there at that time. The Court found that as the conditions prevailed at that time on the partition of the country, there was insecurity of life and property of the non-Muslim population under the compulsion of adverse circumstances, there was extraordinary breakdown of law-and-order machinery, and compulsive migration of mass of these persons from Pakistan to India. That was also true about institutions manned by Hindu staff, as was the defendant bank. It was held that under these circumstances, since the property with the bank had to be left uncared there, the bank could not be considered to be guilty of any negligence. It was observed that "the obligation of the bank to take care of the pledged goods must be seen in the context of the extraordinary situation that developed."
In Anil Mehra v. Bank of Maharashtra, it has been held that mere hiring of bank locker would not result in contract of bailment. There no exclusive possession delivered to the bank and hence there is no question of bailment. Moreover, the bank does not know the content of the locker, the plaintiff alone knows about that.
If the bank is looted and the hirer of the locker alleges any loss, the bank cannot be held liable for the same.
If the bailee has taken due care and the damage to the goods is because of the circumstances beyond his control, he will not be liable for the loss. Thus, if the food grains stored in the bailee's godown are damaged unprecedented floods in the town, the bailee cannot be made liable for the loss.
In Union of India v. United India Fire, etc. Insurance Co. Ltd. cotton bales belonging to the consignee company were unloaded by the consignee company itself and kept outside the railway goods sheds and covered with tarpaulin. The consignee company did not have sufficient warehousing facilities, and its many goods including the cotton bales were lying in and outside the goods shed. The company had provided watchmen and the Railway protection staff was also there to take care of these goods. The company did not take delivery of the goods in spite of repeated requests to do so, and 13 days after the unloading of the said bales, the cotton bales caught fire for unknown reasons. The railway staff took all possible steps to extinguish the fire. It was held that the railway authorities could not be held liable for negligence under these circumstances.
In Sunder Lal v. Ram Sarup," a wooden shop was hired under a written agreement that the shop will be returned in the same condition, and the hirer will be liable for any loss or damage to it. The shop was burnt by the mob during the communal riots in the city. It was held that since the destruction of the shop was due to no negligence on the part of the hirer, he was not liable for the loss.
If the bailor by his conduct indicates a certain kind of care which he expects from the bailee, he cannot subsequently be allowed to say that such care was less than that which the bailee should have taken. This is clear from the case of Boseck & Co. v. Mandlestan, in this case, the plaintiff was a jeweller at Lahore and the defendant, a firm of jewellers at Calcutta. The plaintiff used to receive items of jewellery from its customers for repairs and sent the same to the defendant by post uninsured. After doing the necessary work, the defendant used to return the jewellery by V.P.P. to the plaintiff, uninsured, the sum to be recovered through V.P.P., being the cost of repair of the articles.
One such V.P.P. parcel was dispatched to the plaintiff. After the parcel arrived, the plaintiff did not take the delivery but requested the post office to keep it for him until he should send for it. The parcel was then lost. In an action against the defendant to recover the value of the jewellery lost in the parcel, it was held that the defendant was not liable for the loss of the parcel, as it did not arise from his negligence, and moreover, by his previous conduct in sending and receiving uninsured parcel, the plaintiff was estopped from urging that the act of sending an uninsured parcel was negligence on the part of the defendant.
Duty not to make unauthorized use of the goods bailed (Secs. 153 & 154)
When the goods have been bailed for a particular purpose, the bailee is supposed to use them only for that purpose and none else. If he makes unauthorized use of the goods bailed, there are two remedies available to the bailor:
The bailor may terminate the bailment. (Section 153).
The bailor may recover compensation for the loss caused due to unauthorized use of goods. (Section 154).
Termination of bailment:
According to Section 153, if the bailor finds that the bailee is making such use of the goods which is inconsistent with the conditions of bailment, he may terminate the bailment and claim back the goods. Section 153 is as follows:
153. Termination of bailment by bailee's act inconsistent with conditions: A contract of bailment is voidable at the option of the bailor, if the bailee does any with regard to the goods bailed, inconsistent with the conditions of the bailment.
Illustration:
A let 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."
(ii) Damages for loss due to unauthorized use:
If the bailee makes such use of the goods which is contrary to the conditions of bailment, he is liable to make compensation to the bailor for any damage to the goods due to unauthorized use. Such a liability arises even if the unauthorized use was being made with care. Section 154, which makes a provision in this regard, is as under:
"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.
Illustrations:
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.
A hire a horse in Calcutta from B expressly to march to Benaras. A ride with due 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."
Duty not to mix bailor's goods with his own goods (Secs. 155-157): Mixture of goods with bailor's consent:
A bailee should not mix the bailor's goods with those of his own without the bailor's consent. If the bailor consents, the bailee may mix the bailor's goods with those of his own, and in such a case, the bailor and the bailee shall have an interest in the mixed goods in proportion to their respective shares. Section 155 makes the following provision in this regard:
"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."
Mixture of goods without bailor's consent:
When the bailee mixes bailor's goods with those of his own without consent of the bailor, depending upon the nature of the goods, there are two possibilities:
Bailor's and the bailee's goods can be separated.
Bailor's and the bailee's goods cannot be separated.
When the mixed goods can be separated:
When the goods mixed can be separated, the bailor and the bailee remain the owners in accordance with their respective shares. The bailee is responsible to bear the expense of separation or division of the goods and also for any damage arising from the mixture. Section 156, contains a provision in this regard, is as under:
"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.
Illustration
A bails 100 bales of cotton marketed 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 expenses incurred in the separation of the bales, and any other incidental damage."
When the mixed goods cannot be separated:
In case, the nature of the goods is such that the bailor's goods cannot be separated from those bailee, deemed to be the loss of goods and the bailor can recover compensation for same from the Bailee Section 157 makes the following provision in this regard:
"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.
Illustration
A bails 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."
Duty to return the goods on the fulfilment of the purpose (secs. 160 & 161, 165 - 167)
According to 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."
Since the bailment of the goods is either for a certain purpose or a certain period, the bailee is bound to return the goods to the bailor as soon as the time for which they were bailed has expired, or the purpose of bailment has been accomplished.
According to Section 161:
"If, by the default of the bailee, the goods are not returned, or delivered or tendered at the proper time, he is responsible to the bailor for loss, destruction or deterioration of the goods from that time,".
If a bailee is not in a position to deliver back the goods, for instance, when they are lost due to the fault of his servants, the responsibility for such loss is that of the bailee.
A bailee is liable for the loss due to non-return or non-delivery of goods if that is due to his fault. A bailee is excused from returning the subject-matter of the bailment to the bailor or his agent. where the subject-matter was taken away from him by the authority of law exercised through regular and valid proceedings." In J.K. Oil Mills v. Union of India, the appellants gave a
consignment of mustard oil to the respondents for being transported from Kanpur to Calcutta. After the tank wagon containing the oil had safely reached Calcutta, it was suspected to be adulterated and was, therefore, seized by the Food Inspector under lawful orders of the competent authority under the Calcutta Municipal Act. On examination, the oil was found adulterated and the same was destroyed under the orders of the Calcutta High Court. It was held that the loss, damage or destruction of the goods was not due to the misconduct of the Railway administration or its servants, and the respondents were not liable for the failure to deliver the goods back to the appellants.
It has been noted above that according to Section 161, the bailee is responsible for loss to the goods, "if by the default of the bailee, the goods are not returned, or delivered or tendered at the proper time." In case, there is no negligence on the part of the bailee, or the goods are lost due to bailor's own default, the bailee cannot be made liable for the same. In Boseck & Co. v.
Mandlestan, the plaintiff was a jeweller at Lahore and the defendant was a firm of jewellers at Calcutta. According to a course of dealing between these parties, the plaintiff sent an uninsured parcel of certain jewellery to the defendant, and the defendant, after making necessary repairs, sent the same to the bank uninsured by V.P.P., the value to B. B with payable being the cost of repair of the jewellery. When the parcel sent by the defendant arrived at Lahore and was tendered to the plaintiff, he told the Post Office to keep it for him till he should send for it. The parcel was then lost, while it was with the Lahore Post Office. In an action by the plaintiff against the defendant to recover the value of the contents of the parcel, it was held that: (1) There was no negligence on the part of the defendant in sending an uninsured parcel, because it was sent uninsured with the plaintiff's consent, as suggested by the course of dealing between the parties, and (2) when the parcel was tendered by the post office to the plaintiff, and he, instead of taking the delivery, had asked the Post Office to keep the same for him until he sends for it, the Post Office became the plaintiff's agent in holding the parcel. Since there was no negligence by the defendant, and the parcel was lost by the plaintiff's agent, the defendant could not be made liable for the same.
Restoration of goods lent gratuitously:
When the goods are bailed gratuitously, i.e., when the lender of the goods is to receive no remuneration in respect of the goods bailed, the bailor I can ask for the return of the goods at any time, even though the time for which they were lent has not expired. According to Section 159, the lender of a thing for use may, at any time, require its return if the loan war gratuitous, even though he lent it for a specified time or purpose. In case the bailor asks for return before the agreed time, this may sometimes cause some loss to the bailee. The bailor is bound to indemnify the bailee for any loss suffered by him for premature return of the goods. Section 159 makes the following provision in this regard:
"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 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 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."
A gratuitous bailment is terminated by the death either of the bailor or of the bailee. If such a situation occurs, the bailee or his representatives must return the goods to the bailor or his representatives, as the case may be.
Return when bailment by several joint owners:
If several joint owners of goods bail them, then, the bailee may deliver them back to, or according to the directions of, one joint owner without the consent of all, in the absence of any agreement to the contrary.
Return of goods to the bailor, when he has no title to them:
According to Section 166, "if the bailor has no title to the goods, and the bailee, in good faith, delivers them back to or according to the directions of the bailor, the bailee is not responsible to the owner in respect of such delivery." It means that even if the bailor of the goods has no title to the goods
and somebody else claims a better title, the bailee cannot be made liable for the return of the goods to the bailor. The bailee's duty to return the goods is to the bailor only and nobody else. The bailee has no right to refuse to return the goods to the bailor by pleading jus tertii, i.e., the title of a third person being better than that of the bailor. The third person, who claims better title than that of the bailor, may take their delivery from the bailee only through a Court of law. According to Section 167, if a person other than the bailor, claims the goods bailed, he may apply to the Court to stop the delivery of the goods to the bailor, and to decide the title to the goods.
Bailor's lack of title may cause some loss to the bailee, e.g., in an action by the third party to recover those goods, he may be involved in the litigation.
According to 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."
Duty to deliver to the bailor increase or profit on the goods bailed (Section 163):
According to 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." For instance, 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.
According to Section 163, accretions in respect of the goods bailed are part of the bailed goods and hence such accretions do not belong to the bailee, and, therefore, they have to be handed over to the bailor when the goods bailed are returned.
Issue of Bonus shares, etc.
In Standard Chartered Bank v. Custodian, it has been held by the Supreme Court that if shares and debentures are pledged, bonus shares, dividend and interest in respect of them are to be regarded as accretions thereto and they form part of the pledged securities. The bank has lien in respect of accretions
also. Such accretions are to be returned at the time of redemption of property and they cannot be ordered to be handed over unless redemption takes place.
Position of Right Shares:
The Supreme Court in the above-mentioned case has also held that the position of Right Shares in respect of the pledged stock is not the same as in the case of Bonus Shares, where there is natural increase in the pledged stock. If the Pawnee bank has paid for the Right Shares, they belong to the bank and not the pawnor. The Bank is entitled to retain them irrespective of the question whether they formed part of the pledge or not.
Role Of Railways in Bailment:
Delivery of possession is thus of two kinds, namely:
1.Actual 2.Constructive
In “constructive delivery” takes place when there is no change of physical possession, goods remaining where they are, but something is done which has the effect of putting them in the possession of the bailee.
Morvi mercantile bank v. union of India.
In this case Delivery of a railway receipt amounts to delivery of the goods.
Contract, Express or Implied
The contact may be express or implied.
Governor General of India in Council v. Jubilee Mills ltd.
Where with the consent of the station master goods were stored on a railway company’s platform, wagons being not available, the company was held liable when they were damaged by fire caused by a speak emitted by passing engine.
Disclosed to the Bailee Southern v. Bennet:
Where a bailor delivers goods to another for carriage or for some other purpose, and if the goods are of dangerous nature, the fact should be disclosed to the bailee.
Burden of proof:
The burden of proof is on the bailee to show that he was exercising reasonable care and if he can prove this, he will not be liable.
Union of India v. sugauli sugar works (p) ltd :
Where the railway administration was not able to explain how the barge
carrying the plaintiff ‘s goods sank and was lost, negligence was presumed making the railway liable.
Orient paper mills ltd v. Union of India:
For responsibility of railways as bailee and the question of burden of proof. Loading was done in the private siding of the plaintiff and so burden upon him to prove the fact of loading.
Raman & co v. Union of India :
The liability of the railways is that of bailee under Ss 151-152, burden was on them to show hoe loss occurred and that is occurred after the first 7 days after the completion of the transit.
M. Veerabhadra Rao v. Union of India
The goods lost after 7 days, the plaintiff came to receive the goods 4 months after their arrival, no liability.
Mis delivery by Railways
Goods were delivered to an unauthorized person on production of an indemnity bond which turned out to be bogus.
P.M.S Traders v. jaitex lungi co.
Railway administration was not able to show what was the date of arrival of goods and of termination of transit for the purpose of showing they neither
the consignment nor the consignee had claimed the goods within a week their arrival. Thus, there was nothing to exonerate the railway administration of its liability.
Union of India v. Halasidharnth sabakari sakhar Karkhana ltd.
Original railway receipts were lying with the bank, railways requested not to deliver the consignment except on production of the original R/R or indemnity bond, liability incurred to the consignor for loss of the consignment because delivery happened to be made without complying with the request.
Sec 93 of the new Railways Act of 1989.
Delivery of goods to railways for purpose of carrying is under a special contract because, in addition to its being an ordinary contract of bailment, the provisions of the railways Act also apply.
Jugalkishore pannalal darak v. Union of India :
The Bombay High court faced a problem on this point in a case involving consignment of certain bales of cloth to be carried in brake van and on arrival at the destination one of the bales being tampered with resulting in short delivery to the extent of 33kg.
Union of India v. Hafiz Bashir
As ordinary bailees railways too are bound by the duty imposed by sec 151. The railways were held liable where, instead of keeping the goods in their own godown, they left them at the jetty of a port and they were destroyed by fire. In Union of India v. Hari Shanker Gauri Shanker, liability came to railways when the goods they were carrying in a wagon were damaged due to percolation of rain water into the wagon.
S. 167. Right of third person claiming goods bailed: Juggilal kamlapat oil mills v. union of India:
Oil was consigned with the railways from Kanpur to Calcutta. It reached Calcutta intact. The sender, however, instructed the railways to bring it back to Kanpur. Before the formalities for the same could be complied with, the oil was seized by a food inspector, who found it adulterated and had it destroyed under the order of the High court.
Holding the railways not liable, the court said that a bailee is excused from returning the subject matter of the bailment to the bailor where it was taken away from him by an authority of law. Where goods have been bailed by several joint owners, the bailee may deliver them back to one joint owner without the consent of all, in the absence of any agreement to the contrary. [S.165].
Section 180
Karnataka Electricity Board v. Halappa,
S.180 enables a bailee to sue any person who has wrongfully deprived him to use or possession of the goods bailed or has done them any injury.
The bailee’s rights and remedies against the wrongdoer are just the same as those of the owner. An action may, therefore, be brought by the bailee or the bailor. “Whatever is obtained by way of relief or compensation in any such suit shall, as between the bailor and the bailee, be dealt with according to their respective interests.”
Purshottam Das Banarsi Das v. Union of India
Where the railway company was induced on production of forged railway receipts to deliver certain goods, the company was held entitled as a bailee to sue recover the goods from a person with whom they were subsequently pledged.
Lien:
Introduction:
If we take the aspect of law, a lien is a form of security interest which has been permitted over an item of property to protect the payment of a debt or performance of some other obligation. The person who owns the properly and grants the lien is known as the lienor whereas the person who has the benefit of the lien is referred to as the lienee. Section 171 of the Indian Contract Act, 1872 deals with the law of lien. An advocate’s lien is thus the right of a lawyer as well as a remedy for a lawyer to hold a client's property or money until payment has been made for legal aid, advice and representation given.
However, the availability of this remedy does not exist for an advocate in India.
Definition:
The term ‘lien’ has been defined as a claim, encumbrance, or charge on property as security for the payment of some debt, obligation, or duty.
Types of liens:
There are two types of liens:
Consensual, which are imposed by a contract between the creditor and the debtor namely Mortgage and chattel mortgage.
Non-Consensual which are typically arisen by statute or by the operation of the common law namely tax liens, attorney liens, judgement liens.
General Lien:
A general lien is the right of one person to retain any property or goods which are in his possession belonging to another person until the promise or liability is discharged.
It is a right to retain the property belonging to another for a general balance of the account. A general lien is available to bankers, factors, attorneys of the High Court, and policy brokers.
Example of General Lien;
A has two accounts in a bank. In the savings bank account, he has a credit balance of $500.
In the current account, the lie has an overdraft of $1,000. The bank can exercise the right of lien on the savings account for the amount due on the current account.
It should be noted that the right of the lien will not apply to properties deposited for safe custody or a specific purpose.
This right can be exercised against any property belonging to the other party in possession of the person exercising the right.
This right can be exercised for a general balance of the account, i.e., for any amount due.
This right is available only to bankers, factors wharfingers, attorneys of High Courts, and policy brokers.
A lender of last resort is an institution that is willing to offer loans as a last
resort. Such an institution is usually a country’s central bank.
A central bank offers an extension of credit to financial institutions experiencing financial difficulties that cannot obtain necessary funds elsewhere.
The main task in front of the lender of last resort is to preserve the stability of the banking and financial system by protecting individuals’ deposited funds and preventing panic-ridden withdrawing from banks with temporarily limited liquidity.
For more than a century and a half, central banks have been trying to avoid great depressions by acting as lenders of last resort in times of financial crisis.
At first, this act provides liquidity at a penalty rate.
Subsequently, through open market operations, it lowers interest rates on safe assets. And finally, this process involves direct market support.
Commercial banks usually resort to lender’s help only in times of crisis because
such actions indicate financial difficulties.
Loans may be granted to commercial banks and any other eligible financial institution, even private companies, which is considered highly risky.
There are widespread arguments against it. Such an extension of credit can conceal the true financial state of an institution and prolong its failure.
Eventually, the body fails to cure the current financial crises and instead creates new ones.
Case laws:
Syndicate Bank vs Vijay Kumar And Others on 5 March 1992:
Shri P.P. Rao, learned Counsel appearing on behalf of the appellant Bank submitted that the letters executed on 17.9.80 by the Judgment-debtor at the time of deposit of the FDRs, clearly gave the authority to the Bank to retain the deposits "so long as any amount on any account" is due from the Judgment-debtor and therefore the Banker has a lien or a right to set off in respect of the deposits in as much as on the relevant date there was a larger
liability due to the Bank. It is also his contention that on account of discharge of the Bank guarantee, the appellant Bank had a right to set off the amount in deposits against the liability of the Judgment-debtor due to the Bank. He also canvassed that the Banker's lien is legally recognized and it is of great importance to the entire Banking community and such a lien cannot be interfered with unless the liability in respect of which the lien is created, is fully discharged.
Particular Lien:
Particular lien is one in which the person has a right to retain the possession of goods for which the charges are due. Particular lien is available only to bailee against those goods in respect of which he has rendered some service involving the exercise of labor or skill.
Example of Particular Lien:
A gives two cars – an Ambassador and a Fiat, for repairs to B. B repaired only the Ambassador car.
A took delivery of the Ambassador car without making the payment of the repair charges. B cannot retain the Fiat car for the repair charges due in respect of the Ambassador car.
It should be noted that lien is possessory; hence if possession is lost, the lien is also lost.
Conditions for Exercise of Particular Lien:
To exercise a particular lien, the following conditions are essential:
The right of lien can be exercised only when the bailee has expended his labor and skill on the goods bailed. Therefore, mere custody of goods does not give a right of lien.
The right of lien can be exercised only when the work has been completed in lime. If the work has not been completed in lime, the lien cannot be exercised.
The right of lien can be exercised only if the payment is due. If the payment is to be made on delivery, but at a future date, then the lien cannot be exercised.
Case law:
In the case of Vithoba Laxman Kalar v/s MarotiUkandsaKalar [17], the plaintiff bailed the cattle to the defendant for the purpose of grazing. There was an agreement between them that the plaintiff will pay Rs. 3 per month as grazing dues. But, he did not. After 15 months, the grazing dues arose upto Rs. 45 when the defendant gave a notice to the plaintiff that non-payment will amount to selling off the cattle. The plaintiff refused to reply and defendant sold the cattle.
The High Court of Nagpur firstly stated that there is no chapter regarding bailment under the Indian Contract Act which says that in the absence of any contract to the contrary, one can exercise his right to sell the property.
Further, they held that there was no express contract regarding the sale of the bailed property, hence it cannot be said to be a valid one. So, the conclusion drawn is, that the right of lien does not entitle the bailee make the sale of the goods and recover the dues meanwhile, unless the statute expressly confers the right regarding the same.[18]
Though Section 170 of the Act affirms that the bailee has the right to retain the goods until the remuneration is received for the services rendered, but it nowhere states that this right even enables him to sell the goods to recover the dues.
Moreover, while scrutinizing Section 170 of the Act, it is significant to mention the very recent Bombay High Court decision of Khaalid Muhammad Sami vs.
Marudhar Studios Pvt. Ltd. and Ors.[19]it was held that the bailee has the right to retain the goods over which he had been claiming lien until and unless all the charges which are claimed, were received, and that, the detention of these goods shall continue to exist till the payment is actually affected.
Rights of bailee:
The Rights of bailee are as follows -
Right to know Material faults in goods:
The bailee has right to know material faults in goods. According to Section150 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.
Illustrations:
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.
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.
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 is 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.
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.
Right to Recover Compensation:
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.
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.
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.
Section 158 runs as follows:
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 bailors shall repay to the bailee the necessary expenses incurred by him for the purpose of the bailment.
Right to claim Indemnity:
According to Section 159 of the Indian Contract Act the Bailee has right to claim indemnity.
Conclusion:
Bailment is an important topic in the study of contracts. All the important sub topics under bailment are listed above and clearly explained with sufficient case laws.
-----------------------------------Thank You -----------------------------------------
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