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What Is Bailment?
How bailment works, types of bailment.
- Rights and Liabilities
The Bottom Line
- Investing Basics
Bailment: Definition, How It Works, Types, and When It Ends
Adam Hayes, Ph.D., CFA, is a financial writer with 15+ years Wall Street experience as a derivatives trader. Besides his extensive derivative trading expertise, Adam is an expert in economics and behavioral finance. Adam received his master's in economics from The New School for Social Research and his Ph.D. from the University of Wisconsin-Madison in sociology. He is a CFA charterholder as well as holding FINRA Series 7, 55 & 63 licenses. He currently researches and teaches economic sociology and the social studies of finance at the Hebrew University in Jerusalem.
Investopedia / Jiaqi Zhou
The term “bailment” refers to a legal relationship between two parties in common law , where assets or property are transferred from a bailor to a bailee . In this relationship, the bailor transfers physical possession of a piece of personal property to the bailee for a certain period of time but retains ownership.
There are three different types of bailment: those that benefit the bailor, the bailee, or both.
- A bailment involves the contractual transfer of assets or property from a bailor, who temporarily relinquishes possession but not ownership, to a bailee.
- The bailee must intend to and actually physically possess the bailable chattel or asset.
- There are three types of bailments: those that benefit both parties, those that benefit only the bailor, and those that benefit only the bailee.
- Although the burden depends on the type of bailment, the bailee must always treat the bailor’s property with a reasonable amount of care.
- Damage or loss to property due to negligence of duty in a bailment can result in legal disputes.
A bailment is an agreement in common law that comes into effect when someone entrusts an asset to someone else for safekeeping. As previously noted, the bailor is the owner of the asset and temporarily relinquishes it to the bailee. Although the bailor gives possession to the bailee, the bailor retains legal ownership of the asset. Bailments only start once the property is in the hands of the bailee.
The bailor is generally not entitled to use the property while the bailee holds it. Leaving your car with a valet is a common form of bailment, while parking in an unattended garage is a lease or the license of a parking space, as the garage cannot show intent to possess the car.
Bailment is distinct from leasing, where ownership remains with the lessor but the lessee is allowed to use the property.
Bailments are legal courses of action independent of contract or tort . To create a bailment, the bailee must both intend to possess, and actually physically possess, the bailable chattel . The bailor typically receives a written contract, a receipt, or a chit, which is what you get when you drop your coat off at a coat check. By taking possession of the property, the bailee agrees to guard it using reasonable care. Legal disputes can arise if anything happens to the asset while in the bailee’s possession.
Some common applications for bailment include:
- Items held by a dry cleaner
- Valet parking
- The shipping of goods
There are three different types of bailments: those that benefit both parties, those that benefit only the bailor, and those that benefit only the bailee. We’ve outlined some of the most important details about each below.
Bailments That Benefit Both Bailor and Bailee
This type of bailment is referred to as a service agreement bailment. For instance, parking your car in a paid parking lot benefits both parties, because the bailor is able to park their car in a secure lot while the lot owner is paid for the service. In service bailments, a bailee is liable for any damage that results to the bailed items if they are negligent in their duties.
Bailments That Benefit Only the Bailor
This is referred to as a gratuitous (free) bailment. Free valet service would be an example of this because the valet service (in this case, the bailee) doesn’t receive compensation for parking your car. A bailee can face liability for damaging the bailed items if they are grossly negligent or act in bad faith while safeguarding the asset.
Bailments That Benefit Only the Bailee
These bailments are called constructive bailments. Checking a book out of the library is a common example. When you check the book out, you become the bailee while the library is the bailor, which gets no benefit from the relationship. It does, however, still expect you to return the book at the end of the rental period.
In this type of bailout, the bailee faces liability for basically any damage to the bailed item. This is the highest standard of care required out of the three categories.
Rights and Liabilities in a Bailment
Bailments come with certain rights for both parties. Bailors can expect that bailees will take care of their assets to the best of their ability, using the most reasonable amount of caution. After the relationship ends, bailors can expect to get their property back in its original state. If this isn’t possible, bailees must account for any actions that led to damage or loss.
Bailors have the right to end the agreement and to legal recourse, including compensatory damages, if the bailee can’t produce the asset when the agreement ends. Bailees, on the other hand, can expect to be compensated for their services, take action against any other parties that damage the asset, or can exercise liens if the bailor doesn’t live up to their end of the deal. All of these rights, of course, depend on the nature of the bailment.
The liabilities depend on the type of agreement as well. In service agreement bailments (where both parties benefit), bailees are required to take reasonable steps to ensure that the asset is well cared for or they may be responsible for damages that result from their negligence.
The burden of responsibility lessens slightly when the bailor is the only one who benefits. In gratuitous bailments, the bailee has a responsible duty of care but is only liable if they are deemed to be grossly negligent in their duties. Constructive bailments, on the other hand, carry the highest standard of care and, therefore, the greatest liability to the bailee. That’s because they are the only ones who benefit from this relationship.
When Does a Bailment End?
The most common expiration for a bailment takes place after the asset is transferred back to the bailor by the bailee. For instance, the bailment ends when you pick up your clothes from the dry cleaner’s shop. Bailments may end prematurely if the property is damaged or destroyed, or when one party in the relationship terminates the agreement in writing.
What is an extraordinary bailment?
An extraordinary bailment occurs when bailees are charged with a piece of property under strict liability. Under this type of agreement, a bailee takes complete responsibility for the asset (and the return of it in its original state) regardless of the type of care they agreed to at the onset of the relationship.
What is a service agreement bailment?
Service agreement bailments benefit both parties in the relationship. The bailor gets the benefit of their asset being safeguarded by the bailee in exchange for payment. Parking your car in a secure lot, renting a safe deposit box, using a paid valet service, or dropping your clothes off at the cleaners are common examples of service agreement bailments.
Why are bailments important?
Bailments allow individuals to transfer possession of their property to someone else for safekeeping. Bailees may have more secure means when it comes to holding assets. This is especially true in the case of banks, which are trusted by their customers to hold and safeguard their money.
Bailment refers to a legal relationship established when one party (the bailor) temporarily transfers possession of property to another party (the bailee) for a specific purpose, without transferring actual ownership. In business, bailment can occur in a variety of situations, such as when goods are stored, transported, leased, or repaired by a third party. The bailee has a duty to take reasonable care of the bailed property and return it to the bailor once the purpose is fulfilled.
Understanding the concept of bailment and the associated rights and responsibilities is essential for businesses to protect their interests and mitigate potential liabilities.
Saylor Academy. “ 18.1 Introduction to Bailment Law .”
Encyclopedia.com. “ Bailment .”
AccountingTools. “ Bailment Definition .”
Cleartax. “ Bailment .”
LegalMatch. “ Types of Bailments .”
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The Law Dictionary for Everyone
The term bailment refers to the transfer of personal property to another person for safekeeping, or for the other person to control or use temporarily. A bailment is a form of contractual relationship, even if no contract has been signed. The person receiving the property (the “bailee”) has possession and control over the property for a specific period of time, during which he or she is responsible to take reasonable care of the property. The original owner of the property (the “ bailor ”) retains ownership interest during this time. To explore this concept, consider the following bailment definition.
Definition of Bailment
- The delivery of property into the temporary custody and control of another for some purpose.
1545-1555 Anglo French bailement
What is a Bailment
Bailment is different from a contract for sale of the property, even where such contracts include seller-financing, or the making of payments for the property. This is because the intent of a contract of sale is to transfer ownership of the property to the buyer. In a bailment, ownership of the property does not transfer, and transfer is never an intended consequence.
In order for a bailment to exist, the bailee must have both the intent to possess the property, and actual possession the property. The bailor intends that the property will be returned to him at the end of a specified period of time, or after the purpose for which the property was given has been completed.
Kevin pulls up to the entrance of an upscale restaurant with his wife. The couple exits the car, and Kevin gives his keys to the valet, so he can park the car. In such a case, it is clear that the valet intends to take temporary possession of the car, and that Kevin expects to get his car back after dinner. While the car is in the valet’s possession, he is responsible for taking reasonable care of Kevin’s car.
Purposes of Bailment
Because a bailment is often created without an actual written contract, there are many situations in which the law recognizes a bailment exists. These include bailments created:
- For the mutual benefit of both the bailor and bailee – created when there is to be an exchange of services or performances between the parties, such as when the bailor leaves his property with the bailee to be repaired, after which the bailor will be paying for the repairs.
- For the sole benefit of the bailor – created when the owner of a valuable item, such as a TV, a car, or a piece of jewelry, leaves the item with someone for safekeeping, with no expectation of compensation being made to the friend or other party.
- For the sole benefit of the bailee – created when the owner of an item loans the property to another person, with no expectation of receiving payment or compensation, but expecting that the item will be returned to the owner.
Elements of a Bailment
Many civil lawsuits arise over the failure of a bailee to protect the property of the bailor. In order to prove that a bailment existed, and therefore that the bailee had a duty to reasonably protect the property, three elements must be proven. These include:
- Delivery . The property must be delivered to the actual care and/or control of the bailee. Control of the property does not necessarily require actual physical possession in some cases, but by giving a means of access to the property, such as providing keys to a storage unit where the property is kept, the bailor engages in constructive delivery of the property.
- Acceptance . A bailee must knowingly accept possession and/or control of the property. This means that no one can unwittingly become a bailee, as, because a bailment is a type of contract, knowledge and acceptance of the bailment terms are essential elements.
- Consideration . Unlike a typical contract, in which both parties must receive something of value, only one party need receive something of value in a bailment. When a bailment is created for the sole benefit of the bailee, such as when one party loans the use of his car to another, just to be a good friend, a bailment is created, even though the bailor receives nothing of value.
George needs to go to several job interviews in the coming week, but his car is broken down. His friend Sam decides to let George use his second car, and surprises him by dropping it off at his house, parking it on the street while George is not home. A few minutes after Sam leaves, a drunk driver swerves and crashes into Sam’s car.
Sam wants George to pay for the damages to the car, saying he can wait until he has gotten a job. However, George had no idea that Sam intended to loan him his car, and had no intent of accepting use or control of the car when Same left it at his house. If the two men take the case to small claims court, Sam will not be able to prove that a bailment was created, and therefore that George had a responsibility to protect the car, as the three elements of a bailment did not occur. It is unlikely that the court would hold George liable for repairs to the car.
Rights and Responsibilities of a Bailee
In the event a written bailment contract is made, the rights and duties of both parties should be spelled out. In many cases, no written contract exists, though the law recognizes that a bailee must exercise a duty of care in protecting the property. This is the purpose of the tiered system of liability , with specific duties varying according to the type of bailment.
- Bailment for Mutual Benefit – a bailee’s failure to take reasonable care of the property may result in the bailee’s liability for any damages that might be incurred due to his negligence .
- Bailment for Sole Benefit of Bailor – a bailee has a lesser duty of care, being responsible only for damages that result due to his gross negligence , or act of bad faith .
- Bailment for Sole Benefit of Bailee – a bailee has a duty of taking extraordinary care for the property, and may only use the property for the purpose agreed upon when the bailment is created. The bailee is responsible for all damages to the property that arise from his failure to properly take care of it.
Termination of a Bailment
Termination of a bailment occurs when its intended purpose has been achieved, or when the parties agree that it is ended. If a bailment is created for an undefined period of time, it may be terminated at will by either party by providing the other party with due notice of the intent to terminate. Following completion of the purpose for the bailment, the bailee has a responsibility to return the property to its owner.
In some cases, if return of the property is impossible, due to no fault of the bailee, the bailee is not held liable for non-delivery. This might occur if the property was destroyed in a fire that was not the bailee’s fault, or if the property blew away in a tornado. In all other situations, failing to return the property as scheduled or agreed, the bailee may be liable for the tort of conversion.
Real Life Cases of Responsibility Under Bailment
The issue of responsibility or liability for damage to, or loss of, property under bailment is a common subject of civil lawsuits across the U.S. In each of these cases, the judge must determine whether the three required elements of a bailment existed at the time of loss or damage occurred, as well as the value of the property lost, in order to make a judgment.
Hotel Loses Guest’s Valuable Jewelry
At Hotel in Minnesota, a guest left a valuable ring with the desk clerk, with instructions for the ring to be delivered to a jeweler. The desk clerk lost the ring, so it was never delivered to the jeweler, and he never reported to either his employer, or the guest, that it had been lost.
The guest sued the hotel as the bailee of the ring, as she had delivered possession of the ring to the hotel’s employee for the purpose of having it delivered to the jeweler. The guest proved to the trial court’s satisfaction that, as a bailee, the hotel was liable for the jewelry, and awarded damages in the amount of over $2,000.
The hotel appealed the decision to the Minnesota Supreme Court, arguing that, in order for a bailment to exist, there must be a mutual agreement between the parties. Since the hotel had never consented to become a bailee, it cannot be held responsible. The hotel also argued that, because it did not know the value of the ring in question, it was not a bailee. The hotel further argued that it received no consideration or benefit for taking care of the ring.
The Minnesota Supreme Court affirmed the trial court’s decision saying:
- The hotel’s desk clerk consented to a bailment on behalf of his employer
- The hotel’s desk clerk new that he had accepted control of a valuable ring
- The hotel took possession of the ring as part of its regular business services, and so generated good will and return guests as a result of those services
(See: Peet v. Roth Hotel Co. 191 Minn. 151, 253 N.W. 546 (1934))
Related Legal Terms and Issues
- Bad Faith – Acting with the intent of deceiving or misleading another for the purpose of gaining some advantage.
- Consideration – Recompense or payment.
- Civil Lawsuit – A lawsuit brought about in court when one person claims to have suffered a loss due to the actions of another person.
- Constructive Delivery – Delivery of some property not entailing an actual physical transfer of possession of the property, but is inferred by the conduct of the parties.
- Damages – A monetary award in compensation for a financial loss, loss of or damage to personal or real property , or an injury.
- Negligence – Failure to exercise a degree of care that would be taken by another reasonable person in the same circumstances.
- Personal Property – Any item that is movable and not fixed to real property.
- Tort – A wrongful act that results in injury or damages to another person’s reputation, property, or the like, entitling the injured part to compensation.
- Key Differences
Know the Differences & Comparisons
Difference Between Bailment and Pledge
Last updated on July 26, 2018 by Surbhi S
The main difference between pledge and bailment lies in the use of goods, i.e. the use of goods is prohibited in pledge, whereas in the case of bailment the party to whom the goods are being handed over can use them. To further understand the difference between these two, take a look of the given article.
Content: Bailment Vs Pledge
Comparison chart, definition of bailment.
A contract in which the goods are handed over by one party to another party for a specific reason, which is expressed or implied for a short period. The person who delivers the goods is termed as bailor whereas the receiver of the goods is termed as bailee.
When the purpose of delivering the goods is accomplished, the bailee should return the goods to its actual owner. Here the word goods may include all the movable items, but property and money do not come under the definition of goods. While the transfer of goods the ownership of goods remain with the bailor only the possession of goods transfers for a limited period.
The receiver of the goods should take good care of the goods as he takes care of his own goods as well as he should not use the goods without the permission of its owner except for the purpose specified. It is the duty of the bailor to tell the faults in the goods.
The delivery of goods can be done in three ways: Actual Delivery, Symbolic Delivery, Constructive Delivery. The Bailment is divided into two categories:
- Gratuitous Bailment – Either for the sole benefit of Bailor or Bailee.
- Non-gratuitous Bailment – For the Mutual Benefit of both the parties.
Example: Clothes given in laundry for cleaning are an example of bailment.
Definition of Pledge
The pledge is a variety of bailment in which goods are transferred from one party to another party as security for the payment against debts owed by him. The person who delivers the goods is known as Pawnor whereas the receiver of goods is known as Pawnee.
When the objective of the transferring the goods is completed or say when the payment for debt for which goods are pledged, is met, then the receiver shall return the goods to its real owner. However, if he fails to redeem the goods within a reasonable time, then the receiver has the right to sell the goods after giving a proper notice to its owner.
It is the duty of the Pawnee to take good care of the goods, as he takes care of his own goods as well as he should not use the goods without the permission of its owner. Moreover, the pawnor must tell the all the defects in the goods.
Example: Money taken as debt from the money lender by pledging gold as security against it is an example of Pledge.
Key Differences Between Bailment and Pledge
The following are the major differences between Bailment and Pledge
- A Bailment is a contract in which goods are transferred from one party to another party for a short period for a specific objective. The Pledge is a kind of Bailment in which goods are pledged as security against payment of debt.
- A Bailment is defined under section 148 while Pledge is defined under section 172 of the Indian Contract Act, 1872.
- In bailment, the consideration may or may not be present, but in the case of a pledge, the consideration is always present.
- The objective of bailment is safe custody or repairing of goods delivered. On the other hand, the sole purpose of delivering the goods is to act as security against the debt.
- The receiver has no right to sell the goods in case of bailment whereas if Pawnor does not redeem the goods within the reasonable time, the Pawnee can sell the goods after giving notice to him.
- In bailment, the goods are used by the bailee only for the said purpose. Conversely, in pledge, Pawnee has no right to use the goods.
We all have no idea, when we enter into these type of contract in our life especially the contract of bailment because all of us has left our car or motorcycles in the service center for repairs, it is bailment. The pledge has a limited scope as compared to bailment; many businessmen take a loan from the financial institution by pledging their stock as security. In short, we can say that every pledge is a bailment, but every bailment is not a pledge. So, both of them are very important at their places and we must know their differences.
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- Contract Act, 1872
Contract of Bailment:- Contract Act Notes
Contents of Article
MEANING OF CONTRACT OF BAILMENT (Sec. 148)
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.
BAILMENT – Contract Act Notes
- Exclusive benefit of Bailor : J, neighbour of K, agrees to look after K’s per while he is out of station. K is benefited.
- Exclusive benefit of Bailee : Z lends a book to Y for reading. Y is benefited.
- Mutual Benefit of both : A hires furniture from B, by payment of hire charges, Both A and B are benefited
- Gratuitous Bailment : Neither Bailor nor Bailee gets any remuneration, e.g. A lends his book to his are friend.
- Non gratuitous Bailment : Bailor or Bailee gets remuneration e.g. G gives his television set for repair to H, a technician. H gets paid for the job
ESSENTIALS OF A VALID CONTRACT OF BAILMENT (Sec.148)
- There must be a contract.
- The contract may be expressed or implied.
- Bailment can be made of goods only.
- Delivery There must be delivery of goods by one person to another person.
- The goods must be delivered for some purpose.
- The purpose may be expressed or implied.
- The delivery of goods must be conditional
- returned (either in original form or in any altered from); or
- disposed of according to the directions of the bailor, when the purpose is accomplished.
Essentials of a Valid Contract| The Indian Contract Act 1872 Notes|
MODES OF DELIVERY (Sec. 149) The Indian Contract Act 1872 Notes
- Actual delivery Transfer of physical possession of goods from one person to another .
- Physical possession of goods is not actually transferred.
- A person does some act resulting in transfer of possession to any other person.
- Delivery of keys of a car to a friend
- Delivery of a railway receipt.
- A person is already in possession of goods of owner.
- Such person contracts to hold the goods as a bailee for a third person. Then – Such person becomes the bailee, and the third person becomes the bailor.
CLASSIFICATION OF BAILMENT
- Gratuitous bailment
- No hire charges are paid by bailee; and
- No custody charges are paid by bailor.
- Hire charges are paid by bailee; or
- Custody charges are paid by bailor.
DUTIES OF A BAILOR (Sec. 150, 158, 159 and 164)
- Disclose faults in goods [Sec. 150]: Bailor is bound to disclose to Bailee, faults in the goods bailed, of which he has knowledge. He should also disclose such information which – (a) materially interferes with the use of goods, or (b) expose the Bailee to extraordinary risk.
Liability for Defects in Goods
Example: A owning a motorcycle, allows B, his friend, to take it for a joy ride. A knows that its brakes were not proper but does not disclose it to B. B meets with an accident. A is liable to compensate B for damages. But when A had lent the motorcycle on hire, he is liable to B even if he did not know of the failure of his brakes.
- Bear expenses [Sec.158]
Expenses of Bailment
Example: M lends his car to N and it runs out of petrol. N can recover the amount paid for refueling (ordinary expenses). If in case, the car suffers a breakdown, N can recover such charges as are paid by him in bringing it back to condition (extra – ordinary expenses). He M hired the car to N, he shall be liable only for the repair charges, being extra ordinary expenses.
- Indemnify the bailee for defective title The bailor shall indemnify the bailee for any loss caused to bailee due to defective title of bailor.
- the bailment is gratuitous ; and
- for a specific period.
- the bailor may compel the bailee to return the goods before expiry of the peiod of bailment; but
- the bailor shall indemnify the bailee for any loss incurred by the bailee.
- It is the duty of the bailor to receive back the goods, when returned by bailee.
- If the bailor wrongfully refuses to receive back the goods, he shall be liable to pay ordinary expenses of custody of goods incurred by the bailee.
DUTIES OF A BAILEE (Sec.151 to 157)
- The bailee must take such case of goods as a man of ordinary prudence would take care of his own goods.
- he is not negligent; or
- the loss was caused due to an act of God or other unavoidable reasons.
- The bailee must not make any unauthorized use of the goods.
- the bailment becomes voidable at the option of the bailor; and
- the bailee shall be liable for any loss or damage even if such loss is caused due to an act of God or other unavoidable reasons.
- Not to mix goods Goods are mixed with bailor’s consent The parties shall have a proportionate interest in such mixture.
Goods are mixed without bailor’s consent, but the goods are separable
- The bailee shall pay the expenses of separation.
- The bailee shall pay damage incurred by the bailor.
Goods are mixed without bailor’s consent, and goods are not separable The bailee shall compensate the bailor for any loss caused to him.
- the time specified in the contract has expired ; or
- the purpose specified in the contract is accomplished.
- the goods shall be at the risk of the bailee;
- the bailee shall be liable for any loss or damage, even if such loss is caused without any fault or negligence of the bailee or due to an act of God or other unavoidable reasons.
- Return accretion to goods The bailee must return to the bailor any accretion (i.e., addition) to the goods bailed.
- Not to set up an adverse title The bailee has no right to allege that the bailor had no authority to bail the goods.
RIGHTS OF A BAILOR (Sec. 153, 159, 163, 180, 181)
- Terminate the bailment If – The bailee does any act inconsistent with the terms and conditions of the contract of bailment. Then – The bailment becomes voidable at the option of the bailor.
To know more about Voidable agreement visit here
- the bailor may compel the bailee to return the goods before expiry of the period of bailment; and
- A third party who does any damages to the goods; or
- A third party who deprives the bailee from using the goods
- Sue the bailee The bailor may sue the bailee to enforce his duties.
RIGHTS OF A BAILEE (Sec. 165, 166, 167, 170, 180)
- The bailor has no title to the goods; and
- As a consequence, the bailee suffers some loss.
- It is the duty as well as the right of the bailee to return the goods to the bailor.
- In case of joint bailor, the goods may be returned to any of joint bailors.
- The bailor is liable to pay the extraordinary expenses.
- The bailee may recover the extraordinary expenses paid by him.
- Ordinary expenses If the bailment is gratuitous, the bailor is liable to pay the ordinary necessary expenses, i.e., the bailee has the right to recover the ordinary necessary expenses incurred by him.
- Suit for deciding the title The bailee may apply to the Court for deciding the title to goods, if a person other than the bailor claims that the goods belong to him.
- A third party who deprives the bailee from using the goods.
- Right of lien The bailee has the right to retain the goods delivered to him until the charges due to him are paid by the bailor.
DISTINCTION BETWEEN BAILEE’S PARTICULAR AND GENERAL LIEN
TERMINATION OF BAILMENT (Sec.153, 159 and 162)
Finder of goods (sec. 71, 168 and 169).
- Finder of lost goods [Sec 71] A person, who finds goods belonging to another and takes them into his custody, is subject to the same responsibility as a Bailee.
- Implied Agreement There is an agreement, implied by law between finder and owner of goods.
- To take initiative to find the real owner of the goods,
- To take reasonable care of the goods found,
- Not to put the goods found for his personal use, and
- Not to mix the goods found with his own goods.
- Rights of Finder:
- Law of Torts
- Study Materials
CONSPIRACY IN TORTS| Free Law Notes
Revocation of Proposal and Offer| Free law notes
Discharge of contract| Free Law Notes
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Contract of Bailment, Rights And Duties of Bailor and Bailee, License, Sale
- Essential Features of Bailment
Difference between Bailment and License
Difference between Bailment and Sale
- Duties of Bailor and Bailee
- Rights of Bailor and Bailee
The word “ bailment ” has been derived from the French word “ ballier ” which means “ to deliver ”. In general, Bailment means the delivery of goods of a person to whom permission is given to have the goods of another person.
The contracts of bailment come under a special class of contract and are dealt under Sections 148 to 181 of the Indian Contract Act, 1872 . Though the Contract Act covers the general principles related to contracts of bailment but it does not deal with all types of bailment. The Carriers Act, 1865, The Carriage Act of Goods by Sea Act, 1925 and The Railways Act, 1890 , are the few Acts which deal with special types of bailment.
According to Section 148 of the Contract Act, “ Bailment means 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 “ bailer ” and the person to whom they are delivered is called the “ bailee ”.
- Sanju delivers a piece of cloth to Manju, a tailor, to be stitched into a suit. There is a contract of bailment between Sanju and Manju.
- ‘Z’ lends a novel to ‘Y’ to be returned after a month. There is a contract of bailment between ‘Z’ and ‘Y’.
- Najuk sold some goods to Komal who left them in the possession of Najuk. The relationship between Najuk and Komal.
Essential Features of Bailment-
- Agreement: Bailment is always created by an agreement between the bailer and the bailee. It can be either express or implied.
- Delivery of Goods: Bailment involves the change of possession without giving ownership. The possession means the right to keep control over the delivered goods.
- Movable Property: Goods in Bailment involves all types of movable goods except money. Thus, bailment of immovable goods cannot be done.
- Definite Purpose: Goods are delivered for a definite purpose. For ex. repairing, tailoring, security, etc.
Duties of Bailor and Bailee-
Duties of bailor:.
1) Disclosure of known faults (Section 150): Bailor is supposed to disclose the known faults in the goods bailed to the bailee and if he fails to do so, he will be held liable for the damage casued to the bailee due to such faults. If the bailor bails goods for hire, he will be liable for even the faults which he isn’t aware of. However, in a bailment for consideration, he can be held responsible only for the faults which he is aware of and failed to disclose them.
2) Bear unordinary expenses of bailment (Section 158): The bailor has to bear any unordinary expenses incurred under contract of bailment. In case of bailment for consideration, when the goods are required to be carried or kept or some work is done in relation to them by the bailee, the bailor is required to repay all the expenses incurred by the bailee to him.
3) Indemnification of bailee for incurring loss when bailment is terminated prior to its term (Section 159): A bailment for consideration can be terminated at any time by the bailor even when the bailment was for a specific purpose or time. Any loss accrued to the bailee from such termination shall not more than the benefit derived from the bailment. In case the loss is more than the benefit, the bailee shall be indemnified by the bailor.
4) Receive back the goods: The bailor shall receive the goods back when the bailee returns them after the expiry of term or fulfillment of purpose of bailment. If the bailor denies the receipt of goods, the bailee shall receive compensation from bailor for the expenses incurred due to custody of such goods.
5) Indemnification of the bailee (Section 164): If the bailor’s title to the goods is defective and he is not entitled to make bailment and the bailee suffers any loss or damage as a consequence, the bailor will be liable for such loss or damage.
Duties of Bailee-
1) reasonable care of the goods (section 151): the bailee has a duty to take care of the goods bailed as any reasonable man would take of his own goods under similar circumstances. the burden of proof that he exercised reasonable care negligently when he fails to return the goods or return them in a damaged condition lies on the bailee. if the goods are destroyed or damaged even after bailee’s reasonable care, then the bailee is not responsible for such loss under section 152..
2) Not use the goods inconsistently with the contract (Section 154): A bailee shall be liable for the loss incurred due to use of goods inconsistent with the terms of contract even if he did not act negligently and the damage has resulted due to an accident.
3) Not to mix the goods bailed with his own goods (Section 155, 156): The bailee has a duty not to mix his goods with the goods of the bailor and shall keep them separate. If he does so:
- with the consent of the bailor, the bailor and the bailee shall have an equal proportion of interest in this mixture of goods.
- without the consent of the bailor, the bailee has to bear the expenses of division and separation and the damages arising from such mixture, if the goods can be divided/separated.
- without the consent of the bailor, the bailee shall compensate the bailor for the loss if the goods mixed cannot be separated.
4) Not to set up an adverse title (Section 117): The bailee shall not hold the goods for the bailor on behalf of him as per Section 117 of the Evidence Act, 1872. The bailee cannot deny the rights of the bailor to have the goods and receive them back. The bailor is bound to prove that the other person had a right to goods as against the bailor if he delivers them to person other than the bailor.
5) Return accretion to the goods (Section 163): The bailer shall deliver any increase or profit accredited from the goods bailed to the bailor except as otherwise provided in the contract.
6) Return the goods (Section 161): The bailee has a duty to return or deliver the goods bailed according to the bailor’s directions when the time of the bailment expires or the purpose of bailment has been fulfilled.
Rights of Bailor and Bailee-
Rights of bailor.
1) Enforcement of Rights: The bailor has a right to sue the bailee for enforcing all the liabilities and duties of him.
2) Avoidance of Contract (Section 153): The bailor has a right to terminate the bailment if the bailee doesn’t any act inconsistent with the terms of the bailment with regard to the goods bailed.
3) Return of goods (Section 159): When the goods are lent for consideration, the bailor has a right to demand their return as and when he wants even if he lent them for a specific period of time or purpose.
4) Compensation from wrongdoer (Section 180): If a bailee is deprived of the use or possession of the goods bailed by a third person wrongfully or if the goods are damaged, the bailee or bailor has a right to sue the third person for such damage or deprivation.
Rights of Bailee-
1) Delivery to one of several joint bailors of the goods bailed (Section 165): If goods of several joint owners are being bailed, the bailee may deliver them back to one joint owner without the consent of all owners when there is no agreement to the contrary.
2) Delivery of goods to bailor without title (Section 166): If any person other than the bailor claims the goods bailed, the bailee has a right to apply to Court to prevent the delivery of goods to the bailor and to decide the title of such goods.
3) Right to take action against trespassers (Section 180): If any third person deprives the bailee wrongfully of the possession or use of goods bailed to him, the Bailee can file a suit against that person in respect of the goods bailed.
4) Bailee’s Lien: When the charges incurred by the bailee in regard to the goods bailed are not paid to him, he has a right to lien i.e. right to retain the goods with him.
On the basis of above discussion, it can be analyzed that bailment is a contract in which a delivery of possession of specific goods is given to another person for a specific purpose and it is different from the concept of license and sale. The bailee and the bailor have to perform in accordance with the provisions of the Indian Contract Act, 1872 and the contract of bailment.
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Essentials of Bailment- Rights and Duties of Bailor and Bailee
Every person has experience of bailment in their life that is why we need to understand the essentials of bailment given in the Indian contract act . In our daily needs, the time comes where we give our personal property or take the personal property from another person for some gain or for any other reason. In simple terms, a bailment is a legal relationship between two parties who has the capacity to contract where the physical possession of the personal property of one person is transferred to another person who gets the possession of that property but not the owner of that property for some purpose. When the purpose of the bailment is fulfilled the person gives back the possession of the property to the owner or account for it. Now, let’s discuss the definition of bailment, types of bailment and Essential elements of bailment.
In this article, we will define bailment and its essentials, what is a bailment, the essentials of bailment, various kinds of bailment, and the rights and duties of bailor and bailee in bailment.
Table of Contents
What is Bailment?
Bailment is a legal relationship between bailor and bailee in which bailor delivers the possession of his goods to the bailee for a specific purpose and when the purpose is completed, the bailor takes his goods back from the bailee or can instruct the bailee to dispose of the goods according to his directions.
There must be free consent for bailment from both sides. The Bailee must have the intention of physical possession. Section 148 in The Indian Contract Act, 1872 deals with bailment.
Who is Bailor?
The person who is giving possession of his personal property to another person is called Bailor in the bailment.
Who is Bailee?
The person who is taking possession of the property and gives back the property after the fulfilment of the purpose of bailment is called Bailee.
Under the bailment, normally, the Bailor has no right to use the property when it is under the possession of Bailee. But the Bailee has the superior right on that property.
Essentials of Bailment in Indian contract act
There are various Essentials of bailment in the Indian contract act which must be there. Let’s discuss essential elements of a contract of bailment:-
The main essential of bailment is Contract. The bailment is always based upon the contract. there must be a contract between Bailor and Bailee. Though, the contract can be “Express” or “implied.” There are different types of contracts and the contract of bailment must follow the essential elements of a valid contract .
A contract that does not follow the essentials of the contract is known as a void contract .
Example: A gives his car to B for repair, here A is the Bailor and B are the Bailee and the purpose of the bailment is expressed by the A that he wants to repair the car by B.
Delivery of possession
The actual possession or control over the property must be delivered by the bailor to the bailee in order to create the bailment. This is essential for bailment. If the possession is not given there is no [bailment]. The possession can be actual or constructive.
Essentials of bailment in the Indian contract act
Example: The Ram was holding the property on the behalf of Shyam, agrees to hold the same on the behalf of Mohan, there is the constructive transfer of the possession.
There should be the purpose of the bailment or giving personal property to another person. The goods should be transferred by the Bailor to the Bailee for some purpose.
Example: A gives his car to X to repair that car. Here the repairing of the car is the purpose of bailment.
Return or dispose of goods
The goods transferred by the Bailor to the Bailee are transferred on the condition that they will be returned back to the Bailor after the fulfilment of the purpose of the bailment. However, the goods can be returned back to the Bailor in their original form or in altered form as the contract may be.
Easement-Meaning & Essentials of Easement
All the said points are the essentials of bailment in the Indian contract act. All the elements of bailment which are also known as essentials of bailment in the Indian contract act must be fulfilled to be a legal bailment.
The hiring of locker- Not bailment
in the famous case of Atul Mehra Vs Bank of Maharashtra, The high court held that mere hiring of a locker in the bank does not come under section 148 of the contract act. The reason is that it is not possible for the bank to check the quality, quantity and value of the personal goods which has been kept in the bank locker. The hiring of a locker in the bank comes under bank transactions only.
Types of bailment
There are mainly 4 types of bailment under the act, which are as follow:
A bailment for the benefit of Bailor and Bailee
The bailment whereby contracting the bailment, both the person ie Bailor and Bailee get benefits comes under this types of bailment.
Example: the best example for this is when a Bailor parks his car in the paid parking of Bailee. The Bailor will get the benefit to park his car and the Bailee will get the money for parking.
Only for the benefit of Bailor
Where the bailment gives benefit to the Bailor only is covered under this type of bailment.
Example: Free parking of the car of Bailor in the free parking lot of bailee.
Only for the benefit of Bailee
A bailment that gives the benefit to the Bailee only comes under this type of bailment. There will be no profit to the Bailor.
For example, the best example of this is to read the books in the common library; here you are the Bailee and the owner of the library is Bailor. You can read the book free of cost and gain knowledge for yourself, you will get benefits whereas the Bailor will get nothing.
a bailment in which non of the party is taking benefit is called gratuitous bailment. selection 150 of the Indian contract act deals with this.
For example, A lends a dog to his friend’s house.
According to section 150 of the act, it is the duty of the bailor to expose the defect in the goods even if he is doing bailment without reward. If the loss is incurred by the bailee due to the defective goods, then the bailor will be liable even if he was not aware of the defect.
For example, A lends the dog to his friend’s house, A knew that his dog can injure his friends but he did not tell him about this. The dog injured his friend. A is liable to pay the loss.
These 4 are the main types of bailment.
Rights and Duties of Bailor and Bailee under Contract Act
As we discuss above, Bailment is a legal relationship between both parties and it should follow the essentials of bailment. Now, we are going to discuss the Rights of bailor and bailee and duties of bailor and bailee. In the contract of bailment , the good’s ownership remains with the bailor and only the possession is transferred to the Bailee. The delivery of goods may be actual or constructive. For example, if A gives his house keys to B, it amounts to the delivery of goods in the house. Here A and B are bailor and bailee.
Rights of Bailor and bailee under Bailment
There are various rights of bailor and bailee given under the Indian contract act. During the contract of bailment, the rights of the bailor and bailee perform a major role. They both can enjoy their legal rights.
Rights of Bailor
Right to claim compensation against unauthorized use.
It comes under the right of the bailor to claim compensation from the bailee if he uses the bailed goods without any authorization. The bailor can sue him to get compensation.
Right to get compensation
If there is any loss or damages occurred to the bailed goods, due to the negligence of the bailee, the bailor has the right to get compensation for that loss.
Rights of bailor to get increase or profit
It is the right of the bailor to get an increase or profit made by bailed goods to the bailee. The bailor can sue the bailee if he refuses to give the same.
Right to demand the return of goods
It is the right of the bailor to demand the return of bailed goods in good condition after the achievement of the purpose or after the expiry of the bailment time period.
Right to terminate the contract
The bailor can terminate the contract if he found that the bailee has failed to perform his duty and he shall be competent to recover the losses that occurred due to Bailee.
Rights of bailee
Right to compensation.
It is the right of bailee to get compensation for the loss or damage done to him by the act of bailor.
The bailee can also use his right to terminate the contract if he found that the contract is not fulfilling the terms and conditions decided by the parties while making the contract.
Right to get expenses
The bailor is bound to pay the expenses incurred by the bailee for the contract.
Right of lien
A lien is a legal right against the assets that are used as collateral to satisfy the debt and it also comes under the Rights of Unpaid Seller. If the bailor refuses to repay the expenses incurred by the bailee for the contract, it is the right of the bailee to retain the goods and securities in his possession until the bailor pays the expenses.
Duties of Bailor and Bailee
So now, let’s discuss the Duties of Bailor and Bailee under Bailment.
Duties of Bailor
Duty to disclose all faults.
It is the duty of the bailor to disclose all the faults and defects which are known to him. If the bailor fails to do so, he will be responsible for the losses caused by goods to the bailee.
To pay extraordinary expenses
It is the duty of the bailor to pay the expenses incurred by the bailee for the contract.
To accept goods after expiry
It is the duty of the bailor to accept the good after the expiry of time or after the purpose accomplished for which those goods were given. If he refuses to take the good without any proper reasonable ground, he will be responsible for any loss to the goods.
Indemnify the bailee
The bailor has to indemnify the bailee for the loss incurred due to the defective title of bailed goods.
Types of Indemnity under Indian Contract Act
Duties of Bailee
Take care of goods.
According to The Contract Act, section 151, it is the duty of the bailee to take the proper care of goods that are given to him. He has to take care of the good as an ordinary person takes care of his goods. He will be liable for any loss accord due to breach of his duty. Though, he will not be liable for the loss due to the act of God.
Not to do unofficial use of goods
Section 153 clearly says that the bailor can void the contract if he found that the bailee has used the bailed goods unofficially.
For example. The A buy a horse for his own riding. He gave his horse to B for taking care of. B drives the horse. Now, it depends on the option of A for the termination of bailment.
Keep goods separate from others
It is the duty of the bailee to keep the goods separate from their own goods. But, if in a case, if the bailee mixed the good then,
- Now the bailor has an interest in it.
- The bailor can ask him to separate the goods and the bailee will be liable for the expenses of separation of goods.
- If the goods are not being separate, the bailee shall be liable to compensate the bailor for the loss of goods.
Duty of not to set any adverse title
The bailor gives his good to the bailee for a specific period of time. The bailee has to give it back. So, he cannot have the right to ownership of the goods.
Returns of goods
It is the duty of the bailee to return the goods after the completion of the contract or the expiration of the time period. In case, if the bailee failed to return the goods, he will be liable for the loss that occurred to the bailor.
For example, A asks B to return his goods bailed to him. But B has sold it to another person and now, he is not able to return it. Here, B has to compensate A.
Duty to return the profit
It is the duty of the Bailee to also return the profit that occurred due to goods.
For example, A gives his hen to B for custody. The hens give eggs during the custody. Now he has the duty to deliver the hen along with eggs.
Read about What are the Different Types of Contracts in Business law?
Termination of bailment
There are various situations when the [bailment] can be ended which are:
- On the expiry of the term of bailment: where it is already specified that the bailment will be for a specific period of time, the [bailment] will be considered ended on that date.
- On the fulfilment of the object: the bailment will be considered ended when the object of the [bailment] has been fulfilled.
- Destruction of goods: if the goods which were used in the [bailment] were destroyed due to any reason, the contract of bailment will be terminated.
- On the death of Bailor or Bailee: on the death of either of the party, the [bailment]will be terminated.
- On the inconsistent act: if either of the party failed to comply with the terms of the [bailment], the [bailment]will be terminated.
- By notice : the bailment can be terminated by notice.
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