Contract of Bailment : Meaning, Features, Duties and Rights

Bailment is defined in the Indian Contract Act, 1872 under Section 148 as “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 is a legal agreement that occurs when one person known as the Bailor, gives personal property to another, known as the Bailee, for a set amount of time or a specific reason. In a Bailment arrangement, the property is temporarily given to the Bailee, but the Bailor owns it. For a specific amount of time, the property is given to the bailee’s care, possession, and control. Once that time has passed, the item is returned to the bailor.

Geeky Takeaways:

• The person who delivers the goods is known as Bailor.
• The person who receives the goods for a specific purpose is called a Bailee.
• It is covered under Chapter IX of the Indian Contract Act, 1872 and is a special type of contract.
• Bailor gives property to the Bailee for a specific amount of time and once that time is completed, the item is returned to the bailor.

What is a Contract of Bailment?

Contract of Bailment is a legal agreement where the bailor temporarily gives the bailee possession of personal property for a predetermined period. Under this agreement, the bailee is responsible for the property’s safekeeping, usage, or transportation for the predetermined amount of time, while the bailor maintains ownership of the item. The goal, length of time, and circumstances under which the property is given, as well as the level of care required from the bailee, are usually specified in the provisions of the Contract of Bailment. To provide clarity and legal enforceability in treating the entrusted property, this contractual structure is guided by principles defining the rights and obligations of the parties concerned.

Essential Features of a Contract of Bailment

1. Valid Contract: A contract of bailment needs the consent of both parties, just like any other type of agreement. For a contract to be enforceable, there must be a legitimate offer, acceptance, consideration, legal capacity, and legality of purpose.

2. Delivery of Possession: The property must be physically transferred from the bailor to the bailee. This delivery, which initiates the contractual connection, is a crucial component of bailment. The bailee assumes management for a limited time without gaining ownership.

3. Delivery upon Contract: Delivery of possession must take place inside the parameters of an enforceable contract. The terms and conditions of the bailment must be understood by the bailor and bailee, whether by express agreement or implied agreement.

4. Purpose of Bailment: The reason for giving the property to the bailee must be clear in the contract. Common uses include safekeeping, repair, transportation, and storage. It is important to specify the purpose of the bailment; i.e., whether it is for the benefit of both parties or just one.

5. Return of Goods: The terms under which the property will be restored to the bailor must be spelled out in the contract. This could involve specified deadlines, the accomplishment of a stated goal, or the happening of a certain event. One crucial component of the bailment agreement is still the requirement to return the items.

Duties of the Bailor and Bailee

A. Duties of the Bailor

1. Transfer of Ownership: Following the terms of the agreement, the bailor is required to deliver the property to the bailee and transfer physical custody.
2. Complete Disclosure: It is the bailor’s responsibility to give full and correct information regarding the kind and state of the property being transferred. This covers any recognized flaws or unique factors that might have an impact on how the property is used.
3. Title Warranty: By granting custody to the bailee, the bailor essentially guarantees that they are the property’s legitimate owner.
4. Defend against Losses: If the bailee is not aware of any faults or concealed conditions of the property, the bailor is liable for compensating the bailee for any losses or damages.

B. Duties of the Bailee

1. Acknowledgment of Ownership: According to the conditions of the bailment agreement, the bailee is in charge of taking possession of the property.
2. Use for Agreed Goal: The property must be used by the bailee for the intended use alone, as stated in the bailment agreement, and not for any unauthorized purposes.
3. Return of Property: The bailee is required to return the property to the bailor in the same condition as when it was received after the purpose of the bailment is completed or the predetermined time has passed.
4. Notification of Problems: Generally, the bailee has to notify the bailor if they become aware of any problems or concerns about the property, such as damage or prospective damage.

Rights of the Bailor and Bailee

A. Rights of the Bailor

1. Right to Terminate the Bailment: If the bailee violates the conditions of the agreement or the bailment’s goal is accomplished, the bailor is entitled to end the agreement.
2. Right to Demand Return: When the agreed-upon length of the bailment expires or the objective of the bailment is fulfilled, the bailor is entitled to seek the return of the property.
3. Right to Compensation: If compensation is part of the bailment agreement, the bailor has the right to obtain the agreed-upon sum from the bailee.
4. Right to be Informed: If the bailee has any problems with the property or if any situation could influence the bailment, the bailor has the right to be informed regarding the same.

B. Rights of the Bailee

1. Right to Possession: As stated in the bailment agreement, the bailee is entitled to possess and use the property for the designated purposes.
2. Right to Compensation: The right of the bailee to obtain the agreed-upon money from the bailor exists if compensation is included in the bailment agreement.
3. Right to Terminate: If both parties agree to end the bailment or if the bailor violates the conditions of the arrangement, the bailee may terminate the agreement.
4. Right to Lien: Under some conditions, the bailee may be able to place a lien on the asset and refuse to give up until the bailor pays any unpaid fees or damages.

Case Law: Taj Mahal Hotel v. United India Insurance Ltd., 2019

Facts of the Case:

• On 1st August 1998, a Maruti Suzuki Zen was parked in the respondent’s hotel and the owner gave his car for the parking in the valet service.
• When the owner returned to get back his car, he learned that his car was stolen.
• A complaint was lodged against the thief, but the car could not be found.
• Respondent’s hotel valet parking service stated that the car was at the owner’s risk and outside the hotel premises and in case of theft, loss, or damage, the hotel will not be liable.
• The plaintiff company paid a sum of ₹2,80,000 to the car owner to settle the insurance claim.
• The plaintiff company sued the respondent hotel for negligence.

Issues Involved in the Case

• Whether this case was a case of bailment?
• Was the hotel liable in this case for negligence under the law of bailment?
• Was the car owner eligible for compensation due to the absence of consideration between the two parties?

Judgement by the Court

• Supreme Court in this case held that the theft of the car was a result of the respondent’s negligence and the respondent would be liable.
• The court stated that the respondent cannot exclude its liability for negligence towards the vehicle parked in the parking of the respondent.
• The consideration would be free parking for the customer for using the respondent’s services.
• Hence, it can be concluded that if the general rule of bailment is applied, the bailee (hotel) will be liable if there is a loss of goods (vehicle) due to negligence.

Conclusion

A Contract of Bailment is a formal contract that transfers temporary ownership of personal property for a specified period between a Bailor and a Bailee. A legitimate contract of bailment must have three fundamental components; a purposeful transfer of possession, an intention to create a bailment, and the voluntary delivery of the goods. It creates a short-term relationship with well-defined rights and obligations, guaranteeing impartiality and clarity in the division of personal property ownership.

Frequently Asked Questions (FAQs)

1. In a relationship including bailment, what rights does the bailee have?

Answer:

The bailee’s rights include the ability to keep the property in their possession, use it for the intended purpose, receive payment if agreed upon, and in certain situations, to have a lien placed on unpaid fees.

2. Does a Contract of Bailment necessarily include payment?

Answer:

No, a bailment agreement does not usually include payment. The conditions agreed upon by the bailor and the bailee will determine this.

3. Is a bailor responsible for losses resulting from hidden flaws in the property they have bailed?

Answer:

Yes, the bailor may be held accountable for the losses sustained by the bailee if the bailor conceals known faults in the property that cause damages.

4. What differentiates bailment apart from other types of agreements concerning private property law?

Answer:

In contrast to lease, sales and other legal arrangements, bailment includes the transfer of possession without a transfer of ownership.

5. What obligations does a Contract of Bailment place on the bailor?

Answer:

Delivering the property, revealing its condition, guaranteeing its ownership and covering damages resulting from hidden flaws are among the bailor’s responsibilities.