Bailment

Definition: In basic terms, bailment implies the “change in possession” or “to hand over”. As per Contract Act, bailment can be understood as the transaction wherein delivery of any item by an individual (bailor) to another individual (bailee) takes place with a specific objective, under a contract.

The contract states that the item has to be returned by the bailee to the bailor or disposed of in the manner specified by the bailor when the objective is attained.

Characteristics of Bailment

The essential characteristics of bailment are given as under:

1. Contract: There must be a contract between the party who delivers the goods i.e. bailor and the party which receives the goods, i.e. bailee, no matter if it is express or implied.
2. Delivery of Goods: Goods must be delivered by one party to another.
3. Change in possession: Only the possession and custody of good changes, and not the ownership. Meaning that the bailor remains the owner of the delivered item. Further, the change in possession takes place either by actual delivery or by any act, which results in the change in possession of the goods, from bailor to bailee.
4. Movable items: Bailment applies to movable items only, and not to immovable items or money.
5. Return: The bailee must return the item to the bailor. The bailee cannot deliver any other item to the bailor in place of the actual item, even if the other item is of high value.

The delivery of goods in case of bailment is done voluntarily, for a specific purpose for short term only which may be safekeeping or temporarily using it, on the agreement that the item delivered is to be returned in its original or altered form to the bailor when the objective for which it is transferred is over.

Here the bailee is responsible for taking reasonable care of the goods. Further, both actual delivery and constructive delivery are included in it.

Examples

1. John delivered his Activa to Michael, who is the owner of the registered service centre, for servicing of his Activa. As it contains all the essential elements it is a contract of bailment.
2. Shane lends his laptop to his friend Paul, to use it without taking any charges. This is a contract of bailment for the benefit of bailee only.

Duties of Bailor

• Bailor should inform about the faults or defects in the goods delivered to the bailee.
• Bailor has to pay for all the extra-ordinary expenses in the contract.
• Bailor has to indemnify the bailee for any loss if the contract is terminated before time in case of gratuitous bailment.
• Bailor has to take back goods when the specified purpose for which the goods are delivered is accomplished.
• When the bailor’s title is defective, and bailee suffers a loss, then the bailor has to make good the loss caused to the bailee.

Rights of the Bailor

• To enforce the bailor’s duties and claim damages.
• To terminate the contract
• To claim accretion to the goods
• To demand the goods back.

Duties of Bailee

• Bailee has to take due care of the goods delivered. The burden of proof is upon the bailee that there no carelessness or negligence on his part.
• Bailee has to make sure that there is no unauthorized use of the goods bailed to him. If goods are wrongfully used by the bailee, then he is liable to compensate the bailor for the same, if there is any damage to the goods due to such use.
• Bailee should not do any act with the goods bailed which is inconsistent with the terms of the contract or else it becomes a voidable contract at the option of the bailor.
• Bailee should not mix the goods bailed with that of his own goods.
• Goods are to be held by the bailee on behalf of the bailor and so if he hands over goods to any other party, then the onus is upon bailee to prove that the third party possesses right over the goods against bailor.
• In case there is any addition to the goods, the bailee has to return it to the bailor.
• Bailee should return the goods bailed, as per the instructions of the bailor after completion of the said purpose.

Rights of Bailee

• Demand compensation for loss caused due to non-disclosure of defects in the goods bailed.
• Claim indemnification, if there is any loss due to the defective title.
• Exercise right to lien, i.e. to retain the goods, where the charges concerning the goods retained are not paid.
• Take action against third parties, when the party unlawfully disagrees the bailee of his right to use the goods.
• In case if the bailor has no title to the goods bailed and the bailee return it to the bailor in good faith, as per his directions, the bailee has no responsibility for any such delivery.

Termination of Bailment

Bailment is terminated when the bailee, makes unauthorized use of the goods or dispose of them wrongfully, the bailor may decide the bailment. Further, when the bailment period expires, or when the purpose of bailment is fulfilled, then also the contract comes to an end and the goods are to be returned to the bailor.

Bailment contract is also terminated when the goods are destroyed or due to any reason for a change in its nature, they cannot be used for the purpose of bailment.