A Critical Analysis on the Rights of
Bailee Under a Bailment Contract
1
Term paper on
Rights of Bailee under a bailment
contract
Course: Legal Environment of Business
Submitted to:
Syed Robayet Ferdous
Asst. Professor
South East University
Submitted by:
Name
Tahiratul Elma
Monday
November 4, 2019
Roll
B18231068
Bangladesh University of Professionals
Mirpur Cantonment, Dhaka-1216
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ACKNOWLEDGEMENT
This is my pleasure to prepare and submit the report on “A CRITICAL ANALYSIS ON THE
RIGHTS OF BAILEE UNDER A BAILMENT CONTRACT”.
I am very grateful to my course instructor lecturer Syed Rubaiyet Ferdause for designing the course
with this report and providing us such an immense opportunity. I really enjoyed the task and tried to
give my full effort to make it rich and resourceful.
At last but not at least the Almighty Allah to whom we are grateful forever and ever in giving us all
the opportunities in doing each and everything.
Department of Business administration–General, Bangladesh University of Professionals, Mirpur
Cantonment, Dhaka-1216.
November 4, 2019.
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DECLARATION
I hereby declare that this report is based on the results found by myself during my research work on
“A Critical Analysis on the Rights of Bailee Under a Bailment Contract”.
Signature of Author:
........................................
Tahiratul Elma
ID-B18231068
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LETTER OF TRANSMITTAL
November 4, 2019
Syed Rubaiyet Ferdause
Asst. Professor
South East University
Subject: Application for submitting the term paper
Dear Sir,
It is my immense pleasure to present you the report on “A Critical Analysis on the Rights of Bailee
Under a Bailment Contract”. This report has been prepared to know about bailment and the rights of
Bailee. This report will help learners in obtaining better understanding regarding rights of Bailee in
Bangladesh
It has been a great contentment to submit you the report. Sincerely yours,
........................................
Tahiratul Elma
ID-B18231068
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TABLE OF CONTENTS
CHAPTER
EXECUTIVE SUMMARY
1.INTRODUCTION
1.1 Origin of the Report
1.2 Research Question, Objectives and Scopes of the Report
1.3 Literature Review
1.4 Research methodology
1.5 Limitations
1.6 Report Preview
PAGE
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8
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10
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2. ELABORATE DISCUSSION ON THE NATURE OF THE LAW OF BAILMENT 11
3. DISCUSSION ON RIGHTS OF BAILEE
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4. ELUCIDATION THE LEGAL PROVISION REGARDING BAILMENT OF PLEDGE,
RIGHTS OF THE PARTIES
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5. LIABILITY OF THE PARTIES TO A BAILMENT
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6.CASE STUDY ON BAILMENT
CASE1: COGGS V BERNARD
CASE2: ATUL MEHRA V BANK OF MAHARASTRA
CASE3: THE PIONEER CONTAINER KH ENTERPRISE
V. PIONEER CONTAINER
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35
37
7.CONCLUSION
8.BIBLIOGAPHY
44
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EXECUTIVE SUMMARY
A bailee is a person who receives possession of a property or goods through a contract of bailment.
Unlike a contract of sale, the bailee has to return the goods or property to the bailor, under a contract
of bailment. A bailee is responsible for the safekeeping and return of the property to the bailor or
otherwise disposing it off according to the contract of bailment. bailee owes a duty of care towards the
property or the goods of the bailor, when the bailee is in possession of the property. Generally, a
bailment is for the exclusive benefit of the bailee. A bailee must have actual physical control of the
goods or property and an intention to possess it, in order to create a bailment. However, a bailee has
no power to make contracts on behalf of the bailor. A bailee cannot make a bailor liable for his/her
own acts. The bailee is responsible for the safekeeping of the property or the goods so transferred.
Leaving goods in a sealed and rented box will not amount to bailment, and the holder is not a bailee
since he cannot manage or control the goods. The bailee must have had an intent to possess the goods;
that is, to exercise control over them. This mental condition is difficult to prove; it almost always turns
on the specific circumstances and, as a fact question, is left to the jury to determine.
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CHAPTER-1
INTRODUCTION
1.1 Origin of the Report
This report is prepared as an academic requirement for the course “Legal Environment of Business”
under the supervision of Syed Rubaiyet Ferdause, Lecturer, Department of Department of Business
administration – General, Bangladesh University of Professionals.
1.2 Research Question, Objectives and Scopes of the Report
The main research question of this report is
whether the liability of Bailee’s, including common carriers and others pursuing common callings,
was that of insurance, or simply that of responsibility for negligence
So in terms of research questions the objectives of this research are
1. 1.To illustrate the current situation of bailment cases in Bangladesh
2. To trace the progress of the law of bailments through the past and to study its present status
3. Recognize the cases in which the bailee can disclaim liability, and what limits are put on such
disclaimers.
4. Understand how the bailee’s liability arises and operates.
And to fulfil the objective the issues that are included and excluded in this study are given below:
1. Illustration of bailment contract
2. Case studies on bailment
1.3. Literature Review
As per the section 148 of The Contract Act, 1872, a bailment is a contract where one person delivers
goods to another person for some purpose. The person delivering the goods is the Bailor and the person
receiving the goods is the Bailee. After the accomplishment of the purpose, the Bailee needs to return
these goods to the Bailor or dispose of them according to the directions of the Bailor. Let us now
discuss the duties of bailee and bailor.
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Bailment refers to the voluntary delivery of goods. Also, such delivery is for a temporary purpose and
after the fulfilment of which the bailee shall either return the goods in the same or altered form or
dispose of them.
Explanation — If a person is already in possession of the goods of another person under a contract
to hold them as a bailee, he thereby becomes the bailee, and the owner becomes the bailor of such
goods. Bailor and bailee relation may exist in circumstances although where the goods in question may
not have been delivered by way of formal bailment. Bailment has two key terms such as possession
and ownership. As stated above in bailment only possession of goods is transferred to the bailee; the
ownership of the goods is not transferred to the bailee. As a result, after transferring the possession of
the goods still the bailor retains the ownership right. That is why in Ashby v Tolhurst 5 the British
court held that at common law, the essence of bailment is the transfer of possession of goods. If
possession of goods does not pass to the bailee, there is no bailment happens. In fact, the bailment in
the law of contract is the creation of the common law. Under common law when one person (the bailor)
transfers his tangible goods or chattels to another person (the bailee) for a specific period of time with
the condition that the bailee must return the goods to the bailor after the expiry of the fixed period, it
is known as bailment.6 Another example of common law bailment is that when one person (the
bailor) passes the possession of his goods for a specific purpose, for example for safe keeping of
valuable goods to another person (the bailee) and the purpose is satisfied, it is the duty of the
bailee to return the goods to the bailor immediately after the purpose is satisfied. This is bailment
of goods.
In the contract of bailment, the ownership of the goods remains with the Bailor and only the possession
transfers to the bailee. Such delivery of goods may be actual or constructive.
For example, when A hands over the keys of a godown to B, it amounts to the delivery of goods in the
godown. Also, A is the bailor and B is the bailee.
1.4. Research Methodology
Research Design: This report is mainly a descriptive research. The main focus of this report is to
analyse the current scenario of bailment contract.
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Sources & Collection of Data: In this research the main source of data is secondary data. According
to the data of Bangladesh contact act, Indian contract act and information’s borrowed from internet.
1.5. Limitations
There is always a predetermined system imposed limitation of time exists in any research work.
The limitations of the study, while few, are noticeable. Data and informations collected in this research
are from secondary sources.
Furthermore, the findings of the paper would also be limited to the knowledge of the aforementioned
students and thus, not present a coherent and consistent picture.
1.6. Report Preview
The key takeaway of this report will be if the bailee fails to redeliver the goods to the bailor, a
presumption of negligence arises, but the bailee can rebut the presumption by showing that she
exercised appropriate care. What is “appropriate care” depends on the test used in the jurisdiction:
some courts use the “ordinary care under the circumstances,” and some determine how much care the
bailee should have exercised based on the extent to which she was benefited from the transaction
compared to the bailor. The bailor can be liable too for negligently delivering goods likely to cause
damage to the bailee. In either case reasonable disclaimers of liability are allowed. If the bailed goods
need repair while in the bailee’s possession, the usual rule is that ordinary repairs are the bailee’s
responsibility, extraordinary ones the bailor’s. Bailees are entitled to liens to enforce payment owing
to them.
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CHAPTER-2
ELABORATE DISCUSSION ON
THE NATURE OF THE LAW OF BAILMENT
Law of Bailment is a very important law of today’s world. As per the section 148 of The Contract Act,
1872, a bailment is a contract where one person delivers goods to another person for some purpose.
The person delivering the goods is the Bailor and the person receiving the goods is the Bailee. After
the accomplishment of the purpose, the Bailee needs to return these goods to the Bailor or dispose of
them according to the directions of the Bailor.
The history of Bailment law in England may be start with the case of Coggs v. Bernard, decided by
the English Court of Queen’s Bench in the second year of Queen Anjne (1703) although the subject
was slightly touched upon now and then in and some of the older reports, the word itself as a title of
the law is rarely found in use earlier than the beginning of the eighteenth century. The question raised
in Coggs v. Bernard, was as to the liability of one who had agreed to carry goods safely, but who was
not a common carrier, and was not to be paid for his work, and the only question decided was that such
a bailee was liable for any damage done to them tlirough his neglect but Chief Justice Holt, in his
judgment expounded for the first time the English law of Bailment, and finding the common law
precedents few and unsatisfactory, went to the civil law for argument and illustration, and from Bracton
and other continental jurists drew material for a classification of Bailment law, which, though afteiards
slightly altered by Sir William Jones, has remained the classification familiar to every succeeding
generation of lawyers unto this day.
DEFINITIONS
The term bailment is derived from the French bailor, “to deliver”, it is generally considered to be a
contractual relationship since the bailor and bailee, either expressly or impliedly, bind them to act
according to particular terms. To define “Bailment” we can say it 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 direction 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”. Bailment is not the same as a sale, which is an intentional transfer of ownership of personal
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property in exchange for something of value. A bailment involves only a transfer of possession or
custody, not of ownership.
A rental or lease of personal property might be a bailment, depending upon the agreement of the
parties. For an example, A bailment is created when a parking garage attendant, the bailee, is given
the keys to a motor vehicle by its owner, the bailor. The owner, in addition to renting the space, has
transferred possession and control of the vehicle by relinquishing its keys to the attendant. If the keys
were not made available and the vehicle was locked, the arrangement would be strictly a rental or
lease, since there was no transfer of possession. A gratuitous loan and the delivery of property for
repair or safekeeping are also typical situations in which a bailment is created.
Landlord/Tenant is a good example, where the language of the agreement clearly shows intent to create
a landlord/tenant relationship, as opposed to a bailment, the contract may be conclusive of that
relationship in evaluating the question of whether tenant may claim damages from landlord when
objects on premises are damaged.
CATEGORIES
There are three types of bailment and they are given bellow.
1. Bailment for the benefit of the bailor and bailee: A bailment for the mutual benefit of the
parties is created when there is an exchange of performances between the parties (e.g. a
bailment for the repair of an item).
2. Bailment for the sole benefit of the bailor: A bailor receives the sole benefit from a bailment
when a bailee acts gratuitously (e.g. a restaurant, a bailee, provides an attended coatroom free
of charge to its customers, the bailors).
3. Bailment for the sole benefit of the bailee: A bailment is created for the sole benefit of the
bailee when a bailor acts gratuitously (e.g., the loan of a book from a library).
A bailment for the shared benefit of the parties is formed when there is an trade of performances
between the parties. A bailment for the repair of an item is a bailment for mutual benefit when the
bailee receives a fee in replace for his or her work. A bailor receives the sole benefit from a bailment
when a bailee acts gratuitously for example, if a restaurant, a bailee, provides an attended coatroom
free of charge to its customers, the bailors. By virtue of the terms of the bailment, the bailee agrees to
act without any expectation of compensation. A bailment is created for the sole benefit of the bailee
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when both parties agree the belongings momentarily in the bailee’s supervision are to be used to his
or her own advantage without giving anything to the bailor in return. The loan of a book from a library
is a bailment for the sole benefit of the bailee.
Bailments Compared with Sales
Bailment versus Sales
In a sale, the buyer acquires title and must pay for the goods. In a bailment, the bailee acquires
possession and must return the identical object. In most cases the distinction is clear, but difficult
borderline cases can arise. Consider the sad case of the leased cows: Carpenter v. Griffen (N.Y. 1841).
Carpenter leased a farm for five years to Spencer. The lease included thirty cows. At the end of the
term, Spencer was to give Carpenter, the owner, “cows of equal age and quality.” Unfortunately,
Spencer fell into hard times and had to borrow money from one Griffin. When the time came to pay
the debt, Spencer had no money, so Griffin went to court to levy against the cows (i.e., he sought a
court order giving him the cows in lieu of the money owed). Needless to say, this threatened transfer
of the cows upset Carpenter, who went to court to stop Griffin from taking the cows. The question was
whether Spencer was a bailee, in which case the cows would still belong to Carpenter (and Griffin
could not levy against them), or a purchaser, in which case Spencer would own the cows and Griffin
could levy against them. The court ruled that title had passed to Spencer—the cows were his. Why?
The court reasoned that Spencer was not obligated to return the identical cows to Carpenter, hence
Spencer was not a bailee.Carpenter v. Spencer & Griffin, 37 Am. Dec. 396 (N.Y. 1841). Section 2304(1) of the UCC confirms this position, declaring that whenever the price of a sale is payable in
goods, each party is a seller of the goods that he is to transfer.
Note the implications that flow from calling this transaction a sale. Creditors of the purchaser can seize
the goods. The risk of loss is on the purchaser. The seller cannot recover the goods (to make up for the
buyer’s failure to pay him) or sell them to a third party.
FUNGIBLE GOODS
Fungible goods (goods that are identical, like grain in a silo) present an especially troublesome
problem. In many instances the goods of several owners are mingled, and the identical items are not
intended to be returned. For example, the operator of a grain elevator agrees to return an equal quantity
of like-quality grain but not the actual kernels deposited there. Following the rule in Carpenter’s cow
case, this might seem to be a sale, but it is not. Under the UCC, Section 2-207, the depositors of
fungible goods are “tenants in common” of the goods; in other words, the goods are owned by all. This
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distinction between a sale and a bailment is important. When there is a loss through natural causes—
for example, if the grain elevator burns—the depositors must share the loss on a pro rata basis (meaning
that no single depositor is entitled to take all his grain out; if 20 percent of the grain was destroyed,
then each depositor can take out no more than 80 percent of what he deposited).
ELEMENTS
Three elements are generally necessary for the existence of a bailment and they are given bellow:
1. Delivery of possession
Actual possession of or control over property must be delivered to a bailee in order to create a bailment.
The delivery of actual possession of an item allows the bailee to accomplish his or her duties toward
the property without the interference of others. Control over property is not necessarily the same as
physical custody of it but, rather, is a type of constructive delivery. The bailor gives the bailee the
means of access to taking custody of it, without its actual delivery. The law construes such action as
the equivalent of the physical transfer of the item. The delivery of the keys to a safe-deposit box is
constructive delivery of its contents.
In most cases, physical control is proven easily enough. A car delivered to a parking garage is
obviously within the physical control of the garage. But in some instances, physical control is difficult
to conceptualize. For example, you can rent a safe-deposit box in a bank to store valuable papers, stock
certificates, jewelry, and the like. The box is usually housed in the bank’s vault. To gain access, you
sign a register and insert your key after a bank employee inserts the bank’s key. You may then inspect,
add to, or remove contents of the box in the privacy of a small room maintained in the vault for the
purpose. Because the bank cannot gain access to the box without your key and does not know what is
in the box, it might be said to have no physical control. Nevertheless, the rental of a safe-deposit box
is a bailment. In so holding, a New York court pointed out that if the bank was not in possession of the
box renter’s property “it is difficult to know who was. Certainly [the renter] was not, because she could
not obtain access to the property without the consent and active participation of the defendant. She
could not go into her safe unless the defendant used its key first, and then allowed her to open the box
with her own key; thus absolutely controlling [her] access to that which she had deposited within the
safe. The vault was the [company’s] and was in its custody, and its contents were under the same
conditions.”Lockwood v. Manhattan Storage & Warehouse Co., 50 N.Y.S. 974 (N.Y. 1898). Statutes
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in some states, however, provide that the relationship is not a bailment but that of a landlord and tenant,
and many of these statutes limit the bank’s liability for losses.
Possession: intent to possess
In addition to physical control, the bailee must have had an intent to possess the goods; that is, to
exercise control over them. This mental condition is difficult to prove; it almost always turns on the
specific circumstances and, as a fact question, is left to the jury to determine. To illustrate the difficulty,
suppose that one crisp fall day, Mimi goes to Sally Jane’s Boutique to try on a jacket. The sales clerk
hands Mimi a jacket and watches while Mimi takes off her coat and places it on a nearby table. A few
minutes later, when Mimi is finished inspecting herself in the mirror, she goes to retrieve her coat,
only to discover it is missing. Who is responsible for the loss? The answer depends on whether the
store is a bailee. In some sense the boutique had physical control, but did it intend to exercise that
control? In a leading case, the court held that it did, even though no one said anything about guarding
the coat, because a store invites its patrons to come in. Implicit in the act of trying on a garment is the
removal of the garment being worn. When the customer places it in a logical place, with the knowledge
of and without objection from the salesperson, the store must exercise some care in its
safekeeping.Bunnell v. Stern, 25 N.E. 910 (N.Y. 1890).
Now suppose that when Mimi walked in, the salesperson told her to look around, to try on some
clothes, and to put her coat on the table. When the salesperson was finished with her present customer,
she said, she would be glad to help Mimi. So Mimi tried on a jacket and minutes later discovered her
coat gone. Is this a bailment? Many courts, including the New York courts, would say no. The
difference? The salesperson was helping another customer. Therefore, Mimi had a better opportunity
to watch over her own coat and knew that the salesperson would not be looking out for it. This is a
subtle distinction, but it has been sufficient in many cases to change the ruling.Wamser v. Browning,
King & Co., 79 N.E. 861 (N.Y. 1907).
Questions of intent and control frequently arise in parking lot cases. As someone once said, “The key
to the problem is the key itself.” The key is symbolic of possession and intent to possess. If you give
the attendant your key, you are a bailor and he (or the company he works for) is the bailee. If you do
not give him the key, no bailment arises. Many parking lot cases do not fall neatly within this rule,
however. Especially common are cases involving self-service airport parking lots. The customer drives
through a gate, takes a ticket dispensed by a machine, parks his car, locks it, and takes his key. When
he leaves, he retrieves the car himself and pays at an exit gate. As a general rule, no bailment is created
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under these circumstances. The lot operator does not accept the vehicle nor intend to watch over it as
bailee. In effect, the operator is simply renting out space.Wall v. Airport Parking Co. of Chicago, 244
N.E.2d 190 (Ill. 1969). But a slight change of facts can alter this legal conclusion. Suppose, for
instance, that the lot had an attendant at the single point of entrance and exit, that the attendant jotted
down the license number on the ticket, one portion of which he retained, and that the car owner must
surrender the ticket when leaving or prove that he owns the car. These facts have been held to add up
to an intention to exercise custody and control over the cars in the lot, and hence to have created a
bailment.Continental Insurance Co. v. Meyers Bros. Operations, Inc., 288 N.Y.S.2d 756 (Civ. Ct. N.Y.
1968).
For a bailment to exist, the bailee must know or have reason to know that the property exists. When
property is hidden within the main object entrusted to the bailee, lack of notice can defeat the bailment
in the hidden property. For instance, a parking lot is not responsible for the disappearance of valuable
golf clubs stored in the trunk of a car, nor is a dance hall cloak room responsible for the disappearance
of a fur wrap inside a coat, if they did not know of their existence.Samples v. Geary, 292 S.W. 1066
(Mo. App. 1927). This result is usually justified by observing that when a person is unaware that goods
exist or does not know their value, it is inequitable to hold him responsible for their loss since he
cannot take steps to prevent it. This rule has been criticized: trunks are meant to hold things, and if the
car was within the garage’s control, surely its contents were too. Some courts soften the impact of the
rule by holding that a bailee is responsible for goods that he might reasonably expect to be present,
like gloves in a coat checked at a restaurant or ordinary baggage in a car checked at a hotel.
2. Personal property acceptance
Only personal property tangible and intangible is baileble. A requisite to the creation of a bailment is
the express or implied acceptance of possession of or control over the property by the bailee. A person
cannot unwittingly become a bailee. Because a bailment is a contract, knowledge and acceptance of
its terms are essential to its enforcement.
3. Consideration
Consideration, the exchange of something of value, must be present for a bailment to exist. Unlike the
consideration required for most contracts, as long as one party gives up something of value, such action
is regarded as good consideration. It is sufficient that the bailor suffer loss of use of the property by
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relinquishing its control to the bailee; the bailor has given up something of value—the immediate right
to control the property.
In fact, the bailment in the law of contract is the creation of the common law. Under common law
when one person (the bailor) transfers his tangible goods or chattels to another person (the bailee) for
a specific period of time with the condition that the bailee must return the goods to the bailor after the
expiry of the fixed period, it is known as bailment.6 Another example of common law bailment is
that when one person (the bailor) passes the possession of his goods for a specific purpose, for
example for safe keeping of valuable goods to another person (the bailee) and the purpose is satisfied,
it is the duty of the bailee to return the goods to the bailor immediately after the purpose is
satisfied. This is bailment of goods. As said above in bailment, we have to remember that, the
ownership in the goods does not pass to the bailee; only the possession of the goods is transferred. The
bailor still remains as the owner of the goods even after transferring the possession of the goods to the
bailee.7 The difference between sale of goods contract and bailment is that in sale of goods the
ownership as well as the possession of the goods are transferred to the buyer but in case of bailment
the ownership is not transferred to the bailee. So, the position of a buyer of the goods and the
bailee can be compared and contrasted for better understanding the difference between a sale contract
and a bailment. In an online article the author argued that the bailee is generally not entitled to the use
of the property while it is in his possession. A bailor can demand to have the property returned to him
at any time.9 Bailment includes change of possession of the property from the bailor to the bailee.
Under bailment law, a person who has custody without possession, like a servant, or a guest using his
host‟s goods, is not a bailee. However, constructive delivery of goods by one person to another person
may create the relation of the bailor and the bailee, as stated in the explanation above. The bailee‟s
duty to deal with the goods according to the bailor‟s instructions is incidental to the contract of
bailment, and arises on the delivery of goods, although those instructions may have already been given
and accepted in such a manner as to constitute a prior special contract.10 The phrase „otherwise
disposed of‟ in the above mentioned section 101 of the CA 1857 states the common law position of
bailment. On the whole, a bailment may be described as a delivery of goods on condition in which
case the law usually attaches an obligation to redeliver the goods to the bailor in the identical or altered
form, or otherwise deal with them as directed by the bailor. Nonetheless, there might have particular
situations where bailment may happen in the absence of express or implied contract which is usually
known as constructive or presumptive bailment. Hence, it has been clear that bailment might be
contractual or extra-contractual and they are determined based on specific situations.
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The CA 1857 provides certain examples of contractual as well as extra-contractual bailment such
as:
1. Where, under a contract, clothes are sent to a laundry for washing or dry cleaning, or goods are
handed over to a courier for delivery or are stored in the left luggage facilities of an airport or
train station or in a warehouse, a contractual bailment of the goods occurs.
2.
A bailment needs not to be created by or under a contract. A bailor-bailee relationship
may arise independently of a contract in certain circumstances. If I lend you my car gratis for
a day that would be a gratuitous loan. As no consideration would move from you to me, the
transaction would not be contractual. A gratuitous loan creates a bailment independent of
contract. It is an example of extra-contractual bailment.
3.
The finding of goods lost by the true owner creates a bailment If a lady takes off her wedding
ring and keeps it on the wash basin to wash her hands in a public bathroom and later forgets to
take it back from on the wash basin, the finder of that ring becomes the bailee (extracontractually) of the lady who forgot the ring. Such type of bailment is also known as
presumptive or resulting bailment as stated above and the finder of the ring (bailee) becomes
bound under common law or in equity to return it to the true owner when asked for it.
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CHAPTER-3
DISCUSSION ON RIGHTS OF BAILEE
‘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’.
The Rights of bailee are as follows –
1) RIGHT TO KNOW MATERIAL FAULTS IN GOODS
The bailee has right to know material faults in goods. According to Section150 of The 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.
“150. Bailor's duty to disclose faults in goods bailed - 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
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(a) 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.
(b) 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.
2) 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
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.
Here’s section 155:
“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.”
3) 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.
Lien is from the French, originally meaning “line,” “string,” or “tie.” In law a lien is the hold that
someone has over the property of another. It is akin, in effect, to a security interest. A common type is
the mechanic’s lien (“mechanic” here means one who works with his hands). For example, a carpenter
builds a room on your house and you fail to pay him; he can secure a lien on your house, meaning that
he has a property interest in the house and can start foreclosure proceedings if you still fail to pay.
Similarly, a bailee is said to have a lien on the bailed property in his possession and need not redeliver
it to the bailor until he has been paid. Try to take your car out of a parking lot without paying and see
what happens. The attendant’s refusal to give you the car is entirely lawful under a common-law rule
now more than a century and a half old. As the rule is usually stated, the common law confers the lien
on the bailee if he has added value to the property through his labor, skill, or materials. But that
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statement of the rule is somewhat deceptive, since the person who has simply housed the goods is
entitled to a lien, as is a person who has altered or repaired the goods without measurably adding value
to them. Perhaps a better way of stating the rule is this: a lien is created when the bailee performs some
special benefit to the goods (e.g., preserving them or repairing them).
Many states have enacted statutes governing various types of liens. In many instances, these have
broadened the bailee’s common-law rights. This book discusses two types of liens in great detail: the
liens of warehousemen and those of common carriers. Recall that a lease creates a type of bailment:
the lessor is the bailor and the lessee is the bailee.
Lien is the right of one person to retain possession of goods owned by another until the possessor's
claims against the owner have been satisfied. In the Contract of Bailment Bailee has a right to
exercise the lien over the goods bailed to him. According to Halsbury's law of England, "Lien is in
its primary sense of right in one man to retain that which it in his possession belonging to another
until certain demands of the person in possession are satisfied.
There are two kinds of lien are as follows(i) Particular Lien and (ii) General Lien
(i) Particular Lien: Section 170 of the Indian Contract Act, 1872 which confers on the Bailee, the
right of particular lien. A particular lien gives the right to retain possession only of goods in respect
of which the changes or dues have arisen. The right of particular lien can be successfully claimed if,
by the exercise of labour or skill, there has been some improvement of the goods. The Right of
Particular Lien can be claimed only in respect of goods upon which labour or skill has been
exercised by the Bailee.
Example:
A delivers a rough diamond to B, a jeweller, to be cut and polished, which is accordingly done. B is
entitled to retain the stone till he is paid for the services he has rendered.
(ii) General Lien: Section 171 of the Indian Contract Act,1872 confer on Bailee the right of
General Lien. General Lien is one which gives the right to possession until the whole balance of the
amount is paid.
The right of General lien can be claimed in respect of any goods for any change due in respect of
other goods.
Example: The banker’s Lien is a general lien and he can retain the goods for the satisfaction of a debt
other than the one for which the goods are pledged.
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4) RIGHT TO RECOVER COMPENSATION
The bailee has right to recover compensation from the bailor for the loss sustained. Section 164 of The
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.
Here’s section 164:
“164.Bailor's responsibility to bailee - 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.”
If the bailor hires the bailee to perform services for the bailed property, then the bailee is entitled to
compensation. Remember, however, that not every bailment is necessarily for compensation. The
difficult question is whether the bailee is entitled to compensation when nothing explicit has been said
about incidental expenses he has incurred to care for the bailed property—as, for example, if he were
to repair a piece of machinery to keep it running. No firm rule can be given. Perhaps the best
generalization that can be made is that, in the absence of an express agreement, ordinary repairs fall to
the bailee to pay, but extraordinary repairs are the bailor’s responsibility. An express agreement
between the parties detailing the responsibilities would solve the problem, of course.
5) RIGHT TO CLAIM DAMAGES
According to Section 150 and 164 of The 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.
The general rule is that the bailee can recover damages in full if the bailed property is damaged or
taken by a third party, but he must account in turn to the bailor. A delivery service is carrying parcels—
bailed goods entrusted to the trucker for delivery—when the truck is struck from behind and blows up.
The carrier may sue the third person who caused the accident and recover for the total loss, including
the value of the packages. The bailor may also recover for damages to the parcels, but not if the bailee
has already recovered a judgment. Suppose the bailee has sued and lost. Does the bailor have a right
to sue independently on the same grounds? Ordinarily, the principle of res judicata would prevent a
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second suit, but if the bailor did not know of and cooperate in the bailee’s suit, he probably has the
right to proceed on his own suit.
6) RIGHT TO CLAIM EXPENSES OF BAILMENT
The bailee has right to claim expenses of bailment Section 158 of The 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.
7) RIGHT TO CLAIM INDEMNITY
According to Section 159 of the Indian Contract Act the Bailee has right to claim indemnity.
Section 124 of Indian Contract Act 1872 defines Contract of indemnity - A contract by which one
party promises to save the other from loss caused to him by the contract of the promisor himself,
or by the conduct of any other person, is called a “contract of indemnity”.
Example: 'A' contracts to indemnify 'B' against the consequences of any proceedings which 'C' may
take against 'B' in respect of a certain sum of 200 rupees. This is a contract of indemnity.
Indemnifire: The person gives the Indemnity is called Indemnifire
Indemnified: The person for whose protection indemnity is given is called the Indemnified or
Indemnity Holder .
Object : The object of Contract of Indemnity is to protect the Indemnity Holder from loss or damage
upon the happening of contingency.
Right of indemnity-holder when sued, Section 125 of said Act deals with the Rights of Indemnity
Holder which are as follows The promisee in a contract of indemnity, acting within the scope of his
authority, is entitled to recover from the promisor (1) all damages which he may be compelled to pay in any suit in respect of any matter to which the
promise to indemnify applies;
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(2) all costs which he may be compelled to pay in any such suit, if in bringing of defending it, he did
not contravene the orders of the promisor, and acted as it would have been prudent for him to act in
the absence of any contract of indemnity, or if the promisor authorised him to bring or defend the suit;
(3) all sums which he may have paid under the terms of any compromise of any such suit, if the
compromise was not contract to the orders of the promisor, and was one which it would have been
prudent for the promise to make in the absence of any contract of indemnity, or if the promisor
authorised him to compromise the suit.
RIGHTS AND LIABILITIES OF BAILOR AND BAILEE TOWARDS THIRD PERSONS
Section 12. Rights And Liabilities Of Bailor And Bailee Towards Third Persons- Since both bailor and
bailee have a property right (the one general and the other special) in the property bailed, it follows
that either may bring an action against any third party who injures the property which is the subject of
the bailment.13 A recovery by one will be a bar to any subsequent action by the other.14 If a creditor
of the bailee seizes the bailed property, the bailor may recover such property or its value from him.15
Where the bailor leaves property with the bailee with directions to sell it, and, after deducting a debt
due to himself, to pay the balance to the bailor, and the bailee exchanges it for other property, such
property is not necessarily subject to be attached for his debts.16 This depends upon whether the bailor
ratifies or repudiates the exchange.17
Where, at the time of the bailment, the property bailed was in fact owned by a third person, such third
person can recover possession of the property from the bailee,18 or damages from the bailor.
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CHAPTER-4
ELUCIDATION THE LEGAL PROVISION REGARDING BAILMENT OF PLEDGE,
RIGHTS OF THE PARTIES
The bailment of goods as security for payment of debt or performance of promise is called pledge.
Elucidate the legal provision regarding bailment of pledge, rights of the parties etc.
Introduction
Every business is affected by the law of Bailment at one time and in some case even on daily basis.
When any individuals deal with bailments whether they realize or not, they are subject to the
obligations and duties that arise from the bailment agreement. Most bailments are formed by an
agreement but not necessarily through contract law, because all of the elements of a contract are not
present in many bailments. For example, I have loaned my laptop to a friend so that he can do his
assignment. A bailment is created here without a contract because there is no consideration.
A bailment is the delivery of goods by the Bailor (person who is delivering the goods) to Bailee (person
who is receiving the goods) for special purpose and these goods will be returned to the bailor by bailee
after completion of purpose of the contract.
A pledge is a bailment of goods where the properties are delivered to other party as a security for
payment of a debt or performance of a promise. Here bailor is known as pledgor and bailee is known
as pledgee. For example, a person keeps his gold or other valuable items in a bank for making a loan.
He is making a pledge to the bank that he will return the loan and get back his gold or other valuable.
Pledge is one kind of bailment and all conditions are also applied that are applicable for bailment. In
bailment of pledge, the pledgee acquires a special property in the goods pledged whereby he gets
possession coupled with the power of sale, on default.
Elements of bailment of pledge
The basic elements of bailment of pledge creation are as follows:
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1. Personal property: Bailment of pledge involve tangible personal properties like jewelry, cattle,
automobiles etc. and intangible personal properties like promissory notes and shares of corporate stock
etc.
2. Delivery of possession: Its means transfer of procession of personal property to the pledgee. Pledgee
is given a exclusive procession and control over the property and he/she intends to exercise control
over it.
3. Agreement: There is an agreement that the property will be returned to the pledgor or otherwise
property will be disposed by order of owners. This agreement can be express or implied.
To understand more about bailment of pledge here’s the difference between bailment and pledge:
Sr. No
1
2
3
Bailment
Pledge
Sections 148 to 171 of The Contract
Sections 172 to 181 of The Contract
Act 1872 deals with bailment
Act deals with Pledge.
Meaning: The term bailment is
Meaning: Pledge is a special kind of
derived from the French word ‘Bailor’,
bailment. If the goods are bailed as a
which means ‘to deliver. It means
security for payment of a debt or
possession voluntarily from one person
performance of a promise, it is called
to another.
Pledge.
Definition: Delivery of goods by
Definition: The Bailment of goods as
Bailor to Bailee for a definite purpose
security for payment of a debt or
on condition of their return or disposal,
performance of a promise is called
when purpose is accepted.
pledge. (Section.178,C.A)
(Section.148,C.A)
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4
Example: Sam delivers a cloth to
Example: If a Farmer delivers to bank
John, a tailor making a shirt. The
50 bags of wheat as security for
contract between Sam and John is
obtaining a loan, it is called pledge.
bailment
5
It is made for any purpose
It is made for specific purpose
The Bailee can use the goods
Pledgee cannot use the goods
The Bailee has no right to sell the
The Pledgee / Pawnee has a right to sell
goods bailed
the goods pledged if the pledger could
6
7
not redeem them within the stipulated
period.
8
Bailee can exercise lien on goods only
Pledgee can exercise lien even for
for labour and service
nonpayment of interest.
Duties of the Pledgee
The pledgee has some basic duties those are as follows _
Duty of reasonable care : The pledgee is responsible for reasonable take care to
Protect the property during the possession period. If the pledgee does not take care properly and the
property is lost or damaged, the pledgee is liable for this type of negligence. In that case, pledgee have
to repay the amount of loss or damaged have made. But if the lost or damaged is happened without
fault of pledgee, they are not liable for that. If the bailment is solely for the benefit of pledgor, then the
pledgee may be held to a somewhat lower degree of care. Pledgee in this situation is liable for major
gross negligence. So who gets benefits from bailment is one consideration of what is reasonable care.
Unauthorized use of goods: If the pledgee makes unauthorized use of goods bailed like, uses them
such a way not authorized by the terms of the bailment, he is responsible for all damages to the goods
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and have to pay compensation to the pledgor. So pledgee is not allow to use according to their own
way. If anything goes wrong with the property during the unauthorized use, they have to pay for it
even if the damages are done accidentally.
Mixture of Pledgor’s goods with the Pledgee’s: If the pledgee combine the Property of pledgor with
his own property then goods will be separated or divideded, the property in the goods remains in the
parties respectively but the cost of separation will be bear by the pledgee.
Duty to return bailed property: At the end of the bailment, the pledgee has to return the undamaged
property to the pledgor or have to dispose of it if required. So it is another responsibility of pledgee
that to hand over the bailed property in the time of termination of bailment. If, by the default of the
pledgee, the goods are not transferred at the proper time, he is responsible to the pledgor, for any loss,
destruction or deterioration of the goods from that time.
Delivery of goods to the wrong person: If the bailed goods is returned to the wrong pledgor, then
pledgee is responsible for that. As soon as pledgee is informed about the misdelivery, should take
necessary step to correct.
Duties of the Pledgor
There are some duties basic duties of the pledgor. Those are as follows Pledgor’s duty to disclose faults
in goods bailed : When personal property is pledge, the pledgor makes an implied warranty that there
are no hidden defects in the property that can make it unsafe for use. The pledgor is bound to disclose
to the pledgee faults in the goods bailed of which the pledgor is known and which materially interfere
with the use of them or expose the additional risk of damages. So there is no liability for damages
which occur due to hidden of faults in goods by pledgor.
Payment of expenses in Gratuitous Bailments : The pledgor will repay to the pledgee the necessary
expenses incurred by him for the purpose of the bailment. Responsibility for breach of warranty : The
pledgor is responsible to the pledgee for any loss which the pledgee may sustain if the pledgor was not
entitled to make the bailment, or to receive back the goods or to give direction respecting them.
In addition, in a mutual benefit bailment the pledgor must notify the pledgee of all the known defects
which the pledgor knew of or could have found with reasonable diligence and proper inspection. In a
pledgee sole benefit bailment, the pledgor must inform the pledgee regarding any known defects.
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Termination of bailment of pledge
Bailment of pledge will be terminated under the following circumstancesBailment can be terminated
after the completion of the purpose of contract. Bailment can be terminated by the mutual agreement
of both pledgee and pledgor. If any party demands then bailment can also be terminated. It can be
terminated if an act by the pledgee that is inconsistent with the terms of the bailment. Bailment can
also terminate due to the death of any party.
Non-owner can make valid pledge
In general the owner of goods can always make a valid-pledge but the following cases, one who is not
an owner can make valid pledge.
Mercantile Agent: A mercantile agent, who is in possession of the property or of the documents of
title to property, can make a valid pledge. If the agent has no authority to pledge, bailment of pledge
will be valid.
Possession under a voidable contract: A person, who is having possession of propertyunder a voidable
contract, can make a valid pledge so long as the contract is not terminated.
Pledgor with a limited interest: Where a person pledges goods in which he has only alimented interest,
the pledge is valid to the extent of that interest.
Procession with co-owner: If one of several co-owners is in sole possession of the goods with the
consent of the owners, he can make a valid pledge.
Right of the Pledgor
There are some rights which enjoyed by the Pledgor. Those are as follows
Defaulting pledgor’s right to redeem: If the time is over for the payment of the debt, or
performance of the promise, for which the pledge is made, and the pledgor makes default in payment
of the debt or performance of the promise at the desired time, he can redeem the pledged properties at
any subsequent time before the actual sale of them; but he must pay any expenses which have arisen
from his default.
Preservation and maintenance: The pledgor can enforce to pledgee for the
preservation and proper maintenance of the pledged properties. So pledgor have right to monitor the
pledged properties to ensure free from damages.
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Protection of debtors: The pledgor as a debtor has given some rights by statutes enacted for the
protection of debtors for example Moneylenders Acts.
Right of the Pledgee
There are some rights which enjoy by the Pledgee. Those are as follows
Right of retainer: The pledgee can retain the property pledged for payment of the debt ; the
performance of the promise. Pledgee also can retain for the interest of debt and all other necessary
expenses which incurred by him for procession or preservation of pledged property.
Retainer for subsequent advance: Pledgee cannot retain the property for any debt other than the debt
for which the security was given unless there is an express contract to the contrary. The pledgee makes
fresh advances to the debtor and he presumed that the debtor has agreed to create on the property
already pledged a lien for the fresh advance.
Extraordinary expenses: The pledgee can claim to receive extra ordinary expensesfrom the pledgor
which incurred by him for the preservation of the pledged property.
Pledgee’s right where pledgor makes default : If the pledgor fail to make payment of the debt, or
performance, at the desired time of the promise, in respect of which the properties were pledged than
the pledgee can bring a suit against the pledgor for the default of debt or promise, and retain the goods
pledged as collateral asset ; or, he may sellthe pledged properties by giving reasonable notice. If the
market values of properties are less than the amount due according to the debt or promise, the pledgor
is still liable to pay the balance. If the values of the properties are greater than the amount due, the
pledgee will pay the surplus to the pledgor.
The bailment of pledge means the bailment of personal property which works as a collateral asset for
payment of debt or performance of promise. In some special case pledgor can use properties as security
which not own by him. In a bailment of pledge both parties have some responsibilities and liabilities.
If any party break any term of contact or not fulfill his desired task properly, other party can suit against
him. The pledgee and pledgor have some basic rights which they can exercise under the following
circumstance according to right. The bailment of pledge is heavily used in business deal and its
required for safety in transaction.
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CHAPTER-5
LIABILITY OF THE PARTIES TO A BAILMENT
Liability of the Bailee
Duty of Care
The basic rule is that the bailee is expected to return to its owner the bailed goods when the bailee’s
time for possession of them is over, and he is presumed liable if the goods are not returned. But that a
bailee has accepted delivery of goods does not mean that he is responsible for their safekeeping no
matter what. The law of bailments does not apply a standard of absolute liability: the bailee is not an
insurer of the goods’ safety; her liability depends on the circumstances.
The Ordinary Care Rule
Some courts say that the bailee’s liability is the straightforward standard of “ordinary care under the
circumstances.” The question becomes whether the bailee exercised such care. If she did, she is not
liable for the loss.
The Benefit-of-the-Bargain Rule
Most courts use a complex (some say annoying) tripartite division of responsibility. If the bailment is
for the sole benefit of the owner (the bailor), the bailee is answerable only for gross neglect or fraud:
the duty of care is slight. For example, imagine that your car breaks down on a dark night and you beg
a passing motorist to tow it to a gas station; or you ask your neighbor if you can store your utility trailer
in her garage.
On the other hand, if the goods are entrusted to the bailee for his sole benefit, then he owes the bailor
extraordinary care. For example, imagine that your neighbor asks you to let him borrow your car to go
to the grocery store downtown because his car is in the shop; or a friend asks if she can borrow your
party canopy.
If the bailment is for the mutual benefit of bailee and bailor, then the ordinary negligence standard of
care will govern. For example, imagine you park your car in a commercial parking lot, or you take
your suit jacket to a dry cleaner (see Figure 18.1 "Duty of Care").
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Figure 18.1 Duty of Care
One problem with using the majority approach is the inherent ambiguity in the standards of care. What
constitutes “gross” negligence as opposed to “ordinary” negligence? The degree-of-care approach is
further complicated by the tendency of the courts to take into account the value of the goods; the lesser
the value of the goods, the lesser the obligation of the bailee to watch out for them. To some degree,
this approach makes sense, because it obviously behooves a person guarding diamonds to take greater
precautions against theft than one holding three paperback books. But the value of the goods ought not
to be the whole story: some goods obviously have great value to the owner, regardless of any lack of
intrinsic value.
Another problem in using the majority approach to the standard of care is determining whether or not
a benefit has been conferred on the bailee when the bailor did not expressly agree to pay compensation.
For example, a bank gives its customers free access to safe-deposit boxes. Is the bank a “gratuitous
bailee” that owes its bailor only a slight degree of care, or has it made the boxes available as a
commercial matter to hold onto its customers? Some courts cling to one theory, some to the other,
suggesting the difficulty with the tripartite division of the standard of care. However, in many cases,
whatever the formal theory, the courts look to the actual benefits to be derived. Thus when a customer
comes to an automobile showroom and leaves her car in the lot while she test-drives the new car, most
courts would hold that two bailments for mutual benefit have been created: (1) the bailment to hold
the old car in the lot, with the customer as the bailor; and (2) the bailment to try out the new car, with
the customer as the bailee.
Burden of Proof
In a bailment case, the plaintiff bailor has the burden of proving that a loss was caused by the defendant
bailee’s failure to exercise due care. However, the bailor establishes a prima facie (“at first sight”—on
first appearance, but subject to further investigation) case by showing that he delivered the goods into
32
the bailee’s hands and that the bailee did not return them or returned them damaged. At that point, a
presumption of negligence arises, and to avoid liability the defendant must rebut that presumption by
showing affirmatively that he was not negligent. The reason for this rule is that the bailee usually has
a much better opportunity to explain why the goods were not returned or were returned damaged. To
put this burden on the bailor might make it impossible for him to win a meritorious case.
Liability of the Bailor
As might be expected, most bailment cases involve the legal liability of bailees. However, a body of
law on the liability of bailors has emerged.
Negligence of Bailor
A bailor may be held liable for negligence. If the bailor receives a benefit from the bailment, then he
has a duty to inform the bailee of known defects and to make a reasonable inspection for other defects.
Suppose the Tranquil Chemical Manufacturing Company produces an insecticide that it wants the
Plattsville Chemical Storage Company to keep in tanks until it is sold. One of the batches is defectively
acidic and oozes out of the tanks. This acidity could have been discovered through a routine inspection,
but Tranquil neglects to inspect the batch. The tanks leak and the chemical builds up on the floor until
it explodes. Since Tranquil, the bailor, received a benefit from the storage, it had a duty to warn
Plattsville, and its failure to do so makes it liable for all damages caused by the explosion.
If the bailor does not receive any benefit, however, then his only duty is to inform the bailee of known
defects. Your neighbor asks to borrow your car. You have a duty to tell her that the brakes are weak,
but you do not need to inspect the car beforehand for unknown defects.
Other Types of Liability
The theory of products liability extends to bailors. Both warranty and strict liability theories apply.
The rationale for extending liability in the absence of sale is that in modern commerce, damage can be
done equally by sellers or lessors of equipment. A rented car can inflict substantial injury no less than
a purchased one.
In several states, when an automobile owner (bailor) lends a vehicle to a friend (bailee) who causes an
accident, the owner is liable to third persons injured in the accident.
Disclaimers of Liability
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Bailee’s Disclaimer
Bailees frequently attempt to disclaim their liability for loss or damage. But courts often refuse to
honor the disclaimers, usually looking to one of two justifications for invalidating them.
Lack of Notice
The disclaimer must be brought to the attention of the bailor and must be unambiguous. Thus posted
notices and receipts disclaiming or limiting liability must set forth clearly and legibly the legal effects
intended. Most American courts follow the rule that the defendant bailee must show that the bailor in
fact knew about the disclaimer. Language printed on the back side of a receipt will not do.
Public Policy Exception
Even if the bailor reads the disclaimer, some courts will nevertheless hold the bailee liable on public
policy grounds, especially when the bailee is a “business bailee,” such as a warehouse or carrier.
Indeed, to the extent that a business bailee attempts to totally disclaim liability, he will probably fail
in every American jurisdiction. But the Restatement (Second) of Contracts, Section 195(2)(b), does
not go quite this far for most nonbusiness bailees. They may disclaim liability as long as the disclaimer
is read and does not relieve the bailee from wanton carelessness.
Bailor’s Disclaimer
Bailors most frequently attempt to disclaim liability in rental situations. For example, in Zimmer v.
Mitchell and Ness, the plaintiff went to the defendant’s rental shop at the Camelback ski area to rent
skis, boots, and poles.Zimmer v. Mitchell and Ness, 385 A.2d 437 (Penn. 1978). He signed a rental
agreement before accepting the ski equipment. He was a lessee and a bailee. Later, while descending
the beginners’ slope, he fell. The bindings on his skis did not release, thereby causing him to sustain
numerous injuries. The plaintiff sued the defendant and Camelback Ski Corporation, alleging
negligence, violation of Section 402A of the Restatement (Second) of Torts, and breach of warranty.
The defendant filed an answer and claimed that the plaintiff signed a rental agreement that fully
released the defendant from liability. In his reply, the plaintiff admitted signing the agreement but
generally denied that it released the defendant from liability. The defendant won on summary
judgment.
On appeal, the Pennsylvania Supreme Court held for the defendant and set out the law: “The test for
determining the validity of exculpatory clauses, admittedly not favored in the law, is set out in .The
contract must not contravene any policy of the law. It must be a contract between individuals relating
34
to their private affairs. Each party must be a free bargaining agent, not simply one drawn into an
adhesion contract, with no recourse but to reject the entire transaction.…We must construe the
agreement strictly and against the party asserting it, the agreement must spell out the intent of the
parties with the utmost particularity.” The court here was satisfied with the disclaimer.
CHAPTER-6
CASE STUDY ON BAILMENT
CASE1: COGGS V BERNARD
Coggs v Bernard (1703) 2 Ld Raym 909 (also Coggs v Barnard) is a landmark case both for English
property law and contract law, decided by Sir John Holt, Chief Justice of the King's Bench. It sets out
the duties owed by a bailee - someone in possession of property owned by another.
Facts
William Bernard undertook to carry several barrels of brandy belonging to John Coggs from Brooks
Market, Holborn to Water Street, just south of the Strand (about half a mile). Bernard's undertaking
was gratuitous; he was not offered compensation for his work. As the brandy was being unloaded at
the Water Street cellar, a barrel was staved and 150 gallons were lost.
Coggs brought an action on the case against Bernard, alleging he had undertaken to carry the barrels
but had spilled them through his negligence.
JUDGMENT
Holt CJ at the London Guildhall found that Mr Bernard, the defendant, was negligent in carrying the
tasks and was therefore liable as a bailee. Holt made clear that Bernard's responsibility to Coggs was
not formally contractual in nature, since he received no consideration. Instead, his responsibility rested
on the trust that Coggs placed in him to use due care in transporting the casks, and by his tacit
acceptance of that trust by taking the casks into his custody. Thus, because Bernard acted negligently
when he was under a responsibility to use care, he was held to be in breach of a trust.
In the course of his judgment, Holt gave this well-known statement of the categories of bailment:
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“And there are six sorts of bailments. The first sort of bailment is, a bare naked bailment of goods,
delivered by one man to another to keep for the use of the bailor; and this I call a depositum, and it is
that sort of bailment which I mentioned in Southcote's case (1601) Cro Eliz 815.
The second sort is, when goods or chattels that are useful, are lent to a friend gratis, to be used by him;
and this is called commodatum, because the thing is to be restored in specie.
The third sort is, when goods are left with the bailee to be used by him for hire; this is called locatio et
conductio, and the lender is called locator, and the borrower conductor.
The fourth sort is, when goods or chattels are delivered to another as a pawn, to be a security to him
for money borrowed of him by the bailor; and this is called in Latin vadium, and in English a pawn or
a pledge.
The fifth sort is when goods or chattels are delivered to be carried, or something is to be done about
them for a reward to be paid by the person who delivers them to the bailee, who is to do the thing about
them.
The sixth sort is when there is a delivery of goods or chattels to somebody, who is to carry them, or
do something about them gratis, without any rewards for such his work or carriage, which is this
present case. I mention these things, not so much that they are all of them so necessary in order to
maintain the proposition which is to be proved, as to clear the reason of the obligation, which is upon
persons in cases of trust.”
The case overturned the then leading case in the law of bailments, Southcote's Case (1601), which held
that a general bailee was strictly liable for any damage or loss to the goods in his possession (e.g., even
if the goods were stolen from him by force). Under the ruling in Coggs v Bernard, a general bailee was
only liable if he had been negligent. Despite his reappraisal of the standard of liability for general
bailees, Holt CJ refused to reconsider the long-standing common law rule that held common carriers
strictly liable for any loss or damage to bailed property in their possession. Although admitting that
the rule was "hard," Holt CJ justified it by stating:
This is a politik establishment, contrived by the policy of the law, for the safety of all persons, the
necessity of whose affairs oblige them to trust these sorts of persons [i.e. carriers], that they may be
safe in their ways of dealing: for else these carriers might have an opportunity of undoing all persons
that had any dealings with them, by combining with thieves etc; and yet doing it in such a clandestine
36
manner, as would not be possible to be discovered. And this is the reason the law is founded upon that
point.
Sir John Powell concurred. He began his decision by saying, echoing Sir Edward Coke's famous
dictum, "Let us consider the reason of the case. For nothing is law that is not reason."
CASE2: ATUL MEHRA V BANK OF MAHARASTRA
The case was filed at the Trial Court by Atul Mehra, the appellant in present court, whereby issue Nos.
1, 2 and 3 were decided against him and issue No. 4 was decided against the Respondent as it was not
pressed. The suit was dismissed with costs. Thereby, an appeal was filed by the appellant in this case,
Atul Mehra, in the Lower Appellate Court which has upheld the findings given by the learned Trial
Court. Hence, the present Regular Second Appeal.
Atul Mehra (i.e. the appellant) in the present appeal had hired locker No. 75 on 15th January 1986 at
Bank of Maharashtra (i.e. the respondent). He had deposited jewellery in the said locker the value of
which he claimed as Rs 4,26,160.
The strong room in which the locker was located was broken in and the contents thereof were stolen
by miscreants. On 9th January 1989 an FIR for the same was filed. It was stated in the FIR that all
other 43 lockers in the strong room were also broken in and contents thereof stolen.
On 2nd February 1989, all the 44 locker holders made representation to the bank by a registered
acknowledgment duly pointing out the gross negligence and misconduct of the respondent in
maintaining the lockers. They have contended that the alleged strong room was made up affair and it
was made only of plywood, whereas it ought to have been made of iron and concrete.
On 20th February 1989, a representation to this effect was also made to the Ministry of Finance,
Government of India, and the Senior Superintendent of Police, Amritsar.
On 21st July 1989, the police had made a report about the defective strong room and the lockers
therein.
In contesting the suit, the Respondent has contended that the appellants had no locus standi to bring
the suit against the Respondents. They have denied the following facts to be true :That jewelry in the value of Rs. 4,26,160/- was kept in the locker,
That there was any misconduct or negligence on the part of the respondent-bank in taking care of the
lockers and strong room,
The police report dated 21st July 1989,
37
That there was any statutory or contractual liability on them to make good the loss allegedly suffered
by the appellants.
The facts that they did admit to are the following:
That the appellants had taken locker No. 75 from the respondent-bank on 15th January 1986.
That the lockers were broken by miscreants and content of the same were stolen.
The appellants filed replication. They refuted the contents of the written statement and reiterated the
facts stated in the plaint.
ISSUES RAISED
1. Whether the plaintiffs have suffered loss due to misconduct and negligence by the defendant?
2. If issue No. 1 is proved, whether the plaintiffs are entitled to recover any amount. If so, to what
amount?
3. Whether the defendant-Bank has no contractual liability to make good loss incurred by the
plaintiffs?
4. Whether the plaintiffs have no cause of action or locus standi to file the present suit?
5. Would the relationship between the locker hirer and the bank fall within the definition of
bailment as given in Section 148of the Indian Contract Act, 1872, merely on the locker being
hired; or is it necessary also to prove by independent evidence entrustment, quantity, quality
and value of the property claimed?
ARGUMENTS ADVANCED
By the Appellant (Atul Mehra)
It was also argued that vital pieces of evidence was not considered by the later courts. Mr Chibbar had
cited the Supreme Court’s judgment in the case of Ishwar Dass Jain v. Sohan Lal where it has been
held that “the High Court can interfere with the concurrent findings of fact recorded by the Courts
below if vital pieces of evidence have not been considered which, if considered, would have led to a
different conclusion”.
According to the learned Counsel, once the relationship between the appellant and respondent is
established as that of bailor and bailee, the lack of knowledge on the part of the respondent would be
of no affect to their liability to compensate the appellant. It was argued repeatedly by the Counsel that
the relationship between the parties is that of bailment as defined under Section 148 of Indian Contract
Act, 1872.
The learned Counsel has aptly argued that if the bailee undertakes to mind some goods for reward, but
fails to produce them to the bailor when asked to do so, it is a reasonable inference that the bailee has
38
been negligent. Hence, in the present case, it is reasonable to infer that the respondent has at least been
negligent.
The learned counsel for the Appellant, Mr R. K. Chhibbar has argued that both the lower courts have
erred in the judgment because they had based their findings on the case of Mohinder Singh Nanda v.
Bank of Maharashtra which he contends to be per incuriam.
Chhibbar, learned Senior Advocate, has also argued that both the learned Courts below have failed to
take notice of the fact that the strong room, as well as the lockers, had been built in contravention of
the guidelines on security arrangements in the banks issued by the Indian Banks Association and the
guidelines issued by the Reserve Bank of India. According to the learned Counsel, these guidelines
are to be strictly construed and strong room was to be built in accordance with the specification given
therein. Learned Counsel has further pointed out that even DW-1, P. K. Aggarwal, Senior Manager of
the respondent-Bank, had admitted that the guidelines issued by the Indian Banks Association are
binding.
By the Respondent (Bank of Maharashtra)
Mr Ashok Pal Jaggal, learned counsel for the Respondent, has put forward the argument that the
agreement between the parties constitutes the relationship of landlord and tenant. The agreement uses
the term “rent and hirer”. This relationship cannot be equated with bailment. He has relied on Section
106 of the Transfer of Property Act which provides for giving a notice for termination of the tenancy.
The hiring agreement between the two parties provides for a written notice of termination.
Judgment
The Bench, comprising of Justice S.S. Nijjar, has held that exclusive possession of the goods is sine
qua non for bailment. Therefore, mere hiring of a locker would not be sufficient to constitute a contract
of bailment as provided under Section 148 of the Indian Contract Act, 1872. He has added that the
question of reasonable care and quantum of damages would arise only after it has been shown that
actual exclusive possession of the property was given by the bailee to the bailor, i.e. the bank. Since
the bank was not aware of the contents of the locker, hence it was impossible to know the quantity,
quality or the value of the jewellery that was allegedly kept in the locker at the time when the robbery
occurred. The appellant’s only evidence was of a witness’s statement that “he cannot admit or deny
that there was jewellery weighing 1273 grams worth Rs. 4,26,160/- are kept in the locker”. The judge
held it insufficient to prove that the appellant had entrusted the jewellery to the respondent. Learned
judge has further added that the appellants alone had the knowledge of the contents of the locker. No
sufficient evidence had been produced by the plaintiffs for the same. The plaintiff thus had failed to
prove entrustment of the jewellery to constitute bailment.
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On the argument of Mr Jaggal that the relationship between the two parties is of landlord and hirer, it
was said that it cannot be said that such a relationship existed because the supposed hirer (the plaintiff)
did not have direct access to the land that he has hired and the assistance of the bank employees is
required in doing so.
The judge has also referred to the Mohinder Singh Nanda’s case which refers to the same incident of
the robbery of 44 lockers. The judge had held that it is not per incuriam hence the same will be binding
on this court. In this case, it was held that there was no exclusive possession to the bank hence no
compensation was allowed to the plaintiff. The lower courts have also relied on this judgment and the
present court has established that there is no error in doing so.
In another case the judge referred to lays down the same principle that it has to be proved that the
bailor was aware of the value of the property and was entrusted with its safekeeping. The bank, in this
case, was entrusted with the jewellery and the valuation of the jewellery had been proved with
sufficient evidence produced to the police at the time of the robbery. The bank was held liable for
negligence because the robbery was committed by the manager within the bank itself. The judge has
asserted that the plaintiffs have miserably failed to prove the entrustment of the jewellery which was
allegedly kept in the locker. There is no proof of any kind to show the value of the jewellery which
was kept in the locker. No expert witness has been produced to show that the jewellery mentioned in
the plaint would be worth the amount claimed.
The appeal was decided in favour of the Respondent.
Critical analysis
The whole decision relies on a previous judgment by the same court which relates to the same incident
of robbery of Bank of Maharashtra’s 44 lockers. This judgment has laid down a crucial principle in
the context of delivery of possession of goods in a contract of bailment. It has basically laid down that
the bailee must be made aware of the contents of anything he receives for safe custody so as to gauge
the amount of any possible liability that may arise in the future. In this case, the bank had no knowledge
of the quality, quantity or nature of goods kept inside the locker.
The court has been right in giving this decision in favor of the respondents because holding the bank
responsible for the loss of any goods kept in the locker by their customers would give rise to
uncountable amount of liability as it may be found difficult to prove that there was no exclusive
40
possession of the contents of the locker. Such uncountable liability would also discourage banks to
give such a facility which is currently utilized by countless number of people around the globe. The
judgment acts as a good precedent as it mitigates the responsibility of the banks to some extent which
is absolutely required in to allow them to provide service to the public. The liability of the contents of
a bank locker is placed on the customer itself as long as he has a part in accessing the lockers while
the liability would undoubtedly shift to the bank in case of breach of trust on any of employee’s parts.
CASE3: THE PIONEER CONTAINER KH ENTERPRISE V. PIONEER CONTAINER
FACTS:
The plaintiffs (owners) contracted with the freight carriers (first bailee) for the carriage of their goods
by container from Taiwan to Hong Kong. The carriers issued the plaintiffs with bills of lading which
provided that the carrier was entitled to sub-contract ‘on any terms’ the whole or any part of the
handling, storage or carriage of the goods. The carriers sub-contracted the carriage to the defendant
shipowners (sub-bailees) who issued former the feeder bills of lading incorporating an exclusive
jurisdiction clause (cl 26) which provided that the bills of lading were governed by Chinese law and
that any claim or other dispute arising under the ‘bill of lading contract‘ was to be determined in
Taiwan unless the carrier otherwise agreed. The vessel on which the plaintiffs’ containers were being
shipped from Taiwan to Hong Kong sank with the loss of all cargo following a collision with another
vessel during the voyage. The plaintiffs commenced proceedings in Hong Kong by the issue of a writ,
claiming damages from defendant against the losses sustained out of negligent mismanagement of
plaintiff’s goods—i.e. breach of duty to take reasonable care characteristic of bailee. The shipowners
applied to have the proceedings stayed on the grounds that the plaintiffs had, by cl. 26 of the bills of
lading, agreed that any claim or other dispute thereunder should be determined in Taiwan.
ISSUES:
1. What was the nature of relationship between bailor and sub-bailees?
2. Whether the plaintiffs were bound by the exclusive jurisdiction clause, albeit they were not
privy to the contract between sub-bailees and first bailee? (Whether the principle enunciated
in Morris v. Martin was applicable?)
3. Whether Court of Appeal was right in staying the proceedings to refer the dispute to Taiwanese
tribunal, albeit plaintiff’s cause of action in Taiwan had already become time barred?
41
CONTENTIONS:
1st Contention: The clause in question refers to any claim or other dispute arising under ‘This Bill
of Lading contract‘; and plaintiffs submitted that this wording compelled the conclusion that the
clause applied only to contractual claims. However, shipowners sought to build upon that dictum
in order to advance an argument that cl. 26 should be read broadly, to embrace not only claims
which are contractual in nature, but also claims in bailment or in tort where the liability of the
shipowners was governed by the contractual terms set out in a bill of lading in the shipowners’
form.
2nd Contention: Plaintiffs submitted that the exclusive jurisdiction clause should be excluded from
such incorporation because it was not a clause directly germane to the subject matter of the bill of
lading, viz the shipment, carriage and delivery of the relevant goods
3rd Contention: Plaintiff’s contended that the bailees were never in the possession of the goods,
in which circumstance, the defendants were quasi-bailees; since the principle of sub-bailment does
not extend to quasi bailees, hence, plaintiff’s will not be bound by the terms of such sub-bailment,
even of authorized]
EQUITABLE GROUNDS:
To produce a uniformity of jurisdiction and convenience in commercial terms, plaintiffs should be
held to be bound. This is because if there would not be exclusive jurisdiction clause applicable to
plaintiffs, the claims would arise under various jurisdictions which would be both inequitable and
grossly inconvenient for the defendants.
LEGAL GROUNDS:
1) MORRIS v. MARTIN: “the defendants, by voluntarily receiving into their possession, goods
which were the property of another, became responsible to the plaintiff as bailees of the goods.”
Therefore, in a case such as this, the obligation is created by the delivery and assumption of
possession under a sub-bailment. Further, the obligation owed by the sub-bailee to the owner must
likewise be that of a bailee for reward vis-à-vis the owner, notwithstanding that the reward is
payable not by the owner but by the bailee. (this proves that the sub-bailee’s liability is co-extensive
as that of bailee) The PC however added that the sub-bailees must be aware of bailor’s interest in
the goods, so as to become obliged to take due care of the goods bailed.
42
2) MORRIS case: the owner is bound by the conditions if he has expressly or impliedly consented
to/ authorised the bailee making a sub-bailment containing those conditions, but not otherwise.
(Note: Estoppel may also arise as against the plaintiffs who will be estopped from denying the
ostensible authority of the bailees, as according to 1st contract, to act as agents of them)
HELD:
1st Contention: Bills of lading are documents which operate as receipts for the goods, and which
contain or evidence the terms of the contract of carriage. Therefore, it must be the intention of both
sub bailees and the bailers who consented for the inclusion of the same that these terms must be
held to be binding notwithstanding the liability to arise as under tort or contract. It will be
commercially unapt if the contention of the plaintiffs is withheld.
2nd Contention: Where the consent is very wide in its terms, only terms which are so unusual or
so unreasonable that they could not reasonably be understood to fall within such consent are likely
to be held to be excluded. However, the exclusive jurisdiction clause was neither unreasonable
and nor unusal for it was commonly being included in such bills of lading.
3rd Contention: As it was, the form of bill of lading issued by 3rd type of plaintiffs in respect of
these goods represented that Scandutch had received the goods for transportation from the place
of receipt; and no evidence was adduced to contradict this. Therefore, they weren’t quasi bailees
rather sub-bailees.
3) Applying the principle that the court should exercise its discretion by granting a stay of
proceedings brought in breach of an agreement to refer disputes to a foreign court unless strong
cause for not doing so was shown, the expiry of the time limit in Taiwan was not sufficient reason
for refusing a stay since the plaintiffs had advisedly but unreasonably gambled on being permitted
to litigate in their preferred forum of Hong Kong rather than Taiwan, which was where they were
bound to litigate, and had let time run out in Taiwan without taking the trouble even to issue a
protective writ there. In so doing, the plaintiffs had acted unreasonably. The appeal would
therefore be dismissed.
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CHAPTER-7
CONCLUSION
Bailment is a very much important rule to introduce in the modern world. It has various kinds of
applications in our life and the applications are very important. Bailment is arises for the betterment
of the contractual agreement in the field of law of contract. If bailment law was not introduced in the
modern world many contractual problems will be unanswered. In view of all these considerations and
of the methods by which at the present time common carriers must carry on their business, it seems to
me it is against public policy to allow a common carrier to contract away its liability for negligence
either in the carriage of goods or of passengers; but that public policy would not prohibit such
contracts, clearly, in the case of the simple bailments not affected with a ptublic interest, nor even in
the case of innkeepers and other bailees affected with a public interest. The cases and legislation
supporting these propositions have the better reasoning. However, in the instance of common carriers,
it must be admitted, as should be expected, the tendency of the law seems to be slowly the other way,
towards the allowance of special contracts. Express messengers and persons riding on free passes may
now make such contracts, a great many courts allow still further latitude, and in the future progress of
the law the doctrine may encroach into the territory of passengers for hire and the territory of goods
and live stock. But it does not seem as though the time were yet ripe for such changes, and haste in
this direction should be made slowly. Before the clamor of private convenience is listened to it shotuld
be certainly and definitely decided that the interests of the public are safeguarded. The effect of letting
the bars of public policy down and the freedom of contract in, where that policy has been tried, has
not proven an unquestioned and indisputable success.
44
CHAPTER-8
BIBLIOGRAPHY
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§
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§
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45