DAMODARAM SANJIVAYYA NATIONAL LAW UNIVERSITY

VISAKHAPATNAM, A.P., INDIA

TERMINATION OF BAILMENT

LAW OF CONTRACTS II

Under the guidance of

Dr.Ch LAKSHMI

M SANTOSH REDDY

SEM III, SEC ‘A’

2014-054

ACKNOWLEDGEMENT

I would like to express my special thanks of gratitude to Dr.Ch LAKSHMI who gave

me the opportunity to do this project on the topic “TERMINATION OF BAILMENT”,

who also helped me in doing a lot of Research and I came to know about so many new

things; I am really thankful to them.

Secondly I would also like to thank the staff members of DSNLU, specially the computer

lab staff, who helped me a lot in finalizing this project within the limited time frame.

CONTENTS

i. Objectives/Aims of the Study……………………………………………….3

ii. Significance & Benefit of the study…………………………………………3

iii. Scope of the Study…………………………………………………………..3

iv. Research Methodology………………………………………………………3

1) Introduction……………………………………………………………………..4

2) Bailment Under Indian Contract Act……………………………………………4

3) The Essentials Of Bailment……………………………………………………..6

4) Bailment of pledges……………………………………………………………..7

5) Duties of Bailee…………………………………………………………………7

6) Duties of Bailor…………………………………………………………………8

7) Definition and meaning of “termination of bailment”………………………...10

8) Various grounds or ways of terminating the contract of bailment……………...10

a) On the accomplishment of the specified purpose…………………………………...10

b) When bailee’s act is inconsistent with the conditions of bailment…………

11

c) When the period or purpose is over………………………………………..12

d) When the subject-matter is destroyed or becomes illegal………………….12

e) On the death of Bailor or Bailee……………………………………………12

9) Termination of Gratuitous

Bailment…………………………………………...13

10)Conclusion……………………………………………………………………..13

Objectives/Aims of the Study

The major aim of the study are as follows :

To study the various provisions for the termination of contract of bailment.

To analyze the practical implementation of those provisions through various case laws.

Significance & Benefit of the study

This study would be a decent research work on the element of termination in

the contract of bailment. This paper would be helpful in understanding the principles

related to the termination of bailment and also would give a practical knowledge about

the interpretation of those statutes in our courts.

Scope of the Study

The scope of this research would be limited to the statutes, legislatures and

case laws of Common Law and India specifically. The study would never, greatly, touch

upon the cases of countries other than India and Common Law countries.

Research Methodology

The researcher would like to do a doctrinal study about the topic by

referring to various books and other available documents like judgments of landmark

Common Law cases. The researcher would analyze the judgments of various Common

Law cases and give a practical flavour to the study.

Literature review

Law Relating to Indian Contract Act 1972 by N,Nandi

Indian Contract Act by Dr. R.K. Bangia

INTRODUCTION

The word ‘bailment’ is derived from the French word ‘Bailer’, which means to

deliver. In law, bailment is a voluntary change of possession from one person to another.

It is defined as the delivery of goods from one person to another for some purpose upon a

contract. Upon the attainment of the purpose, the goods are returned or disposed off,

according to the directions of the person delivering them.

According to Section 148 of the Contracts Act, the person delivering the goods is

called the ‘bailor’ and the person to whom the goods are delivered is called the ‘bailee’.

Delivery of the possession is not necessary where one person, already in possession of

goods, contracts to hold them as the bailee.

A bailment is ended when its purpose has been achieved, when the parties agree

that it is terminated, or when the bailed property is destroyed. A bailment created for an

indefinite period is terminable at will by either party, as long as the other party receives

due notice of the intended termination. Once a bailment ends the bailee must return the

property to the bailor.

Law relating to termination of bailment is discussed in Sec. 153 and Sec. 162 of

Indian Contracts Act. However, these sections are not exhaustive. Hence ordinary rules

regarding discharge or termination of contracts will also apply in the specific area of

termination of bailment.

BAILMENT UNDER INDIAN CONTRACT ACT

Bailment is the process of placing personal property or goods in the temporary custody or

control of another. The custodian or holder of the property, who is responsible for the

safe keeping and return of the property, is known as the bailee. The person who delivers

or transfers the property to the bailee is known as the bailor.

For a bailment to be valid, the bailee must have actual physical control of the property

with the intent to possess it. The bailee is generally not entitled to the use of the property

while it is in his possession, and a bailor can demand to have the property returned to him

at any time.

The word "bailment" was originally derived from a French word meaning "to deliver". In

law, a bailment occurs where one person voluntarily delivers chattels to another person

on trust that they will be returned in their original or altered form, and without any

transfer of ownership of the chattels occurring. In other words, it is where one person

gives property to another person, expecting to get it back.

The test is if the transaction has the following four

Elements:

1) The delivery of the exclusive right of possession by the bailor,

2) Voluntarily accepted by the bailee,

3) With an assumption of the responsibility by the bailee to keep the goods safe,

4) And the obligation to return the thing bailed

In a bailment, the person delivering the property is called the bailor, and the recipient of

the property is the bailee. Under certain circumstances it is also possible for a sub-

bailment to exist, where the bailee then bails the goods to another person, who becomes a

sub-bailor.

A “bailment” is the delivery of goods by one person to another for some purpose, upon a

contract that they shall, when the purpose is accomplished, is returned or otherwise

disposed of according to the directions of the person delivering them. The person

delivering the goods is called the "bailor". The person to whom they are delivered is

called, the “bailee ". Explanation.-If a person already in possession of the goods of

another contracts to hold them as a bailee, he thereby becomes the bailee, and the owner

becomes the bailor of such goods, although they may not have been delivered by way of

bailment.

The essence of bailment is the transfer of possession. The ownership remains with the

owner. There cannot be a bailment of immovable property.

THE ESSENTIALS OF BAILMENT

There are following essentials of bailment:

1. Delivery of possession Delivery of possession should be is here different mere

custody. The goods must be handed over to bailee for whatever purpose of bailment.

Delivery may be actual or constructive as under sec 149 Actual delivery is when bailor

hands over the bailee physical possession of goods and constructive delivery takes place

when there is no change of physical possession but something is done by bailee to put

bailor in possession.

2. Delivery should be upon contract should be that after use goods will be returned when

possession goes to another person without any contract then there is no bailment.

3. Delivery should be upon some purpose Bailment is always made for some purpose and

is subject to condition that when purpose is accomplished the goods will be returned to

the bailor. There is no bailment where goods are not specifically accounted for. A deposit

of money with a banker is not bailment as he is not bound to return the same notes and

coins.

Bailment can be only of ‘goods’. As per section 2(7) of Sale of Goods Act, ‘goods’

means every kind of movable property other than money and actionable claim. Thus,

keeping money in bank account is not ‘bailment’. Asking a person to look after your

house or farm during your absence is not ‘bailment’, as house or farm is not a movable

property.

Bailment of pledges

Pledge is special kind of bailment, where delivery of goods is for purpose of security for

payment of a debt or performance of a promise. Pledge is bailment for security. Common

example is keeping gold with bank/money lender to obtain loan. Since pledge is

bailment, all provisions applicable to bailment apply to pledge also. In addition, some

specific provisions apply to pledge. The bailment of goods as security for payment of a

debt or performance of a promise is called “pledge”. The bailor is in this case called the

“pawnor”. The bailee is called the “pawnee”. [Section 172]. The bailee can only avoid

liability if they can show the loss or damage was caused by:

1) An act of God,

2) An act of the Crown's enemies (i.e. an act of war)

3) The fault of the consignor (person sending the goods)

4) An inherent fault in the goods

Duties of Bailee

1. Duty to take reasonable care of goods delivered to him. Section 151 lays down

this duty, thus, “In all cases of bailment the bailee is bound to take as much care of

the goods bailed to him as a man of ordinary prudence would, under similar

circumstances, take of his own goods of the same bulk, quality and value as the

goods bailed.” In other words the bailee must take reasonable care of goods.

2. Duty not to make unauthorized use of goods entrusted to him (Sec. 154). It is

the duty of the bailee to use the goods strictly in accordance with the terms of the

bailment. If he makes an unauthorized use of the goods, he is liable to make

compensation to the bailor\ for any damage arising to the goods from or during

such use of them. This liability is absolute. It arises even if the bailee is not guilty

of any negligence, or the damage is the result of an act of God or inevitable

accident. In addition, as per Section 153, the bailor can also terminate the bailment

if the bailee makes an unauthorized use of goods.

3. Duty not to mix goods bailed with his own goods. It is also the duty of a bailee

that he should not mix his own goods with those of the bailor, without bailor’s

consent. If the goods are mixed with the consent of the bailor, there is no breach of

duty and the bailor and the bailee shall have an interest, in proportion to their

respective shares, in the mixture thus produced (Sec. 155).

4. Duty to return the goods. Section 160 lays down this duty in the following terms:

“I is the duty of the bailee to return, or deliver, according to the bailor’s directions

the goods bailed, without demand, as soon as the time for which they were bailed

has expired, or the purpose for which they were bailed has been accomplished.”

Where there are several joint bailors, the bailee may return the goods to any one of

the joint owners (Sec. 165). When the bailee fails to return the goods at the proper

time, he becomes responsible to the bailor for any loss, destruction or deterioration

of the goods from that time (Sec. 161). It is important to note that if the goods are

not returned at proper time, the bailee is liable for the loss occurring thereafter

even without his negligence, i.e., by an act of God. Of course, this is in addition to

the bailee’s liability for ordinary damages for breach of contract of bailment.

5. Duty to deliver any accretion to the goods (Sec. 163). It is the duty of the bailee

to deliver to the bailor any natural increase or profit accruing from the goods

bailed, unless there is a contract to the contrary.

Duties of Bailor

1. Duty to disclose faults in goods bailed. Section 150 lays down this duty. The

Section makes a distinction between a gratuitous bailor and a bailor for reward and

provides as follows:

(a) A gratuitous bailor is bound to disclose to the bailee all those faults in the

goods bailed, of which he is aware and which materially interfere with the use

of them, or expose the bailee to extraordinary risks, and if he fails to do so, he

will be liable to pay such damages to the bailee as may have resulted directly

from the faults. A gratuitous bailor will not be liable for damages arising to the

bailee from defects of which he was ignorant.

2. Duty to repay necessary expenses in case of gratuitous bailment (Sec. 158).

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, it is the duty of the bailor to repay all the necessary

expenses incurred by the bailee for the purpose of the bailment. Thus where a

horse is bailed without reward for safe custody, it is the duty of the bailor to

reimburse the bailee for usual feeding expenses of the horse as well as for the

medical expenses, if any.

3. Duty to repay any ‘extraordinary’ expenses in case of non-gratuitous

bailment.

Where under the terms of the bailment, the bailee is to receive remuneration for

his services; it is the duty of the bailor to bear extraordinary expenses, if any,

incurred by the bailee in relation to the thing bailed. In such a bailment the bailor

is not to bear the ordinary or usual expenses. Thus where a horse is bailed for safe

custody and the bailee is to receive Rs 80 per day as custody charges; the bailor is

not liable to repay the bailee the ordinary expenses of feeding the horse. But if

during the bailee’s custody the horse falls ill without any negligence on his part,

the bailor must repay the bailee the medical expenses incurred in connection with

the treatment of the horse, these being extraordinary expenses.

4. Duty to indemnify bailee (Sec. 164). A bailor is also bound to indemnify the

bailee for any loss suffered by the bailee, by reason of the fact that the bailor was

not entitled to bail the goods because of the defective title.

5. Duty to receive back the goods. It is the duty of the bailor to receive back the

goods when the bailee returns them after the time of bailment has expired or the

purpose of bailment has been accomplished. If the bailor refuses to take delivery

of goods when it is offered at the proper time, the bailee can claim compensation

for all necessary expenses of, and incidental to, the safe custody.

Meaning of Termination

The termination or cancellation of a contract signifies the process whereby an end is put t

o whatever remain to be performed thereunder. It differs from Rescission, which refers to 

the restoration of the parties to the positions they occupied prior to the contract.The termi

nation of a lease refers to the severance of the Landlord and Tenant relationship before

the leasehold term expires through the ordinary passage of time.

Various grounds or ways of terminating the contract of bailment

A contract of Bailment is terminated when the specific purpose is completed, when the

specified time has elapsed, when the bailee has breached the terms of contract or when

either of the parties dies. These elements are discussed in detail further in this paper.

On the accomplishment of the specified purpose

In case, bailment is for aspecific purpose it terminates as soon as the purpose is

accomplished. The bailee is under an obligation to re-deliver the goods in its original or

altered form, as soon as the time of use for, or in the condition in which they were bailed,

has elapsed or has been performed.

A bailment is ended when its purpose has been achieved, when the parties

agree that it is terminated, or when the bailed property is destroyed. A bailment created

for an indefinite period is terminable at will by either party, as long as the other party

receives due notice of the intended termination. Once a bailment ends, the bailee must

return the property to the bailor or possibly be liable for conversion.

Let us study the following examples:

• A delivers some clothes to B, a dry cleaner, for dry cleaning.

• A delivers a wrist watch to B for repairs.

• A lends his book to B for reading.

• A delivers a suit-length to a tailor for stitching.

• A delivers some gold biscuits to B, a jeweller, for making jewellery.

A contract of bailment is terminated under the following circumstances:

• On the expiry of the stipulated period – Where a bailment is for a specific period, it

comes to an end on the expiry of the specified period.

Example: A room cooler is hired by X from Y for six months. On the expiry of six

months, X must return the cooler to Y.

On the accomplishment of the specified purpose – In case the bailment is for specific

purpose, it terminates as soon as the purpose is accomplished.

When bailee’s act is inconsistent with the conditions of bailment

If the bailee does any act with regard to the goods bailed, inconsistent with the

conditions of the bailment, the bailor may terminate the bailment. This aspect is provided

in Section 153 of Indian Contract Act 1872.

Example: A lets B for hire a horse for his own riding. B drives the horse in his carriage.

A will have the option to terminate the bailment. This is voidable in nature and is at the

choice of the bailor.

When the period or purpose is over

In case the bailment is for a specific period or purpose, it is terminated on the expiry of

that period or on the completion of the purpose.

Example: ‘A’, a car driving instructor, contracted with ‘B’, to lease his car for 24 hours.

‘B’ is bound to return the car to ‘A’ and by that act the contract will come to an end.

When the subject-matter is destroyed or becomes illegal

In case the subject-matter is destroyed or becomes illegal, the bailment is terminated. For

example ‘A’, a cold storage owner, is bailed 200 boxes of some medical drugs for 6

months by ‘B’. During the time of bailment the possession of that specific drug was

legally allowed but after 1 moth of that bailment government passed a law which

criminalized the act of possession of that specific drug in large quantities. Here the basic

object becomes illegal, so in these kind of circumstances the contract of bailment will be

terminated automatically by the passage of that law.

On the death of Bailor or Bailee

The existing contract of bailment will automatically come to an end on the death of either of the

party to the contract i.e. Bailor or Bailee. For example ‘A’ has signed a contract of bailment with

‘B’ for 1 year and unfortunately he dies within 6 months from the date of contract. Then the

contract will be terminated automatically and the goods are returned back to the Bailor though

the time of the contract hasn’t elapsed.

Termination of Gratuitous Bailment

Where the bailment is gratuitous, it can be terminated merely at the will of the

bailor. However, the termination should not cause loss to the bailee in excess of the

benefit derived by him. In case the loss exceeds the benefit derived by the bailee,

the bailor must compensate the bailee for such a loss. This provision was provided

in section 159 nof Indian Contract Act 1872. Section 162 states that a gratuitous

bailment will come to end on death of either of the parties i.e. bailor or bailee.

Books referred:

Law Relating to Indian Contract Act 1972 by N,Nandi

Indian Contract Act by Dr. R.K. Bangia