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Law of Contract II - Week 6

By: Nitin Gomber Esq.
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What is Bailment?

n The word ‘bailment’ means a sort of handing over possession.

n Under the ICA, the word ‘bailment’ implies a sort of relationship

in which the personal property of one person temporarily goes
into the possession of another.

n The circumstances in which this sort of a relationship may arise

could be numerous: (a) Delivering a cycle, watch or other article
for repair, (b) leaving a cycle, car etc. at a stand, (c) depositing
luggage in a cloakroom, (d) delivering garments to a dry-
cleaner, (e) delivering gold to a goldsmith for making
ornaments, among others

n Note: Bailment is necessarily dealt with by the Contract Act so

far as it is a kind of contract, but there can be a bailment and
relationship of a bailor and a bailee in respect of specific
property without an enforceable contract.
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What is Bailment?

Section 148

A ‘bailment’ is the delivery of goods by one person to another for

some purpose, upon a contract that they shall, when the purpose
is accomplished, be returned or otherwise disposed of,
according to the directions of the person delivering them. 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.
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What is Bailment?

n Meaning of “Delivery”: To constitute bailment, goods must be

vacated by the owner (bailor) in favour of another person (bailee).

Section 149 must be read with Section 148 to construe the exact
meaning of “delivery”

Section 149

The “delivery” to the bailee may be made by doing anything which

has the effect of putting the goods in the possession of the intended
bailee or of any person authorised to hold them on his behalf.

n “Delivery” under Section 148 / Section 149 may therefore be done

in two ways: (a) Actual delivery, (b) Constructive delivery.
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What is Bailment?

n Actual delivery takes place when the bailor hands over to the
bailee, physical possession of the goods.

n Constructive delivery takes place when there is no change of

physical possession, but, something is done which has the effect
of putting them in the possession of the bailee.

n Note: Constructive delivery may be required where it is

practically impossible to give possession, viz. goods are bulky, or
where the goods remain in the possession of the bailor for some
special purpose, as above.
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What is Bailment?

n Note: Constructive delivery may be effected by some

symbolic act, such as the delivery of a key of the warehouse
in which goods are stored.

n Note: To secure constructive possession, the essential test is,

whether the dominion & control over the goods is retained by
the bailee or whether the physical possession of the goods
by the bailor, is under the delegated authority of the bailee.

n Meaning of “upon a contract”: Section 148 is very clear when

it says the following, “A bailment is the delivery of goods…
upon a contract… that they shall, when the purpose…”
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What is Bailment?

n Therefore, Section 148 only covers matters of “contractual

bailment.” This does not mean that bailment cannot exist
without a contract. It can exist, though, not under the ICA.

n The essence of bailment is possession. It may arise even

when the owner of the goods has not consented to their
possession by the bailee at all.

n It follows that a bailment may very well exist without the

creation of a contract between the parties and it essentially
gives rise to remedies which, in truth and substance, cannot
be said to be contractual. That is why it is asserted that
‘bailment’ may also arise in a tortious relation.
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What is Bailment?

n Meaning of “be returned or otherwise disposed of, according to

the directions of the person delivering them”: Bailment of goods
is always made for some purpose and is subject to the condition
that when the purpose is accomplished, the goods will be
returned to the bailor or disposed of according to his mandate.

n If the person to whom the goods are delivered is not bound to

restore them to the person delivering them or to deal with them
according to his directions, their relationship will not be that of a
bailor and a bailee.

n It is this condition that differentiates ‘bailment’ from many other

sorts of transactions.
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What is Bailment?

n For example: Deposit of money with a bank is not a bailment

as the Bank is not bound to return the same notes and coins.
Similarly, a transaction involving sale, exchange or a barter
are completely distinguishable from ‘bailment’ as what is
transferred in these transactions is not merely possession,
but ownership as well.

n On almost the same principles as above, a railway company

is a bailee for goods entrusted to it, whether for carriage or
for being kept in custody in its cloak room. Similarly, a
contract of hiring (say hiring a car on rent), without more, is
also a species of the contract of bailment.
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What is Bailment?

n Note: There is no bailment, unless there is an obligation to return

identical subject matter either in its original, or in an altered form.
For example: Giving a gold bar to a jeweller for making ornaments.

n Note: Even where the terms of the bailment are silent about return,
there is an implied contract in a bailment to return the articles in a
reasonable time after the purpose is served.

n Note: The concept of bailment applies to movable goods only.

n Note: The creation of bailment does not always require consent of

the bailor. Where possession of personal property of another is
acquired and held under circumstances where the recipient, on
principles of justice, ought to keep it safely and restore or deliver it
to the owner, as for instance, where possession has been acquired
accidentally, gratuitously, through mistake, or by agreement since
terminated for some other purpose than bailment, the law,
irrespective of any actual meeting of minds…imposes on the
recipient the duties and obligations of a bailee. Such bailments are
known as constructive or involuntary bailments.
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What is Bailment?

Example: A truck was brought to a parking lot and it was to

remain parked there for 24 hours. A receipt was issued to the
truck driver after he paid Rs. 50. After taking the receipt, the
truck driver went off to a friends place to stay overnight. While
the receipt remained with the truck driver, the truck was stolen
from the parking lot. The truck driver now sues the parking lot
owner alleging that there existed a relationship of a bailor and
bailee between them. Is he right?
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What is Bailment?

Example: One truck was impounded by the Forest officials for

carrying illicit timber from a forest. The owner of the truck was
required to pay a fine of Rs. 10,000 for the release of the truck.
The owner of the truck was out of India and therefore could
only manage to pay the fine three months later. By that time, the
major engine parts of the truck were stolen by miscreants as
the truck was parked outside the office of the Forest officials
and there was no one on guard at night. The owner of the truck
now sues the Forest officials / department alleging that there
existed a relationship of a bailor and bailee between them. Is
he right?
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What is Bailment?

Example: A person was travelling from Ambala to Delhi on a

Haryana Roadways bus. Given that there was no space inside,
this person put all his luggage on the roof of the bus. After
some time, this person’s back started paining and he came
down and sat inside the bus on one of the seat’s. He left the
luggage on the rooftop though. After the bus reached Delhi,
this person could not locate his luggage on the rooftop. This
person now sues Haryana Roadways alleging that there existed
a relationship of a bailor and bailee between them. Is he right?
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What is Bailment?

Example: In January 2016, Ms. Asha hired a locker (no. 123)

from HDFC Bank after receiving multiple threats of robbery.
She transferred all her jewelry and cash (total worth Rs. 25
lakhs) from her house to this locker. However, as it turns out,
HDFC Bank became a victim of robbery, whereby all 150
lockers in its strong room were looted. Ms. Asha is now suing
HDFC Bank alleging that there existed a relationship of a bailor
and bailee between them. Is she right?
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What is Bailment?

n Example: A and B enter into a written agreement for a long

term rental of a car. The agreement states that Rs. X will be
due from B to A at the end of every month. The lease period
is to run for five years. The agreement also states that B will
have an option to purchase the car after paying the 40th
installment for a price of Rs. Y. Is there a relationship of
Bailment between A and B?
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Types of Bailment

Bailments may be classified from two angles: from benefit viewpoint

and from reward viewpoint.

Bailments from benefit viewpoint: It may be relevant to think as to

for whose benefit has the bailment been done. From this viewpoint,
there can be three kinds of bailment:

- For the benefit of bailor only: An example would be the bailment for
safe custody of bailor’s goods without any charges by the bailee.

- For the benefit of bailee only: An example would be bailment of

goods for use of bailee without bailor charging anything.

- For the benefit of bailor and bailee both: This happens in most cases
of bailment when one person receives benefit of service and the
other gets benefit of payment, e.g. bailments for repairs, conversion,
hire, transportation, storage etc.
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Types of Bailment

Bailments from reward viewpoint: Would the provider of

service under bailment get any reward for this? From this
viewpoint, all bailments may be classified under two types:

- Gratuitous bailment: The word ‘gratuitous’ means ‘free of

charge’. So, a gratuitous bailment is one wherein the provider
of service does it gratuitously i.e. free of charge. This type
would include all the examples of bailments which fall under
the first two categories above, i.e. bailments for benefit of
either bailor or bailee.

- Non-gratuitous bailment or bailment for consideration: This

category would include all bailments where the provider of
service gets paid for this, i.e. where bailment is for the
benefit of both the bailor and the bailee.
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Duty of Bailee
(Summary)

Sections Duty of Bailee

151, 152 To take reasonable care of the goods
153 To not to do an act which is inconsistent with the t/c of the bailment
154 To not to make unauthorized use of goods
155 - 157 Not to mix bailor’s goods with his own
159 – 161 To restore goods to the bailor
163 To return increase of profits to bailor
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Bailee’s duty to take care of goods
(As a man of ordinary prudence)

Section 151

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.

n This section provides that the bailee is bound to take as much

care of the goods bailed, as a man of ordinary prudence would
take care of his own goods under similar circumstances.

n Section 151 prescribes a uniform duty of care. It is applicable to

“all cases of bailment”! i.e. the kind of bailment does not matter.
It could be a gratuitous one, for hire or for gain.

n Note: The onus is on the bailee to prove that he had taken

necessary precautions and care required of him under the law!
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Bailee’s duty to take care of goods
(As a man of ordinary prudence)

Example: Mr. A has given his car for repair to a workshop. The
owner of the workshop, after completing all the repairs asks
one of his workers (who does not have a driving license) to take
a test drive of the car and drop it to Mr. A’s place. However, the
worker meets with an accident while on his way to Mr. A’s
place. Is there a relationship of a bailor and bailee here? Do
you think the owner of the workshop took as much care of the
car, as a man of ordinary prudence would under similar
circumstances? Would your answer change if the same worker
would have been working with the workshop for the last three
years and was solely responsible for the delivery of cars ever
since?
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Bailee’s duty to take care of goods
(As a man of ordinary prudence)

Example: It is March, 2018 and Mr. A has given his Maruti car
for repair to an authorized Maruti Suzuki workshop in Rohtak.
The owner of the workshop, after completing all the repairs
parks the car outside the workshop for delivery. However, its
5:30pm and no worker is ready to deliver the car to Mr. A. He
lets the car be outside the workshop overnight. During the day,
while watching News Channels, the owner of the workshop
comes to know that Jats will be once again holding dharnas the
very next day, to peacefully protest against the Supreme Court
judgment that invalidated the reservation given to them a year
earlier. Early morning next day, the car is destroyed by a
riotous mob. Rest of the cars which were parked inside the
showroom survived. Is there a relationship of a bailor and
bailee here? Do you think the owner of the workshop took as
much care of the car, as a man of ordinary prudence would
under similar circumstances?
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Bailee’s duty to take care of goods
(As a man of ordinary prudence)

Section 152

The bailee, in the absence of any special contract, is not responsible

for the loss, destruction or deterioration of the thing bailed, if he has
taken the amount of care of it described in Section 151.

n The essence of this section is that once the bailee has taken due
amount of care (as prescribed under Section 151) of the goods, he is
not liable for the loss, destruction or deterioration of the goods
bailed.

n The section also lays down that the bailee can give up his rights
under Section 151 by way of a contract! Therefore, if the bailee has
agreed to be liable absolutely i.e. in spite of taking due care, then
such bailee will continue to remain liable nonetheless. Essentially
speaking, this section has been interpreted to mean that the care
enjoined on a bailee under Section 151 is subject to a “contract to
the contrary.”
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Bailee’s duty to take care of goods
(Not to do anything which is inconsistent with the t/c of the bailment)
(To not to make unauthorized use of goods)

Section 153

A contract of bailment is voidable at the option of the bailor, if

the bailee does any act with regard to the goods bailed,
inconsistent with the conditions of bailment.

Section 154

If the bailee makes any use of the goods bailed, which is not
according to the conditions of the bailment, he is liable to make
compensation to the bailor for any damage arising to the goods
from or during such use of them.

Note: In a situation where the use of the goods is in contravention

of the terms of the bailment, then the liability of the bailee is
absolute. i.e. the amount of care that the bailee takes does not
matter!
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Bailee’s duty to take care of goods
(Not to do anything which is inconsistent with the t/c of the bailment)
(To not to make unauthorized use of goods)

n The essence of these two sections is that the bailee must use
the goods only for the purpose for which they were bailed,
and according to the conditions of the bailment. If however,
the bailee fails to do so, the bailment becomes voidable at the
option of the bailor under Section 153; and under Section 154
the bailee becomes liable to make compensation to the bailor
for any damage done to the goods by such use.
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Bailee’s duty to take care of goods
(Not to do anything which is inconsistent with the t/c of the bailment)
(To not to make unauthorized use of goods)

Illustration: A lends a horse to B for his own riding only. B allows

C, a member of his family, to ride the horse. C rides with care,
but the horse accidentally falls and is injured. Can A claim
compensation from B?

Illustration: A hires a horse in Calcutta from B expressly to

march to Benaras. A rides with due care, but marches to
Cuttack instead. The horse accidentally falls and is injured. Is A
liable to make compensation to B for the injury to the horse?
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Bailee’s duty to take care of goods
(Not to mix bailor’s goods with his own)

Section 155

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.

Section 156

If the bailee, without the consent of the bailor, mixes the goods
of the bailor with his own goods, and the goods can be
seperated or divided, the property in the goods remains in the
parties respectively; but the bailee is bound to bear the
expense of separation or division, and any damage arising
from the mixture.
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Bailee’s duty to take care of goods
(Not to mix bailor’s goods with his own)

Section 157

If the bailee, without the consent of the bailor, mixes the goods
of the bailor with his own goods, in such a manner that it is
impossible to separate the goods, bailed from the other goods
and deliver them back, the bailor is entitled to be
compensated by the bailee for the loss of the goods.
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Bailee’s duty to take care of goods
(Not to mix bailor’s goods with his own)

Bailor consents to Bailor DOES NOT

mixing of goods consent to mixing
of goods

Each to have an
interest in Goods Goods NOT
proportion of their Separable Separable
respective share, of
the mixture thus
produced.
Goods remain with Bailor entitled to
parties. Bailee compensation for
liable for expenses. his loss
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Bailee’s duty to take care of goods
(To restore goods to the bailor)

Section 160

It 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.

n As iterated in Section 148, there is an implied contract in a

bailment to return the goods in a reasonable time after the
purpose is served, even if no time is stipulated therein.

n It is important to note that in the very nature of the contract of

bailment, the duty is normally on the bailee to deliver back the
goods bailed, even if the purpose of bailment is not
accomplished.
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Bailee’s duty to take care of goods
(To restore goods to the bailor)

n Also note that where the goods are found unfit for the
purpose for which they were sought in the first place and
accordingly the purpose for which they were bailed is not
accomplished, the consequences are not provided in the
Contract Act. It appears that all that the bailee is bound to do
is to give notice of default to the bailor.
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Bailee’s duty to take care of goods
(To restore goods to the bailor)

n Example: A borrows B’s phone to make a phone call. After an

hour, B asks for his phone, when A says that he still hasn’t
made a call. After another hour, B asks for his phone, when A
again says that he still hasn’t made a call. After another 5
hours, B asks for his phone, when A again says that he still
hasn’t made a call. Will Section 160 stand to the rescue of A as
factually speaking “the purpose for which they [a mobile
phone here] were bailed has not been accomplished”?
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Bailee’s duty to take care of goods
(To restore goods to the bailor)

Section 161

If, by the default of the bailee, the goods are not returned,
delivered or tendered at the proper time, he is responsible to the
bailor for any loss, destruction or deterioration of the goods from
that time.

n This section lays down the Common Law rule that a bailee who
retains goods after a period for which it has been bailed does so
at his own risk and is liable for loss, destruction or deterioration
of the goods, irrespective of whether he was at fault.

n Essentially speaking, the “due care” argument under Section

151 / 152 expires with the expiration of the “proper time”!
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Bailee’s duty to take care of goods
(To restore goods to the bailor)

n Note: The word “deterioration” refers to physical and actual

deterioration of the goods, and damages cannot be claimed
for a fall in market price of the goods due to delayed delivery
of the goods by the bailee.

n Note: In an action for damages, the full value of the goods

bailed at the time is the measure of damages. If the goods
have no market, then its cost of replacement are the
damages.

n Note: The only condition in this section is that the bailed

goods are not returned to the bailor by default of the bailee.
Therefore, when the loss takes place while the bailee’s
wrongful act is in operation, there is no question of any
defence like “act of God” or “inevitable accident” being set
up. The bailee is liable in any case.
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Bailee’s duty to take care of goods
(To return profits from bailed goods)

Section 163

In the absence of any contract to the contrary, the bailee is

bound to deliver to the bailor, or according to his directions,
any increase or profit which may have accrued from the goods
bailed.

Example: If A borrowed B’s hen / chicken for therapeutic purposes for

a month and in the meanwhile, the chicken lays an egg, then A is liable
to deliver the hen / chicken along with the egg (profit from the bailed
goods).
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Bailor’s duty
(To disclose faults in goods)

Section 150

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 risks; and if he does not make such disclosure,
he is responsible for damage arising to the bailee directly from
such faults.

If the goods are bailed for hire, the bailor is responsible for
such damage, whether he was or was not aware of the
existence of such faults in the goods bailed.
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Bailor’s duty
(To disclose faults in goods)

n The Queen’s Bench once stated the logic behind the rule
contained in this section, “Would it not be monstrous to hold
that if the owner of a horse, knowing it to be vicious and
unmanageable, should lend it to one who is ignorant of its bad
qualities and conceals them from him, and the rider, using
ordinary care and skill, is thrown from it and injured, he should
not be responsible?... By the necessarily implied purpose of the
loan a duty is contracted towards the borrower not to conceal
from him those defects known to the lender which may make the
loan perilous or unprofitable to him.”

n Thus, Section 150 merely incorporates a rule of common

sense / logic.
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Bailor’s duty
(To disclose faults in goods)

According to Section 150, the Bailor has a duty to disclose faults

in the goods only if:

(1) The bailor is aware of those faults, and

(2) The fault is such that it materially interferes with the use of
them or expose the bailee to extraordinary risks.

If, however, the bailor fails to disclose such a disclosure, he is

responsible for all direct damages arising to the bailee.

Note: If the bailor is not aware of the fault, whereas the bailee is
aware of such a fault, then in that case the bailor will not be
liable to the bailee for damages.
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Bailor’s duty
(To disclose faults in goods)

Illustration: 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. Is A responsible to B for the damage
sustained?

(In this illustration, A knew that the horse is vicious and in spite of that he
went ahead and lent the horse to B without disclosing its viciousness.
And accordingly, when B sustains damages as a direct result of the
horse’s viciousness, A is liable to B.)

Illustration: A hires a carriage of B. The carriage is unsafe, though B is

not aware of it, and A is injured. Is B responsible to A for the injury?

(In this illustration, the goods are bailed for hire. i.e. the bailment is for
consideration, as opposed to a gratuitous one. The duty of care imposed
on such a bailee is much higher!)
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Bailor’s duty
(To disclose faults in goods)

n Meaning of ‘if the goods are bailed for hire, the bailor is
responsible for such damage, whether he was or was not aware
of the existence of such faults in the goods bailed’: Section 150
essentially draws up a distinction between a gratuitous
bailment and a non-gratuitous bailment. This part of the
section imposes a higher duty of care when it comes to non-
gratuitous bailment. The logic behind the same being that
the bailee is making profit from his profession and therefore,
it is his duty to see that the goods which he delivers are
reasonably safe for the purposes of bailment.

n Note: A person who lets out goods for hire is not responsible
for all defects / faults (discoverable or not); however, he is an
insurer against all the defects which reasonable care and
skill can guard against.
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Bailor’s duty
(To disclose faults in goods)

Example: A (a rental car company) gives a Maruti 800 for hire

to Mr. B for 3 days at a rate of Rs. 1000 per day. This car was
taken by Mr. B as soon as it was returned to A by Mr. C (who
had rented the car for 7 days). Mr. C returned the car at 4:30pm
and on the same day at 4:35pm Mr. B took the car on rent. While
with B, all four nuts from the front tire gave way so that Mr. B
met with an accident. His hospital bills are Rs. 1 lakh. He sues A
for damages under Section 150. Can he succeed?
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Bailor’s duty
(To disclose faults in goods)

Example: A and B are friends. A asks B if he could borrow his

car for a day as he wanted to take his family for a picnic. B
agrees. The car had not gone to a service center in the last 1
year and was lying in B’s garage ever since. A is not aware of
this. Now, during this last one year, rats in B’s house in fact
chewed away the braking wire in the car, which resulted in the
brake being weakened to a great extent. Neither A, nor B is
aware of this development. In fact, when A took the car from B’s
place, the car’s brake failed immediately thereafter and A
collided with another car resulting in injuries to him. A is now
suing B under Section 150. Will he succeed?
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Bailor’s duty
(To disclose faults in goods)

Example: A and B are friends. A asks B if he could borrow his

car for a day as he wanted to take his family for a picnic. B
agrees. The car’s head light is broken and B is aware of it. When
A took the car from B’s place, he did not notice the broken head
light. It was 9pm when A took B’s car and was immediately
fined for dangerous driving by failing to turn on the head lights
of the car. A is now suing B under Section 150 for claiming the
fine amount. Will he succeed?

Example: What will be your answer if B is not aware of it, but A

(before taking the car), happens to notice the broken head
light?
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Bailor’s duty
(To pay necessary expenses)

Section 158

Where, by the conditions of 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
bailor shall repay to the bailee the necessary expenses
incurred by him for the purposes of bailment.

Note: This provision only applies to gratuitous bailment! In case

there’s money being exchanged for services, this provision
does not apply.
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Bailor’s duty
(To pay necessary expenses)

Example: A and B are friends. A asks B if he could keep 400 Kg

of Apple in his warehouse, as A had to go out of country on an
emergency visit. B agrees. A was to return from his visit in 3
days, however, A’s trip got extended by two weeks.
Accordingly, B (without asking A), fearing that apples might rot
in the open, hired a refrigerator in the warehouse to store these
apples for a price of Rs. 1000 per day. Upon A’s return, B asks
for the money he spent on the refrigerator. A refuses to pay.
Can B force him to pay under Section 158?
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Bailor’s duty
(To compensate bailee for losses)

Section 164 (To be read along with Section 166 & 167)

The bailor is responsible to the bailee for any loss which the
bailee may sustain by reason that the bailor was not entitled to
make the bailment, or to receive back the goods, or to give
directions, respecting them.

n This Section is stating the obvious by saying that in every

bailment, there is an implied undertaking on the part of the
bailor that the goods being bailed are his own, or that he has
the authority to bail them, or that he has the authority to give
directions, respecting them. In case the bailor does not have
any such authority regarding the goods and if the bailee
suffers any loss due to this, the bailor is liable to compensate
the bailee for his losses.
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Bailor’s duty
(To compensate bailee for losses)

Section 166 (Does not deal with bailor’s duty, but must read with Sec 164)

If the bailor has no title to the goods, and the bailee, in good faith, delivers
them back to, or according to the directions of, the bailor, the bailee is not
responsible to the owner in respect of such delivery.

n Once the bailee in good faith delivers the bailed goods to the bailor, and it
transpires that a bailor had no title to the goods, the bailee is not
responsible to the owner in respect of the delivery.

n Where, however, the bailee had notice that the bailed goods rightfully in
fact belong to another person, Section 166 then will NOT come to the rescue
of the bailee.
+
Bailor’s duty
(To compensate bailee for losses)

Section 167 (Does not deal with bailor’s duty, but must read with Sec 164)

If a person, other than the bailor, claims goods bailed, he may apply to the
court to stop the delivery of the goods to the bailor, and to decide the title of
the goods.

n This section will come into operation where a third person, other than the
bailor, claims the goods and the bailee threatens to deliver them to the
bailor. The third party may then approach the court and may seek to stop
the delivery of the goods to the bailor.

n The remedy of a bailee, from whom rival claimants demand the goods
bailed, is to file an inter-pleader suit against the claimants and protect
himself. However, if he fails to do that, and retains the goods for the bailor,
or delivers it to him, then he must stand or fall by the bailor’s title.
+
What is Lien?
(Generally speaking)

n Lien is in its primary sense a right in one man to retain that

which is in his possession belonging to another, until certain
demands of the person in possession are satisfied. In this
primary sense, it is given by law and not by contract.

n There are no pre-conditions attached for the right of lien to

vest with a person. i.e. there is no need of any special
agreement, written or oral to create the right of lien. The right
of lien arises by operation of law!

n For example: When you give a piece of cloth to a tailor for

making a suit of it, the tailor has every right to retain the suit in
case you don’t pay him the cost of his services. This is what the
right of lien is. It is a right to retain something that belongs to
another for satisfying one’s demands.
+
What is Lien?
(Generally speaking)

n In case of ‘bailment’, the bailee has the right to keep the

possession of the property of the bailor until the bailor pays
lawful charges to the bailee. Thus, right of lien is probably the
most important of rights of a bailee because it gives the
bailee the power to get paid for his services.

n By giving the right of lien to bailee’s, the idea is to give some

leverage to these people to secure their money. In essence,
this also helps reduce the burden on the courts.

n Under the ICA, there are two kinds of lien: (a) General Lien,
and, (b) Particular Lien.
+
General Lien
(For general balance of account)

Section 171

Bankers, factors, wharfingers, attorneys of High Court and

policy brokers may, in the absence of a contract to the contrary,
retain, as a security for a general balance of account, any goods
bailed to them; but no other persons have a right to retain, as a
security for such balance, goods bailed to them, unless there is
an express contract to that effect.

n This section enumerates the persons who are entitled to a

general lien as a security for a general balance of account,
unless excluded by contract.

n Note: A general lien merely gives a right to “retain” the goods!

+
General Lien
(For general balance of account)

n A general lien is the right to retain the property of another for

a general balance of accounts; but a particular lien is a right
to retain it only for a charge on account of labour employed
or expenses bestowed upon the identical property detained.

n Note: A general lien, along with a particular lien confers only

a right to retain the property of another. It does not confer a
right to sell the said property.
+
General Lien
(For general balance of account)

n Meaning of “any goods bailed to them”: The language of this

section limits the right of Bankers (along with others) to retain
as a security only to goods that are bailed to them. Now,
we’ve learnt under Section 148 (that defines bailment) that
Banks are not obliged to return the same cash deposit /
money that was deposited with them. i.e. money is not
“returned” as prescribed by Section 148 (that defines
bailment). Therefore, the statutory law in India does not
expressly refer to Banker’s lien in respect of cash deposit /
money. Also, the definition of “goods” under the Sale of
Goods Act clearly excludes “money” from being counted as
a good.

n To sum up the above, a Banker’s lien is confined to securities

and property in bank’s custody only. It does NOT extend to
cash deposits / money.
+
General Lien
(For general balance of account)

n A banker’s lien is a lien on all bills received from a customer

in the ordinary course of banking business in respect of any
balance that may be due from such customer.

n The RBI’s website RBI Guidelines also clearly states, “Banks

have a right to exercise lien under Section 171 of the ICA
against the dues from customers. However, the banks cannot
exercise lien over the personal account of a customer on the
ground that money was due to the bank in another account
where he acts in a different capacity…”
+
General Lien
(For general balance of account)
n Though, practically speaking, Banks do have a right to take
over the personal account of its customer. How? A distinction
is drawn between a “Banker’s lien” on the goods bailed and
the Bank’s “right to set off” against deposits of money. This
distinction is important, even though the practical effect of
lien and set off is much the same.

n The rule of English law that the Bank has a right to set off
against all monies of its customers in its hands has been
accepted as the rule in India. According to this rule when
monies are held by the Bank in one account and the
depositor owes the Bank on another account, the Banker by
virtue of his lien has a charge on all monies of the depositor
in his hands and is at liberty to transfer the monies to
whatever account the banker may like with a view to set off or
liquidate the debts. This is also known as a Banker’s “right to
combine” one or more accounts of the same customer.
+
General Lien
(For general balance of account)

n Note: Practically speaking, the courts have used Section 171

directly, allowing Banks to recoup their moneys from
accounts of customers!

n Meaning of “Factor”: A “factor” is an agent entrusted with the

possession of goods for the purpose of sale. He may buy and
sell either in his own name or in that of the principal.

n Meaning of “Wharfingers”: The person in charge of handling

of freight, loading, unloading, storage, removal of goods at the
port or wharf on behalf of importers and exporters of goods.
+
General Lien
(For general balance of account)

Example: A secures a loan (loan #1) from HDFC Bank to

purchase a house. A secures another loan (loan #2) from HDFC
Bank to purchase a car. A secures a loan (loan #3) for his
daughter’s education, however, this time around she had to
deposit her jewelry with HDFC Bank to secure the loan. Now,
after some time, A stops paying her monthly installments
towards loan #1 and loan #2. However, she pays up the
education loan in full and demands the jewelry from the Bank.
Its her daughter’s wedding in a few days and she must get the
jewelry back. The bank refuses to give her back the jewelry
saying that her earlier loans are still due till date. Can the bank
do so under Section 171 of ICA?
+ Particular Lien
(Available only against those goods in respect of
which labour or skill has been expended by Bailee)

Section 170

Where the bailee has, in accordance with the purpose of

bailment, rendered any service involving the exercise of labour or
skill in respect of the goods bailed, he has, in the absence of a
contract to the contrary, a right to retain such goods until he
receives due remuneration for the services he has rendered in
respect of them.

Note: The right of particular lien is also limited to “retain” such

goods.
+ Particular Lien
(Available only against those goods in respect of
which labour or skill has been expended by Bailee)

n Therefore, when you give a piece of cloth to a tailor to make a

suit out of it, the tailor can retain the suit until you pay the
tailor what his dues are.

n Note: The right of lien is available only in a bailment where

the bailee rendered any service involving the exercise of
labour or skill in respect of the goods bailed; the custody
must involve exercise of labour and skill.

n Meaning of “involving the exercise of labour or skill in

respect of the goods bailed”: This exercise of labour of skill
must add value to the thing that was entrusted.
+ Particular Lien
(Available only against those goods in respect of
which labour or skill has been expended by Bailee)

n Please keep in mind the following:

(a) First, the labour or skill must have been spent in accordance with
the purpose of bailment,

(b) Second, the labour or skill must have improved or added value to
the goods bailed,

(c) Thirdly, the lien applies only to such goods over which the bailee
has bestowed his labour and expense, and not other goods.

n Note: A bailee’s right of lien is lost with the loss of possession.

n Note: The right of lien may be excluded by a contract to the

contrary. There will be no lien where the contract provides that
goods will be returned without waiting for remuneration.
+ Particular Lien
(Available only against those goods in respect of
which labour or skill has been expended by Bailee)

Illustration: A gives cloth to B, a tailor, to make into a coat; B

promises A to deliver the coat as soon as it is finished, and to
give A three months’ credit for the price. Is B entitled to retain
the coat until he is paid?

Example: A regularly gets his suits made from B, a tailor. A

delivers cloth to B on January 01, 2016. B delivers the suit to A
on January 05, 2016. A does not pay for the suit. A again visits B
and delivers cloth to B on March 02, 2016. B makes the suit
within the next couple of days and retains it. He calls A and tells
him that until payment for the suit delivered to him on January
05, 2016 is made, this latest suit will remain in his custody as he
has a particular lien on these goods. Please note that A is ready
and willing to pay for the second suit to B and has conveyed it
to B. Can B still retain the second suit for payment of the first
suit?
+ Particular Lien
(Available only against those goods in respect of
which labour or skill has been expended by Bailee)

Example: A is going out of country. Being concerned for the

safe custody of his car, he leaves it in a paid parking lot. By the
time he’s back, he goes bankrupt. He has nothing left, not even
a penny on him. However, the ownership of the car still vests
with him, along with whatever fuel is left in the tank. The
parking lot people do not allow the car to get out as A cannot
pay. They contend that they have a particular lien on the car for
the payment of money. Are they right?
+
Cases dealing with ‘Bailment’

State of Gujarat v. Memon Mahomed Haji AIR 1967 SC 1885

Facts:

n Custom Authorities had seized some vehicles belonging to the

Respondent on the suspicion of carrying on smuggling and
other economic offences under the then Customs Act.

n When the respondent filed a plea against such seizure in the

Revenue Tribunal, the Tribunal directed the Custom Authorities
to return the vehicles.

n When the respondent asked the Custom Authority to return the

vehicles, he was told that the vehicles were disposed of under an
order of a Magistrate passed under Section 523 (now Section
457) of the Code of Criminal Procedure.
+
Cases dealing with ‘Bailment’

n The respondent now files the present suit seeking the value of
the vehicles from the State Government.

n Evidence on trial indicated the following:

Ø That the seized vehicles were kept in an open space in a police

station and were totally uncared for from 1947 to 1951; Greater
part of the machinery of the vehicles and tyres were taken away
by thieves; No entry was ever made in the Police Station as to
how these vehicles came into their possession; An in-charge of
the police station informed his superiors that the unclaimed
vehicles were lying in the open; These superiors then made an
application (ironically, mentioning the name of the respondent) to
the Magistrate to dispose off these vehicles as they were
unclaimed property; Magistrate never issued a notice to the
respondent, but only issued a public notice regarding the
unclaimed vehicles; The vehicles were sold while an appeal
against such seizure was going on in the Tribunal;
+
Cases dealing with ‘Bailment’

Argument of the Respondent:

n The seizure may have been lawful, but the State Government
was, from the time that the said goods were seized until the
decision of the appeal, in a position of a bailee and was,
therefore, bound to take reasonable care of the vehicles.

Argument of the State Government:

n The vehicles could not be said to have been ‘bailed’ to the State
Government (Custom Authorities) as Section 148 of the ICA
mentions the words “upon a contract” and there is no contract
under the circumstances.

n The vehicles were sold pursuant to a judicial order. Therefore,

the State Government cannot be held liable.
+
Cases dealing with ‘Bailment’

Issue:

Whether or not the concept of ‘Bailment’ exist even without a

valid contract?

Decision:

n The court held in favor of the respondent.

Rationale:

n Bailment is dealt with by the Contract Act only in cases where

it arises from a contract, but it is not correct to say that there
cannot be a bailment without an enforceable contract.
+
Cases dealing with ‘Bailment’

n There can be bailment and the relationship of a bailor and a bailee

in respect of specific property without there being an enforceable
contract.

n The Court also stated that the State Government was aware that if
the said order was set aside, the property would have to be
returned to the owner thereof in the same state in which it was
seized except as to normal depreciation. In spite of this clear
position, while the appeal was still pending before the Revenue
Tribunal and without waiting for its disposal, it allowed its police
authorities to have it disposed of as unclaimed property. The State
Government was fully aware, firstly, by reason of the pendency of
the appeal and secondly because the application under Section 523
expressly mentioned the person from whom the said vehicles were
seized, that the vehicles were and could not be said to be unclaimed
property. In the circumstances, the State Government was during
the pendency of the appeal under a statutory duty to take
reasonable care of the said vehicles which on the said appeal being
decided against it were liable to be returned to their owner.
+
Cases dealing with ‘Bailment’

n With respect to the Magistrate order, the Court held that given
that it was obtained by misrepresenting facts, it had no effect in
this case.
+
Cases dealing with ‘Bailment’

Kaliaperumal Pillai v. Visalakshmi Achi AIR 1938 Mad 32

Facts:

n Plaintiff wanted to get jewelry made from certain goldsmiths

which were working out of the Defendant’s house.

n The Plaintiff handed over two old jewels for the purpose of
being melted into gold and being utilized for the making of new
jewels.

n The work on the making of new jewels started and the Plaintiff
made it a ritual to go to the Defendant's house to receive the half
made jewels from the goldsmith, put them into a box which the
Defendant had given her for her use and put the box in a room
in the Defendant’s house. The key of this room was at all times
kept with the Plaintiff.
+
Cases dealing with ‘Bailment’

n One fine day when the Plaintiff opened the box in which the
jewelry was kept, she couldn’t find the jewelry.

n Therefore, the Plaintiff is now suing the Defendant arguing

that the Defendant was the bailee of the ornaments and that it
was his duty to return back the goods.

n The Defendant argues that “delivery” of goods under Section

148 never took place.

Issue:

n Whether or not “delivery” of goods took place under the

given circumstances?
+
Cases dealing with ‘Bailment’

Decision:

n The Court held in favor of the Defendant.

Rationale:

n The Court stated, “Every day when the unfinished jewels

were handed back by the goldsmith to the Plaintiff, the jewels
came back to her possession and if at the later stages she
desires to throw upon the Defendant the onus of exonerating
himself from the obligations of a bailee, she must prove some
acts whereby the articles could be held to have gone into the
Defendant’s possession.”
+
Cases dealing with ‘Bailment’

R.D. Saxena v. Balram Prasad Sharma (2000) 7 SCC 264 (Aspects

dealing with the Advocates Act have been omitted from these slides)

Facts:

n The Appellant was an Advocate who was retained by the MP State

Cooperative Bank as a legal advisor.

n One fine day, the Bank terminated the retainership of the

Advocate and asked him to return its case files.

n The Advocate did not do so and instead presented a consolidated

bill to the Bank seeking Rs. 97,100 as the balance owing to him for
legal services rendered. He also informed the Bank that he would
return the files only after his dues were settled.
+
Cases dealing with ‘Bailment’

n The Bank denied that any amount in respect of fees was owed
to the Advocate.

n After fruitless correspondence, the Bank filed a complaint

before the State Bar Council accusing the Advocate of
professional misconduct.

n The matter then went up to the Bar Council of India under the
Advocates Act. The Bar Council of India held an inquiry and
concluded that the Advocate was guilty of professional
misconduct; as punishment, the Advocate was debarred from
practicing law for a period of 18 months and fined Rs. 1000.
+
Cases dealing with ‘Bailment’

n The matter is now in the Supreme Court and the main

argument of the Advocate is that he had a “lien” over the case
files (the alleged goods in this case), so much so that he
could retain them until the Bank paid his dues.

n The Bank of course denies any such right with the Advocate.

Issue:

n Whether or not an Advocate has a ‘lien’ over case files /

records handed over to him by a client, so much so that he
can retain them until his dues are fully paid?
+
Cases dealing with ‘Bailment’

Decision:

n The Court answered this question in the negative.

Rationale:

n Files containing records cannot be equated with the “goods”

referred to in Section 171 of the Contract Act.

n The word “goods” mentioned in Section 171 is to be understood

in the sense in which that word is defined in the Sale of Goods
Act. Thus understood, “goods” to fall within the purview of Section
171 of the Contract Act should have marketability and the person
to whom they are bailed should be in a position to dispose off
them in consideration of money. Given that there is no scope for
converting the case files into money, nor can they be sold to any
third party, they are not “goods” under Section 171 of the ICA.
+
Cases dealing with ‘Bailment’

n The Court also laid emphasis on the following points:

1. The Bar Council of India Rules (framed under the

Advocates Act) prohibit an Advocate to not do anything
whereby he abuses or takes advantage of the confidence
reposed in him by his client.

2. In the conditions prevailing in India with lots of illiterate

people among the litigant public, it may not be advisable to
permit the counsel to retain the case bundle for his fees.

3. The cause of the litigant in a court / tribunal is far more

important for all concerned than the right of the legal
practitioner for his remuneration in respect of the services
provided.
+
Cases dealing with ‘Bailment’

4. If a medical practitioner is allowed a legal right to withhold

the papers relating to the treatment of his patient which he
thus far administered to him for securing the unpaid bill,
that would lead to dangerous consequences for the
uncured patient who is wanting to change his doctor.

5. If a client does not want to continue engaging a particular

Advocate, it would be a professional requirement
consistent with the dignity of the profession that he should
return the brief to the client. The obligation is not only a
legal duty, but a moral imperative.
+
Finder of Goods

Section 71

A person who finds goods belonging to another, and takes them

into his custody, is subject to the same responsibility as a bailee.

n The duties and liability of a finder of goods is treated at par with

the bailee. The finder’s position, is therefore being considered
under this topic of bailment.

n Duty of a finder of goods aka bailee: (1) To take as much care of

the goods as a person of ordinary prudence would, had the
goods been his own, (2) to try and make reasonable efforts in
finding out the true owner of the goods, (3) to return the goods
to the rightful owner, among others.
+
Finder of Goods

n Note: The wording “and takes them into his custody” indicate
that a person who finds goods in a public place is not bound
to take charge of it! Therefore, the law imposes only on such a
finder that finds the goods and thereafter, also takes them
into his custody.

n Note: See Section 403 of Indian Penal Code which talks about
the offence of Dishonest Misappropriation as follows,
“Whoever, dishonestly misappropriates or converts to his
own use any movable property, shall be punished with an
imprisonment of either description for a term which may
extend to two years, or with fine, or with both.”
+
Finder of Goods
(No right to sue the owner)

Section 168

The finder of goods has no right to sue the owner for

compensation for trouble and expense voluntarily incurred by
him to preserve the goods and to find out the owner; but he
may retain the goods against the owner until he receives such
compensation; and where the owner has offered a specific
reward for the return of goods lost, the finder may sue for such
reward, and may retain the goods until he receives it.

n The finder has no right to sue the owner for compensation for
trouble and expense incurred by him voluntarily for the
preservation of goods and finding the owner.
+
Finder of Goods

n Note: The finder of goods has no right to sue the owner of

such goods for any compensation / reimbursement because
the trouble and expense were incurred by him voluntarily
and accordingly, is not entitled to any remuneration of
service without request from the owner.

n The finder though has the right to: (a) retain the goods until
he receives such compensation, and, (b) to sue for any
reward offered by the owner of the goods, and retain the
goods till he receives such reward.

n Note: The finder of goods is entitled to possession of the

goods found, as against everyone except the true owner.
+
Finder of Goods
(Right to sell)

Section 169

When a thing which is “commonly the subject of sale” is lost, if

the owner cannot with reasonable diligence be found, or if he
refuses, upon demand, to pay the lawful charges of the finder,
the finder may sell it:

(1) when the thing is in danger of perishing or of losing the

greater part of its value, or,

(2) When the lawful charges of the finder, in respect of the thing
found, amount to two thirds of its value.
+
Finder of Goods
(Right to sell)

n The finder of goods may sell the goods if:

(a) The thing is commonly the subject of sale, and

(b) The owner cannot be found with reasonable diligence, or if

found, he refuses to pay the lawful charges of the finder, and

(c) Either the goods are in danger of perishing or losing their

value; or the lawful charges of the finder amount to two-
thirds of their value.
+
Finder of Goods
(Right to sell)

Example: A drops his wallet at a public place. B sees the wallet

and keeps it in his pocket. After reaching home, B looks up the
wallet and finds A’s driving license which has his address. B
goes to A’s place to return the wallet. A says to B, “You are
awesome, B! I promise to pay you Rs. 1000 for this deed.” B says
to A, “I accept. You are awesome too, A!” Can B sue A to claim
Rs. 5000?
+
Finder of Goods
(Right to sell)

Example: A found 1kg of tomatoes (worth Rs. 20) in the society

park. He goes to the only shopkeeper in the society and asks him
if he recalls who bought these. The shopkeeper does not recall as
there are more than 200 families living there. A then calls up the
society chairman to figure who these tomatoes belong to. The
society Chairman responds to A saying, “Its just tomatoes and
that too only 1 kg. Nobody cares. Just take them home and enjoy
the Rs. 30 gift that God has given you.” What should A do?
+
Miscellaneous

Section 180

If a third person wrongfully deprives the bailee of the use or

possession of the goods bailed, or does them injury, the bailee
is entitled to use such remedies as the owner might have used
in the like case if no bailment had been made; and either the
bailor, or the bailee may bring a suit against a third person for
such deprivation or injury.
+

Thank you!