BUSINESS LAW (Spring Term ‘20)

Instructor: Misha Zaheer

BAILMENT
Relevant Law: The Contract Act, 1872
WHAT IS BAILMENT?
Bailment implies a sort of relationship in which the personal property of one person temporarily
goes into the possession of another i.e. the ownership of goods rests with one and the possession
of goods with another.
Section 148 of the Contract Act, 1872, defines bailment as:
…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 off
according to the directions of the person delivering them.
Examples: delivery of a cycle/car for repair; deposit of a coat in a cloakroom; delivery of gold to
a goldsmith; delivery of gold to a bank to be kept in the locker; delivery of clothes to a dry
cleaner; delivery of goods for the purposes of carriage, warehousing or storage.

ESSENTIALS OF BAILMENT

A. Agreement between bailor and bailee

Generally, there must be an agreement between the bailor and the bailee, this could be
express or implied, for a bailment to have arisen. When a persons goods go into the
possession of another without there being any kind of contract between the two, a
bailment as per Section 148 does not arise.

However it is important to note that English law recognizes bailment. Indian and
Pakistani law have also recognized the obligation of a bailee where there is no agreement
in cases where goods belonging to certain individuals are seized by the Government; the
government becomes a bailee even if there is no contract between the government and the
individual.

E.g. Tobacco lying in a go-down of a partnership firm is pledged to a bank. Some

partners of the firm fail to clear their income tax dues and the tobacco is seized. The
income tax officials lock the go –down and hand over the key to the police. Heavy rains
leak through the roof and the tobacco is damaged. It will be the duty of the government
officers to take such care as every prudent manager would take of his own goods. The
government will be deemed the bailee. See: Lasalgaon Merchants Co-operation Bank
Ltd. v. Prabhudas Hathibhai; State of Gujrat v. Memon Mahomed.

Therefore, although bailment is only dealt with by the Contract Act in cases where it
arises from a contract, it is incorrect to say that there cannot be a bailment without an
enforceable contract.

1
 BUSINESS LAW (Spring Term ‘20)
Instructor: Misha Zaheer

Note: in some instances bailment is implied by a law e.g. between a finder of goods and
the owner of goods.

B. Delivery of possession

The possession of goods has to be transferred to the bailee for whatever purpose is meant
for the bailment in question. The delivery of possession in terms of bailment is different
from “custody” i.e. one who has custody without possession, for instance a servant, or a
guest using the hosts things is not a bailee. Delivery has to be made for a specific
purpose.

Delivery may be actual or constructive. Section 149 reads:

149. Delivery to bailee how made – the delivery to the bailee may be made by
doingn anything which has the effect of putting the goods in the possession of the
intended bailee or of any other person authorized to hold them on his behalf.

Actual Delivery: Where the bailee hands over physical possession of the goods, it is
actual delivery.

Constructive Delivery: When there is no change of physical possession, the goods

remain where they are, but something is done which has the effect of putting the goods in
the possession of the bailee. E.g. where X pledges the projector of his cinema under an
agreement that allows him to retain the machinery for the use of the cinema, constructive
delivery is said to have taken place since there has been a change in the legal character of
possession of goods, though not in the actual and physical custody. The bailor continued
to remain in possession but it was essentially in the possession of the bailee (Bank of
Chittor v. Narasimbulu).

Another example is where X was holding Y’s mare under the execution of a Decree.
Once the Decree was satisfied the court ordered redelivery of the mare to X. Y refused to
do so unless his maintenance charges were paid. In the meantime, the mare was stolen
from Y’s custody. Y would be liable since after the delivery order had been passed by the
court a relationship of bailor and bailee had been established (Fazal v. Salamat Rai).

Note: The delivery must be voluntary i.e. where somebody delivers jewellery to a thief
who shows a revolver, no bailment is created.

C. Purpose & return of specific goods

If the person to whom the goods are delivered is not bound to restore them to the bailor or
to deal with them according to the directions given by the bailor, the relationship will not
be one of bailment.

The delivery of goods must be for some intended purpose. E.g. wrongful delivery of
goods to Hyperstar instead of Al-Fatah does not create bailment.

2
 BUSINESS LAW (Spring Term ‘20)
Instructor: Misha Zaheer

The delivery of goods shall be subject to return of the specific goods or disposal of those
goods as per instructions of the bailor e.g. deposit of money with a banker is not a
bailment as he is not bound to return the same notes and coins that were deposited
(United Commercial Bank v. Hem Chandra Sarkar).

DIFFERENCE BETWEEN BAILMENT & AGENCY

 The bailee does not represent the bailor; he merely exercises a certain power of the bailor
in respect of his property

 The bailee has no power to make contracts on behalf of the bailor; the bailor will not be
liable for the actions of the bailee

Note: a bailment differs from a sale, exchange or barter in that with these transactions there is a
transfer of both possession as well as ownership and the person buying the goods is under no
obligation to return them. A hire-purchase contract is a semi bailment; there is both an element
of bailment as well as sale.