Are All Bailments Contracts?

Abstract:

The issue of whether all bailments are contracts or not has been brought up in the Indian
courts time and time again. Unlike the English law, they have failed or rather, refused to
acknowledge non-contractual bailments. The only exception of non-contractual bailments in
Indian law are statutory bailments. Statutory bailments are basically those which are entered
by statutory or legislative ascendancy. The Indian Contract Act, 1872 1 has no particular
section which deals with statutory bailment, that’s why the question of non-contractual
bailments keeps arising. Even in Ram Gulam vs. Govt of U.P2, the court held that the
Government is not liable to indemnify the plaintiff as there is no contract of bailment
between them however, this was revised in Lasalgaon Merchants Co-op Bank vs. Prabhudas
Hathibhai3 and affirmed by the Supreme court in State of Gujarat vs. Memon Mahomed Haji
Hasan4 and Basavva Kom Dyamangouda Patil vs. State of Mysore 5, that the bailments can
exist even without a contract when the state is concerned. Section 71 of Indian Contract Act
states that “A person who finds goods belonging to another, and takes them into his custody,
is subject to the same responsibility as a bailee.” The question here arises that if there is no
delivery of goods and acceptance i.e., no contract of bailment between the parties, how can
the person who has the goods be considered as a bailee. The other jurisdictions, for example
the English law acknowledges non-contractual bailments as mentioned in the case of R v.
Macdonald where Lord Coleridge ruled that there can be a bailment without a contract. The
position in United States of America is similar to that in England. This paper will observe the
position of Indian Law and other jurisdictions upon the question “Are all bailments
contracts?” along with other important topics such as evolution of law regarding non-
contractual bailment, statutory bailment and position of finder of goods.

1
https://legislative.gov.in/sites/default/files/A1872-09.pdf
2
https://advance-lexis-com.opj.remotlog.com/search/?pdmfid=1523890&crid=066eb8cc-f314-4a04-a39c-
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3
https://advance-lexis-com.opj.remotlog.com/search/?pdmfid=1523890&crid=b84ed407-cfee-40c5-9d31-
5f67e3a4492b&pdsearchterms=Lasalgaon+Merchants+Co-op+Bank+vs.+Prabhudas+Hathibhai+
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ba79-3eba62e1e1a8
Introduction to Bailment:

Bailment, as defined under Section 148 of the Indian Contract Act, 1872 (hereon referred to
as ICA) 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.” In other words, section 148 says
that Bailment basically involves delivery of goods, an underlined purpose and an agreement
between the parties that whenever the purpose is resolved, goods will be retuned back to the
bailor. Bailment can be for the benefit of either of the parties or both the parties. For
example, if a bailor bails out his car to the bailee for the purpose of latter doing his chores
etc, this will mean that bailment was done for the benefit of the bailee. In another situation, if
a bailor gives their dog to the bailee for them to take care of he/she, this will be for the
benefit of the bailor. The aforementioned instances are also examples of “Gratuitous
Bailment.” Gratuitous Bailment is basically a form of bailment in which the bailee receives
no compensation at all. For instance, if a bailor gave a fabric to the bailee for stitching and in
return, the bailee asked for a service fee, this would mean that it’s a non-gratuitous bailment
as a compensation is involved. This is also an example of “Bailment for the benefit of both
the parties.” There are various essentials for a contract of bailment, such as:

1. Delivery of Possession – There is a delivery of possession of goods. Only the control

of goods is transferred from the bailor to the bailee and not the ownership of goods.

2. Delivery should be upon a Contract – This essential basically means that the delivery
of goods have to be upon some contract. Section 148 of the Indian Contract Act
recognises that there is an agreement between the bailor and bailee. English law
recognises non-contractual bailments however Indian courts have adopted a restrictive
approach for the same.

3. Delivery should be for some Purpose – Section 148 of the Indian Contract Act says
that there has to be a transfer of possession between the bailor and the bailee and there
should be some purpose behind the transfer. The bailor should use the goods for the
purpose they mentioned to the bailor. If they use it for any other purpose, it would be
established as an unauthorized use.

Statutory Bailment and Evolution of this concept in India:

Statutory Bailments is not an established term under the Indian Contract Act i.e., there is no
section which governs this. It’s entered by legislative or statutory ascendancy. For the longest
time, the Indian Courts refused to acknowledge this concept as it was not established
however the 3 cases i.e., Ram Gulam v Govt of U.P., Lasalgaon Merchants Co-op Bank vs.
Prabhudas Hathibhai, State of Gujarat v Memon Mahomed Haji Hasan, and the 13th report
of the Law commission of India changed the way our law views this concept fully. 6

In Ram Gulam v Govt of U.P., the Plaintiff’s ornaments/jewelleries stolen by the respondent
were kept with police i.e., the custody of the court. The goods so ceased and kept in the
makhana were stolen again. The plaintiff filed a suit of the restoration of property or
recovering a value for the stolen items however the court rejected its plea. The plaintiff
6
https://lawcolloquy.com/journals/non-contractual-bailment-a-glance-at-statutory-bailment-snegpriya.pdf
invoked the principal of Respondeat Superior which says that “the master is liable for the
actions of the servant” however it was of no use. The court did not even deliberate upon the
issue of whether the Government is liable to indemnify the plaintiff or not. Their reasoning
for this was that there was no actual contract of bailment between the parties involved.
Therefore, the court was not responsible for indemnifying the plaintiff.
The case of Lasalgaon Merchants Co-op Bank vs. Prabhudas Hathibhai took a different turn
in comparison to the Ram Gulam case. Here, the plaintiff had tobacco packages stored in a
godown which was pledged to the bank. Upon non-payment of income tax, the IT Officials
ceased and locked the godown and the key was handed to the police. Due to heavy rains, the
roof of the godown was damaged and the tobacco packs were ruined. It was held that the
Government stood in the position of the bailee and reasonable care had to be taken by the
Government to protect the packages. The Government was held liable for the damages. This
case changed the outlook of people towards statutory bailment. Unlike the Ram Ghulam case,
the Government was held liable for the damages and hence, this proved to be the landmark
case in for the initiation of non-contractual bailments in India.
State of Gujarat v Memon Mahomed Haji Hasan was the case where the Government actually
accepted the view held in the aforementioned case and stated that “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 bailment without an enforceable contract.” In here, upon non-payment of
custom duty, the custom officials ceased the goods and motor-vehicles of the plaintiff. The
officials were supposed to re-deliver the motor-vehicles upon the revenue tribunals order
however the motor-vehicles were disposed off by the officials. Here, section 71 of the ICA
was invoked as the Supreme Court established the validity of non-contractual goods where
finder of lost goods was treated as a bailee and the Government was held liable to pay the
damages. The Indian Law Commission further strengthened this stance. In their 13 th report,
they suggested to add a separate provision regarding non-contractual bailments instead of
altering the already existing definition of bailment under Section 148.7

The aforementioned cases along with the report of the Indian Law Commission are nothing
but a timeline which show how the law regarding statutory bailment has evolved in India.
Indian law went from refusing to acknowledge non-contractual bailment in the Ram Ghulam
case to changing its decision around the matter in Lasalgaon case to finally confirming and
affirming the existence of non-contractual bailments in the cases of Memon Mahomed and
Basavva and the report of Indian Law Commission which suggested to incorporate the
definition of quasi-contracts under a separate provision in the ICA.

Position on Finder of Goods:

Section 71 of the ICA defines the responsibility of the finder of goods as - “A person who
finds goods belonging to another, and takes them into his custody, is subject to the same
responsibility as a bailee”.8 The Indian law places the finder of goods in the position of a
bailee who is bound by the various duties including reasonable care. They have no right to
seek the owner for reimbursement for the trouble and expenses they willingly incurred in
preserving the goods and tracking down the owner. Section 168 and 169 of the ICA talk
about the rights of the finder of goods and their duties. They explain how the finder of goods
have the right to retain possession till the time the goods are not claimed by true owner and
they are entitled to be compensated for the trouble that they have been through. The duties of
the finder of goods is the same as that of a bailee i.e., to take reasonable care of the goods and
7
https://lawcommissionofindia.nic.in/1-50/Report13.pdf
8
https://www.worldwidejournals.com/paripex/recent_issues_pdf/2015/June/June_2015_1433936902__80.pdf
return them to its true owner. The above-mentioned statements and laws prove that under the
ICA, the position of finder of goods is same as that of a bailee even though the bailment, in
Indian law, arises upon a contract. The bailee in this case cannot use the goods for his own
purpose neither can sub-bail it to someone else for his own gain however they are legally
obligated to take proper care of the goods until the rightful owner is identified.9

Non-Contractual Bailment in other jurisdictions:

The position of non-contractual bailments is much different in other countries. Unlike India
who initially refused to acknowledge non-contractual bailments and later on did but that too
in the involvement of the government only, other countries like the USA and England 10 have
practiced this since the very beginning.

Position in England:-

The position of non-contractual bailment in England is completely opposite of that in India.

The case, R v. Macdonald is a perfect example for the same. Lord Coleridge, C.J., in this case
explained how the use of the phrase “contract of bailment” means that bailment cannot be
carried out without a contract as it implies that every bailment in itself is a contract.
Therefore, he condemned the use of the same. The report by the Indian Law commission
where they suggested for a separate provision for quasi-contracts was inspired by the same.
Since its initiation, England has acknowledged the validity of non-contractual bailments.

Position in USA:-

The position in USA is very similar to that of England. Similarly like England, they have
acknowledged the validity of non-contractual bailments since the beginning. It has previously
been said that to constitute a bailment, an actual contract is not always required; if one person
has lawfully obtained custody of another's personal property on principles of justice, it falls
under the contract of bailment that the bailee has to keep it safe and return it to the owner.

Conclusion:

There is an old quotation which says “The law is never static; it is always changing, being
interpreted or redefined”. Cases like Ram Gulam v Govt of U.P., Lasalgaon Merchants Co-
op Bank vs. Prabhudas Hathibhai, State of Gujarat v Memon Mahomed Haji Hasan, are
evidences of how the law around the concept of non-contractual bailments has evolved and
redefined in India. The court went from refusing to accept non-contractual bailments to
acknowledging its validity along with the Indian Law Commission suggesting to make a
separate provision for statutory bailments is a testimony of how far our legal system has
come in terms of interpreting and/or redefining laws. The position of finder of goods is
indeed, another form of non-contractual bailments incorporated under the Indian Contracts
Act. Although jurisdictions like England and USA have been acknowledging non-contractual
bailments since the very beginning, Indian law, although late, has understood the reasoning
behind why non-contractual bailments are also considered as bailments, even though it’s only
in regard to cases involving the government yet. The report of the Indian Law Commission
was heavily inspired by the Lord Coleridge, C.J.’s statement where he condemned the use of

9
http://www.legalservicesindia.com/article/1526/Position-Finder-of-Goods-under-Indian-Contract-Act.html
10
https://blog.ipleaders.in/statutory-bailment-jurisprudence/
the phrase “contract of bailment” as It meant that bailment could only arise when there’s a
contract even though that’s not the case. The answer to the question “are all bailments
contracts?” is simply no, considering the law has evolved since its initiation and now we’re
at a time where not all bailments are considered as contracts.