LAW OF CONTRACTS ASSIGNMENT

TITLE: Critically analyse the legal requirements and implications of a gratuitous

bailment versus a bailment for consideration in the Indian context.

Course In-Charge:

Mr. Bineet Singh

Teaching and Research Associate of Law

HPNLU, Shimla

Submitted by: Shreya Thakur

1020220009

B.B.A.LL.B. (Hons.)

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 Acknowledgement

I'd like to express my heartfelt appreciation for your direction and assistance in doing a
comprehensive examination of the legal requirements and ramifications of gratuitous
bailment vs bailment for consideration in the Indian environment. Your knowledge and
understanding have been really helpful in navigating the complexity of this project.

Your dedication to creating a thorough grasp of contract law, as well as your desire to
participate in intelligent debate, have substantially enhanced my learning experience. This
task not only improved my understanding of bailment but also sharpened my analytical
abilities and legal thinking.

Thank you for your commitment to our education and for always encouraging us to dive into
the complexities of legal ideas. I appreciate the time and work you put into creating our
understanding of contract law, and I am glad for the chance to study under your supervision.

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 INDEX

TITLE PG.NO.
S.NO.

1. TITLE PAGE 1.

2. ACKNOWLEDGEMENT 2.

3. ABSTRACT 4.

4. INTRODUCTION 5.

5. BAILMENT AND ITS ESSENTIALS 6-7.

6. TYPES OF BAILMENT 8.

7. THE KEY LEGAL REQUIREMENTS AND 9.

IMPLICATIONS OF GRATITOUS
BAIKMENT AND BAILMENT FOR
CONSIDERATION
8. CONCLUSION 13.

9. BIBLIOGRAPHY 14.

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 ABSTRACT

This assignment examines the legal requirements and ramifications of a gratuitous bailment
vs a bailment in the Indian environment. A bailment is a legal agreement in which custody of
items is transferred from one person, known as the bailor, to another, known as the bailee, for
a defined purpose and term. The existence or absence of remuneration or benefit received by
the bailee distinguishes a gratuitous bailment from a bailment for consideration.

It examines the greater level of care and expertise anticipated of the bailee in this sort of
bailment, taking their professional position and salary into account. The document
investigates any extra requirements that may be imposed on the bailee, such as providing
insurance coverage or taking special procedures to assure the items' safety.

It investigates the risk allocation between the bailor and the bailee in terms of liability for loss
or damage to the goods. Due to their professional stature and the remuneration received, a
bailee for consideration may be held accountable for such loss or harm, even if they exercised
reasonable care and attention, according to the document.

Finally, the study article emphasises the significance of knowing the legal requirements and
consequences of gratuitous bailments and bailments for consideration in the Indian
environment. It emphasises the importance of both bailors and bailees understanding their
rights and duties when engaging in a bailment arrangement. According to the report, detailed
and thorough bailment arrangements that are customised to unique circumstances can assist
in reducing future disagreements.

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 INTRODUCTION

The Indian Contract Act, which became operative on September 1, 1872, is among the
nation's most ancient mercantile laws. This law offers rules to aid in the controlled and
structured formulation and compliance of contracts. The basis for the process of action to be
taken if any disputes arise from the Contracts is provided by these rules and regulations. The
agreements or contracts between different parties are framed and made valid under the Indian
Contract Act. The Contract Act is one of the primary laws that govern and supervise every
business whenever there is a deal or agreement.

A contract is "an agreement which is enforceable by law" under the Contract Act. An
agreement is a compromise between two parties that includes commitments or duties that
must be met by both. Such an agreement becomes a contract when it is made legally
enforceable. 1

According to the ICA, a proposal is an offer made to a party that is willing to enter into an
agreement by another interested party. An agreement is said to be formed when such a
proposition is accepted. "When one party performs the duty to show interest to the other party
for the willingness to perform or not perform a particular act and thus to get the acceptance"
is the definition given in Section 2(a) of the ICA. It is claimed that this display of interest
makes a proposition or an offer.

However, according to Section 2(b) of the ICA, "this consent is known as acceptance when
an offeror makes an offer to the offeree and the offeree provides his consent to this offer so
made."

Since both parties must be prepared to face the legal ramifications of entering into an
agreement, intention should be carefully evaluated before establishing legal connections. It is
a well-known fact that, in contrast to social and domestic agreements, where it is assumed
that the parties do not intend to create a legal relationship, in business agreements, it is
typically assumed that the parties do intend to do so.

1
Indian Contract Act, 1872, S.2(h)

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Consent is defined as "the agreement between two or more people" or "a meeting of the
minds." Consent is necessary for a contract to be enforceable, and the Indian Contract Act of
1871 defines consent as "when two parties entered into the contract there should agreement
upon the same thing in the same manner." The legal term highlights "consensus ad idem,"
which is essentially a consensus of thoughts.

When consent in a contract is unaffected by fraud, misrepresentation, coercion, error, or

undue influence, it is said to be free.

It would be best to reiterate once more that if a contract's requirements aren't met, it won't be
fully enforceable. Because of their nature and significance in every contract, the
aforementioned topics are all referred to as essentials. Any type of agreement is acceptable,
but if any of these fundamental guidelines are broken, the agreement is void. These
requirements are crucial from a contractual standpoint alone, but they also safeguard the
rights and interests of those whose possession of an item or action could benefit another party
financially may have been compromised.

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 BAILMENT

Bailment implies a sort of relationship in which the relationship in which the personal
property of one person temporarily goes into the possession of another. The ownership of the
articles or goods is in one person and possession in another. The circumstances in which this
happens are numerous. Delivering a cycle, watch or any other article for repair, or leaving a
cycle or car, etc., at a stand, depositing luggage or books in a cloakroom, delivering gold to a
goldsmith for making ornaments, delivering garments to a dry-cleaner, delivering- ing goods
for carriage, warehousing or storage and so forth, are all familiar situations which create the
relationship of bailment. Thus, bailment is a subject of considerable public importance.

Bailment is defined in Section 148 of the Indian Contract Act in the following words:

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". 2

If a person is already in possession of the goods of other 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.

In common law, when someone entrusts an asset to another person for safekeeping, an
arrangement known as a bailment takes effect. The asset belongs to the bailor, who
temporarily transfers ownership to the bailee, as was previously said. The asset is still legally
owned by the bailor even after they transfer it to the bailee. Bailments do not begin until the
property is in the bailee's possession.

When one party voluntarily takes possession of a good that belongs to the other, as in a sub
bailment or bailment of finding, a legal connection between the bailee and the bailor is
established. If a founder of a good gains possession of it, he or she is bound by the same
obligations as a bailee, even if they are not the bailee and cannot maintain the item in their
possession. Under certain conditions, a bailment contract may be voluntary or involuntary.

2
Indian Contract Act,1872, S.148

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 ESSENTIALS OF BAILMENT

The constructive or actual possession of any specific property must be delivered by its owner
or bailor or his/her agent who is authorised or has the authority to bail it in favour of another
person (bailee) so that the bailee must perform such act for which the transfer of actual or
constructive possession is required, subsequently returning the possession in its altered or
original form, to constitute a contract of bailment. The fundamental issue here is whether a
simple transaction is a bailment or a sale, which is both a legal and a factual one. As a result,
the character of the contract may be established by the contract's parties.

a. Specific movable property: A bailment contract gives or transfers custody of a

certain moveable item to a third party. A shift in possession from the bailor or agent to
the bailee is required to establish bailment.

b. Delivery of possession: Possession is the main component of bailment; it entails the

transfer of custody of the items bailed by the bailor to the bailee, which places the bailee
under duty and empowers him to seek redress from any third party, including the bailor.3

In State of Gujarat v. Memon Mahomed 1885, The court remarked that the state
government's position was that of a bailee because the state was required to restore the
respondent's seized possessions in the same condition in which they were seized.
Furthermore, the court observed, "Bailment is addressed by the Contract Act only when it
arises from a contract, but it is not correct to say that there cannot be a bailment in the
absence of an enforceable contract."4

3
Avatar Singh, Law of contracts and specific relief, 660, 10th ed., eastern book co.
4
State of Gujarat v. Memon Mahomed 1967 AIR 1885.

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 TYPES OF BAILMENT

Gratuitous Bailment:

In a gratuitous bailment, the bailor gives the bailee ownership of the items without asking for
anything in return. The items are given to the bailee by the bailor with the express intent that
they be used or kept secure. It is the bailee's responsibility to treat the items with reasonable
care and return them to the bailor undamaged. The bailee may be responsible for any loss,
damage, or destruction of the goods if they do not take reasonable precautions.

This type of arrangement is non-contractual (no consideration), and therefore, the recourse
available to a bailor in the event of a cause of action arising is in negligence.

Bailment for Consideration: Under this arrangement, the bailor gives the bailee possession
of the items in return for cash or other consideration. This consideration may take the shape
of cash, commodities, services, or other priceless products or advantages. Apart from
exercising reasonable care, the bailee is also required to utilise the commodities for the
prearranged purpose. In the event of carelessness or duty violation, the bailee is responsible
for any loss or harm.

THE KEY LEGAL REQUIREMENTS AND IMPLICATIONS FOR

GRATITOUS BAILMENT AND BAILMENT FOR CONSIDERATION

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Duty to take responsible care of the bailed goods. (s. 151-152)5: Section 151 states that a
bailee is obligated to take as much care of the property as any average prudent man would in
identical circumstances. This clause also establishes a consistent duty of care for the bailee in
all types of bailments, whether gratuitous or non-gratuitous.

Standard of Care: -

Gratuitous Bailment: In a gratuitous bailment, the bailee is obligated to use ordinary care in
keeping the property. They must make reasonable efforts to prevent damage or loss to the
property.

Bailment for Consideration: The bailee is held to a greater degree of care in a bailment for
consideration, known as the duty of exceptional care. They must be more cautious and take
all required precautions to ensure the safety and maintenance of the property.

In Union Of India v. Udho Ram And Sons 1963: M/s Radha Ram-Sohan Lal of Calcutta
consigned items to himself in Delhi. Certain products in the consignment were not delivered
to M/s Udho Ram & Sons, the plaintiffs, in whose favour the consignor had approved the
railway receipt. After failing to get compensation for the damage incurred as a result of the
non-delivery of the products, the litigation giving rise to this appeal was filed. There is
currently no disagreement on the amount of loss found by the Court for the plaintiffs. The
only point of contention between the parties is whether the loss of commodities in transit
between Calcutta and Delhi was caused by the Railways' malfeasance and incompetence.

On appeal, the High Court held the Railways liable for the loss, which it attributed to
negligence and misconduct because there was no evidence on record that the Railway
protection police took any precautions to ensure that the train was not interfered with when it
halted for 15 minutes at the Howrah-Burdwan Link at night. There were no other options for
watch and ward at the Link. There was no proof of the railway protection police's strength or
that it did stir out of the train to ensure that the wagons were not disturbed.

5
The Indian Contract Act, 1872, S. 151-152

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It was thus concluded that the railway servants were negligent and did nothing to ensure that
opportunities for theft were eliminated as far as possible, that the railway administration was
responsible for the negligence of its employees because it could act through its employees,
and that the loss of goods was therefore due to the Railways' misconduct and negligence. As a
result, it reversed the trial court's decision and decreed the plaintiffs' complaint for the
amount of loss claimed by the plaintiffs. The Union of India has secured a certificate of
eligibility for appeal from the Punjab High Court and has filed an appeal against this order. 6

Liability for Loss or Damage:

Gratuitous Bailment: The connection between the bailor (the party entrusting their property)
and the bailee (the entity receiving and retaining the property) in a gratuitous bailment is
distinguished by the absence of monetary payment. The bailee's liability under such
agreements is restricted to cases of severe negligence or willful wrongdoing. This means that
the bailee will only be held liable for losses or damages if they show a serious lack of care
or willful misconduct. However, the bailee is usually free from liability for normal wear
and tear as well as unforeseeable situations beyond their control. This legal framework aims
to recognise the voluntary nature of the bailment without overburdening the bailee with
accountability for occurrences beyond their control.

Bailment for Consideration: The dynamics of a bailment for consideration change since the
bailee is now involved in arranging some type of recompense or benefit. In contrast to
gratuitous bailment, the bailee, in this case, may be held to a higher level of culpability.
Unless the bailee can demonstrate that the adverse occurrence was caused by circumstances
beyond their reasonable control, the bailee may be held severely accountable for any loss,
damage, or theft of the entrusted property. This increased accountability emphasises the idea
that when a bailment involves a financial transaction, the bailee has additional responsibility
for the property's protection. The bailee must establish that they took all reasonable
safeguards and that the loss was really unexpected or beyond their ability to prevent.

In Katta Ramasami Gupta v. Kamalammal 1921, The plaintiff lent certain jewels to one
Meenakshi Ammal for the purpose, as the plaintiff says, of decking the latter's daughter for a

6
Union of India v. Udho Ram & sons, 1963, AIR 422 SCR (2) 702

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prospective bridegroom. The plaintiff brought the suit against the defendant to recover the
value of the jewels, which was decreed to her. The learned trial Judge confirmed that the
defendant could not invoke Sections 108 or 178 of the Contract Act. The defendant's good
faith purchase of the jewellery from Meenakshi Ammal has no bearing on the result of the
case. The appeal is rejected without prejudice.

The court pointed out that section 178 of the Indian Act has identical language to section 108
but excludes specific wording. It was determined that section 108, exemption 1, does not
apply when the possession is merely qualifying or for a defined purpose.

The court determined that the defendant could not invoke Sections 108 or 178 of the Contract
Act. The defendant bought the jewellery in good faith from Meenakshi Ammal, who only
possessed qualifying ownership and possession for the express purpose of decking her
daughter for a bridegroom.7

Termination of Bailment:

Termination of Gratuitous Bailment:

The bailor can cancel the bailment at their discretion in a gratuitous bailment without the
requirement for particular notification or presenting a justification. In turn, the bailee is
required to return the property upon the bailor's request swiftly. This unilateral termination
ability reflects the gratuitous character of bailments and guarantees that the bailor retains
control over the committed goods. In such cases, case law frequently highlights the bailor's
unfettered ability to repossess their property.

Termination of Bailment for Consideration: The termination of a bailment for

consideration is subject to the terms agreed upon by the parties. The end of a stated period,
the accomplishment of the agreed-upon purpose, or other mutually agreed-upon occurrences
may be grounds for termination. If one party cancels the bailment in violation of the agreed-
upon terms, the other party may pursue legal remedies. While gratuitous bailments provide
the bailor with great flexibility in terminating the arrangement, bailments for money are often

7
Katta Ramasami Gupta v. Kamalammal (1921 SCC ONLINE MAD 145, Madras High Court, 1921)

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regulated by the precise criteria outlined in the contractual agreement, adding another layer of
contractual duty to the termination procedure.

In Union Of India v. Amar Singh 1959, The respondent and others in government service
in Quetta were caught up in the unrest and sought sanctuary in a government camp with their
household things. The respondent gathered the goods of himself and sixteen other officials
and booked them on a passenger train from Quetta to New Delhi on September 4, 1947, as
per parcel route Bill No. 317909. The wagon was also discovered to be in good condition,
and the label indicated that it was heading for New Delhi from Quetta. The wagon
purportedly arrived in New Delhi on February 13, 1948, and was unloaded on February 20,
1948, without informing the respondent immediately. Following multiple correspondences,
the respondent was instructed to contact Mr. Krishan Lal, Assistant Claims Inspector, to
arrange for the goods to be delivered. The reply was provided only a few damaged products
from the initial consignment on July 24, 1948, and refused to accept them. The defendant
filed a claim against the Forwarding Railway for reimbursement for goods that were not
delivered.

The Supreme Court found in favour of the respondent, Amar Singh. The Court dismissed the
appellant's contention that there was no privity of contract with the Forwarding Railway,
finding that the Forwarding Railway was negligent in handling the goods. The Court ruled
that the complaint was not time-barred because the precise period of loss was not established.
As a result, the appellant was held accountable for the loss and compelled to pay Amar Singh
for the failure to deliver the products entrusted to him, emphasising the significance of
performing obligations meticulously and within lawful time constraints. The liability of the
Forwarding Railway is governed by Section 72 of the said Act. In other words, the liability
under these sections is one for negligence only in the absence of a special contract.8

Limitation Period:

Limitation Period for Gratuitous Bailment: The limitation period for filing claims arising
from gratuitous bailment is clearly defined in section 70 of the Indian Limitation Act, 1963,

8
Union Of India v. Amar Singh ,(1960) AIR SC 233(India)

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with it being three years from the date when the bailment is terminated, or the goods are
wrongfully taken by the bailee9

In the case of gratuitous bailment, the clock starts ticking from the day when the bailment is
discontinued or when the bailee unjustly removes the items. The relevance of this limitation
period rests in ensuring that legal claims are brought forth within a reasonable term, hence
fostering prompt conflict settlement.

This three-year limitation term strikes a compromise between aggrieved parties' need to seek
redress and the broader society's interest in the expeditious resolution of judicial proceedings.

Limitation Period for Bailments for Consideration: A specific six-year restriction period
applies to bailments for consideration. Legal proceedings involving bailments for review
must be filed within six years after the occurrence of the cause of action. Events such as
breach of the bailment agreement, loss or damage to the entrusted property, or any other
incident that gives rise to a legal claim may be grounds for action. This prolonged limitation
acknowledges the frequently complicated nature of bailments for consideration, which entails
contractual commitments and financial transactions.10

CONCLUSION

In conclusion, the legal conditions and ramifications of a gratuitous bailment versus a

bailment for compensation differ dramatically in the Indian setting. A gratuitous bailment is a
type of bailment in which the bailee gets the items for safekeeping without payment or
9
The Indian Limitation Act, 1963, S.70
10
The Indian Limitation Act, 1968

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compensation. On the other hand, a bailment for consideration entails the bailee getting the
items in return for some remuneration or benefit.

The legal conditions for a gratuitous bailment are straightforward. The bailor must deliver the
commodities to the bailee, who is then responsible for their custody. The bailee is required to
take reasonable precautions to preserve the items and return them to the bailor when
requested. The bailee, on the other hand, is not bound to the same high degree of care as a
bailee for consideration.

The bailee in a bailment for consideration is usually a professional or corporate body that
performs services relating to the products. Because they are being compensated for their
services, the bailee is expected to handle the commodities with greater care and expertise.
Additional requirements may be imposed on the bailee, such as providing insurance coverage
for the items or taking specified precautions to assure their safety.

The ramifications of a bailment for consideration versus a bailment for gratuity differ as well.
The bailee is normally not accountable for any loss or damage to the items in a gratuitous
bailment unless it can be demonstrated that they acted carelessly or willfully caused harm.
The bailor is responsible for any loss or damage that occurs during the bailment term.

A bailee for consideration, on the other hand, may be held accountable for any loss or damage
to the goods, even if they used reasonable care and attention. The conditions of the bailment
agreement or applicable laws and regulations may restrict the bailee's obligation. However,
because of their professional standing and the money they get, they are often held to a greater
degree of accountability.

The Indian Contract Act of 1872 and other applicable laws and regulations control the legal
requirements and ramifications of gratuitous bailments and bailments for consideration in the
Indian setting. Both bailors and bailees must understand their rights and duties When
engaging in a bailment arrangement, whether gratis or for compensation.

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 BIBLIOGRAPHY

 Law of contracts and specific relief, Avatar Singh

 Indian Contracts and Specific Relief Acts, Pollock and Mulla

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 Stoljar, Samuel. "The Early History of Bailment." The American Journal of Legal
History 1, no. 1 (1957): 5- 34. doi:10.2307/844405.

 Andrew Tettenborn, Contract, Bailment and third parties. Again, The Cambridge Law
Journal, vol. 53, issue. 3, 1994, pp. 440-43, JSTOR, available at
(https://www.jstor.org/stable/4507977)

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