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Investigating Consideration in Bailment: Contractual vs Gratuitous

Bailment means the delivery of something personal by one party to another, to be held according to the purpose or object of delivery, and to be returned or delivered over when the purpose is accomplished.

As defined by Hamish Dempster:
A bailment occurs when a person having the legal right to exclusive possession of a chattel exercises a legal power by performing an act or action prescribed by law thereby intentionally conferring the legal right to exclusive possession of that chattel upon another person and concurrently intentionally conferring upon itself the reversionary interest in that chattel.

This definition is comprehensive and covers all kinds of bailments. Bailment is a very unique concept i.e., sui generis. We need to remember that a contract is not a pre-requisite for establishing bailment but goods as defined in the Sale of Goods Act are. The definition provided by Section 148 of bailment is narrow and depends upon a contract. However, different kinds of bailment exist and bailment is an amalgamation of different concepts. Borrowing or lending a book, hiring a horse, giving clothes to tailor, giving shoes to cobbler or sending a package all come within the rules of bailment.

Bailment is not defined by a contract as any person who picks up a good for finding the true owner is a bailee as he has exclusive possession. There has to be a change in possession for a purpose without change in ownership. The word bailment has been derived from the French term bailler which means to deliver.

The existence of goods, the intention to confer exclusive possession and reversionary interest are the key components of a bailment. Delivery is a mandatory requirement in bailment whether actual, constructive or symbolic. In bailment, there are two people the bailor who delivers the chattel and the bailee who is vested with temporary custody of the chattel.

Bailments can be classified as contractual and gratuitous depending upon the presence and absence of consideration. This essay will analyze consideration gratuitous and contractual bailments, the position in English law and will end with a conclusion.

Contractual Bailment
Contractual bailments are those bailments created between the bailor and the bailee upon a contract. Unlike gratuitous bailments, this kind of bailment is a business transaction. Section 148 of the Indian Contract Act deals with bailments that are based upon a contract. To illustrate, A hires a car from B on some consideration for 2 days. This is a contractual bailment.
In Ram Gulam v. Government of UP, the court held that a bailment can arise only from a contract.

Gratuitous Bailment
Gratuitous bailment is bailment without any consideration and is usually out of love and affection. In bailment, the person has to have knowledge of the possession and hence, a bailment can exist without the creation of a contract. Hence, the essence of bailment is possession. A gratuitous bailment is a bailment without any consideration where the bailor or bailee is not entitled to any reward. It may be created for the exclusive benefit for either the bailor or bailee. The key to determining a bailment is that the person had the intention of conferring the bailee with exclusive possession of the goods.

Comparison between Contractual and Gratuitous Bailment
Duty of Contractual Bailee
In contractual bailment, the bailee accepts good consideration for holding the goods, hence, the standard of care here is greater. For instance, A hires a horse from B for a day in exchange of consideration, and the horse dies the same day in the custody of A. The burden of proof lies on A, the bailee, to prove that there was absence of negligence and he had exercised prudent care as if the horse was his own.

Section 151 prescribes a uniform and minimum standard of care for all cases of bailment where prudent care should be exercised. Section 152 is applicable to special contracts. In the absence of a special contract, the bailee is not responsible for the loss, destruction of the goods if he had exercised the amount of care as laid down in Section 151.

According to Section 170 of the ICA, the bailee has a right to retain the goods in which he has rendered any service involving the exercise of skill or labour in respect of the goods bailed until he receives remuneration from the bailor. This right is called bailee's particular lien and exists in favour of bailees who perform any service such as repairing, tailoring, etc. Bankers, attorneys, wharfingers, policy brokers have general lien.

The Duty of Gratuitous Bailee
According to Section 151 of the Indian Contract Act, the gratuitous bailee is bound to take care of the goods bailed to him as a prudent man would take care of his own goods.
The Supreme Court has taken the stand that in cases of bailment without a contract, the bailee has obligation to take care of the goods as a prudent man and owes a duty towards the bailor.

In Lasalgaon Merchants Coop Bank Ltd v Prabhudas Hathibhai, the facts are as follows. There were certain packages of tobacco lying in the godown of a partnership firm. They were pledged to the plaintiff bank. The Income Tax seized the goods because some of the partners failed to pay income tax dues. The godown was locked by the officials of the Collectorate and the keys were handed over to the police. However, heavy rains occurred due to which the roof of the godown leaked and the tobacco was damaged. The Court held that the State was in the shoes of the bailee and had a duty as a prudent man to take care of the goods as if they were his own.

Similarly, in the case of State of Gujarat v Memon Mohamed, the state seized the vehicles of the plaintiff in exercise of the State's powers under the Sea Customs Act. The State didn't take care of the goods and left them in a dismal condition. The State argued that they didn't have an obligation towards the plaintiff as they were not bailees and a bailment arose only under a contract. The Supreme Court held that there was an implied legal obligation and statutory duty to preserve the vehicles and to return it in the exact condition. The provisions of Section 151, 152, 160 and 161 are applicable on the state. Hence, it is not necessary to incorporate bailment into a law of contract and prove consideration.

In Trustees Port of Bombay v. Premier Automobiles Ltd., the Supreme Court held that in cases of statutory bailments, the liability of the bailee may be subject to the provisions of that act and not the Indian Contract Act.

In all kinds of bailments, it is the duty of the bailee to return the goods when the purpose of bailment has been accomplished or the time for bailment has expired. This is called reversionary interest.

Liability of Bailee
Section 154 which deals with unauthorized use of goods by bailee is applicable to both kinds of bailments and the bailee is liable to make proper use of the goods as mentioned in the terms of bailment and is liable to pay compensation to the bailor for any loss or damage caused. For example, in gratuitous bailment, A lends a car to his friend B to drive it in Delhi without any consideration. B drives the car in Uttar Pradesh and the car gets damaged. B is liable to make compensation to A for the damage caused. Q hires a horse from P on the condition that he will ride it in his locality only. But Q rides the horse beyond his locality and the horse gets injured. Q will be liable to P for the injury caused.

In both kinds of bailments, if by the default of the bailee, there has been loss or destruction to the goods, the bailee is responsible to the bailor for such loss or damage. A lends to B a flag and the flag is destroyed due to B's negligence. B will be held liable for the damage to the flag.

Duty of Contractual Bailor
Under Section 150, the bailor is under an obligation to disclose to the bailee material faults in the goods bailed. In gratuitous bailments, bailor is required to disclose faults which are known to him whereas the duty of contractual bailor is not restricted. The bailor cannot conceal the defects of the goods bailed in all kinds of bailments but he is under a special duty if he gives goods on hire. Hiring involves vehicles or animals and if there is a defect, it will severely affect the life of the bailee.

As in Hyman and Wife v. Nye and Sons, the defendant lent the plaintiff a carriage with a pair of horses and a driver. The carriage broke down and the plaintiff was injured. The defendant was held liable. As codified in the second paragraph of Section 150, the bailor will be responsible for such damage as he was or wasn't aware of the goods bailed. Strict liability is imposed on the contractual bailor in hire cases for inherent defects.

The bailor will not be liable for any Act of God or the fault of the bailee or any fault which was beyond his control. In cases where bailor gives goods to common carriers, he is under a duty not to give hazardous or dangerous goods.

Duty of Gratuitous Bailor
Section 150 prescribes the bailor's duty to disclose the faults in goods bailed. The first paragraph of the Section deals with bailments which are not on hire. Hire is always contractual as consideration is involved. However, hire can be gratuitous too for instance, lending your car to your friend for a specific period voluntarily out of love and affection. If the bailor can prove that the car to his friend was not for strictly hiring, he can reduce his liability. As in the 1st paragraph of Section 150, the gratuitous bailor should disclose defects which he is aware of which materially interfere with the use of the goods or which expose the bailee to extraordinary risks.

Under Section 158, when the bailee keeps the goods or does work upon them for the bailor without any pay, the bailor has to pay necessary expenses to ensure that there is no further loss of expenses. This is based upon the concept of unjust enrichment. Here the bailee needs to prove the work is done according to the conditions of the bailor and the bailor will reimburse the bailee.

When the bailment is gratuitous, the lender (bailor) can demand the return of the good from the borrower (bailee) at any time, even though it was lent for a specific time and purpose. But if the bailee has acted on the faith of the loan made for specific purpose, and he would suffer a loss greater than benefit derived if the goods are returned to the bailor, the bailor must indemnify the bailee the amount he would suffer in case of restoration. This has been codified in Section 159 of the Indian Contract Act, 1872. This is done to indemnify the bailee on the principle of estoppel. To get compensation, the bailee needs to prove actual loss as codified under Section 124.

Finder of Goods
Even finder of goods has the same responsibility as a bailee. They have to return the goods once the rightful owner is found. It is a kind of gratuitous bailment as he is not entitled to any payment unless there was an offer of specific reward and the offer had come to his knowledge. If the finder can't claim compensation, there is no ground for him to keep the goods. Section 168 and 169 protect the rights of the finders. He may retain the goods against the owner to receive such compensation for trouble in maintaining the goods.

If the owner had offered a reward for the return of lost goods, the finder can sue for the reward and retain the goods until he is compensated. Section 169 gives the right to the finder to sell the goods if the owner is not found or refuses to claim the goods or if he refuses to pay the charges to the finder and also if the good is perishable and is at risk of losing greater part of its value. This is done to secure natural justice.

Termination of Bailment
A contract of bailment can be terminated at the option of the bailor if the bailee does any act inconsistent with the conditions of the bailment. It is voidable at the option of the bailor. To illustrate, if A lets to B for hire a car with maximum capacity of 4 people. B drives the car exceeding the capacity by 3 people. It is at the option of A to end the bailment.

A gratuitous bailment comes to an end on the death of either the bailee or bailor. It is similar to a personal contract and hence, not enforceable by legal representatives as there is an assumption that gratuitous bailments are usually based on love and affection or personal skill.

Differences between English law and Indian law
Classification of Bailment

There are five classes of bailment in English Law:
  1. depositum
  2. mandatum
  3. commodatum
  4. pignus, also called pawn
  5. location conductio.

The first three are gratuitous. The others require consideration. Hence, they have been classified according to the party for whose benefit the bailment has been created bailment for benefit of the bailor, bailment for the benefit of bailee and bailment for the mutual benefit of both the parties.

The last category is further classified into ordinary and exceptional which is of innkeeper and of common carrier. In English law, simple bailments or chattels delivered in trust where the keeping is gratuitous, the confidence and trust placed in the bailee and his undertaking is a sufficient consideration which makes him bound to perform the agreement.

In India, the Indian Contract Act has codified bailment from Section 148-181 which covers bailment, pledge, hypothecation, sub bailment, attornment, lien, hire and purchase, gratuitous bailment, finder of goods and common carrier. Section 71 deals with quasi-contracts where finder of goods is treated as a bailee.

Degree and Duty of Care
English law prescribes three degrees of care great, ordinary and slight, depending upon the benefit of the parties. Ordinary care is care taken by a prudent man. Anything more than ordinary care is classified as great care and anything less than ordinary care is called slight care.

In India, no such distinction has been made and all kinds of bailments, whether for consideration or without consideration, are treated alike in respect of their duty towards the goods bailed. Gratuitous and contractual bailees are treated alike in terms of the degree of duty and standard of care taken by them and usually depends from one case to another. Section 151 abolishes the distinctions introduced in the judgment of Coggs v Bernard.

In English law, when the bailment is created for the benefit of the bailor, the bailee is expected to take slight care and he is not responsible except for gross negligence. For example, when A stores B's car in his garage gratuitously. Lowest degree of care is required in this category. Gratuitous bailees are excused from inevitable accidents, fires, etc. The gratuitous bailee cannot make any use of the thing bailed to him. If the bailee has custody of an animal, the profits derived from it will go to the bailor. This case is similar to Indian law where Section 163 prescribes that the bailor is entitled to increase or profits or any accretion from goods bailed.

In English law, when the bailment is made for the benefit of the bailee alone where greatest care is required of him and he will held be held responsible for slight negligence. For example, A lends his bicycle to B, his friend, to use it and return it afterwards. B in this case has to exercise highest degree of care and if he deviates from the terms of the usage of the bicycle, he will be held liable for loss or damage. However, if the bicycle is destroyed by inevitable accident or accidental fire then he will not be held liable unless he is at fault.

In English law, when the bailment is created for mutual benefit, the bailee is expected to take ordinary care of the chattel and he'll be responsible for ordinary negligence. This bailment is typically a business transaction where benefits are conferred to both the parties unlike in acts of friendship. Bailments for mutual benefit consist of hired service of chattel, hired use of chattel and pledge. Hired services of chattel include warehousemen who keep goods safely in exchange of consideration, person who does work upon a chattel in return for consideration, hired carriage of chattel where the bailee transports chattel in exchange of money.

Hired carriage of chattel includes both private and public services. Private services are within the mutual benefit but the public includes common carriers who usually have a higher duty of care and are governed by special laws. The hired use of chattel includes everyday transactions such as hiring of boats and vehicle where a contract is made where bailor delivers the chattel to bailee or hirer for the purpose during a specific period. The chattel has to be used as agreed and bailee can't use it for a different purpose. Lien arises when bailee has performed services and he can retain the chattel until he is paid for the services.

Pledge is the other category of mutual benefit bailment where the pledgee retains chattel of pledgor as security for some debt or agreement. The pledgee has the duty to exercise ordinary care and when the property is delivered as security for a specific loan, it cannot be held as security for another one. In India, the position is the same in terms of mutual benefit to both parties. In Indian law, pledge has been codified from Section 148-179 of the ICA.

Conclusion
A Bailment is a delivery of goods by one party to another for a specific purpose without change of ownership. Many people face hardship when gratuitous bailment is not recognized as an enforceable bailment due to lack of consideration or contract. The Law Commission in its 13th Report examined this issue and recommended that in all kinds of bailments, whether or not arising from a contract, the parties should perform the same duties and be subjected to the same liabilities and responsibilities as the essence of bailment is 'exclusive possession'. Contractual bailment and gratuitous bailments do have many points in common.

Both require exclusive possession, reversionary interest and the existence of goods. They differ only in the absence or presence of consideration and the standard of care. India has made no distinction in respect of duty of bailee in 'all kinds of bailments.' Even a gratuitous bailor and bailee can sue in courts if they can prove negligence or actual damage. As mentioned earlier, bailment is a very unique concept. Absence or presence of consideration can help in defining the standard and duty of care.

Bibliography
Books:
  1. Mulla, The Indian Contract Act by Sir Dinshaw Fardunji Mulla, 15th Edition.
  2. Avtar Singh, Textbook on Law of Contract and Specific Relief.
Cases
  1. Ram Gulam v. Government of UP
  2. Trustees Port of Bombay v. Premier Automobiles Ltd.
  3. Hyman and Wife v. Nye and Sons.
  4. Lasalgaon Merchants Coop Bank Ltd v Prabhudas Hathibhai.
  5. State of Gujarat v Memon Mohamed.
  6. Coggs v. Bernard.
Statute:
  1. The Indian Contract Act, 1872.
Report
  1. The Law Commission of India, 13th Report.
Articles
  1. Calvin Townsend, Compendium of Commercial Law Analytically and Topically Arranged with Copious Citations of Legal Authorities (1876).
  2. Earl of Halsbury. Laws of England: Being a Complete Statement of the Whole Law of England (1907).
  3. Clearing the Confusion Surrounding Bailment: Bailment as an Exercise of Legal Power by the Bailor by Hamish Dempster.
  4. Chapter Nine: Damages under the Contract of Bailment.
  5. Ralph E.; Thompson Rogers, Clyde O. Gano's Commercial Law Revised (1921).
  6. Edwin Baylies. Questions and Answers for Law Students (1873).
Written By: Dhriti Bhadra

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