This document defines bailment and outlines the essential elements, classifications, duties, rights and termination of a bailment contract according to Indian law. It discusses the duties of bailors and bailees. It also covers finder of goods, pledge, and summarizes a key Supreme Court case on whether endorsement of a railway receipt constitutes a valid pledge.

1. B Y
G . S U S M I T A J A Y A S I N D H U
1 6 8 9 1 2
M . B . A – I YEAR
S C H O O L O F M A N A G E M E N T
N AT I O N A L I N S T I T U T E O F T E C H N O L O G Y
WA R A N G A L
BAILMENT CONTRACT

2. Definition
o The word Bailment is derived from a French word
‘bailler’ which means ‘ to deliver’.
o The delivery of goods by one person to another with some
purpose , upon a contract that they shall , when the
purpose is accomplished to be returned or otherwise
disposed of according to directions of person delivering
them (section 148 Indian Contract Act)

3. Essentials and legal rules for a valid bailment
o Delivery of goods
o Actual Delivery
o Constructive Delivery
o Contract
o Purpose
o Return of goods

4. Classification of bailment
o On basis of mutual benefit
o On basis of benefits
o Benefit of bailor
o Benefit of bailee
o On basis of reward
o Gratutious bailmet
o Non-Gratutious bailment

5. Duties of a bailor
o Duty to receive back the goods
o Duty to indemnify the bailee (section 164)
o Duty to bear extra ordinary expenses(section 158)
o Duty to disclose defects(section 150)

6. Rights of a bailor
o Right of Termination (section 153)
o Right to demand back the bailed goods
o Compensation from wrong doer (section 180)
o Enforcement of bailee’s duties

7. Duties of bailee
o Duty of reasonable care (section 151 & 152)
o Un-authorized use of goods (section 153 & 154)
o Return of increase in the goods bailed (section 163)
o Adverse title (section 166 & 167)
o Mixing of bailed goods (section 155 , 156 &157)

8. Rights of a bailee
o Right to compensation (section 164)
o Joint bailors (section 165)
o Right to file a suit against wrong doer (section 180)
o Right to interplead (section 167)
o Right to lien

9. Termination of bailment
It can be terminated in the following circumstances
o Expiry of the specified period
o Achievement of the object
o Inconsistent use of goods
o Death of a bailor or bailee
o Termination by a bailor

10. Finder of goods
o A person who finds the goods belonging to some other
person and take them in his possession
o Once he takes the possession of such lost goods he
becomes bailee of that goods (section 71)
o Duties of a finder of goods = Duties of bailee
o The finder must make efforts to trace out the real owner

11. Rights of a finder of goods (section 168 & 169)
o Right to lien
o Right to file a suit for reward
o Right to sell the goods found under the following circumstances
o If the owner cannot with reasonable diligence be found
o If the owner when found refuses to pay lawful charges to the finder
o If goods are in danger of perishing or of loosing the greater part of their
value
o If the lawful charges of the finder in respect of goods found amount to two-
third of its value

12. Pledge (section 172)
o “Bailment of goods as security for payment of a debt or for
performance of a promise”
o Bailor in this case is pledger or pawner
o Bailee is pledgee or pawnee
o legal rules for a valid pledge
o Delivery of possession
o Delivery should be upon contract
o Delivery should be for the purpose of security
o Delivery should be upon condition to return

13. Rights and Duties of Pawner & Pawnee
Duties of pawner
o Duty to repay the loan
o Duty to pay expenses in case of default
Duties of pawnee = duties of bailer
Rights of pawner = rights of bailor
Rights of pawnee
o Right to lien (section 173)
o Right to extra ordinary expenses (section 175)
o Right in case of default of the pawner (section 176)
o Right to file a suit
o Right to sell the goods

14. THE MORVI MERCANTILE BANK LTD. AND ANR. V.
UNION OF INDIA (1965 AIR 1954)
A firm doing business in Bombay entrusted goods
worth Rs.35500 with the Railway for delivery in Delhi. The goods
were consigned to “self” and the firm endorsed the railway
receipts to a Bank against an advance of Rs. 20,000 made by the
Bank to the firm. The firm also executed a promissory note in
favour of the Bank for that amount. When the goods reached the
destination, the Bank refused to take delivery, on the ground that
they were not the goods consigned by the firm. The Bank,
thereafter filed a suit for the recovery of the value of the goods
against the Railway.

15. Contd…
o Issue :
o Can an owner of goods make a valid pledge of them by transferring the
railway receipt representing the said goods? What value such a document
carry for this purpose?
o Trial court : Dismissed the suit of bank.
o High court :
o Allowed the appeal and decreed the claim for Rs. 20,000 on the ground that
as pledgee of the goods, the Bank suffered loss only to the extent of the loss
of its security.
o Supreme court :
o The endorsement of the railway receipt in favour of the Bank did not
constitute a pledge of the goods covered by the receipt and the Bank had no
right to sue for compensation.

16. References
o https://indiancaselaws.wordpress.com/2012/01/21/the-
morvi-mercantile-bank-ltd-and-anr-v-union-of-india/
o http://www.lawsofbusiness.com/2012/04/bailment-
contracts.html
o https://en.wikipedia.org/wiki/Bailment