Contract of Bailment: Meaning, Essentials, Duties and Types

Understand Contract of Bailment

Key formulas to remember

Definition of bailment

Bailment = delivery of goods for a purpose + contract + return or disposal as directed

Possession passes to the bailee. Ownership stays with the bailor.

Bailee's duty of care

Care = that of a man of ordinary prudence with his own goods of the same bulk, quality and value

Applies to every bailee, whether the bailment is gratuitous or for reward. If the care is taken, the bailee is not liable for loss by ordinary accident.

Other duties of the bailee

No unauthorised use + no mixing of goods without consent + return goods + return accretions

Unauthorised use makes the bailee liable for damage, even if it is not his fault. Accretions are natural gains such as young ones of animals, unless agreed otherwise.

Duties of the bailor

Disclose known faults (s.150) + bear necessary expenses in a gratuitous bailment, and extraordinary expenses in either kind of bailment (s.158) + indemnify the bailee for loss caused by premature termination of a gratuitous bailment (s.159) + compensate the bailee for loss caused by the bailor's lack of title (s.164)

If the bailment is for reward (hire), the bailor is liable for damage from faults whether or not he knew of them. In a gratuitous bailment, he is liable only for faults he knew and did not disclose.

Rights of the bailee

Right to compensation + right to deliver goods to any one of several joint bailors (absent a contrary agreement) + particular lien (s.170) + right to sue third parties

Without a contrary agreement, the bailee may deliver the goods to any one joint bailor without the consent of the others. Particular lien under s.170 applies where the bailee has rendered services involving labour or skill in respect of the goods, such as repair of those goods. He may retain those goods until he is paid for that service.

Pledge vs bailment

Pledge = bailment of goods as security for a debt or promise

Purpose is the test. Security means pledge. Any other purpose is ordinary bailment.

How to solve Contract of Bailment questions

1. 1Identify the goods and check they are movable.
2. 2Identify the bailor (gives goods) and the bailee (receives goods).
3. 3Find the purpose of delivery. If it is security for a loan or promise, think pledge. Otherwise it is ordinary bailment.
4. 4Decide who benefits: bailor, bailee or both. This tells you whether the bailment is gratuitous or for reward.
5. 5Match the facts to a duty: care, unauthorised use, mixing, return, accretions, disclosure of faults or expenses.
6. 6Check the rights: compensation, lien, suit against third parties.
7. 7Pick the option that applies the exact rule to the facts.

Quickest way: Purpose and possession test

Common mistakes in Contract of Bailment

• Thinking ownership passes to the bailee.

  Students confuse bailment with sale because goods change hands in both.

  Fix: Remember that only possession is delivered. The bailor remains owner and the same goods must come back.

• Applying a lower care standard to gratuitous bailees.

  Students assume free help means less responsibility.

  Fix: The standard of care is the same ordinary prudence for every bailee. Gratuity changes other rules, such as who bears expenses.

• Saying every bailment is a pledge.

  Both involve delivery of goods and both use the words bailor and bailee.

  Fix: Pledge needs delivery as security. A repair, hire or safe keeping is bailment only.

• Treating lien as a right to keep goods for any dues.

  Students overlook the word particular.

  Fix: The bailee can retain goods only for dues connected with those goods, unless there is a contract for general lien.

• Believing bailment can cover money in an account or immovable property.

  The word goods is read loosely.

  Fix: Bailment is about movable goods. Land and buildings cannot be bailed.

Worked examples