Bailor-Bailee Relationship under the Indian Contract Act, 1872

By Mohd. Sahil Khan 10 Minutes Read

Introduction

Think about when you leave your favourite coat with a shopkeeper or park your car in a garage. These are everyday examples of a bailor-bailee relationship. It’s a legal arrangement where one-person (the bailor) hands something over to another person (the bailee) for a specific purpose. The bailee’s job is to take care of the item and either return it or do whatever was agreed upon.

This kind of relationship is important because it sets clear expectations for how people should handle each other’s belongings. It ensures that the bailee is responsible for properly caring for the item. Section 148 of the Indian Contract Act of 1872 defines bailment and the roles: the person giving the goods is the bailor, and the person receiving them is the bailee.

Essential Conditions for a Bailor-Bailee Relationship

A bailor-bailee relationship is at the core of many everyday transactions. But for it to be legally valid, a few key elements must be in place:

1. Delivery of Property: The bailor must hand over the property to the bailee, either physically or constructively.
2. Agreement Between the Parties: There must be a clear agreement between the bailor and the bailee. This could be something they explicitly agree upon or could be implied. The agreement usually covers the purpose, duration, and what both parties are responsible for.
3. Acceptance of the Property: The bailee must accept the property, either through an express agreement or implied by their actions. This shows they are willing to take on the responsibility of the item.

Types of Bailments

Let’s break down the different kinds of bailments based on how the relationship works and who benefits.

1. Gratuitous Bailment

A gratuitous bailment happens when one party benefits, but no money or service is exchanged. There are two kinds of gratuitous bailment:

• For the bailor’s benefit: The bailee is doing the bailor a favor by looking after their property without getting anything in return. For example, a person might ask his friend to look after his goods while he is not available.
• For the bailee’s benefit: In this case, the bailee borrows something from the bailor for free. Imagine a person lending his bicycle to a friend for the weekend without expecting anything in return.

2. Non-Gratuitous (Contractual) Bailment

In a non-gratuitous bailment, both parties benefit; usually, some payment or service is involved. A common example is when a person gives his car to a mechanic for repairs and later on pays for the service rendered.

3. Bailment for the sole benefit of the bailor

Here, the bailee helps the bailor keep their property but doesn’t get anything in return. The bailee is only expected to take reasonable care of the item. For instance, storing a neighbor’s furniture in one’s garage as a favor would be this kind of bailment.

4. Bailment for the sole benefit of the bailee

This kind of bailment happens when the bailee benefits from using the bailor’s property without paying. Since the bailee is getting the most out of the arrangement, they must be extra careful with the item. For example, if a person borrows a laptop from his friend, they need to take good care of it, even though they aren’t paying for the privilege.

5. Bailment for mutual benefit

This is the most common type of bailment, where both the bailor and bailee benefit. Usually, some compensation is involved. Examples include renting a car or taking clothes to a dry cleaner. In these examples, both parties get something out of the deal.

Bailor and Bailee’s obligations

When a bailor and bailee enter into a legal relationship, it sets up a system of mutual rights and responsibilities that ensure fairness and accountability. These obligations are laid out in Sections 148 to 171 of the Indian Contract Act of 1872. Both the bailor (the person giving the goods) and the bailee (the person receiving them) must understand and follow these rules to avoid conflicts and protect each other’s interests.

Rights and Duties of the Bailor

• Duty to disclose defects: The bailor must disclose any known defects or defects in the property to the bailee before or during delivery. Failure to do so may result in liability for any losses or damage caused by the undisclosed defects.
• Duty to pay fees: If the bailment is non-gratuitous, the bailor must pay any agreed-upon fees or charges to the bailee for their services.
• Duty to pay necessary expenses: As per Section 158 of the Contract Act, the bailor has the duty to pay necessary expenses to the bailee. 
• Right to recover property: The bailor has the right to demand the return of the property at the end of the bailment period or upon fulfillment of the agreed-upon purpose.
• Right to property in original condition: The bailor has the right to receive the property in the same condition as it was delivered unless the damage or loss is due to the bailor’s fault or an act of God.

Rights and Duties of the Bailee

• Duty of reasonable care: The bailee must exercise reasonable care in safeguarding the property. This level of care may vary depending on the type of bailment and the nature of the property. In the Taj Mahal Hotel v. United India Insurance Ltd.[1], the hotel was entrusted with valet parking for the car. The court ruled it to be bailee’s duty to take reasonable care under Section 151 and Section 152 of the Contract Act.
• Duty to avoid unauthorized use: The bailee must not use the property for purposes other than those agreed upon in the bailment agreement. As per Section 153 and Section 154 of the Contract Act, bailees cannot use bailors’ goods unauthorizedly.
• Duty to return property: The bailee must return the property to the bailor pursuant to Section 160 and Section 161 at the end of the bailment period or upon fulfillment of the agreed-upon purpose.
• Right to compensation: The bailee has the right to be compensated for any services rendered or expenses incurred in caring for the property, especially in non-gratuitous bailments. For instance, If the bailor rents a car from a rental company (bailee), the bailor has the right to receive the car in good condition. The rental company (bailee) has the duty to exercise reasonable care in maintaining the car and is entitled to compensation for the rental fee.
• Right to Lien: In certain cases, the bailee may have a lien on the property, meaning they can retain the property until the bailor pays any outstanding charges or fees. Section 170 and Section 171 confer the right upon bailee.

Conclusion

The bailor-bailee relationship is a vital part of many everyday interactions, and the Indian Contract Act of 1872 provides a clear framework to regulate these legal agreements. The roles of the bailor and bailee are intertwined with mutual rights and duties, ensuring fairness, responsibility, and the protection of goods entrusted to one another. Whether the arrangement is for the benefit of one party or both, understanding these legal provisions, such as the duty of reasonable care and the obligation to return goods, helps avoid disputes and maintain trust. By adhering to the guidelines set out in Sections 148-171, both the bailor and bailee can uphold their obligations, ensuring that the goods involved are treated with care and respect throughout the bailment.

[1] (2020) 2 SCC 224.

Mohd. Sahil Khan