COMMERCIAL UTILITY OF

CONTRACT OF BAILMENT

SUBMITTED BY
Nikhil Goyal
Division - A PRN - 17010224047 Class - BBA LLBof
Symbiosis Law School, NOIDA
Symbiosis International University, PUNE
In
August, 2018
Under the guidance of
Dr.KananDivetia
(Assistant Professor, Symbiosis Law School, Noida)
CERTIFICATE

The project entitled “Commercial Utility of contract of bailment”

submitted to the Symbiosis Law School, NOIDA for Special
contracts, as part of Internal assessment is based on my
original work carried out under the guidance of
Dr.KananDivetia from 3 July 2018 to 27 August 2018. The
rd th

researchwork has not been submitted elsewherefor award of

any degree.
The material borrowed from other sources and incorporated in
the thesis hasbeen duly acknowledged.
I understand that I myself could be held responsible and
accountable forplagiarism, if any, detected later on.

Nikhil
Signature of the candidate

Date: 27/08/2018
Index:

1. Introduction to Contract of Bailment.

2. Essential features of Contract of Bailment.

3. Commercial utility of Contract of Bailment.

4. Detailed IRAC of Pioneer container KH enterprise v. Pioneer

container.

5. Summarized IRAC of Morris v. C.W. Martin and sons Ltd.

6. Bibliography
Contract of Bailment:

Bailment has been defined under section 148 of the Contract Act as
follows:
” It 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 bailor
and the person to whom they are delivered is called bailee”.

Bailment is the process of making delivery of an asset or other type of

property. Generally, this type of transaction involves the owner of the
assets choosing to temporarily place them in the control of another
individual. The person who delivers the asset is usually known as the
bailor, while the recipient of the assets is known as the bailee.

The process of bailment is not a casual situation where an individual is

asked to function as a caretaker for a short period of time. Part of the
procedure with bailment it that a legal relationship is established between
the owner and recipient. While the owner retains full rights to the assets,
the physical possession of the assets is granted to the recipient. Along
with the physical possession of the property or assets, the bailee may also
be granted certain powers of administration that are related to
management of the assets.
ESSENTIAL FEATURES OF CONTRACT OF BAILMENT:

A contract of bailment has the following essential’ features;

1. CONTRACT - The first condition is that there must be a contract

between the two parties for the delivery of goods. Such contract
may be express or implied, written or oral.

2. DELIVERYOF GOODS - This contract is for the delivery of some

movable goods from one person (bailor) to another person (bailee)
or to his authorized agent. If the goods are immovable the contract
will not be a contract of bailment.

3. CHANGE OF POSSESSION - The possession of goods must be

affected by such contract. Mere custody without possession is not a
contract of bailment.

4. PURPOSE OF DELIVERY - The delivery of the goods is for

temporary purposes. It may be for safe-custody, repair, carriage or
for gratuitous use by the bailee.

5. NUMBER OF PARTIES - There is two parties under such contract

e.g., the bailor and bailee. The person delivering the goods is called
the bailor and the person to whom the goods are bailed is called the
bailee.

6. RIGHT OF OWNERSHIP - In a contract of bailment, the right of

ownership remains with an owner (bailor) and is not changed. If the
ownership is transferred, the contract will be a contract of sale and
is not of bailment.
 7. CHANGE OF FORM - If the goods bailed are altered in form by the
bailee, such as cloth. is converted into a shirt still, the contract is
one of bailment.

8. GOODS IN POSSESSION OF BAILEE - The delivery of the goods

is not essential if the goods are already in the possession of the
person who entersinto the contract as bailee.

9. REDELIVERY OF GOODS - Under such contract, the goods are

redelivered to the bailor or according to his directions upon the
fulfilment of the purpose by the bailee.

10. RIGHT OF REWARD - In a contract of bailment, both the

parties bailor and the bailee can get a reward but it depends on the
nature of the transaction.

Commercial Utility of contract of bailment:

Bailment Is Concerned Only with Goods:

Goods, as defined in sec. 2(7) of the Sale Goods Act, 1930, mean each
sort of portable property other than cash and actionable items.

- Agreement: There must be an assertion between the bailor and the

bailee. This assertion might be either expressed or implied.
Nonetheless, a bailment might be asserted by law too. For Example,
bailment between a finder of goods and owner of goods.

- Delivery of goods: There must be exchange of merchandise. It

implies that the possession of goods must be exchanged. Exchange
might be actual or constructive.
- Purpose: The exchange of goods must be for some planned reason.

- Return of Specific Goods: The products which frame the essence of

a bailment must be given back to the bailor or disposed off as per
the orders of the bailor, after the completion of reason or after the
expiry of time of the bailment. It might be noticed that similar
goods must be returned in their original form or desired form.
Therefore, merchandise must be returned in specie however they
may go through a change in form.
The Pioneer Container KH Enterprise v.
Pioneer Container:

[1994] 2 AC 324

FACTS:

1. The following case originate from the loss of the cargo ship “K.H.
Enterprise”, owned by Kien hung shipping company.

2. The ship left Taiwan for Hong Kong on morning of 9th March, 1987.

3. Next day it was hit by a much larger vessel and eventually drowned
to the sea bed.

4. On 10th March, 1988 the owner of “Pioneer Container” which was

being shipped on K. H. Enterprise on the date of accident filed a suit
against Kien hung for recovery of damages.

5. Clause 26 of the contract between parties stated that “This Bill of

Lading contract shall be governed by Chinese Law. Any claim or
other dispute arising thereunder shall be determined at Taipei in
Taiwan unless the carrier otherwise agrees in writing.”

ISSUES:

1. What was the nature of relationship between bailor and sub-

bailees?

2. Whether the clause 26 of the agreement, the jurisdiction clause,

was valid or not.
 3. Whether there was a breach of duty to take reasonable care
characteristic of bailee.

4. Whether the plaintiffs were bound by the exclusive jurisdiction

clause, albeit they were not privy to the contract between sub-
bailees and first bailee? (Whether the principle enunciated in Morris
v. Martin was applicable?)

5. Whether Court of Appeal was right in staying the proceedings to

refer the dispute to Taiwanese tribunal, albeit plaintiff’s cause of
action in Taiwan had already become time barred?

RULES:

1. The clause in question refers to any claim or other dispute arising

under ‘This Bill of Lading contract‘; and plaintiffs submitted that this
wording compelled the conclusion that the clause applied only to
contractual claims. However, shipowners sought to build upon that
dictum in order to advance an argument that cl. 26 should be
read broadly, to embrace not only claims which are contractual in
nature, but also claims in bailment or in tort where the liability of
the shipowners was governed by the contractual terms set out in a
bill of lading in the shipowners’ form.

2. The exclusive jurisdiction clause should be excluded from such

incorporation because it was not a clause directly germane to the
subject matter of the bill of lading, viz the shipment, carriage and
delivery of the relevant goods.
 3. The bailees were never in the possession of the goods, in which
circumstance, the defendants were quasi-bailees; since the principle
of sub-bailment does not extend to quasi bailees, hence, plaintiff’s
will not be bound by the terms of such sub-bailment, even of
authorized, if they were quasi-bailees.

ANALYSIS:

1. To produce a uniformity of jurisdiction and convenience in

commercial terms, plaintiffs should be held to be bound. This is
because if there would not be exclusive jurisdiction clause
applicable to plaintiffs, the claims would arise under various
jurisdictions which would be both inequitable and grossly
inconvenient for the defendants.

2. MORRIS v. MARTIN: “the defendants, by voluntarily receiving into

their possession, goods which were the property of another, became
responsible to the plaintiff as bailees of the goods.” Therefore, in a
case such as this, the obligation is created by the delivery and
assumption of possession under a sub-bailment. Further, the
obligation owed by the sub-bailee to the owner must likewise be
that of a bailee for reward vis-à-vis the owner, notwithstanding that
the reward is payable not by the owner but by the bailee. (this
proves that the sub-bailee’s liability is co-extensive as that of
bailee) The PC however added that the sub-bailees must be aware
of bailor’s interest in the goods, so as to become obliged to take
due care of the goods bailed.

3. Bills of lading are documents which operate as receipts for the

goods, and which contain or evidence the terms of the contract of
carriage. Therefore, it must be the intention of both sub bailees and
the bailers who consented for the inclusion of the same that these
 terms must be held to be binding notwithstanding the liability to
arise as under tort or contract. It will be commercially unapt if the
contention of the plaintiffs is withheld.

4. Where the consent is very wide in its terms, only terms which are
so unusual or so unreasonable that they could not reasonably be
understood to fall within such consent are likely to be held to be
excluded. However, the exclusive jurisdiction clause was neither
unreasonable nor unusual for it was commonly being included in
such bills of lading.

5. As it was, the form of bill of lading issued by 3 rd type of plaintiffs in

respect of these goods represented that Scandutch had received the
goods for transportation from the place of receipt; and no evidence
was adduced to contradict this. Therefore, they weren’t quasi
bailees rather sub-bailees.

CONCLUSION:

Applying the principle that the court should exercise its discretion
by granting a stay of proceedings brought in breach of an
agreement to refer disputes to a foreign court unless strong
cause for not doing so was shown, the expiry of the time limit in
Taiwan was not sufficient reason for refusing a stay since the
plaintiffs had advisedly but unreasonably gambled on being
permitted to litigate in their preferred forum of Hong Kong rather
than Taiwan, which was where they were bound to litigate, and had
let time run out in Taiwan without taking the trouble even to issue a
protective writ there. In so doing, the plaintiffs had acted
unreasonably.
Therefore, the defendant is liable to compensate plaintiff for the
loss which plaintiff suffered due to negligence of defendant.
 Morris v. C.W. Martin and sons Ltd.
[1966] 1 QB 716

FACTS:

The plaintiff took her mink stole to a furrier for cleaning. Sine he did not
do cleaning, he subcontracted the fur to defendant on the current trade
condition which provided that goods belonging to customers on the
defendant premises were held at customer’s risk and defendant was liable
only for his negligence during the processing. M, an employee of the D,
entrusted with the task, stole the fur.

Issues:

1. Whether or not M’s act in the course of employment?

2. Whether or not master, with no fault of his own, liable for theft or
dishonesty of servant?

3. Can P sue D directly for the misappropriation?

4. Can D rely on exempting condition of trade practice?

Analysis:

1. If the master is under a duty to take care of the goods and protect
it from theft and depredation, he can’t get rid of his responsibility
by delegating his duty to another, regardless of servant’s
dishonesty, negligence or fraud.
 2. D as sub-bailee for reward was under a duty of care and P as head-
bailor could sue for breach of this duty.

3. The exemption of the trade condition was not applicable as the

“customer” was actually the furrier not P and the fur was not “goods
belonging to” furrier”.

4. As per Lloyd v Grace, Smith & Co (issue of benefit, immaterial) D

cannot escape liability for the conversion of the plaintiff’s fur by
their servant Morrisseyas the said act was within the scope of
employment.

Conclusion:

A bailee for reward is not answerable for a theft by any of his servants
but only for a theft by such of them as are deputed by him to discharge
some part of his duty of taking reasonable care.

Bibliography

Bangia, R. (n.d.). Indian Contract Law. Allahabad Law Agency.

Morris V. C.W. Martin and Sons Ltd., [1966] 1 QB 716 (England).

Mulla. (n.d.). Law of Contract. Lexis Nexis.

Singh, A. (n.d.). Contract and specific relief act. EBC.

The Pioneer Container KH Enterprise v. Pioneer Container:, [1994] 2 AC 324 (Taiwan).