In this blog, we have discussed the ways in which termination of a bailment contract can take place.
Section 148 of the Indian Contract Act says that bailment is the delivery of goods from one person to another for some specific purpose under a contract. Under such contract, when the desired purpose is accomplished, the goods shall be returned or shall be disposed of following the directions of the person who delivers them.
The person to whom goods are delivered is the bailee and the one who delivers them is the bailor. Suppose you deliver a piece of gold to a jeweller to make some bangles. Here, you are the bailor and on delivering the gold to the jeweller (bailee), a contract of bailment is created between you and the jeweller. The contract will be terminated when the jeweller returns the bangles on being made.
Thus, a bailment is the voluntary delivery of goods for a short period of time with the understanding that they would be returned in the same or altered form. The bailor retains the title and ownership of the goods, with the bailee getting just the possession.
Further, it can be of two types: gratuitous and non-gratuitous.
Bailment is defined as either gratuitous or non-gratuitous depending on whether the parties receive or do not receive some value out of the contract of bailment. A gratuitous bailment is one in which there is no consideration involved in the contract of bailment.
For example, if you lend your bicycle to a friend so he can ride it or if you borrow his books to read, you are engaging in a gratuitous bailment because no exchange of money or other consideration is involved. Neither you nor your friend is entitled to any consideration in this situation.
On the other hand, a non-gratuitous bailment is a contract of bailment in which some consideration is exchanged between the bailor and the bailee. For example, if your friend hired a bicycle from a local bike shop or you borrowed a book from a bookshop on hire, this would be a case of non-gratuitous bailment.
Termination of bailment
Termination of bailment implies that the contract of bailment comes to an end and the parties are no longer legally binding to execute the contract.
Under the Indian Contract Act, there are many instances when the contract of bailment comes to an end. In general, it comes to an end when the purpose for which it was made is achieved or at the will of the parties. On termination, the bailee is bound to return the goods to the bailor.
When can termination of bailment happen?
As per the provisions of law, a contract of bailment gets terminated in the following cases:
1. Wrongful or inconsistent use of the goods
If the bailee inappropriately utilizes or disposes of the bailed goods, the bailor may terminate the bailment (Section 153). Since the goods are utilized in contravention of the terms of the bailment, the bailor may terminate the contract even before the expiry of its term.
For example, A bailed his horse to B for his own use exclusively. B authorized C to ride the horse, in violation of the terms of the bailment. Thus, the bailment can be terminated by A.
Here, the contract becomes voidable at the option of the bailor. And it can be terminated by the bailor by giving notice to the bailee.
2. Expiry of period
If the goods are bailed for a set period of time, the bailment is terminated at the end of that period.
3. Fulfillment of object
If the goods are bailed for a specific purpose or purposes, the contract of bailment comes to an end when the object is fulfilled. And the bailee must return the goods to the bailor. (Section 160)
4. Destruction of subject matter
A bailment gets terminated when the subject matter of the bailment is destroyed or when the nature of the goods bailed changes to such an extent that they can no longer be used for bailment.
5. Termination of gratuitous bailment
The bailor has the right to terminate a gratuitous bailment at any moment and demand back the goods at any time even though the bailment was for a specific period or purpose.
For example, A, while going out on a business trip delivered his ornaments to B for safe custody for a period of one month. But he returned back after one week. Now, he can demand the return of his ornaments from B even though the period of one month has not expired.
Thus, a gratuitous bailment can be terminated at any time even before the expiry of the term fixed or the achievement of the object. The bailor can terminate the contract by giving notice to the bailee.
However, the law states that in such a circumstance, the loss of the bailee from such premature termination should not exceed the benefit he had obtained from the bailment. If the loss outweighs the benefit, the bailor is obligated to compensate the bailee. (Section 159)
6. Death of bailor or bailee
A gratuitous bailment comes to an end on the death of either the bailor or the bailee (Section 162). But non-gratuitous bailment contracts do not get terminated in these cases because the liability to fulfill the contract falls on the legal representatives of the respective parties.
A contract of bailment comes to an end on the expiry of the fixed period, on fulfillment of the object of bailment, by doing some act which is inconsistent with the terms of bailment, and on the destruction of subject matter. A gratuitous bailment can be terminated even before the expiry of the term of bailment but, in that case, the bailor is liable to indemnify the bailee for any losses suffered by him if such losses outweigh the benefit.
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