Concept of Bailment

• The term bailment comes from the French word “bailler”,

which means to deliver or hand over. Bailment is a special type of
contract. Contract of bailment is created when a person delivers
personal property to someone else. The bailor is the owner and
the bailee is the person to whom the goods are delivered. In
bailment only personal property can be delivered not the real
property. Real property means immovable property like land or
something attached particularly to the land. So, real property
cannot become the subject matter of bailment only personal
property which means movable goods are only the subject matter
of bailment.
• “A bailment can be broadly defined as a legal relationship
that occurs when the owner of the goods transfer the possession
to someone else.” The person who deliver the goods is known as
bailor and to whom it is delivered is known as bailee.
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 Definition of bailment

• The old NCA 023 had no provision of bailment. At that time it was re.g.ulated by
country code or Muluki Ain. The new prevailing NCA 056 has included bailment as a
form of contract. According to NCA, Section 25, “Bailment is a delivery of goods by the
owner person for a specific purpose on the condition that the goods will be returned
or disposed according to the direction of the owner (bailor) ”.
• According to ICA, section 148, “Bailment is a delivery for some purpose under a
contract on the condition that they will be returned or disposed as per the direction of
the person delivering the goods when the purpose is accomplished”
• According to William Jones, “Bailment is a delivery of goods on a condition
expressed or implied that they shall be returned by bailee to the bailor or disposed
according to his direction as soon as he purpose for which they are bailed is complete .
• According to Black Stone , “ It is a delivery of goods in trust upon a expressed or
implied contract, that the trust shall be fatefully executed on the path of bailee
• In this way a bailment is the relationship created by the transfer of possession of
personal property, without transfer of title, by one person called the bailor, to another
called the bailee for the fulfillment of a certain purpose, after which the property is to
be returned to the bailor or disposed according to the bailors direction

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 Essential elements of bailment
• The basic and essential elements of a bailment are
1. The parties, are respectively known as bailor and bailee
2. The subject matter of the bailment must be personal
property not real property(Expln of sec 25 NCA)
3. Possession is transferred not the title
4. Possession of the property by the bailee without
ownership
5. Absolute duty of the bailee to return the property to
the bailor or to dispose it according to the bailors
direction
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 Tests to determine the existence of bailment

• In most of the cases, there are two simple test by

which the existence of the bailment can be
determined, namely
1. Possession without ownership i.e. separation of
ownership and possession of the personal
property(dhanmal as per NCA sec 25)
2. A duty of the possessing party to redeliver the
identical property to the owner or to dispose it
according to his directions (Robertson pg 1017)
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 Synopsis of the essentials of bailment
• Thus, in simple words a bailment is
1. The delivery of movable goods or personal property.
2. By the owner called the bailor
3. To another person called bailee
4. On the condition that it will be returned either in original or altered form or
disposed according to the direction of the bailee
5. Only possession is delivered to the bailee
6. The ownership (title) remains with the bailor.
7. The bailee has a power to control or has an intention to control the personal
property temporarily
Thus a bailment is a delivery of goods by a bailor to a bailee for some
limited purpose, on condition that when the purpose is accomplished the goods
are to be returned or disposed as per the direction of the bailor. The consideration
in a contract of bailment is the bailor’s parting the possession of his gods, hence a
bailment is enforceable even if no money changes hand.(Redmond page 197)
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 Importance of Bailment

• A bailment is the relationship created by the transfer of possession of

goods without the transfer of ownership for some specific purpose after
which the goods is to be returned or disposed according to the direction of
the owner of the goods known as bailor. The term bailment is not so
popular and familiar to a common person. However in every day life it is the
most common transaction. Practically, every person involved in business or
not becomes party to a bailment contract.
• The following example proves the importance of bailment in our daily
life.
1. Keeping a car in a public garage or pay parking place.
2. Leaving bikes, cars, watch to be repaired
3. Renting a truck, bus, etc
4. Giving clothes to be laundered, pressed, dyed etc.
5. Storage of goods in warehouse and the consignment of goods by mode of
transport.
Thus, we can say that bailment is not only commonly occurring but also is of
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great importance to business.
 Examples of Bailment

1. Safe Custody
Bailment of goods by one person to another for safe
keeping. E.g. in ware house, in cloak room
2. Delivery for repairs
3. Lending
A lends his book to B
4. Transportation
Delivery of goods to be transported from one place
to another to a carrier.
5. Hire/renting
Goods given for hire in return of payment for money.
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 Characteristic features of Bailment

The following elements are necessary for bailment contract –

1 Delivery of possession of goods
In bailment there is delivery of goods from one person to
another for some temporary purpose. Delivery may be actual or
constructive. Actual delivery is the physical handing of goods to
the bailee. Constructive delivery is made by doing something
which has a effect of putting goods in the possession of intended
bailee or any person authorized to hold the goods on his behalf.
E.g. A holding on behalf of B, agrees to hold them on behalf of C,
there is constructive transfer of possession from C to A. However a
mere delivery of goods does not create bailment. E.g. handing
over certain goods to a servant or leaving a box containing jewels
in the room of the defendant without the delivery of the keys was
held not sufficient delivery and defendant was not liable as bailee
when the jewels were lost (kaliaperumal pillai v visalakshi achi
(c) yadav kumar kc
1937 MWN 1042)
 Contd
2. Contract
There must be contract of the delivery of goods in
bailment. Exception to this rule is finder of lost goods.
The finder is a bailee although there is no contract
between the finder and the real owner of the goods.
3. Title is not transferred
The bailor must retain the title. It is not
transferred only the possession of the goods must be
transferred to the bailee.
4. Accept the possession
The bailee must accept the possession of goods.
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 Contd
5. Return of goods
Return of goods is essential in bailment. After the purpose of
bailment is accomplished the goods has to be returned to the bailor or
disposed according to the direction of the bailor which means either sell
or give to other person.
6. Subject matter
The subject matter is personal property not real property which means
movable goods not immovable goods.
Thus, a bailment is not a sell of goods because a sale is a permanent
change of possession and transfer of ownership but in bailment there is
only temporary transfer of possession and the ownership remains with the
bailor himself. The bailment relation can only involve personal property.
The delivery of possession of real property is not covered by bailment it is
covered by real property law ( like transfer of property act or
re.g.istration act in Nepal re.g.istration
(c) yadav kumar ko
kc mahal)
 Contd
• It is not necessary that the bailed property be
tangible. In tangible property like promissory
note, bonds, shares can also become the subject
matter of bailment. Same way documents of title
such as ware house receipt, bill of lading and rail
way receipt can also be bailed. The explanation
of section 25 NCA 056 also provides that the
term dhanmal/ property includes any personal
property and title to such property.
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 Contd
7. Purpose- The goods are delivered in bailment contract for some
purpose. The purpose may be different. E.g. lent, hired,
deposited for safe custody etc however if the goods are
delivered by mistake without any purpose then there is no
contractual bailment but a quasi contractual bailment is created
8. Return of possession to the bailor(Robertson 1019) -> In a
bailment relationship the person receiving the possession must
return the goods. In bailment the bailor and bailee agree that
the moment the purpose of bailment is complete, the goods are
returned or disposed according to the direction of the bailor. If
there is no return there is no bailment but the form of goods
may change. E.g. a piece of gold converted into ornaments.

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 Contd
Thus in bailment the specific goods must be returned
either in the same form or in a changed form. Hence
opening an account with the bank and depositing
money is not a bailment because the specific goods
are not returned but hiring a locker in the bank is
bailment because the locker holder gets back the
specific goods put in the locker
9. Retention of ownership by the bailor-> In bailment
though there is a transfer of possession from bailor
to bailee but the bailor remains the title holder as
bailment does not cause any change in the
ownership of the goods bailed
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 Contd
10.Consideration-> Normally in bailment the bailor
in consideration of services done to his goods,
makes payment to the bailee. E.g. A gives his
computer to repair to B and pays the charges
but in strict sense monetary consideration is not
needed for a contract of bailment the detriment
suffered by the bailor in parting with the
possession of goods is held sufficient
consideration for a contract of bailment.

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 Types of delivery
• Bailment involves delivery of goods to the bailee. The delivery can be
made in three ways
a) Actual, which means the bailor hands over the possession of the
goods to the bailee i.e. physical transfer of goods from bailor to
bailee.
b) Constructive, which means without any change in the physical
position of the goods but doing some thing which has a effect of
putting goods in the possession of intended bailee or any person
authorized to hold the goods on his behalf. E.g. a railway receipt. In
such delivery the person in possession of the goods of the bailor
acknowledges that he hold the goods on behalf of the intended
bailee
c) Symbolic – The goods remain where they are but the means of
obtaining possession is delivered. E.g. handing the car key to the
bailee etc(Praful pg 298) (c) yadav kumar kc
 Classification of Bailment

• A bailment may be classified in a number of ways on the

basis of compensation to the parties. A bailment may be
1. Bailor benefit bailment
The bailment which is only for the benefit of the bailor like
free of cost safe keeping of goods or free of charge services like
repairs or transportation is the bailment for the bailor’s sole
benefit only. For e.g., if B stores repairs or transports A’s goods
without any compensation. This is bailment for the sole benefit
of bailor A.
2. Bailee’s benefit bailment
Bailment for the sole benefit of bailee are usually limited to
loan of goods for use by bailee free of charge. For e.g., A lends
his book to B his friend for(c)7yadav
days.
kumar kc
 Contd
3. Mutual benefit bailment
This type of bailment includes commercial bailment such
as goods delivered to repair, jewels to the jeweler, car
delivered to a parking area or to parking attendant or
keeping goods in warehouse for hire.
• A bailment can also be classified on the basis of presence
or absence of compensation. They may be
(a)Gratuitous
(b)Non - gratuitous

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 Contd
a) Gratuitous Bailment
It is a bailment where no consideration passes between
bailor and bailee.
b) Non-gratuitous Bailment
This type of bailment is for reward consideration passes
between bailor and bailee in non-gratuitous bailment. For
e.g., goods kept in warehouse, hiring utensils from canteen
service.
• The classification of bailment are important because it affects
the bailee’s liability if there is damage to the goods. Dispute
often arise when the goods are damaged while in the bailee’s
control. The liability usually depends on the type of bailment.
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 Distinction between bailment and other
transactions
• To be a bailment the person receiving possession must
be under a duty to return the goods ands must not in
any way obtain title to it(Robertson 1018). Hence there
is a distinction between bailment and transaction
involving transfer of titles such as sales.
• Sales and bailment distinguished. Whether a transaction
is bailment or a sale can be distinguished on the basis of
absence or presence of the title. A sale involves transfer
of title of specific goods to the buyer but if the property
transferred is to be returned, even in an altered form,
the transaction is bailment.
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 Difference between bailment and loan, hire
purchase, trust, contract & license.
• Loan-> A loan is not a bailment. According to
section 25 NCA only personal property can be
bailed. Money is not included in the definition.
Loan creates a relationship between creditor
and debtor not that of bailor and bailee. E.g. A
borrows B’s bike for going to a movie and also
Rs 100 to buy the ticket. A has to return the
same bike to B but he cannot return the same
Rs 100 note. Hence the first transaction is
bailment and the second is loan.
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 Contd
• Hire purchase-> There are three types of instalment
agreements. They are higher purchase, credit sale and
conditional sale
• In hire purchase a person has goods for a specified
period by a monthly or weekly instalments. He has an
option to purchase the goods at the expiry of the
higher period usually at the last scheduled payment.
During the period of hire he is a mere bailee of the
goods. Hence a hire purchase is a bailment plus a sale
but conditional sale and credit sale are not bailment
because the bailee has no option to return the goods
but must pay the contract price by instalments.
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 Contd
• Trust-> A bailment is not a trust though
apparently it resembles a trust because
1. Bailment covers only personal property, but
trust covers both movable and immovable
property
2. Bailee has only legal interest but the
beneficiary of the trust’s interest is equitable
3. Its genesis is common law but equity created
the trust
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 Contd
• Contract-> Generally bailment are contracts but sometimes there
can be bailment without a contract also. E.g. finder of lost goods.
Same way some times a bailment may be without consideration
unlike must of the contracts.
• License -> If one party is allowed to place his goods in the premises
of the other party than it is a contract of license. There is no delivery
of goods in license. The licenser only permits the licensee to use the
place of licenser for keeping his goods. So license and bailment
differs because licenser is not responsible for the goods as it is not
delivered to him. E.g. A went to see a horse race he parked his car in
a field of a farmer who gave a ticket to him but the car was lost. Held
this was a contract of license and not of bailment so the farmer no
duty to the safety of he car. He only allowed his land for parking the
car. The car was not delivered to him. However the licenser should
not cooperate with the thieves. (c) yadav kumar kc
 Rights and duties of bailee
• Duties of bailee->NCA Section 28 and 29 states
the duties of bailee. Disputes often arise when
the goods are damaged while in the hands of
bailee. The issue would be whether he took
proper care of goods or not. The answer
depends upon the type of bailment and duties
of bailee according to the contract & law. The
following are the duties as per NCA and ICA.

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 1. To take reasonable care

 According to NCA, Section 28 (1) and (2) the bailee must take care of
goods bailed to him as per the contract. If it is not mentioned in the contract
he must take care of the goods as his own goods. If the bailee takes
reasonable care he is not responsible for the loss or destruction of goods, he
is responsible only if he does not take reasonable and proper care.
what is reasonable, means taking care of the goods as if it is his own
goods without negligence. The paid bailee’s duty is higher than free of cost
bailee. A contract may restrict or exclude duty of care, but if the goods are
delivered to the wrong person he has no protection from such a clause.
Alexander v railway executive, 1951. The bailee thus is not an insurer hence
if the goods are lost or destroyed he is not liable for loss caused by act of god
or by state enemies or communal riots etc. But the bailee is bound to take
reasonable steps to recover the stolen goods. If the goods are stolen but
made no efforts to inform the owner or police is not taking reasonable care.
Held liable( Coldman v Hill 1990 1 KB)
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 2. Duty not to mix[NCA sec 28(4),(5),(6)]

• The bailee has a duty not to mix his own goods with the
bailor’s goods. He should keep them separate. He can mix
his goods with the bailor’s consent but if he mixes without
the bailor’s consent then in such case –
a) If the goods can be separated or divided the bailee has to
bear the expenses of separation or division of the goods
plus damages if there is any.
b) If the goods cannot be separated then the bailee must
compensate the bailor for the goods.
NCA provides the liabilities of bailee in case of
unauthorized mix of bailor’s property with his own[sec
28(4) (5)(6)]
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 3. Not to make unauthorized use

• As per NCA section 28 (3) the bailee must compensate the bailor for
any loss or damage caused to the goods due to unauthorized use. For
e.g., A lends his horse to B to ride, B allows his wife to ride with care
but accidently the horse falls and gets injured. B is liable for the injury
of the horse because A lent the horse only for B’s riding.
• Thus if the goods are not for use the bailee must not use them. If
the contract mentions the use then it should be used according to the
condition mentioned in the contract.
NCA section 28(3) provides that any unauthorized use of the
bailed goods or in a manner inconsistent with the terms of the
contract if causes any loss or damage then the bailee has to pay the
compensation to the bailor. This liability is absolute. Bailee is liable
even if he was not negligent or the damage is the result of an act of
God or inevitable accident. (c) yadav kumar kc
 4. To pay ordinary expenses

• Bailee has to pay ordinary expenses on the

goods bailed. Extra ordinary expenses are borne
by the bailor. For e.g., A lends his horse to B, B
has to pay for feeding the horse but if the horse
falls ill the charges of veterinary doctor has to be
borne by the bailor. However according to NCA
section 33unless otherwise mentioned in the
contract the expenses for looking after and
maintaining the safety of the bailed property has
to be borne by the bailor.
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 5. To return the goods

• Bailee has to return the bailed goods according to the direction of

the bailor as soon as the bailment time expires or the purpose of
bailment is accomplished. If he fails to return, then he has to pay for
any destruction or loss of goods from that time.[NCA sec 29(1)(2)].
• In this way the bailed goods has to be returned in accordance with
the contract or when the purpose of bailment is accomplished.[sec
29(1)]. But if the bailee fails to do so he is liable for loss or damage
irrespective of the exercise of reasonable care(Shaw v Symmons
1917)
• As per NCA sec 29(2)if the bailor refuses to take back the bailed
goods after the expiry of stipulated time or reasonable time of the
bailment then the bailee is not responsible for any loss or damage on
the goods. NCA sec 29(3) provides that where there are several joint
bailors he may return the goods to any one of them unless the
contrary is provided in the contract.
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 Contd (return of goods)
• Provisions relating to unsolicited goods-> NCA is silent but
according to English unsolicited goods and services act 1971 if
a person becomes involuntary bailee e.g. if unsolicited goods
is delivered to him by post he cannot easily refuse to take
delivery. In such case the following rules apply
a) The goods become the property of the receiver after thirty
days, if notice is given to the sender for taking the goods back
or after six months if no notice has been given to the sender
b) This rules apply only if the goods were sent without request,
without any agreement to receive or return or if they were
not sent for the sake of trade or business(Redmond 198)

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 6. To return any increases

• The bailee must return to the bailor any accretion

or increase or profit accruing from the bailed goods.
But it is not necessary to return if in the contract
itself there is a different term. For e.g., A leaves a
cow in the custody of B, the cow gives birth to a
calf , B has to return the cow and calf to A but if in
the contract if it is mention that B can keep the calf
and return the cow only then B can do this. NCA
056sec 29(4)also provides that unless otherwise
mentioned in the contract any accretion or increase
in the bailed property belongs to the bailor.
(c) yadav kumar kc
 7. Not to misuse the title

The goods bailed are the property of the

bailor. The bailor retains the title over the bailed
goods. The bailee only has a temporary
possession of the goods so he has a duty not to
make any adverse uses of title which means he
is estopped from denying the bailors title or
creating his own title on the goods.

(c) yadav kumar kc

 8. To fulfill all the terms and conditions

A bailee must fulfill all the terms and condition

mentioned in the contract of the bailment. If it is
not mentioned than the rules of contract law
statute and case law applies.

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 Rights of bailee
• The right of bailee is in fact duties of the bailor and vice versa.
The rights of bailee as per NCA and ICA are namely
1. Right to possess goods
The bailor has a right to possess the goods bailed as per the
term of the bailment. In other words, he has a temporary
control over the goods.
2. Right to compensation
The bailee has a right to get compensation for expenses
incurred for the safe custody of the goods. If the bailor refuses
to take delivery of them after the bailment is over As per NCA
unless the contrary is provided in the contract bailee has a right
to recover the expenses borne by him in taking care and
ensuring the safety of the(c)bailed
yadav kumargoods[NCA
k.c sec 33]
 Contd
3. Right to lien
• It is known as the bailee’s lien. A bailee has a right to retain the
goods till the money due to him is paid. He can refuse to deliver
goods to the bailor until the charges of his labour and skills are paid
by the bailor. Bailee’s lien is a particular lien. It is not a general lien
because he can only retain those goods on which he applies his
skill, labour and knowledge. According to NCA, Section 32 if the
goods are bailed for repair reconstruction or improvement bailee
can retain such goods unless cost and expenses are paid to him.
Same way NCA sec 32(3) also provides that if the bailee’s expenses
service charge is not paid within a reasonable period he may
recover them by selling the bailed goods.
• Condition for particular lien-> He must do some service to the
bailed goods, entitled to some remuneration for it and not paid by
the bailor
(c) yadav kumar kc
 Contd(bailee’s particular lien)
• The service done by the bailee must improve the value of
goods. e.g. if a person who takes a horse for feeding and
keeping has no lien for his expenses because no additional
value is added to the horse(Hutton v car maintenance
company 1915 1 CH)
• The services must be performed in full within the agreed or
reasonable time. E.g. A gives his watch to B for repair. B
promises to deliver on third day. He takes one week B has no
right to retain the watch.
• There must be possession. If possession is lost there is no
lien
• There should not be a contract to the contrary
(c) yadav kumar kc
 Contd(bailee’s particular lien)
• Two things must be remembered in bailee’s particular lien
a) He cannot charge for retaining it
b) There is no lien for non payment of extraordinary
expenses. He must sue for them
• Bailee’s general lien-> Possessory lien are of two types
particular and general. Particular lien is available only
against the particular goods. E.g. A carriers lien for his
freight charges where as general lien is a right to retain
goods for any amount due irrespective of bailed goods or
other goods i.e. any goods coming into the possession of
the creditor. E.g. factor’s lien.
(c) yadav kumar kc
 Contd(bailee’s particular lien)
• Certain type of bailees have a general lien in absence of the
contract to the contrary.
a. Bankers -> if the customers have credit balance account and also
owes money to the bank the banker can refuse to operate the
credit balance until he clears the dues of the bank but if the
valuables are deposited for safe custody the bank has no general
lien because it was accepted for a special purpose which impliedly
excludes general lien(Cuthbert v Roberts 1909 2 CH)
b. Wharf fingers-> has general lien on the goods for the use of wharf
against any goods of the owners.
c. Factors -> are mercantile agents they have a general lien on the
goods of his principles if any money is due to them by the
principle (c) yadav kumar kc
 Contd(bailee’s particular lien)
d. Attorney’s of high court->have a general lien on
all papers and documents of its clients until his
fee and other cost are paid. But if he refuses to
represent any more he is not entitled to any lien.
e. Policy brokers-> they can retain the policy of fire
and marine insurance for their brokerage.
f. Any other person if there is express term in the
contract

(c) yadav kumar kc

 Contd
4. Right to indemnity
Bailee has rights to indemnity for any losses suffered by him due
to the defective title of goods from the bailor.[sec 30 NCA]. Same
way as per NCA sec 30 the bailee is not responsible for any goods
bailed by non owners. He has a right to indemnity for any loss by
the defective title on the goods.
5. Return the goods to one of the joint bailors.
unless otherwise mentioned in the contract, If the goods are
jointly bailed by several bailors, the bailee has to return the
goods according to the term mentioned in the contract. If not it
can be delivered back to any one of them.[sec 29(3)NCA 056]
6. Delivery of goods to a bailor without title
If goods are bailed by a person who has no title on the goods,
bailee can delivers goods to him in good faith. The real owner has
(c) yadav kumar kc
no claim.[sec 116 ICA]
 Contd
7. Right against trespassers
If any third person deprives or tries to deprive the bailee from
the use or possession of the bailed goods he has right to take
legal action against such person, which means he has a right to
sue the trespassers.
8. Right to claim extra ordinary expenses
Bailee is only liable for ordinary expenses. He pays for the
ordinary expenses but he has a right to claim extra ordinary
expenses. Hence he has a right of reimbursement for
extraordinary expenses borne by him.
9. Right to sue
Bailee can sue the bailor to enforce the duty of the bailor
according to the bailment contract.
(c) yadav kumar kc
 Contd
10.Right to claim damages
As per NCA sec 27(2) bailee has right to claim
damages for any loss due to the undisclosed
faults in the goods.

(c) yadav kumar kc

 Rights of bailor
The rights of the bailor are in fact duties of the Bailee. As per
NCA and ICA bailor’s rights are
1. Enforce the duties of the bailee-> Bailor can enforce all the
liabilities and duties of the bailee
2. Avoidance of bailment-> He can terminate the contract if the
bailee acts not in accordance with the contract of bailment. A
contract of bailment thus is voidable at the option of the bailor.
NCA sec 34(2)provides that the bailor can terminate the
contract of bailment if the bailee does not keep the bailed
goods as per the terms of the bailment contract
3. Demand the return of goods-> Bailor has a right to demand the
return of the bailed goods any time whether the purpose or
time is due or not in case of gratuitous
(c) yadav kumar kc bailment.
 Contd

4. Right to recover compensation[sec 28(3)]

5. Right to receive the accretion[sec29(4)]
6. Right to terminate-> The bailor has a right to terminate the bailment if
the bailee inconsistently acts with the bailed goods irrespective of
whether the time r purpose of the bailment has expired or not.
[sec34(2)NCA]. Same way gratuitous bailment can terminated by the
bailor at any time he wants.
Thus the rights of a bailor are the duties of the bailee. The bailor has a
right to enforce them by filing a suit in the court of law. The law does not
permit certain bailees like professional bailees who deal with the public
to limit their liability without drawing the attention of the bailor if the
liability is limited by the contract. E.g. common carriers, repair garages
ware houses etc. cannot limit the liability if it is not communicated in
writing to the bailor and without informing the bailor that it contains a
limitation or variation of liability. However in individual cases the bailee
can limit their liability by a contract.(Robertson
(c) yadav kumar kc 1019)
 Duties of bailor
1. Duty to disclose-> section 27 provides these duties. This section
provides that a bailor has to disclose all those known faults in the goods
if not he will be liable for any loss or damages to the bailee. However, if
the goods are bailed without reward then he is not liable for any
unknown defects in the goods.[sec 27[1 &2 apparently seems to be
made for the gratuitous bailment but does not clearly mention
gratuitous bailment as the ICA sec 150 does] but sec 27(3) provisions
concerns non gratuitous bailment it reads “ in case any property given
on rent or as collateral or for sale causes any loss or damage due to its
defect the bailor must bear the loss or damage even if he has no
knowledge about the defect on the goods bailed. Hence according to
this clause a bailor is responsible for every defects in the goods whether
he knows about the defect or not, ignorance of the defect is no defense
but in contrast sec 27(1&2) permits ignorance as a ground for defense in
case of unknown defects on the goods. E.g. A hires a carriage of B it is
unsafe but B does not know B(c)isyadav
responsible
kumar kc if A is injured. If the
 Contd
2. Duty to indemnify
3. Duty to pay extraordinary expenses
4. Duty to receive back the goods[sec 29(2)]
5. Duty to pay bailment expenses-> Unless
otherwise provided the expenses for the care
and custody of the bailed goods has to be
born by the bailor[sec 33 NCA]. Same way
bailor must pay all the rightful charges of the
bailee for exercising his labour and expertise
on the bailed goods.
(c) yadav kumar kc
 Termination of contract of bailment
• Bailment is the relationship between the owner of a movable
property and the person who temporarily posses it. But there are
various situation in which ownership and possession of the same of
the same goods remains into different persons so that contract act
defines bailment.
• Section 25 of Nepalese contract act defines the contract of bailment.
The section states, “the delivery of goods to keep as bailment for
certain purpose on the condition that they shall be transferred or sold
according to the direction of the person delivering them, is said the
contract of bailment. A contract can be terminated in the following
ways.
• According to NCA sec 34(1) a contract of bailment is terminated and
becomes void if it is bailed to avoid partition or payment of
government charge or with any other illegal motives. Sec 34(2) that
the bailor can terminate the bailment any time if the bailed goods are
(c) yadav kumar kc
not kept according to the terms of the bailment.
 1. By expiry of time
• If goods are bailed for a certain period of time
the contract terminates as soon as the time
expires. It does not matter whether the
purpose for which the goods were bailed is
fulfilled or not. e.g. Vijay lets his cycle to ram
for two hours. Immediately after two hours,
the contract gets terminated and Ram should
return the cycle to Vijay even if his purpose of
hiring the cycle is not fulfilled.
(c) yadav kumar kc
 2. By fulfillment of the purpose
• If he goods are bailed for some specific
purpose, the contract ends immediately after
the fulfillment of such purpose. As soon as the
purpose is accomplished, the bailee should
return the goods to the bailor. E.g. A hires B’s
tractor for ploughing his field. As soon as the
field is ploughed, the contract is terminates
and A should return the tractor to B

(c) yadav kumar kc

 3. By acts inconsistent with the terms of bailment

• According to the Nepal contract act, If the

bailee does any act to the good bailed, which is
inconsistent with the terms of bailment, the bailor
can terminate the contract not with standing with
the fact that the time of contract has not expired
or the purpose of bailment is not yet fulfilled. For
e.g., A lets his horse B for 10 days for his personal
riding only. If B uses the horse in pulling the cart,
as soon as A comes to know it, he can terminate
the contract and take his horse back on the spot.
(c) yadav kumar kc
 4. By death of either party

• According to the ICA, a gratuitous bailment

terminates by the death of either bailee or
bailor. But this rule does not apply in the case
of non gratuitous bailment.

(c) yadav kumar kc

 5. Termination of gratuitous bailment

• Under gratuitous bailment, the bailor has a

right to terminate the contract whenever he
likes. But if due to termination of contract by
the bailor before the expiry of time or before
the fulfillment of the purpose the bailee
suffers more loss than the benefit he gets, the
bailor has to pay compensation to the bailor
for such loss.

(c) yadav kumar kc

 NCA provisions of contract of bailment
• Contract of bailment is covered in chapter 5
sec 25-34 of the act. Bailment is defined as
delivery or deposit of movable property/
goods( chattels with rights and interest
thereon) by one person to another under a
contract that the goods shall be returned to
himself or transferred or disposed of as per his
direction. The bailment is to be necessarily in
writing in the case of goods valued in excess of
rs 5000
(c) yadav kumar kc
 Contd
• The chapter describes various other provisions such as
completeness of the possession of goods delivered by way of
bailment(sub section 26.1) and respecting goods which are already
in possession of any other person or his agent(sub section26.2),
requirement to enlist the details of the goods,(27.1) bailor’s duty to
disclose defects, if any which he is aware in the bailed goods,
liability of the bailor to the bailee for his failure to disclose defects,
absolute liability of the bailee for the damage of goods delivered
for the purpose of hire, sale or pledge (sec 27.3), bailee’s obligation
to take reasonable care of bailed goods and absolved liability for
loss, damage, deterioration or destruction in specified events like
the act of god(28.2) but for act of willful intention or negligence of
the bailee, if the goods are lost or damaged etc, the bailee is not
freed from his liability. Other liabilities of the bailee for the bailed
goods in other circumstances(c) yadav
likekumar
mixing
kc
his goods with the bailed
goods are dealt in detail(sec 28.3,4,5&6 of NCA)
 Meaning of Pledge and Pawn
• The bailment of the goods as a security for the payment
of the debt or performance of the promises is called Pledge.
The bailor is called pledgor (Pawnor) and the bailee is called
pledgee (Pawnee). In the pledge, the owner gives possession
of his property to another person to obtain a debt or
performance of some obligation. Pledge belongs to the class
of bailment with many similarities and minor dissimilarities.
Pledge is a particular kind of bailment. The difference
between them lies in the purpose or objective of the
transaction. The objective of pledge is to provide security for
a debt or the performance of a promise. In bailment the
purposes may be repair, safe custody, carriage of good etc.
(c) yadav kumar kc
 Distinction between pledge and bailment
Pledge
1. It is a contract in which a person
receives some property from another as
a security to give him loan as a
guarantee for performing a job.
(sec35.1)
2. It involves movable and immovable
property also as per NCA.
3. It is bailment to obtain debt or
performance of a promise(work)
4. If the pawnor defaults to repay the
debt, pledgee or pawnee may sell the
property after giving a notice.
5. The pawnee or pledgee has no
right to use the
goods pawned or
pledged. (c) yadav kumar kc
Bailment
1. It is a delivery of goods by one person
to another to keep as bailment for the
definite purpose on the condition that
it will be returned or disposed
according to his(bailor’s) direction.
2. It involves only movable property.
3. It may be for the hire, safekeeping,
repair, transportation etc.
4. For non payment of dues bailee can
retain or sue. But NCA provides the
right to sell bailed goods also to realize
the lawful charges. Sec32.3
5. Bailee can use the goods if the terms of
the contract provide for uses.
 Distinction between pledge and mortgage
Pledge
1. The ownership continues in
pawnor, pawnee has a
special right to retain, file a
suit and to sell.
2. Pledgee has no right of
foreclosure
3. A pledge cannot be made
except by delivery of
possession
(c) yadav kumar kc
Mortgage
1. The legal title passes to the
mortgagee, subject to the
right of redemption of the
mortgager.
2. Mortgagee has a right to
foreclosure. (debar a
mortgager from his right to
redeem).
3. Can be effected even without
delivery of possession
 Distinction between pledge and
hypothecation
Pledge
1. In the pledge of goods they
are stored in a godown
under the lock and key of
the bank
Hypothecation
1. In hypothecation goods are
allowed to be kept at the
factory of the burrower but
are supposed to be under
the constructive position of
the bank. The burrower must
submit regular returns to the
bank showing increase and
decrease on the value of the
goods( Gopal Singh v P.N.B.
AIR 1976 del 115)

(c) yadav kumar kc

 Ingredients of pledge or pawn
• The contract of the pledge and pawn was previous covered by
Muluki Ain chapter 18 (country code) before the introduction of
NCA 056. After NCA 056 came into force, contract of pledge or
pawn is regulated by NCA 056 itself. Pledge is the bailment for
security. E.g. A borrows Rs 100 from B and keeps his watch as
security for the payment of debt. The bailment of watch is pledge.
The bailment of pledge is related to movable goods including
documents of title of ownership like a bill of lading, passbook,
share certificate or valuables like ornament etc. But as per NCA
the property pledged or pawned includes movable, immovable
property and documents of title(explanation sec 35). NCA Section
35 defines pledge “If there is a delivery of a property as security of
debt or as guarantee for performance of any act, it is a contract of
pledge. (c) yadav kumar kc
 Essentials of valid Pledge
1. Transfer of possession
There is no pledge if there is no delivery and
transfer of possession. A pledge is a special type
of bailment by which one person transfers
possession of property to another to secure loan
or the performance of the promise.
2. Delivery
A pledge is deposit or security device in which
goods are delivered to the creditor to secure
loan. So delivery of goods is essential for the
creation of pledge. (c) yadav kumar kc
 Contd
3. Title is not transferred
In the pledge only the possession is transferred. The ownership
or title remains with the pledgor.
4. Movable and Immovable property
As per Indian law only movable goods of all kinds, valuables and
documents of title can be transferred to secure a loan. But as per
NCA even immovable property like real estate can be pledged.
5. legal ownership
The pledgor or pawnor must be a real owner of the goods he
pledges. Only person having title can make a valid pledge. The
possession of goods only does not entitle any person to pledge
them if he is not the real owner. However there are some
exceptions.
(c) yadav kumar kc
 Contd
6. Return of goods
The pledged property must be returned by the pledgee
after the payment of the debt with interest and any other
cost involved.
7. Proper care
Pledge is a branch of bailment that’s why like in bailment
the pledgee has to take reasonable care of the property,
pledged with him.
8 Not to make unauthorized used
The pledged goods cannot be used unless it is permitted
by the pledgor. (c) yadav kumar kc
 Summary
• Thus pledge is a special kind of bailment for
security in which the owner gives possession of
his personal property to the secured party known
as pledgee to obtain debt or the performance of
some obligation. The secured party does not have
title to the goods but only a possessory interest to
get back the debt or some other obligation.
• Pledge or pawn thus are contracts relating to
collateral and deposit to obtain any debts or a
guarantee to perform a promise(or a job).
(c) yadav kumar kc
 Summary(contd)
• It is a special kind of bailment.
• It is a bailment of goods as a security, either for
the payment of a debt or for the performance of
a promise
• Generally only the real owners can make pledge
or pawn contracts. However there are some
exceptions to this rule.
• The pledgor and pledgee have certain special
rights and duties
(c) yadav kumar kc
 Rights and Duties of Pawnee (pledgee)

Pledge or pawn means bailment of goods to secure a loan or

performance of a duty under a contract. It is a special type of
bailment so the rights and duties of a pawnor and Pawnee is
very similar to that of bailor and bailee with a little variation. The
following are the rights and duties of the pawnor and Pawnee.
Rights of Pawnee
1. Right to retain
Until and unless the pawnor pays the debt, interest and any
other expenses the Pawnee has a right to retain the pawned
goods.
2. Right to sue
He has a right to sue the pawnor if he defaults to repay, the
debt or performance of promise.
(c) yadav kumar kc
 Contd
3. Right to sell
A Pawnee has a right to sell or auction goods
pawned with him to recover payment of debts.
But before the sale he has to give a proper notice
of sale to the pawnor.
4. Right to extra ordinary expenses
He has a right to recover any extra ordinary
expenses borne by him in the preservation of the
goods pledged or pawned.
(c) yadav kumar kc
 Contd
5. Right to claim damages or compensation
A Pawnee has a right to claim damage or
compensation for any non disclosure of fault or
defect in the pledged property. For e.g.
Explosives, Fragile goods which causes damages
to the Pawnee. For any loss sustained due to
defective title of the pawnor.

(c) yadav kumar kc

 Duties of Pledgee or Pawnee

• The duties of pledgee is similar to a bailee. They

are: -
1. Take reasonable care
2. Not to use
3. Not to mix
4. Not to do anything against the terms of the
contract-> A pledgee has a duty not to act against
the terms of the contract of pledge or rules of NCA.
For e.g. not to sell without giving a proper notice to
the pawnor.
(c) yadav kumar kc
 Contd
5. To return
He has a duty to return the pledged goods
after the receipt of his full dues.
6. To return increase (accretion)
He has to return any increase in the pawned
goods. For e.g., Bonus shares must be
returned if shares was pledged.

(c) yadav kumar kc

 Right of pawnor

• The most important right of pawnor are: -

1. Enforcement of Pawnee's duty
2. Right to redeem
The pawnor has a right to redeem even if he defaults payment of
the debt at the fixed time before the actual sale of goods pledged
even if there is a contract to the contrary(sec 177 ICA). But he
must pay to the pawnee any
additional expenses incurred after the expiry of the stipulated time.
Duties of pawnor
• The duties of pawnor are in fact the rights of Pawnee: -
1. To compensate the Pawnee for any extra ordinary expenses.
2. To comply with the term of the contract.
(c) yadav kumar kc
 Pledge by Non-owners

• Generally, only a real owner can pledge his goods.

For e.g., a thief cannot pledge the stolen goods as he
has no title. Thus, normally pledge can be created by
the real owner only. However there are certain
exceptions where even non-owners can pledge and
pledge by non owners are also valid exceptions are –
1. Pledge by mercantile agent
2. Pledge by seller or buyer in possession after sale
3. Pledge by persons having limited interest
4. Pledge by co-owners
5. Pledge by a person under
(c) yadav a voidable
kumar kc contract.
 Contd
1. Pledge by mercantile agent->
A mercantile agent with the permission of owner can pledge.
mercantile agent is a type of agent having authority to sell or
consign goods for sale or to buy goods or to raise money on
the security of goods. Thus, a mercantile agent can make a
valid pledge if authorized by the owner of the goods.
2. Pledge by seller or buyer in possession after sale->
A seller who has possession of goods after sale can pledge
although he is no longer the owner of the goods the original
buyer can obtain damages from the seller but cannot recover
goods from the pledgee. And a buyer who has possession of
goods before sale can also create a valid pledge. The buyer
who has possession of goods before sale must take the
consent of the seller to pledge thekc goods.
(c) yadav kumar
 Contd
3. Pledge by persons having limited interest->
A person with limited interest in the goods can make a
valid pledge. For e.g. mortgager or finder may make a
valid pledge. For e.g. if A finds a pen on the road and
repairs it for rs 10. he pledges the pen for rs 20 to B. the
real owner of the pen can get back the pen by paying Rs
10 to B. Thus, a person having limited interest can pledge
the goods but it is valid only to the extent of that interest.
4. Pledge by co-owners->
If there are several co-owners one of them with the
consent of the other co-owners can create a valid pledge.
(c) yadav kumar kc
 Contd
5. Pledge by a person under a voidable contract->
If a person obtains possession of good under a
voidable contract, the pledge of such goods by him
is valid if
a) The contract is valid at the time of the pledge i.e. it is
not rescinded or cancelled before the pledge.
b) The Pawnee acts in goods faith without notice of the
pawnor's defect in title. According to NCA section 38
(2) if any property under a void contract is pledged
the pledgee may demand other property as co-lateral
or deposit.
(c) yadav kumar kc
 Contract relating to pledge as per NCA

• Contract of pledge like the one of bailment has

been dealt separately in chapter-6 (sec 35-39). In
fact pledge constitutes bailment of goods
provided to secure the performance of an
obligation under a contract or a loan. Goods
bailed under pledge may be disposed of or sold by
reasonable notice served upon the pledgor to that
effect upon default of pledgor to perform his
obligation or to pay loan.
(c) yadav kumar kc
 Contract relating to pledge(contd)
• A pledge is a bailment of goods as security for payment
of a debt or performance of an act(promise) and
includes security for payment of principal sum with
interest or if the pledge were for the performance of
an obligation, expenses incidental to such obligation or
any other extra expenses incurred for the preservation
of goods pledged.(sec 35)
pledgee is obliged to return the security upon the
payment by the pledgor of debt with interest plus any
cost or upon the performance of the act for which the
security was given.(sec(c)36)
yadav kumar kc
 Contract relating to pledge(contd)
• On the default in the payment of such loan and interest if any
or in the performance of an act under the contract on time,
NCA empowers the pledgee to sue or auction the pledged
goods or to transfer the ownership of goods in own’s name in
accordance with the law if the goods could not be sold or
auctioned and realize the balance from pledgor’s other
property if the sale proceeds could not meet the debt, at the
same time placing duty on the pledgee to return any excess
of the sales proceeds(sec 37.1) or to have the promise
performed or recover the cost incurred in having the promise
performed out of the goods pledged and shortfall dues if any,
may be realized from pledgor’s other property.
(c) yadav kumar kc
 Contract relating to pledge(contd)
• pledgor's right to redeem the pledged goods is reserved upon the
payment of the loan with any interest and any other cost any time
before completion of transference of ownership of the goods
pledged has taken place
• But if a person pledges goods in which he has only limited interest,
right or ownership, the pledge will be valid with respect to interest
to the same extent.
• The contract act of Nepal attempts to deal with the consequence
of pledge of goods by a person in possession under a voidable
contract(sec 38.2). However this provision in the act appears to
have been wrongly phrased which gives meaning contrary to the
spirit and intent of the act therefore needs to be revised to clear
the ambiguity. (c) yadav kumar kc
 What is the finder of lost goods? What are his rights and duties?

• A person who comes by an article is not obliged to pick it up and

take the article in his possession. But the moment he takes charge of it
he has a responsibility of a bailee. According to ICA, Section 71, any
person who finds goods belonging to another and takes them in his
custody has the responsibility of bailee. According to NCA, section 31, A
finder may keep the find goods safely until the real owner is found. But
he must notify the event to the police.
• A loser and finder are considered bailor and bailee but if someone
intentionally throws his property away cannot be a bailor because he
abandons his interest in it but a loser may abandon hope that he will
ever find the lost goods, but does not abandon his interest in it.
• In this way finding is never keeping i.e. no one can keep what he
finds. A finder becomes a bailee according to law and has the
responsibility to find the real owner reasonably.
(c) yadav kumar kc
 Rights and Duties of Finder

• A finder has certain rights and duties they are

namely –
1. Right to posses
He has a right to possess the lost goods against
the whole world except the loser of the goods.
He never becomes the owner of the goods,
ownership always remains with the true owner,
the finder only has the right of possession against
any body except the real owner. Hence, he has a
right to action for trespass against anybody
except the true owner. (c) yadav kumar kc
 Contd
2. Right of lien
A finder can retain lost goods until he gets compensation or
money spent in preserving the goods and the amount spent in
finding the real owner. But he has no right to sue for such
compensation. E.g. A finds a horse which carries a reward of rs
200 to the finder by the owner B. A spends rs 15 to inform B and
also rs 80 to feed the horse. A returns the horse to B but B
refuses to pay the lawful charges of rs 95 to him. A sues for the
recovery of rs 295. Held he can only recover rs 200 because
there is a contract between A and B. The offer of reward was
accepted by A by returning the horse. But A cannot recover the
amount of rs 95 as there is no contract between the two and he
failed to exercise his right to lien also by returning the horse.
(c) yadav kumar kc
 Contd
3. Right to sue
A finder can sue the real owner if some specific
reward is offered by the owner for return of
goods lost. The finder can sue for the rewards
and retain the goods until he receives the
reward offered.

(c) yadav kumar kc

 Contd
4. Right to sell
A finder can sell the goods found if
a) The real owner cannot be found
b) When found the real owner refuses to pay the lawful charges of the finder
c) If the found article is in the danger of perishing or losing greater part its
value
d) If the charges of the finder amounts to 2/3rd of the value of the lost goods.
But the real owner has a right to get the balance of sale if there is a surplus
after deducting the lawful charges of the finder. E.g. A finds a horse. A
traces the true owner and offers to return the horse if the owner pays rs
150 the lawful charges of A. the owner refuses. A cannot sue in the
absence of privity of contract to recover expenses he also cannot sell the
horse until his charges amounts to 2/3rd of the value of the horse.

(c) yadav kumar kc

 Duties of Finder

• The finder has the following duties –

1. Duty of reasonable care
Finder must take reasonable care. But if the found
article is lost or destroyed he is not responsible.
2. Finder must not use the found article for his own purpose
3. He should not mix the found goods with own goods.
4. He must try to find the real owner. If not he will be liable as a
person who interfere with another’s property i.e. trespassers.
5. Return the increase on the lost goods
6. According to NCA 056 he also has a duty to inform the police
and keep the goods in the safe custody until the real owner is
traced. (c) yadav kumar kc
 Provisions of Nasho in Nepalese contract act

• Nasho is a specific Nepali word used for bailment. NCA 023 was silent
about Nasho. At that time it was regulated by Nasho Dharot chapter of
country code or Muluki Ain. The present NCA 056 has repealed the chapter
of Nasho Dharot from the country code. NCA 056 itself regulates the
contract of Nasho and Dharot. According to NCA 056 chapter-5 section 25,
a contract of Nasho is defined as delivery of goods by one person to
another on a returnable basis or handing it over to another person or
selling it as ordered by him.
• Rules of Nasho as per NCA 056
• The following are the rules of Nasho as per NCA 056
• Written Form
• A written deed is necessary for a contract of nasho if the goods are
worth more than the value of Rs 5000. But a written contract is not
necessary if the goods are under Rs 5000.
(c) yadav kumar kc
 Contd
• Movable Property
According to NCA section 25, Nasho involves movable property only and the title
rights of such property.
• Delivery and Acceptance
There must be delivery and acceptance of the goods in a contract of bailment.
According to NCA section 26 (1) the contract of nasho (bailment) is said to be
completed when the nasho keeper (bailee) receives the goods delivered by the
nasho giver (bailor) or keeps them as nasho. NCA also provides that if a person
already has possession of goods it is also considered as nasho.
• Disclosure of particulars
As per NCA 056 section 27 the bailor must disclose the particulars of goods known
to him to the bailee (nasho keeper). The following particular must be disclosed.
• If the goods are not useable because of any defects or if it cannot be used due to
some defects.
• If the defect is likely to cause any loss or damages
(c) yadav kumar kc
 Contd
• If a separate arrangement is needed for the protection of the
goods.
• Liabilities of nasho giver (bailor)
He must inform about all the facts relating to the goods to the
bailee if he fails then the bailor has to bear the liabilities of any
loss or damage caused by the defects in goods to the bailee.
• Liabilities of bailee (nasho keeper)
• According to NCA 056 section 28 the liabilities of bailee are
namely,
• To take proper care
He must take proper care to protect for nasho as if it belongs to
him. (c) yadav kumar kc
 Contd
• Not liable to return
If even with proper care and protect the nasho
goods are lost, stolen, damage, depreciates or
destroyed by act of goods the nasho keeper need
not return such goods
• Not to use
The bailee cannot make any unauthorized use of
the bailed goods without the permission of the
bailor.
• Not to mix (c) yadav kumar kc
 Contd
• Return the goods
After the expiry or completion of purpose the nasho keeper
must return the goods or dispose as per bailor’s direction Any
property given for repair and maintenance has to be returned.
The repaired or renovated goods must be returned after
collecting the fixed charges. Bailee’s lien applies if the charges
are not paid. According to NCA, the bailee can recover the
charge by selling the goods.
• Return the increase
• Return to any one of the co-owner
Thus, we can say that the provision of nasho of NCA 056 is
about the contract of bailment with a few specific features of
its own
(c) yadav kumar kc
 Provisions of Dhito & Dharot
• The provision of dharot or dhito is in fact synonymous with pawn
or pledge contracts with a few special features. Before the
introduction of NCA 056, dharot was regulated by Muluki Ain. After
the introduction of NCA 056 contract of dharot is covered by NCA
056 contract of dharot is covered by NCA itself. Dharot is similar to
contract of pledge or pawn but there are a few differences. For e.g.,
the co-lateral or deposit in the case of pledge or pawn can only be
movable goods but according to NCA it may be movable as well as
immovable property. The dhito keeper which means pledgee or
Pawnee has the rights and duties similar to that of pledgee or
pawnee in the same way the dhito giver has similar rights like the
rights and duties of pledgor or pawnor. The dharot keeper has a
right to sell the dharot kept with him to realize his principle, interest
and any other cost. But he has to return any surplus amount to the
pawnor or pledgor or dhito giver. In case of short fall he has a right
(c) yadav kumar kc
to claim from other properties of the pledgor (dhito giver).
 Contd
• Thus, in conclusion we can say that the
provisions of nasho-dharot in Nepal are the
provisions of bailment and pledge contracts.
They were previously regulated by Muluki Ain
but at present they are regulated by NCA 056.

(c) yadav kumar kc