ABSTRACT
This paper examines and evaluates the evolution and application of bailment contracts in common law jurisdictions and the rights and liabilities of bailor without the title of goods, and the bailee. It answers questions on what constitutes a bailment and critically analyses the sections related to bailment contracts in the Indian Contract Act,1872. It addresses the research question of how when a bailor who lacks legal control or ownership of goods transfers them to a bailee, does this transaction still constitute a valid bailment under Indian law, and what are the implications for liability in the event of loss or damage to the goods. Taking into account and utilizing existing laws, prevalent case laws, precedents of historical and contemporary times, this paper is rooted in the common law jurisdiction. The research employs a qualitative methodology, analysing relevant case law, statutes, and scholarly commentary. Key findings indicate that traditional bailment principles are often inadequate for addressing the complexities resulting in legal uncertainty and challenges in owner protection. The paper concludes with recommendations for legislative reforms and further research to better align bailment law with contemporary contract practices.
INTRODUCTION
Bailment as defined under the Indian Contract Act,1872 refers to the delivery of goods by one person to another for some specific purpose, upon a contract that these goods are to be returned when the specific purpose is complete. The Indian Contract Act, 1872 Sections 148-171, 180-181 of the ICA cover all things related to bailment. The purpose of this paper involves looking at the ownership of the transferred goods, rights and liabilities of bailors and bailees with particular interest to sections 166 and 167 ICA. Bailment is clearly described in the theory of law, however, complexities arise when bailor isn’t the rightful legal owner of the goods and yet goes on to transfer the goods to another. The legal question arises whether this would still constitute bailment under the Indian law. The ICA provides the foundational principles of the concept but answers to legal intrigues like these aren’t necessarily present in the stated law. Additionally, the traditional bailment principles assume bailor as the title holder of the goods. However, complications adhere in cases where this isn’t the case and damage to such goods occur. This paper further tends to answer and analyze the question of who would be liable in such a case. Cases in which the bailor isn’t the real title holder of the transferred goods have always occurred. It can result in cases of leases, rents, third party contracts, etc. The problem arises when the bailee is unaware of the fact of the original bailor and competing claimants occur claiming to be the rightful owners of the goods. These cases aren’t only relevant to the common law jurisdiction but the American law talks about it profusely as well.(Mechem, F. R. "The Rights and Duties of a Bailee toward Rival Claimants of the Goods." Cent. LJ 14 (1882): 466.) A situation in which more than one party comes up with the claim of being the owner, what does a bailee do? This shall be the first question we take into account.
SECTION 166 OF THE ICA
According to the American standard rules of bailment, a bailee is required to return or dispose of the goods in accordance with the direction he receives from the bailor i.e. the person responsible for transfer of goods to him. If the bailee refuses to do so it amounts to conversion.4 On the other hand, if the adverse claimant demands the return of his goods, refusal to do so would yet again amount to conversion in such a case.5 Hence, the law ensures that there are stringent rules in place that are required to be followed by the bailees. However, such distinct separation of rights and liabilities aren’t present in the context of Indian law jurisdiction. In such a case of presence of competing claimants, the onus lies on the adverse claimant to prove he holds a greater title compared to the bailor of the goods. Moreover, if the bailee acts in good faith according to the bailor, who he has no reason to doubt of the ownership, no liability attaches. Acting in line with the apparent authority shouldn’t lead to a detriment for the bailee. This was further reinstated in the case of Banwarilal v Road Transportation Corporation (1989) ,which established that the bailee will not be responsible to the owner in case he delivers the goods bailed to the bailor or deliver them to any other person according to his direction if the bailee has acted in the good faith.6 The case reiterated section 166 of the ICA.7The Indian law commonly talked about section 166 of ICA in reference to section 117 of the Indian Evidence Act(IEA),1872. This further reiterated the application of estoppel on the bailee, refusing to deliver the goods according to the directions of the apparent bailor, irrespective of the fact of his being the title holder or not. This implementation might be beneficial for the bailee and the fraudulent bailor but section 166 draws with it some criticism that is important to be discussed. DRAWBACKS OF THE SECTION First, its over reliance on good faith. Good faith is a highly subjective standard, with variations in each person’s perspective of it. This makes it difficult for the people to file cases without being sure of the outcome on what would constitutes good faith. The lack of an objective threshold to measure such faith results in unsurety of approaching the courts, and also increase in the courts backlog. Moreover, the lack of a set spectrum makes it difficult for precedents to be set, with every case being its each own. Practice of good faith might not a be a robust enough safeguard due to its subjectivity leading to inconsistent application. Second to the problem of good faith comes that of the ambiguity in determining the title. The section fails to provide proper guidelines on how to determine the original title holder of the goods, i.e. if and what are the steps that the bailee should be required to take into order to ensure due diligence has been done on his part. This lack of pre requisite in a bailment contract can lead to misappropriate transfer of goods in the hands of someone other than the owner. Failure to mention of a standard duty to verify/due diligence on part of the bailee is an unwanted drawback to the laws of bailment. Thirdly, there exists a high risk of potential abuse of power on the hands of the bailee and the bailor (who isn’t the title holder). Due to the subjectivity of the good faith policy, the law might attract fraudulent behaviour, if not encourage it. This can be used as a way out of responsibility for the parties, resulting in unjust enrichment of some, while detrimental for the rightful owner. Moreso, the use of section 117 of IEA along with section 166 of ICA protects the bailee from liability if they acted for the apparent authority. This can be both a boon and bane i.e. can be advantageous from the viewpoint of protection of bailee, however, it might as well turn into a defence against owner of the goods. The law might be used to misdirect the judiciary against fraudulent behaviour. There also exists a certain level of legal uncertainty. The section’s failure in talking about the extent of bailee’s duty to due diligence, leaves room for different legal interpretations and ambiguity. Lastly, when one talks about all the legal issues of this section, it all adds up to the major concern of the protection of the true owner. The section can potentially leave the true owner of the goods without recourse if the bailee delivers the goods to someone without title. Even if the bailee acts in good faith, the true owner may face difficulties recovering their property. This can be seen as unfair to the true owner, who may have no fault in the situation but ends up losing their property because the bailee chose to rely on the apparent authority of someone without title. Many a times the laws protecting one’s right can be unfair towards the other irrespective of its good intentions. It is important for legal scholars to keep in mind both the sides of the coin while giving out judgements and obiter dicta of cases. What about the rightful owner who loses out on his goods i.e. suffers losses that are irreversible in nature? Do they get reimbursed? Does that compensation include the time and money lost in way to prove the originality of the title? Is always the fault of the bailor who transferred the goods without the title? There are various facets to the same legal problem and have to be looked at from different perspectives. SECTION 167 OF THE ICA Now if we look into the “rights” that are given to the true owner, we see how menial the consideration and protection given to them are. Section 167 of the ICA addresses the situations of third-party claims. It states that the third party claiming to be the true owner can apply to the court to prevent the bailee from delivering or conversion of goods.8 This is a very layman way for the law to get out of putting in place stringent standards that are actually efficient and useful in times when required. The vagueness and callousness of the stated remedy can be better understood by discussing its drawbacks. DRAWBACKS OF THE SECTION First, it is important to note the delay in the return/delivery of goods back to the owner. It is well known that the Indian courts are suffering from a huge backlog of cases since the past decades now. That is, delay in court proceedings are bound to take place despite one’s best attempts. In a situation like this wherein the judicial intervention is crucial for resolving disputes, delay in proceedings become a hassle for all the three parties i.e. the apparent bailor, the bailee and the third-party claiming ownership. This delay can result in detriment of the movable property in question, that can further result in a decrease in value, creating unwanted losses for the owner. The losses can be both logistical and financial in nature. Second comes the impact the delay has on the bailor’s rights. Third party claims that result in halt of delivery can be well motivated by fraudulent and malicious intents. This delay can very well fulfil the motive behind the false third-party claims resulting in losses for the genuine bailor. This also strains the bailor’s long standing business relations with the bailee. Third, is the uncertainty and ambiguity of procedural aspect of the remedy. The section fails to describe the proper way to approach the court and go on with the proceedings. Also, the courts in its hands holds a lot of power to interpret the third- party claims. Lack of uniformity in judgements lead to setting of varying precedents. Fourth, is the issue of legal costs and complexities. It is majorly an issue for the parties involved in routine bailments. The need to opt for court proceedings are troublesome and burdensome for otherwise disputes which could be very straightforward, had proper standard of discretion and rules been set for such cases of bailment. The compulsion to go to the court with no other alternative creates an unnecessary load on the parties of the contract resulting in their financial and time loss, as well as increases the burden of the courts. It is also important to note that section 167 is not only inadequate for the bailor i.e. whoever the genuine owner is, but it also creates a burden on the bailee, who is forced to navigate between the competing third-party claims, seeking court interventions. He is forced to make decisions despite lack of proper knowledge of ownership. It simply is an additional administrative and legal expense for the bailee, one that he didn’t sign up for. Moreso, there is no guarantee on whether the bailee gets reimbursed by the other parties for this unwanted cost incurrence. The neutrality of the bailee is well gone when he gets stuck in such a situation. He might want to choose sides in order to do what’s best for him. This unfair imposition on the bailee can also very well lead to biased court proceedings if he decides to side with one party over the other, without true intentions of justice. RECOMMENDATIONS When we talk about the issue of subjectivity of good faith, it is advised that the courts take cognizance of the matter and interpret a standard spectrum for the bailees’ to follow. The standard can moreover change with change in time i.e. since adaptability with time is an important factor for the law to remain relevant. Furthermore, the courts should mention the accountability of rationality and reasonability while a man decides on what good faith is. Faith can easily become a matter of moral subjectivity, it is important for the record to be set straight on how the law would be interpreted with keeping a normal man’s rationality in mind i.e. answering the question of whether a reasonable person in their right mind would consider their actions as in good faith? The question of right or wrong should be strictly separated from that of reason in order for some objective to exist i.e. for “faith” to become less subjective. This would ensure a step towards a more set spectrum, which infact, is the most essential requirement. Next, to forming a robust spectrum of good faith, is the establishment of a duty of due diligence on part of the bailee. This duty exists in various other laws like caveat emptor, etc. The absence of such a common yet important clause in principles of bailment reflects on its highly outdated and rusted laws, that need refining and polishing to keep up with the contemporary times. Introduction of a duty of due diligence i.e. bailee’s duty to verify the information about the true owner can very well reduce cases of fraud. It will further work as a mechanism against any abuse of power on the hands of bailee and in short reduce the misappropriate transfer of goods. This would in the long run save the litigation time, money of the legal fees and the financial losses that both the original owner and the genuine bailee would face as a result of a court case. Duty of due diligence also results in a reduction to the legal uncertainty attached to the bailment contract, by defining the duties of one of the parties. Bailment is the transfer of movable properties, and it has been noted that one major drawback of third party approaching the courts are the variation in the value of those goods and services. One major challenge for the judiciary is to figure out a way to protect the owners from losses incurred due to such fluctuation in valuation. The option of out-of-court settlement can be the most efficient way to go about it. The bailees’ in their contracts should put out clauses stating that in case of rise in competing claims to the goods, the first measure would be an attempt to arbitration or mediation. This would not only save the bailee and the apparent bailor time and money but also help the title holder prevent losses due to change in valuation of goods. This would further ensure, protection from fraudulent behaviour of bailors or bailees or both, from preventing the actual owner from transferring or selling his goods in the desired time. The second solution to this issue could be the grant of temporary injunctions until the proceedings move onto a stage wherein proper answers can be figured out. The court should look into the three main features required to be satisfied in order for the passing of an injunction i.e. prima facie, balance of convenience should be in favour of the petitioner and lastly, if irreparable damage could be caused if injunction not granted in favour of the petitioner. Otherwise so, the law should allow the transfer of goods between the prima facie possessor and the bailee in order to prevent loss of profit, until proved otherwise. In the case of Firm Laxmi Dutt Roop Chand vs Union Of India(1975), the Allahabad High Court, stated in this judgement while dismissing the case that how the transfer of goods between the railway administration and the person acting as both the consignee and consignor wasn’t unlawful as the consignor was the prima facie possessor of the transferred goods, hence, the railways administration weren’t liable for damages. 9 The case indirectly sets precedent on the basic duty of diligence/verification on part of railway authorities. This should further be reinstated in the sense of bailor and bailees in order for the law to get clearer on the lines of right of immediate possession. Greater clarity on the standards and procedures for third-party claims would be beneficial. The lack of specific criteria for determining the validity of claims could lead to inconsistent application and potential misuse of the provision.
CONCLUSION
As it has already been noted that well defined laws enable better legal compliances and erasing of the vagueness that persists, thus, it is important that the common law jurisdiction should look into its counterparts, like that of the American bailment conditions and take inspiration for a more robust and laid down specificities concerning bailment because of the kind of clear and fine lined statutes they have in place. It has been noted that the laws around bailment in the country have not been completely adequate in answering the questions that have arisen in the due course of this paper while trying to understand different aspects of bailment. What has been ironic to notice is the lack of proper case laws and judgement for the said topic, despite the law being in place for more than a century now. This somewhere reflects on the fact that despite their existing several legal uncertainties and discrepancies on laws surrounding bailment, it has still managed to keep the rise of legal confusion and tension to the minimum. As is famously believed, law is not always black or white, it always has a place for some grey. For answers to be laid out, the questions need to be asked first. However, it seems like these questions haven’t come of importance yet, for the judiciary to take note of. The contemporary laws seem to be working fine for the present cases, but in due time will have to modified to encompass adaptability. Till then it is best for one to conclude that though the law is insufficient, it seems to be working just fine for the people. At the end, it can be concluded that usually the transfer of goods between the apparent bailor and bailee does constitute bailment. The final answer to the existence of bailment and liability however lies on the court’s verdict of the matter in accordance with the circumstances of the particular case, in absence of proper rules and precedents governing the said legal questions.