Rights and Duties of Bailor and Bailee, Lien

Who is Bailor?

Meaning of Bailor: – A bailor is a person who temporarily gives the possession of goods or property but not the ownership under the bailment. The temporary possession of the goods or property is given by the bailor to another person who is known as bailee.

A bailor transfers possession, but not ownership, of a good to another party, known as the bailee, under an agreement known legally as bailment. While the good is in the bailee’s possession, the bailor is still the rightful owner.

Various types of bailments will give the bailor the right to expect some kind of duty of care for the good by the bailee. A tenant-landlord relationship may also exist where the landlord assumes the role of bailor in leasing their property to another.

Who is Bailee?

Meaning of Bailee: – A bailee is the person who temporarily gets the possession of the goods and property but not the ownership. The bailee is also known as the custodian, and he gets the possession of the goods or property by another person who is known as the bailor.

The bailee’s relationship to the bailor, who hands over the property, is established by a contractual agreement called a bailment. The relationship between the bailor and bailee in legal terms is known as the bailment which is based on the contractual agreement. The bailment specifies the purpose and reason of the change in custody of the goods and product and is outlined in writing such as a receipt or a chit.

What is a Lien?

Meaning of Lien: – A lien is a claim or legal right against assets that are typically used as collateral to satisfy a debt. A lien could be established by a creditor or a legal judgement. A lien serves to guarantee an underlying obligation, such as the repayment of a loan. If the underlying obligation is not satisfied, the creditor may be able to seize the asset that is the subject of the lien. There are many types of liens that are used to secure assets.

1. A lien is a claim or legal right against assets that are typically used as collateral to satisfy a debt.
2. If the underlying obligation is not satisfied, the creditor may be able to seize the asset that is the subject of the lien.
3. Various types of liens can be established including by a creditor, legal judgement, or tax authority.

How lien work?

A lien provides a creditor with the legal right to seize and sell the collateral property or asset of a borrower who fails to meet the obligations of a loan or contract. The property that is the subject of a lien cannot be sold by the owner without the consent of the lien holder. A floating lien refers to a lien on inventory or other unfixed property.

Liens can be voluntary or consensual, such as a lien on a property for a loan. However, there are also involuntary or statutory liens whereby a creditor seeks legal action for non-payment, and as a result, a lien is placed on assets including property and bank accounts.

Some liens are filed with the government to let the public know that the lienholder has an interest on the asset or property. A lien’s public record tells anyone interested in purchasing the asset or collateral that the lien must be released before the asset can be sold.

What are the types of liens?

There are many types of liens and lien holders. Below are some of the most common liens: –

1. Bank Lien: – A lien is often granted when an individual takes out a loan from a bank to purchase an asset. For example, if an individual purchases a vehicle, the seller would be paid using the borrowed funds from the bank. In return, the bank would be granted a lien on the vehicle. If the borrower does not repay the loan, the bank may execute the lien, seize the vehicle, and sell it to repay the loan. If the borrower does repay the loan in full, the lien holder (the bank) then releases the lien, and the individual owns the car free and clear of any liens.

2. Judgment Lien: – A judgment lien is a lien placed on assets by the courts, which is usually as a result of a lawsuit. A judgement lien could help a defendant get paid back in a case of nonpayment by liquidating the assets of the accused.

3. Mechanic’s Lien: – A mechanic’s lien can be attached to real property if the property owner fails to pay a contractor for services rendered. If the debtor never pays, the contractor could go to court and get a judgement against the non-paying party whereby property or assets can be auctioned off to pay the lien holder. Many service providers have the option to place a lien to secure payment, including construction companies and dry cleaners. 

4. Real Estate Lien: – A real estate lien is a legal right to seize and sell real estate property if a contract is not fulfilled. Some real estate liens are automatically put in place, such as the case of a mortgage lien. When a party borrows money from a bank to purchase their home, the bank places a lien on the house until the mortgage is paid off. However, some real estate liens are due to non-payment to a creditor or financial institution and as a result, are involuntary and nonconsensual liens.

5. Tax Liens: – There are also several statutory liens, meaning liens created by law, as opposed to those created by a contract. These liens are very common in the field of taxation, where laws often allow tax authorities to put liens on the property of delinquent taxpayers. For example, municipalities can use liens to recover unpaid property taxes. A tax lien also affects the taxpayer’s ability to sell existing assets and to obtain credit. The only way to release a federal tax lien is to fully pay the tax owed or to reach a settlement with the IRS. The IRS has the authority to seize the assets of a taxpayer who ignores a tax lien. Typically, the IRS uses liens for delinquent taxes as a last resort following all other options being exhausted, such as collection, installment repayment plans, and settlement.

What are the rights of the bailor?

Following are the rights of the bailor: –

1. Right to Claim Compensation Against the Unauthorized Use of Goods: – If any of the third person, does some injury to the goods bailed or deprive (stop) the bailee to use bailed goods, in such a case bailor has right to file the suit against the wrong-doer and to get compensation from him.
2. Right to Claim Compensation: – In the case of bailment, bailor has the right to claim the compensation if any damage is done to the goods bailed due the bailee’s negligence or misconduct.
3. Right to Demand the Return of the Goods: – The bailor has the right to get his goods back in a safe and good condition after the expiry of the bailment time period or the achievement of the purpose for which the goods were bailed.
4. Right to Enforce Bailee’s Performance: – The bailor deliver his goods to the bailee for some specific purpose and in the case of the non-gratuitous bailment, the bailor has the right to achieve that purpose or to get benefits through the same.

What are the duties of the bailor?

Following are the duties of the bailor: –

1. Duty to Disclose Faults: – In the case of a gratuitous bailment, the bailor is expected to disclose all the defects to the bailee known by him and that can arise while using the bailed goods. A non-gratuity carries a major responsibility on the part of the bailor as in this case bailor will also be liable even if he does not know about the defects.
2. Duty to Repay Bailee’s Expenses: – Bailor is bound to repay all the expenses which were incurred by him for the work done on the goods received in the bailment.
3. Duty to Indemnify the Bailee: – The bailor is obliged to make good for the losses suffered by the bailee, or that because of the bailor, where the goods were delivered without any reason or force the bailee to return the goods before the expiry period of the bailment.
4. Duty to Claim Back the Goods: – In accordance with the terms of the bailment, bailor is obliged to accept the goods returned by the bailee. If bailor refuse to accept the returned goods without any reasonable ground then in such a case, bailor will be responsible for all the damage done to the goods and not the bailee.
5. Duty of the Bailor to Compensate for the Breach of Warranty: – In every contract of bailment warrants, bailor’s title should be defect free. If bailee suffers any losses due the bailor’s defective title then in such a case the bailor will be responsible for the damages done to the bailee for breach of warranty.

What are the rights of bailee?

Following are the rights of the bailee: –

1. Right to Compensation: – Bailee has the right to claim compensation from the bailor in respect to any damages done to him by the act of the bailor.
2. Right to Expenses or Remuneration: – Bailor is bound to repay all the expenses which were incurred by him for the work done on the goods received in the bailment.
3. Right of Lien: – If the bailee charges are not paid by the bailor, he has the right to retain the goods. So, the right to retain the property on which the charges are due is called right to lien. The Supreme Court cited the following passage from HALSBURY’S LAWS OF ENGLAND as to the nature of this right.

What are the duties of bailee?

Following are the duties of the bailee: –

1. Duty to Take Reasonable Care: – It is the duty of the bailee to take reasonable care of the bailed goods and he is bound to take as much care of the goods as an ordinary prudent person of sound mind takes.
2. Duty to Unauthorized Use of Goods: – The bailee has to keep in mind or fulfil all the conditions mention in the bailment agreement while using the bailed goods. If he illegally use the goods, the bailment agreement will become voidable at the option of the Bailor.
3. Duty to Not to Mix the Bailed Goods with his Personal Goods: – The bailee must keep the bailed goods separated from his own personal goods. He cannot mix the goods without the prior permission of the bailor.
4. Duty of Not to Setup an Adverse Title: – Bailee only have temporary possession of the goods and not ownership as he holds the goods on behalf of the bailor, so he has to return the goods.
5. Duty to Return Goods: – It is the duty of the bailee to return the goods to the bailor in safe and good condition after the expiry of the time period of bailment or achievement of purpose for the goods were bailed. The goods must be returned according to the directions given by the bailor. If he failed to do so, he will be responsible for the losses done to bailor even without his negligence.

Case laws related to Bailor and Bailee

1. Union of India vs. Udho ram & sons

Facts of the Case: – Some goods were shipped to Delhi by rail from Calcutta by Mrs. Radha Ram Sohan Lal. Some articles in this consignment got stolen during transit, and the same were not delivered to the plaintiff. The plaintiffs took action to recover compensation for the same. The trail court found that the wagon in which the cargo was loaded was properly revived and sealed when the train left Howrah at 1:30 pm, but when the seal of one of the train doors found open when after two hours train reached at Chandanpur station. The theft occurred when the train stopped at about 20 minutes for the home signal at 2:05 pm. It was found that the Railway Security Police was also present in the guard’s van.

Judgement of the Case: – In this case, the court held that railway did not take due care. Firstly, railway did not prove that the number of police officer present in the train were sufficient in strength and secondly like a ordinary prudent man police did not keep an eye on the goods which were loaded in the train.

2. Ultzen vs. Nicholas

Facts of the Case: – The plaintiff went to the defendant’s restaurant for the purpose of dining there. When the plaintiff entered the restaurant, a waiter took the plaintiff’s coat without requesting him to do so, and hung it on a hook behind the plaintiff. When the plaintiff wanted to leave, he found that the coat had been lost.

Judgement of the Case: – In this case, the court held that the servant was the bailee of the court and had the possession of the same so he was liable to compensate for the losses done to the plaintiff which was due to his negligence.

3. Sunder Lal vs. Ram Sarup And Anr., AIR 1952 All 205

Facts of the Case: – A wood shop was hired under a written agreement that the shop be returned in the same condition, and the hirer would be liable for any loss or damage. The shop was burnt by the mob during communal riots in the city.

Judgement of the Case: – In this case, the court held that the destruction of the shop was not done by the negligence of the hirer, so he was not held liable to compensate the plaintiff.