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Bailment And Finder Of Goods As A Bailee Under Indian Contract Law

When some goods are misplaced by the original owner and subsequently found and taken possession of by another person, various legal conundrums arise. The finder of these lost goods shouldn't have a legally enforceable and absolute responsibility to return the goods at the expense of their own time and financial resources even though returning the goods to the rightful owner would be the morally upright decision.

However, the very purposes of any legislation that underlies its attempt to resolve disputes is an attempt to maintain harmony, civility and morality in society. In furtherance of this ideal, certain restrictions need to be imposed on what the finder of lost goods is entitled to do with said goods.

To settle such an argument, law makers in India have conferred upon a Finder of Goods, the same duties as that of a bailee in a contract of bailment, thus installing an obligation on the finder to match the behaviour laid down under Bailment as per the Indian Contracts Act, 1872. The nuances of this claim will be unravelled as the paper progresses, but first the concept of Bailment itself must be understood.


Chapter 9 (Section 148-181) of the Indian Contract Act, 1872, provides for provisions governing contracts of "bailment". Section 148 of the Indian Contract Act, 1872 defines this type of contract as follows-

"A "bailment" is the delivery of goods by one person to another for some purpose, upon a contract that they shall, when the purpose is accomplished, be returned or otherwise disposed of according to the directions of the person delivering them. The person delivering the goods is called the "bailor". The person to whom they are delivered is called, the "bailee"."

Thus, a contract of Bailment arises in cases where possession of a movable good is transferred from one party (Bailor) to another (Bailee) without relinquishing or transferring ownership, meaning that the Bailee may enjoy possession of transacted good for a purpose and time period, however ownership is retained by the Bailor. Since a contract Bailment has certain salient features beyond those listed under Standard Form of Contracts, it is considered a Specific Contract. To understand the nuance of Bailment, essentials of such a contract to be valid are listed below:
  1. Essentials of Bailment:
    1. Delivery of Possession
      The primary essential for a contract of bailment is a transfer in possession which comprises of a delivery of the movable product for bailment to the bailee by the bailor. According to Section 149 of the ICA, such delivery may be actual- delivering the goods to the physical possession of the bailee or constructive delivering the goods to someone who has the authority to possess the goods on behalf of the intended bailee or even create a scenario where the bailee may take possession of the goods at a later time. The effective definition of possession, here is the ability to exercise exclusive control over said movable good.
    2. Delivery must be for some Purpose
      The goods should be bailed for a specified purpose, and should be accounted for upon completion of task or time period of bailment. If this is not maintained, a claim of bailment would not arise.
    3. Return of Goods
      Upon accomplishment of purpose behind the bailment, the goods must be returned to the bailor's possession or disposed of according to the bailor's wishes. In a case where the agreement is to return goods of equivalent value or the good is returned in a manner at variance with what has been specified by the bailor, contract of bailment does not arise.
    4. Delivery upon Contract
      Lastly, the behaviour of both parties must satisfy all essential of a valid contract, for bailment to arise between the bailor and bailee. Thus, a contract must be established between concerned parties in accordance with the rules for eligibility of any contract- meaning the contract can be either explicit or implicit, as long as there is clear meeting of minds, among other nuances.
This essential condition is of particular interest since it makes the 'Finder of goods' clause an exceptional case to law of bailment.

Finder of Goods:

In the ICA, 1872, Section 71 defines the legal obligation arising in a situation where a person finds goods owned by some other person and takes them into his own possession, as follows:
"A person who finds goods belonging to another, and takes them into his custody, is subject to the same responsibility as a bailee."

This statement raises certain questions borne out of the establishment of the 'Finder of Goods' scenario as an exception to the 'Delivery upon Contract' essential under Bailment. The exception arises because there is no contact between the bailor and bailee, let alone a meeting of minds or explicit or implicit contract formation.

This means that by law, a contract has been retroactively imposed on both the owner of the goods and the finder, and consent of either party has not been treated as a necessary element for contract formation. Since this violates the very basic essentials of a valid contract in itself, one would not be amiss to assume that such a contract cannot stand. However, these contracts still hold legal weight and are known as quasi-contracts.
  1. Quasi Contracts

    A Quasi or Partial Contract is one which is imposed by a court in lieu of a real contract. Its purpose is to enforce obligations that arise naturally out of the principle of avoidance of unlawful or wrongful enrichment. Based on an assumption of good faith and justice, courts can impose duties and rights on the parties via a court order directing a non-consensual quasi-contract borne out of fictional relationship between the parties.

    Essentially, even though no actual contract has been agreed upon or even discussed by the parties in question, if the court finds that one party is unjustly benefiting at the expense of the other, they may retroactively impose a quasi-contract to rectify or preempt the situation.

    In light of such a quasi-contractual relationship between the owner of lost goods and the finder, as mentioned in Section 71, the position of the finder is effectively that of a bailee, with pari passu responsibilities or duties. These responsibilities are an obligation imposed regardless of the consent of the finder themselves, and are equivalent to the reasonable limits that a bailee is subjected to in a contractual bailment.
  2. Duties of Finder of Goods

    Since the Finder is treated at par with a hypothetical bailee of the same goods, they will be subject to the following duties as listed from Section 151-163 of the Indian Contract Act, 1872:
    1. Duty to take reasonable care
      Section 151 of the Indian Contracts Act dictates that a bailee must treat bailed goods with the same amount of care that a prudential person would, or as a more tangible standard, with the same kind of care that a prudential bailee would treat the same goods if they were the bailee's own.

      As an extension of this responsibility, Section 152 prescribes that in lieu of a special contract specifying their responsibility, the bailee is protected against legal action to recuperate any loss suffered by the bailor of the goods provided that the bailee can prove that reasonable care was taken by them and the damage suffered was unavoidable within the expected standard of care and mitigation of risk.

      Courts have maintained this standard of care as not being too disproportionate or unreasonable, as can be seen in the case of Shanti Lal v. Tara Chand Madan Gopal where a sack of grains was the subject of bailment. In a natural course of events, deemed to be an act of god (force majeure), the sack of grains were lost in a flood and the Court held the defendant (bailee) to not be liable for the loss since such an event could not have been foreseen and thereby mitigated.

      Since the Finder of Goods is to be treated with the same responsibility as a bailee, they are expected to take aforementioned reasonable care of the goods now in their possession.
    2. Duty to not make unauthorised use:
      Section 153 and 154 of the Indian Contracts act restricts the use of bailed goods to the conditions of the bailment. Anything beyond the scope of the use permitted by the bailor would be considered unauthorised use and allow termination of bailment at the option of the bailor and even compensation of any damage suffered by the good during such use.

      Since this duty is imposed on a contractual bailee, it also unconditionally stands as a duty of the Finder of Goods. However, the manner of its application to a Finder of Goods may be subject to the facts of the case since there is no specific or real "authorisation" of purpose between the owner of goods and the finder.
    3. Duty to not mix
      Section 155 of the Indian Contract Act deals with the situation where the bailee mixes the goods of the bailor with his own and with the bailor's consent. The parties' interest in the resulting mixture is then divided between them proportionate to their share in the input. This implies that for a Finder of Goods, the act of mixing with the consent of the owner would result in the finder to share interest in the resulting mixture with the rightful owner of the used lost good.

      If the mixing were to take place without the bailor's consent, Section 156 determines that if the goods can be separated, original proportion of ownership will perpetuate and the bailee must bear the expense of separation and liability for damage caused in the process. Further, according to Section 157, if the goods cannot be separated then the bailee is liable to compensate the bailor for the total loss of goods. A Finder of Goods will face equivalent liability in both scenarios.
    4. Duty to return the goods
      According to Section 160, the bailee has a strict responsibility to return the bailed goods to the bailor upon completion of purpose or tenure for which the goods were bailed. This return must also be made according to the bailor's direction. Section 161 then commands that if by the fault of the bailee, the bailed goods are not returned at the proper time and in the proper manner, the bailee is liable to compensate the bailor for any damage suffered by the good due to that lapse.

      A Finder of Goods thus has the duty to return the goods to the original owner, if possible to do so after a reasonable search for the owner upon taking possession of the goods. The time period and manner of return specified by the original owner, if found, will be binding on the Finder of Goods. Some consideration to the finder's situation comes in the form of a right of lien which may be exercised if a legally owed amount is not paid by the original owner.
    5. Duty to return the profits
      Section 163 then posits that a bailee must return to the bailor any profits that may have arisen during the course of the bailment, unless decided otherwise. In the case of a finder of goods, this implies that any profits accrued between the finding of the lost goods and the return of said goods to the true owner, will also have to be delivered alongside the goods themselves.

      For example, consider a farmer who finds that a pregnant cow has strayed onto his field and decides to take it into his care. While trying to find the rightful owner, the cow gives birth to a calf. Upon finding the owner, deepening on the time period and manner of delivery decided, the farmer will have to return both the cow and the calf to the original owner of the cow.

      This summarises the duties or responsibilities imposed on the Finder of Goods, however for a complete discussion of the position of a Finder of Goods, it is also necessary to understand the Rights enjoyed by such a person, otherwise the position would not be lucrative beyond a goal of good-samaritanism and would instead be one of immense, unnecessary liability.
  3. Rights of Finder of Goods

    1. Right to sue for specific reward offered and impose lien
      Section 168 restricts the finder from suing the owner of goods to claim compensation for the time and finances that may have been spent to identify, locate and contact the owner, on the basis that such an act is done voluntarily out of goodwill. However, it does allow the finder to retain possession of the goods, impose a lien, till such a compensation is paid by the owner.

      Further, if the owner announces a reward for the return of the lost goods, the finder is empowered to sue for such reward and impose a lien on the goods till the reward is received.
    2. Right to sell the found goods in certain cases
      To answer the question of whether the finder has a right to sell the goods found, we must look at Section 169 of the Indian Contract Act. According to this provision, some specific scenarios are laid out where the finder does indeed have the right to sell the goods.

      It dictates that if the good is of the nature that is commonly sold and after sufficient and reasonable searching, the owner cannot be found, the finder may sell it. The same stands for if the owner is found but does not agree to pay the demanded legally recognised charges incurred by the finder.

      The sale, however, can only proceed if it fulfils the following criteria:
      1. The goods are of perishable nature or at risk of losing the greater part of their value, or
      2. The legally recognised cost of finding the owner surpasses two-thirds of the value of the found goods themselves.
      Only when at least one of these criteria is fulfilled, can the Finder of Goods sell the goods for their own benefit or compensation.

      Such a narrow window to allow sale of found goods is necessary to maintain the intention behind the quasi-contract governing finder of goods i.e., prevention of unjust enrichment. The unhindered freedom to make such a sale would perpetuate a playground mentality similar to the "finders-keepers" sentiment and also open the legislature to abuse of such a provision since titles would be easily disputed.

The Indian Contract Act clearly confers upon a finder, the same responsibilities and obligations applicable to a bailee even in lieu of any real contract between the concerned parties. This creates an atmosphere of using the position of the finder interchangeably with that of the bailee, which isn't completely accurate.

Thus, an important point to note is that even though the Indian Contract Act confers on the Finder of Goods, same duties as that of a bailee, the quasi-contract imposed in each case does not create actual contractual obligation. The finder of goods isn't actually a bailee and not subject to the position of a bailee as governed by a real bailment contract, even though the finder does face the same duties and responsibilities.

As for the question of selling found goods, the Indian Contract Act in no uncertain terms lays down specific criteria which need to be fulfilled for the finder to proceed with the sale of such goods.

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