The researcher hereby introduces the work done by him, as the paper is divided
into three chapters i.e. Chapter one which consists of Bailment, Chapter two
which consists of Hire-Purchase Agreement and Chapter three which consists of
the key differences between the contract of Bailment and the Hire-Purchase
The researcher is going to discuss about the Bailment in Chapter One, which is a
concept which deals with the delivery of goods by one person to another for some
purpose, when the purpose is accomplished by the parties to the contract. The
person delivering the goods is called the “Bailor and the person to whom the
goods are delivered is called the Bailee.
The duties of the Bailor are that to
disclose all the faults which will be responsible for the damage which has been
caused to the goods or the loss which had been suffered by the Bailee. The
Bailor is under the duty to pay the extraordinary expenses incurred by the
bailee for such bailment, as it is the duty of the bailor to accept the goods
after the purpose for which such goods were bailed when the purpose is
accomplished, the duty of the bailor is also to indemnify the bailee for the
cost incurred due to the defective title of goods bailed to the bailee. The
duties of the bailee is that to take proper care of the goods, which had been
bailed from damages, also to check that there is not any unauthorised use of the
goods which have been bailed except for the purpose, the bailee also had to keep
the goods which are bailed separately for his personal goods.
The researcher is going to discuss about the Hire-Purchase agreement in the
second chapter i.e. Hire-Purchase agreements are similar to rent-to-own
transactions that give the lessee the option to buy at any time during the
agreement, such as cars on rent. Like rent to own, hire purchase can benefit
consumers with poor credit by spreading the cost of expensive items that they
would otherwise not be able to afford over an extended time period.
It's not the
same as an extension of credit, though, because the purchaser technically
doesn't own the item until all of the payments are made, because ownership is
not transferred until the end of the agreement, hire purchase plans offer more
protection to the vendor than other sales or leasing methods for unsecured
items. That's because the items can be repossessed more easily should the buyer
be unable to keep up with the repayments.
The research is going to discuss about the key differences between Bailment and
Hire-Purchase Agreement in the third chapter, highlighting the conceptual
differences in the element.
Objective of Study:
The main objective of the paper is to understand the conceptual, theoretical and
practical distinctions and contrasts in Contract of Bailment and Hire Purchase
agreement. Paper has discussed in detail both the concepts first with the
party's rights and obligations along with their termination of the contracts and
agreements respectively for better understanding.
- What is Bailment?
- What is Hire-Purchase Agreement?
- What is the difference between the two concepts, i.e., Bailment and
The researcher has used doctrinal method i.e. reference from available primary
sources like Acts, Rules and Regulations to study the present questions in hand.
The researcher has also taken reference from secondary sources like books,
articles and newspaper reports to understand the issue regarding differences in
Contract of Bailment and Hire-Purchase agreement.
Chapter I: Bailment
A mere delivery of a watch to be repaired at a small retail shop to the transfer
of a heavy machinery for the use of mining from one company to another for the
purpose of mining, these all come under the aspects of bailment. Bailment
according to The Indian Contract Act, 1872 is when one party of the contract
passes the possession of goods to the other for a specific purpose with the
direction to return the possession of the same good after fulfillment of the
The act of bailment is guided by mainly 3 essential ingredients to consider an
act done under the concept of bailment in the Indian Contract Act.
Essentials of Bailment
Delivery of Possession
When read in accordance with the section 148 of the said act, the term used is
delivery of the goods by one person to another.
Does this imply complete
transfer of goods or for merely taking it under the party's supervision or maybe
just a mere transfer of possession of that good?
One of the central themes of the act of bailment is the delivery of possession
of the good for bailment. Supervision over a good and the complete authority
to have possession over that good is two separate spheres. There is a separating
boundary between the two topics as the bailment requires the transfer of
Possession is separate from custody. Possession is the right of a
party to exercise control over a thing and exclude others from the utilization
of it whereas, custody is where a party takes care and control of a good for
inspection, security or preservation.
A mere parking for a car of a person by the valet of the hotel or a person
merely taking a good as the security for the owner cannot be taken as the
delivery of the possession from one party to the other, there must be the right
to control over that good.
Specific Purpose and Return
The term for purpose in section 149 of the act clearly specifies there should be
a purpose for the delivery of the goods for the bailment. The delivery of the
good and transfer of possession of the good from one party to the other if is
done without the purpose of using it, the act does not qualify as
bailment. In accordance with the section of bailment, if the purpose for
which the good has been accomplished, the bailee then has to return the said
good to the bailor and/or act in his directions on the disposal of the good.
Possession to be Returned and Under the Contract
After the work done for the specific purpose is done, the section obligates the
person in contract to return the good used for bailment or dispose it of under
the directions of the bailor. The silence in the contract of not to return the
good from the bailee to the bailor is implied if not clearly expressed. When
there is no contract of bailment, no intention to form a bailor and bailee and
there being no intention to return the possession of goods to return to the
bailor from the bailee. The English law recognizes the bailment is recognized
without a contract and the bailment being a contract, bailment can be implied
Major Rights and Duties of Bailor
Rights of Bailor against the Bailee
The goods are obligated to return upon the bailee to return to the bailor after
the use of the goods for the specific purpose for the bailment. The concept of
bailment has one of the core concepts to return the good of bailment after the
use of it and is a right of bailor. The bailor is also entitled for
compensation if the goods are used in an unauthorized fashion, that is not in
accordance to the conditions of the bailment.
In the case of gratuitous bailment, the bailor has the right to take the
good of bailment any point of time to his pleasure since there is no right to
compensation and the gross negligence to prove on bailee is the only way to
compensate and if there is a case where the benefit derived is less than that of
the profit made.
Sometimes the contract is silent on the deeds of the profit which is made from
good of the bailment. In those cases, the bailor is entitled to receive any
profit made from the good at his discretion unless provided contrary to the
contract of it. However there are certain cases where there can be a mix up
of goods depending upon the consent of the bailor and involving damages, in such
cases the contract act clearly lays out the sections for dealing with those
Rights against the Third Party
The possible acts of the third party to affect the goods of bailment and the act
of bailment is when a third person deprives the bailee the utilization of that
good or an injury is made to that good, the bailor has the right to bring an
legal action against him. The legal action brought against the third party
by either the bailor or bailee, together or not, they cannot ask for the
compensation which is beyond the value of the goods and anything adding or extra
damages with the good, and the bailor has the right to do so.
Duties of the Bailor
When a bailor gives the bailee a good, there is a duty imposed upon the
bailor to let the bailee know the material facts of that good which are in fault
with it and which may cause an interference or cause a risk beyond which a good
of a purpose can cause. However this duty comes with a condition that the
fault is supposed to be known to the bailor or by a reasonable man can be known
to the bailor. The bailee is free to assess the good and satisfy any doubts he
has with it, in general, excluding the liability of the bailor.
Another duty for the bailor in cases where the goods of the bailment are kept by
the bailee to work, be carried or made a certain amount of work done upon them,
there will certainly be an expense made for that purpose by the
bailee. The bailee would hence be required to be compensated, which is the
duty of the bailor. This would also be the same in the cases when there may
be a loss sustained by the bailee that was not planned or purpose of the
bailment reasonably. The duties of the bailor towards the bailee end when
the goods have been returned to the bailor after the expiration of the bailment
period from the bailee. The duty to accept the return of the good of the
bailment is also one of the duties of the bailor.
Major Duties and Rights of Bailee
Duties of the Bailee
When the bailee is in the position of the goods of the bailment, he is expected
to handle that good in the most reasonable manner as a reasonable man
would. His liability can only be excused in the cases where there was loss
for the bailor by the course of the bailment of the goods of bailment like when
there was loss despite reasonable care, and which could have not been foreseen
or which was not within the control of the bailee.
This can also be avoided
when there is a special contract enforced between the parties of the bailment,
and cannot be denied in the case where there is a clause for excluding the
liability of the bailee. The degree of care is very subjective and depends
upon the facts of each case and the parties of each case. A reasonable man's
degree varies from the purposes of each act and as in this case, with each
purpose of bailment.
Sometimes, the bailee may not act in accordance with the instructions of the
bailor or the terms of the bailment, in which the power to declare the bailment
void lies with the bailor. The bailee is hence obliged to compensate for the
loss which is faced by the bailor from the inconsistency of the bailee and is a
valid ground for the termination of the contract. However there are certain
cases where there can be a mix up of goods depending upon the consent of the
bailor and involving damages, in such cases the contract act clearly lays out
the sections for dealing with those matters and explains the duties of the
bailee also and the duty to return the profit of the goods bailed is in
consistent to the right of the bailor to collect it.
The bailee also has the duty to return the goods which he has been under the
possession of the bailment and if he fails to do such a duty, he is liable under
the Act for any negativity which has been caused to the good of bailment and
that does not give him the right over the good. However, section 171 of the
Indian contract act also lays down exceptions to which the right of lien is
Rights of the Bailee
Briefly, the rights of the bailee can be categorized into 3 rights; right to
recover any expense which the bailee has spent in order to carry, provide
custody or work on it, right to recover compensation of the loss faced by the
bailee for which he had no concerned intention from bailment and the right to
The first two rights are consistent with the duties of the bailor. The right to
lien gives the bailee a right to hold the good of bailment upon which he has
exercised some labor or skill till he has been provided for that service. This
right to lien is to achieve the purpose of basic right to receive the
compensation for the duty which has been performed and which has lead to the
improvement of the good bailed.
Termination of Bailment
The bailment's obligations between the bailor and the bailee ends when the
purpose of the bailment has been made or when the time period has been reached.
The termination can also be made from the side of the bailor whether the
bailee's act is inconsistent with the bailment. If the act is inconsistent
with the bailment, it is voidable at the option of the bailor and when the will
of the bailor is to terminate the bailment, he can do so but must compensate the
bailee for the loss he faces.
Along with these cases mentioned above, a contract of bailment can also be
terminated on the basic grounds of any other contract under the Indian contract
act and if there is death of the bailor or the bailee involved. The
liability of the bailee's estate however, is not exempted in his lifetime.
Chapter II: Hire Purchase agreement
The concept involved in our day to day lives and practiced throughout the world
and regulated by the act The Hire-Purchase Act of 1972, gives a regulating law
for hire-purchase agreements.
An agreement in which the hirer has a choice to obtain the good which was let on
hire according to the terms of agreement.
There are only three essentials
necessary to term the agreement enforced as an hire-purchase agreement which
are; there is payment of periodic installments for the good on hire, the good's
property right can be passed to the hirer when the payment of the last
installment has been made and lastly, hirer holds the right to terminate the
agreement at any point of time before the right to property passes. The
right to property in normal cases transfers when the hirer has paid the hire
purchase price, the price which includes total sum in order for the good of the
hire excluding any damages or compensation or penalty.
The agreements made for hire purchase includes two parties: hirer and the owner.
The hirer is the party which pays periodic installments for the good obtained by
him through the agreement and has the right to property of that good after he
has made the final installment for that hire. The owner is the party to which
the goods and their property rights belong to initially.
They receive the
payment made in installments by the hirer and transfer the property rights at
the end installment. The hire purchase agreement must be signed by all the
parties of that contract and the contract must be expressly stated. The hire to
purchase agreement is not only an agreement to hire but also an agreement to
What should the Agreement Contain?
In accordance with the section 4 of the Hire-Purchase Act, it lays down what
should be contained in a hire-purchase agreement. The contract should contain
the total and final price of the hire-purchase good (hire-purchase price), date
on which the agreement has been enforced and also the date on which agreement
shall commence, details of how much should the installments be and on which date
they should be paid by the hirer including the place and person to be paid to
and the goods of the agreement which would lead an easy recognition thereof. If
there is absence of any requirements as stated above, the agreement can be
Rights and Obligations of a Hirer:
Rights of a Hirer
During the process of the hire-purchase agreement, during a time if the hirer
feels to purchase the product anytime during the agreement, he can do so by
paying the hire-purchase price or either completing paying of the remaining
balance of the agreement, and by giving the owner of such hire-purchase good a
notice of 14 days. In the cases where the hirer wants to terminate the order
and does not wish to purchase it, he can return the good with the accrued amount
to him towards the owner and with same time period of notice, i.e., with 14-day
The right to appropriate the payments under the hire-purchase agreement is also
one right benefiting the hirer where the owner of 2 or more hire purchase
agreements is the same. In those cases, the hirer can appropriate the
payments and if he fails to do so, the Hire-purchase act can be read and be
used to deal with the according situation.
Sometimes in a hire and purchase agreement, the goods may be seized by the
owner. If that seizure is done not in accordance to the law of
hire-purchase, the hirer can take back the amount which has been accumulated
till the day of the seizure or the value of the goods at the day of the seizure,
within the time period of 30 days.
The hirer in the course of hire-purchase
agreement holds the right to assign his right, title and interest under the
agreement with the owner's consent and if that consent is withheld unreasonably
due to the circumstances, it can be made so without the consent as well. He can
assign his rights to another person and thus he can become the hirer in place of
the original hirer and be the part of hire-purchase agreement.
Obligations of hirer:
Any party to a contract should fulfill their obligations and be within the ambit
of the contract. The hirer's primary obligation is to pay for what he was
bounded by the agreement in order to hire the pay in accordance of the agreement
and comply with the terms of it. The noncompliance of such agreement terms
will lead to a breach in the contract. Another standard implied obligation
is the hirer to take reasonable care for the goods of hire as an ordinary
prudent man would.
He has a condition thereto as well, i.e., if the care was
reasonable enough and the damage still occurs the hirer is not liable to
compensate for the loss which was made. Whereas if the goods which was assigned
under the hire-purchase agreement was not used in accordance with the terms of
the agreement then the hirer shall be liable for damages.
Obligation as to give information regarding where the goods are and its
information at that period on the request of the owner is upon the hirer to
provide so. The hirer with the reasonable cause must give the information within
14 days from the notice.
Rights of an Owner
In a contract when the parties must fulfil their obligations in regular terms at
a regular interval, in case one party fails to fulfil such an obligation within
a reasonable period the contract is said to breached. In the cases of
Hire-Purchase agreement, the owner has the right to terminate the agreement in
case there is a default of the payment, with a general notice of 2 weeks.
Same goes as when the hirer is inconsistent with the terms of the agreement of
hire-purchase or when the hirer breaks an expressed condition, then the right to
terminate the agreement vests with the hirer.
After the termination of the hire-purchase agreement has been made, the owner
then has the right to recover his possession of the hired good which is with the
hirer of the terminated agreement. With this right to get back the possession of
the hired good, the owner also gets the right to the initial deposit which was
made, to recover the damages from the date of seizure was into effect till the
goods were delivered to the owner and in order to get the possession back from
the hirer, the owner is also vested with the right to enter the premise of the
property and take the good back. These rights, however, are subject to
Obligations of the owner:
As any other owner of a shop or as a seller, the owner under the hire-purchase
agreement has a few obligations. One of the obligations is to provide free
of any monetary amount a hire-purchase copy immediately post-agreement. The
owner is also obliged to provide information regarding the instalments and the
outstanding amount which is to be paid, by the hirer to the owner before the
final payment is made.
Termination of Hire-Purchase Agreement
From the very basics of the hire-purchase agreement, an agreement can be said to
be terminated in the cases when there is a return of the hired good, the
performance of the contract by both the parties has been executed or by the
renewal of the contract according to the general basic process of contracts.
Aside from these basic ways to discharge the agreement of hire and purchase, the
agreements can also, be terminated by reliving the other party from their
obligations and in the cases of frustration of the contract.
The termination of the hire-purchase agreement contract, the agreement can be
terminated by either party sending the notice to the other and by the efflux of
time, i.e., when the hirer is given an option to buy the good, which is his
choice, within a period of time but the hirer does not do so, the agreement
is said to come to an end.
Chapter III: Difference between Bailment & Hire and Purchase Agreement
Contract of bailment is a genus for the species of the contract of hiring, but
there is a point of difference when it comes to the contract of hire-purchase
agreement. Some key differences are highlighted in this chapter for the
purpose of understanding the boundaries between bailment and hire-purchase
When there is a question of bailment, there is only transfer of possession and
it's right there to the bailee. In the concept of bailment, there is only a
transfer of possession, but the ownership and the title of goods remains with
the bailor. There is no intention ab intio to transfer the property rights of
the goods. The property rights are the complete transfer of the rights of the
goods including the rights to use them, re-sell them etc. and which is not
transferred in this case as property right but simple possessory rights.
The transfer of property has always been an option for the hirer to buy the good
of hire when the payment is final and/or at the end of the payment of all the
instalments. In the contract of hire-purchase, there is always an option vesting
in the hands of the hirer whereas in the case of bailment there is never an
intention from the bailee towards the bailor to buy the property or the goods of
The good of bailment is always only for a specific purpose and when
the purpose is accomplished, then it becomes an obligation for the bailee to
return the good.
Also, during the cases of hire-purchase, the instalments are an obligation for
the hire-purchase agreement and not the use of specific purpose, unless
inconsistent with the contract terms and condition.
The test laid down in the
case of Damodar Valley Corpn. v. State of Bihar
, there laid down two tests for
determination whether the contractual agreement existing between the two parties
is a contract for hire and purchase or not. By looking at the substantial matter
of the contract, is to look at the fact that the good being hired is for the
purpose of hiring or gives a buyer an option to buy it after the completion of
the instalments. The next question in the same case to be answered with the
test was given by checking the fact if there is an intention to return the good
after the agreement and instalments are paid.
The contract of bailment has the main principle is the return of the goods after
the purpose of the good has been obtained and to be returned to the bailor. The
contract of hire-purchase is an option. When it is an no option but an
obligation to the party to return in the contract of bailment and hence it is a
differentiating one from the contract of hire-purchase.
The contract of bailment also differs within the elements from that of the
The contract of hire-purchase has the element of the sale of the
good for which the hire-purchase agreement has been come under by the parties.
The sale term is defined as “A contract of sale of goods is a contract whereby
the seller transfers or agrees to transfer the property in goods to the buyer
for a price.” When the contract of bailment is identified with the element
of sale as to the conditions of the contract and the property rights of the
contract, the said agreement is said to differ from the contract of bailment and
shifted to the contract of hire.
Such a transaction involving the sale of the good of the contract is in the
nature of the contract and contributes to the agreement of the hire-purchase of
the agreement. Although one must not forget the fact that there is no obligation
upon the hirer to buy the said good under the hire-purchase agreement.
However, in any case the contract of bailment elements will always be in held
with the additional element of contract to sale where the result would be the
sale of the good under the act of the contract. The transfer of mere possession
is never a complete sale of the good under the agreement and the only way by
which a good under the contract of hire-purchase will be transferred when the
party, the hirer, pays all the instalments and completely settle the claim of
Finally, the two types of agreements also have a main difference regarding their
termination aspect. A contract of hire-purchase agreement gives a right to the
hirer to terminate the agreement at any point of time in the agreement and
return the said good to the owner of the good. However, there are some
conditions to it. The hirer when giving back the good at that date, he should
make all the payments up to the date of return and any pending once till that
date. When there is no sale completed, i.e., which is one of the main
purposes of the completion of the contract, till then the hire-purchase
agreement can be terminated by the hirer.
The seizure of the property under the
hire-purchase agreement also states under the act by obligating and the rights
of each party. There is no termination of bailment by the right vested upon the
bailee, therefore there is abruption legally justified to terminate the
agreement of bailment.
The main differences highlighted in the third chapter makes distinguishes the
two concepts. The distinctions are surrounding the elements of both the
concepts. The duties of the parties to each agreement and the obligations upon
them in an agreement are briefly explained the contrasts. The concepts have been
made to be explained in a detailed broad version which is also contrasted in the
broad terms. The differences have been made with the elements and hence have
made a difference in the paper by stating that contract of hire-purchase had to
be put separately from the Indian Contract Act and away from the Sales of Goods
Act as well.
- Section 148 of The Indian Contract Act, 1872.
- New India Assurance Co Ltd. V DDA, (1991) 2 PLR (Del) 82
- Ultzen v Nicols, (1894) 1 QB 92.
- Gangaram v Crown, AIR 1943 Nag 436.
- Mohd Murad Ibrahim Khan v Govt of U.P., AIR 1956 All 75.
- R. v MacDonald, (1885) LR 15 QBD 323, 326.
- Supra Note.1
- Section 154 of The Indian Contract Act, 1872.
- Alias v E.M. Patil, AIR 2004 Ker 214.
- Gratuitous Bailment Law and Legal Definition, https://definitions.uslegal.com/g/gratuitous-bailment/,
Last accessed 11/1/19.
- Section 159 of The Indian Contract Act, 1872
- Section 163 of The Indian Contract Act, 1872.
Illustration: “A leaves a cow in the custody of B to be taken care
of. The cow has a calf. B is bound to deliver the calf as well as the cow to
- Section 180 of The Indian Contract Act, 1872
- Karnataka Electricity Board v Halappa, 1987 1 TAC 451.
- Section 150 of The Indian Contract Act, 1872.
- Hyman and Wife v Nye and Sons, 1881 LR 6 QBD 685.
- Story on Bailments, Ss. 256 and 273.
- F F Campbell and Co. v Board of trustees of Port of Bombay, (2015) 1 SCC
- Section 164 of The Indian Contract Act, 1872
- Marty vs London County Council, 1947 KB 628.
- Section 151 and 152 of The Indian Contract Act, 1872
- Canara Bank v. Bhavani Oil Co., Chemmannur AIR 2004 Ker. 273
- Calcutta Credit Corporation Limited v. Prince Peter of Greece, AIR 1964
- Section 153 and 154 of The Indian Contract Act, 1872.
- Section 170 of The Indian Contract Act, 1872.
- C.P. Automobile Engineering Co., Ltd. v. Ramanchandran Viahwanath, AIR
1926 Nag 259
- Section 162 of The Indian Contract Act, 1872.
- Municipal Board of Lucknow v Abdul Razzak, (1929) 5 Luck 220.
- Sendaram Finance Ltd. v. State of Kerela, (1966) Ker LJ 408.
- Section 2 (d) of the Hire-Purchase Act, 1972.
- Installment Supply Ltd. v. STO, (1974) 4 SCC 739.
- Section 18 of The Hire-Purchase Act, 1972.
- Section 11 of The Hire-Purchase Act, 1972.
- R. Kumar v S.P. Muthukumarswamy, (2000) 1 LW 848 Mad.
- Ganga Hire Purchase Ltd. v. State of Punjab, AIR 2000 SC 449.
- Section 13 of The Hire-Purchase Act 1972.
- Bhadra Advancing Ltd. v. Assistant Commissioner of Income Tax, (2008)
219 CTR 447.
- Suryapal Singh v. Siddha Vinayak Motors, (2012) 12 SCC 355.
- Tarun Bhargava v. State of Haryana, (2002) 3 RCR (Cri) 312.
- Commissioner of Income Tax v. A.P. Paper Mills, 1997 225 ITR.
- Helby v. Matthews. 1895 AC 471.
- Allen, Douglas W. (1991), ‘Homesteading and Property Rights; or “How the
West Was Really Won”, 34 Journal of Law and Economics, 1-23.
- Damodar Valley Corpn. v. State of Bihar, AIR 1961 SC 440.
- Damodar Valley Corpn. v. State of Bihar, AIR 1961 SC 440.
- Section 4 of The Sales of Goods Act, 1930.
- Halsbury's Laws of England, Third Edition, Volume 19, paragraph 823, at
- Instalment Supply (P) Ltd. v. Union of India. (1962) 2 SCR 644.
- Property, Title and Debt in Sale of Goods; 29 NLSI Rev 21 (2017).
- Book Review: Law of Sale of Goods, (2010) 3 NUJS L Rev 543.