Bailor & Bailee in Banking: Banker as Bailee Customer as Bailor

In banking law, a customer is considered as the bailor and a banker is considered as the bailee.

The person/party that entrusts goods to a bailee is called a bailor.

The person/party to whom goods are entrusted/delivered for a certain purpose viz. as a custody or for repair, without transferring the ownership rights, is called a bailee.

The act by which goods are delivered to a bailee for a certain purpose without transfer of ownership, is called as bailment.

Why is the customer - the bailor and the banker - the bailee?

In case of 'safe custody facility', the bank accepts responsibility of the safe custody of the sealed boxes and packets. The banker can open such box only on the duly authorised instructions of that customer.

The legal relationship that arises in case of safe custody/deposit is that of bailment. The customer, who deposits the things in the box for safe custody with the bank, becomes the 'bailor', and the bank becomes the 'bailee'.

Safe custody facility is offered for an agreed period of time for which the customer is willing to keep and make payment of the necessary charges. The bailee (banker) shall return the contents of the sealed safe custody box to the bailor (customer) as soon as the purpose for which bailment was created is over.

Some of the occasions, bankers do not charge fees for safe custody facility for customers who have been associated with them for a long period of time or customers who are maintaining large amount of balance in their accounts or opening fixed deposits, etc. In such cases, the banker becomes a 'gratuitous bailee'. In other cases, where charges are levied, the banker becomes a 'bailee for reward'.

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Notes:

The law of bailment is explained in Section 148 of the Contract Act, 1872.

Refer the judgement given by the Supreme Court in the case of United Commercial Bank vs Hem Chandra Sarkar [AIR 1990 AIR 1329].