Section 181 Indian Contract Act 1872 - Apportionment of Relief or Compensation

Section 181 of the Indian Contract Act, 1872 deals with the distribution, between a bailor and a bailee, of relief or compensation recovered through a suit against a third-party wrong-doer.

Text of Section 181

Meaning and scope of Section 181

Section 181 follows Section 180, which permits a bailor or bailee, in the circumstances stated there, to bring a suit against a third person who wrongfully deprives the bailee of the use or possession of the goods or injures them. Section 181 addresses what happens to the relief or compensation recovered in such a suit.

The rule is that the amount or other relief recovered is not automatically retained in full by whichever party filed the suit. As between the bailor and bailee, the recovery must be dealt with according to their respective legal interests in the goods.

Key terms explained

Bailor and bailee

Under Section 148 of the Indian Contract Act, bailment concerns delivery of goods by one person to another for a purpose, on a contract that the goods will be returned or otherwise dealt with according to the directions of the person delivering them after the purpose is accomplished. The person delivering the goods is the bailor and the person receiving them is the bailee.

Respective interests

For Section 181, the expression refers to the interests of the bailor and bailee in the goods and in the loss for which relief or compensation has been obtained. The practical allocation therefore depends on the rights and interests established in the particular bailment.

How Sections 180 and 181 operate together

Section 180 provides the basis on which either the bailor or bailee may sue a wrong-doer in the specified circumstances. Section 181 then regulates the internal allocation of the relief or compensation recovered, requiring it to be dealt with according to the respective interests of the bailor and bailee.

Simple example

If bailed goods are damaged by a third party and compensation is recovered in a suit under Section 180, Section 181 requires the recovery to be apportioned between the bailor and bailee according to the interests each has in the goods and the loss covered by the recovery. The exact division depends on the facts and legal rights involved.

Official legal source

The Indian Contract Act, 1872 is Central Act No. 9 of 1872. For the authoritative statutory text, see the Indian Contract Act, 1872 on India Code. The India Code portal is maintained by the Government of India.

Note: This page explains Section 181 for general legal information. Application of the provision depends on the facts, terms of bailment, nature of the parties' interests and relief actually recovered.