Bailment is a contract, where the owner of goods makes delivery of his goods to another for some limited period or purpose. It is change of possession of goods, not transfer of ownership of goods as in sale. If a person gives some property to another upon a contract that it shall be returned to him or otherwise disposed off or sold out according to the order of the person delivering it, the contract is said to be the contract of bailment.

A person who delivers his goods temporarily to another is called the bailor and a person to whom goods are temporarily delivered is called bailee. The transaction between those two parties is known as a contract of bailment.

Essential Elements of Bailment

A) Contract:

The relationship between the bailor and the bailee is the creation of a contract. In other words, the bailment is based on a contract between the bailor and the bailee. There must be a written document if the delivery of goods is worth more than five thousand rupees according to section 25 of the Nepalese Contract Act, 2056.

B) Delivery of movable goods:

Firstly, for the validity of the contract of bailment, only the moveable property is needed. It signifies the goods which are movable like cars, timber, horse, etc. Secondly, the goods delivered by one person to another person. Delivery of goods may be either in actual or constructive form and it must be voluntary.

(a)Actual delivery: when the bailor hands over to the bailee physical possession of the goods is known as actual delivery.
(b)Constructive delivery: It doesn’t involve handing over the physical possession, but something is done which has the effort of putting the goods in the possession of the bailee, e.g. delivery of document of title, delivery of key of store or vehicles.

C) Purpose:

Delivery of goods must be some specific purpose (repair, security, making something) by which the bailee is bound to return the goods as the purpose is achieved. When the goods are delivered by mistake without any purpose, there is no bailment.

• Possession of the property: Property must be delivered to the bailee (the one who receives the property) by the bailor (the person who entrusts it).
• Property control: It is the bailee’s responsibility to have control over the property, which means to be able to use, manage, and dispose of the property as agreed between the bailor and bailee.
• Specific purpose: In most cases, bailments are used for storage, repair, or transportation purposes.
• Property return: When the bailee fulfills the purpose of the bailment, he or she must return the property to the bailor.
• Care duty: While the property is in the bailee’s possession, they are responsible for taking reasonable care of it.
• Loss or damage liability: It is the bailee’s responsibility to guard the property while in their possession, unless an act of God or other unforeseen event causes it to be damaged or lost.
• Use compensation: Any benefits or use the bailee derives from the property while it is in his or her possession may be compensable.

D) Non Transfer of Ownership:

Under the contract of bailment, the ownership of goods is not transferred, only the possession of goods is transferred from a bailor to bailee. The ownership of the goods remains with the bailor. Bailment is characterized by the fact that the bailor retains ownership of the property, while the bailee is only responsible for its safekeeping. Without the consent of the bailor, the bailee cannot transfer ownership of the property to a third party.

A bailee is obligated to take reasonable care of the property and return it to the bailor when the bailment’s purpose has been met. Bailees may be held liable for loss or damage to property if they fail to take reasonable care of it or fail to take reasonable care of it while in their possession.

A bailee cannot sell or give away the property without the bailor’s permission, meaning that the bailee cannot transfer ownership without the bailor’s consent. Bailors retain all rights to the property, including the right to transfer ownership, since the bailee is responsible only for temporary care of the property. A bailee may be allowed to use bailed property in some cases, but the bailor keeps ownership at all times. A bailee must obtain the bailor’s permission before using the property for a purpose other than agreed upon.

Bailment ensures that the bailor retains control over their property and that the bailee cannot transfer ownership without the bailor’s consent. Non-transfer of ownership is at the core of this legal relationship, as it ensures that the bailor controls their property.

E) Return or Dispose of Goods:

The goods are to be returned either in their original form or in an altered form or disposed of in accordance with the directions of the bailor.

Return of Goods: Bailors (the people who own the goods) are obligated to return the bailee’s goods to them when the bailment agreement’s terms have been met. If the agreement specifies that the goods be returned in a specific condition, then they must be returned in that condition.

Disposal of Goods: If the bailor authorizes it, the bailee may dispose of the goods rather than return them. There are two possible reasons for this: either the goods are no longer needed, or they are damaged beyond repair. As directed by the bailor, the bailee must dispose of the goods according to the bailor’s instructions, such as selling them or donating them to a specific charity. Additionally, they must provide a proof of how they disposed of the goods to the bailor.

A bailment agreement requires the return of goods to indicate the completion of the agreement and the fulfillment of the bailee’s obligations. A bailor is also guaranteed their property will be returned in the same condition they left it. Bailees may be held liable for damage or loss incurred by bailors if they fail to return good.

Bailment agreements tend to be less frequent in terms of goods being disposed of. The importance of this aspect cannot be overstated. If the bailee is directed by the bailor to dispose of goods, he or she must follow those instructions and account for those disposals. The goods must also be disposed of in a legal and ethical manner.

Bailees are sometimes authorized to sell goods as compensation for their services and retain the proceeds. Bailments are commonly seen at consignment sales and are known as “bailments for hire”. Besides accounting for the proceeds of the sale, the bailee must return them to the bailor.

Returns and disposals of goods are important elements of a bailment agreement, as they represent the completion of the agreement and the fulfillment of the bailee’s obligations. In accordance with the bailee’s agreement, the bailee must return or dispose of the goods legally and ethically.

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• Termination of Bailment

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Smirti

(Founder of Management Notes)
MBA,BBA.

I am Smirti Bam, an enthusiastic edu blogger with a passion for sharing insights into the dynamic world of business and management through this website.

I hold a MBA degree from Presidential Business School, Kathmandu, and a BBA degree with a specialization in Finance from Apex College,

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