Bailment Agreement

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Bailment Agreement

Brief Introduction About Bailment Agreement

Under the contract act, there are different types of agreements that we come across daily. One such agreement is bailment. Before we learn about the bailment agreement is, it is essential to know what an agreement is.

An agreement is a broad term; it comes into existence when two people agree on a particular issue in the same sense, including obligation and duties. Similarly, a bailment is one type of legal agreement that binds two people. Bailment agreement arises when there is a transfer of possession between two parties. 

What Does Bailment Mean?

Bailment means to advance something to an individual devoid of giving the ownership. In the framework of civil court decisions, bailment means to improve a judgment without being a lawyer or requiring full possession of each right, title, and importance in the judgment.

What Is a Bailment Agreement?

Bailment agreement is defined by section 148 of the Indian contract act. As per the bailment definition, it is “a bailment is a delivery of goods by one person to another upon a contract for some purpose.” The goods so delivered needs to be returned on accomplishing the purpose or disposed of as per the instruction of the person carrying them.

In simple terms, a bailment is a process under which one person temporarily transfers the physical possession to another person. The agreement is entered between two parties, namely, bailor and bailee. The person delivering the goods is known as bailor, and the person receiving the goods is known as bailee.

However, it is important to note two crucial under bailment agreement, and there is no transfer of ownership.

The Purpose of the Bailment Agreement

The purpose is the reason for doing something. In the case of a bailment agreement, it is entered between the parties for three reasons.

  1. For the Mutual benefit of both the parties when there is an exchange of performance, for example, a car repair or giving clothes for laundry.
  2. The sole advantage of bailor like leaving the property for safekeeping with a friend without any promise of compensation. On the other hand, it is like an Involuntary that arises when an individual unintentionally gives his personal property to another’s possession.
  3. Finally, the third purpose is for the sole benefit of the bailee, like loaning a book.

Contents of the Agreement

To constitute a bailment agreement the following conditions must be satisfied

  1. The delivery of goods: the first condition of a bailment agreement is delivery of goods, this can be achieved by doing anything that must the possession of the products in the hands of the bailee, authorized to hold them on behalf of the bailee.

Gratuitous bailment is also a kind of bailment where the bailee gets no compensation.

  1. Essentials of a valid contract: for a bailment to be practical, it must satisfy all the conditions of a valid contract like competent parties, free consent, consideration, etc.
  2. Return or disposal of goods: Finally, a bailment agreement is entered for a specific purpose. On completion of this purpose, the goods must be returned in the same or altered condition, or it has to be disposed of as per the directions of the bailor. If the bailee is not bound by such a state, then the bailment agreement does not come into the picture.

How to Draft a Bailment Agreement?

  • When it comes to drafting an agreement, the foremost requirement is that it must include all clauses that determine the relationship between the parties. The agreement must consist of the details of the bailor and the bailee, the purpose for entering the agreement and clear direction as to goods delivered like what, when, how, and their position after fulfilling the mission.
  • The important aspect you need to remember while drafting an agreement is a consideration and conscious of mind.
  • In addition to this, the agreement must include a general provision like rights and duties of the party, termination, and action that can be taken in case of violation by either party. 

Negotiation Strategy

This agreement is finalized, parties sit down to negotiate for arriving at a win-win situation. The basic strategy followed while negotiating an agreement is being clear about your priorities and ensuring to include them in the agreement.

Benefits and Drawbacks of Bailment Agreement

A significant advantage of any agreement is the fact that it reduces risk, saves time and money, and finally, it clearly states the relationship, duties, and rights of the parties.

On the other hand, agreements do have certain drawbacks; a poorly written agreement may not be that effective. Further, an agreement to hold good in the court of law must fulfill the conditions of contract law(1).

What Happens in Case of Violation?

A violation of a bailment agreement arises when either of the parties fails to perform their part of the agreement. The agreement binds the bailor and bailee, in case of failure, then either the party can take action. And the party at fault has to compensate for the loss, which may be in terms of money or replacing the goods. Violation of agreement and the action preceding such breach are the essential clauses that need to be included(2).

Bailment agreement is something that arises in everyday situations. Valet parking is a good example, and here you are entrusting your vehicle for safekeeping and unknowing entering into a bailment agreement. Under bailment, there is an expectation that the property will be returned to the bailor.