Page 54 - DMGT407Corporate and Business Laws

Unit 3: Contracts of Bailment and Agency

Objectives Notes

After studying this unit, you will be able to:

Explain the concept of Bailment;
Discuss the impression of termination of bailment;
Describe the purpose and meaning of agency;
Recognize the rights and duties of agents.

Introduction

At one time or another, we enter into legal relationships, called bailment and pledge. Bailments
are quite common in business also. Traders often store their surplus goods in warehouses; and
utilise the services of cold storages for keeping their goods to be taken back as and when
required; and factory owners often send machinery back to vendors for repairs.
Before the Industrial revolution, business was carried on largely by individual artisans in their
homes and in small family operated shops. As population and trade expanded and division of
labour and specialization became the order of the day, there arose the problem of distribution
of goods. To meet the rising demand, manufacturers and shopkeepers began to hire others to
work for them. These helpers or “servants” as they were called performed whatever physical
tasks were assigned to them, under the close personal supervision of the “master”.

Today, the legal terms master-servant and employer-employee are used interchangeably. Over
time, employers delegated a broader range of responsibilities to their employees – for example,
by giving them authority to contract for raw materials, to sell finished products and even to
employ other employees. In these expanded roles, the employees became known as agents and
their employers were called principals. The Indian Contract Act, 1872, makes provisions as
regards agency. Sections 182 to 238 deal with the subject of agency.

3.1 Bailment and Duties and Rights of Bailor and Bailee

3.1.1 Definition of Bailment (S.148)

Bailment is defined as the “delivery of goods by one to another person for some purpose, upon
a contract that they shall, when the purpose is accomplished, be returned or otherwise disposed
of according to the directions of person delivering them”. The person delivering the goods is
called the ‘bailor’ and the person to whom the goods are delivered is called the ‘bailee’.
The explanation to the earlier Section points out that delivery of possession is not necessary,
where one person, already in possession of goods contracts to hold them as bailee.
The bailee is under an obligation to re-deliver the goods, in their original or altered form, as
soon as the time of use for, or condition on which they were bailed, has elapsed or been
performed”. Let’s illustrate, (i) A delivers some clothes to B, a dry cleaner, for dry cleaning.
(ii) A delivers a wrist watch to B for repairs. (iii) A lends his book to B for reading. (iv) A delivers
a suit-length to a tailor for stitching. (v) A delivers some gold biscuits to B, a jewelers, for
making jewellery. (vi) Delivery of goods to a carrier for the purpose of carrying them from one
place to another. (vii) Delivery of goods as security for the repayment of loan and interest
thereon, i.e., pledge.

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