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Bailment

Reviewed by Bhavana | Updated on Sep 30, 2020

Catalogue

Introduction

Bailment represents a legal relationship wherein the physical possession of a chattel or personal property is transferred from one individual to another individual who will subsequently get the property’s possession but not the entire ownership.

Bailment surfaces when a property is given to an individual for security purposes; it is a law-bound course of action which is independent of contract/tort. For creating a bailment, a bailee needs to have an intent to possess and actually possess the bailable chattel physically.

Within a bailment, generally, a bailor is not eligible to utilise a property when it is in a bailee's possession. This differentiates a bailment from leasing, wherein the ownership remains with the lessor; however, the lessee is permitted to utilise the property. An apartment which is leased is another example wherein a tenant possesses and utilises his or her apartment, however, does not own it.

Understanding Bailment

A bailor can nominate a bailee for supervising an investment portfolio till the bailor intends to be back on handling the responsibilities of managing a portfolio. Other types of bailment are—holding collateral versus a secured loan, self-storage, warehousing, and shipping of commodities.

Types of Bailments:

There are three different types of bailments, a bailment which benefits both the bailee as well as the bailor, a bailment which benefits only the bailor, and a bailment which benefits only the bailee.

A bailment can be ended during the following scenarios:

  1. When the objective of a bailment ends
  2. During a fixed terms end
  3. In case the bailed property is knocked down
  4. In case one of the parties gives a termination notice

Highlights of a Bailment

  1. Bailment represents the contractual transfer of property or assets from a bailor, who relinquishes possession temporarily but not the ownership, to the bailee.
  2. For bailment creation, a bailee must intend to possess, as well as possess the bailable chattel physically.
  3. Short-sellers use a bailment mechanism for borrowing shares in order to sell them.

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