THE LEGAL DISTINCTIONS

BETWEEN BAILMENT AND

AGENCY: A COMPARATIVE
ANALYSIS

AARYA SHOBHARAJ
BASAVASWAROOP
basavaswaroopy.ba23@chanakyauniversity.edu.in
Abstract

The academic paper undertakes a detailed analysis of the distinct legal variations between the
concepts of agency and bailment as they are outlined in the Indian Contract Act of 1872. Even
though both concepts are entrenched in contractual relationships, they diverge significantly in
terms of their purposes, the associated rights, duties, and liabilities. Bailment is primarily centered
around the transfer of possession without altering the ownership of the goods, whereas agency
pertains to the representation of one party by another, with the ability to legally commit the
principal. The objective of the paper is to provide a comparative perspective by employing a
methodical examination of legislative texts and relevant case law, with an emphasis on the practical

Keywords: Bailment, Agency, Indian Contract Act, Legal Relationship, Comparative Analysis

1. Introduction

1.1 Background

The two important concepts of contract law are bailment and agency, both of which are elaborated
within the Indian Contract Act of 1872. Despite serving different roles within legal relationships,
these concepts share a common foundation based on some degree of entrustment. Section 148 of
the Indian Contract Act describes bailment as the act of transferring the ownership of items for a
specific purpose. Once this purpose is fulfilled, the items are expected to be returned to their
original owner. In contrast, Section 182 of the same legislation characterizes agency as a
relationship between a principal and an agent, where the agent is granted the authority to establish
legally binding obligations on behalf of the principal. The distinctions between bailment and
agency significantly influence the duties, liabilities, and execution of obligations under Indian
contract law. Therefore, it becomes crucial to understand these differences in depth, as they play
a fundamental role in the application and interpretation of legal principles within the framework
of contractual agreements.

2. Statement of problem

The main problem arises from the fact that bailment and agency share many similar characteristics,
which creates challenges when it comes to interpreting and applying these concepts within the
legal framework of India. This ambiguity arises due to the absence of distinct boundaries that

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separate the two, often leading to confusion regarding the scope of rights, responsibilities, and
obligations associated with each. For instance, there are numerous situations where one party
erroneously believes that a contract for bailment can be used interchangeably with a contract for
the agency, which frequently leads to disputes over alleged breaches of contract or accusations of
wrongful liability.

3. Research Questions

1. What are the fundamental elements of the bailment and agency

2. What are rights, duties and obligations of bailor, bailee and agent?

3. The legal distinction between bailment and agency?

4. Research Methodology

This paper utilizes doctrinal research to analyse statutory provisions, judicial interpretations, and
commentaries on the Indian Contract Act, 1872. The analysis draws from landmark cases, legal
doctrines, and scholarly works.

5. Research and Analysis.

5.1 Definition of Bailment and Agency under The Indian Contract Act, 1872

Bailment

“Bailment" is the delivery of goods by one person to another 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 the person delivering them. The person delivering the goods is called the
"bailor". The person to whom the goods are delivered is called the "bailee”1

Agency

1
Section 148 of The Indian Contract Act,1872

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An “agent” is a person employed to do any act for another, or to represent another in dealings
with third persons. The person for whom such an act is done, or who is so represented, is called
the “principal”.2

5.2 Key Elements and Duties

5.2.1 Essentials Elements Of Bailment

1. Goods Must Be Delivered to the Bailee or Possession Transferred in Some Other Way

Bailment requires the actual transfer of possession of goods from the bailor to the bailee. This
transfer of possession can happen in various ways, such as physical delivery, symbolic transfer (like
handing over a key), or even by creating access to the goods without moving them (e.g., by
providing a secure storage area). It’s crucial to note that ownership remains with the bailor—the
bailee simply gains temporary possession to carry out the agreed purpose. This element is essential
because it distinguishes bailment from mere ownership or control without a transfer of possession.

2. Bailee Must Voluntarily Accept Responsibility for the Goods

For a bailment to be valid, the bailee must willingly take on the responsibility for the goods. If
the bailee does not accept this responsibility voluntarily, there is no bailment relationship. This
voluntary acceptance is a key aspect of the bailee’s role, signifying that they understand and agree
to fulfill certain obligations related to the care and protection of the goods. For example, if
someone accidentally leaves their belongings at another person’s property without the property
owner’s consent, the property owner is not automatically considered a bailee. This element
emphasizes the importance of mutual agreement and consent in the bailment relationship.

3. Bailee Must Exercise Due Care and Skill in Handling the Goods

The bailee has a legal duty to exercise reasonable care in handling the bailed goods, which means
taking precautions to prevent damage, loss, or theft. The level of care may vary depending on the
type of bailment, the value of the goods, and the circumstances, but generally, the bailee must treat
the goods in a way that a reasonably prudent person would. This element highlights the standard
of care expected in bailment and aims to ensure the safety and preservation of the goods while

2
Section 182 of The Indian Contract Act,1872

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they are under the bailee’s control. A bailee’s failure to exercise due care could result in liability for
any damage or loss incurred.

4. Bailee Must Be Under an Obligation to Return or Deliver the Goods

The essence of bailment is that it is a temporary transfer of possession, not ownership. Therefore,
the bailee is obligated to return the goods to the bailor or deliver them to a designated third party
once the purpose of bailment is fulfilled or the agreed period ends. This requirement reinforces
that the bailee’s possession is temporary and that the goods must ultimately be returned to the
rightful owner. This element is essential to differentiate bailment from other types of property
transfers, such as sales or gifts, which do not entail an obligation to return the goods.

5.2.2. Essential for Creation of Agency

1. Competency of Principal: 1. The principal should have attained the age of maturity
and should be of sound mind.

2. Competency of Agent: Any person is eligible to be an agent, but no person who is

either not attained majority or is of unsound mind will be held responsible for the
actions taken against their actions as an agent3.

3. Consideration is not necessary

4. Intention of the Agent: There is a necessity for intention to be present on behalf of

the agent to act as a representative of the principal. If the agent enters a contract with
its own beneficiary intention, then the principal is not liable.

5.2.3 Duties of Bailor

3
Section 184 of The Indian Contract Act ,1872

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 1. Duty to Disclose Known Defects (150): A bailor is bound to disclose to the bailee all
the known defects or risks associated with the goods bailed. If he fails to disclose, he will
be liable to pay damages to the bailee.

2. Duty to Provide Clear Instructions: The bailor has a responsibility to communicate and
provide clear instructions regarding the purpose of bailment to the bailee.

3. Duty to Pay Necessary Expenses: The bailor has a duty to bear any extraordinary
expenses incurred by the bailee in the ordinary course of the bailment. For example,
expenses like storage charges, transportation costs, and reasonable costs for preserving the
goods during the bailment period.

4. Duty to Indemnify the Bailee: The bailor is bound to indemnify the bailee for any loss
or damage suffered by the bailee due to defects in the goods which were not disclosed by
the bailor, or due to the failure to provide clear instructions regarding the bailment.

5. Duty to Take Back the Goods: The bailor has a duty to receive back the goods when
the bailee returns them after the purpose of bailment is accomplished .If he fails to receive
the goods back the bailor will be liable for any damages or losses suffered by the bailee.

6. Duty to Compensate for Premature Termination: The bailor has the duty to
compensate the bailee for any loss suffered by him if the bailor terminates the bailment
before the purpose is accomplished.

5.2.4 Duties of Bailee

1. Duty to Take Reasonable Care (Section 151): The bailee is bound to take as much care
of goods bailed to him as a man of ordinary prudence would, under similar circumstances,
take care of his own goods.

2. Duty to Return the Goods (160): The bailee has to return the goods to bailor once the
purpose of bailment is accomplished. The bailee cannot retain the goods beyond the agreed
period without consent. If the Bailee does not return the goods within the time to the

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 bailee, the bailor will be liable even if he was not negligent or the act was caused by act of
god.
If the possession of goods was taken away by some authority of law, Bailee will be not
liable to return the goods to Bailor

In Jugilal Kamlapati Oil Mills v. Union of India (1976)4, edible oil sent from from Kanpur to
Calcutta by rail which was later seized by a food inspector under the Calcutta Municipal
Act. The oil was found to be adulterated and subsequently destroyed by a court order. The
court held that the railway was not liable for the oil's non-return, as it had been destroyed
by a lawful order from a competent authority.

3. Duty Not to Mix Goods (155): The bailee should not mix his own goods with those of
the bailor without the consent of the bailor. If the goods are mixed with the consent, then
there is no breach of duty and both the bailee and bailor will have an interest in proportion
of their respective shares in the mixture produced.

4. Duty Not to Make Unauthorized Use (154): It is the duty of the bailee to use the goods
in accordance with the terms of bailment. If he makes an unauthorised use he is liable to
make compensation.

5. Duty to deliver any accretion to the goods: The bailee should deliver the bailor any
natural increase or profit accruing from the goods bailed.

5.2.5 Duty of Agent

1. Agent’s Duty in conducting principal’s business (Section 211): An agent must

conduct the business according to the direction of the principal, if no directions are given,
according to local business customs. If the agent acts otherwise and suffers loss he must
make it to the principal and if any profit is made he must account for it.

4
Jugilal Kamlapati Oil Mills v. Union of India (1976)

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 2. Skill and Diligence Required (Section 212): An agent is required to exercise the skill
typical of professionals in similar businesses and to act with reasonable diligence. If the
agent lacks skill or is negligent, they are liable to compensate the principal for direct losses
caused by this deficiency.

In Jayabharthi Corp v.PN Rajasekhara Nadar5 it was held that “Section 212 covers another
aspect which says that it is the duty of an agent to use all reasonable diligence to communicate
with the principal in cases of difficulty and try his best to seek his instructions. In all such situations
where the agent is misinforming the principal and a loss occurs due to his misconduct, he is liable
to the principal”.

3. Duty to Render Proper Accounts (Section 213): An agent must provide accurate
accounts of all transactions to the principal on his demand.

4. Duty to Communicate with the Principal (Section 214): In cases of difficulty or

uncertainty, it is the duty of the agent to use all reasonable diligence in communicating
with the principal.

5. Not to Deal on Their Own Account (Section 215): If an agent engages in agency-related
business on their own behalf without informing the principal, the principal has the right
to reject the transaction, especially if there was dishonesty or if the transaction was
detrimental to the principal.

6. Not to Make Secret Profits (Section 216): If an agent without the knowledge of his
principal deals the business of the agency on his own account instead of on principal’s
account the principal is entitled to claim benefits which may have resulted to him from the
transactions.

7. Duty to Pay Sums Received for Principal (Section 218): The agent must pay all sums
received on behalf of their principal, minus any deductions.

5.3 Rights and Types

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Jayabharthi Corp v. Sv P.N. Rajasekhara Nadar(1991)

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5.3.1 Rights of Bailor

1. Enforcement of Bailee’s Duties: The duties of the bailee are the rights of the bailor.
The bailor has the following rights against the bailee:
a. The bailor can claim damages for loss caused to the goods due to the
bailee’s negligence.
b. The bailor has the right to compensation for any damages which arises
due to the unauthorized use of the goods bailed.
c. The bailor can claim compensation for any loss caused by the
unauthorised mixing of good bailed with his own goods.

2. Right to Demand Return of Goods: Once the purpose of the bailment is fulfilled or
the agreed period expires, the bailor has the right to demand the goods back. The bailee
must comply by returning or disposing of the goods as per the bailor’s instructions. In
Lallan Prasad v Rahmat Ali (1967)6 The Supreme Court of India held that the bailee is
bound to return the goods upon fulfillment of the bailment purpose. The bailor has the
right to claim damages if the bailee fails to fulfill this duty.

3. Right to Terminate Bailment if the Bailee uses the goods wrongfully: The bailor
can terminate the bailment before its purpose is fulfilled, if the bailee does any act
inconsistent with the terms of bailment.

5.3.2 Rights of Bailee

1. Right of Possession: The bailee has the right to possess the bailed goods for the duration
and purpose of the bailment. However, this possession is limited to a specific purpose that is
agreed upon and cannot be altered without the bailor’s consent.

2. Right to Compensation for Expenses: The bailee has the right to be reimbursed for
necessary expenses which were incurred by them to preserve or maintain the bailed goods.

6
Lallan Prasad v Rahmat Ali (1967)

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3. Right to Claim Compensation for Damages: If the bailed goods are damaged due to the
fault of the bailor or a third party, the bailee can seek compensation for those damages.

4. Right of Lien: The bailee can retain possession of the goods until they are compensated by
the bailor for services rendered or expenses incurred. This right applies as long as the goods
were lawfully obtained by the bailee and is not valid if possession was obtained through theft
or fraud. In Surya Investment Co. v. S.T. Corporation of India Ltd. (1986)7, the court upheld the
Bailee’s right of lien .

5.3.3 Types of Bailments

1. Gratuitous Bailment: In a gratuitous bailment, the bailor gives possession of the property to
the bailee for safekeeping without expecting payment or other compensation.

2. Non-Gratuitous Bailment: This type of bailment involves the exchange of consideration,

where the bailee receives the property for a fee or compensation.

3. Bailment for Mutual Benefit: Both the bailor and bailee receive a benefit from this bailment
arrangement.

4. Bailment for the Sole Benefit of the Bailor: Here, the bailee takes possession of the property
primarily for the benefit of the bailor, without receiving compensation.

5. Bailment for the Sole Benefit of the Bailee: This arrangement benefits only the bailee, who
uses the property without any benefit to the bailor.

5.3.4 Rights of an Agent

7
In Surya Investment Co. v. S.T. Corporation of India Ltd. (1986 )

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 1. Right to Receive Remuneration (219):, An agent is entitled to remuneration for their
services. However, Section 220 specifies that if the agent is guilty of misconduct, then the
agent is is not entitled to remuneration in respect of the part of he business which he has
misconducted.

2. Right of Lien (Section 221): In the absence of a contrary agreement, an agent has the
right to retain the principal’s goods, documents, or other property until the agent receives
payment for their services, commission, or expenses. This lien protects the agent’s interests
by allowing them to secure payment from the principal.

3. Right to Indemnity (222): The agent has the right to be indemnified by the principal for
losses resulting from all lawful acts performed within the scope of their authority.

4. Right to Compensation (225): The principal must make compensation to the agent in
respect of injury caused by the principal’s neglect or want of skill

5.3.5 Types of Agents

1. Special Agent: An agent appointed to perform a specific, one-time act. Their authority is
limited to completing that particular task.

2. General Agent: An agent authorized to handle all activities related to a specific business
or role. They have broader authority but only within a defined scope.

3. Sub-Agent: An agent appointed by another agent (the main agent) to perform tasks on
behalf of the principal. The principal’s consent is generally required for appointing a sub-
agent.

4. Co-Agent: Agents appointed together to perform a task jointly. They share responsibilities
and usually need to coordinate to fulfill their role.

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 5. Factor: An agent who appears as the apparent owner of the goods they handle and is paid
via commission. They may hold goods in their possession and sell on behalf of the
principal.

6. Broker: An agent who arranges contracts between two parties, usually without holding
possession of goods. They act as intermediaries to facilitate agreements.

7. Auctioneer: An agent who represents the principal as a seller in an auction. The

auctioneer’s role is to sell items to the highest bidder.

8. Commission Agent: An agent appointed to buy and sell goods on behalf of the principal,
aiming to secure the best deals. They often work in markets, ensuring favorable
transactions.

9. Del Credere Agent: This agent acts as a salesperson and broker, guaranteeing payment
for sales made on credit. They offer assurance to the principal by covering potential credit
risks.

6.The Legal Distinction Between Bailment and Agency:

As we know the bailment is derived from the French word ‘Bailor `, which means to deliver.
Whereas agency is called as when a person appoints another person to act on his behalf for any
legal purpose with a third party. There are several legal distinctions between the bailment and
agency, which are as follows: -

1. In bailment the bailee will not be the representer of the bailor as the agent will be
representing the principal on his behalf with the third party.
2. For such where the agent has authority to make decisions on behalf of the principal,
wherein the bailee does not.
3. Hence, bailee has not authority to act on behalf of the bailor nor represent him, as the
agent have.
4. In bailment, a bailee doesn't have any power or authority to sell the bailed property,
whereas in agency, the agent can sell the property of the principal.

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 5. In agency in almost cases the principal will be liable for the acts done on his behalf by
agent, in which the bailment, bailor will not be liable for the act done by the bailee.
6. To have the possession of the property by bailee is mandatory in bailment, wherein in
agency, agent can or cannot have the possession of the property.
7. Bailment is gratuitous in nature whereas agency is remunerative in nature.

No. Bailment Agency

1. In the bailment, Bailee will not be In the agency, the Agent will be
representing the bailor. representing principal to the third party.
2. No power will be given to the bailee There will be certain powers that will be
by the bailor. given to agent by his principal.
3. The object of the bailment is to The object of the agency is to act on
temporary possession of the goods behalf of or represent the principal to
that are bailed for the specific purpose. the third party.
4. For example, Basavaswaroop gives his For Example, Aarya hires Pragyna to
bike to Sujal to repair some part of it. represent on her behalf to a third party
Now this will be considered as the for a specific purpose. Now Aarya is the
contract of bailment between the principal and Pragyna will be the Agent
Basavaswaroop and sujal. on the contract.
Basavaswaroop will be bailor and Sujal
will be bailee
5. Bailee will be having the duty to In agency, the Agent will have a duty to
preserve and protect the bailed goods act in the best interest or care of the
or property. principal.
6. Bailee may be liable for any damages In the agency, both the agent and
or losses caused to the bailed property principal will be liable for the breach of
or goods, he will be not liable only if duty or contract and action together.
the loss or damage caused by the bailor
himself.
7. In Bailment, termination will not be Here in the agency, terminations will
automatically upon the death or also be upon the death or insolvency of
insolvency of both bailor and bailee. the principal or the agent.

As we came through the table which shows or indicates the legal distinctions in structured manner.

Even though the Indian Contract Act ,1872 will be governing both the Bailment and agency, but
we find many different or distinct legal differences between two in many aspects. Here the whole
concept of bailment will be focusing from primary action that is a person who will be called as
bailor giving the possession the property or good to the another person for any specific purpose
which may include repair of the vehicle, making of gold ornaments and many , hence the whole
process includes receiving the possession of the property and also returning possession of
property with all due care to bailor by bailee and also by bailee to bailor. Wherein the agency, the
whole process involves a relationship of one party that is principal to another person who will be

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agent, whose act will be according to the extend legal authority from the principal to agent in
representing to the third party on behalf of the principal. The key difference we can find out here
is the scope and authority of both the bailment and agency. Wherein Bailment, the role of the
bailee will be specific towards the preserving or protecting the goods that are bailed by bailor in
the assistance of the bailor for which the bailee will not be having or will be representing to the
any third party on behalf of the bailor. But in agency, the primary function of the agent will be to
represent the principal to the third party. The major scope of difference we can find out is in
agency principal will be taking the liability for the action that are done by agency in agency, but in
bailment, bailor will not be liable for the acts of bailee in respect to the goods bailed. And also, we
can find the major difference between the bailment and agency in the ownership and Risk. Because
in the bailment, bailor will be retaining the ownership of the property over bailee, who will be
having the temporary possession over the said property. But in Agency, it does not include the
transfer of the possession of the property.

In last, we can see the two-party contracts in both the bailment and agency, but they serve markedly
different purposes under the Indian contract act 1872.

Conclusion

In conclusion, bailment and agency are both a part of the Indian constitution Act,1872,serving
different purposes. Bailment is the handling of goods over possession,with the Bailee responsible
for their care and return. Whereas the agency is about allowing an agent to act on behalf of a
principal, forming binding obligations with the third parties. Where bailment is focused on
safekeeping of property without handing over the legal authority, the agency is based on trust,
enabling the agent to represent the principal legally. Having an overview of these differences and
understanding them helps in clarifying each role's unique duties and the legal remedies that are
provided under the Indian contract law.

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References

AK Legal, 'The Concept of Agency in Contract Law and Explanation of Law Relating to
Agency' (AK Legal, 2024) https://aklegal.in/the-concept-of-agency-in-contract-law-and-
explanation-of-law-relating-to-agency/

LawAimers, 'Types of Bailment' (LawAimers, 2024) https://lawaimers.com/types-of-

bailment/

LawBhoomi, 'Rights and Duties of Bailor and Bailee' (LawBhoomi, 2024)

https://lawbhoomi.com/rights-and-duties-of-bailor-and-bailee/#Rights_of_Bailee

CliffsNotes, 'Study Notes' (2024) https://www.cliffsnotes.com/study-notes/6564208

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