LEGAL PERSPECTIVE: Contracts of Bailment by Dr AbdelGadir Warsama, Legal Counsel

Dr AbdelGadir Warsama, Legal Counsel

A contract of bailment arises when the owner of goods “the bailor” entrusts and keeps their possession into the care of another “the bailee”. Examples of bailment contracts include placing your documents in safe custody at a bank, rent a flat or a bike, taking some clothes to dry cleaner, hire a car for few days or even companies may hire on yearly basis …, etc.

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The bailees main duties include, to take reasonable care of the goods whilst they are in his possession and to return them to the bailor, at the end of an agreed period or when requested. However, in most cases there may be certain conditions to be observed by each party. Under a hire agreement, the owner of the goods allows someone else “the hirer” to make use of them in return for regular rental payments. The hirer obtains possession of the goods but the ownership never passes to him and at the end of the agreement, the goods must be returned to the real owner.

Most people are familiar with hire contracts in the context of car rental or TV videos or equipment rentals. In some countries, this kind of arrangement is governed by the Consumers Protection Act and or the Consumer Credit Act.

Businesses also take great advantage of hiring, as a method of obtaining the use of the equipment which they require at a certain time. The hiring process in this context is referred to as “leasing”, whereas in Islamic Finance, it is called “Ijarah” and therein it has got different usages.

The owner being known as the “lessor” and the hirer as the “lessee”. The leasing agreement, often includes an undertaking by the “lessor” to service the equipment regularly and effect repairs when necessary. The equipment leasing activity has allowed business to take advantage of new opportunities created by the rapidly changing new technology in industry. Moreover, big companies can only hire instead of buying that could need much money at one time. For example, Gulf Air, in this scenario, can hire new planes to cover many destinations instead of buying new planes costing immediate much money to be utilized in other aspects as deemed appropriate for the interests of the company. Likewise, many construction contractors, can hire heavy and or light construction equipment for use depending on the construction contracts in hand at a particular time.

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