Nature and Types of Bailments CHAPTER THIRTY-TWO.

Nature and Types of Bailments

CHAPTERTHIRTY-TWO

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What a Bailment Is

• A bailment exists when one person is in possession of personal property belonging to someone else.

• The understanding in a bailment is that the personal property taken charge of will be returned. – Examples of bailments:

• Your friend loans you a CD • You rent a boat for the day• You check your coat in a restaurant


What a Bailment Is (continued)

• Bailments are fairly common everyday occurrences that are governed by law.

• The parties to a bailment are:– The bailor: the party who gives up possession of the

bailed item– The bailee: the party who receives possession of the

item of personal property


Requirements for a Valid Bailment

• Personal property: a bailment can only take place with personal property. (Recall the distinction between real and personal property.)

• Retention of title: in a bailment, the bailor only transfers possession of, not title to, the property.

• Possession of the property by the bailee: a change in possession of the property must occur for a bailment to take place. – The bailee must knowingly accept possession for a bailment to

occur.• A bailment relationship by its very nature assumes the same

property received will be returned.– The property could be transferred by agreement to a third party

or disposed of.


How a Bailment Is Created

• A bailment can be created by an express agreement. – A bailment can be created by a contract, such as an

agreement to repair your automobile.

• A bailment can be implied in fact.– A bailment implied in fact arises from the acts of the

parties.

• A bailment can be implied by law.– When a person obtains possession of another’s

property without any agreement, the law will imply a bailment to promote justice and fair play.


How a Bailment Ends

• Completion: the bailment ends according to the terms of the agreement.

• Mutual agreement: the bailor and bailee can agree to end the bailment.

• Acts of the parties: if nothing specific is said about when the bailment is to end, the bailor or bailee can end the bailment at anytime. If one of the parties does not live up to the bailment’s terms, the other party can also end the bailment.


How a Bailment Ends (continued)

• Destruction of the bailed property: if the bailed property is lost, destroyed, or becomes worthless through damage, the bailment ends. – If the loss or damage to the bailed property is the

result of negligence by the bailee, the bailee is liable for the value of the bailed property.

• Operation of law: a bailment implied in law terminates when the need for the bailment ends.


Situations Similar to Bailments

• Some situations resemble bailments but are in fact quite different. – Bank deposits are not bailments.

• Bank deposits create a debtor-creditor relationship. The depositor is the creditor and the bank is the debtor.

– Safe-deposit boxes are not bailments. • The bank does not actually have possession of the articles.

The bank is leasing the box and does not have both of the keys necessary to access the safe-deposit box.

– Public lockers • The owner of the locker never receives the property but

merely leases space. The renter retains possession with the locker key.


Classification of Bailments

• Bailments can be classified into several types:– Mutual benefit bailment: bailment where both the

bailor and the bailee benefit from the bailment– Gratuitous bailment: bailment where only one of the

parties to the bailment benefits– Constructive bailment: a bailment implied by law

• This type of bailment occurs when a person comes into possession of another’s property without that person’s knowledge or consent.


Mutual Benefit Bailments

• There are five types of mutual benefit bailments:– Renting– Work and services– Pledging– Consigning– Storage and parking


Mutual Benefit Bailments (continued)

• Renting or leasing: if you rent property for a period of time, it is a bailment. – Bailor’s rights:

• To be paid for use of the property• To expect the bailee will take reasonable care of the property• To have the same property returned at the end of the

bailment

– Bailor’s duties:• To provide goods or equipment that are fit for the purpose of

the bailment• To be familiar with the equipment and know its uses


Mutual Benefit Bailments (continued)• Work and service bailments arise when property is

delivered to a bailee for repair or service. – Bailor’s rights:

• There is no guarantee of the bailee’s skill in performing repairs or service. The bailor must choose a competent bailee.

• If the work is done so badly that the bailed property cannot be used, the bailee can insist the work be redone, refuse to pay for the work or demand the return of money paid.

– Bailor’s duties:• To pay for work done• To advise the bailee of any hidden defects in the property



• Work and service bailments (continued):– Bailee’s rights:

• To be paid for work done• If not paid, to keep the bailed property as security until paid

– Some states will allow the bailee to sell the bailed property to satisfy the right to payment.

– The bailee must give notice to the bailor before sale.

– The bailee must return any amount over the amount owed plus expenses to the bailor.

– Bailee’s duties:• To take proper care of the bailed property• To work on the property with the proper skill



• Pledging: when personal property is deposited with a lender to secure repayment of a loan or debt– The bailor (pledgor):

• Has the obligation to repay the loan plus interest• Has the right to the return of the bailed property once the

loan is repaid

– The bailee (pledgee):• Has the obligation to take reasonable care of the pledged

property and to return the property once the loan is repaid• Has the right to have the loan repaid under the terms of the

pledge



• Consigning: an arrangement where the bailor (consignor) delivers to the bailee (consignee) property to be sold by the consignee on behalf of the consignor– Ownership of the consigned property stays with the

consignor until the property is sold.• Consignment allows examination of product prior to sale. • Consignment is also used as a means to allow retailers to

maintain inventory on the sales floor without first buying.



• Consigning (continued):– Consignor’s rights:

• To have property stored under safe conditions• To have the property sold or returned

– Consignor’s duties:• To provide property that is safe• To advise the consignee if the property requires special care



• Consigning (continued):– Consignee’s rights:

• To receive property that is safe• To keep the property for the time agreed

– Consignee’s duties:• To take reasonable care of the property,• To pay for the property or return the property within a

reasonable time



• Storage and parking: a common bailment arrangement that often arises when a bailor stores goods in a warehouse– Bailor’s rights:

• To the have the property stored with reasonable care– Reasonable care depends upon the nature of the goods stored.

(For example, perishable items may require cold storage.)

– Bailor’s duties:• To pay all storage charges• To notify the bailor of any defects or special care required



• Storage:– Bailee’s (warehouse operator) rights:

• To be told of any specific storage requirements• To be paid for storing the property

– Bailee’s duties:• To return the property at the end of the bailment period• Not to use the property without the bailor’s permission



• Parking:– Some courts consider parking a car a mutual benefit

bailment.– Other courts consider it the lease of space, which

relieves the parking lot operator for liability for damages or loss.

– It depends upon the degree of control.• If you turn over your keys to the lot attendant, who parks the

car for you, you have lost control of the car and you have a bailment.

• If you park the car yourself and take the keys with you, a bailment does not occur.


Gratuitous Bailments

• In a gratuitous bailment, only one party benefits. – If the bailor delivers property to the bailee and does

not pay for the bailee’s service, it is a bailment for the sole benefit of the bailor.

– If the bailor delivers property for the bailee’s use without charge, a bailment for the sole benefit of the bailee occurs.


Gratuitous Bailments (continued)

• Bailment for the sole benefit of the bailor:– Bailor’s rights:

• To have the property stored in the agreed manner• To have the property returned at the end of the agreed time

– Bailor’s duties:• To reimburse the bailee for any expenses involved in the

bailment • To inform the bailee of any property deficits or dangers


Gratuitous Bailments (continued)• Bailment for the sole benefit of the bailor

(continued):– Bailee’s rights:

• To be warned of any defects or dangers connected with the bailed property

• To have the property picked up at the end of the bailment

– Bailee’s duties:• To store the goods in the agreed manner• To return the goods at the end of the bailment

• Since there is no compensation involved, the bailee has to

use only slight care as required by the circumstances.



• Bailment for the sole benefit of the bailee:– Bailor’s rights:

• To have the property returned in good condition at the end of the bailment

• To end the bailment at any time

– Bailor’s duties:• To warn the bailee of any defects or dangers in the

bailed property



• Bailments for the sole benefit of the bailee (continued):– Bailee’s rights:

• To use the bailed property as agreed• To be warned of any defects or dangers

– Bailee’s duties:• To use a high degree of care (because the bailee is the only

one who benefits)• To use the property only as agreed• Return the property in good condition at the end of the

bailment period.


Constructive Bailments

• When a bailee obtains possession of property without the an agreement or consent of the owner, a constructive bailment occurs.

• Bailment of lost property:– Law requires the bailee to take steps to protect the

true owner’s property.

• Bailment by necessity:– When property comes into a bailee’s possession by

mistake, that person is a constructive bailee for the benefit of the rightful owner.

• The bailee must take reasonable care of the property.


Limiting Liabilities: Disclaimers

• A disclaimer is a bailee’s attempt to limit liability for damage while the property is in his or her possession.

• Courts have been limiting disclaimers of liability on the grounds that such limitations violate public policy.

Nature and Types of Bailments CHAPTER THIRTY-TWO.

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