Bailment

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The term bailment refers to the transfer of personal property to another person for safekeeping, or for the other person to control or use temporarily. A bailment is a form of contractual relationship, even if no contract has been signed. The person receiving the property (the “bailee”) has possession and control over the property for a specific period of time, during which he or she is responsible to take reasonable care of the property. The original owner of the property (the “bailor”) retains ownership interest during this time. To explore this concept, consider the following bailment definition.

Definition of Bailment

Noun

  1. The delivery of property into the temporary custody and control of another for some purpose.

Origin

1545-1555 Anglo French bailement

What is a Bailment

Bailment is different from a contract for sale of the property, even where such contracts include seller-financing, or the making of payments for the property. This is because the intent of a contract of sale is to transfer ownership of the property to the buyer. In a bailment, ownership of the property does not transfer, and transfer is never an intended consequence.

In order for a bailment to exist, the bailee must have both the intent to possess the property, and actual possession the property. The bailor intends that the property will be returned to him at the end of a specified period of time, or after the purpose for which the property was given has been completed.

For example:

Kevin pulls up to the entrance of an upscale restaurant with his wife. The couple exits the car, and Kevin gives his keys to the valet, so he can park the car​​​​. In such a case, it is clear that the valet intends to take temporary possession of the car, and that Kevin expects to get his car back after dinner. While the car is in the valet’s possession, he is responsible for taking reasonable care of Kevin’s car.

Purposes of Bailment

Because a bailment is often created without an actual written contract, there are many situations in which the law recognizes a bailment exists. These include bailments created:

  • For the mutual benefit of both the bailor and bailee – created when there is to be an exchange of services or performances between the parties, such as when the bailor leaves his property with the bailee to be repaired, after which the bailor will be paying for the repairs.
  • For the sole benefit of the bailor – created when the owner of a valuable item, such as a TV, a car, or a piece of jewelry, leaves the item with someone for safekeeping, with no expectation of compensation being made to the friend or other party.
  • For the sole benefit of the bailee – created when the owner of an item loans the property to another person, with no expectation of receiving payment or compensation, but expecting that the item will be returned to the owner.

Elements of a Bailment

Many civil lawsuits arise over the failure of a bailee to protect the property of the bailor. In order to prove that a bailment existed, and therefore that the bailee had a duty to reasonably protect the property, three elements must be proven. These include:

  1. Delivery. The property must be delivered to the actual care and/or control of the bailee. Control of the property does not necessarily require actual physical possession in some cases, but by giving a means of access to the property, such as providing keys to a storage unit where the property is kept, the bailor engages in constructive delivery of the property.
  2. Acceptance. A bailee must knowingly accept possession and/or control of the property. This means that no one can unwittingly become a bailee, as, because a bailment is a type of contract, knowledge and acceptance of the bailment terms are essential elements.
  3. Consideration. Unlike a typical contract, in which both parties must receive something of value, only one party need receive something of value in a bailment. When a bailment is created for the sole benefit of the bailee, such as when one party loans the use of his car to another, just to be a good friend, a bailment is created, even though the bailor receives nothing of value.

For example:

George needs to go to several job interviews in the coming week, but his car is broken down. His friend Sam decides to let George use his second car, and surprises him by dropping it off at his house, parking it on the street while George is not home. A few minutes after Sam leaves, a drunk driver swerves and crashes into Sam’s car.

Sam wants George to pay for the damages to the car, saying he can wait until he has gotten a job. However, George had no idea that Sam intended to loan him his car, and had no intent of accepting use or control of the car when Same left it at his house. If the two men take the case to small claims court, Sam will not be able to prove that a bailment was created, and therefore that George had a responsibility to protect the car, as the three elements of a bailment did not occur. It is unlikely that the court would hold George liable for repairs to the car.

Rights and Responsibilities of a Bailee

In the event a written bailment contract is made, the rights and duties of both parties should be spelled out. In many cases, no written contract exists, though the law recognizes that a bailee must exercise a duty of care in protecting the property. This is the purpose of the tiered system of liability, with specific duties varying according to the type of bailment.

  • Bailment for Mutual Benefit – a bailee’s failure to take reasonable care of the property may result in the bailee’s liability for any damages that might be incurred due to his negligence.
  • Bailment for Sole Benefit of Bailor – a bailee has a lesser duty of care, being responsible only for damages that result due to his gross negligence, or act of bad faith.
  • Bailment for Sole Benefit of Bailee – a bailee has a duty of taking extraordinary care for the property, and may only use the property for the purpose agreed upon when the bailment is created. The bailee is responsible for all damages to the property that arise from his failure to properly take care of it.

Termination of a Bailment

Termination of a bailment occurs when its intended purpose has been achieved, or when the parties agree that it is ended. If a bailment is created for an undefined period of time, it may be terminated at will by either party by providing the other party with due notice of the intent to terminate. Following completion of the purpose for the bailment, the bailee has a responsibility to return the property to its owner.

In some cases, if return of the property is impossible, due to no fault of the bailee, the bailee is not held liable for non-delivery. This might occur if the property was destroyed in a fire that was not the bailee’s fault, or if the property blew away in a tornado. In all other situations, failing to return the property as scheduled or agreed, the bailee may be liable for the tort of conversion.

Real Life Cases of Responsibility Under Bailment

The issue of responsibility or liability for damage to, or loss of, property under bailment is a common subject of civil lawsuits across the U.S. In each of these cases, the judge must determine whether the three required elements of a bailment existed at the time of loss or damage occurred, as well as the value of the property lost, in order to make a judgment.

Hotel Loses Guest’s Valuable Jewelry

At Hotel in Minnesota, a guest left a valuable ring with the desk clerk, with instructions for the ring to be delivered to a jeweler. The desk clerk lost the ring, so it was never delivered to the jeweler, and he never reported to either his employer, or the guest, that it had been lost.

The guest sued the hotel as the bailee of the ring, as she had delivered possession of the ring to the hotel’s employee for the purpose of having it delivered to the jeweler. The guest proved to the trial court’s satisfaction that, as a bailee, the hotel was liable for the jewelry, and awarded damages in the amount of over $2,000.

The hotel appealed the decision to the Minnesota Supreme Court, arguing that, in order for a bailment to exist, there must be a mutual agreement between the parties. Since the hotel had never consented to become a bailee, it cannot be held responsible. The hotel also argued that, because it did not know the value of the ring in question, it was not a bailee. The hotel further argued that it received no consideration or benefit for taking care of the ring.

The Minnesota Supreme Court affirmed the trial court’s decision saying:

  1. The hotel’s desk clerk consented to a bailment on behalf of his employer
  2. The hotel’s desk clerk new that he had accepted control of a valuable ring
  3. The hotel took possession of the ring as part of its regular business services, and so generated good will and return guests as a result of those services

(See: Peet v. Roth Hotel Co. 191 Minn. 151, 253 N.W. 546 (1934))

Related Legal Terms and Issues

  • Bad Faith – Acting with the intent of deceiving or misleading another for the purpose of gaining some advantage.
  • Consideration – Recompense or payment.
  • Civil Lawsuit – A lawsuit brought about in court when one person claims to have suffered a loss due to the actions of another person.
  • Constructive Delivery – Delivery of some property not entailing an actual physical transfer of possession of the property, but is inferred by the conduct of the parties.
  • Damages – A monetary award in compensation for a financial loss, loss of or damage to personal or real property, or an injury.
  • Negligence – Failure to exercise a degree of care that would be taken by another reasonable person in the same circumstances.
  • Personal Property – Any item that is movable and not fixed to real property.
  • Tort – A wrongful act that results in injury or damages to another person’s reputation, property, or the like, entitling the injured part to compensation.