1. Nature and Types of Bailments CHAPTER THIRTY-TWO

2. Copyright © Houghton Mifflin Company. All rights reserved.32 | 2 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

3. Copyright © Houghton Mifflin Company. All rights reserved.32 | 3 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

4. Copyright © Houghton Mifflin Company. All rights reserved.32 | 4 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.

5. Copyright © Houghton Mifflin Company. All rights reserved.32 | 5 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.

6. Copyright © Houghton Mifflin Company. All rights reserved.32 | 6 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.

7. Copyright © Houghton Mifflin Company. All rights reserved.32 | 7 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.

8. Copyright © Houghton Mifflin Company. All rights reserved.32 | 8 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.

9. Copyright © Houghton Mifflin Company. All rights reserved.32 | 9 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.

10. Copyright © Houghton Mifflin Company. All rights reserved.32 | 10 Mutual Benefit Bailments There are five types of mutual benefit bailments: –Renting –Work and services –Pledging –Consigning –Storage and parking

11. Copyright © Houghton Mifflin Company. All rights reserved.32 | 11 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

12. Copyright © Houghton Mifflin Company. All rights reserved.32 | 12 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

13. Copyright © Houghton Mifflin Company. All rights reserved.32 | 13 Mutual Benefit Bailments (continued) 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

14. Copyright © Houghton Mifflin Company. All rights reserved.32 | 14 Mutual Benefit Bailments (continued) 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

15. Copyright © Houghton Mifflin Company. All rights reserved.32 | 15 Mutual Benefit Bailments (continued) 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.

16. Copyright © Houghton Mifflin Company. All rights reserved.32 | 16 Mutual Benefit Bailments (continued) 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

17. Copyright © Houghton Mifflin Company. All rights reserved.32 | 17 Mutual Benefit Bailments (continued) 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

18. Copyright © Houghton Mifflin Company. All rights reserved.32 | 18 Mutual Benefit Bailments (continued) 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

19. Copyright © Houghton Mifflin Company. All rights reserved.32 | 19 Mutual Benefit Bailments (continued) 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

20. Copyright © Houghton Mifflin Company. All rights reserved.32 | 20 Mutual Benefit Bailments (continued) 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.

21. Copyright © Houghton Mifflin Company. All rights reserved.32 | 21 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.

22. Copyright © Houghton Mifflin Company. All rights reserved.32 | 22 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

23. Copyright © Houghton Mifflin Company. All rights reserved.32 | 23 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.

24. Copyright © Houghton Mifflin Company. All rights reserved.32 | 24 Gratuitous Bailments (continued) 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

25. Copyright © Houghton Mifflin Company. All rights reserved.32 | 25 Gratuitous Bailments (continued) 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.

26. Copyright © Houghton Mifflin Company. All rights reserved.32 | 26 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.

27. Copyright © Houghton Mifflin Company. All rights reserved.32 | 27 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.