Chapter 49 Bailments Outline

The key points in this chapter include:

1. The elements of a bailment.

2. The rights and duties of a bailee.

3. The rights and duties of a bailor.

4. Special features of specific bailments.

The subject of this chapter is bailments. A bailment is formed by the delivery of personal property, without transfer of title, by a bailor to a bailee, usually under an agreement for a particular purpose, after which the property is returned or otherwise disposed of.

I. ELEMENTS OF A BAILMENT

A. PERSONAL PROPERTY
Only personal property (tangible or intangible) is bailable.

B. DELIVERY OF POSSESSION (WITHOUT TITLE)
A bailee must (1) be given exclusive possession and control of the property and (2) knowingly accept it. Delivery may be actual or constructive.

C. AGREEMENT THAT THE PROPERTY BE RETURNED OR DISPOSED OF
The agreement must provide for the return of the property to the bailor or a third person or for its disposal by the bailee.

II. ORDINARY BAILMENTS
The three types of ordinary bailments are: (1) Bailment for the sole benefit of the bailor, (2) bailment for the sole benefit of the bailee, and (3) bailment for their mutual benefit.

III. RIGHTS AND DUTIES OF THE BAILEE

A. RIGHTS OF THE BAILEE

1. Right of Possession
Temporary control and possession of property that ultimately is to be returned to the owner. During a bailment, a bailee can recover damages from any third persons for damage or loss to the property.

2. Right to Use Bailed Property
The extent to which bailees can use the property depends on the contract. If no provision is made, the extent depends on how necessary it is for the goods to be at the bailee’s disposal.

3. Right of Compensation
A bailee has a right to be compensated as agreed and to be reimbursed for costs and services in the keeping of the property. To enforce this right, a bailee can place a lien on the property (see Chapter 31).

4. Right to Limit Liability
Bailees can limit their liability as long as—

a. Limitations Are Called to the Attention of the Bailor
Fine print on the back of a ticket stub is not sufficient.

b. Limitations Are Not Against Public Policy
Exculpatory clauses are carefully scrutinized by the courts and, in bailments, often held to be illegal. If a bailee attempts to exclude liability for his or her own negligence, the clause is unenforceable.

B. DUTIES OF THE BAILEE

1. Duty of Care
Bailees must exercise care over the property in their possession (or be liable in tort—see Chapter 6). The appropriate standard is—

a. Slight Care
         In bailments for the sole benefit of the bailor, the bailee is liable only for gross negligence.

b. Great Care
In bailments for the sole benefit of the bailee, the bailee is liable for even slight negligence.

c. Ordinary Care
In bailments for the mutual benefit of both parties, the bailee is liable for a failure to use reasonable care.

2. Duty to Return Bailed Property
When a bailment ends, the bailee must relinquish the property. Failure to do so is a breach of contract (unless the property is destroyed, lost, or stolen through no fault of the bailee, or given to a third party with a superior claim) and could result in liability for conversion.

3. Delivery of Goods to the Wrong Person
A bailee may be liable if the property is given to the wrong person.

4. Presumption of Negligence
When the bailee has the property and damage occurs that normally results only from someone’s negligence, the bailee’s negligence is presumed. The bailee must prove that he or she was not at fault.

IV. RIGHTS AND DUTIES OF THE BAILOR

A. RIGHTS OF THE BAILOR
Complementary to the bailee’s duties—

1. The property will be protected with reasonable care while in the bailee’s possession.

2. The bailee will use the property as agreed (or not at all).

3. The property will be relinquished according to the bailor’s directions.

4. The bailee will not alter the goods except as agreed.

5. The bailor will not be bound by any limitations on the bailee’s liability unless these limitations are known and are enforceable by law.

6. Repairs or service will be done without defective workmanship.

B. DUTIES OF THE BAILOR
A bailor has a duty to provide the bailee with goods that are free from hidden defects that could injure the bailee.

a. In a mutual-benefit bailment, bailor must notify bailee of all known defects and any hidden defects that the bailor knew of or could have discovered with reasonable diligence and proper inspection.

b. In a bailment for the sole benefit of the bailee, the bailor must notify the bailee of any known defects.

2. To Whom Does Liability Extend?
To anyone who might be expected to come in contact with the goods. A bailor may also be liable under UCC Article 2A’s implied warranties

V. TERMINATION OF BAILMENTS
Bailments for a specific term end when the term ends. If no term is specified, a bailment can be terminated by mutual agreement of the parties, a demand by either party, completion of the purpose of the bailment, an act by the bailee that is inconsistent with the terms of the bailment, or the operation of law.

VI. SPECIAL FEATURES OF SPECIFIC BAILMENTS

A. DOCUMENTS OF TITLE AND ARTICLE 7
Documents of title are subject to UCC Article 7 (unless federal law applies).

1. What a Document of Title Is
A receipt for goods in the charge of a bailee-carrier or a bailee-warehouser and a contract for the shipment or storage of identified goods. Includes bills of lading, warehouse receipts, and delivery orders.

2. Negotiability of a Document of Title
A document of title is negotiable if it specifies that goods are to be delivered to bearer or to the order of a named person. If so—

a. The possessor of the document is entitled to receive, hold, and dispose of the document and the goods it covers.

b. A good faith purchaser of the document may acquire greater rights to the document and the goods it covers than the transferor had or had the authority to convey (he or she may take free of the claims and defenses of prior parties).

3. Due Negotiation
Due negotiation means that the buyer of a document of title takes it (1) in good faith, for value, and without notice of a defense against or a claim to it, and (2) in the regular course of business or financing (not in settlement or payment of a money obligation).

4. Goods Delivered According to a Thief’s Instructions
A bailee who receives goods from a thief and acts according to that individual’s instructions is not liable to the goods’ true owner (if he or she acted in good faith and observed reasonable commercial standards).

B. COMMON CARRIERS
Common carriers are publicly licensed to provide transportation services to the general public.

1. Strict Liability
Common carriers are absolutely liable, regardless of negligence, for all loss or damage to goods in their possession, except if it is caused by an act of God, an act of a public enemy, an order of a public authority, an act of the shipper, or the nature of the goods.

2. Limits to Liability
Common carriers can limit their liability to an amount stated on the shipment contract. The shipper bears any loss occurring through its own fault or improper crating or packaging procedures.

3. Connecting Carriers
When connecting carriers are involved under a through bill of lading, the shipper can recover from the original carrier or any connecting carrier. Normally, the last carrier is presumed to have received the goods in good condition.

C. WAREHOUSE COMPANIES
Warehouse companies are liable for loss or damage to property resulting from negligence [UCC 7–204(1)]. A warehouse company can limit the dollar amount of liability, but the bailor must be given the option of paying an increased storage rate for an increase in the liability limit [UCC 7–204(2)].

D. INNKEEPERS
Those who provide lodging to the public for compensation as a regular business are strictly liable for injuries to guests (not permanent residents).

1. Hotel Safes
In many states, innkeepers can avoid strict liability for loss of guests’ valuables by providing a safe. Statutes often limit the liability of innkeepers for articles that are not kept in the safe.

2. Parking Facilities
If an innkeeper provides parking facilities, and the guest’s car is entrusted to the innkeeper, the innkeeper will be liable under the rules that pertain to parking lot bailees (ordinary bailments).