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Bailment

Bailment

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Published by Jyothish Mohan

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Published by: Jyothish Mohan on Jun 30, 2012
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Bailment is the process of making delivery of an asset or other type of property. Generally, this type of transaction involvesthe owner of the assets choosing to temporarily place them in the control of another individual. The person who delivers theasset is usually known as the bailor,while the recipient of the assets is known as the bailee.  The process of bailment is not a casual situation where an individual is asked to function asacaretaker for a short period of time. Part of the procedure with bailment it that a legal relationship is established between the owner and recipient. Whilethe owner retains full rights to the assets, the physical possession of the assets is granted to the recipient. Along with thephysical possession of the property or assets, the bailee may also be granted certain powers of administration that arerelated to management of the assets.Along with defining the rights of management during the time that the bailment is ineffect, the legal documentation usually also contains specific instructions on how long the state ofbailment will be in effect.Typically, most bailment agreements also include some sort of out clauses that are related to both the bailor and the bailee.For example, the bailor could revoke the bailment if there was evidence that the bailee was mismanaging the asset. At thesame time, the bailee would be able to terminate the arrangement and return the property if there was a perception that thebailor is not living up to the terms of the agreement in some manner.A legal state of bailment can be a great option when theowner will be unavailable to manage or oversee an asset for a short period of time. A bailee may be designated that canmanage rental property in the absence of the owner, or perhaps oversee a stock portfolio for a given period of time. The idea behind the bailment is to ensure that the asset is in good hands, even if the owner is not in a position to manage theasset at the present time.Delivery of assets into the possession of another person is nothing to be taken lightly. A great deal of trust must existbetween the owner and the bailee in order for the business relationship to work. Great care should be taken before enteringinto a bailment agreement, whether as an owner granting temporary care of assets to another individual, or as the personwho is being asked to serve as a bailee.
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 abailor.4. Special features of specific bailments.The subject of this chapter is bailments. A bailment is formed by the delivery of personalproperty, without transfer of title, by a bailor to a bailee, usually under an agreement for a particular purpose, after which the propertyis returned or otherwise disposed of.I. ELEMENTS OF A BAILMENTA. PERSONAL PROPERTYOnly 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 orconstructive.C. AGREEMENT THAT THE PROPERTY BE RETURNED OR DISPOSED OFThe 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 BAILMENTSThe 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 BAILEEA. RIGHTS OF THE BAILEE1. Right of PossessionTemporary control and possession of property that ultimately is to be returned to the owner. During a bailment, a bailee can recoverdamages from any third persons for damage or loss to the property.2. Right to Use Bailed PropertyThe extent to which bailees can use the property depends on the contract. If no provision is made, the extent depends on hownecessary it is f 
or the goods to be at the bailee’s disposal.
 3. Right of CompensationA bailee has a right to be compensated as agreed and to be reimbursed for costs and services in the keeping of the property. Toenforce this right, a bailee can place a lien on the property (see Chapter 31).4. Right to Limit LiabilityBailees can limit their liability as long as
 a. Limitations Are Called to the Attention of the BailorFine print on the back of a ticket stub is not sufficient.b. Limitations Are Not Against Public PolicyExculpatory clauses are carefully scrutinized by the courts and, in bailments, often held to be illegal. If a bailee attempts to excludeliability for his or her own negligence, the clause is unenforceable.B. DUTIES OF THE BAILEE1. Duty of CareBailees 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 PropertyWhen a bailment ends, the bailee must relinquish the property. Failure to do so is a breach of contract (unless the property isdestroyed, lost, or stolen through no fault of the bailee, or given to a third party with a superior claim) and could result in liability forconversion.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 NegligenceWhen 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 BAILORA. 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 BAILORA 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 couldhave 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
warrantiesV. TERMINATION OF BAILMENTSBailments 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 theterms of the bailment, or the operation of law.VI. SPECIAL FEATURES OF SPECIFIC BAILMENTSA. DOCUMENTS OF TITLE AND ARTICLE 7Documents of title are subject to UCC Article 7 (unless federal law applies).1. What a Document of Title IsA receipt for goods in the charge of a bailee-carrier or a bailee-warehouser and a contract for the shipment or storage of identifiedgoods. Includes bills of lading, warehouse receipts, and delivery orders.2. Negotiability of a Document of TitleA 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 hador had the authority to convey (he or she may take free of the claims and defenses of prior parties).3. Due NegotiationDue negotiation means that the buyer of a document of title takes it (1) in good faith, for value, and without notice of a defenseagainst 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’ tru
e owner (if heor she acted in good faith and observed reasonable commercial standards).B. COMMON CARRIERSCommon carriers are publicly licensed to provide transportation services to the general public.1. Strict LiabilityCommon carriers are absolutely liable, regardless of negligence, for all loss or damage to goods in their possession, except if it is causedby 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 LiabilityCommon carriers can limit their liability to an amount stated on the shipment contract. The shipper bears any loss occurring through itsown fault or improper crating or packaging procedures.3. Connecting CarriersWhen connecting carriers are involved under a through bill of lading, the shipper can recover from the original carrier or anyconnecting carrier. Normally, the last carrier is presumed to have received the goods in good condition.C. WAREHOUSE COMPANIESWarehouse companies are liable for loss or damage to property resulting from negligence [UCC 7
 –
204(1)]. A warehouse company canlimit the dollar amount of liability, but the bailor must be given the option of paying an increased storage rate for an increase in theliability limit [UCC 7
 –
204(2)].
 
D. INNKEEPERSThose who provide lodging to the public for compensation as a regular business are strictly liable for injuries to guests (not permanentresidents).1. Hotel Safes
In many states, innkeepers can avoid strict liability for loss of guests’ valuables by pr
oviding 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 rulesthat pertain to parking lot bailees (ordinary bailments).
Essentials of a bailment1. There should be a contract:
 A bailment is based on a contract, i.e., it is created by a contract. The contract of bailment may be express or implied. In some casese.g., in case of finder of goods, a contract of bailment can be implied by law.
2. Delivery of goods by one person to another:
 In bailment, there must be delivery of goods by one person to another. However, the word, 'delivery' is very wide. It may be actual orconstructive.It should be noted that in bailment, only possession of the goods passes from one person to another. Possession means control of goods to the exclusion of others. Mere custody of goods as against possession is not sufficient. For example, a master while giving hisgoods to his servant retains the possession with him and parts only with the custody of the goods.Thus to create bailment, there must be delivery of goods.
Examples:
 (1) A delivers his watch to a watch-maker for repair.(2) A lady handed over her old jewellery to a jeweler for melting and making it into a new one. Every evening, she used to collect thehalf-made jewellery and put in into a box kept in the shop of the jeweler. She used to keep the key of the box with her.One day the box was stolen. Held, the jeweler was not liable as the jeweler had re-delivered the jewellery to the lady and as such, the jeweler could not any more be regarded as a bailee. The lady must bear the loss herself. [Kaliaperumal Pillai v. Visolakshmi]It should be noted that in bailment, only the possession of the goods is transferred not the ownership. Again, only movable goods canbe bailed as immovable goods cannot be delivered.
3. The goods are delivered for certain purpose:
 The purpose may vary from safe-keeping or safe custody to repairing or changing the form of the goods.
Examples:
 (1) A leaves his suit-case with a Railway Cloak Room for safe custody.(2) A gives his watch for repair to a watch-maker.(3) A gives a piece of cloth to a tailor for stitching it into a shirt.
4. The same goods must be returned:
 For a transaction of bailment, it is necessary that the same goods must be returned.Where money is deposited in a savings bank account or any other account, it is not a transaction of bailment because the bank is notgoing to return the same currency notes but will return only an equivalent amount. However, where money or valuables are kept insafe custody, it will amount to a transaction of bailment as these will be returned in specie.It should be noted that return of goods in specie does not mean that their form cannot change. For example, old ornaments can bechanged into new one. A piece of cloth can be stitched into a shirt.
Consideration is not necessary in case of Contract of Bailment
 
:
 In case of bailment for mutual benefit of the bailor and bailee, consideration is there for both the parties e.g., A gives his watch forrepair to B for Rs. 10. For A, consideration is repair of his watch and for B, consideration is Rs. 10. However, in case of bailment eitherfor the benefit of the bailor or bailee alone, consideration in the form of something in return is not there. In such cases the detrimentsuffered by the bailor in parting with the possession of goods is considered as a sufficient consideration to support the promise on thepart of the bailee to return the goods.Title : THE INDIAN CONTRACT ACT,1872CHAPTER IX148."Bailment" "bailor",and "bailee" defined. A " bailment " is the delivery of goods by one person to another for some purpose, upon acontract that they shall, when the purpose is accomplished, be returned or otherwise disposed of according to the directions of theperson delivering them. The person delivering the goods is called the "bailor". The person to whom they are delivered is called, the "bailee ".Explanation.-If a person already in possession of the goods of another contracts to hold them as a bailee, he thereby becomes thebailee, and the owner becomes the bailor of such goods, although they may not have been delivered by way of bailment.149.Delivery to bailee how made. The delivery to the bailee may be made by doing anything which has the effect of putting the goods in

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