New Condo Laws

Bailment basics

Bailment basics Resource kit 90418

Jill Muratori, Esq.

Insurance producers often deal with coverage issues that involve bailments. Dan Corbin discusses some of these coverage issues in Resource kit 90419—Bail-ing out. But before you dive into that resource kit and the coverage issues presented by bailments, it is important first to understand some of the basics about bailments.

What is a bailment? A bailment is defined as a relationship created by a transfer of possessions of personal property by one party (the bailor) to another party (the bailee) for some particular purpose. In a bailment, possession of the property is transferred, but title to the property is not. In addition to the transfer of possession, there must be an acceptance of possession by the bailee. In other words, the bailee must knowingly take the property.

While a bailment generally is regarded as a contractual relationship, no express contract is necessary to create a bailment. For the most part, bailments are a very ordinary, everyday occurrences. For example, a bailment is created when you leave your clothes with the dry cleaner to be cleaned, when you leave your car at the repair shop to be fixed or when you loan a friend your computer.

Bailments distinguished Bailments should be distinguished from other arrangements which either are not bailments at all or are a form of bailment not commonly thought of as such.

Sales. A sale is not a bailment because a sale involves the transfer of both possession and title. However, when goods are delivered on "approval" the transaction will constitute a bailment, since title to the goods does not pass until the bailee exercises the option to buy and accepts title to the goods. A "sale or return" should be distinguished from a sale on approval. It is a true sale and not a bailment. It simply gives the buyer the privilege of revesting title in the seller.

Consignment. A consignment is a type of bailment, sometimes known as a bailment for sale. Usually the consignee is not just a bailee, but also is an agent of the consignor to sell the goods.

Rental of space. Where the owner of the property merely rents space to store property but does not transfer possession of his property, no bailment is created. A common example is when automobiles are left in parking lots or parking garages. The arrangement may be a simple rental of space or in certain instances it could be a bailment.

If the owner of the vehicle simply parks the car and keeps the keys, no bailment is established because the owner has not transferred possession or control of the car. However, where the parking lot attendant parks or moves the car, and where the keys are either left in the car or with the parking lot attendant, the attendant is usually found to have assumed possession of the car and a bailment is created.

Bailee's duty with respect to the bailed goods The bailee of bailed property generally must exercise some degree of care with respect to the bailed property. The traditional view is that the standard of care required by the bailees with respect to the bailed property depends on the type of bailment. While a bailee is not an insurer of the property, the bailee will be liable for damage or loss to the bailed goods if he or she has not exercised the appropriate standard of care.

Mutual benefit bailment. In a mutual benefit bailment, both the bailor and the bailee receive some benefit from the arrangement. A bailment for hire is an example of a mutual benefit bailment. Therefore, when I leave my clothes at the dry cleaner, I (the bailor) receive the benefit of clean clothes and the dry cleaner (the bailee) receives the benefit of monetary compensation.

In a mutual benefit bailment, the bailee must exercise ordinary care with respect to the bailed property and will be liable for ordinary negligence. Ordinary care is that degree of care a person of ordinary prudence would use if the property were his or her own. What constitutes ordinary care depends on the circumstances of the case and the subject matter of the bailment. For example, a dry cleaner probably should take greater precautions in safeguarding a $50,000 Vera Wang wedding dress delivered for cleaning than if the property bailed was a $20 pair of jeans.

Bailment for sole benefit of bailor. Under this type of arrangement only the bailor receives the benefit of the bailment. The bailee receives no compensation and is known as a gratuitous bailee. For example, I was a gratuitous bailee last week when my neighbor asked me to take possession and care of her dog, Fido, while she was away on vacation.

The traditional view is that with this type of bailment the bailee only must exercise slight care with respect to the property and will be liable for gross negligence only. Slight care is a lesser degree of care than ordinary care. Gross negligence is generally defined as an act or omission of an aggravated nature exhibiting a conscious indifference to the property of another.

Therefore, if during the bailment, Fido bolts past me when I open the door for the UPS man, runs into the road and is hit by a car, I would probably not be liable to my neighbor for the loss of her dog. I would be liable only if I did something grossly negligent—for instance, if, while playing fetch with Fido, I threw his ball into the road when an oncoming truck was in plain view.

Bailment for the sole benefit of bailee. In this type of bailment the benefit is for the bailee only. For example, if I loan my new computer to my friend Joan so she can write a romance novel, and I do not receive any compensation, Joan (the bailee) derives all the benefit from the bailment. In this case, Joan would have to exercise great care for the protection of my computer and would be liable for even slight negligence. Great care is a higher degree of care than ordinary care. It is the scrupulous care and diligence that the most careful person applies to his or her own affairs. Therefore, if Joan spills coffee on my new computer while working on her novel, despite using a spill-proof cup, she would probably still be held liable for the damages to my computer.

Limitations of liability Bailees often attempt to exculpate or limit their obligations completely in the event of loss or damage to the bailed goods. While the parties to a bailment are free to enter into any type of contract they desire, it is

important to note that contracts which completely exonerate the bailee for negligence are generally not looked upon favorably by courts. This is because of public policy considerations which disfavor one party's complete exoneration for neglignece, fraud or willful act.

Generally, in order for the bailee to limit his or her obligations with respect to the bailed goods, the assent of both the bailor and bailee is needed. If the bailor doesn't have actual knowledge of the limitation of liability by the bailee, the bailor generally is not bound unless, under the circumstances of the particular case, he or she is charged with notice.

Conclusion With a basic understanding of the law of bailments, you may find it easier to digest issues concerning this type of arrangement.

These cases are intended for information only. They are not intended for legal advice nor to suggest any legal course of action.1/05

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