Bailment is an area of law with governs rights of owners of property and those who receive possession of property. It is an area of law of wide application. It applies automatically. The terms of a bailment may be varied by a contract governing ownership and possession of goods passing between two legal entities.
Bailment arises when property is delivered by a person (“the bailor”) to another person (“the bailee”).
The delivery of property into the possession of the bailee creates an express or implied promise on the part of the bailee to:
- return the goods or
- deliver the goods to a person specified by the bailor,
after the purpose has been fulfilled.
To make out a cause of action in bailment requires:
- a transfer of possession of property;
- an obligation to do something with the property, such as to:
- store it
- use it for specified purpose, or
- hold it subject to satisfaction of security, and
- whether or not for payment.
Terms of the Bailment
In a bailment, a series of obligations arise on the part of the bailee to the bailor:
- to take care of the goods whilst they are in the bailee's possession. The standard of care required of the bailor may be fixed expressly by contract.
For the duration of the bailment, the bailee is under a duty to take reasonable care of the property.
The standard of care expected will depend on the value and nature of the goods. The higher the value of the goods, the greater the standard of care is expected.
- The bailment gives rise to possessory security interest in the goods. It entitles the bailee to retain the property of the bailor, subject to payment for services; and
- The bailee is liable to the bailor for damage caused to the property while it remains in the bailee's possession.
A bailment may be gratuitous. Where it is, the bailee is liable for gross negligence in respect of the goods while they remain in its possession. In cases where the goods are bailed for use by the bailee, the bailee owes a strict duty of care and diligence when keeping the goods.
Bailment can be classified into two categories:
- gratuitous bailment and
- bailment for valuable consideration.
Gratuitous bailment is the bailment of property to a bailee for no reward, and for the property to be returned upon the demand to the bailor.
This can include bailment for the deposit of goods for safe keeping, delivery of goods for work to be done and delivery of goods for a loan.
A gratuitous bailee’s obligations arise upon the delivery of the property. They are liable for loss of the property if the loss is caused by the bailee's gross negligence.
The standard of care applicable to a gratuitous bailee will depend on the circumstances of the agreement, but the fact that it is a gratuitous bailment lowers the standard of care.
A gratuitous bailee is not entitled to use the property for his personal benefit unless it has express or implied consent from the bailor. If they do so, and in a manner which causes it damage, liability arises for the loss and damage caused to the goods.
If the bailee acts inconsistently to the agreement, the bailment will be terminated and the bailor is able to sue the bailee for conversion.
Bailment for Consideration
Bailment for valuable consideration takes place where the bailor delivers goods for a specific purpose, such as the hire of property to the bailee.
The bailee receives both possession and the right to use the property in return for a fee.
At the expiration of the agreement, the bailee must return the property to the bailor and pay the cost of returning it. If the bailee fails to do so, or acts negligently whist the property is in his possession, they will be held liable.
Types of Bailment
The type of bailment determines the type of liability of the bailee. The general rule is that the bailee is liable for gross negligence.
The categories of bailment include:
- depositum: the gratuitous deposit of a chattel with the bailee, who keeps it for the bailor;
- mandatum: the delivery of a chattel to the bailee, who is to do something without reward with the goods for the bailee or for carriage;
- commodatum: the gratuitous loan of a chattel by the bailor to the bailee for the bailee to use. The bailment is for the convenience of the bailee;
- vadium, pawn or pledge: the pawn or pledge of a chattel by the bailor to the bailee, who is to hold it as a security for a loan or debt or the fulfilment of an obligation; and
- locatio et conductio: the hire of a chattel or services by the bailor to the bailee for reward. The lender is the "locator", and the borrower the "conductor".
Where a transaction involves a transfer of ownership in property is not a bailment, the right to have the property returned to the bailor will depend on the terms of the (express or implied) agreement between the parties when the property was first bailed.
Bailment can occur involuntarily. For instance, bailment may arise where a person, without consent, finds themselves in possession of goods belonging to another party, or where they find goods, or even where goods are delivered or sent by post when they were never ordered.
Basic examples of bailment include:
- delivering clothes to a dry-cleaner to laundered,
- storage and warehousing of goods.
Often, rights under a bailment will be subject to a business's standard terms of contract, which may displace the general law of bailment.
Loss, Repossession and Termination
Where a bailee fails to act in accordance with an agreement to deal with the goods and negligently causes damage, loss, or wrongful parting of the property, it will have no defence in respect of liability for the loss caused.
The bailor is entitled to immediate repossession of the property. If not received, the bailor is entitled to sue under the tort of conversion where the goods are lost.
Furthermore, if the bailee acts inconsistently with the agreement, such as it sells, or offers to sell the property to a third party, the bailment will terminate.
The bailor will be entitled to the return of the property, and if not returned, damages. In most cases these obligations extend to sub-bailees, namely those that receive possession from the original bailee.
Sub bailment arises where the bailor delivers the property to the bailee and by consent, the bailee delivers to another person, a sub-bailee.
Delivery to the sub-bailee must be made with the express or implied consent of the bailor.
Where there is consent to the sub-bailment, the relationship of bailment will arise directly between the bailor and bailee.
However, where the bailee bails the property on his own accord, the bailor will have a right of action in conversion against the third person. Sub-bailment may be disadvantageous to the sub-bailee in that some of the terms agreed between the bailee and sub bailee may increase the liability.
In sub bailment, the bailee and the sub bailee owe the same duty to the bailor.
Termination of Bailment
Bailment can be terminated on expiration of the agreement, or if it is a bailment for gratuitous, at any time by demand. Bailment can also be terminated by a wrongful act or destruction of the goods. Where the bailee redelivers the goods to the bailor or transfer’s ownership of the property to the bailee, this will also end the bailment.
The Torts (Interference with Goods) Act removed significant complexity in respect of the operation of the law of bailment and goods which remained in the possession of the bailee. The Act authorises the bailee to sell goods transferred in the course of a business to satisfy sum owing where:
- the bailor is in breach of an obligation to take possession of goods or give directions for their return
- the bailee cannot trace the bailor
- the bailee can be expected to be discharged of any further obligations in respect of the goods.