Bailments

A bailment is the rightful possession of goods by someone who is not the owner of the goods. The owner is the bailor. The person in possession is the bailee. For example:

Hertz owns a car rental business. OJ rents a new Cadillac SUV for a week. Hertz, as the owner of the car, is the bailor. OJ, as the renter and as the one who has rightful possession of the car, is the bailee.

The requirements for a bailment and, as such, the creation of the bailor-bailee relationship, are very similar to the requirements of an inter-vivos gift. That is, the bailor must intend to give the property to the bailee, there must be a delivery and there must be an acceptance.

The differences between the elements of the formation of a bailment and the elements of the formation of an inter-vivos gift are that, in the formation of a bailment: 1) The intent must be to deliver possession of the property, not title; and 2) the acceptance of the bailee is not presumed, as it is in the case of an inter-vivos gift.

In order to form a bailment, the bailee must accept possession of the property. It is not enough that the bailee accept mere custody of the property. The difference between custody and possession is that a possessor has complete dominion over the property while a custodian merely has the duty of care or supervision over the property. For example:

1. Grace lends her car to Will for the weekend. Clearly, she intends for him to have dominion and control over the car. Therefore, a bailment is created between Grace and Will.
2. Grace parks her car in Will’s commercial parking lot. In this case, although Will may have custody of the car because he is charged with supervision and/or care of the car, there is no bailment that is formed. Grace clearly does not intend for Will to have dominion and control over the car, as she has not given him the keys to the car. Therefore, she does not intend to give him possession so there is no bailment.
3. Grace pulls into Will’s commercial parking garage, where Will is the valet parking attendant. She gives Will the keys so that Will can park the car for her and retrieve the car when she comes back for it. In this case, most courts would hold that there is a bailment. Allowing a person to drive a car would probably be considered giving over enough dominion and control of the car to be considered giving over possession rather than mere custody. Nevertheless, this is a borderline case and could probably be argued either way.

The issue of whether or not a bailment has been created is important because, once a bailment has been established, a duty of care attaches to the bailee. Failure to live up to this duty of care can cause the bailee to be liable for any harm that results to the property from the failure of the bailee to properly care for the property. However, if there is no bailment (only a custodial arrangement), the custodian has no affirmative duty to safeguard the property.

Bailee’s Standard of Care

The standard of care owed by the bailee depends on who benefits from the bailment relationship.

If the bailor is the sole beneficiary of the bailment relationship (i.e., the bailee is watching the object without compensation), then the bailee is considered a “gratuitous bailee.” In such a scenario, the bailee’s duty of care is at its lowest. The bailee will only be liable if the property gets damaged through his or her “gross negligence.”

If the bailment relationship benefits both parties (e.g., when a person rents a car from a car rental agency), the term for the relationship is “bailment for hire.” In such a case, the bailee will be liable if the bailment gets damaged through his or her "ordinary negligence."

Finally, if the bailee is the sole beneficiary in the relationship (i.e., the bailee borrows the property and doesn’t pay for its usage), then the bailee will be liable even if harm comes to the property through his or her "slight negligence."

Note that if harm comes to the property through no fault of the bailee, he or she will never be liable for the damages, unless the parties agreed to a contrary arrangement at the time the bailment was created.

Regardless of who benefits from the bailment and what standard of care the bailee must use, all bailees are held to strict liability when it comes to redelivering the property to the true owner. Therefore, if the bailee misdelivers the property, he will be held liable even if he uses better than reasonable care. For example:

Fred borrows a car from Barney to go on a fishing trip. When Fred returns from the fishing trip, he returns the car to Mr. Slate. As a result, Barney incurs some economic damage because he has lost the use of his car temporarily. In this case, Fred will be held liable for the misdelivery even if he used reasonable care in delivering the car. This strict liability will apply even if Fred did Barney a favor by washing the car.

Although a typical bailment agreement is consensual between both parties, there are situations in which someone can become a bailee involuntarily. Typically, involuntary (or “constructive”) bailees are people who have found lost property and are holding it until the rightful owner can be found.

If a bailor gives a piece of property to a bailee but doesn’t tell the bailee the true value of the property, a bailment is created and the bailee assumes the risk of caring for the article, even if the bailee did not know of the article’s true value. However, if the bailee was unaware and had no reason to be aware of the existence of a certain part of the property that was entrusted to him, he will not be liable to care for the part that he did not know about. For example:

1. Roger has a rare buffalo nickel that’s worth one million dollars. Roger gives the nickel to Kate to look after. Kate has no idea that the nickel is worth so much and thinks it is worth a standard five cents. Even though Kate does not know the true value of the property, she is responsible to care for the property in any case. Therefore, if she were to be negligent in her care of the nickel, Kate can be held liable for the full value of the nickel.
2. Roger lends his car to Kate. The car is worth $10,000. Unbeknownst to Kate, there is a 4 carat diamond in the glove compartment that is worth $75,000. Roger makes no mention of the diamond when he gives the car to Kate. If Kate forgets to lock the car and thus negligently allows the car to be stolen, she can be liable for the $10,000 car, but not for the $75,000 diamond.