bailment

Bailment arises when property is delivered by a person (“the bailor”) to another (“the bailee”). The delivery of possession to the bailee is made on the basis of an express or implied promise on the part of the bailee to return the goods or to deliver the goods to a person specified by the bailor. The law of bailment gives rise to a series of obligations on the part of the bailor to take care of the goods whilst they are in its possession. The standard of care required of the bailor may be fixed expressly by contract.

The importance of bailment in commercial law lies in:

1. it gives rise to possessory security interest, that is, it entitles the bailee to retain the property of the bailor, subject to payment for services; and
2. the bailee is liable to the bailor for damage caused to the property while it remains in its possession.

Bailment - The Basics

In TRM Copy Centres v Lanwall Services (2008), Thomas LJ sitting in the Court of Appeal summarised the categories of bailment as follows:

1. the gratuitous deposit of a chattel with the bailee, who is simply to keep it for the bailor (depositum);
2. the delivery of a chattel to the bailee, who is to do something without reward for the bailee to or with the chattel;
3. the gratuitous loan of a chattel by the bailor to the bailee for the bailee to use (commodatum). The bailment is for the convenience of the bailee;
4. 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 (vadium, pawn or pledge); and
5. the hire of a chattel or services by the bailor to the bailee for reward (location et conductio).

Accordingly, bailment requires:

1. a transfer of possession of property;
2. an obligation to do something with the property:
   1. store it;
   2. use it for specified purpose; or
   3. hold it subject to satisfaction of security, and
3. whether or not for payment.

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 also 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 to them when they were never ordered. 

Examples

Basic examples of bailment include (1) delivering clothes to a dry-cleaner to laundered, (2) Contracts  for storage and warehousing of goods. Ordinarily, such bailments will be subject to standard terms of contract, which apply so as to displace the general law of bailment.

Terms of the Bailment

During the term of the bailment, the bailee is under a duty to take reasonable care of the property and the standard of care expected will depend on the value and nature of the goods, subject to the terms of any contract entered into by the parties. Where the bailment gratuitous, 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.

Where the 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, he will have no defence in respect of liability for the loss caused. The bailor will be entitled to immediate repossession of the property or be able sue using the tort of conversion where the goods are lost.

Furthermore, if the bailee acts inconsistently with the agreement, such as he sells, or offers to sell the property to a third party, the bailment will be terminated forthwith and the bailor will be entitled to the return of the property from the bailor for damages. In most cases these obligations extend to sub-bailees, namely those that receive possession from the original bailee.

Gratuitous Bailments and Bailment for Consideration

Bailment may be classified into two categories, gratuitous bailment and bailments for valuable consideration, namely contractual consideration.

Gratuitous bailment is the bailment of property to a bailee for no reward, and for the property to be retuned 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 to him and he will be 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 will lower the standard of care. 

A gratuitous bailee is not entitled to use the property for his personal benefit unless he has express or implied consent form the bailor. If he does so, and in a manner which causes it damage, he will be liable for the loss and injury caused. If the bailee acts inconsistent to the agreement, the bailment will be terminated and the bailor is able to sue the bailee for conversion.

Bailment for valuable consideration is 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 this, or acts negligently whist the property is in his possession, he will be held liable.    

Sub-Bailment

Sub bailment is where the bailor delivers the property to the bailee and by consent, the bailee delivers to a sub-bailee. Delivery to a third person 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 a 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 gratuitous bailment, 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 bailment.

Legislation

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:

1. The bailor is in breach of an obligation to take possession of goods or give directions for their return;
2. The bailee cannot trace the bailor;
3. The bailee can be expected to be discharged of any further obligations in respect of the goods.