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Holding Customers’ Property? Know the Rights and Duties of Bailments

Is your business in the practice of taking physical possession of another party’s property? If so, this may result in a legal relationship called a “bailment” and you should be aware of your rights and duties in this situation.

Here are some common examples of when bailments are created:

  • Computer owners leave their equipment at a repair store.
  • Pets are left at a veterinarian or kennel.
  • A restaurant has valet parking and cars/keys are left with attendants.
  • Possessions are left at rented storage centers.
  • A watch is left at a jewelry store for repair.
  • A farmer stores grain at a local grain elevator.
  • Clothing is left at a dry cleaner.
  • A manufacturer stores finished goods at a warehouse until they are ready to be shipped.

Definition of a Bailment

A bailment occurs when there is an agreement that one party will take physical possession of the personal property of another party for safe keeping. It is the transfer from one person (the ‘bailor’) to another person (the ‘bailee’) of an item of value — not as a license or transfer of ownership, but to hold in possession for a certain period of time.

Note: For legal purposes, a bailment is generally not the same transaction as a consignment or “tolling” arrangement.

The bailment agreement must provide for the return of the property to the bailor or a third person or for its disposal by the bailee. As a bailee, you do not own the property but only have possession of it, and generally, you are not entitled to use the property. For example, you cannot leisurely use a car left to you in valet parking.

There are three types of bailments:

1. A bailment for the sole benefit of the bailor (for example, a coat check room free of charge where the bailor is the customer).

2. A bailment for the sole benefit of the bailee (for example, the loan of a book from a library where the library is the bailor).

3. A bailment for the mutual benefit of the bailor and the bailee (for example, the repair of an item).

The following two charts explain the general rights and duties of the parties in a bailment transaction.

Rights of the Parties

The Bailee
(Party holding the property)

The Bailor
(The owner of the property)

Right of possession during the bailment and can recover damages from third persons. The property will be protected with reasonable care while it the bailee’s possession. It will be serviced or repaired effectively.
The bailed property can be used — under the terms of a contract or as necessary to carry out the terms of the possession. The bailee will honor the agreement of how to use the property. The property will not be altered without the bailor’s agreement to do so.
Right of compensation — a bailee can enforce this right by placing a lien on the property. The bailee will relinquish control of the property at the bailor’s request.
Right to limit liability — with notice to the customer and not against public policy. The bailee will not limit liability without notice to the bailor and pursuant to the law.
Duties of the Parties

The Bailee

The Bailor

Must maintain a standard of care over the property. Must provide goods free from hidden defects that could injure the bailee.
Must return bailed property. If not returned when bailment ends, it could result in liability for conversion. May be liable if the property is given to the wrong person or lost/ damaged/ destroyed while in possession. Must notify the bailee of all known defects and any hidden defects that the bailor knew of or could have discovered with reasonable diligence and proper inspection.

This article only explains the basics of bailment arrangements. If you are in a business that involves bailments, or you plan to be, speak with your attorney to further understand your rights and duties.