Contract of Bailment and Pledge
Bailment is the legal relationship that occurs between two parties, referred to as the bailor and the bailee when the bailor temporarily transfers the bailor’s possession of the personal property to the bailee. Property is held by the bailee on behalf of the bailor and the bailee is responsible for returning it or disposing of it accordingly.
The Civil Code 2074, section, 575(1) states:
”A contract relating to bailment shall be deemed to have been concluded in case a person delivers any property to another person to be returned to him or for handing it over to any other person or selling it as ordered by him.”
The bailor retains ownership of the property in a bailment, but the bailee has temporary control and possession of it. The bailee is responsible for taking reasonable care of the property while it is in their possession and returning it in the same condition as when the bailment began, or as otherwise agreed upon.
Various situations can result in bailments, such as leaving your car with a valet parking service, storing your belongings in a storage facility, or lending a valuable item. The bailor retains ownership, while the bailee has a duty to safeguard the property and use it only as authorized by the bailor.
Rights and Duties of Bailor and Bailee
Both the bailor (the person who transfers the property) and the bailee (the person who receives and possesses the property) have certain rights and duties in a bailment relationship. Based on the jurisdiction and the terms of the bailment agreement rights and duties may differ. I will outline some general rights and duties usually associated with bailors and bailees.
Rights of Bailee
The rights of bailee include:
1. Right to enforce the bailor’s duties as their right:
The bailee has the right to expect that the bailor will fulfill their obligations under the bailment agreement. As part of this duty, the bailor must disclose any known defects in the property, pay the compensation if agreed upon, and provide instructions if necessary.
2. Right to delivery of goods to any joint bailor:
When there are multiple bailors involved in a bailment, the bailee has the right to deliver the goods to any one of the joint bailors after the bailment is completed.
3. Right to delivery of goods to bailor without title:
Upon completion of the bailment, a bailee has the right to return goods to the bailor who does not have full ownership or title to the goods. This right is applicable if the bailee receives goods from the bailor who does not have full ownership or title to the goods.
4. Right of lien:
The bailee retains ownership of the goods until they receive full payment of any charges or fees owed to them for the bailment. A lien allows the bailee to hold the goods as security until they are compensated.
Duties of Bailee
The duties of bailee are as follows:
1. Duty to take care of the goods bailed:
The bailee is required to exercise reasonable care and diligence in protecting and preserving the goods while they are in their possession, preventing damage, loss, or unauthorized use.
2. Duty to pay compensation:
When compensation is agreed upon between the bailor and the bailee, the bailee is responsible for paying that agreed-upon amount to the bailor for the bailment services the bailee is legally obligated to pay that amount to the bailor. There is a duty to discharge this when both parties benefit from the bailment.
3. Duty to not mix the goods bailed with his own goods:
It is the bailee’s duty to keep the goods bailed separate from their own goods. This duty prevents any confusion or commingling of goods and ensures that the bailor’s property is distinguishable and identifiable.
4. Duty not to set an adverse title:
A bailee must not assert ownership of or an adverse right to the goods in conflict with the rights of the bailor. As a result of this duty, the bailee is required to respect the bailor’s title and refrain from asserting conflicting claims or interests in the goods.
5. Duty to return the goods bailed:
After the bailment period has expired or the purpose for which the goods were bailed has been completed, the bailee is required to return the goods to the bailor. It is the bailee’s duty to return the goods in the same condition as when they were received, subject to normal wear and tear.
6. Duty to return any accretion to the goods:
The bailee is required to return any additions or improvements made to the goods during the bailment period to the bailor, whether they were natural or accidental. In order to protect the goods from damage, theft, or loss, and to ensure their safekeeping during the bailment period, the bailee must ensure that any enhancements or additions made during the bailment period are not retained by the bailee without the bailor’s consent.
Rights of Bailor
1. Right to enforce the bailee’s duty as their right:
The bailor has the right to enforce the bailee’s duty. The bailor is entitled to expect the bailee to fulfill their obligations under the bailment agreement. This includes the bailee’s duty to exercise care, pay compensation if agreed upon, and return the goods at the end of the bailment. If the bailee breaches their duty, the bailor has the right to hold them accountable.
2. Right to terminate the contract:
The bailor may terminate the bailment agreement at any time before the end of the bailment period or purpose. If the bailor no longer requires bailment services or if the bailee breaches the bailment agreement, the bailor may be able to reclaim their goods. In some cases, the bailor may have to compensate the bailee for any losses incurred as a result of the termination.
3. Right to return the goods lent gratuitously:
The bailor has the right to request the return of the goods lent gratuitously if the bailor lent them to the bailee without any compensation or benefit. If the bailor no longer wishes to lend their goods or the bailment purpose has been fulfilled, he or she may retrieve their goods.
4. Right to sue for damages against wrongdoer:
The bailor has the right to sue a wrongdoer for damages if the goods are damaged or lost due to the wrongful act or negligence of a third party during the bailment. If a bailor’s goods are damaged while they are in the bailee’s possession, they can seek compensation for them.
Duties of Bailor
1. Duty to disclose known defects in the goods bailed:
It is the bailor’s obligation to inform the bailee of any known defects, risks, or special handling instructions associated with the goods bailed. The bailee is responsible for ensuring that the goods are not mishandled or damaged by being aware of any vulnerabilities or specific requirements.
2. Duty to bear extraordinary expenses of bailment:
The bailor is responsible for bearing extraordinary expenses that exceed the normal and expected costs of bailment. Expenses incurred by bailors as a result of their specific instructions or requests for bailment arrangements are included in this duty.
3. Duty to indemnify the bailee:
If the bailee suffers loss or damage to the goods due to the bailor’s failure to disclose defects or any other breach of duty, then the bailor must compensate the bailee. The bailee’s rights are protected and reimbursed under this duty if any harm is caused by the bailor’s actions or omissions.
4. Duty to respect the bailee’s lien:
The bailor has a responsibility to respect the bailee’s lien if the bailee exercises his or her lien right and pays the bailee the necessary charges or fees in order to secure the goods from the bailee. By fulfilling this duty, the bailor ensures that the bailee’s responsibilities are met and that the goods can be released from the bailee’s possession.
5. Duty to compensate the bailee:
A bailor has a duty to compensate the bailee if compensation is agreed upon between them for bailment services. The bailor is responsible for accepting the agreed-upon amount as full payment for the bailee’s services. In addition to fulfilling the bailor’s financial obligation to the bailee, this duty also ensures that they are compensated for their services.
6. Duty to receive back goods:
The bailor is required to receive the goods from the bailee at the end of the bailment period or upon completion of the purpose. It is their responsibility to make themselves available for delivery of the goods and to provide any necessary documentation or proof of ownership required by the bailee.
The rights and duties of bailors and bailees may differ depending on the jurisdiction and the terms of the bailment agreement. In addition to the terms of the contract, relevant laws and regulations in the relevant jurisdiction can also be used to define or modify the specific rights and duties of bailors and bailees.