Business Law 101 / Bailments

By Albert L. Kelley

When a person gives property to another person to hold, store, or deliver to a third party, it is referred to as a bailment.  To create a bailment, there must be an agreement, delivery and acceptance.  The agreement may be express or implied and needs to have all of the elements of a contract.  You may create a bailment of personal property, but not real estate. The delivery may be actual or constructive.  For example, you can give someone the keys to your car rather than actually delivering the car to them.  If you give property to another person without an agreement, there is no bailment and it may be considered a gift.

A bailment is an important legal status.  Duties and rights arise with bailments that don’t exist without this status.  First is ownership.  In a bailment, ownership stays with the giver, also called the bailor.  The recipient, or bailee, does not gain ownership, but merely possession.  Because title does not pass to the bailee, in most cases they cannot lawfully sell the property.  An attempt to sell does not pass title and the bailor can recover his property.  There are exceptions to this.

In some situations the bailment may be created by the situation rather than by express agreement.  This situation arises when the bailee obtains property without the permission of the bailor.  An example would be lost items that are found.  The finder of lost items usually holds the item as a bailment and must return it to the proper owner if the owner can be discerned.  (“Finders keepers, Losers weepers” is not true legal policy).

Bailees have certain responsibilities to the bailor.  First, they must perform the terms of the contract.  As an example, when a car is left at a shop for repairs, the shop holds the car as a bailment.  Under the contract, they are required to make repairs on the car as part of that bailment.

Second, the bailee is under a duty to care for the property.  If the property is damaged due to the bailee’s failure to use reasonable care, the bailee must pay for the damage.  The bailee must also pay for the damage if it was caused by the bailee’s unauthorized actions (such as an auto repairman making personal use of a car left for repairs).

Third, the bailee must maintain the property if he is being paid for the bailment.  In this circumstance, and unless stated otherwise in the contract, the bailee must pay for the maintenance.

Fourth, the bailee must not use the bailment for their own personal use, unless authorized by the agreement.  If the bailee takes over the property as his own, he can become liable for conversion and be required to pay the bailor the fair market value for the item at the time it was converted.

Fifth, the bailee is required to return the property, unless directed otherwise in the agreement.  In most cases the actual item must be returned; in some, it merely needs to be an equivalent article.  The bailee has a lien on the property while it is in his care.  The lien allows the bailee to retain possession of the property until he has been paid for the bailment.  If the property is returned to the bailor before payment is made, the lien is lost.

            Al Kelley is a Florida business law attorney located in Key West and previously taught business law, personnel law and labor law at St. Leo University.  He is also the author of “Basics of Business Law” and “Basics of Florida’s Small Claims Court” (Absolutely Amazing e-Books). This article is being offered as a public service and is not intended to provide specific legal advice.  If you have any questions about legal issues, you should confer with a licensed Florida attorney.

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