Cyclopedia of Commerce, Accountancy, Business Administration, v. 03 (of 10)

by American School of Correspondence

BAILMENTS

225. Bailment Defined. A bailment has been defined to be "A delivery of goods for the execution of a special object, beneficial to the bailor, the bailee or both, upon a contract express or implied, to carry out this object, and dispose of the property in conformity with the purpose of the trust." It is the giving possession of personal property to another for the purpose of having the property cared for, improved or used, with the understanding that when the purpose of the delivery is fulfilled, the property shall be returned to the bailor or disposed of according to his directions.

A bailment differs from a sale in that the title to the property remains in the bailor, and possession is given the bailee, while in a sale, the title or ownership of the property is transferred to the purchaser, while possession may remain in the seller. Bailment is a broad subject covering many transactions. Loans, pledges, and deliveries of property of every nature, in which mere possession is given another without transfer of title are included. If A leaves his watch with B, a jeweler, for repairs, the transaction is a bailment. If A delivers property to B, a transportation company, to be conveyed to C, the transaction is a bailment. If A loans his knife to B, the transaction is a bailment.

226. Parties to a Bailment Contract. There are two parties to a bailment contract. The one who gives possession of chattel property to another, reserving title to himself, is called the bailor, and the one who receives possession of the property under these conditions is called the bailee. A bailment is a contract. Parties to a bailment must be competent to contract. (See Competency of Parties, chapter on Contracts.) Parties under legal age may avoid contracts of bailment. If A, fifteen years of age, hires a horse from B, a liveryman, for one hour for $2.00, B cannot compel A to carry out his contract if A objects on the ground of infancy. But if A injures the horse he is liable in damages to B. An infant is liable for his torts, but not for his contracts.

227. Classification of Bailments. Bailments are usually divided into three classes; bailments for the sole benefit of the bailor, bailments for the sole benefit of the bailee, and bailments for the benefit of both the bailor and bailee. A common example of a bailment for the sole benefit of the bailor is a delivery of property to the bailee, to be kept by the bailee gratuitously for the accommodation of the bailor, or delivery of property to the bailee to have work performed on it, without compensation to the bailee. Examples of bailments for the sole benefit of the bailee are loans to the bailee without compensation to the bailor. Bailments for the mutual benefit of bailor and bailee include deliveries of property to carriers, pledges, renting property, or hiring the bailee to perform work on the property bailed, or hiring the bailee to care for the property.

228. Elements of a Contract of Bailment. It is sometimes said that a bailment for the sole benefit of the bailor is not a contract by reason of there being no consideration. A consideration may consist of any benefit to the party making a promise, or any detriment to the one to whom the promise is made. The giving up of the property bailed to the bailee is considered a detriment to the bailor, even though the bailee receives no benefit. For a transaction to constitute a bailment, there must be a delivery of the property bailed to the bailee, and an acceptance by him of the property. This delivery may be actual or constructive, as by delivery of a warehouse receipt, or a bill of lading. The delivery must be sufficient to enable the bailee to secure the possession of the goods, and to control the possession during the period to be covered by the bailment, to the exclusion of the bailor. The property must be in existence to be bailed. A contract of bailment need not be express; it may be implied as well—a thief or a finder of property is a bailee for the true owner.

229. Title to Property Bailed. The title to property bailed does not pass to the bailee. Mere possession passes to the bailee. It is not necessary that the bailor have title to the property to bail it. If he has right of possession he may, under certain circumstances, bail it. A may rent a livery stable, including horses and carriages, of B, for three years, with the understanding that he will operate the business in the usual way. A does not have title to the horses and carriages, but he may hire them to C, or to anyone he chooses. This transaction with C constitutes a bailment, in which the bailor does not have title to the property bailed. He has, however, sufficient right of possession to enter into a bailment contract. The principal distinction between a bailment and a sale of personal property is that, in the latter case, title passes to the purchaser regardless of change of possession of the property, while in the case of a bailment, possession of the property must pass to the bailee, while title is not disturbed.

230. Bailments for the Sole Benefit of the Bailor. Where personal property is deposited with another for safe keeping, or for the purpose of having work performed on it, without compensation to the bailee, the transaction is called a bailment for the sole benefit of the bailor. The liability of a bailor for the loss or injury of property intrusted to his care, depends upon the nature of the property itself, and upon whether the bailee receives compensation for his services. Three degrees of care and negligence, respectively, are recognized in bailments; slight, ordinary and great care, and gross, ordinary and slight negligence. What constitutes ordinary care or negligence is determined by considering what a man of ordinary prudence would do under the circumstances in question. Any case of negligence above or below this standard constitutes great care or gross negligence. If A, in going to lunch, leaves his umbrella in B's office, and the umbrella is stolen, B is not liable to A, if he exercised slight care. If A, a lawyer, is obliged to go to police court to try a criminal case, and leaves his diamond pin with B, a brother attorney, B is obliged to exercise only slight care, as in the case of the umbrella, and is liable only for gross negligence. But slight care means a much greater degree of care in case of the diamond pin than in the case of the umbrella. In case of a bailment for the sole benefit of the bailor, the bailee is obliged to exercise only slight care, and is liable only for gross negligence. He receives no compensation for the service, and for this reason is not obliged to exercise a great degree of care. Property cared for gratuitously for the accommodation of the bailor, or to be carried to some place, or to have something done to it gratuitously, constitutes this class of bailments.

231. Bailments for Sole Benefit of Bailee. Property loaned to a bailee for the latter's accommodation constitutes a bailment for the sole benefit of the bailee. A borrows B's horse to drive to Y. A pays B nothing for the use of the horse. A must exercise great care in the use of the horse, and is liable to B for slight negligence. It is no defense, in case the horse is injured while in A's possession, that A acted as an ordinarily prudent man would act under the circumstances. He must act as an ordinarily prudent man would act when exercising great care. If, from the circumstances connected with the injury to the horse, it is determined that an ordinarily prudent man would have been guilty of slight negligence in the method of handling the horse or causing the injury, A is liable to B for the injury to the horse.

A court said on this point, "A bailee who is a borrower must use extraordinary care to protect the property loaned to him, and is responsible for the slightest neglect. He must exercise all the care and diligence that most careful persons exercise in the transaction of their own affairs."

If the bailee uses the property for any purpose other than that for which it was bailed, or if he exceeds the authority of the bailor in the use of the property, he is liable for injuries resulting. For example, A borrowed B's oxen to plow up a hedge. A used the oxen to draw a load of stone. A stone rolled off the cart and injured one of the oxen. A was held liable for the injury.

232. Bailments for Benefit of Both Bailor and Bailee. The majority of bailments are for the benefit of both bailor and bailee. This class of bailments includes the hiring of personal property. A rents B's automobile for three hours, at three dollars an hour. This is an example of this class of bailments. This class also includes pledges or pawns of goods. If A pledges ten shares of stock in a corporation to his bank for a loan, this transaction constitutes this form of bailment. This also includes the hiring of a bailee to carry goods from one place to another. The most common example of this class of bailments is that of common carriers. For example, A employs B, an express company, to carry a package of jewelry from Cleveland to Chicago. The bailment is for the mutual benefit of both A and B. Any case in which one party employs another to carry goods from one place to another for compensation is included in this class of bailments, and is discussed more at length in the chapter on Common Carriers.

Hiring a person to care for personal property for compensation is included in the class of mutual benefit bailments. A traveling salesman leaving his trunk and satchel with a hotel-keeper is a common example. Where one person hires another to perform work or services on the thing bailed, the transaction constitutes a mutual benefit bailment. For example, if A leaves his overcoat with B, his tailor, to be cleaned and pressed, the transaction constitutes this form of bailment. In mutual benefit bailments the bailee has the right to use the property bailed only for the purposes of the bailment. If A rents B's automobile, he is entitled to use it during the period covered by the contract. If he rents it for a particular designated trip, he cannot use it for any other trip. In a mutual benefit bailment, when the bailee hires out the use of a chattel, there is an implied contract on his part that the chattel is fit for the purpose for which it is to be used, and that it may safely be used for such purposes. A rents B's naphtha launch for the purpose of taking a lake ride. B has carelessly supplied the wrong fuel. An explosion results, injuring A. B is liable for the injury. In mutual benefit bailments, the bailee is obliged to exercise ordinary care, and is liable for ordinary negligence.

The bailee must act as an ordinarily prudent man would act under the same conditions in protecting and caring for the property. A rents a typewriter of B. If the typewriter breaks or gets out of order during ordinary usage, B must stand the loss. If the parties to a bailment of this class specifically contract as to who shall bear the loss in case of accident, or as to the degree of care which shall be exercised, these express stipulations prevail.

233. Warehousemen and Storage Companies. A person who keeps a place for the storage of goods for a compensation is a warehouseman or storage-keeper. In a few states, public warehouses are provided for by statute. In these states, the statutes define the duties and liabilities of warehousemen. These public warehousemen are generally required to take all goods offered for storage, no matter who the owner may be, if the goods are in condition to be stored and if the storage charges are tendered.

Most warehouses operate their business as private enterprises. A few states provide by statute for public warehouses. Private warehousemen may select their customers. They are not required to accept goods for storage if they do not so desire. The government provides warehouses for the storage of goods upon which customs or duties are to be paid. These warehouses are private enterprises authorized by the government to act as government warehouses. The government requires a bond of these warehousemen for the protection of itself, but the government is in no way responsible for the warehouseman's treatment of the goods, or for breaches of contracts between the warehousemen and their customers.

Warehousemen commonly issue receipts for goods stored with them. These warehouse receipts ordinarily are made payable to the customer's order, and may be negotiated. They are not generally recognized as negotiable instruments. A few states have statutes making them negotiable instruments, but outside these jurisdictions, warehouse receipts are merely evidences of ownership of the property. The purchaser takes the same right to the property which the original bailor had, with the additional right to sue the transferor if the title proves defective.

A warehouseman has a lien on the property for his charges. The warehouseman or storage-keeper must exercise ordinary care in the protection of the property. The bailor must reveal to the bailee the character of the goods stored. If the goods are of a dangerous character and injury results, the bailor is responsible to the bailee for damages, if he has failed to reveal the dangerous character of the goods.

234. Degree of Care Required of Bailee. A bailee of property is required to exercise a certain degree of care in the use, preservation and protection of the property placed in his possession, and is liable for a certain degree of negligence. The amount of care a bailee is obliged to exercise, and the amount of negligence for which he is liable, depends upon the kind of property bailed, and whether the bailment is for the sole benefit of the bailor, the bailee, or for the mutual benefit of both the bailor and the bailee. If the property bailed is of great value, or so delicate that it is easily lost, destroyed or injured, a greater degree of care is required on the part of the bailee than if the property is of little value, or is of such a nature that it is not easily damaged, lost or destroyed.

If A, with B's permission, stores his wagon in B's barn, and the wagon is stolen, B is not liable unless he was grossly negligent. He was not paid for the bailment, and was obliged to exercise only slight care in the protection of the wagon. If, however, A leaves his watch with B while he attends a ball game, and the watch is stolen, B must have exercised greater care than in the case of the wagon by reason of the value and nature of the property bailed. Otherwise, he will be liable. In this case as well as in the case of the wagon, B received no compensation for the bailment, and is obliged to exercise only slight care in the protection of the property bailed, and is liable only for gross negligence. What constitutes slight care and gross negligence differs materially in the case of the wagon and in the case of the watch.

In connection with bailments, care is said to have three degrees, great, ordinary and slight. Negligence is also said to have three degrees, gross, ordinary and slight. Ordinary care or negligence is the standard for testing each case. After ordinary care or negligence is determined, slight or great care, and slight or gross negligence is determined by ascertaining whether the care or negligence is above or below ordinary. Any care greater than ordinary is great care; any care less than ordinary is slight care. Any negligence greater than ordinary is gross negligence. Any negligence less than ordinary is slight negligence. If a person takes such precautions in the use, preservation, and protection of the property as an ordinarily prudent person would take of his own property under similar circumstances, he is said to exercise ordinary care. The degree of care required of a bailee depends upon the kind of a bailment in question, as well as upon the kinds of property bailed.

If the bailment is for the sole benefit of the bailor, the bailee receiving no compensation for his inconvenience and work, he is required to exercise only slight care, and is liable only for gross negligence. If the bailment is for the sole benefit of the bailee, the bailor receiving no compensation for his inconvenience and the loss of the use of his property, the bailee is required to exercise great care in the use and preservation of the property, and is liable for slight negligence. In case of mutual benefit bailments, the bailee is obliged to exercise ordinary care in the use and protection of the property, and is liable for ordinary negligence. Two classes of mutual benefit bailees, innkeepers and common carriers, do not come within the above rule. These are known as exceptional mutual benefit bailments, and are discussed under separate chapters.

235. Rights of Bailee as Against Bailor. A bailee has the right to keep the property, to use it according to the terms of the contract of bailment, and to defend this right even against the bailor himself. While the title to the property in question remains in the bailor, the right of possession during the period covered by the contract of bailment is in the bailee. He may retain possession of the property for the purpose of the bailment. A bailee is entitled to use the property bailed, and is restricted only by the limitations of the contract. If the bailee uses this property in a way not authorized by the contract of bailment, he is liable in damages to the bailee.

Where a mutual benefit bailment requires the bailee to use skill in connection with the property bailed, the bailor must exercise a degree of skill ordinarily used by persons who perform similar work. If the bailee fails to use this degree of skill, he is liable in damages to the bailor. For example, if A leaves his horse with B, a blacksmith, to be shod, and B attempts the work, but performs it so unskillfully, or carelessly that the horse is injured or lamed thereby, B is liable to A for the damage caused.

236. Rights of Bailee as Against Third Persons. A bailee has the right to keep the property bailed as against third persons who endeavor to interfere with his possession. The bailee is not permitted to dispute the title of the bailor for his own benefit. If, however, the property is taken away from the bailee by action at law, by one whose title is superior to that of the bailor, the bailee is relieved from liability to the bailor. In this event, the one who has the paramount title coupled with the right of immediate possession, may take the property from the bailee. If the bailee yields possession to one whose right of possession and title are inferior to the bailor's, the bailee is answerable to the bailor for any losses sustained. The bailee cannot confer good title upon anyone to whom he attempts to sell the property bailed, even though the purchaser buys without notice of the bailment. Anyone who injures the property while it is in the possession of the bailee is responsible either to the bailor or bailee for the damages.

237. Lien of Bailee. A bailee who has performed work on the article bailed, for which he is to be paid a consideration, is said to have a lien for the value of the work performed, or materials furnished. By a lien is meant the right of the bailee to retain possession until the value of his labor or material has been received. At common law, a livery stable keeper had no lien upon horses fed and cared for. By statute in most states, livery stable keepers now have a lien upon horses left with them. If a bailee is employed to perform work or labor upon personal property, and the property is destroyed without fault of the bailee after part of the work has been performed, the bailee may recover for the amount of work performed and materials furnished, unless the contract of bailment is to the effect that the entire job is to be completed before any payment is made.

A bailee loses his lien by parting with possession of the property. At common law, a bailee could not sell the property to enforce his lien. By statute in most states, the bailee is permitted to sell the property, by giving notice of the time and place of sale to the bailor, or by foreclosing his lien by a legal action.