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From the hire of company cars to the shipping of goods, the concept of ‘bailment’ refers to a common form of legal relationship for those operating a business. And yet the term ‘bailment’ is often unfamiliar even to those who are unwittingly subject to its rules ... until a dispute arises. In this article we summarise explains the rules around bailment and what can be done to manage the business risks effectively.
At its most basic, bailment is a legal relationship which arises in circumstances where one person is in possession of goods belonging to another. The goods must be tangible items such as cars, cargo and equipment; this does not relate to intangible assets such as debts or intellectual property rights.
In order for such a relationship to arise, a person (the bailee) must voluntarily and consensually take possession of movable goods from the bailor, who retains ownership of the goods.
To take a couple of examples, a bailment would arise where:
A car hire company delivers one of its vehicles to a garage for repair. The garage receives the vehicle from the car hire company so that the repairs can be carried out. It is expected that the mechanic will receive payment for the services provided, but ownership of the vehicle will remain with the car hire company at all times.
A manufacturing business allows a shipping company to collect goods from a distribution centre so that those goods can be delivered to a customer. Although ownership of the goods would never pass to the shipping company, they would be entitled to payment for the provision of their services. In return, the manufacturing business would have certain expectations as to how those goods are treated while in transit. These expectations are reflected in the law governing bailment
Once you have entered into a relationship which involves bailment, it is important to understand the obligations on both sides in order to avoid a dispute and to protect the business if a dispute should arise.
If you are the owner of the goods - the car hire company or the manufacturing company in the scenarios above - you must:
- pay for the services provided by the company in possession of your goods, if terms have been agreed;
- take back possession of the goods when agreed, or within a reasonable period of time; and
- be responsible for any harm caused by any defect in the goods, for example, if the manufacturer’s shipment in the scenario above is found to be contaminated and causes an employee of the shipping company to fall ill from handling the goods, the manufacturer could be found to be in breach of its bailment obligations.
For the company in possession of the goods - the garage or the shipping company in the examples - they must:
- act reasonably in taking care of the goods;
- perform the task for which the goods were initially supplied; and
- make the goods available for collection by the owner at the requisite time.
These terms are implied by the law but can be varied by the particular contract between the parties or by statute.
Disputes typically arise if either party is considered to be in breach of its obligations arising from the bailment in question. For example:
- If the shipping company reports to the manufacturer that the goods were damaged in transit as a result of unusually adverse weather conditions, there may be a dispute as to whether this constitutes a breach of the bailment terms on the part of the shipping company; or
- if the car hire company delays collecting the vehicle on the basis that it is not happy with the quality of the repairs undertaken by the garage, they may demand further repair work, while the garage may seek to charge additional fees for storage until the vehicle is collected.
Depending the situation, there is a range of claims which might be brought against the offending party. For example, these may include:
- breach of contract where the bailment is contractual in nature;
- breach of the implied obligations arising under the law of bailment;
- unjust enrichment, where one party receives an unfair reward at the expense of another. For example, if the garage in the scenario above returns the vehicle to the car hire company later than agreed and it turns out they have been using the vehicle to make deliveries of car parts sold to customers.
For the successful claimant, there are a number of remedies available which can include;
- damages in the form of monetary compensation;
- a requirement that the defendant take certain steps to rectify the situation under a contract, know as an order for specific performance; and
- the grant of an injunction order requiring the defendant to take or refrain from specified action, eg. to return the goods.
In most cases, a successful party would also be awarded legal costs against the losing party and as such the financial risks of a claim can be significant.
Practical problems can arise from a bailment dispute. A common example would be where the owner of goods fails to collect them. How then can the party left in possession of the goods take steps to dispose of them? Can they charge for storage or sell them? If so, what happens to the proceeds of sale?
Outside the specific terms of a contract, there are statutory procedures for handling such situations and these may apply. However, the solution in a particular case will depend largely on the individual circumstances and practical factors in terms of the risk and cost-benefit to your business.
As specialists in civil dispute resolution, we can to provide tailored advice to ensure that you take the most appropriate steps to reduce the risk to your business and to ensure that you are fully aware of your obligations and the options available to you.
Our key contact at DMP for further advice and assistance on bailment is:
Bill Montague, partner
tel: 0118 939 3999
The contents of this article are for the purposes of general awareness only. They do not purport to constitute legal or professional advice. The law may have changed since this article was published. Readers should not act on the basis of the information included and should take appropriate professional advice upon their own particular circumstances.comments powered by Disqus