What is a Bailment Agreement?
A bailment agreement is a legally binding contract between the owner of a specified physical possession and a third party who takes that possession in handling it for a specific purpose. The owner of the possession who hands over the personal property is the bailor and the other party who receives it is the bailee. The agreement is the basis for the bailee to keep the property in his care temporarily in a certain condition, complete a specified action with it, or not use it at all.
Bailments may be created simply by the parties’ actions. For example, transporting clothing to a dry cleaning service creates a bailment agreement with the dry cleaner so that the clothing items can be cleaned. Courts may enforce this agreement if either party violates its terms.
Bailment agreements are a different kind of contract than leases , storage agreements and other arrangements regarding family, business and estate property. With bailment agreements, no money changes hands and bailors often do not expect financial return unless the property is irreparably damaged or lost. Many people and entities are unaware that they sign a bailment agreement until, for example, the repair shop uses the company’s security features on a device under repair. When a conflict occurs relating to a bailment agreement, courts may review it in a similar fashion to other contracts.
It may be helpful to analyze your proposed relationship before entering into a bailment agreement. You may want an express written agreement stating the conditions under which the other party must use your property, such as not smoking or using alcohol.
Essential Elements of a Bailment Agreement
A well-drafted bailment agreement should clearly define the relationship between the parties and the scope of the ownership, use, and return of the bailed property. The following key components must be included to avoid ambiguity and to ensure the enforceability of the parties’ intentions:
- Terms of the Agreement: A bailment agreement may run for a specific period of time or be subject to a condition precedent. For example, the parties may agree that the bailment will remain conditioned and in effect until the occurrence of a specified event. If the bailment is indefinite, it is subject to termination by the giving of reasonable notice by either party.
- Delivery of Property: In order to be valid, the bailor must deliver personal property to the bailee. The delivery must be of such character as to indicate the intent of the parties to vest the title of the property to the bailee. The parties can even agree that the bailee only has possession of the personal property and retains no ownership rights. The transfer of possession may be actual or constructive and the bailee is required to exercise ordinary care when given possession of the bailor’s personal property.
- Obligations of Bailee: The bailee must bear a standard of care commensurate with the purpose of the bailment. The bailee shall be liable for any damage, spoil, or loss of the property caused by his or her negligence. Unless otherwise agreed, storage fees, insurance, or other care are usually not chargeable to the bailor if the bailee is a gratuitous bailee. The bailee also has a duty to return the bailed property to the bailor or as he or she may otherwise direct.
- Rights of Bailer: A bailee may not retain the bailed personal property for a longer than the purpose for which it is bailed, absent a contract clause to the contrary. The bailor may revoke the bailment at any time by giving reasonable notice to the bailee. The bailor shall not be entitled to the return of the bailed property until he or she tenders and performs any contract terms required for its return. On the other hand, the bailor may be held liable for the bailee’s expenses, services, or improvements to the property that are not of benefit to the bailor.
- Lawful Purpose: The bailment must have a lawful purpose and the bailed property must not be illegal to possess or use. The bailee is strictly liable for such property.
- Bailee’s Declaratory Obligation: The bailee has a duty to promptly disclose to the bailor any defects, impairments, or wastes of the property. Failure to do this may result in the imposition of liability on the bailee by the bailor.
Different Types of Bailment
In addition to the rights and duties of the parties, there are three types of bailment: gratuitous, mutual benefit, and constructive. Some judges have recognized a fourth type of bailment-bailment for the sole benefit of the bailor-namely a gratuitous bailment. Illinois courts, on the other hand, have not so recognized. Gratuitous bailment occurs when the bailee derives no benefit from the bailed property. The bailee is required to exercise only slight care over the bailed property. Thus, a gratuitous bailee is liable only for gross or ordinary negligence. For example, a gratuitous bailment would exist between a homeowner who requests his neighbor to borrow his lawn mower. In such a case, the neighbor (a gratuitous bailee) must merely erect sufficient safeguards to prevent loss. If the neighbor was to neglect those safeguards and damaged the mower, he may be held liable for the reasonable cost of repairs, if not the replacement value if repair is economically infeasible. In a mutual benefit bailment, the bailee derives a benefit from the bailed property. For instance, if you take your car to a service station to have the oil changed, the service station derives a benefit from that transaction. In this case, a mutual benefit bailment would exist. Finally, a constructive bailment exists as to a person who left property at a hotel or motel even though the hotel employees did not expressly receive the property. In this instance, absent a sign prohibiting a bailment, the hotel can be deemed to have a constructive bailment over the property left at the establishment. Indeed, Illinois Courts have found that a caretaker of personal property has a duty to exercise ordinary care of that property even when their duty of care is based upon the actions of a third party.
Legal Responsibility and Liability
One of the key aspects both the bailor (the party delivering the property) and the bailee (the party receiving the property) must know is that, alongside rights, both parties have legal obligations. It is essential to understand these responsibilities because they can affect the outcome if property goes missing or becomes damaged.
Responsibilities of the Bailor (Owner of the Goods)
The bailor has the following obligations: The bailor does not need to worry too much about damage done to their goods by an intentional act of a third party – a criminal act. Neither can the bailee be made responsible for a loss caused by "forces of nature": fire, flood and so on. Elements of liability can be complex and are often the subject of litigation.
Responsibilities of the Bailee (Possessor of the Goods)
The bailee’s responsibilities have been best summarised in the following extract: If the bailee misuses the property, there can be a full loss: that is, the bailor could sue for the value of the goods as well as the return of the property itself. If the bailee is careless, the bailee will be liable to make good the loss; for example, if the bailee hired a car and returned it with a dent, the bailee will have to be liable for the cost of repairs.
Liability for breach of an agreement will depend on several factors. For example, it will depend on whether the agreement contains a full exclusion of liability for negligence or not. In some cases, an agreement will not withstand a court’s scrutiny and be declared void on public policy grounds, e.g. if damage was caused by the bailee. There are also circumstances where indemnity is not available, e.g. where the bailor has been complicit in the loss of the property.
Both parties can insure themselves against their respective liability to the other (i.e. the bailor can take out insurance against the bailee’s negligence and vice versa).
How to Write Your Bailment Agreement Template
In addition to modifying a pre-existing bailment agreement to suit your situation, you can also draft an entirely new bailment agreement from scratch using the following template. It includes all the crucial elements of an enforceable bailment agreement. However, be forewarned: the risk of creating legal blind spots and pitfalls is greater when you draft your own legal documents, so consider hiring a lawyer to review or draft the agreement for you.
BAILMENT AGREEMENT
This Bailment Agreement ("Agreement") is made and entered into as of *the date of entering into the agreement* between *name*, having as address *address*, hereinafter referred to as "Bailor", and *name*, having as address *address*, hereinafter referred to as "Bailee".
1. DEPOSIT
The Bailor shall deliver and deposit, and the Bailee shall deliver and deposit to the Bailor (or as Bailor may direct), *describe property being bailed, including serial numbers, id numbers, model numbers, etc.* ("Property"), for the exclusive and sole purpose of the Bailee carrying out repairs on the Property as further detailed in Section 2, below.
2. USE OF PROPERTY
The purpose of the tender of the Property to the Bailee under this Agreement is solely to permit the Bailee to make certain agreed-upon repairs necessary to be made to the Property as described in *specific pages of user manual, if applicable; specific parts names and serial numbers, if applicable; and/or make, model, and serial numbers of Property, if any*, and for no other purpose whatsoever, including, but not limited to (ten (10) spaces available for each purpose; Please list all possible and intended uses of the Property):
(a) 1.
(b) 2.
(c) 3.
(d) 4.
(e) 5.
(f) 6.
(g) 7.
(h) 8.
(i) 9.
(j) 10.
3. EXPRESS WARRANTIES
The Property shall be deemed delivered "as-is" with respect to specific nature and condition of the Property, and neither the Bailor nor the Bailee makes any other or further representations or warranties, express or implied, by statute or otherwise, including, without limitation, warranties of merchantability or fitness for a particular purpose , all of which are hereby expressly disclaimed.
4. INTELLECTUAL PROPERTY RIGHTS
The Property is subject to the terms and conditions of one or more end-user license agreements (collectively, the "License Agreement") with the manufacturer and/or other licensors of the Property. The terms and conditions of these License Agreement(s) are incorporated in this Agreement by referring to the License Agreement(s) and are imposing upon the Bailee and the Bailor. The Bailee and Bailor warrant that they are familiar with and in full agreement with all the terms and conditions of the License Agreement(s). The Bailee and Bailor agree that they will comply, and cause their respective employees, agents, subcontractors and consultants to comply, with the terms and conditions of License Agreement(s) during any and all time they are in possession of the Property.
5. SPECIAL INDEMNIFICATION
The Bailor shall indemnify, defend, and hold harmless the Bailee and the Bailee’s affiliates and their respective officers, directors, employees and representatives from and against all liabilities, claims, damages, losses, costs and expenses, including reasonable attorneys’ fees, arising from or incurred in connection with the Defense and Indemnification provisions of the License Agreement and/or from any allegations that any intellectual property rights claimed by any third party have been infringed or misappropriated in connection with the possession, maintenance, lease, service, repair, use, operation, transfer, surrender return or disposition of the Property in connection with the License Agreement.
6. ASSIGNMENT
This Agreement shall not be assigned, transferred or otherwise delegated by either the Bailor or the Bailee, except to the extent that the mere assignment of this Agreement in connection with an assignment of the License Agreement shall not constitute an assumption hereof unless specifically provided herein.
7. CONSENT TO QUIET ENJOYMENT OF PROPERTY
The Bailee covenants and agrees that the Bailor will not do any act or make or cause any statement to be made which will in any way unreasonably interfere with the quiet and peaceful possession and enjoyment of the Property by the Bailee.
Mistakes to Avoid
When it comes to creating a bailment agreement, common pitfalls typically involve unclear terms or a failure to comply with state requirements. Here are a few suggestions to potentially save you and your client a lot of headaches down the line: Be Clear and Specific – Be sure that you clearly explain what is being bailed and the respective obligations of both parties. Ask yourself if there’s anything that could be potentially misunderstood or miscommunicated. For example, if you are describing the apartment being bailed, explain in detail how many, bedrooms, bathrooms, and unit fixtures are included in the bailment agreement. Additionally, if the property is being bailed for storage, detail in the agreement if it will be climate controlled and any other applicable features. Review Your State Laws – Different states have different requirements pertaining to bailment agreements. It is always a good idea to be thoroughly aware of the laws in your state. Many states have specific licensing requirements. And, remember, if you are conducting business across state lines, you should be familiar with the laws in both states.
Bailment Agreement Dos and Don’ts
- Set clear guidelines and expectations: Ensure the agreement specifies the types of goods that can be bailed, how they are to be handled, and what will trigger the return to the bailor, in order to minimize disputes.
- Regularly communicate: Maintain open communication with the bailee throughout the bailing process, checking in for updates on the condition of the goods and addressing any concerns or changes promptly to avoid misunderstandings.
- Document everything: Document any agreements regarding the manner in which the bailee will care for the goods, as well as any updates, repairs, or changes made to the items during the bailing period.
- Conduct periodic reviews: Establish regular reviews of the terms of the bailment to ensure they remain relevant and that both parties are adhering to them. If necessary, the agreement should be updated to reflect any changes in the relationship or needs of either party.
- Build trust: Foster a strong relationship with the other party by making good faith efforts to uphold your responsibilities under the agreement, and encouraging them to do the same.
How to Obtain Legal Help
Access to Legal Assistance
Once a bailment is recognized as a legal relationship between the parties, either of them may want to consult an attorney about the specifics or generalities concerning their obligations and/or rights. If the person seeking to enforce the contract was a bailee (the general term for the person with possession of the property) and the bailee wants to determine whether or not they are legally responsible for the loss, theft, damage, or neglect of the goods in his possession, that person can source, review, and/or consult an attorney with knowledge and experience in bailment contracts.
A bailment contract may be formalized in writing, however, even oral contracts are enforceable if the relevant parties can agree upon the terms . The writing requirement is common to most contracts which require the contract to be in writing if the item involved is valued above $500.00, or if the contract by which the bailment is created is supposed to last longer than 1 year.
The existence of a bailment contract can be the source of disagreements which may end up in litigation if the parties cannot come to a peaceful resolution between themselves. If the contract can be written using clear terms reflecting the intent of the parties, then it is possible to avoid misunderstandings between the parties. A good attorney with experience in drafting bailments can assist the parties in this endeavor.