Chapter 2: Bailment Flashcards
Bailment
- Transfer of possession of personal property without the transfer of ownership.
- Normally the property will be returned.
Who is the bailor?
The owner of the property
Who is the bailee?
That one that holds possession of the property.
Types of Bailment
Contractual and non-contractual
Non-contractual bailment types
- Gratuitous: There is no exchange taking place. There is only a benefit to one party.
- Involuntary: There could be a lack of intention to create a bailment relationship.
- It may be for the benefit or either or both parties.
What makes a contractual bailment?
- Contractual bailment benefits both parties
- There is some sort of exchange, likely commercial relationship between the parties that exist surrounding the bailment arrangement.
Three elements need to be present in order for…
a bailment relationship to exist.
Three elements of bailment
- Delivery of possession: The bailee has to take possession of the property at some point. Not necessarily comes from the bailor, it can come from a third party, but that bailee does take possession of the property.
- No intention to transfer title.
- Intention that the property will be returned to the bailor.
When might the three elements of bailment not be as necessary?
If we are dealing with a contractual bailment, the parties might explicitly set out in the contract the nature of the relationship and the duties of the parties. If that is the case, then these elements may not necessarily be relevant in establishing what type of relationship is between the parties. However, if it is a situation where it is non-contractual then these elements become critical to determining if it is really a bailment relationship or if it is some other scenario.
When is sub-bailment possible
If dealing with contractual bailment there is probably going to be terms in the contract relating to potential sub-bailment
- Permission from the bailor should be sought
- Sometimes permission is implied: Could be implied from the terms in the contract. If it is apparent from the terms that at some point the bailee will be transferring possession to another person or entity (for example, if it is implied that at some point based on the nature of the agreement the bailee will have to ship the property, or put it in the mail, etc., simply hand over possession to another person or entity), then it is going to be implied that sub-bailment is possible.
Duty of bailee
Bailees have a duty to care for the property bailed to them.
When is the duty of care established?
Once the bailment relationship has been established either through contract, or the three bailment characteristics.
How are exemption clauses related to bailment?
- They are related to contractual bailments.
Contractual bailments may include exception clauses - liability limited by contract. - Exception clauses will be strictly construed against bailee (whenever someone is exempting rights or placing a limitation on liability, courts will interpret them narrowly. They will be constructed narrowly and against the bailee).
Is the standard of care always the same?
No the standard of care varies by the type of bailment.
Where is the standard of care the highest?
The standard is highest for gratuitous bailment for benefit of bailee.
- Ex. Friend borrows a truck to move.
- Where the bailment is not for the parties’ mutual benefit, but the bailee is getting some benefit of value of holding the relationship or the property, then the standard of care for the bailee is highest.
When is the standard of care the lowest?
Standard is lowest for gratuitous bailment for benefit of bailor.
- Ex. Storing furniture for a friend and not getting paid for it.
- If there is only a benefit or value flowing to the bailor in a relationship, then the bailee is going to have the lowest standard of care.
- The benefit there is for the bailor and the bailee is not getting anything.
What is bailment for value?
There is a mutual flow of benefit in the relationship, flowing in both directions.
What is the standard of care for bailment for value?
The standard of care is to take care of goods as a prudent and diligent person should take of goods belonging to those with whom she transacts business and in the circumstance.
- Standards of care and assessment is similar to when looking at negligence.
What are the remedies for bailee?
- Damages
- Lien
- Right of Sale
Explain damages as remedy for bailee.
Generally contractual damages. So if the bailee has a contract for services and the bailor has not paid the invoice, they can sue for damages.
Explain lien as a remedy for bailee.
- A lien is available where bailee still has good in its possession.
- Payment must already be due.
- Common law lien can arise over property where services performed.
Lien can arise by contract.
For lien as a remedy, explain that payment must already be due.
- A lien only arises when services have been performed but payment is due. If services have been performed but payment due date hasn’t arisen yet, then a lien is not available yet.
- The effect of a lien is so that the bailee can continue to hold property and refuse transfer possession back until payment has been made.
Explain how common law lien can arise over property where services performed.
- For example, bailee might be holding the property for the purposes of a service arrangement. For example, if one leaves their car with a mechanic, generally the shop is a bailee and the car is a bailment property. And a lien can arise over that property with respect to the fees for services that have been performed on that car.
- So it’s not necessarily related to the storage of the property. It could be that the bailee is holding property for the purposes of services and not storage.
- It can also arise in other scenarios where there are professional services (legal services). If a lawyer has performed legal work for a client, and then the client transfers work to another lawyer and they want to take their file, the lawyer can exercise a lien over the file until invoices are paid.
Explain how liens can arise by contract
If the parties agree that a lien is available for the bailee and it might change the common law scenario, so the bailee for example, the lien could arise prior to payment being due if that is what is in the agreement, or the contract might say no lien is available. They are contracting outside of common law liens so that the bailee cannot rely on holding the property as incentive for payment.
Whare are the requirements for right of sale as a remedy for Bailee
- That a certain time elapse after payment falls due.
- That advance notice be given to the bailor of the bailee’s intention to sell.
- That the sale be advertised.
- That it be held by public auction. It cannot be a private sale.
Can the bailor recover property from the bailee?
Yes. The bailor can recover property from the bailee anytime as long as the bill is paid in full.
What are the special types of bailment?
- For storage and safekeeping
- For repair on a chattel
- Involving common carriers
- Involving international transportation of goods
- Involving innkeepers
- Involving pawnbrokers
Who governs the rights of pledged property?
The rights in pledged property are governed by personal property security legislation.
What are the three types of carriers?
- Gratuitous
- Private
- Common
What is a gratuitous carrier?
These are where one is carrying or moving the property without any reward or payment. For example, helping your friend move furniture from one apartment to another with your own truck.
What are private carriers?
One that carries property for reward (for payment) but can reserve the right to refuse jobs that they don’t want.
What are common carriers?
- Essentially the same as private (they carry property for reward) but they cannot refuse to take a customer or passenger if they have space. These are often public institutions like for example Canada Post, BC ferries, telecommunication, pipelines, etc.
- The term is not necessarily related to only moving personal property, but it relates to the movement of something from one place to another.
What is the duty of care for common carriers?
Common carrier has the highest duty of care for goods.
When are common carriers liable?
- The carrier received the goods in good condition, and
- the carrier delivered them in bad condition or failed to deliver them at all.
What happens if something goes wrong with a common carrier?
When something goes wrong with a common carrier, it doesn’t matter whether they were negligent or not, they are going to be liable. Standard is such that any damage will be a breach of standard of care.
What are defenses for common carriers?
- An act of God
- Inherent vice in the goods
- Default by the shipper
What is the defense “an act of God”
Unforeseen circumstances like natural disasters.
What is the defense “inherent vice in the goods”
If there is some inherent problem or defect that was ascertainable at the time of delivery.
What is the defense “default by the shipper”
If bailor of shipper has not complied with their contractual obligations, perhaps with respect to dangerous or risky property.
What is leasing?
When possession changes hands in exchange for rent.
What are the two types of chattel leases (personal property)?
- Operating leases
- Purchase leases (parties’ common intention)
What are operating leases?
- no intention for ownership to change.
- for example, weekend car rental
What are purchase leases?
- Ownership changes at the end of lease.
- There are two different types of purchase leases.
What are the two types of purchase leases?
- Security lease: Credit from lessor
- Finance lease: credit from third party.
What are security leases?
- Credit form lessor.
- Means that the lease payments are towards the purchase price of the property and the credit is coming from the lessor itself.
What are finance leases?
- Credit from third party.
- The supplier sells the good to the finance company which then leases to the lessee. The finance company holds the title to the property even though they probably have never held possession themselves. Possession went from the supplier to the purchaser but title went from the seller to the finance company to the purchaser.
Agreements between operating leases and purchase leases.
- There are agreements somewhere between operating leases and purchase leases.
- For example, vehicle leasing. If it is not established that at the end the lessee will take title, it could be where there is an optional buyout at the end of the lease period. It is an optional purchase lease.
What are the common terms in chattel leases?
- Duration
- Rent
- Insurance and other costs
- Purchase option
- Early termination and minimum payment
In the common terms in chattel leases, what is the duration?
How long the lease is actually for
In the common terms in chattel leases, what is the rent?
Consumer protection legislation imposes credit (interest) disclosure requirements for consumer leases.
In the common terms in chattel leases, what are insurance and other costs?
- Often there will be a minimum insurance requirement that the lessee has to maintain over the property. Often the lessor will require documentation to prove that there is insurance.
- Other costs like fees for maintenance and upkeep.
In the common terms in chattel leases, what is purchase option?
If there is a purchase option, it is the terms of what that option is.
In the common terms in chattel leases, what is early termination and minimum payment?
Do the parties have the ability to terminate the contract and lease before the end of the term? And if they do then what is the payment associated with that? Do they have to give 30 days notice or just a payout?
What are the implied terms in chattel leases?
- Warranty of quiet possession
- Warranty of fitness for purpose
What is warranty of quiet possession?
Means that there will be no interference with the lessee’s possession or use of the asset.
What have some provinces (BC included) extended to retail leases?
Some provinces (BC included) have extended implied warranties of Sale of Goods Act to retail leases.
What is the right of the Lessor?
Right to the whole of the rent even if the item is returned early.
- Unless parties have agreed to some early termination provision, this is the default common law interpretation.
- For example, if the lease term for the photocopier is two years and the lessee decides that they want to return it after one year, and there is no termination provision in the contract, if they do so, the lessor is still entitled to rent for the two years. Just because the lessee doesn’t want it anymore and wants to return it, doesn’t discharge their obligation to pay rent for the two years. But that will be modified by termination provisions.
What are the rights for the lessee?
- Damages if wrongfully dispossessed
- Damages for losses because of defect
- Finance leases usually exclude implied warranties by lessor.
