Bailment

The temporary placement of control over, or possession of Personal Property by one person, the bailor, into the
hands of another, the bailee, for a designated purpose upon which the parties have agreed.The term bailment
is derived from the French bailor, "to deliver." It is generally considered to be a contractual relationship since the
bailor and bailee, either expressly or impliedly, bind themselves to act according to particular terms. The bailee
receives only control or possession of the property while the bailor retains the ownership interests in it. During the
specific period a bailment exists, the bailee's interest in the property is superior to that of all others, including the
bailor, unless the bailee violates some term of the agreement. Once the purpose for which the property has
been delivered has been accomplished, the property will be returned to the bailor or otherwise disposed of
pursuant to the bailor's directions.

A bailment is not the same as a sale, which is an intentional transfer of ownership of personal property in
exchange for something of value. A bailment involves only a transfer of possession or custody, not of ownership.
A rental or lease of personal property might be a bailment, depending upon the agreement of the parties. A
bailment is created when a parking garage attendant, the bailee, is given the keys to a motor vehicle by its
owner, the bailor. The owner, in addition to renting the space, has transferred possession and control of the
vehicle by relinquishing its keys to the attendant. If the keys were not made available and the vehicle was
locked, the arrangement would be strictly a rental or lease, since there was no transfer of possession.

A gratuitous loan and the delivery of property for repair or safekeeping are also typical situations in which a
bailment is created.

Categories
There are three types of bailments: (1) for the benefit of the bailor and bailee; (2) for the sole benefit of the
bailor; and (3) for the sole benefit of the bailee.

A bailment for the mutual benefit of the parties is created when there is an exchange of performances
between the parties. A bailment for the repair of an item is a bailment for mutual benefit when the bailee
receives a fee in exchange for his or her work.

A bailor receives the sole benefit from a bailment when a bailee acts gratuitously—for example, if a restaurant,
a bailee, provides an attended coatroom free of charge to its customers, the bailors. By virtue of the terms of
the bailment, the bailee agrees to act without any expectation of compensation. A bailment is created for the
sole benefit of the bailee when both parties agree the property temporarily in the bailee's custody is to be used
to his or her own advantage without giving anything to the bailor in return. The loan of a book from a library is a
bailment for the sole benefit of the bailee.

Elements
Three elements are generally necessary for the existence of a bailment: delivery, acceptance, and
consideration.

Actual possession of or control over property must be delivered to a bailee in order to create a bailment. The
delivery of actual possession of an item allows the bailee to accomplish his or her duties toward the property
without the interference of others. Control over property is not necessarily the same as physical custody of it
but, rather, is a type of constructive delivery. The bailor gives the bailee the means of access to taking custody
of it, without its actual delivery. The law construes such action as the equivalent of the physical transfer of the
item. The delivery of the keys to a safe-deposit box is constructive delivery of its contents.

A requisite to the creation of a bailment is the express or implied acceptance of possession of or control over
the property by the bailee. A person cannot unwittingly become a bailee. Because a bailment is a contract,
knowledge and acceptance of its terms are essential to its enforcement.

Consideration, the exchange of something of value, must be present for a bailment to exist. Unlike the
consideration required for most contracts, as long as one party gives up something of value, such action is
regarded as good consideration. It is sufficient that the bailor suffer loss of use of the property by relinquishing its
control to the bailee; the bailor has given up something of value—the immediate right to control the property.

Rights and Liabilities

The bailment contract embodying general principles of the law of bailments governs the rights and duties of
the bailor and bailee. The duty of care that must be exercised by a bailee varies, depending on the type of
bailment.

In a bailment for mutual benefit, the bailee must take reasonable care of the bailed property. A bailee who
fails to do so may be held liable for any damages incurred from his or her Negligence. When a bailor receives
the sole benefit from the bailment, the bailee has a lesser duty to care for the property and is financially
responsible only if he or she has been grossly negligent or has acted in bad faith in taking care of the property.
In contrast, a bailee for whose sole benefit property has been bailed must exercise extraordinary care for the
property. The bailee can use the property only in the manner authorized by the terms of the bailment. The
bailee is liable for all injuries to the property from failure to properly care for or use it.
Once the purpose of the bailment has been completed, the bailee usually must return the property to the
bailor, or account for it, depending upon the terms of the contract. If, through no fault of his or her own, the
return of the property is delayed or becomes impossible—for example, when it is lost during the course of the
bailment or when a hurricane blows the property into the ocean—the bailee will not be held liable for
nondelivery on demand. In all other situations, however, the bailee will be responsible for the tort of conversion
for unjustifiable failure to redeliver the property as well as its unauthorized use.

The provisions of the bailment contract may restrict the liability of a bailee for negligent care or unauthorized
use of the property. Such terms may not, however, absolve the bailee from all liability for the consequences of
his or her own Fraud or negligence. The bailor must have notice of all such limitations on liability. The restrictions
will be enforced in any action brought for damages as long as the contract does not violate the law or public
policy. Similarly, a bailee may extend his or her liability to the bailor by contract provision.

Termination
A bailment is ended when its purpose has been achieved, when the parties agree that it is terminated, or when
the bailed property is destroyed. A bailment created for an indefinite period is terminable at will by either party,
as long as the other party receives due notice of the intended termination. Once a bailment ends, the bailee
must return the property to the bailor or possibly be liable for conversion.

Further readings
Cross, Frank B., and Roger Leroy Miller. 1998. West's Legal Environment of Business: Test Cases, Ethical
Regulatory, and International Issues. St. Paul, Minn.: West.

Hall, Kermit L. 1991. A History of American Legal Culture: Cases and Materials. New York: Oxford Univ. Press.

Cross-references
Bad Faith; Conversion; Damages; Negligence.

West's Encyclopedia of American Law, edition 2. Copyright 2008 The Gale Group, Inc. All rights reserved.
bailment
n. 1) the act of placing property in the custody and control of another, usually by agreement in which the
holder (bailee) is responsible for their safe keeping and return of the property. Examples: bonds left with the
bank, autos parked in a garage, animals lodged with a kennel, or a storage facility (as long as the goods can
be moved and are under the control of the custodian). While most are "bailments for hire" in which the
custodian (bailee) is paid, there is also "constructive bailment" when the circumstances create an obligation
upon the custodian to protect the goods, and "gratuitous bailment" in which there is no payment, but the
bailee is still responsible, such as when a finder of a lost diamond ring places it with a custodian pending finding
the owner. 2) the goods themselves which are held by a bailee. Thus, the "bailor" (owner) leaves the "bailment"
(goods) with the "bailee" (custodian), and the entire transaction is a "bailment." (See: bailee, bailor)

Copyright © 1981-2005 by Gerald N. Hill and Kathleen T. Hill. All Right reserved.
bailmentnoun giving up, held in pledge, in escrow, transferred, under control
Burton's Legal Thesaurus, 4E. Copyright © 2007 by William C. Burton. Used with permission of The McGraw-Hill
Companies, Inc.
bailment a delivery of goods by one person (the bailor) to another person (the bailee) for a certain purpose,
upon an express or implied promise by the bailee to return them to the bailor or to deliver them to someone
designated by him, after the purpose has been fulfilled. While not a trustee, the bailee is bound to exercise a
reasonable level of care in respect of the thing bailed during the period of the bailment. Bailments are of six
kinds:
(1) depositum, where goods are delivered by one person to another to keep for the use of the bailor;
(2) commodatum, where goods are ‘lent’ gratis to be used by the bailee and returned to the bailor after such
use;
(3) locatio et conductio, where goods are hired by the bailee for use by him;
(4) vadium (pawn or pledge), where goods or chattels are delivered to another as security for money
borrowed by the bailor;
(5) locatio operis faciendi, where goods are delivered to another for transportation or for the bailee to carry out
some work on them;
(6) mandatum, as in (5) but where the transportation or work is to be undertaken gratis and without any
reward.
Collins Dictionary of Law © W.J. Stewart, 2006
BAILMENT, contracts. This word is derived from the French, bailler, to deliver. 2 Bl. Com. 451; Jones' Bailm. 90
Story on Bailm. c. 1, Sec. 2. It is a compendious expression, to signify a contract resulting from delivery. It has
been defined to be a delivery of goods on a condition, express or implied, that they shall be restored by the
bailee to the bailor, or according to his directions, as soon as the purposes for which they are bailed shall be
answered. 1 Jones' Bailm. 1. Or it is a delivery of goods in trust, on a contract either expressed or implied, that
the trust shall be duly executed, and the goods redelivered, as soon as the time or use for which they were
bailed shall have elapsed or be performed. Jones' Bailm. 117.
2. Each of these definitions, says Judge Story, seems redundant and inaccurate if it be the proper office of a
definition to include those things only which belong to the genus or class. Both these definitions suppose that
the goods are to be restored or redelivered; but in a bailment for sale, as upon a consignment to a factor, no
redelivery is contemplated between the parties. In some cases, no use is contemplated by the bailee, in others,
it is of the essence of the contract: in some cases time is material to terminAte the contract; in others, time is
necessary to give a new accessorial right. Story,on Bailm. c. 1, Sec. 2.
3. Mr. Justice Blackstone has defined a bailment to be a delivery of goods in trust, upon contract, either
expressed or implied, that the trust shall be faithfully executed on the part of the bailee. 2 Bl. Com. 451. And in
another place, as the delivery of goods to another person for a particular use. 2 Bl. Com. 395. Vide Kent's
Comm. Lect. 40, 437.
4. Mr. Justice Story says, that a bailment is a delivery of a thing in trust for some special object or purpose,
and upon a contract, express or implied, to conform to the object or purpose of the trust. Story on Bailm. c. 1,
Sec. 2. This corresponds very nearly with the definition of Merlin. Vide Repertoire, mot Bail.
5. Bailments are divisible into three kinds: 1. Those in which the trust is for the benefit of the bailor, as deposits
and mandates. 2. Those in which the trust is for the benefit of the bailee, as gratuitous loans for use. 3. Those in
which the trust is for the benefit of both parties, as pledges or pawns, and hiring and letting to hire. See Deposit;
Hire; Loans; mandates and Pledges.
6. Sir William Jones has divided bailments into five sorts, namely: 1. Depositum, or deposit. 2. Mandatum, or
commission without recompense. 3. Commodatum, or loan for use, without pay. 4. Pignori acceptum, or pawn.
5. Locatum, or hiring, which is always with reward. This last is subdivided into, 1. Locatio rei, or hiring, by which
the hirer gains a temporary use of the thing. 2. Locatio operis faciendi, when something is to be done to the
thing delivered. 3. Locatio operis mercium vehendarum, when the thing is merely to be carried from one place
to another. See these several words. As to the obligations and duties of bailees in general, see Diligence, and
Story on Bailm.

The use of credit card by consumer to purchase goods or services. The purchase price of goods or services is
sent through a processor for authorization; if the amount is approved it is automatically submitted to the seller.
The amount is listed on the consumer's credit card statement and must be repaid. A transaction may also refer
to a credit made to the consumer's credit card account, such as when a good or service is returned for a
refund.

What’s the difference between a cash and credit transaction?

Transactions are the building blocks of our accounts. Any transactions that occur within our business should be
present in our accounting records.

There are many different types of transactions to keep track of such as sales, purchases, and even more. A
regular point of confusion that we come across when we talk to small businesses about their accounts is the
difference between cash and credit transactions. So, what is the difference?

The only difference between cash and credit transactions is the timing of the payment. A cash transaction is a
transaction where payment is settled immediately. On the other hand, payment for a credit transaction is
settled at a later date.

Try not to think about cash and credit transactions in terms of how they were paid, but rather, when they were
paid. For example, you may buy some groceries at your local shop and pay for them in cash there and then,
that’s a cash transaction. However, what if you paid by card rather than cash? That can also be classified as a
cash transaction because you paid immediately.

On the other hand, credit transactions are paid at a later date than when the exchange of goods or services
took place and almost all of time an invoice for the transaction is issued. The time period before payment can
vary depending on the types of businesses or even the industry in which the transaction is taking place. Once
again, when payment is finally settled for the invoice, it may be done with cash or card, or any other payment
method but it is still a credit transaction.

Businesses will have a mixture of cash and credit transactions make up their accounting records. Some
businesses may have the majority of their transactions be either one or the other and some will have a more
even split. However, you would be hard pressed to find a business that didn’t have at least one cash or credit
transaction occur during its lifetime.

Along with whether a transaction is classified as cash or credit another category is used to classify basic
accounting transactions. We also need to know whether or not it is a sale, purchase or payment. This gives us a
list of basic transactions:

1. Cash sale
2. Credit sale
3. Cash purchase
4. Credit purchase
5. Cash payment
6. Credit payment

Some of these, like cash and credit sales as well as credit purchases are more common that the others but
depending on what type of transaction we have, we can find a home for it in our accounts. Do you want to
find out more about where to record these different types of transactions in your accounting records? We have
an exciting set of simple tutorials on the way to teach you bookkeeping basics just like this.