978-0078023194 Chapter 25 Lecture Notes

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Essentials of Business Law, 9th edition

INSTRUCTOR’S MANUAL

Chapter 25 Bailments

LESSON OVERVIEW

While earlier chapters examined numerous kinds of agreements and contracts for many different

purposes, Chapter 25 discusses the definition, characteristics, and various kinds of bailment and

through the use of examples, depicts their relevance in real life situations. Students will also learn the

classifications of bailments which are divided into four categories—bailment for the sole benefit of the

bailee, bailment for the sole benefit of the bailor, mutual-benefit bailment, and constructive bailments.

Finally, students’ understanding of the topic is evaluated through objective-type questions, discussion

questions, and case scenarios. Students are encouraged to conduct their research through the use of the

Internet and other sources.

CHAPTER OUTLINE

A. BAILMENT DEFINED (p. 414)

B. CHARACTERISTICS OF BAILMENTS (pp. 414-415)

1. Bailment Created by Possession of Goods (pp. 414-415)

2. Bailee Must Intend to Possess Goods (p. 45)

3. Bailee Must Return Identical Goods (p. 415)

4. Termination of Bailments (p. 415)

C. KINDS OF BAILMENTS AND CARE DURING CUSTODY (pp. 416-420)

1. Bailments for the Sole Benefit of the Bailee (p. 416)

2. Bailments for the Sole Benefit of the Bailor (p. 416-417)

3. Mutual-Benefit Bailments (pp. 417-419)

4. Constructive Bailments (pp. 419-420)

D. CHAPTER SUMMARY (p. 420)

E. CHAPTER ASSESSMENT (pp. 420-427)

1. Matching Key Terms (pp. 420-421)

2. True/False Quiz (pp. 421-422)

3. Discussion Questions (pp. 422-423)

4. Thinking Critically About the Law (pp. 423-424)

5. Case Questions (pp. 424-425)

6. Case Analysis (pp. 425-427)

7. Legal Research (p. 427)

KEY TERMS

Key terms are listed at the beginning of the chapter, posted in the student textbook margins, and placed

in bold in the copy. They are listed here for your quick reference.

§ bailment (p. 414)

§ bailor (p. 414)

§ bailee (p. 414)

§ bailment for the sole benefit of the bailee (p. 416)

§ bailment for the sole benefit of the bailor (p. 416)

§ mutual-benefit bailment (p. 417)

§ warehouser (p. 417)

§ bailee’s lien (p. 418)

§ hotelkeeper (p. 419)

§ transient (p. 419)

§ common carrier (p. 419)

§ consignor (p. 419)

§ consignee (p. 419)

§ carrier’s lien (p. 419)

§ constructive bailment (p. 419)

LEARNING OUTCOMES

The chapter Learning Outcomes will help you and the students discover the concepts and information

that should be understood upon completion of the chapter. You may want to access the PowerPoint

(PPT) slides for Chapter 25 when you begin the study of the chapter and discuss each Learning

Outcome. Each Learning Outcome will be covered separately in the Instructor Notes, but they are

shown here in total as an overview of the sections being presented in Chapter 25. The corresponding

text page numbers and PPT slides are listed next to each outcome. These slides should be used to

reinforce the main points of the lecture.

After completing this chapter, the students will be able to:

1. Define and explain the purpose of a bailment. (p. 414, PPT slide 2)

2. Discuss the characteristics of bailments, including the six typical reasons for transferring goods

and creating a bailment. (pp. 414-415, PPT slides 3-8)

3. Distinguish among the four kinds of bailments, and discuss the level of care a bailee is required to

give for each one. (pp. 416-420, PPT slides 9-20)

LECTURE OUTLINE

A. BAILMENT DEFINED

A bailment is a special kind of contract that is widely used in business and in personal affairs.

Specifically, a bailment is a transaction in which the owner of tangible personal property transfers the

property to another party while still retaining ownership of such.

B. CHARACTERISTICS OF BAILMENT

A bailment allows the owner of personal property to transfer possession of it to another individual for

any one of the following purposes: sale, transportation, repair or service, rental, storage, and security

for a loan. The person who retains ownership and transfers possession is the bailor and the person who

receives the goods is the bailee. The agreement reached between the bailor and the bailee is a

bailment.

1. Bailment Created by Possession of Goods

Actual ownership of goods is not necessary to create a bailment. Anyone in possession

of goods can create the bailment relationship and become a bailor.

2. Bailee Must Intend to Possess Goods

The transfer of goods from bailor to bailee must actually take place. Unless there is

some other understanding, the bailee must actually accept the goods.

3. Bailee Must Return Identical Goods

Except for a bailment that requires alteration, such as a suit left for cleaning and

alterations, or when fungible goods, such as grain or fuel oil, are stored, the identical

goods must be returned.

4. Termination of Bailment

If a bailment is for a specific term, the bailment ends when the term lapses. Otherwise, a

bailment is terminated when its purpose is satisfied, when the parties mutually agree to

end it, when either party makes a demand to end it, or if the bailee acts inconsistently

with the terms of the bailment.

C. KINDS OF BAILMENTS AND CARE DURING CUSTODY

The law concerning bailments provides for certain rights and duties of both bailor and bailee,

depending on the kind of bailment. Bailments are often classified into four categories: bailments for the

sole benefit of the bailee, bailments for the sole benefit of the bailor, bailments for the benefit of both

the bailee and the bailor, and constructive bailments.

1. Bailments for the Sole Benefit of the Bailee

A bailment for the sole benefit of the bailee usually results in a borrowing/lending

transaction. The person who borrows an article gets the only benefit. However, the

owner must warn the bailee of any defects or hazards that might exist. Because the

bailee is getting something for nothing, the law generally expects the bailee to exercise

great or extraordinary care while in possession of the article.

2. Bailments for the Sole Benefit of the Bailor

A bailment for the sole benefit of the bailor exists when the owner entrusts an article

to another person for storage or safekeeping without being charged. Since the bailee is

doing a favor for the bailor, the law requires that he or she exercise only slight care in

taking care of the article.

3. Mutual-Benefit Bailments

A mutual-benefit bailment is one in which both the bailee and bailor derive some

benefit, and, as a result, each has rights and duties. The bailor has the duty to warn the

bailee of any defects in the property that could cause harm. The bailee has the duty to

exercise reasonable or ordinary care in the use of the property. Each party has the right

to expect the other party to fulfill the duty imposed on him or her.

a) Bailment for Storage

Both individuals and businesses sometimes need to place articles in storage. The

person or firm that provides storage facilities is known as a warehouser. The

Uniform Commercial Code 7-204 provides that when goods are turned over to a

warehouse for storage, the warehouser will provide a receipt for the goods and

will accept the responsibility for loss of, or damage to, the goods caused by a

lack of care that a reasonable person would exercise under similar circumstances.

b) Parking-Lot Bailment

Parking a car in a parking lot or parking garage is a common transaction. A

bailment is created only if the parking lot attendant actually takes control of the

vehicle. If a customer parks his or her own automobile, locks it, and retains the

key, a bailment does not exist—only a license to use the parking space.

c) Bailment for Work and Services

Whenever one person turns over property to another with the understanding that

certain work is to be performed on the property, a bailment for work and services

is created. In transactions of this kind, there are actually two legal relationships.

The bailor–bailee relationship is concerned with the care of the property. The

contractual relationship is concerned with the kind and the quality of work done

and the payment for services performed. The bailee in a bailment for work and

services is entitled to hold and, if necessary, sell the property if the bailor does

not pay for the services or work done. This provision of the law is known as a

bailee’s lien.

d) Hotel Bailments

A bailment relationship exists between a guest and a hotelkeeper with regard to

the guest’s property that is specifically placed in the care of the hotelkeeper. A

hotelkeeper, sometimes called an innkeeper, is in the business of offering

lodgings or temporary shelter to transients. The shelter may be in a hotel, motel,

hostel, or bed-and-breakfast. A transient is a guest whose stay is relatively

uncertain—a day, a week, a month, or more. Under common law, the

hotelkeeper’s liability for the property of guests was near absolute, but state

statutes today limit a hotel’s liability to that of an ordinary bailee or limit liability

to the amount listed in a posted notice in the room. Typically, a hotel will have a

sign on the room door stating that the hotel’s liability extends only to property

deposited in the hotel safe. Such statutes also allow the hotel to place a dollar

limit on the hotel’s liability.

e) Common-Carrier Bailments

A common carrier is an individual or firm in the business of transporting goods

between certain points as allowed by the various state commissions that regulate

the carriers. The law requires that a common carrier must accept all shipments

that it is authorized to handle. When a shipper, known as the consignor, turns

goods over to a common carrier, a mutual-benefit bailment is created that is

terminated only when the common carrier delivers the goods to the party

designated by the shipper, known as the consignee. The mutual-benefit bailment

gives the carrier certain rights and duties:

i. The right to determine and enforce reasonable rules and

requirements concerning the operation of its services.

ii. The right to payment for services provided. The carrier has a legal

right to hold a shipment until payment is made. Withholding payment for

transportation charges enables the carrier to hold goods on the basis of a

carrier’s lien.

iii. The right to payment from either the consignor or consignee

during the time when the carrier’s equipment is rendered unavailable

while it is being loaded or unloaded.

4. Constructive Bailments

There are instances in which goods are thrust upon a bailee who does not have any

choice about whether or not he or she wishes to serve as bailee.

Examples include if a guest in your home accidentally leaves his or her property behind,

or a package addressed to your neighbor is accidentally delivered to you. Many people

would argue that such instances are not bailments at all. Still, the courts have been

unwilling to dismiss the idea of bailment altogether. As a result, the idea of involuntary,

or constructive, bailment has come about.

INSTRUCTOR NOTES

A resulting answer or explanation is provided below for each Learning Outcome in Chapter 25. Every

outcome is also mapped to corresponding text page numbers, PPT slides, and relevant chapter

assessment exercises and activities for ease of reference and use.

LO1. Define and explain the purpose of a bailment.

A bailment is a special kind of contract that is widely used in business and in personal affairs.

Specifically, it is a transaction in which the owner of tangible personal property transfers the property

to another party while still retaining ownership of such.

Text Pages: 414

PowerPoint: Slide 2

LO2. Discuss the characteristics of bailments, including the six typical reasons for transferring

goods and creating a bailment.

A bailment allows the owner of personal property to transfer possession of it to another

individual. The six typical reasons for creating a bailment are sale, transportation, repair or service,

rental, storage, and security for a loan.

Text Pages: 414-415

PowerPoint: Slides 3-8

Discussion Questions: 26-27

Case Analysis: 41

LO3. Distinguish among the four kinds of bailments, and discuss the level of care a bailee is

required to give for each one.

The four types of bailments are as follows: (a) A bailment for the sole benefit of the bailee, which

occurs when only the bailee benefits from the agreement. Since the bailee is getting something for

nothing, he or she is expected to exercise great or extraordinary care in using the property. (b) A

bailment for the sole benefit of the bailor, which occurs when only the bailor benefits from the

agreement. In this case, the bailee receives no benefit and must exercise only slight care. (c) A

mutual-benefit bailment, in which both the bailee and bailor benefit. In this situation, the bailee is

required to exercise reasonable or ordinary care. (d) A constructive bailment, which occurs when goods

are thrust upon a bailee who does not have a choice about whether he or she wishes to serve as bailee.

In constructive bailments, the bailee is usually expected to exercise reasonable care.

Text Pages: 416-420

PowerPoint: Slides 9-20

Discussion Questions: 28-31

Thinking Critically About the Law: 32-36

Case Questions: 37-39

Case Analysis: 40, 42, 43