Chapter 3-10 Bailment Actions—Bailor's Liability

• Jurisdiction: United States

3-10 Bailment Actions—Bailor's Liability

3-10:1 Overview

Parties may enter into a bailment agreement in which the bailor delivers possession of property to a bailee, who in turn promises to return the property to the bailor. A bailor's liability is often tied to negligent entrustment, a defect in the subject of the bailment or contractual duties.

3-10:1.1 Related Causes of Action

Negligent Entrustment, Breach of Contract, Implied Warranty of Fitness, Implied Warranty of Merchantability, Implied Warranty of Suitability, Products Liability³³⁹

MUST READ CASES

Prime Prods., Inc. v. S.S.I. Plastics, Inc., 97 S.W.3d 631 (Tex. App.—Houston [1st Dist.] 2002, pet. denied)

Maddux v. Reid, No. 10-13-00174-CV, 2015 Tex. App. LEXIS 6245, at *4-6 (App.—Waco June 18, 2015)

3-10:2 Elements

3-10:2.1 Liability for Defects in the Subject of the Bailment

(1) A bailment agreement exists

• A bailment agreement must exist for a plaintiff to bring suit on the bailment.³⁴⁰

(1)(a) Delivery of personal property for a specific purpose

• The property which is the subject of the bailment must be delivered to the bailee.³⁴¹
• Specific purposes may include:

• Those solely benefitting the bailee or the bailor;³⁴² or
• Those mutually benefitting each party.³⁴³

(1)(b) Acceptance by the transferee of such delivery;

• The property which is the subject of the bailment must be accepted by the bailee.³⁴⁴
• A bailee accepts property which it knows, or should know, has been delivered.³⁴⁵

(1)(c) An agreement that the purpose will be fulfilled

• A bailment agreement may be express or implied.³⁴⁶
• A bailment agreement may be oral.³⁴⁷

(1) (d) An understanding that property will be returned

• The bailee may not expect to permanently keep the property which is the subject of the bailment.³⁴⁸
• The bailee must return the property to the bailor, or dispose of the property as directed by the bailor.³⁴⁹

(2) The bailor breached a duty under the agreement or at common law

• The common law imposes a varying standard of care for the different classifications of bailments.³⁵⁰
• In a bailment for mutual benefit, the bailor must make a reasonable inspection of the bailed property and warn the bailee of any defects in the property about which the bailor knows, or should know.³⁵¹
• In a bailment solely for the benefit of the bailee, the bailor must disclose only those defects which he is aware of and which make the use of the property perilous.³⁵²
• The bailor's standard of care may be enlarged or limited by the bailment agreement.³⁵³
• If the bailment falls under Article 2 of the Uniform Commercial code, the bailor makes these contractual implied warranties:

• Fitness³⁵⁴
• Merchantability³⁵⁵

• To enlarge or limit the bailor's standard of care, the parties must use express and clear language in the agreement.³⁵⁶

(3) Which proximately caused damages to the plaintiff³⁵⁷

• Generally, a bailee is liable only for the consequence of his breach.³⁵⁸
• A bailment agreement may modify the general rule and make the bailor an insurer.³⁵⁹

3-10:2.2 Liability to a Third Party/Negligent Entrustment

(1) Entrustment of a chattel by the owner.³⁶⁰ Generally, the chattel must be a vehicle.³⁶¹

(2) To an incompetent person.³⁶²

(3) That the owner knew or should have known to be incompetent.³⁶³

(4) That the person was negligent on the occasion in question.³⁶⁴

(5) That the person's negligence proximately caused the accident.³⁶⁵

Proximate cause exists when the defendant entrustor should be reasonably able to anticipate that an injury would result as a natural and probable consequence of the entrustment.³⁶⁶

3-10:3 Damages and Remedies

3-10:3.1 Actual Damages

Actual damages are available for the bailor's wrongful withholding of the subject of the bailment.³⁶⁷

A bailee may also recover expenses for remodeling or formatting the subject of the bailment.³⁶⁸

Actual damages are available for negligent entrustment.³⁶⁹

3-10:3.2 Liquidated Damages

A bailment agreement may contain a liquidated damages provision.³⁷⁰

3-10:3.3 Attorney's Fees

A litigant may recover attorney's fees under Chapter 38 of the Texas Civil Practice and Remedies Code.³⁷¹

3-10:3.4 Lost Profits

Lost profits are available to a bailee as a special damages element.³⁷²

3-10:3.5 Interest

Prejudgment interest is available for a conversion.³⁷³

Prejudgment interest is required for any property damage.³⁷⁴

3-10:3.6 Exemplary Damages

Exemplary damages are available for a negligent entrustment or otherwise available if the entrustor acts:

• Maliciously;
• Fraudulently; or
• With gross negligence.³⁷⁵,³⁷⁶

3-10:4 Defenses

3-10:4.1 Statute of Limitations

• The two-year limitations period applies to conversion, damage to property and personal injury claims.³⁷⁷
• The four-year limitations period applies to breach of contract damages.³⁷⁸
• The cause of action accrues at the earlier of the time:

• When the bailee makes demand upon the bailor; or
• If demand is nonexistent or ineffective, then when the bailor receives actual notice of conduct by the bailee which is inconsistent with the bailee's rights.³⁷⁹

• The discovery rule may apply.³⁸⁰

3-10:4.2 Failure of Consideration

Failure of consideration is a valid defense and must be verified.³⁸¹

3-10:4.3 Denial of Execution

Denial of execution is a valid defense to a bailment.³⁸²

Denial of execution must be verified.³⁸³

3-10:4.4 Negligent Entrustment Defenses

For a complete...