Chapter 3-9 Bailment Actions—Bailee's Liability

• Jurisdiction: United States

3-9 Bailment Actions—Bailee's Liability

3-9:1 Overview

Parties may enter into a bailment agreement in which the bailor delivers possession of real property to a bailee, who in turn promises to return the property to the bailor. Despite the relationship's contractual nature, the bailor may sue the bailee for negligence and conversion, as well as breach of the bailment agreement.

3-9:1.1 Related Causes of Action

Conversion, Breach of Contract, Trespass to Personalty, Trover, Negligence

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)

3-9:2 Elements

(1) A bailment agreement exists.²⁹⁸

(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.²⁹⁹
• Specific purposes may include:
• Those solely benefitting the bailee or the bailor;³⁰⁰ or
• Those mutually benefitting each party.³⁰¹

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

• The property which is the subject of the bailment must be accepted by the bailee.³⁰²
• A bailee accepts property which it knows, or should know, has been delivered.³⁰³

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

• A bailment agreement may be express or implied.³⁰⁴ A bailment agreement may be oral.³⁰⁵

(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.³⁰⁶
• The bailee must return the property to the bailor, or dispose of the property as directed by the bailor.³⁰⁷

(2) The bailee breached a duty under the agreement

• The common law imposes varying standards of care for the different classifications of bailments.³⁰⁸
• In a bailment for mutual benefit, the bailee is held to a negligence standard of care.³⁰⁹
• In a bailment solely for the benefit of the bailor, the bailee is held to a gross negligence standard.³¹⁰
• In a bailment solely for the benefit of the bailee, the bailee is responsible for "slight neglect."³¹¹
• In a bailment for mutual benefit where the plaintiff has established a prima facie case,³¹² the plaintiff is afforded a rebuttable presumption that the bailee acted negligently.³¹³

• The rebuttable presumption might not apply to losses caused by fire or theft.³¹⁴

• The bailee's standard of care may be enlarged or limited by the bailment agreement.³¹⁵
• To enlarge or limit the bailee's standard of care, the parties must use express and clear language in the agreement.³¹⁶
• A bailee is only responsible for that property it knows, or should know, it possesses.³¹⁷

(3) Which proximately caused damages to the plaintiff

• Generally, a bailee is liable only for the consequence of his breach.³¹⁸
• A bailment agreement may modify the general rule and make the bailee an insurer.³¹⁹

3-9:3 Damages and Remedies

3-9:3.1 Generally

A bailor-plaintiff may seek damages based upon the bailee's breach of the bailment agreement or upon the bailee's conversion of the bailor's property.³²⁰

3-9:3.2 Actual Damages

Actual costs or expenses of replacement are available for a conversion.³²¹

Actual damages are available for any property damage or holdover by the bailee.³²²

3-9:3.3 Liquidated Damages

A bailment agreement may specify a rental rate in the event of the bailee's holdover.³²³

3-9:3.4 Attorney's Fees

A litigant may recover attorney's fees under Chapter 38 of the Texas Civil Practice and Remedies Code.³²⁴

3-9:3.5 Lost Profits

Lost profits are available as a special damages element.³²⁵

3-9:3.6 Interest

Prejudgment interest is available for a conversion.³²⁶ Prejudgment interest is required for any property damage.³²⁷

3-9:3.7 Loss of Use

Loss of use is an appropriate damages measure.

3-9:3.8 Repossession

A bailment agreement may grant a bailor the right to repossess his property.³²⁸

3-9:3.9 Acceleration

A bailment agreement may grant a bailor the right to accelerate any payments due under the agreement.³²⁹

3-9:3.10 Exemplary Damages

Exemplary damages are available if the plaintiff proves the bailee converted his property.³³⁰

Exemplary damages are available if the bailee acts:

• Maliciously;
• Fraudulently; or
• With gross negligence.³³¹

3-9:4 Defenses

3-9:4.1 Statute of Limitations

• The two-year limitations period applies to conversions.³³² The four-year limitations period applies to breach of contract damages.³³³
• Cause of action accrues at the earlier of the time:

• When the bailor makes demand upon the bailee; or
• If demand is nonexistent or ineffective, then when the bailor receives actual notice of conduct by the bailee which is inconsistent with the bailor's rights.³³⁴

• The discovery rule may apply.³³⁵

3-9:4.2 Failure of Consideration

Failure of consideration is a valid defense and must be verified.³³⁶

3-9:4.3 Denial of Execution

• Denial of execution is a valid defense...