What is Bailment?

Bailment is the process of making delivery of an asset or other type of property. Generally, this type of transaction involves the owner of the assets choosing to temporarily place them in the control of another individual. The person who delivers the asset is usually known as the bailor, while the recipient of the assets is known as the bailee.

The process of bailment is not a casual situation where an individual is asked to function as a caretaker for a short period of time. Part of the procedure with bailment it that a legal relationship is established between the owner and recipient. While the owner retains full rights to the assets, the physical possession of the assets is granted to the recipient. Along with the physical possession of the property or assets, the bailee may also be granted certain powers of administration that are related to management of the assets.

Along with defining the rights of management during the time that the bailment is in effect, the legal documentation usually also contains specific instructions on how long the state of bailment will be in effect. Typically, most bailment agreements also include some sort of out clauses that are related to both the bailor and the bailee. For example, the bailor could revoke the bailment if there was evidence that the bailee was mismanaging the asset. At the same time, the bailee would be able to terminate the arrangement and return the property if there was a perception that the bailor is not living up to the terms of the agreement in some manner.

A legal state of bailment can be a great option when the owner will be unavailable to manage or oversee an asset for a short period of time. A bailee may be designated that can manage rental property in the absence of the owner, or perhaps oversee a stock portfolio for a given period of time. The idea behind the bailment is to ensure that the asset is in good hands, even if the owner is not in a position to manage the asset at the present time.

Delivery of assets into the possession of another person is nothing to be taken lightly. A great deal of trust must exist between the owner and the bailee in order for the business relationship to work. Great care should be taken before entering into a bailment agreement, whether as an owner granting temporary care of assets to another individual, or as the person who is being asked to serve as a bailee.