What is a Bailment Agreement?

A bailment agreement is an agreement where one person agrees to take physical possession of another person's property for safekeeping or other purpose, but does not take ownership of it, with the understanding it will be returned at a later date. For example, if you take your watch to a repair shop and leave it there for a few days, the shop takes physical possession of your watch in order to repair it but does not receive ownership.

A bailment is different than other similar exchanges, such as sales, leases or security agreements. In a sale, you would transfer physical possession and ownership; in a bailment, you do not transfer ownership. With a security agreement, you don't have to transfer either physical possession – though, in some cases, you can – or ownership, but you do give the secured party an ownership interest in your property.

Finally, in a lease, you often transfer physical possession for a limited period of time, and the lease creates a type of interest, called a leasehold interest, in the leased property. In contrast, the bailment agreement does not transfer any type of ownership or security interest in the property.

In general, the purpose of a bailment agreement is to establish the relationship and responsibilities of the parties, both the person temporarily handing over possession of his property and the person receiving it. This includes why the property is being handed over and when it is to be returned.

When another person takes physical possession of your property, he does not have any ownership rights to it and has no right to sell or trade it. However, sometimes this happens and if it does, you will not be able to reclaim your property. In the watch repair example, if an employee of the store accidentally sells your watch to a customer, the customer has a right to the watch and you cannot reclaim it. You can, however, receive reimbursement for the value of the watch from the store.

When you give your watch to the watch repair store, you expect to pick up your watch as soon as it is repaired. In fact, the store is legally obligated to return it as soon as it is repaired. If the store refuses to do so, it has stolen the watch.

If it is given or sold to a third party, not only can you collect the value of the property from the store, you may also be entitled to damages from the store for it violating the bailment agreement. This is because the store had a "duty of care," meaning it was required to take care of the watch and return it as soon as the purpose of the bailment agreement was fulfilled – when the watch was repaired.

Although the law protects bailment agreements even if the parties do not sign a written contract, it is often a good idea to put the agreement in writing. That way, you can define the length of the bailment and can include a damages section in case the agreement is violated.