Bailor

What Is a Bailor?

A bailor is an individual who temporarily relinquishes possession but not ownership of a good or other property under a bailment agreement. The bailor entrusts possession of the good(s) or property to another individual, known as the bailee.

A bailment is a contractual agreement between the bailor and the bailee that specifies the terms and purpose of such a change in possession.

Understanding Bailors

A bailor transfers possession, but not ownership, of a good to another party, known as the bailee, under an agreement known legally as bailment. While the good is in the bailee's possession, the bailor is still the rightful owner. Originally a bailment gave the bailee possession of the good but not the right to use it and placed a strict duty of care for the good on the bailee, though this now varies based on the exact nature of the bailment. For instance, a lawyer holding a client's asset in escrow cannot use that asset; but a tenant who leases an apartment from a landlord does have right-to-use but does not own the unit.

A bailor/bailee relationship can also be illustrated in the management of investment portfolios. A bailor can designate a bailee to supervise or manage an investment portfolio for a particular time period. While the bailee does not own the portfolio, the bailor entrusts the chosen individual to ensure that the portfolio is in good hands until such time that the bailor can or wishes to resume the duties of managing the portfolio. Such fiduciary relationships often fall under the category of bailments, with the account holder as the bailor. 

Responsibilities of a Bailor in a Bailment Agreement

The bailor does not necessarily have to be the legal owner of the property they entrust to the bailee. A bailor could instead be a person who found a lost item such as a wallet dropped in a shopping mall, or a government during the process of escheatment for unclaimed or dormant accounts. In the first case, if an individual brings the wallet to the lost and found at the mall and transfers custody, they enter into a form bailor/bailee relationship. The customer service staff would then be responsible as the bailee for attempting to return the wallet to the rightful owner.

A bailor and the bailee should determine the type of bailment agreement they enter into, whether it is gratuitous, non-gratuitous, or bailment for mutual benefit. Each type of agreement carries different responsibilities and duties for the bailor. In general, the bailee owes some duty of care for the good to the bailor, but this can depend on the nature of the bailment and can vary from one jurisdiction to another. For the most part, to the extent that the bailment is voluntary and that the bailee benefits from the bailment, the bailee may owe a greater duty of care. 

A bailor must disclose any defects with the property they are entrusting to the bailee. This includes any issues that might cause harm or injury during the use of the property. For example, if the bailor grants possession of a summer home to the bailee, they must disclose any known faults with the property. This could include electrical wiring that needs repair or plumbing that is not functional. The bailee, in turn, may hold certain degrees of responsibility for the property while it is in their custody. The bailee could owe monetary compensation to the bailor in the event the property is damaged or otherwise mishandled while in possession.

A bailor could also retain the right to inform the bailee that they are not giving the property appropriate care and direct them to make changes. For instance, if a bailor learns that a car they entrusted to a bailee is being driven recklessly or dangerously, the bailor might direct the bailee to change their behavior and use of the vehicle.