Monday, April 11, 2011

Bailment, Consignment. Loan of Product


A good definition of Bailment is found in wikipedia:

"Bailment involves the transfer of possession and not ownership. In order to create a bailment, the bailee (the party receiving the item) must both intend to possess, and actually physically possess, the item. The bailee is generally not entitled to the use of the property while it is in their possession. A bailor can demand the return of the property at any reasonable time, without prior notice. No matter how a bailment arises, the bailee has both a duty of care and duty to re-deliver the bailment. The bailee is expected to take (as a minimum) reasonable precautions to safeguard the property, although this standard sometimes varies depending upon who benefits from the bailment. A bailee may be liable in conversion (unlawful taking) if the property is not returned upon the request of the bailor, or if the property is used without permission of the bailor. Bailment can be voluntary vs. Involuntary. It can be for consideration or gratuitous and bailment for consideration have a higher standard of care required. A bailment may also be for a fixed term or indefinite term. Bailment is used when you primarily want to have another party hold the item pending other instructions (such as to ship it to another party)".

Consignment is similar to a bailment where you a placing goods in the hands of another but the intent for the use of the goods are different. In a Bailment situation you want the other party to hold them for you. In a consignment situation the intent is for the goods to be sold rather than returned. In both situations the party that provided the goods retains ownership.

A “loan of product” is a situation that falls between a bailment and consignment where the intent is to allow the other party the right to use the product

 The table below shows the differences between the three.

Bailment
Loan of Product
Consignment
Right to sell
None, May transfer at Bailor’s direction.
None, May transfer at Bailor’s direction.
Per the terms of the consignment
Right to use
None
Yes
Per the terms of the consignment
Risk of loss for transfer to location
Bailor
Loaner
Consignor (party who owns the material)
Risk of loss or damage to the property held
Depends upon standard of care based on circumstance (e.g. gratuitous versus for consideration
Per the terms of the agreement. Usually responsible for anything above normal wear and tear
Per the terms of the consignment
Profit or Loss
Not applicable
Not applicable
Belongs to the Consignor
Responsibility to report shortages
Yes
Yes
Yes
Responsibility to report damages
Yes
Yes
Yes
Acknowledge receipt
Yes
Yes
Yes
Ensure goods are not pledged or encumbered
All
Yes
Except for authorized sales per the agreement.
Report transactions
Only if transfer were contemplated in the agreement

Yes
Make settlement and payment
Not applicable
Not applicable
Yes
Maintain books and records of transactions
Only if transfers were contemplated under the agreement
Not applicable
Yes
Permit inspection of materials
Yes
Yes
Yes
Remove materials
Yes
Yes
Yes
Maintain Insurance to replace materials if lost or damaged
Yes
Yes
Yes
Return materials on termination or expiration of the agreement
Yes
Yes
Yes
Provide packing information on return
Yes
Yes
Yes
Mark the materials to show ownership
If required
Yes
If required
Reimburse for any materials that are stripped, stolen, lost, damaged. Unaccounted for
Yes
Yes
Yes, plus all materials sold
Pay cost of service or maintenance
No
Yes
No

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