Summary
- Bailment starts automatically when your business takes possession of goods belonging to someone else, whether or not your contract mentions it.
- As bailee you must take reasonable care of the goods, use them only for the agreed purpose and return them at the end of the arrangement.
- Your written terms can limit those duties, but only so far as the Unfair Contract Terms Act 1977 allows, and the Torts (Interference with Goods) Act 1977 sets the process for selling goods a customer will not collect.
- This article explains bailment for businesses that store, carry or work on customer goods in the United Kingdom.
- LegalVision’s contract lawyers specialise in advising clients on bailment and commercial contracts.
Tips for Businesses
Check whether your standard terms set a liability cap, and test that cap against what your insurance actually pays out. Write the uncollected goods notice steps into your storage terms before you need them. Keep records of how goods arrived and in what condition. Speak to a commercial contracts lawyer at LegalVision about limiting your liability as a bailee in your storage and carriage terms.
Bailment is the legal relationship that arises when your business takes possession of goods belonging to someone else. It starts the moment you take possession, whether or not your contract mentions it. The party handing over the goods is the bailor. The party holding them is the bailee. As bailee, you must take reasonable care of the goods, deal with them only for the agreed purpose, and return them at the end of the arrangement. Bailment covers tangible moveable property such as stock, cargo, vehicles and equipment. It applies to warehousing, third party logistics, carriage and repairs. If your business stores or delivers goods that belong to someone else, you become responsible for those goods in certain scenarios. This article provides a simplified introduction to how bailment issues can arise in business when you take possession of goods while providing services.
What does Bailment Mean?
Bailment happens when one party, the bailee, voluntarily and knowingly takes possession of goods that belong to another party, the bailor. The bailor usually keeps title to the goods. The bailee gets temporary possession. A bailment can arise even where the bailor does not own the goods.
Bailment applies only to goods, meaning tangible moveable property. Vehicles, cargo and equipment are examples. The relationship creates its own legal rights and duties. It does not rely only on having a contract, though in business bailment usually works alongside contracts.
Where the contract says nothing, a bailee still has a common law duty to take reasonable care of the bailor’s goods and to restore them to the bailor.
You do not have to mention bailment in your contract for it to apply. It starts automatically when you take possession of the goods. The party transferring the goods is the bailor. The party taking possession is the bailee.
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Where Bailment Arises in Your Operations
In a commercial context, bailment may arise where:
- a customer deposits goods with a warehouse;
- a customer appoints a fulfilment provider to store goods;
- a customer transfers goods to a carrier for transportation; or
- a customer stores stock with a third party warehouse.
When a company deposits goods with a 3PL warehouse or transfers them to a carrier, that creates a bailment relationship. The company is the bailor. The warehouse provider or carrier is the bailee.
The concept sounds technical. The consequences are practical, and they land on whoever is holding the goods when something goes wrong.
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What Responsibilities Arise
Once bailment exists, the bailee must take reasonable care of the goods, deal with them only for the agreed purpose, and return them or make them available for collection at the end of the arrangement.
If goods are lost, stolen or damaged while in your possession as bailee, the question becomes whether you exercised reasonable care.
The bailor also has duties. Under most contracts these include paying the agreed fees and collecting the goods on time. The bailor may also need to tell the bailee about any unusual features of the goods that could affect how they are handled or stored. If damage happens because the bailor did not mention a defect, the bailor may be responsible.
How Bailment and Your Contract Work Together
Bailment usually works alongside a contract. In warehousing and logistics, both apply at the same time.
The law implies certain basic duties into a bailment relationship. Parties can modify or clarify those duties through express contractual terms. If your contract is silent or unclear, bailment principles fill the gap.
That is why the drafting matters, and why it is worth checking the clauses that carry the most risk in supplier agreements.
Even where the contract does not refer to bailment, the law generally imposes duties on the bailee to take reasonable care of the goods and to return them in accordance with the agreed instructions.
In practice, the written terms usually define, clarify or limit those duties.
What You Can and Cannot Limit in Your Terms
Your contract can shape the duties bailment creates, but not without limits. In business to business contracts, the Unfair Contract Terms Act 1977 controls how far you can exclude or restrict liability for negligence.
Warehousing and haulage terms almost always cap liability, and those caps get tested when something goes wrong in the supply chain. A cap set at the level of the storage fee, or a clause excluding liability for theft, is not automatically effective. If the customer challenges it, the court asks whether the clause was reasonable when the contract was made. Bargaining position, insurance and whether the customer could have stored the goods elsewhere on different terms all feed into that assessment.
The controls work differently depending on the loss.
| Type of liability | Can you exclude it in a business to business contract | What the Act requires |
| Death or personal injury caused by negligence | No | Section 2(1) bans exclusion or restriction outright |
| Loss of or damage to goods caused by negligence | Only so far as reasonable | Section 2(2) applies the requirement of reasonableness |
| Breach of your own written standard terms | Only so far as reasonable | Section 3 applies the requirement of reasonableness |
Testing Your Liability Cap Against Real Exposure
Take a customer who stores 40 pallets of stock worth £120,000 with you. Your terms cap your liability at £500 per pallet. A fire destroys the lot. If the cap is reasonable, your exposure is £20,000. If a court decides it is not, the cap falls away and the full loss is back in play.
If you trade on your own written standard terms, and most third party logistics and warehousing businesses do, the same reasonableness test applies to how you limit liability for your own breach. It catches you by default, whether or not the customer ever negotiated those terms.
Consumer contracts sit outside all of this. Where your customer is a consumer rather than a business, the Consumer Rights Act 2015 governs what your terms can do instead.
“Write down what you can and cannot do with a customer's goods before you take them in, including how long you will hold them and what happens if nobody collects. Ten minutes on that at the start saves an argument about who carries the loss later. It also tells you whether your liability cap is anywhere near your real exposure”
When Goods Are Not Collected
Your duty as bailee does not end because the customer stops answering emails. Storage costs keep running, the space stays occupied, and disposing of the goods yourself risks a claim for conversion.
The Torts (Interference with Goods) Act 1977 gives bailees a way out. Sections 12 and 13, with Schedule 1, set out a power of sale for uncollected goods. They extend to England, Wales and Northern Ireland. There are two steps:
| Step | Notice | What it must contain | Timing |
|---|---|---|---|
| 1 | Notice requiring collection, under Schedule 1, Part I | Your name and address, particulars of the goods and where they are, confirmation that the goods are ready for delivery, and any amounts that became due before the notice | No minimum period set by the Act |
| 2 | Notice of intention to sell, under Schedule 1, Part II | The goods, the proposed date of sale and any amounts owed. It must go by registered post or recorded delivery | Must give the bailor a reasonable opportunity to collect, and not less than 3 months where money is owed to you |
One rule sits outside the table: you cannot give a sale notice while you know the money is in dispute.
What You Owe the Customer After a Sale
Follow the procedure and the sale passes good title to the buyer as against the bailor. It does not defeat a third party who actually owns the goods, which is why it pays to know whose stock you are holding.
After a sale, you account to the bailor for the proceeds less the costs of sale. The account is taken on the footing that you should have adopted the best method of sale reasonably available, so a quiet sale at a low price can leave you out of pocket. Amounts the bailor owed you before the notice come out of the proceeds.
Set these steps out in your storage terms now, with the notice addresses and timescales written in, rather than working them out mid dispute, while you are also chasing the unpaid storage fees you are owed.
Key Takeaways
Bailment is a legal relationship that arises when your business takes possession of goods belonging to someone else. It applies automatically in many common commercial situations, including warehousing arrangements where goods are stored. If your business regularly stores, transports or works on customer goods, understanding how bailment applies can help you reduce disputes and manage risk.
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Frequently Asked Questions
What standard of care must a bailee meet?
A bailee must take reasonable care of the goods. That duty applies even where the contract says nothing about it, and it runs alongside any express terms. You must also use the goods only for the agreed purpose and return them at the end of the arrangement.
Can your contract limit your liability as a bailee?
Yes, within limits. In business contracts, the Unfair Contract Terms Act 1977 lets you restrict liability for damage to goods only so far as the term is reasonable. You cannot exclude liability for death or personal injury caused by negligence.
Does bailment apply if you have no written contract?
Yes. Bailment starts when you take possession of goods belonging to someone else, whether or not a contract exists. Without written terms, the common law duty to take reasonable care of the goods and return them applies on its own.
What can you do if a customer will not collect their goods?
The Torts (Interference with Goods) Act 1977 lets a bailee sell uncollected goods after giving written notice. Where the customer owes you money, the notice period is at least 3 months. You then account to them for the proceeds less the costs of sale.
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