Posted by: yarbel | 25th Feb, 2016

Smith on Newman on Bailments — Henry Smith

Post by Henry Smith

Chris Newman has a new draft paper on SSRN on bailments (“Bailment and the Property/Contract Interface”).  The paper is provocative (yes, that is possible in a paper on bailments!) and deeply insightful.  Newman argues that much of the confusion about bailment contracts, and especially strict liability for deviation from such contracts, stems from a lack of understanding of which baseline is operative in various cases.  The article provides compelling reasons to think that the property baseline governs more than people usually think – and should do so. Like a license (a subject of Newman’s previous work), a bailment is a legal relation that can be created or shaped by contract, but it should not be identified with the contract. Indeed, in involuntary bailments (most prominently with finders), there is no contract at all.  But even where there is one, the bailment itself is just a giving of possession without a transfer of ownership.  The bailee has a license to do certain things with the thing, and if the bailee exceeds the scope of that license, then the bailee violates the in rem rights of the owner, just as other converters and trespassers might.

The account is elegant and Newman shows why it matters, in terms of explaining some otherwise puzzling features of the law.  Among other things, Newman provides a flowchart (a “protocol”) of the kinds of decisions people have to make when they encounter an object, which alone is worth the price of admission.  Newman also provides a critique of Merrill and my treatment of bailments in our article, “The Property/Contract Interface.”  I think Newman is right that we focused too heavily on rights and duties and not enough on powers and liabilities.  Newman also criticizes us for seeing in rem rights as typically mandatory.  While we could have been clearer, what we were arguing is that the law resists efforts to displace an in rem baseline with in rem effect.  One cannot contract for one’s own trespass regime or for a new kind of estate (numerus clausus).  By contrast, the idea that a bailment contract could partially displace the in rem baseline, using the specific-over-general principal, is accommodated on our framework. Indeed, all sorts of governance regimes – covenants, easements, nuisance, etc. – are more specific and partially override the in rem exclusion regime over a certain limited range. 

One puzzle that Newman’s article sheds light on still remains a little troubling to me.  This is the contract deviation problem.  A bailee that exceeds its rights under the contract is strictly liable.  In cases of deliberate violation, this is not so puzzling.  But strict liability extends to misdelivery as well (think of a dry cleaner giving clothes to the wrong customer).  A bailee faces strict liability for misdelivery and normally only liability for lack of reasonable care in cases of damage or theft.  Moreover, it is often said that one cannot contract out of strict liability for misdelivery.  Newman says that in principle one could do so but we don’t often see it in practice.  On the other hand, like parking garages trying to disclaim bailments in the first place, courts may, as Merrill and I argued, be taking a protective approach to consumers and making it hard to contract out of this kind of liability. Indeed, I think Newman is right that one could conceive of contracting out of strict liability for misdelivery – and pace Newman one might even conceive someone contracting out of conversion liability given that it could be mistakenly imposed.  But courts’ lack of receptivity to these kinds of arrangements fits in well with their consumer protection orientation in a variety of contexts, especially with numerous relatively uninformed parties.

All in all, this article makes bailments even more exciting than they already were!


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