Bailment or lease: A legal and economic analysis

• Main Author: ZHANG, Wei
• Format: text
• Language: Chinese
• Published: Institutional Knowledge at Singapore Management University 2010
• Subjects: Law and Economics; Legal Studies
• Online Access: https://ink.library.smu.edu.sg/sol_research/2332
• Institution: Singapore Management University

When customers temporarily deposit their personal properties with a business which collects a fee, either directly or by incorporating the charge into the price of its goods or services (such as a locker at the supermarket, a parking garage, or a bank safe deposit box), it has long been disputed whether a bailment or a lease contract arises between the two parties. In this paper, I tried to approach this problem from a law and economics perspective. Efficiency-oriented judges should establish rules motivating parties to take optimal precautions to minimize the social costs associated with the loss of the property. When sufficient information is available to both parties, each of them can be reasonably expected to undertake such precautions on their own, whether in a competitive or monopolistic market, although a monopolist’s optimal precaution does not necessarily lead to maximum social welfare. However, when an information gap exists to the disadvantage of the customer, the business may be incentivized to pay less attention. We therefore need the law to obligate the business to maintain its optimal precaution level in this situation. As the value of the subject matter increases, customers will be more willing to invest in collecting information, which, in turn, will motivate the business to take precautions at the optimal level. Thus, the value of the subject matter may well serve as a guide to the necessary degree of legal intervention. For these considerations, it is more desirable to interpret the contract at issue as a bailment. Finally, while the legal and economic analysis focuses on efficiency only, there is no obvious conflict between efficiency and fairness in this situation, insofar as we believe that promoting consumers’ welfare is consistent with our objective to enhance fairness.