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Debate This: Carrier’s liability
Vanessa Denai owned forty acres of land in rural Louisiana. On the property were a 1,600-square-foot house and a metal barn. Denai met Lance Finney, who had been seeking a small plot of rural property to rent. After several meetings, Denai invited Finney to live on a corner of her land in exchange for Finney’s assistance in cutting wood and tending her property. Denai agreed to store Finney’s sailboat in her barn.
With Denai’s consent, Finney constructed a concrete and oak foundation on Denai’s property and purchased a 190-square-foot dome from Dome Baja for $3,395. The dome was shipped by Doty Express, a transportation company licensed to serve the public. When it arrived, Finney installed the dome frame and fabric exterior so that the dome was detachable from the foundation. A year after Finney installed the dome, Denai wrote Finney a note stating, “I’ve decided to give you four acres of land surrounding your dome as drawn on this map.” This gift violated no local land-use restrictions. Using the information presented in the chapter, answer the following questions.
- Is the dome real property or personal property? Explain.
- Is Denai’s gift of land to Finney a gift causa mortis or a gift inter vivos?
- What type of bailment relationship was created when Denai agreed to store Finney’s boat? What degree of care was Denai required to exercise in storing the boat?
- What standard of care applied to the shipment of the dome by Doty Express?
Debate This:Common carriers should not be able to limit their liability.
41
Learning Objectives
The four Learning Objectives below are designed to help improve your under- standing. After reading this chapter, you should be able to
answer the following questions:
1.
2.
3.
4.
What is real property? What is personal property?
What are the three necessary elements for an effective gift?
How does lost property differ from mislaid property? Does a finder of such property acquire title to it?
What are the three elements of a bailment?
RealProperty Landandeverything permanently attached to it, such as trees and buildings.
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Personal Property and Bailments
“The great … end … of men’s uniting into commonwealths, and putting themselves under
government, is the preservation of their property.”
Property consists of the legally protected rights and inter- ests a person has in anything with an ascertainable
value that is subject to ownership. For instance, digital prop- erty has become quite valuable in today’s
world. When a couple divorces, they might dispute who owns the virtual world assets they have acquired,
their Internet accounts, or the data stored on their devices. Property would have little value, however, if the
law did not define owners’ rights to use their property, to sell or dispose of it, and to pre- vent trespass on it.
Indeed, John Locke, as indicated in the chapter-opening quotation, considered the preservation of property
to be the primary reason for the establishment of government.
John Locke
1632–1704
(English political philosopher)
In this chapter, we first examine the differences between personal and real property. We then look at the
methods of acquiring ownership of per- sonal property and consider issues relating to mislaid, lost, and
abandoned personal property. In the remainder of the chapter, we discuss bailment relationships. A bailment
is created when personal property is temporarily delivered into the care of another without
a transfer of title, such as when a person takes an item of clothing to the dry cleaners.
41–1 Personal Property versus Real Property
Property is divided into real property and personal property. Real property (sometimes called realty or real
estate) consists of land and everything permanently attached to it, including structures and anything
permanently attached to the structures. Everything else
ion-cristian enoiu/Alamy Stock Photo
is personal property, or personalty. Attorneys sometimes refer to personal property as chattel, a term used
under the common law to denote all forms of personal property.
Personal property can be tangible or intangible. Tangible personal property, such as a 4K UHD TV, heavy
construction equipment, or a car, has physical substance. Intangible personal property represents some set of
rights and interests but has no physical substance. Stocks and bonds, patents, trademarks, and copyrights—as
well as digital property—are examples of intangible personal property.
Both personal property and real property can be owned by an individual person or by some other entity, such
as an organization. When two or more persons own real or personal property together, concurrent
ownership exists. (The different types of concurrent ownership will be discussed in the real property
chapter.)
41–1a WhyIstheDistinctionImportant?
The distinction between real and personal property is important for several reasons. How property is taxed
and what is required to transfer or acquire the property is determined by whether the property is classified
as real or personal.
Taxation The two types of property are usually subject to different types of taxes. Generally, each state
assesses property taxes on real property. Typically, the tax rate is based on the market value of the real
property and the various services provided by the city, state, and county in which the property is located. For
instance, higher taxes may be imposed on real property located within the city limits to pay for schools, roads,
and libraries.
Businesses often also pay taxes on the personal property they own, use, or lease, including office or farm
equipment and supplies. Individuals may pay sales tax when purchasing per- sonal property, but generally
they are not required to pay annual taxes on personal property that is not used for business.
Acquisition Another reason for distinguishing between real and personal property has to do with the way
the property is acquired or transferred. Personal property can be transferred with a minimum of formality—
such as by selling goods on Craigslist or at a garage sale. In contrast, real property transfers generally involve
a written sales contract and a deed that is recorded with the state.
Similarly, establishing ownership rights is simpler for personal property than for real property. Example 41.1
If Mia gives Shawn an iPad as a gift, Shawn does not need to have any paperwork evidencing title, as he would
if she had given him real property. ■ The ways to acquire ownership of personal property will be discussed
shortly.
41–1b ConversionofRealPropertytoPersonalProperty
Sometimes, real property can be turned into personal property by detaching it from the land. For instance,
the trees, bushes, and plants growing on land are considered part of the real property (with the exception of
crops that must be planted every year, such as wheat). If the property is sold, all the vegetation growing on
the land normally is transferred to the new owner of the real property.
Once the items are severed (removed) from the land, however, they become personal property. If the trees
are cut from the land, the timber is personal property. If apples, grapes, or raspberries are picked from trees
or vines growing on real property, they become personal property. Similarly, if land contains minerals
(including oil) or other natural resources (such as marble), the resources are part of the real property. But
once removed, they become personal property.
Conversely, personal property may be converted into real property by permanently attach- ing it to the real
property. Personal property that is affixed to real property in a permanent way, such as tile installed in a
house, is known as a fixture.
PersonalProperty Propertythatis movable. Any property that is not real property.
Chattel Personalproperty.
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Learning Objective 1
What is real property? What is personal property?
974 UNIT SEvEN: Property and Its Protection
41–2 Acquiring Ownership of Personal Property
The most common way of acquiring personal property is by purchasing it. (Today, even virtual property is
often purchased—see this chapter’s Adapting the Law to the Online Environment feature for a discussion.)
We reviewed the purchase and sale of goods (which are personal property) in earlier chapters. Often,
property is acquired by will or inheritance, as we will discuss in a later chapter. Here, we look at additional
ways in which ownership of personal property can be acquired, including acquisition by possession,
production, gifts, accession, and confusion.
41–2a Possession
Sometimes, a person can become the owner of personal property merely by possessing it. An example of
acquiring ownership by possession is the capture of wild animals. Wild animals belong to no one in their
natural state, and the first person to take possession of a wild animal normally owns it. A hunter who kills a
deer, for instance, has assumed owner- ship of it (unless he or she acted in violation of the law). Those who
find lost or abandoned property can also acquire ownership rights through mere possession of the property,
as will be discussed later in this chapter.
41–2b Production
Production—the fruits of labor—is another means of acquiring ownership of personal property. For instance,
writers, inventors, and manufacturers produce personal property and thereby acquire title to it. (In some
situations, as when a researcher is hired to develop a new product, the researcher-producer may not own
what is produced.)
What is the most common way to acquire ownership rights in personal property?
The Exploding World of Digital Property
J
on Jacobs took out a real mortgage on his real house so that he could pay $100,000 in real dollars
for a virtual asteroid near the virtual Planet Calypso in the virtual-world Entropia Universe. A few
years later, he sold Club Neverdie, the virtual space resort he had constructed on the virtual
asteroid, for more than $600,000. At the time, Jacobs was making $200,000 per year from players’
purchases of virtual goods at the resort.
If the prospect of paying real funds for virtual property seems disconcerting, remember that
property does not have to be tangible. Property consists of a bundle of rights in anything that has
an ascertain- able value and is subject to ownership. This definition encompasses virtual property, including all the intangible objects
used in virtual worlds like Entropia Universe and Second Life.
Digital Goods Have Value, Too
Digital goods include virtual goods. More importantly, they include digital books, music libraries,
and movie downloads, as well as domain names and expensively created websites. This digital
property has real value. Some digital music libraries, for example, cost thousands of dollars.
Who Keeps the Digital Goods?
The growing value of digital goods raises some legal questions. For instance, what are the
respective rights of the creator/owner of a virtual-world website and the players at that site? What
happens when a husband
and wife decide to divorce after they have purchased virtual real estate or digital goods with realworld dollars? The couple—or a court—will have to figure out a way to divide the goods. Property
and divorce laws will have to adapt to take this emerging world of digital property into account.
Critical Thinking
How might a couple who enjoy purchas ing digital goods together avoid property division issues in the
event of a divorce?
Adapting the Law to the Online Environment
monkeybusinessimages/ iStock/Getty Images
41–2c Gifts
A gift is another fairly common means of acquiring and transferring ownership of real and
personal property. A gift is essentially a voluntary transfer of property ownership for which no consideration
is given. The absence of consideration is what distinguishes a gift from a contractual obligation to transfer
ownership of property.
For a gift to be effective, the following three elements are required:
1.
2.
3.
Donativeintentonthepartofthedonor(theonegivingthegift).
Delivery.
Acceptancebythedonee(theonereceivingthegift).
Until these three requirements are met, no effective gift has been made. Example 41.2 Your aunt tells you that
she intends to give you a new Mercedes-Benz for your next birthday. This is simply a promise to make a gift. It
is not considered a gift until the Mercedes-Benz is delivered and accepted. ■
Who owns the engagement ring? Often, when two people
decide to marry, one party (traditionally the man in an opposite-sex
relationship) gives the other an engagement ring. What if the engagement is called off? Etiquette
authorities routinely counsel that if the woman breaks the engagement, she should return the ring,
but if the man calls the wedding off, the woman is entitled to keep the ring. When the party who
gave the ring (the donor) sues for its return after a breakup, the courts are split.
Courts in a majority of states, including Kansas, Michigan, New York, and Ohio, hold that an
engagement ring is not a real gift. Rather, it is a “conditional gift” that becomes final only if the
marriage occurs. If the marriage does not take place, the ring is returned to the donor regardless of
who broke the engagement. This position is similar to the law of ancient Rome, which mandated
that when an engagement was broken, the woman had to return the ring, as a penalty, regardless of
who was at fault. Some judges, however, disagree with the conditional-gift theory and contend that
an engagement ring is a gift and, as such, belongs to the donee, even if the engagement is broken.
Donative Intent When a gift is challenged in court, the court will determine whether donative intent
exists by looking at the language of the donor and the surrounding circumstances. A court may look at the
relationship between the parties and the size of the gift in relation to the donor’s other assets. When a person
has given away a large portion of her or his assets, the court will scrutinize the transaction closely to
determine the donor’s mental capacity and to look for indications of fraud or duress.
Spotlight Case Example 41.3 Over a period of three months, Jean Knowles Goodman, who was eighty-five years
old, gave Steven Atwood several checks that totaled $56,100. Atwood was a veterinarian who had cared for
Good- man’s dogs for nearly twenty years, and he and Goodman had become friends. Shortly after writing the
last check, Goodman was hospitalized and diagnosed with dementia (loss of brain function) and alcohol
dependency.
The guardian who was appointed to represent Goodman filed a lawsuit to invalidate the gifts, claiming that
Goodman had lacked mental capacity and
Gift Avoluntarytransferofproperty made without consideration, past or present.
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975
Learning Objective 2
What are the three necessary elements for an effective gift?
Ethical Issue
If a close relative tells you that she intends to give you a Mercedes-Benz convertible, has she gifted you the car? Why or
why not?
contrastaddict/iStock Unreleased/Getty Images
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UNIT SEvEN: Property and Its Protection
ConstructiveDelivery Asymbolic delivery of property that cannot be physically delivered.
donative intent. At trial, a psychiatrist who had examined Goodman testified on behalf of Atwood that while
Goodman lacked the capacity to care for herself, she would have under- stood that she was giving away her
funds. Therefore, the court concluded that Goodman had donative intent to make the gifts to Atwood.1 ■
Delivery The gift must be delivered to the donee. Delivery may be accomplished by means of a third
person who is the agent of either the donor or the donee. Naturally, no delivery is necessary if the gift is
already in the hands of the donee. Delivery is obvious in most cases, but some objects cannot be relinquished
physically. Then the question of delivery depends on the surrounding circumstances.
Constructive Delivery. When the object itself cannot be physically delivered, a symbolic, or constructive,
delivery will be sufficient. Constructive delivery confers the right to take pos- session of the object in
question. Example 41.4 Angela wants to make a gift of various rare coins that she has stored in a safe-deposit
box. She obviously cannot deliver the box itself to the donee, and she does not want to take the coins out of
the bank. Angela can simply deliver the key to the box to the donee and authorize the donee’s access to the
box and its contents. This action constitutes a constructive delivery of the contents of the box. ■
Constructive delivery is always necessary for gifts of intangible property, such as stocks, bonds, insurance
policies, and contracts. What will be delivered are documents that rep- resent rights and are not, in
themselves, the true property. (See this chapter’s Business Law Analysis feature for an illustration.)
1. Goodman v. Atwood, 78 Mass.App.Ct. 655, 940 N.E.2d 514 (2011).
Effective Gift of a Brokerage Account
J
ohn Weider opened a brokerage account with Quick and Reilly, Inc., in the name of his son James.
Twelve years later, when the balance was $52,085, John closed the account and transferred the
funds to a joint account in his own name and the name of his other son, James’s brother. James did
not learn of the exis- tence of the account in his name until the transfer, when he received a tax
form for the account’s final year. James filed a suit in a Connecticut state court against Quick and
Reilly, alleging breach of contract and seeking to recover the account’s princi- pal and interest.
What are the elements of a valid gift? Did John’s opening of the account in James’s name with Quick
and Reilly constitute a gift to James?
Analysis: A gift is a transfer of property without consideration. To make a valid gift, the donor
must have “donative intent” (an intent that title to the property will pass to the donee). The donor
must also hand over control of the property to the recipient of the gift. The three requirements for
an effective gift are (1) the donor’s donative intent, (2) delivery of the property, and (3) the donee’s
acceptance.
Result and Reasoning: John’s use of James’s name to open the account may indicate donative
intent. But the most significant element in this situation is delivery, which requires the donor to
part with possession of the property and relin- quish control. Delivery may be actual or
constructive. In this scenario, James never received actual delivery of the funds in the account.
Notice to James of the account’s existence might have been sufficient to constitute constructive
delivery, but James was not aware of the existence of the account (or his right to any of the funds)
until after the funds were withdrawn and the account was closed. Without actual or constructive
delivery, there is no way for James to prove that the account consti- tuted a valid gift.
Business Law Analysis
Relinquishing Dominion and Control. An effective delivery also requires giving up complete control and
dominion (ownership rights) over the subject matter of the gift. The outcome of disputes often turns on
whether control has actually been relinquished. The Internal Revenue Service carefully examines
transactions between relatives, especially when one claims to have given income-producing property to
another who is in a lower marginal tax bracket. Unless complete control over the property has been
relinquished, the “donor”—not the family mem- ber who received the “gift”—will have to pay taxes on the
income from that property.
In the following Classic Case, the court focused on the requirement that a donor must relinquish complete
control and dominion over property given to the donee before a gift can be effectively delivered.
Classic Case 41.1
Dominion Ownershiprightsin property, including the right to possess and control the property.
CHAPTER 41: Personal Property and Bailments
977
In re Estate of Piper
Missouri Court of Appeals, 676 S.W.2d 897 (1984).
How can two diamond rings have been gifted if they remained in the owner’s purse after her death?
Background and Facts Gladys Piper
died intestate (without a will) in 1982. At her
death, she owned miscellaneous personal
property worth $5,000 and had in her purse
$200 in cash and two diamond rings. Wanda
Brown, Piper’s niece, took the contents of the
purse, allegedly to preserve the items for
the estate. Clara Kauffman, a friend of Piper’s,
filed a claim against the estate for $4,800. From
October 1974 until Piper’s death, Kauffman
had taken Piper to the doctor, beauty shop, and
grocery store. Kauffman had also written Piper’s checks to pay her bills and had helped her care for
her home.
Kauffman maintained that Piper had promised to pay her for these services and had given her the
diamond rings as a gift. A Missouri state trial court denied her request for payment. The court found
that her services had been voluntary. Kauffman then filed a petition for delivery of personal
property—the rings— which was granted by the trial court. Brown, other heirs, and the
administrator of Piper’s estate appealed.
In the Words of the Court
GREENE, Judge. * ** *
While no particular form is necessary to effect a delivery, and while the delivery may be actual,
constructive, or symbolical, there must be some evidence to support a delivery theory. What we
have here, at best, * * * was an intention on the part of Gladys, at some future time, to make a gift of
the rings to Clara. Such an intention, no matter how clearly expressed, which has not been
carried into effect, confers no ownership rights in the property in the intended donee. Language
written or spoken, expressing an intention to give, does not constitute a gift, unless the intention is
executed by a complete and unconditional delivery of the subject matter, or delivery of a proper
written instrument evidencing the gift. There is no evidence in this case to prove delivery, and, for
such reason, the trial court’s judgment is erroneous. [Emphasis added.]
DecisionandRemedy Thestateappellatecourtreversedthe judgment of the trial court. No
effective gift of the rings had been made, because Piper had never delivered the rings to Kauffman.
Critical Thinking
• What If the Facts Were Different? Suppose that Gladys Piper had told Clara Kauffman that she
was giving the rings to Clara but wished to keep them in her possession for a few more days. Would
this have affected the court’s decision in this case? Explain.
• Impact of This Case on Today’s Law This case clearly illustrates the delivery requirement
when making a gift. Assuming that Piper did, indeed, intend for Kauffman to have the rings, it was
unfortunate that Kauffman had no right to receive them after Piper’s death. Yet the alternative could
lead to perhaps even more unfairness. The policy behind the delivery requirement is to pro tect
property owners and their heirs from fraudulent claims based solely on parol evidence. If not for this
policy, a person could easily claim that a gift had been made when, in fact, it had not.
doram/iStock/Getty Images
978
UNIT SEvEN: Property and Its Protection
GiftInterVivos Agiftmade during one’s lifetime and not in contemplation of imminent death, in contrast to a gift causa mortis.
GiftCausaMortis Agiftmadein contemplation of imminent death. The gift is revoked if the donor does not die as contemplated.
Acceptance The final requirement of a valid gift is acceptance by the donee. This rarely presents any
problem, as most donees readily accept their gifts. The courts generally assume acceptance unless the
circumstances indicate otherwise.
Gifts Inter Vivos and Gifts Causa Mortis A gift made during one’s lifetime is termed a gift inter vivos.
A gift causa mortis (a so-called deathbed gift) is made in contemplation of imminent death. To be effective, a
gift causa mortis must meet not only the three require- ments discussed earlier—donative intent, delivery,
and acceptance—but also some additional rules.
Automatically Revoked if Donor Recovers. A gift causa mortis does not become absolute until the donor dies
from the contemplated event, and it is automatically revoked if the donor survives. Example 41.5 Yang, who is
about to undergo surgery to remove a cancerous tumor, delivers an envelope to Chao, a close business
associate. The envelope contains a letter saying, “I want to give you this check for $1 million in the event of
my death from this operation.” Chao cashes the check. The surgeon performs the operation and removes the
tumor. Yang recovers fully. Several months later, Yang dies from a heart attack that is totally unrelated to the
operation.
If the administrator of Yang’s estate tries to recover the $1 million, she will normally succeed. The gift causa
mortis to Chao is automatically revoked if Yang recovers. The specific event that was contemplated in making
the gift was death from a particular operation. Because Yang’s death was not the result of this event, the gift is
revoked, and the $1 million passes to Yang’s estate. ■
Automatically Revoked if Donee Dies. A gift causa mortis is also revoked if the prospective donee dies before
the donor. Therefore, even if Yang in Example 41.5 had died during the operation, the gift would have been
revoked if Chao had died a few minutes earlier. In that event, the $1 million would have passed to Yang’s
estate, and not to Chao’s heirs.
41–2d Accession
Accession means “something added.” Accession occurs when someone adds
value to an item of personal property by the use of either labor or materials. Generally, there is no dispute
about who owns the property after an accession occurs, especially when the accession is accomplished with
the owner’s consent. Example 41.6 Harvey buys all the materials necessary to customize his Corvette. He hires
Zach, a customizing specialist, to come to his house to perform the work. Harvey pays Zach for the value of the
labor, obviously retaining title to the property. ■
If an improvement is made wrongfully—without the permission of the owner—the owner
retains title to the property and normally does not have to pay for the improvement. This is true even if the
accession increases the value of the property substantially. Example 41.7 Colton steals a truck and puts
expensive new tires on it. If the rightful owner later recovers the truck, the owner obviously will not be
required to compensate Colton, a thief, for the value of the new tires. ■
41–2e Confusion
Confusion is the commingling (mixing together) of goods to such an extent that one person’s personal
property cannot be distinguished from another’s. Confusion frequently occurs with fungible goods, such as
grain or oil, which consist of identical units.
If confusion occurs as a result of agreement, an honest mistake, or the act of some third party, the owners
share ownership and will share any loss in proportion to their ownership interests in the property. Example
41.8 Five farmers in a small Iowa community enter into a
What effect does a patient’s survival have on a gift of $1 million given in the event of the patient’s death to a close friend
just before the surgery?
Accession Theadditionofvalueto personal property by the use of labor or materials.
Confusion Themixingtogether of goods belonging to two or more owners to such an extent that the separately owned goods cannot be
identified.
Squaredpixels/E+/Getty Images
cooperative arrangement. Each fall, the farmers harvest the same amount of number 2–grade yellow corn and
store it in silos that are held by the cooperative. Each farmer thus owns one-fifth of the total corn in the silos.
If a fire burns down one of the silos, each farmer will bear one-fifth of the loss. ■ If goods are confused due to
an intentional wrongful act, then the innocent party ordinarily acquires title to the whole.
41–3 Mislaid, Lost, and Abandoned Property
As already mentioned, one of the methods of acquiring ownership of property is to possess it. Simply finding
something and holding on to it, however, does not necessarily give the finder any legal rights in the property.
Different rules apply, depending on whether the property was mislaid, lost, or abandoned. Exhibit 41–1
illustrates the distinctions among these types of property, which are discussed in the following subsections.
41–3a MislaidProperty
Property that has been voluntarily placed somewhere by the owner and then inadvertently forgotten is
mislaid property. A person who finds mislaid property does not obtain title to it. Instead, the owner of the
place where the property was mislaid becomes the caretaker of the property because it is highly likely that
the true owner will return.2 Example 41.9 Maya goes to a movie theater. While paying for popcorn at the
concessions stand, she sets her iPhone on the counter and then leaves it there. The phone is mislaid property,
and the theater owner is entrusted with the duty of reasonably caring for it. ■
41–3b LostProperty
Property that is involuntarily left is lost property. A finder of the property can claim title to the property
against the whole world—except the true owner.3 If the true owner is identified and demands that the lost
property be returned, the finder must return it. In contrast, if a third party attempts to take possession of the
lost property, the finder will have a better title than the third party.
Example 41.10 Kayla works in a large library at night. As she crosses the courtyard on her way home, she finds
a gold bracelet set with what seem to be precious stones. She takes the bracelet to a jeweler to have it
appraised.
2. For a classic English case establishing this principle, see Armory v. Delamirie, 93 Eng.Rep. 664 (K.B. [King’s Bench] 1722). 3. The finder of mislaid property
is an involuntary bailee.
Exhibit 41–1 Mislaid, Lost, and Abandoned Property
Mislaid Property Property that the owner has voluntarily parted with and then has inadvertently forgotten.
LostProperty Propertythatthe owner has involuntarily parted with and then cannot find or recover.
CHAPTER 41: Personal Property and Bailments
979
When a person leaves a smartphone at a movie theatre, is it mislaid, lost, or abandoned property?
Property that is placed somewhere voluntarily by the owner and then inad- vertently forgotten. A finder
of mislaid property will not acquire title to the goods, and the owner of the place where the property was
mislaid becomes a caretaker of the mislaid property.
Property that is involuntarily left by the owner. A finder of lost property can claim title to the property
Lost Property
against the whole world except the true owner.
Property that has been discarded by the true owner, who has no intention of reclaiming title to the
Abandoned
property in the future. A finder of abandoned property can claim title to it against the whole world,
Property
including the original owner.
Mislaid
Property
Erik Dreyer/Getty Images
Learning Objective 3
How does lost property differ from mislaid property? Does a finder of such property acquire title to it?
If a hiker loses an expensive watch, when is it considered abandoned property?
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UNIT SEvEN: Property and Its Protection
EstrayStatute Astatutedefining finders’ rights in property when the true owners are unknown.
While pretending to weigh the bracelet, the jeweler’s employee removes several of the stones. If Kayla brings
an action to recover the stones from the jeweler, she normally will win, because she found lost property and
holds title against everyone except the true owner. ■
Conversion of Lost Property When a finder of lost property knows the true owner and fails to return
the property to that person, the finder has committed the tort of conversion (the wrongful taking of another’s
property). Example 41.11 Mike finds a bicycle lying on the sidewalk in front of his house. He knows that the
bicycle belongs to Geneva. If Mike does not return the bicycle, he can be held liable for conversion. ■ Many
states require the finder to make a reasonably diligent search to locate the true owner of lost property.
Estray Statutes Many states have estray statutes, which encourage and facilitate the return of property to
its true owner and reward the finder for honesty if the property remains unclaimed. These laws provide an
incentive for finders to report their discoveries by making it possible for them, after a specified period of
time, to acquire legal title to the property they have found.
Generally, the item must be lost property, not merely mislaid property, for estray statutes to apply. Estray
statutes usually require the finder or the county clerk to advertise the property in an attempt to help the
owner recover it.
Spotlight Case Example 41.12 Drug smugglers often enter the United States illegally from Canada via a frozen
river that flows through Van Buren, Maine. When two railroad employees walking near the railroad tracks in
Van Buren found a duffel bag that contained $165,580 in cash, they reported their find to U.S. Customs agents,
who took custody of the bag and cash. A drug-sniffing dog gave a positive alert on the bag for the scent of
drugs. The federal government filed a lawsuit claiming title to the property under criminal forfeiture laws
(because the property was involved in illegal drug transactions).
The two employees argued that they were entitled to the $165,580 under Maine’s estray statute. That statute
required finders to (1) provide written notice to the town clerk within seven days after finding the property,
(2) post a public notice in the town, and (3) advertise in the town’s newspaper for one month. Because the
employees had not ful- filled these requirements, the court ruled that they had not acquired title to the
property. Thus, the federal government had a right to seize the cash.4 ■
41–3c AbandonedProperty
Property that has been discarded by the true owner, who has no intention of reclaiming title to it, is
abandoned property. Someone who finds abandoned property acquires title to it that is good against the
whole world, including the original owner. If a person finds abandoned property while trespassing on the
property of another, however, the owner of the land, not the finder, will acquire title to the property.
An owner of lost property who eventually gives up any further attempt to find it is frequently held to have
abandoned the property. Example 41.13 As Alekis is hiking in the redwoods, her expensive watch falls off her
wrist. She retraces her route and searches for the watch but cannot find it. She finally gives up her search and
returns home some five hundred miles away. When Frye later finds the watch, he acquires title to it that is
good even against Alekis. By completely giving up her search, Alekis abandoned the watch just as effectively
as if she had intentionally discarded it. ■
AbandonedProperty Propertythat has been discarded by the owner, who has no intention of reclaiming it.
4. United States v. One Hundred SixtyFive Thousand Five Hundred Eighty Dollars ($165,580) in U.S. Currency, 502 F.Supp.2d 114 (D.Me. 2007).
baranq/Shutterstock.com
CHAPTER 41: Personal Property and Bailments 981 Is it reasonable to believe that a diamond ring found on the floor of
a store is abandoned
property? That was the finder’s contention in the following case.
Case 41.2
Background and Facts Michael Preston found a diamond ring on the floor of a Walmart store in
Tumwater, Washington. He kept the ring and later pawned it. The ring belonged to Nicole Amacker
who had removed it to assist a fellow shopper and then had forgotten to put it back on. Amacker
posted an ad on Craigslist offering a reward for the ring. Preston responded, telling her that he had
found the ring and pawned it. Amacker said that Preston had to be present to retrieve the ring from
the pawnshop. She would then pay him the reward minus the cost to redeem the ring.
Preston refused to cooperate. Amacker contacted the police. Walmart’s surveillance video showed
that Amacker had been in the area where Preston had found the ring. In a Washington state court,
Preston was charged with theft and convicted. He appealed.
In the Words of the Court
MAXA, C.J. [Chief Judge]
[Under the Revised Code of Washington,] the statutory definition of theft includes appropriating another’s property when the actor knows the property has been
lost.
* ** *
The common law distinguishes between property that has been “lost” and property that had been
“abandoned.” Property is lost when the owner has parted with possession unwittingly and no
longer knows its location. Property is abandoned when the owner intentionally relinquishes
possession and rights in the property. A person who loses property retains ownership, but a person
who abandons property loses any ownership interest. As a result, appropriation of abandoned
property generally does not constitute theft. [Emphasis added.]
* ** *
Preston argues that the State [of Washington] failed to present evidence that he knew the ring he
found was lost rather than abandoned. He claims that the State proved only that he picked up a ring
that he knew nothing about. But the evidence created at least a reasonable inference that Preston
knew that the ring was lost when he appropriated it.
First, the mere fact that Preston picked up a diamond ring from the floor of a Walmart store gives
rise to an inference that he knew the ring was lost rather than abandoned. It is unlikely that the
owner of a diamond ring would choose to abandon it on the floor of a store.
Second, when Preston pawned the ring he concealed the fact that he had found it, claiming that it
belonged to his girlfriend in Texas. A reasonable juror could infer from Preston lying about
ownership of the ring that he was aware that he had appropriated a ring belonging to someone else
and that he was trying to hide his appropriation of it.
Third, Preston’s own testimony provides evidence that he knew the ring was lost. When asked * * *
if he had found something somebody had lost, Preston stated, “I’m believing that, yes, at that point
initially.” He also testified that when he found the ring he wanted “to try to find the owner” because
“if it was real it’s obviously missing.” And Preston testified that he pawned the ring because “I was
going to be needing money trying to find the owner.”
Viewing the evidence in the light most favorable to the State, a reasonable jury could have found
that Preston knew the ring was lost when he took possession of and pawned it.
Decision and Remedy A state intermediate appellate court affirmed Preston’s conviction for
theft because there was “sufficient evidence to prove that Preston knew the ring was lost property.”
Critical Thinking
• Legal Environment On what legal theory could Preston be held civilly liable to Amacker for
failing to return the ring? Explain.
• What If the Facts Were Different? Suppose that Amacker had not posted an ad on Craigslist
offering a reward for the ring and had not contacted the police. Would the result have been different?
Discuss.
State of Washington v. Preston
Court of Appeals of Washington, Division 2, 3 Wash.App.2d 1036 (2018).
A friend loaned this bike as a favor. Has a bailment been created?
Learning Objective 4
What are the three elements of a bailment?
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Bailment Asituationinwhichthe personal property of one person
(a bailor) is entrusted to another (a bailee), who is obligated to return the bailed property to the bailor or dispose of it as directed.
Bailor Onewhoentrustsgoodsto a bailee.
Bailee Onetowhomgoodsare entrusted by a bailor.
41–4 Bailments
Many routine personal and business transactions involve bailments. A bailment is formed by the delivery of
personal property without transfer of title by one person, called a bailor, to another, called a bailee. Usually, a
bailment is formed for a particular purpose—for instance, to loan, lease, store, repair, or transport the
property. What distinguishes a bailment from a sale or a gift is that there is no passage of title and no intent to
transfer title. On completion of the purpose, the bailee is obligated to return the bailed property in the same
or better condition to the bailor or a third person or to dispose of it as directed.
Bailments typically arise by contract. Many commercial bailments, such as the deliv- ery of clothing to the
cleaners for dry cleaning, are based on contract, for instance. Not all of the elements of a contract must
necessarily be present for a bailment to be created.
Example 41.14 If Amy lends her bicycle to a friend, a bailment is created, but not by contract, because there is
no consideration. ■
41–4a ElementsofaBailment
Not all transactions involving the delivery of property from one person to another create a bailment. For such a transfer to become a bailment, the following three elements must be present:
1. Personalproperty.
2. Deliveryofpossessionwithouttitle.
3. Agreementthatthepropertywillbereturnedtothebailororotherwisedisposedofaccordingtoits owner’s directions.
Personal Property Requirement Only personal property, not real property or persons, can be the
subject of a bailment. Example 41.15 When Jai checks her bags at the airport, a bailment of Jai’s luggage is
created because the luggage is personal property. When Jai boards the plane as a passenger, no bailment is
created. ■ Although bailments commonly involve tangible items—jewelry, cattle, automobiles, and the like—
intangible personal property, such as promissory notes and shares of stock, may also be bailed.
Delivery of Possession Delivery of possession means the transfer of possession of the property to the
bailee. For delivery to occur, the bailee must be given exclusive possession and control over the property, and
the bailee must knowingly accept the personal property.5 In other words, the bailee must intend to exercise
control over it.
If either delivery of possession or knowing acceptance is lacking, there is no bailment relationship. Example
41.16 Sophia goes to a five-star restaurant and checks her coat at the door. She forgets that there is a $20,000
diamond necklace in the coat pocket. In accepting the coat, the bailee does not knowingly also accept the
necklace. Thus, a bailment of the coat exists—because the restaurant has exclusive possession and control
over the coat and has knowingly accepted it—but not a bailment of the necklace. ■
Physical versus Constructive Delivery. Either physical or constructive delivery will result in the bailee’s
exclusive possession of and control over the property. As discussed earlier, in the context of gifts, constructive
delivery is a substitute, or symbolic, delivery. What is deliv- ered to the bailee is not the actual property bailed
(such as a car) but something so related to the property (such as the car keys) that the requirement of
delivery is satisfied.
Involuntary Bailments. In certain situations, a bailment is found despite the apparent lack of the requisite
elements of control and knowledge. One instance occurs when the bailee acquires the property accidentally
or by mistake—as in finding someone else’s lost or mislaid property. A bailment is created even though the
bailor did not voluntarily deliver the property to the bailee. Such bailments are called constructive or
involuntary bailments.
5. The requirements outlined in this sentence apply to voluntary bailments, not to involuntary bailments.
FrancescoCorticchia/iStock/Getty Images
Example 41.17 Several corporate managers attend a meeting at the law office of Jacobs & Matheson. One of the
corporate officers, Kyle Gustafson, inadvertently leaves his briefcase at the office at the conclusion of the
meeting. In this situation, a court may find that an involuntary bailment has been created, even though
Gustafson has not voluntarily delivered the briefcase and the law firm has not intentionally accepted it. If an
involuntary bailment exists, the firm is responsible for taking care of the briefcase and returning it to
Gustafson. ■
Bailment Agreement A bailment agreement can be express or implied. Although a writ- ten contract is
not required for bailments of less than one year (that is, the Statute of Frauds does not apply), it is a good idea
to have one, especially when valuable property is involved.
The bailment agreement expressly or impliedly provides for the return of the bailed prop- erty to the bailor
or to a third person, or for the disposal of the property by the bailee. It is assumed that the bailee will return
the identical goods originally given by the bailor. In certain types of bailments, such as bailments of fungible
goods, however, the property returned need only be equivalent property.
Example 41.18 A bailment is created when Holman stores his grain (fungible goods) in Joe’s Warehouse. At
the end of the storage period, however, the warehouse is not obligated to return to Holman exactly the same
grain that he stored. As long as the warehouse returns grain of the same type, grade, and quantity, the
warehouse—the bailee—has performed its obligation. ■
41–4b OrdinaryBailments
Bailments are either ordinary or special (extraordinary). There are three types of ordinary bailments. They
are distinguished according to which party receives a benefit from the bail- ment. This factor will dictate the
rights and liabilities of the parties, and the courts use it to determine the standard of care required of the
bailee in possession of the personal property.
The three types of ordinary bailments are as follows:
1. Bailmentforthesolebenefitofthebailor.Thisisagratuitousbailment(abailmentthatinvolvesno consideration) for the
convenience and benefit of the bailor. Basically, the bailee is caring for the bailor’s property as a favor. Therefore, the
bailee owes only a slight duty of care and will be liable only if she or he is grossly negligent in caring for the property.
Example 41.19 Allen asks his friend Sumi to store his car in her garage while he is away. If Sumi agrees to do so, a
gratuitous bailment will be created, because the bailment will be for the sole benefit of the bailor (Allen). If the car is
damaged while in Sumi’s garage, Sumi will not be responsible for the damage unless it is caused by her gross negligence. ■
2. Bailmentforthesolebenefitofthebailee.Thistypeofbailmenttypicallyoccurs when one person lends an item to another
person (the bailee) solely for the bailee’s convenience and benefit. Because the bailee is borrowing the item for her or his
own benefit, the bailee owes a duty to exercise the utmost care and will be liable for even slight negligence.
Example 41.20 Allen asks to borrow Sumi’s boat so that he can go sailing over the weekend. The bailment of the boat is
for Allen’s (the bailee’s) sole benefit. If Allen fails to pay attention and runs the boat aground, damaging its hull, he is liable
for the costs of repairing the boat. ■
3. Bailmentforthemutualbenefitofthebaileeandthebailor.Thisisthemostcommonkindofbailment and involves some form of
compensation for storing property or holding property while it is being serviced. It is a contractual bailment and may be
referred to as a bailment for hire or a commercial bailment. In this type of bailment, the bailee owes a duty to exercise a
reasonable degree of care.
Example 41.21 Allen leaves his car at Quick Lube for an oil change. Because Quick Lube will
be paid to change Allen’s oil, this is a mutual-benefit bailment. If Quick Lube fails to put the correct amount of oil back into
Allen’s car and the engine is damaged as a result, Quick Lube will be liable for failure to exercise reasonable care. ■
CHAPTER 41: Personal Property and Bailments 983
What type of bailment is created if a garage owner agrees to store a friend’s car?
LesPalenik/iStock/Getty Images
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UNIT SEvEN: Property and Its Protection
Bailee’sLien Apossessory (artisan’s) lien that a bailee entitled to compensation can place on the bailed property to ensure that he or
she will be paid for the services provided.
Rights of the Bailee Certain rights are implicit in the bailment agreement. Generally, the bailee has the
right to take possession of the property, to use it to accomplish the purpose of the bailment. The bailee also
has a right to receive compensation (unless otherwise agreed), and to limit her or his liability for the bailed
goods. These rights of the bailee are present (with some limitations) in varying degrees in all bailment
transactions.
Right of Possession. A hallmark of the bailment agreement is that the bailee acquires the right to control and
possess the property temporarily. The bailee’s right of possession permits the bailee to recover damages from
any third person for damage or loss of the property. Example 41.22 No-Spot Dry Cleaners sends all suede
leather garments to Cleanall Company for special processing. If Cleanall loses or damages any leather goods,
No-Spot has the right to recover against Cleanall. ■ In addition, if the bailed property is stolen, the bailee has a
legal right to regain possession of it.
Right to Use Bailed Property. The extent to which bailees can use the property entrusted to them depends in
part on the terms of the bailment contract. When no provision is made, the extent of use depends on how
necessary it is for the goods to be at the bailee’s disposal for the ordinary purpose of the bailment to be
carried out.
Example 41.23 If Lauren borrows a car to drive Devin to the airport, she, as the bailee, will obviously be
expected to use the car. In contrast, if Devin drives his own car to the airport and places it in long-term
storage nearby, the storage company, as the bailee, will not be expected to use the car. The ordinary purpose
of a storage bailment does not include use of the property. The bailee will, however, be expected to use or
move the car if necessary in an emergency (such as a hurricane or flood) to protect it from harm. ■
Right of Compensation. Except in a gratuitous bailment, a bailee has a right to be compen- sated as provided
for in the bailment agreement. The bailee also has a right to be reimbursed for services rendered and costs
incurred in keeping the bailed property (even in a gratuitous bailment).
To enforce the right of compensation, the bailee has a right to place a possessory lien on the bailed property
until he or she has been fully compensated. A lien on bailed property is referred to as a bailee’s lien, or an
artisan’s lien. If the bailor refuses to pay or cannot pay, in most states the bailee is entitled to foreclose on the
lien and sell the property to recover the amount owed.
Example 41.24 Liam leaves his car at Jack’s Automotive for repairs. Jack’s informs Liam that the car needs a
new transmission, and Liam authorizes Jack’s to perform the work. When Liam returns to pick up the car, he
refuses to pay the amount due for the transmission work. Jack’s has a right to keep the car and place a lien on
it until Liam pays for the repairs. If Liam continues to refuse to pay, Jack’s can follow the state statutory
process for foreclosing on the lien and selling the car to recover what is owed. ■
Right to Limit Liability. In ordinary bailments, bailees have the right to limit their liability, provided that
both of the following are true:
1. Thelimitationsarecalledtotheattentionofthebailor.Itisessentialthatthebailorbeinformedofthe limitation in some way.
Example 41.25 A sign in Nikolai’s garage states that Nikolai will not be responsible “for loss due to theft, fire, or
vandalism.” Whether the sign will constitute notice will depend on the size of the sign, its location, and any other
circumstances affecting the likelihood that customers will see it. ■
2. Thelimitationsarenotagainstpublicpolicy.Evenwhenthebailorknowsofthelimitation,courts consider certain types of
disclaimers of liability to be against public policy and therefore illegal.
The courts carefully scrutinize exculpatory clauses, which limit a party’s liability for the party’s own wrongful acts. In
bailments, especially mutual-benefit bailments, exculpatory clauses are often held to be illegal. Example 41.26 A receipt
from Al’s Parking Garage expressly disclaims liability for any damage to parked cars, regardless of the cause. Because the
bailee (the garage) has attempted
to exclude liability for the bailee’s own negligence, the clause will likely be deemed unenforceable because it is against
public policy. ■
CHAPTER 41: Personal Property and Bailments 985 Duties of the Bailee The bailee’s duties are based on a
mixture of tort law and contract
law and include two basic responsibilities:
1. Totakeappropriatecareoftheproperty.
2. Tosurrenderthepropertytothebailorordisposeofitinaccordancewiththebailor’sinstructionsat
the end of the bailment.
The Duty of Care. The bailee must exercise reasonable care in preserving the bailed property. What
constitutes reasonable care in a bailment situation normally depends on the nature and specific
circumstances of the bailment.
The courts determine the appropriate standard of care on the basis of the type of bailment involved. As
mentioned earlier, in a bailment for the sole benefit of the bailor, the bailee need exercise only a slight degree
of care. In a mutual-benefit bailment, courts normally impose a reasonable standard of care. In a bailment for
the sole benefit of the bailee, the bailee must exercise great care. Exhibit 41–2 illustrates these concepts.
Determining whether a bailee exercised an appropriate degree of care is usually a question of fact for the jury
or (in a nonjury trial) the judge. A bailee’s failure to exercise appropriate care in handling the bailor’s
property results in tort liability.
Case Example 41.27 Bridge Tower Dental contracted with Meridian Computer Center to develop a computer
system for its dental practice. Bridge Tower paid a computer consultant, Al Colson, to install the system and
to provide maintenance and support. When Colson noticed that one of the server’s two hard drives had
stopped working, he informed Bridge Tower and took the server to Meridian Computer to be repaired.
Meridian’s owner, Jason Patten, agreed to replace the failing hard drive under the warranty. In attempting to
copy data from the mirrored hard drive, however, Patten accidentally erased all the data, which he had not
backed up. As a result, Bridge Tower lost all of its patients’ records and contact information.
Bridge Tower sued Meridian for negligence. The Supreme Court of Idaho ruled in favor of Bridge Tower.
Colson had entrusted Meridian with a server containing a failing hard drive (which was to be replaced) and a
fully functional mirrored hard drive containing data. Meridian had a duty to protect and safeguard this bailed
property in order to return it in the same condition that it was in when delivered. Patten mistakenly erased
the data on the mir- rored hard drive, which constituted negligence.6 ■
Duty to Return Bailed Property. At the end of the bailment, the bailee normally must hand over the bailed
property to the bailor or to someone the bailor designates, or must otherwise dispose of it as directed. Failure
to give up possession at the time the bailment ends is a breach of contract and can result in a tort lawsuit for
conversion or negligence.
Case Example 41.28 SANY America, Inc., loaned a crane to Turner Brothers, LLC, a con- struction contractor,
for demonstration purposes. SANY wanted to sell the crane to Turner and continued to allow Turner to use it
during their negotiations, but the parties never came to an agreement on a price. After the negotiations
ended, SANY asked Turner for the crane’s
6. Bridge Tower Dental, P.A. v. Meridian Computer Center, Inc., 272 P.3d 541 (Idaho Sup.Ct. 2012). Exhibit 41–2 Degree of Care Required
of a Bailee
What duty of care is required from a bailee that repairs computer hard drives?
Bailment for the Sole Bene t of the Bailor
Slight
Mutual-Bene t Bailment
Degree of Care
Reasonable
Bailment for the Sole Bene t of the Bailee
Great
Lorado/E+/Getty Images
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UNIT SEvEN: Property and Its Protection
Know This
A finder who appropriates the personal property of another, knowing who
the true owner is, can be held liable for the tort of conversion.
location to arrange retrieval. Before SANY retrieved the crane from Turner, however, it was severely
damaged while being operated at Turner’s construction site.
Turner removed the inoperable crane from the site at its own expense and then notified SANY that it
expected compensation for the transportation expenses. In addition, Turner refused to return the crane to
SANY and began billing SANY for daily storage costs. SANY sued for conversion, and Turner counterclaimed. A
federal district court held that the parties’ transaction was a bailment. Because Turner had wrongfully
retained the crane after SANY demanded its return, SANY was entitled to summary judgment for conversion. 7
■
A bailee may also be liable for conversion if the goods being held are delivered to the wrong person. Hence,
the bailee should verify that the person (other than the bailor) to whom the goods are given is authorized to
take possession.
Lost or Damaged Property. If the bailed property has been lost or is returned damaged, a court will presume
that the bailee was negligent. The bailee’s obligation is excused, however, if the property was destroyed, lost,
or stolen through no fault of the bailee (or claimed by a third party with a superior claim). In other words, the
bailee can rebut the presumption of negligence by showing that he or she exercised due care.
Case Example 41.29 Hornbeck Offshore Service engaged R&R Marine, Inc., to repair the ship Erie Service at
R&R’s shipyard on Lake Sabine in Port Arthur, Texas. While repairs were being made, a tropical storm
warning was issued for Port Arthur. R&R’s personnel left the shipyard without securing the Erie Service or
preparing it for the storm. During the night,
rain and water from Lake Sabine swamped the vessel. R&R’s insurer, National Liability & Fire Insurance
Company, asked a federal district court to declare that it was not required to pay the salvage cost. Hornbeck
filed a counterclaim with the court alleging that R&R had been negligent. The lower court issued a decision in
Hornbeck’s favor, and R&R appealed.
A federal appellate court affirmed the lower court’s ruling. The ship was delivered to R&R afloat, R&R had full
custody of the vessel, and it sank while in R&R’s care. This gave rise to a presumption of negligence. The
severity of the weather conditions in Port Arthur had been foreseeable, and R&R showed no evidence that it
had exercised ordinary care. The court held that R&R—not the insurer—was liable for the salvage cost
because R&R had been negligent in failing to protect the ship from damage from the storm. 8 ■
In the following case, the court had to determine whether a constructive bailment existed with respect to the
personal property of tenants who were evicted. If so, was the landlord-bailor negligent for removing the
tenants’ per- sonal property and leaving it outside?
7. SANY America, Inc. v. Turner Brothers, LLC, 2016 WL 1452341 (D.Mass. 2016).
8. National Liability & Fire Insurance Co. v. R&R Marine, Inc., 756 F.3d 825 (5th Cir. 2014).
A bailee did not secure a ship to the dock when the ship was in the bailee’s care. If the ship is damaged during a storm as
a result, will the bailee be liable? Why or why not?
Case 41.3
Zissu v. IH2 Property Illinois, L.P.
United States District Court, Northern District of Illinois, Eastern Division, 157 F.Supp.3d 797 (2016).
Background and Facts Pavel and Aise Zissu lived in an apartment in Chicago, Illinois, owned by
IH2 Property Illinois, LP. IH2 obtained an order from an Illinois state court allowing it to evict the
Zissus. IH2 entered the apartment and moved the Zissus’
personal property outside, placing it on the curb. The property, which included jewelry, furniture,
and personal documents, was then either stolen or damaged. The Zissus filed a suit in a federal
district court against IH2. The tenants alleged that IH2’s taking
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CHAPTER 41: Personal Property and Bailments 987
possession of their property had constituted a bailment and that the company had been negligent in
its care of the bailed property. IH2 filed a motion to dismiss the suit.
In the Words of the Court
John Z. LEE, United States District Judge * ** *
A complaint * * * must * * * allege sufficient factual matter, accepted as true, to state a claim to relief
that is plausible on its face. For a claim to have facial plausibility, a plaintiff must plead factual
content that allows the court to draw the reasonable inference that the defendant is liable for the
misconduct alleged. [Emphasis added.]
* ** *
implied has agreed to accept delivery and deal with the property in a particular way. To recover
under a bailment theory, the plaintiff must allege: (1) an express or implied agreement to create a
bail- ment, (2) delivery of the property, (3) the bailee’s acceptance of the property, and (4) the
bailee’s failure to return the property or the bailee’s delivery of the property in a damaged
condition. [Emphasis added.]
An implied bailment—also called a constructive bailment— may be found where the property of
one person is voluntarily received by another for some purpose other than that of obtaining
ownership. The implied bailment may be deduced from the circum- stances surrounding the
transaction, including the benefits received by the parties, their intentions, the kind of property
involved, and the opportunities of each to exercise control over the property.
The Zissus contend that, by actively removing the property from the premises and putting it on the
street, IH2 assumed control over the property.
*** *
* * * It was IH2’s alleged actions after the sheriff had turned over possession of the premises to IH2
that gave rise to the bailment relationship. * * * The allegations are sufficient [to establish this
claim] at the pleading stage.
Decision and Remedy The U.S. District Court held that IH2 could be held liable and denied IH2’s
motion to dismiss.
Critical Thinking
• What If the Facts Were Different? Suppose that instead of putting the Zissus’ personal
property outside, IH2 had taken it to a storage facility. Would the result have been different? Why or
why not?
The Zissus allege that IH2 negligently removed their personal property from the premises following
the eviction, causing much of it to be damaged or stolen. * * * In its motion to dismiss, IH2 argues
that the Zissus cannot state a claim for negligence because IH2, as the landlord, did not owe a duty
to protect personal property left on the premises following the eviction.
* ** *
* * * [A]lthough a landlord does not have a general duty under common law to care for the personal
property of a former tenant after a proper and legal eviction, a duty of care does arise when a
landlord acts as an actual or constructive bailee with respect to the tenant’s property. [If] the
complaint states a claim for bailment * * *, the Court finds that Plaintiffs have sufficiently alleged the
existence of a duty and a breach of that duty to survive a motion to dismiss as to their negligence
claim.
* ** *
A bailment occurs when goods, or other personal property, are delivered to another, who under
contract either express or
Duties of the Bailor The duties of a bailor are essentially the same as the rights of a bailee. A bailor has a
duty to compensate the bailee as agreed and to reimburse the bailee for costs incurred by the bailee in
keeping the bailed property. A bailor also has an all- encompassing duty to provide the bailee with goods or
chattels that are free from known defects that could cause injury to the bailee.
Bailor’s Duty to Reveal Defects. The bailor’s duty to reveal defects to the bailee translates into two rules:
1. Inamutual-benefitbailment,thebailormustnotifythebaileeofallknowndefectsandanyhiddendefects that the bailor knows
of or could have discovered with reasonable diligence and proper inspection.
2. Inabailmentforthesolebenefitofthebailee,thebailormustnotifythebaileeofanyknowndefects.
The bailor’s duty to reveal defects is based on a negligence theory of tort law. A bailor who fails to give the
appropriate notice is liable to the bailee and to any other person who might reasonably be expected to come
into contact with the defective article.
988 UNIT SEvEN: Property and Its Protection
Example 41.30 Rentco (the bailor) rents a tractor to Hal Iverson. Unknown to Rentco, the brake mechanism on
the tractor is defective at the time the bailment is made. Rentco could have discovered the defect on
reasonable inspection. Iverson uses the defective tractor without knowledge of the brake problem and is
injured, along with two other field workers, when the tractor rolls downhill out of control after failing to stop.
In this situation, Rentco is liable for the injuries sustained by Iverson and the other workers because it
negligently failed to discover the defect and notify Iverson. ■
Warranty Liability for Defective Goods. A bailor can also incur warranty liability (discussed in an earlier
chapter) based on contract law for injuries resulting from the bailment of defective articles. Property that is
leased from a bailor must be fit for the intended purpose of the bailment. Warranties of fitness arise by law in
sales contracts and leases, and courts have held that these warranties apply to bailments “for hire.” Article 2A
of the Uniform Commercial Code (UCC) extends the implied warranties of merchant- ability and fitness for a
particular purpose to bailments that include rights to use the bailed goods. 9
41–4c SpecialTypesofBailments
A business is likely to engage in some special types of bailment transactions in which the bailee’s duty of care
is extraordinary and the bailee’s liability for loss or damage to the prop- erty is absolute. These situations
usually involve common carriers and hotel operators. Warehouse companies have a higher duty of care than
ordinary bailees but are not subject to strict liability. Like carriers, warehouse companies are subject to
extensive regulation under federal and state laws, including Article 7 of the UCC.
Common Carriers Common carriers are publicly licensed to transport goods or passengers on regular
routes at set rates. They are legally bound to carry all passengers or freight as long as there is enough space,
the fee is paid, and there are no reasonable grounds to refuse service. Common carriers differ from private
carriers, which operate transportation facilities for only a select clientele. A private carrier is not required to
provide service to every person or company making a request.
Strict Liability Applies. The delivery of goods to a common carrier creates a bailment relationship between
the shipper (bailor) and the common carrier (bailee). Unlike ordinary bailees, the common carrier is held to a
standard of care based on strict liability, rather than reasonable care, in protecting the bailed personal
property. This means that the common carrier is absolutely liable, regardless of due care, for all loss or
damage to goods except when damage was caused by a natural disaster or war.
Limitations on Liability. Common carriers cannot contract away their liability for damaged goods. Subject to
government regulations, however, they are permitted to limit their dollar liability to an amount stated on the
shipment contract or rate filing.
Example 41.31 A jewelry store (Martinez Daughters) uses UPS to ship a diamond ring worth $200,000. The
owner of the jewelry store, Julie Martinez, arranges for the shipment on UPS’s website, which requires her to
click on two on-screen boxes to agree to “My UPS Terms and Conditions.” In these terms, UPS and its insurer
limit their liability and the amount of insur- ance coverage on packages to $50,000 and refuse to ship items
worth more than $50,000. Both UPS and its insurer disclaim liability entirely for such items. Nevertheless,
Martinez purchases $50,000 in insurance for the package.
9. UCC 2A–212, 2A–213.
CHAPTER 41: Personal Property and Bailments 989
A jewelry storeowner ships a $200,000 diamond ring knowing that the shipper’s maximum shipment value is only
$50,000. What happens if the ring never arrives at its destination?
If the ring is subsequently lost in shipping, the jewelry store cannot recover any amount from UPS under the
insurance policy. UPS’s disclaimer of liability is enforceable, and the jewelry store breached the contract by
indicating that the shipment was worth less than $50,000. ■
Warehouse Companies Warehousing is the business of storing property for compensation. Like
ordinary bailees, warehouse companies are liable for loss or damage to property resulting from negligence.
But because a warehouse company is a professional bailee, it is expected to exercise a high degree of care to
protect and preserve the goods.
Limitations on Liability. A warehouse company can limit the dollar amount of its liability. Under the UCC,
however, it must give the bailor the option of paying a higher storage rate for an increase in the liability
limit.10
Warehouse Receipts. Warehouse companies often issue documents of title—in particular, warehouse
receipts.11 A warehouse receipt describes the bailed property
and the terms of the bailment contract. It can be negotiable or nonnegotiable, depending on how it is written.
It is negotiable if its terms provide that the warehouse company will deliver the goods “to the bearer” of the
receipt or “to the order of” a person named on the receipt.12
The warehouse receipt represents the goods (that is, it indicates title) and hence has value and utility in
financing commercial transactions. Example 41.32 Ossip delivers 6,500 cases of canned corn to Chaney, the
owner of a warehouse. Chaney issues a negotiable warehouse receipt payable “to bearer” and gives it to
Ossip. Ossip sells and delivers the warehouse receipt to Better Foods, Inc. Better Foods is now the owner of
the corn and has the right to obtain the cases by simply presenting the warehouse receipt to Chaney. ■
Hotel Operators At common law, hotel owners were strictly liable for the loss of any cash or property
that guests brought into their rooms. Today, state statutes continue to apply strict liability to hotel operators
for any loss or damage to their guests’ personal property. In many states, however, hotel operators can avoid
strict liability by providing a safe in which to keep guests’ valuables and notifying guests that a safe is
available.
In addition, state statutes often limit the liability of hotels with regard to articles that are not kept in the safe
and may limit the availability of damages in the absence of negligence. Most statutes require that the hotel
post these limitations on the doors of the rooms or oth- erwise notify guests. The failure of the hotel to follow
the state statutory requirements can lead to liability.
Example 41.33 A guest at Crown Place hotel is traveling with jewelry valued at $1 million. She puts the jewelry
in the safe in her room, but someone comes into the room and removes the jewelry from the safe without the
use of force. The woman sues the hotel, which claims that it is not liable under the state statute. If Crown
Place did not comply with statutory requirements that it post the legal limitations in the guest rooms,
however, it will not be protected from liability. Crown Place will be strictly liable for the loss of the woman’s
jewelry. ■
10.
11.
UCC 7–204(1), (2).
A document of title is defined in UCC 1–201(15) as any “document which in the regular course of business or financing is treated as
adequately evidencing that the person in possession of it is entitled to receive, hold, and dispose of the document and the goods it covers.”
A warehouse receipt is a document of title issued by a person engaged for hire in the business of storing goods for hire.
12.
UCC 7–104.
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990 UNIT SEvEN: Property and Its Protection
Practice and Review
Vanessa Denai owned forty acres of land in rural Louisiana. On the property were a 1,600-squarefoot house and a metal barn. Denai met Lance Finney, who had been seeking a small plot of rural
property to rent. After several meetings, Denai invited Finney to live on a corner of her land in
exchange for Finney’s assistance in cutting wood and tending her property. Denai agreed to store
Finney’s sailboat in her barn.
With Denai’s consent, Finney constructed a concrete and oak foundation on Denai’s property and
purchased a 190-square-foot dome from Dome Baja for $3,395. The dome was shipped by Doty
Express, a transportation company licensed to serve the public. When it arrived, Finney installed
the dome frame and fabric exterior so that the dome was detachable from the foundation. A year
after Finney installed the dome, Denai wrote Finney a note stating, “I’ve decided to give you four
acres of land surrounding your dome as drawn on this map.” This gift violated no local land-use
restrictions. Using the information presented in the chapter, answer the following questions.
1.
2.
3.
4.
Is the dome real property or personal property? Explain.
Is Denai’s gift of land to Finney a gift causa mortis or a gift inter vivos?
What type of bailment relationship was created when Denai agreed to store Finney’s boat? What degree
of care was Denai required to exercise in storing the boat?
What standard of care applied to the shipment of the dome by Doty Express?
