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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.
1-***Debate This:Common carriers should not be able to limit their liability.***The 4 questions are not required to be responded. The most important part is to read the above statement in boldface, take a position whether you agree or not and have 3 arguments supporting your position. Please take a look on the attachment because the debate has to be based on chapter (CH 41)***
2- ***The attached picture is a debate from a classmate. Please read his debate and write a reply in a few statements to him.
Quote
The goal is to develop your critical thinking and analytical skills. I do not want you just to say because it is unfair or simply repeat the law. The answer cannot be because the statute says so. I want you to EVALUATE it. What are the public policy reasons behind your answer? Why this specific proposition is or is not a beneficial, efficient, or positive position to take?
ion-cristian enoiu/Alamy Stock Photo
41
Learning Objectives
The four Learning Objectives below are
designed to help improve your understanding. After reading this chapter, you
should be able to answer the following
questions:
1. What is real property? What
is personal property?
2. What are the three necessary
elements for an effective gift?
3. How does lost property differ
from mislaid property? Does
a finder of such property
acquire title to it?
4. What are the three elements
of a bailment?
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 interests a person has in anything with an ascertainable value
that is subject to ownership. For instance, digital property 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 prevent trespass on it. Indeed, John Locke, as indicated in the
John Locke
chapter-opening quotation, considered the preservation of
1632–1704
(English political philosopher)
property to be the primary reason for the establishment
of government.
In this chapter, we first examine the differences between
personal and real property. We then look at the methods of acquiring ownership of personal 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
Real Property Land and everything
permanently attached to it, such as
trees and buildings.
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
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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.)
Personal Property Property that is
movable. Any property that is not real
property.
Chattel Personal property.
Learning Objective 1
What is real property? What
is personal property?
41–1a Why Is the Distinction Important?
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 personal 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 Conversion of Real Property to Personal Property
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 attaching 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.
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41–2
What is the most common way
to acquire ownership rights in
personal property?
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 ownership 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.)
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 ascertainable value and is subject to ownership.
This definition encompasses virtual property, including all the intangible objects
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used in virtual worlds like Entropia
Universe and Second Life.
Adapting the Law to the
Online Environment
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 real-world 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 purchasing digital goods together avoid property
division issues in the event of a divorce?
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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:
Gift A voluntary transfer of property
41–2c Gifts
made without consideration, past or
present.
1. Donative intent on the part of the donor (the one giving the gift).
2. Delivery.
Learning Objective 2
3. Acceptance by the donee (the one receiving the gift).
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. ■
What are the three
necessary elements for an
effective gift?
Ethical Issue
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.
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 Goodman’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
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Donative Intent When a gift is challenged in court, the court will determine
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?
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UNIT SEVEN: Property and Its Protection
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 understood 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 A symbolic
delivery of property that cannot be
physically delivered.
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 possession 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 represent 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 existence 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 principal 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?
30301_ch41_hr_971-993.indd 976
Business Law
Analysis
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 relinquish 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 constituted a valid gift.
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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 member 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.
Dominion Ownership rights in
property, including the right to
possess and control the property.
Classic Case 41.1
In re Estate of Piper
Missouri Court of Appeals, 676 S.W.2d 897 (1984).
doram/iStock/Getty Images
carried into effect, confers no ownership
Background and Facts Gladys Piper
rights in the property in the intended donee.
died intestate (without a will) in 1982. At her
Language written or spoken, expressing
death, she owned miscellaneous personal
an intention to give, does not constitute a
property worth $5,000 and had in her purse
gift, unless the intention is executed by
$200 in cash and two diamond rings. Wanda
a complete and unconditional delivery of the
Brown, Piper’s niece, took the contents of the
subject matter, or delivery of a proper written
purse, allegedly to preserve the items for
instrument evidencing the gift. There is no
the estate. Clara Kauffman, a friend of Piper’s,
How can two diamond rings have been
evidence in this case to prove delivery, and,
filed a claim against the estate for $4,800. From
gifted if they remained in the owner’s
purse after her death?
for such reason, the trial court’s judgment is
October 1974 until Piper’s death, Kauffman
erroneous. [Emphasis added.]
had taken Piper to the doctor, beauty shop, and
grocery store. Kauffman had also written Piper’s checks to pay her
Decision and Remedy The state appellate court reversed the
bills and had helped her care for her home.
judgment of the trial court. No effective gift of the rings had been
Kauffman maintained that Piper had promised to pay her for
made, because Piper had never delivered the rings to Kauffman.
these services and had given her the diamond rings as a gift.
Critical Thinking
A Missouri state trial court denied her request for payment. The
court found that her services had been voluntary. Kauffman then
• What If the Facts Were Different? Suppose that Gladys
filed a petition for delivery of personal property—the rings—
Piper had told Clara Kauffman that she was giving the rings to Clara
which was granted by the trial court. Brown, other heirs, and the
but wished to keep them in her possession for a few more days.
administrator of Piper’s estate appealed.
Would this have affected the court’s decision in this case? Explain.
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
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• 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 protect 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.
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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.
Gift Inter Vivos A gift made
during one’s lifetime and not in
contemplation of imminent death,
in contrast to a gift causa mortis.
Gift Causa Mortis A gift made in
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.
Squaredpixels/E+/Getty Images
contemplation of imminent death.
The gift is revoked if the donor does
not die as contemplated.
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 requirements discussed earlier—donative intent, delivery, and acceptance—but also some
additional rules.
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 The addition of value to
personal property by the use of labor
or materials.
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 The mixing together
of goods belonging to two or more
owners to such an extent that the
separately owned goods cannot be
identified.
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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
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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 Mislaid Property
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. ■
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.
Lost Property Property that the
owner has involuntarily parted with
and then cannot find or recover.
Erik Dreyer/Getty Images
41–3b Lost Property
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.
Mislaid Property Property that the
owner has voluntarily parted with and
then has inadvertently forgotten.
When a person leaves a smartphone at a movie
theatre, is it mislaid, lost, or abandoned property?
Exhibit 41–1 Mislaid, Lost, and Abandoned Property
Mislaid Property
Property that is placed somewhere voluntarily by the owner and then inadvertently 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.
Lost Property
Property that is involuntarily left by the owner. A finder of lost property can
claim title to the property against the whole world except the true owner.
Abandoned
Property
Property that has been discarded by the true owner, who has no intention of
reclaiming title to the property in the future. A finder of abandoned property
can claim title to it against the whole world, including the original owner.
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Learning Objective 3
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. ■
How does lost property differ
from mislaid property? Does
a finder of such property
acquire title to it?
Estray Statute A statute defining
finders’ rights in property when the
true owners are unknown.
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 fulfilled 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 ■
Abandoned Property Property that
41–3c Abandoned Property
baranq/Shutterstock.com
has been discarded by the owner,
who has no intention of reclaiming it.
If a hiker loses an expensive watch, when is it
considered abandoned property?
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. ■
4. United States v. One Hundred Sixty-Five Thousand Five Hundred Eighty Dollars ($165,580) in U.S. Currency, 502 F.Supp.2d 114 (D.Me. 2007).
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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
State of Washington v. Preston
Court of Appeals of Washington, Division 2, 3 Wash.App.2d 1036 (2018).
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.
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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.
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UNIT SEVEN: Property and Its Protection
41–4
Bailment A situation in which the
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 delivery 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. ■
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 One who entrusts goods to
a bailee.
Bailee One to whom goods are
Learning Objective 4
What are the three elements
of a bailment?
FrancescoCorticchia/iStock/Getty Images
entrusted by a bailor.
A friend loaned this bike as a favor.
Has a bailment been created?
Bailments
41–4a Elements of a Bailment
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. Personal property.
2. Delivery of possession without title.
3. Agreement that the property will be returned to the bailor or otherwise disposed of according to its
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 delivered 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.
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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 written 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 property 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 Ordinary Bailments
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 bailment. 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:
2. Bailment for the sole benefit of the bailee. This type of bailment typically occurs
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. ■
LesPalenik/iStock/Getty Images
1. Bailment for the sole benefit of the bailor. This is a gratuitous bailment (a bailment that involves no
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. ■
What type of bailment is created if a garage owner
agrees to store a friend’s car?
3. Bailment for the mutual benefit of the bailee and the bailor. This is the most common kind of bailment
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. ■
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Bailee’s Lien A possessory
(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.
UNIT SEVEN: Property and Its Protection
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 compensated 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. The limitations are called to the attention of the bailor. It is essential that the bailor be informed of the
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. The limitations are not against public policy. Even when the bailor knows of the limitation, 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. ■
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CHAPTER 41: Personal Property and Bailments
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. To take appropriate care of the property.
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 mirrored 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 construction 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
Lorado/E+/Getty Images
2. To surrender the property to the bailor or dispose of it in accordance with the bailor’s instructions at
the end of the bailment.
What duty of care is required
from a bailee that repairs
computer hard drives?
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
Bailment for the Sole
Benefit of the Bailor
Mutual-Benefit
Bailment
Bailment for the Sole
Benefit of the Bailee
Degree of Care
Slight
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Reasonable
Great
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UNIT SEVEN: Property and Its Protection
Know This
Photomarine/Shutterstock.com
location to arrange retrieval. Before SANY retrieved the crane from Turner, however, it was
severely damaged while being operated at Turner’s construction site.
A finder who appropriates
Turner removed the inoperable crane from the site at its own expense and then notified
the personal property of
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
another, knowing who
sued for conversion, and Turner counterclaimed. A federal district court held that the parties’
the true owner is, can be
transaction was a bailment. Because Turner had wrongfully retained the crane after SANY
held liable for the tort of
demanded its return, SANY was entitled to summary judgment for conversion.7 ■
conversion.
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 ■
A bailee did not secure a ship to the dock when
In the following case, the court had to determine whether a constructive
the ship was in the bailee’s care. If the ship is
bailment
existed with respect to the personal property of tenants who were
damaged during a storm as a result, will the bailee
evicted.
If
so, was the landlord-bailor negligent for removing the tenants’ perbe liable? Why or why not?
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).
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’
30301_ch41_hr_971-993.indd 986
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
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.]
****
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
987
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 bailment, (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 circumstances 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?
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 allencompassing 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. In a mutual-benefit bailment, the bailor must notify the bailee of all known defects and any hidden defects
that the bailor knows of or could have discovered with reasonable diligence and proper inspection.
2. In a bailment for the sole benefit of the bailee, the bailor must notify the bailee of any known defects.
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.
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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 merchantability and fitness for a particular purpose to bailments that include rights to use the
bailed goods.9
41–4c Special Types of Bailments
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 property 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 insurance 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.
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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.
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CHAPTER 41: Personal Property and Bailments
A jewelry storeowner ships a $200,000
Limitations on Liability. A warehouse company can limit the dollar amount of
diamond ring knowing that the shipper’s
its liability. Under the UCC, however, it must give the bailor the option of paying
maximum shipment value is only $50,000.
a higher storage rate for an increase in the liability limit.10
What happens if the ring never arrives
at its destination?
Warehouse Receipts. Warehouse companies often issue documents of title—in
11
particular, warehouse receipts. 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 otherwise 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. UCC 7–204(1), (2).
11. 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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Practice and Review
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.
1. Is the dome real property or personal property? Explain.
2. Is Denai’s gift of land to Finney a gift causa mortis or a gift inter vivos?
3. 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?
4. 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.
Key Terms
abandoned property 980
accession 978
bailee 982
bailee’s lien 984
bailment 982
bailor 982
chattel 973
confusion 978
constructive delivery 976
dominion 977
estray statute 980
gift 975
gift causa mortis 978
gift inter vivos 978
lost property 979
mislaid property 979
personal property 973
real property 972
Chapter Summary: Personal Property and Bailments
PERSONAL PROPERTY
Personal Property
versus Real Property
Personal property (personalty or chattel) includes all property not classified as real property (realty). Personal
property can be tangible (such as a car) or intangible (such as stocks or bonds). The two types of property
are usually subject to different types of taxes. In addition, acquiring or transferring real property requires a
greater degree of formality than acquiring or transferring personal property.
Acquiring Ownership
of Personal Property
The most common way of acquiring ownership in personal property is by purchasing it. The following are
additional methods of acquiring personal property:
1. Possession—Property may be acquired by possession if no other person has title to the property (for
instance, capturing wild animals).
2. Production—Any item produced by an individual (with minor exceptions) becomes the property of that
individual.
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Common carrier refers to a carrier’s liability regarding a person or company that transports goods where they are accountable for any loss that might
arise when in transit. The company transporting commodities such as Doty Express could be liable for any damages when transporting the 190-square-
foot dome. However, the carrier’s liability law has the exception of limiting the liability if the injury was not caused by the company (Miller, 2021).
Therefore, common carriers not being able to limit their liability on such occasions would not be ideal. Real property refers to an immobile possession
of items such as land in addition to anything that is grown on it, erected on it, and attached to it, which is inclusive of man-made objects like buildings,
fences, sewers, and excluding anything that can be removed from the land without injuring it. On the other hand, personal property refers to a portable
possession of an item such as appliances, electronics, and furniture. In this case, I would categorize the dome as personal property because it was
mounted on top of the land, and it could also be unmounted if need be without damaging the land.
A causa Mortis gift is applied when a party, aware that their death is approaching, gifts something to the other party. On the other hand, Inter Vivo gift
is applied, and the party gifting is still alive even without the notion of death approaching. In this case, Denai’s gift of land to Finney could be termed as
inter Vivo since it was gifted while alive without and not because death was looming (Miller, 2021). When Denai agreed to store Finney’s boat in the
metal bark, a bailment for the sole benefit of the bailee relationship was conceived since she had full custody of the boat even though it still belonged
to Finney. It is because Denai had already offered Finney to live on the corner of her land in exchange for his assistance in woodcutting and tending to
her property. The degree of care required is to keep the boat in the same form as when it came in and protect it from damage or theft, which is under
the duty of care. Strict liability is the standard of care used by Doty Express in safeguarding the boat. If there is any damage or loss to the dome caused
by Doty Express flaws like negligence, they will be liable for the damages caused.
