Chapter 24 Personal Property and
Bailments
Jenna Moore
I. Nature of Property
Property is something capable of being owned or the right or interest allowing a person
to exercise ownership over an object. Property ownership is a bundle of rights and is protected
by the constitution. The government protects property, but a person may not use his or her
property to cause harm or injury against another. States have Police Power and can impose
reasonable regulations on it. This includes taxing the property and taking it for public use by
providing adequate compensation to the owner.
II. Classifications of Property
A. Personal Property versus Real Property
Real property is the earth’s crust and anything attached to it such as land, office
buildings, and houses. Personal property is all other things such as books, clothes, or stocks.
Real property becomes personal property if it is detached from the ground. If personal property
is attached to the ground, it becomes real property.
Trees, shrubs, and other plants that grow continuously are real property. Plants such as
crops that have to be re-planted each year are considered personal property. If the land that these
plants are growing in is sold, this property transfers to the new owner.
Marble in the ground is real property. Quarried
marble is personal property. When the marble is
used to construct a building, it becomes real
property again.
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When personal property is attached to real property, it becomes a fixture. In this case,
the fixture would go with the real property when it transferred ownership. If the property is
leased, fixtures stay with the property unless the owner gives the tenant permission to remove the
fixtures. The exception to this general rule is trade fixtures. These are considered personal
property and usually go with the original owner when possession of the property is transferred.
One example of a trade fixture is
shelving. You can take this with you
when you go!
B. Tangible versus Intangible Property
Tangible property has a physical existence such as cars or computers. Intangible
property does not have a physical existence. These are things such as copyrights, patent rights,
and trademarks. These classifications are important for taxes and estate planning purposes.
Tangible property is usually taxed in the state where it is located while intangible property is
taxable in the state where its owner lives.
C. Public versus Private Property
Public property is a property owned by a government or governmental unit. Private
property is owned by an individual, a group of individuals, a corporation, or some other type of
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business organization.
III. Acquiring Ownership of Personal Property
A. Production or Purchase
A person may take ownership of property that he or she produced or purchased. Produced
property is usually owned by the person that makes it unless he or she is creating it for another
party.
If Sara paints a picture, it belongs
to her unless Jill has hired Sara to
paint artwork for her.
B. Possession of Unowned Property
In earlier times, the most common way to take possession of something was to take
possession of unowned property. This still happens today, most commonly in the cases of wild
animals and abandoned property. The alternative to this is that a person cannot take possession
of something that is not truly unowned such as lost property.
A person taking possession of a wild animal becomes its
owner. The person must simply exercise enough control
to remove the animal from the wilderness and become
the owner.
C. Rights of Finders of Lost, Mislaid, and Abandoned Property
Abandoned property is property that the owner intentionally placed out of his or her
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possession with the intent to relinquish ownership of the property. Abandoned property may be
taken by anyone who finds it.
For Example: Jonas leaves his old couch on the corner of Alley St. He has a new couch and
no longer needs his old couch. Franklin is driving down Alley St. when he sees Jonas’s old
couch. Franklin decides to take it because he needs a new couch. Since this couch was
abandoned, Franklin has the right to keep it.
Lost property is property that the owner did not intend to part with. If the finder does
not know the true owner or cannot easily find out, he or she must still return the property when
the true owner returns. If no owner shows up, the finder has the 2nd highest right to the property.
Davie’s watch clasp broke and fell off his arm when he was walking to school this
morning. Titan found the watch later that day. Titan must find out who the true
owner is. If Davie never claims his watch, Titan has the right to the watch.
Mislaid property is property that the owner intentionally places somewhere and
accidentally leaves there without intending to relinquish ownership of it. There are also estray
statutes in which a person must give public notice when their property is found. In this case, the
finder has no rights to the property. Second claim to the property would go to the person who
owns the real property where the personal property was found.
Samson leaves his wallet at a cash register in Wal-Mart. He intentionally
placed the wallet there to remove money to pay for his purchase. Samson’s
absentmindedness led to his leaving the wallet. Reynolds is the next customer
and finds the wallet. If Samson does not return for his wallet, Wal-Mart, not
Reynolds, would have the second claim to Samson’s wallet.
D. Leasing
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Leasing involves the transfer of the right to possess and use personal property belonging
to another. The lessee does not become the owner; he or she just acquires use of the property.
E. Stolen Property
Generally when property is stolen, neither the thief nor any other party (who gets the
property from the thief even if the person does not know it is stolen) gains ownership. There are
a few exceptions to this for items that are considered negotiable. Negotiable items include
currency, checks, promissory notes, and a few other things.
F. Gifts
Making a gift is the voluntary transfer of property to the donee (receiver) by the donor
(giver). The donor receives no consideration in return for the gift.
In order for the gift to be considered valid, all of the following must be true:
(a) The donor must intend to make a gift.
(b) The donor must make delivery of the gift.
(c) The donee must accept the gift.
The most critical requirement of the three validations is that the gift MUST be delivered.
This makes it clear to the owner that he or she is voluntarily giving up something without getting
something in exchange. A promise to make a gift is not enforceable.
There are two kinds of gifts: inter vivos and causa mortis. An inter vivos gift is a gift
between two living persons. A causa mortis gift is made in contemplation of death. Causa
mortis gifts are conditional, and they are effective unless any of the following situations occur:
(a) The donor recovers from peril or sickness under fear of which the gift was made.
(b) The donor revokes or withdraws the gift before he dies.
(c) The donee dies before the donor.
G. Conditional Gifts
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Conditional gifts are not completed gifts. They may be revoked by the donor before the
donee chooses to comply with the conditions of the gift. The most common example of this is an
engagement ring.
H. Uniform Transfer to Minors Act
For this scenario, a minor is anyone under the age of 21 years old. A gift may be made to
a custodian for the minor. This custodian has complete discretion to use the gift anyway that he
or she sees fit for the benefit of the minor BUT the gift cannot be used to benefit the custodian.
I. Will or Inheritance
Property can pass to the new owner if the will is valid. If the will is invalid, the property
is transferred to the heirs of the owner according to the state law.
J. Confusion
The intermixing of goods in a way that does not allow for their separation is considered
confusion. If this happens intentionally or through honest mistake, each owner receives his or
her proportionate share the goods. If this happens through theft, the victim of the theft is entitled
to the entirety of the goods.
Sally and Sammy each have a bag of Skittles candy.
They decide to mix the candy together and share it. In
this scenario, both Sally and Sammy have equal claim
to the candy. If instead, Sammy stole Sally’s bag of
Skittles and mixed them together, Sally would be able
to claim possession of the entire mixture of Skittles.
K. Accession
Increasing the value of property by adding materials, labor, or both is considered
accession. The owner of the original property becomes the owner of the improvements. The
owner is entitled to this property whether it is improved with the owner’s permission or if it was
stolen and then improved.
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IV.
Bailments
A. Nature of Bailments
A bailment occurs when personal property is delivered to another person by the owner or
someone with the right to have possession of the property. The owner is the bailor and the person
it is being passed to is considered the bailee. The bailee accepts the property and is held by an
express or implied agreement that he or she will return the property to the bailor. Personal
property alone is subject to bailments.
B. Elements of a Bailment
1. There are three important elements to a bailment:
a. The bailor owns personal property or has the right to have possession of it.
b. The bailee is given sole possession and control of the property by the
bailor.
c. The bailee intentionally accepts the property and knows that he or she
must return or dispose of the property according to the bailor’s
instructions.
C. Creation of a Bailment
An express or implied contract creates a bailment. The fact of whether or not a bailment
has been created is determined on a case by case basis.
D. Types of Bailments
1. There are 3 categories of bailments:
a. Bailments made only to benefit the bailor: bailee provides a service but
receives no benefit in return.
Susie (the bailor) asks Tara (the bailee) to watch her favorite
houseplant while she is out of town. Tara does not ask Susie
for any payment to do this. Therefore, this bailment benefits
the bailor only.
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b. Bailments made only to benefit the bailee: bailee is allowed to use the
bailor’s property without charge.
Rod (bailor) lends his car to Ted (bailee) so he can go grocery
shopping. Rod is not receiving any payment for the use of his
car so this benefits the bailee only.
c. Bailments made to benefit the bailor and bailee (mutual benefit): both the
bailee and the bailor will receive some sort of benefit from the bailment.
Keshia decides to rent tables and chairs from Jade’s
Furniture Store. Keshia (bailee) benefits by being able to use
the tables and chairs, and Jade’s Furniture Store (bailor)
benefits by receiving payment for the use of their property.
E. Duties of the Bailee
1. The bailee is responsible for two things:
a. He or she must take care of the property now in his or her possession, and
b. The property must be returned when the bailment is completed.
F. Duty of Bailee to Take Care of Property
While the bailee is in possession of the property, he or she is responsible for providing
proper care for the property. If he or she does not take the appropriate measures to ensure
protection of the property, the bailee is liable for negligence. If this occurs, the bailee must repay
the bailor for the damages. If the property is lost or damage at no fault to the bailee, then he or
she is not guilty of negligence.
The level of care required is usually determined by the type of bailment in the situation.
When the bailment benefits the bailor, the bailee is only responsible for minimal care of the
bailment. In this situation, the bailee is only liable if he or she commits gross negligence. When
the bailment benefits the bailee, the bailee is responsible for a high level of care. Some states
have simplified the rule and simply say that the bailee must use reasonable care in regard to the
bailed property. If the bailment provides mutual benefit to the two parties, the bailee is
responsible for reasonable care of the bailment. In this case, the bailee should exercise the same
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level of care that he or she would use to protect his or her own property.
.
G. Bailee’s Duty to Return the Property
The bailee is responsible for returning the property in the condition that it was taken from
the bailor.
H. Bailee’s Liability for Misdelivery
The bailee is liable for the bailor’s property if he or she delivers it to the wrong party
upon termination of the bailment.
If an additional party steps forward claiming to have more right to the property than the
bailor, and the bailee does not deliver the property although this third party (claimant) is entitled
to have possession of the property, then the bailee is liable to the claimant.
If the person is not entitled to the property and the bailee gives it to them, the bailee is
liable to the bailor.
I. Limits on Liability
1. Bailees sometimes take steps to limit their liability for property on bailments.
Examples include:
a. Limiting liability to a set amount such as $100
b. Posting signs with claims that suggest the bailee is not responsible if
property is lost or damaged
c. Disclaimers such as “goods left at owner’s risk”
2. Attempts to be excused from liability from acts considered wrongful conflict
with public policy. These attempts are not enforced.
3. Ability to be relieved from negligence charges is also limited.
a. The limits must be explained to the bailor before property is left with the
bailee. If not, the disclaimer could be considered not part of the contract.
b. Even upon explanation of the limit, the disclaimer may not be accepted as
it is considered against public policy.
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J. Right to Compensation
The contract (express or implied) that creates the bailment determines the bailee’s right to
compensation for protecting the property. If the bailment is to the benefit of the bailor only and
is being done as a favor, the bailee is not entitled to compensation for his or her services. If the
bailment provides mutual benefit to the bailor and bailee, the bailee must pay the agreed rate.
K. Bailor’s Liability for Defects in the Bailed Property
The bailor makes an implied warranty with the bailee that the property has no hidden
faults making it unsafe for use. When the bailment is made for the bailee’s benefit, the bailor is
responsible for injuries sustained by the bailee in the incidence that the property was defective
and the bailor knew about the problem. When the bailment is made for mutual benefit, the bailor
has to use reasonable care to inspect the property for defects and is held responsible if the bailee
sustains any injuries.
V. Special Bailments
A. Common Carriers
1. Common carriers are bailees who transport goods for the public.
a. Common carriers are held to higher levels of responsibility than private
carriers.
b. Common carriers are responsible for almost any loss or damage to
property UNLESS the carrier can show that the damage was caused by:
(a) An act of God,
(b) An act of a public enemy,
(c) An order of the government,
(d) An act of the person who shipped the property, OR
(e) The actual nature of the property itself.
(f) A dollar limit in the contract. This is fairly typical.
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B. Hotelkeepers
Hotelkeepers are not bailees in the general sense of the word. They are considered as the
virtual insurer of a patron’s property. Therefore, hotelkeepers are held to the same high
standards as the common carrier. The hotelkeeper can be excused from liability for loss or
damage of property if it can be shown that the damage was caused by:
(a) An act of God,
(b) An act of a public enemy,
(c) An act of a governmental authority,
(d) The fault of a member of the guest’s party, OR
(e) The nature of the property itself.
(f) A dollar limit on liability, often found in a state statute.
C. Safe-Deposit Boxes
Most states considered safe-deposit boxes a bailment. The bank is the bailee since they
are in charge of the property for a period of time. The safe-deposit box renter is the bailor in this
case. The bank is not considered as an insurer of the property in the box; however, the bank
must take appropriate care of the property.
D. Involuntary Bailments
Involuntary Bailments occur when a person takes possession of property without
accepting the bailment.
Jim-Bob loses his bike. Taylor finds the bike and becomes the
involuntary bailee until Jim-Bob finds his bike. Taylor did not
agree to a bailment, but is now in a sort of bailment.
VI.
Documents of Title
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A. Warehouse Receipts
1. The warehouse receipt must include the following information. If it does not,
the warehouseman can be held responsible for damage caused.
a.
b.
c.
d.
e.
f.
g.
h.
Location of the warehouse must be included.
The date the receipt was issued.
The number of the receipt.
Who the property is to be delivered to.
The storage and handling price rates.
A description of the property or its packaging.
The warehouseman’s signature.
The warehouseman’s ownership of the goods. (Does the warehouseman
own the goods solely, jointly, or in common with others).
i. A statement including information about the amount of liabilities incurred.
B. Bills of Lading
The rights of someone with a bill of lading are similar to those of the warehouseman.
In this case, he or she is responsible for non-receipt and misrepresentation of the property.
C. Duty of Care
In the case of warehouse receipts and bills of lading, the bailee must use reasonable care.
D. Negotiation of Document Title
A document providing the title for the delivery of property to its bearer can be negotiated
by delivery. A document providing delivery of property to a specific person must be signed by
the named person and delivered to them. If a document is blank, it can be negotiated by delivery
unless it carries a special endorsement. In that case, it must be endorsed by the special endorsee
and delivered.
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E. Rights Acquired by Negotiation
1. When a person receives a negotiable document by due negotiation, he or she
also acquires the following:
a.
b.
c.
d.
Title to the document,
Title to the goods,
The right to the goods delivered to the bailee,
The direct obligation to hold or deliver goods according to the documents
specifications
F. Warranties of Transferor of Document of Title
1. When a person transfers a negotiable document, he promises the following:
a. The authenticity of the document,
b. That he or she knows nothing that would detract from the legitimacy of
the document,
c. And, that the transfer is lawful and effective.
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Review of Concepts
Character of
Property
Description
Rights of Finder
Rights of Original
Owner
Lost
Unintentional Parting
nd
with personal property Finder has 2 claim
to property after
original owner
Mislaid
Property intentionally
placed somewhere but
accidentally left there
Finder has no rights;
the owner of the real
property where item
was found has 2nd
claim if owner is not
found
Has the right to
receive his/her
property
Abandoned
Property was
intentionally placed
somewhere and
intentionally left there
Whoever finds the
property has the right
to take it
No rights
Chapter 24 Personal Property and Bailments
Still has ownership of
property and has right
to have property
returned to him/her
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Creation of a Bailment
Exclusive Possession of
and control of Property
Bailor (Owner of PropertyHas rights to property)
Bailee (Accepts property with
knowledge that it must be
returned)
Bailee must return
property at end
Important Court Cases:
Corliss v. Wenner and Anderson (Mislaid Property)
Lindh v. Surman (Conditional Gifts- engagement rings)
Detroit Institute of Arts v. Rose and Smith (Bailments)
Retzler v. Pratt & Whitney Co. (Bailments)
Gyamfoah v. EG & G Dynatrend (Duty of Care)
Key Terms:
Property
Personal Property
Conversion
Police Power
Estray Statutes
Gift
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Donee
Donor
Confusion
Accession
Bailment
Bailor
Bailee
Artisan’s Lien
Involuntary Bailee
Constructive Bailee
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