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.
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.
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 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.
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.
C. Rights of Finders of Lost, Mislaid, and Abandoned Property
Abandoned property is property that the owner intentionally placed out of his or her possession with the intent to relinquish ownership of the property. Abandoned property may be taken by anyone who finds 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.
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.
D. Leasing
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
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.
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.
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.
b. Bailments made only to benefit the bailee: bailee is allowed to use the bailor’s property without charge.
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.
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 level of care that he or she would use to protect his or her own property.
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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.
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.
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: