CHAPTER 42 PERSONAL PROPERTY AND BAILMENTS DAVIDSON, KNOWLES & FORSYTHE Business Law: Cases and Principles in the Legal Environment (8 th Ed.)

CHAPTER 42CHAPTER 42PERSONAL PROPERTY PERSONAL PROPERTY

AND BAILMENTSAND BAILMENTS

CHAPTER 42CHAPTER 42PERSONAL PROPERTY PERSONAL PROPERTY

AND BAILMENTSAND BAILMENTS

DAVIDSON, KNOWLES & FORSYTHE DAVIDSON, KNOWLES & FORSYTHE Business Law: Cases and Principles Business Law: Cases and Principles

in the Legal Environmentin the Legal Environment (8 (8thth Ed.) Ed.)

2© 2004 West Legal Studies in Business© 2004 West Legal Studies in BusinessA Division of Thomson LearningA Division of Thomson Learning

BUSINESS LAW: BUSINESS LAW: Cases & PrinciplesCases & PrinciplesDavidson Davidson • Knowles • Forsythe 8• Knowles • Forsythe 8 thth Ed. Ed.

OWNERSHIP OF PROPERTYOWNERSHIP OF PROPERTYOWNERSHIP OF PROPERTYOWNERSHIP OF PROPERTY

Classifications of Property:Classifications of Property:– Concepts of property rights and joint ownership Concepts of property rights and joint ownership

apply to personal property.apply to personal property.– All property that is not classified as real All property that is not classified as real

property is personal property.property is personal property.– Personal property is divided into two Personal property is divided into two

categories: tangible and intangible.categories: tangible and intangible.– Traditional label for personal property is a Traditional label for personal property is a

chattel.chattel.



OWNERSHIP OF PROPERTYOWNERSHIP OF PROPERTYOWNERSHIP OF PROPERTYOWNERSHIP OF PROPERTYClassification of Property:Classification of Property:

– Tangible property.Tangible property. Is movable, can be felt, tasted, or seen.Is movable, can be felt, tasted, or seen. Has texture, color, temperature, and similar Has texture, color, temperature, and similar

characteristics.characteristics.

– Intangible property.Intangible property. Can’t be reduced to physical possession or held. Can’t be reduced to physical possession or held. May be reduced to legal possession and often very May be reduced to legal possession and often very

valuable.valuable.



OWNERSHIP OF PROPERTYOWNERSHIP OF PROPERTYOWNERSHIP OF PROPERTYOWNERSHIP OF PROPERTYChattels are divided into:Chattels are divided into:

– Chattels real which involves interest in land but Chattels real which involves interest in land but chattel itself ischattel itself is personal-legal right to use the personal-legal right to use the land.land.

– Chattels personal which involves tangible, Chattels personal which involves tangible, movable personal property.movable personal property.

– Chattels personal in action which is a right to Chattels personal in action which is a right to file a lawsuit or bring legal action.file a lawsuit or bring legal action.



OWNERSHIP OF PROPERTYOWNERSHIP OF PROPERTYOWNERSHIP OF PROPERTYOWNERSHIP OF PROPERTYComponents of Ownership.Components of Ownership.

– Ownership includes all rights related to Ownership includes all rights related to ownership of property.ownership of property.

– Possession includes right to control property by Possession includes right to control property by having it in one’s custody or by directing who having it in one’s custody or by directing who shall have custody of it.shall have custody of it.

– Title includes both current legal ownership of Title includes both current legal ownership of property and method of acquisition.property and method of acquisition.



ACQUISITION OF PERSONAL ACQUISITION OF PERSONAL PROPERTYPROPERTY


Original Possession:Original Possession:– When owner is first person to possess property.When owner is first person to possess property.– Owner created ownership rather than receiving Owner created ownership rather than receiving

it by transfer from another person.it by transfer from another person.– Ownership derived through creation of property Ownership derived through creation of property

through physical or mental labor.through physical or mental labor.– Ownership obtained by taking something that Ownership obtained by taking something that

has never been owned before and reduce it to has never been owned before and reduce it to possession.possession.





Voluntary Transfers of Possession.Voluntary Transfers of Possession.– Possession of personal property acquired by Possession of personal property acquired by

having property transferred to them voluntarily having property transferred to them voluntarily by previous owner. by previous owner.

– Purchases: Exchange of consideration.Purchases: Exchange of consideration.



GIFTSGIFTSGIFTSGIFTS Donor Donor intendsintends to make a gift. to make a gift. Donor Donor deliversdelivers gift property to the donee. gift property to the donee. Donee Donee acceptsaccepts the gift. the gift. Gifts fall into three categories:Gifts fall into three categories:

– Inter vivosInter vivos: lifetime gifts made while transferor alive.: lifetime gifts made while transferor alive.– Testamentary: completed after owner dies, provisions Testamentary: completed after owner dies, provisions

in a person’s will.in a person’s will.– Gifts Gifts causa mortis:causa mortis: meet special requirements about meet special requirements about

donor’s intention.donor’s intention.



GIFTSGIFTSGIFTSGIFTS

Gifts Gifts Causa Mortis--Causa Mortis--Donor making gift Donor making gift because donor expects to die. because donor expects to die. Requirements:Requirements:– Donor intends to make the gift; Donor intends to make the gift; – Gift made in contemplation of death;Gift made in contemplation of death;– Gift actually or constructively delivered; andGift actually or constructively delivered; and– Donor must die from the contemplated cause, if Donor must die from the contemplated cause, if

not gift will be revoked.not gift will be revoked.



INHERITANCEINHERITANCE

Inheritances: person who died has a valid Inheritances: person who died has a valid will covering the property, the recipient will covering the property, the recipient specified receives the property.specified receives the property.

Property Received by Intestate Succession: Property Received by Intestate Succession: Property of a person who dies without a Property of a person who dies without a valid will is transferred to recipients by valid will is transferred to recipients by intestate succession.intestate succession.



ACCESSIONACCESSIONACCESSIONACCESSION

Custody or title of property may be Custody or title of property may be involuntarily transferred by true owner.involuntarily transferred by true owner.

Accession occurs when:Accession occurs when:– Person adds value to property that person does Person adds value to property that person does

not own.not own.– Legal question arises as to title of value added.Legal question arises as to title of value added.– Title normally remains with rightful owner Title normally remains with rightful owner

depending on circumstances.depending on circumstances.



ACCESSION ACCESSION ACCESSION ACCESSION

Accession: Innocent Trespasser may Accession: Innocent Trespasser may acquire title in the following situations:acquire title in the following situations:– Due to work performed on property causing it Due to work performed on property causing it

to lose its original identityto lose its original identity– A great difference in value existsA great difference in value exists– A completely new type of property has been A completely new type of property has been

createdcreated



ACCESSION ACCESSION Willful Trespasser.Willful Trespasser.

– Knows has no right to the property.Knows has no right to the property.– Liable for any damages caused.Liable for any damages caused.– Not entitled for any compensations for Not entitled for any compensations for

improvements.improvements.Bona Fide Purchaser for Value.Bona Fide Purchaser for Value.

– Person who buys property in good-faith, for Person who buys property in good-faith, for reasonable value, and without actual or reasonable value, and without actual or constructive knowledge that there are any constructive knowledge that there are any problems with the transfer. problems with the transfer.



CONFUSIONCONFUSIONCONFUSIONCONFUSION

Personal, fungible property of two or more Personal, fungible property of two or more people mixed together and can’t be separated. people mixed together and can’t be separated.

Caused by wrongdoing of one owner or Caused by wrongdoing of one owner or without any misconduct.without any misconduct.

Without any misconduct, parties each receive Without any misconduct, parties each receive an undivided interest.an undivided interest.

If intentional wrongdoing, different rules If intentional wrongdoing, different rules apply.apply.



CONFUSIONCONFUSION

New mixture not divisible, title passes to New mixture not divisible, title passes to the innocent party.the innocent party.

New mixture divided, wrongdoer entitled to New mixture divided, wrongdoer entitled to receive portion of new mixture.receive portion of new mixture.



LOST PROPERTYLOST PROPERTYLOST PROPERTYLOST PROPERTY

Property unintentionally lost by the true owner.Property unintentionally lost by the true owner. Person who finds the lost property has good title Person who finds the lost property has good title

to the property.to the property. True owner is only one with better title to property True owner is only one with better title to property

than finder.than finder. Finder entitled to keep possession unless statute Finder entitled to keep possession unless statute

provides possession should go to police.provides possession should go to police.



MISLAID PROPERTYMISLAID PROPERTYMISLAID PROPERTYMISLAID PROPERTY Property intentionally set somewhere by the Property intentionally set somewhere by the

owner.owner. Manner and placement and location of property Manner and placement and location of property

indicate whether owner forgot property or lost it.indicate whether owner forgot property or lost it. Owner who mislaid property must remember Owner who mislaid property must remember

where property was left to reclaim it.where property was left to reclaim it. Finder of mislaid property has good title against Finder of mislaid property has good title against

everyone but true owner.everyone but true owner.



ABANDONED PROPERTYABANDONED PROPERTYABANDONED PROPERTYABANDONED PROPERTY

Owner not interested in owning a piece of Owner not interested in owning a piece of personal property.personal property.

Property is relinquished to someone else.Property is relinquished to someone else.That person will become the new owner of That person will become the new owner of

the property.the property.This type of transfer considered a gift.This type of transfer considered a gift.



PROTECTION OF PERSONAL PROTECTION OF PERSONAL PROPERTYPROPERTY

PROTECTION OF PERSONAL PROTECTION OF PERSONAL PROPERTYPROPERTY

Owner fails to protect property adequately Owner fails to protect property adequately and is taken by someone else.and is taken by someone else.

Owner will suffer a temporary or permanent Owner will suffer a temporary or permanent loss.loss.

Owner should be aware of legal or illegal Owner should be aware of legal or illegal methods property may be taken.methods property may be taken.

Owner should note insurance can reduce the Owner should note insurance can reduce the risk of some losses.risk of some losses.



CONVERSIONCONVERSIONCONVERSIONCONVERSION

Occurs when a person wrongfully takes or Occurs when a person wrongfully takes or interferes with the property of another.interferes with the property of another.

Owner may recover the property and sue for Owner may recover the property and sue for damages.damages.

Can occur when owner voluntarily releases Can occur when owner voluntarily releases personal property to another person, who personal property to another person, who then uses it in a manner not authorized.then uses it in a manner not authorized.



ESCHEATESCHEAT

Rightful owner of property cannot be found Rightful owner of property cannot be found and property revert to the state government.and property revert to the state government.

Policy behind the doctrine is that state is Policy behind the doctrine is that state is more deserving than anyone else if true more deserving than anyone else if true owner cannot be found.owner cannot be found.

Occurs when heirs cannot be found or when Occurs when heirs cannot be found or when person does not keep careful records.person does not keep careful records.



UNCLAIMED PROPERTYUNCLAIMED PROPERTY Title does not transfer to the government.Title does not transfer to the government. Provide rules about when the property is Provide rules about when the property is

“unclaimed.”“unclaimed.” Acts proscribe the following steps:Acts proscribe the following steps:

– Holder required to report to state it has unclaimed Holder required to report to state it has unclaimed property.property.

– Holder attempts to formally notify the owner.Holder attempts to formally notify the owner.– Property is transferred to the state.Property is transferred to the state.– State once again tries to notify the owner. State once again tries to notify the owner.



JUDICIAL SALEJUDICIAL SALEJUDICIAL SALEJUDICIAL SALE

Person loses civil lawsuit, court orders that Person loses civil lawsuit, court orders that person to make payment/judgement to the person to make payment/judgement to the other party.other party.

If person does not make payment, party If person does not make payment, party entitled to payment procures a writ of entitled to payment procures a writ of execution.execution.

With writ sheriff can seize debtor’s With writ sheriff can seize debtor’s property and sell it.property and sell it.



JUDICIAL SALEJUDICIAL SALE

After reimbursing sheriff’s office the After reimbursing sheriff’s office the remaining money is given to judgement remaining money is given to judgement creditor to satisfy the payment.creditor to satisfy the payment.

The excess is transferred to the property The excess is transferred to the property owner.owner.

Excess is governed by state law and by type Excess is governed by state law and by type of judgement.of judgement.



REPOSSESSIONREPOSSESSIONREPOSSESSIONREPOSSESSION

Lender wants to protect an interest in a loan may Lender wants to protect an interest in a loan may create a security interest in some collateral.create a security interest in some collateral.

Borrower does not repay loan under the terms of Borrower does not repay loan under the terms of the contract, lender repossess the property.the contract, lender repossess the property.

If collateral is real estate, loan is called a If collateral is real estate, loan is called a mortgage. mortgage.

Taking possession of property is called a mortgage Taking possession of property is called a mortgage foreclosure.foreclosure.



BAILMENTS OF PERSONAL BAILMENTS OF PERSONAL PROPERTYPROPERTY


Bailment arises when a person delivers Bailment arises when a person delivers personal property to someone else.personal property to someone else.

Bailor is owner of the property.Bailor is owner of the property.Bailee is one who has possession (but not Bailee is one who has possession (but not

title) of the property.title) of the property.Bailment exists when owner of property Bailment exists when owner of property

allows another person to have custody of allows another person to have custody of owner’s personal property.owner’s personal property.




Contract exists if bailee is giving up Contract exists if bailee is giving up consideration.consideration.

Relationship governed by rules of bailments Relationship governed by rules of bailments and rules of contracts.and rules of contracts.

Contract is not requirement for bailment.Contract is not requirement for bailment.




Elements necessary for bailment:Elements necessary for bailment:– Bailor must retain title.Bailor must retain title.– Possession of property delivered to bailee.Possession of property delivered to bailee.– Bailee must accept possession.Bailee must accept possession.– Bailee must have possession for specific Bailee must have possession for specific

purpose and temporary control of property.purpose and temporary control of property.– Parties intend property returned to bailor.Parties intend property returned to bailor.





Bailee’s Duty of Care:Bailee’s Duty of Care:– Disputes can arise when property is damaged Disputes can arise when property is damaged

while in bailee’s possession.while in bailee’s possession.– Issues concerns whether bailee took proper care Issues concerns whether bailee took proper care

of the property.of the property.– Resolution of proper care will depend on: Resolution of proper care will depend on:

Provisions of local statutes.Provisions of local statutes. Language of bailment contract.Language of bailment contract. Type of bailment .Type of bailment .



CLASSIFICATION OF BAILMENTSCLASSIFICATION OF BAILMENTSCLASSIFICATION OF BAILMENTSCLASSIFICATION OF BAILMENTS

Classification affects bailee’s obligation Classification affects bailee’s obligation and liability if damage occurs to property.and liability if damage occurs to property.

Bailor Benefit Bailments.Bailor Benefit Bailments.– Bailment solely benefits the bailor.Bailment solely benefits the bailor.– Bailee responsible for gross negligence in Bailee responsible for gross negligence in

caring for the bailment property.caring for the bailment property.Mutual Benefit Bailments.Mutual Benefit Bailments.

– Both the bailor and bailee benefit. Both the bailor and bailee benefit. – Bailee liable for ordinary negligence.Bailee liable for ordinary negligence.



CLASSIFICATION OF BAILMENTSCLASSIFICATION OF BAILMENTSCLASSIFICATION OF BAILMENTSCLASSIFICATION OF BAILMENTS

Bailee Benefit Bailments:Bailee Benefit Bailments:– Bailment solely for the benefit of the bailee.Bailment solely for the benefit of the bailee.– Bailee is liable for slight negligence in caring Bailee is liable for slight negligence in caring

for the property.for the property.





Limitations on a Bailee’s Liability:Limitations on a Bailee’s Liability:– State laws place limits on a bailee’s liability.State laws place limits on a bailee’s liability.– Bailment based on contract, may either increase Bailment based on contract, may either increase

or decrease liability of bailee.or decrease liability of bailee.– Bailee must inform bailor of any limitation on Bailee must inform bailor of any limitation on

bailee’s liability. bailee’s liability.




Termination of a Bailment:Termination of a Bailment:– At end of period specified by parties or At end of period specified by parties or

specified condition occurs.specified condition occurs.– By will of parties, if not specified.By will of parties, if not specified.– Purpose or performance has been completed.Purpose or performance has been completed.– Either party causes a material breach.Either party causes a material breach.– If property is destroyed or becomes unfit.If property is destroyed or becomes unfit.– By operation of law.By operation of law.





Bailee has a general duty to return the Bailee has a general duty to return the property to the Bailor’s property to the property to the Bailor’s property to the Bailor. Bailor. – Exceptions to this rule are:Exceptions to this rule are:

Property is lost or stolen through no fault of the Property is lost or stolen through no fault of the bailee.bailee.

Property is taken by legal process.Property is taken by legal process. Property is claimed by someone with better legal Property is claimed by someone with better legal

right to possession than bailor.right to possession than bailor. Bailee has a lien on the property.Bailee has a lien on the property.

Documents

CHAPTER 42 PERSONAL PROPERTY AND BAILMENTS DAVIDSON, KNOWLES & FORSYTHE Business Law: Cases and Principles in the Legal Environment (8 th Ed.)