978-1285770178 Lecture Note BL ComLaw 1e IM-Ch28 Part 1

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whole or in part.

Personal Property and Bailments

ownership rights may be acquired, and the laws governing rights in mislaid, lost, or abandoned property.

This chapter also examines the law relating to bailments. Most bailments are created by agreement, although

in many bailments not all of the elements of a contract (such as mutual assent or consideration) are present. A

bailment may also be distinguished from a sale or a gift in that possession is transferred without passage of title or

Personal property is moveable. (Real property is immoveable.) When two or more persons own property,

concurrent ownership exists.

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whole or in part.

A. WHY IS THE DISTINCTION IMPORTANT?

1. Taxation

Taxation of types of property differs—businesses may be taxed on personal property (when non–

business owners often are not).

2. Acquisition

C. FIXTURES

Fixtures—items affixed or attached to real property in a permanent way—are included in a sale of land if

the contract does not provide otherwise.

1. Typical Fixtures

The key to determining whether something is a fixture is the intent of its owner.

CASE SYNOPSIS—

Case 28.1: APL Limited v. Washington State Department of Revenue

APL Limited, American President Lines, LTD, and Eagle Marine Services, LTD (collectively, APL) leased

Terminal 5 from the Port of Seattle to load and unload ships. The terminal was outfitted with 800-ton cranes

that ran on steel rails embedded in concrete and supported by specially engineered piers. The cranes were

wired to the terminal’s electrical system, which included a substation built to power them. APL paid sales tax

on the rent for the cranes for more than twenty years. Arguing that the cranes were fixtures—and thus not

taxable personal, property—APL filed a suit in a Washington state court against the state to obtain a refund.

The court issued a judgment in the state’s favor. APL appealed.

A state intermediate appellate court reversed. The lower court had not determined the parties’ intent with

respect to the cranes. Whether personal property becomes a fixture turns on the question of intent.” “The

determinative factor for whether a chattel annexed to real property becomes part of the real property or

retains its character as personal property is . . . the intent with which the chattel was annexed to the land.”

………………….………….………………………….………….………………………….…………...…………………

Notes and Questions

What is a fixture, and how does it relate to real property rights? A fixture is a thing associated with

realty (attached into or; permanently situated on the property by means of cement, plaster, bolts, nails, roots,

CHAPTER 28: PERSONAL PROPERTY AND BAILMENTS 3

whole or in part.

or screws; attached to another fixture; or simply intended by the owner to be a fixture). Fixtures are included

in the sale of land unless the contract provides otherwise.

It has been proposed that fixture should be given a more concrete definition so that it would be clearer

what property is included in, for example, a sale. One suggestion is that an item would not be a fixture if one

person could remove it in an hour, using a few basic tools (for instance, a hammer, a screwdriver, and a

wrench). What’s wrong with this sort of definition? One problem is that it seems no less arbitrary than the

three factors cited by the court. Some people are more skilled than others, some can move faster, some are

stronger. If an item could be removed by a skilled craftsman in forty-five minutes, but by someone with less

skill in no less than sixty-five minutes, would it mean the item was a fixture?

ANSWERS TO THE LEGAL REASONING

QUESTIONS AT THE END OF CASE 28.1

1. Why did it matter to the parties in this lawsuit whether the cranes were fixtures or not? The “stake”

in this lawsuit were the sales taxes that APL Limited was paying on the rents received for the cranes, based

on the assumption that the cranes were personal property. If the court held that the cranes were fixtures, and

thus realty, APL would avoid having to pay future sales taxes on the cranes (and might even receive a refund

of previously paid sales taxes on the cranes). For the state department of revenue, the outcome of the case

would determine whether it could collect sales taxes from APL.

2. Did the fact that the appellate court reversed the judgment of the trial court mean that the cranes

were fixtures? Explain. No. The court reversed the summary judgment granted by the court in the state’s

favor because the trial court had not examined the issue of intent. According to the court, of the three factors

determining whether property was a fixture, the “intention of the party making the annexation to make a

permanent accession to the freehold” was the most significant. Because the trial court had not given this

factor sufficient scrutiny, summary judgment was inappropriate. The case was sent back to the trial court for a

closer examination of this factor to determine whether the cranes should be classified as fixtures.

3. What is the key factor in determining whether property is a fixture, and how did that factor

determine the outcome in this case? The key factor in determining whether an item of personal property is

a fixture is the intent of its owner—as the court in the APL case stated, “the intent with which the chattel was

annexed to the land.” The court explained that, “intent can be determined from the nature of the chattel

attached and its relation or necessity to the activity conducted on the land and the manner in which it is

annexed. When the owner and the person that annexes the chattel are one and the same, a rebuttable

presumption arises that the owner’s intention was for the chattel to become part of the realty.” In other words,

“annexation is so intertwined with the intent to annex, one cannot be examined without the other.”

In this case, because the lower court had not examined the facts regarding the Port’s intent to annex the

cranes, the state intermediate appellate court reversed the lower court’s decision. “The factual inferences that

can be drawn from the evidence presented should be permitted to be argued to the trial court. Because the

trial court did not consider these inferences, summary judgment was inappropriate.”

4. What might the court conclude if the Port of Seattle had rebuilt the terminal to accommodate the

cranes with the intent that they be removed after the end of APL’s lease term? The court explained that,

“intent can be determined from the nature of the chattel attached and its relation or necessity to the activity

4 INSTRUCTOR’S MANUAL FOR BUSINESS LAW: COMMERCIAL LAW FOR ACCOUNTANTS

conducted on the land and the manner in which it is annexed. When the owner and the person that annexes

the chattel are one and the same, a rebuttable presumption arises that the owner’s intention was for the

chattel to become part of the realty.” But the common law requires “the intention of the party making the

annexation to make a permanent accession to the freehold.” If the owner had not intended the cranes to be a

permanent addition to the terminal, the court could conclude that they were in fact personal property.

D. TRADE FIXTURES ARE PERSONAL PROPERTY

Unlike other fixtures, trade fixtures generally remain the tenant’s property.

B. PRODUCTION

Writers, inventors, and manufacturers produce personal property and thereby acquire title.

ENHANCING YOUR LECTURE—

 ARE CLAMS “WILD ANIMALS”?



Timothy Longshore was arrested and convicted for stealing clams from a private beach near Puget

Sound, Washington. On appeal to the Supreme Court of Washington, Longshore argued that he had not

committed theft because the landowner did not own the clams. He asserted that because clams are wild

animals, or ferae naturae, they are not owned by anyone until someone takes possession of them. The court,

however, viewed the matter differently. The court emphasized that clams “ordinarily live in the soil under the

waters” and belong with the land. “When taken, they must be wrenched from their beds, made well down in

the soil itself.” Therefore, said the court, it must follow that a private landowner “has the right to exercise

dominion [control] and ownership over what is upon the land, and especially over things so closely related to

the soil as clams.” The court also had the letter of Washington law on its side: the Washington legislature had

enacted a statute that, among other things, stated that the term wildlife “does not include . . . fish, shellfish,

and marine invertebrates classified as food fish or shellfish.”a

THE BOTTOM LINE

In the state of Washington, an individual who privately owns tidelands also owns any naturally occurring

clams embedded in the soil.

a. State v. Longshore, 141 Wash.2d 414, 5 P.3d 1256 (2000).

C. GIFT

whole or in part.

A gift is a voluntary transfer of property ownership not supported by consideration. The three

1. Donative Intent

Donative intent is determined from the language of the donor and the surrounding circumstances

(the text provides the example of a court challenge on the basis of fraud, of duress).

2. Delivery

b. Relinquishing Dominion and Control

Effective delivery requires giving up complete dominion and control.

CASE SYNOPSIS—

Case 28.2: In re Estate of Piper

For eight years preceding Gladys Piper’s death, Clara Kauffman took Piper to the doctor, beauty shop,

and grocery store; wrote her checks to pay her bills; and helped care for her home. Piper died intestate.

Among her property were two diamond rings. Kauffman filed a claim in a Missouri state court against the

estate, maintaining that Piper had promised the rings as a gift to her. The trial court awarded her the rings.

Piper’s heirs and the administrator of her estate appealed.

A state intermediate appellate court reversed, ruling that no effective gift of the rings had been made

because Piper had never delivered them to Kauffman. The expression of a desire to give does not constitute

a gift unless the intention is executed by a complete and unconditional delivery of the subject matter or deliv-

ery of a proper written instrument evidencing a gift.

…….……………………….………………………………..………………………….……………………….…………..

Notes and Questions

Might the court have found evidence of all three elements of a valid gift in the quoted testimony of

the two witnesses, if it had been so inclined? Explain. Perhaps. The estate did not offer any evidence to

rebut the testimony of either witness. Piper had said of the rings to one of the witnesses, “these are Clara’s.”

From this a court might have inferred (and the trial court appears to have actually inferred) that Piper had

delivered the rings, Kauffman had accepted them, and Kauffman had allowed to Piper to wear them until she

was “done with them.”

The total value of Piper’s estate, not including jewelry, was about $5,400. The appraised value of the

jewelry was $2,500. Was the court’s decision affected by the fact that the jewelry was of significant

whole or in part.

value relative to the value of the entire estate? Why or why not? Probably not. When a person gives

away a large portion of his or her assets, the court will scrutinize the transaction to determine whether the gift

was valid. This scenario, however, more often applies when the value of the estate and the gift at issue are of

much greater value than those in this case. The court also held that there was no gift for other reasons apart

from any mental incompetence or fraud.

ANSWER TO “WHAT IF THE FACTS WERE DIFFERENT?”

QUESTION IN CASE 28.2

Suppose that Piper had told Kauffman that she was giving the rings to Kauffman but wished to

keep them in her possession for a few more days. Would this have affected the court’s decision in

this case? Explain. Whether a gift would exist would depend on whether Kauffman had acquired the

unconditional right to remove the rings whenever she chose. In other words, the court would ask whether

Piper had given up complete control of the rings before it would rule that Kauffman was entitled to claim them

as gifts. In such a situation, however, the fact that the rings remained in Piper’s possession would suggest

that there was no effective delivery even though Kauffman might argue that she was given the power to

remove the rings whenever she chose.

ADDITIONAL CASES ADDRESSING THIS ISSUE —

Other cases addressing the delivery element of a gift include the following:

• Fontaine v. Colt’s Manufacturing Co., 74 Conn.App. 730, 814 A.2d 433 (2003) (an employer’s public

presentation of a revolver to a departing employee at a retirement dinner, and the immediate repossession of

the revolver for the purpose of making improvements that the employer intended to be a part of the gift,

constituted a constructive form of delivery sufficient to consummate the gift of the improved revolver).

• Huskins v. Huskins, 134 N.C.App. 101, 517 S.E.2d 146 (1999) (a donor did not “deliver” the cash in a

safe to the donee, and thus there was no completed “gift” of the cash, even though the donor mailed his son a

letter with the safe’s combination and a note stating that the contents of the safe belonged to the donee in

light of other interpretations of these actions and other steps the donor might have taken to complete a gift of

the cash).

• In re Estate of Estes, 1999 OK 59, 983 P.2d 438 (1999) (delivery to one acting in the capacity of the al–

leged donor’s agent is in effect no delivery at all and insufficient to effectuate a delivery for purposes of an

inter vivos gift).

ENHANCING YOUR LECTURE—

whole or in part.

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AN ENGAGEMENT RING IS FOREVER

Other courts, when deciding engagement-ring cases, avoid the fault/no-fault issue by applying the law

governing gifts. In these jurisdictions, an engagement ring, once delivered to and accepted by the donee, is

an effective gift belonging to the donee. For example, in one case Michael Albinger had given Michelle Harris

a $29,000 diamond engagement ring in contemplation of their marriage. When the couple decided not to go

through with the marriage, Michelle claimed that the ring was hers to keep. Michael wanted it back. Ultimately,

the Montana Supreme Court held for Michelle. The court stated that Montana law defined a gift as a “transfer

of personal property made voluntarily and without consideration.” The court was reluctant to carve out an

exception in the state’s gift law for engagement rings. Among other things, stated the court, to do so would

reflect a gender bias favoring men.

A dissenting judge was astonished by the majority’s decision. The judge noted that women are more

likely to be the subject of these actions simply because they are more likely to receive the rings. Does that

mean, queried the judge, that “we [should] just prohibit gifts in anticipation of marriage altogether because

men are more likely to have to pay for them?”d

FOR CRITICAL ANALYSIS

As noted, some courts hold that an engagement ring is a conditional gift that becomes an absolute

(effective) gift only on marriage. Other courts conclude that when an engagement ring is given to the donee,

the donee should have full ownership rights in the property. Where do your students stand on this issue?

Why?

a. Meyer v. Mitnick, 244 Mich.App. 697, 625 N.W.2d 136 (2001).

b. Lindh v. Surman, 560 Pa. 1, 742 A.2d 643 (1999).

c. Heiman v. Parrish, 262 Kan. 926, 942 P.2d 631 (1997).

d. Albinger v. Harris, 310 Mont. 27, 48 P.3d 711 (2002).

3. Acceptance

Courts generally assume acceptance unless shown otherwise.

4. Gifts Inter Vivos and Gifts Causa Mortis

Gifts causa mortis must meet the requirements for other types of gifts and, additionally, do not

become absolute until the donor dies from the contemplated illness or disease.

D. ACCESSION

Accession occurs when someone adds value to a piece of personal property by use of labor or ma–

When confusion occurs by agreement, honest mistake, or the act of some third party, the owners all

share ownership in proportion to the amount each contributed. If a person wrongfully and willfully mixes

his or her goods with those of another to render them indistinguishable, thereby causing confusion, the

innocent party acquires title to the total.

CHAPTER 28: PERSONAL PROPERTY AND BAILMENTS 9

The rules governing the ownership of found property differ with when the property is categorized as mislaid,

lost, or found.

A. MISLAID PROPERTY

If property has been mislaid, the owner—not the finder—has first claim to it, although the owner of the

1. Conversion of Lost Property

Failing to return property to its true owner is conversion. Many states require a finder to attempt to

locate the owner.

2. Estray Statutes

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whole or in part.

Gouldberg,b the court said yes.

In the Anderson case, the plaintiffs had trespassed on another’s land and wrongfully cut timber. The

defendants later took the logs from the mill site, allegedly in the name of the owner of the property on which

the timber had been cut. The evidence at trial indicated that both parties had illegally acquired the property.

The court instructed the jury that even if the plaintiffs were trespassers when they cut the logs, they were

entitled to recover them from later possessors—except the true owner or an agent of the true owner. The jury

found for the plaintiffs, a decision affirmed later by the Minnesota Supreme Court. The latter court held that

the plaintiffs’ possession, “though wrongfully obtained,” justified an action to repossess the property from

another who took it from them.