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Chapter 49
Personal Property and Bailments
See Separate Lecture Outline System
INTRODUCTION
Property consists of the legally protected rights and interests a person has in anything with an ascertainable value that
is subject to ownership. Property would have little value if the law did not define the right to use it, to sell or dispose of it, and
to prevent trespassing on it. This chapter examines the basic attributes of personal property, how 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 intent to transfer title. In a sale or
a gift, title is transferred from the seller or donor to the buyer or donee.
ADDITIONAL RESOURCES—
VIDEO SUPPLEMENTS
1196 INSTRUCTOR’S MANUAL TO ACCOMPANY BUSINESS LAW, TWELFTH EDITION
The following video supplements relate to topics discussed in this chapter—
PowerPoint Slides
To highlight some of this chapter’s key points, you might use the Lecture Review PowerPoint slides compiled for
Chapter 49.
Business Law Digital Video Library
The Business Law Digital Video Library at www.cengage.com/blaw/dvl offers a variety of videos for group or
individual review. Clips on topics covered in this chapter include the following.
• Drama of the Law
Personal Property and Bailments: Rug Cleaner Rental?— Entrusting property to another can raise issues of
CHAPTER OUTLINE
I. Personal Property versus Real Property
Personal property is moveable. (Real property is immoveable.) When two or more persons own property, concurrent
ownership exists.
A. WHY THE DISTINCTION IS IMPORTANT
Taxation of types of property differs—businesses may be taxed on personal property (when non-business owners
often are not). Transfer of personal property can be less formal. Ownership of personal property can often be
proved by simple possession.
II. Fixtures
Fixtures are included in a sale of land if the contract does not provide otherwise.
A. THE ROLE OF INTENT
The key to determining whether something is a fixture is the intent of its owner.
CASE SYNOPSIS—
Case 49.1: APL Limited v. Department of Revenue
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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.
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 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 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
ANSWERS TO QUESTIONS AT THE END OF CASE 49.1
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.
B. TRADE FIXTURES
Unlike other fixtures, trade fixtures generally remain the tenant’s property.
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III. Acquiring Ownership of Personal Property
A. POSSESSION
Acquiring ownership of personal property by possession occurs with the capture of wild animals. Those who find
lost or abandoned property also can acquire ownership rights through possession.
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 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
A gift is a voluntary transfer of property ownership not supported by consideration. The three requirements are—
1. Donative Intent
2. Delivery
Delivery can occur through an agent, or third party.
a. Constructive Delivery
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CASE SYNOPSIS—
Case 49.2: 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.
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.”
ANSWER TO “WHAT IF THE FACTS WERE DIFFERENT?” IN CASE 49.2
Suppose that Piper had told Kauffman that she was giving the rings to Kauffman but that she 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
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rings remained in Piper’s possession would suggest that there was no effective delivery even though Kauffman might
ADDITIONAL CASES ADDRESSING THIS ISSUE —
Recent cases addressing the delivery element of a gift include the following.
• Fontaine v. Colt’s Manufacturing Co., 74 Conn.App. 730, __ A.2d __ (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
agent is in effect no delivery at all and insufficient to effectuate a delivery for purposes of an inter vivos gift).
ENHANCING YOUR LECTURE—
WHO OWNS THE ENGAGEMENT RING?
Often, when a couple decides to marry, one party gives the other an engagement ring. If the engagement is called
off, typically the ring is returned. Yet what if the recipient of the ring refuses to return it and a dispute over who owns
the ring reaches a court? What law should apply in determining ownership rights in this particular form of personal
property? In the eyes of the law, is an engagement ring a “conditional gift” that becomes effective only when the
couple actually marries? Or is it an effective gift to begin with, meaning that it belongs to the person to whom it was
given—the donee? Furthermore, does ownership of the ring depend on who breaks the engagement? On these
questions, the courts are widely divided.
AN ENGAGEMENT RING IS A CONDITIONAL GIFT
that it was a conditional gift given in contemplation of marriage. The court held for Barry, ruling that the gift of an
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engagement ring is a conditional gift that becomes final only if the marriage occurs.a
The Michigan decision echoed earlier rulings by courts in several other jurisdictions. For example, in a
Pennsylvania case a prospective husband gave his bride–to-be a diamond ring that he had purchased for $17,400. A
few months later, the man broke the engagement and demanded that the ring be returned. The woman refused, and
the case went to court. Ultimately, the Pennsylvania Supreme Court concluded that the ring belonged to the man
because an engagement ring is a temporary gift that becomes absolute only when the marriage takes place.b
A few years earlier, the Kansas Supreme Court had reached a similar conclusion: an engagement ring, by its very
nature, is a “conditional gift” given in contemplation of marriage.c Courts in Ohio, New York, and New Mexico have
held likewise.
FAULT VERSUS NO-FAULT RULES
When a court decides that an engagement ring is a conditional gift, the next question to be considered is whether
ownership rights in the ring depend on who breaks the engagement. In ancient Rome, the rule was that a woman who
called off the wedding had to return the ring and its value as a penalty, but a man who called off the wedding faced no
penalty. Over the ages, this rule changed. Today, etiquette authorities routinely claim that if a woman breaks an
engagement, she should return the ring; if the man breaks the engagement, the woman is entitled to keep the ring.
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.
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?
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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 ab–
solute 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 materials.
Ownership can be in issue if (1) a party has wrongfully caused the accession or (2) the materials added or labor
expended greatly increase the value. Depending on the degree of good or bad faith and the amount of the
increase, ownership passes, or ownership does not pass but the owner may compensate the improver.
E. CONFUSION
IV. Mislaid, Lost, or Abandoned Property
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 place
where the property was mislaid becomes the caretaker. If the owner does not assert this claim, the owner of the
premises on which it was discovered may claim it.
B. LOST PROPERTY
If property has been lost (involuntarily left), the finder has first claim to it—after its true owner.
1. Conversion of Lost Property
2. Estray Statutes
Estray statutes require finders to report their finds.
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ENHANCING YOUR LECTURE—
THE LAW OF FINDERS
The well-known children’s adage, “Finders keepers, losers weepers,” is actually written into law—provided that the
loser (the rightful owner) cannot be found. A finder of lost personal property may acquire good title to the property
against everyone except the true owner. A number of landmark cases have made this principle clear. An early English
case, Armory v. Delamirie,a is considered a landmark in Anglo–American jurisprudence concerning finders’ rights in
property.
FINDERS’ RIGHTS
The plaintiff in the case was Armory, a chimney sweep who found a jewel in its setting during the course of his
work. He took the jewel to a goldsmith to have it appraised. The goldsmith refused to return the jewel to Armory,
claiming that Armory was not the rightful owner of the property. The court held that the finder, as prior possessor of
the item, had rights to the jewel superior to those of all others except the rightful owner. The court stated, “The finder
of a jewel, though he does not by such finding acquire an absolute property or ownership, yet . . . has such a property
as will enable him to keep it against all but the rightful owner.”
WHO HAS RIGHTS TO WRONGFULLY OBTAINED GOODS?
A curious situation arises when goods wrongfully obtained by one person are in turn wrongfully obtained by
another, and the two parties contest each other’s rights to possession. In such a situation, does the Armory rule still
apply—that is, does the first (illegal) possessor have more rights in the property than the second (illegal) possessor? In
a case that came before the Minnesota Supreme Court in 1892, Anderson v. Gouldberg,b the court said yes.
APPLICATION TO TODAY’S WORLD
Although the Armory case was decided nearly three hundred years ago, the principle enunciated by the court in
that case remains applicable today. Finders of lost property continue to acquire good title to the property against all
but the true owner.
a. 93 Eng.Rep. 664 (K.B. [King’s Bench] 1722).
b. 51 Minn. 294, 53 N.W. 636 (1892).
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ADDITIONAL BACKGROUND—
Lost Property Statutes
In an attempt to create certainty out of the judicial disorder of the rights of a finder of lost property at common
law, many states have enacted lost property statutes. Generally, these statutes
give the finder greater rights to property than a finder has at common law. The statutes differ widely, but typically,
they eliminate the distinction between lost, mislaid, and abandoned property and treasure trove, and award the
property to the finder in most circumstances. Frequently, the statutes require the finder to deposit found property
with local authorities and post a notice attempting to advise the true owner that the property has been found. The
statutes usually award ownership to the finder if the true owner does not claim the property after some period of time.
Whatever costs are involved are normally paid by the party who gets title to the property.
In Illinois, the finder of property worth less than $100 must advertise, at the circuit court of the county, the
property and its discovery, and if the owner does not claim it within six months, the finder gets it.e The finder of
property worth $100 or more must file in the court an affidavit describing the property and the time and place it was
found. The county clerk places notice of the find in a newspaper “printed in the county.” The notice runs for three
successive weeks. If the owner does not claim the property within a year after the notice, the finder gets the property.
Costs must be paid by the finder or owner. Failure to comply with the law may result in a fine of $10 and a payment of
double the value of the property to the owner.
the property may also be deposited in a station of the capital buildings police. If the finding occurred or possession was acquired outside a city, then
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such property shall be deposited in a station or substation of the state police or in a police station or police headquarters, including a sheriff’s office,
of the county, town, or village where the finding occurred or possession was acquired. If the finding occurred or possession was acquired in buildings
or on grounds or premises constituting a state park, parkway, recreational facility or historic site under the jurisdiction of the commissioner of parks,
recreation and historic preservation, then such property may also be deposited in a station of the regional state park police. If the finding occurred or
possession was acquired in buildings or on the grounds or premises of the state-operated institutions in the state university of New York, then such
property may also be deposited with a security officer or peace officer appointed by the state university.”
b. Generally, the police hold onto the property and notify the occupant, or the person in charge, of the premises on which the property was
found. The police must also notify any other person whom they have reason to believe has an interest in the property. Perishable goods can be sold.
Any other property can be sold when the expenses of holding onto it exceed half its expected value.
c. “Property having a value of less than one hundred dollars or proceeds of property having such value, three months; property having a value of
one hundred dollars or more but less than five hundred dollars or proceeds of property having such value, six months; property having a value of five
hundred dollars or more but less than five thousand dollars or proceeds of property having such value, one year; property having a value of five
thousand dollars or more or proceeds of property having such value, three years.”
deposit area of a bank or safe deposit company is subject to different rules.
e. There are exceptions for perishable goods, which the court may order to be sold immediately, and watercraft worth less than $15. The finder
f. Outside a California city, “police authorities” would be a sheriff’s department.
C. ABANDONED PROPERTY
If property has been intentionally abandoned, a finder’s possession entitles him or her to its title. A trespasser
who finds an item of abandoned property, however, does not acquire title—the owner of the real property on
which it was found does.
ADDITIONAL BACKGROUND—
Sunken Gold—Abandoned Property?
In September 1857, the S.S. Central America, a luxury passenger ship making a voyage from Panama to New York,
sank in a hurricane in the Atlantic Ocean 160 miles east of Charleston, South Carolina. Many of the 573 passengers on
the ship were gold miners returning from California to the East to invest their findings. Some of the 153 surviving
passengers told stories of the estimated $2 million in California gold (now worth an estimated $1 billion) that had been
aboard the ship.
Using high-tech equipment and the services of numerous experts, the Columbus-America Discovery Group
(Columbus) began to search the ocean floor for the vessel in 1986. When Columbus succeeded in locating what it was
sure was the Central America, it sought to establish ownership rights in the gold, which was estimated to be worth
millions. Several insurance companies that had covered losses incurred by the sinking of the Central America
intervened, claiming that they were the true owners of the gold.
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In Columbus-America Discovery Group, Inc. v. Unidentified, Wrecked and Abandoned Sailing Vessel, 742 F.Supp.
1327 (E.D. Va. 1990), a federal district court held that the Columbus group, as finders of abandoned property, acquired
ownership of the vessel and dismissed the claims of the insurance companies. The court concluded that the
destruction of all their records showed that none of the insurance companies believed that the ship could be located or
its treasure recovered. Moreover, none of the companies had ever undertaken any exploratory activity once in-
vestigations had become scientifically feasible to ascertain the location of the wreck.
applied the law of finders, the appellate court applied the law of salvage. Under that interpretation, finders generally
companies that filed claims for the sunken gold would be entitled to it. The United States Supreme Court declined to
V. Bailments
A. ELEMENTS OF A BAILMENT
A bailment is created when personal property is delivered (without title) under an agreement that the property
be returned to the bailor or otherwise disposed of according to its owner’s directions.
1. Personal Property Requirement
2. Delivery of Possession
Delivery in this context requires (1) surrender of exclusive possession and control and (2) knowing
acceptance of the property. A coat flung over a chair in a restaurant by a patron does not qualify, nor does
jewelry in the pocket of a coat left with the attendant in a coatroom.
a. Physical versus Constructive Delivery
Delivery may be actual or constructive (giving a key to a safe-deposit box).
b. Involuntary Bailments
An involuntary bailment can occur accidentally or by mistake (e.g., finding lost property).
VI. Ordinary Bailments
The distinguishing feature among the different types of bailments is which party receives the benefit. The three types
of ordinary bailments are:—
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• Bailment for the sole benefit of the bailor (gratuitous bailment).
• Bailment for the sole benefit of the bailee.
• Bailment for their mutual benefit (bailment for hire—for the storage or the holding of property, the most
common type of bailment).
A. RIGHTS OF THE BAILEE
1. Right of Possession
2. Right to Use Bailed Property
A bailee has a right to use the property for the purpose of the bailment.
3. Right of Compensation
A bailee has a right to be compensated, reimbursed for expenses, or both.
a. Gratuitous Bailments
A gratuitous bailment includes a right to compensation.
ANSWER TO VIDEO QUESTION LTR. A
b. The Bailee’s Lien
To enforce these rights, a bailee has a right to place an artisan’s lien on the property.
4. Right to Limit Liability
B. DUTIES OF THE BAILEE
1. The Duty of Care
2. Duty to Return Bailed Property