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

© 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 2 OWNERSHIP OF PROPERTY Classifications of Property: Classifications of Property: – Concepts of property rights and joint ownership apply to personal property. – All property that is not classified as real property is personal property. – Personal property is divided into two categories: tangible and intangible. – Traditional label for personal property is a chattel.

© 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 3 OWNERSHIP OF PROPERTY Classification of Property: Classification of 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 characteristics. Has texture, color, temperature, and similar characteristics. – 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 valuable. May be reduced to legal possession and often very valuable.

© 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 4 OWNERSHIP OF PROPERTY Chattels are divided into: Chattels are divided into: – Chattels real which involves interest in land but chattel itself is personal-legal right to use the land. – Chattels personal which involves tangible, movable personal property. – Chattels personal in action which is a right to file a lawsuit or bring legal action.

© 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 5 OWNERSHIP OF PROPERTY Components of Ownership. Components of Ownership. – Ownership includes all rights related to ownership of property. – Possession includes right to control property by having it in one’s custody or by directing who shall have custody of it. – Title includes both current legal ownership of property and method of acquisition.

© 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 6 ACQUISITION OF PERSONAL PROPERTY Original Possession: Original Possession: – When owner is first person to possess property. – Owner created ownership rather than receiving it by transfer from another person. – Ownership derived through creation of property through physical or mental labor. – Ownership obtained by taking something that has never been owned before and reduce it to possession.

© 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 7 ACQUISITION OF PERSONAL PROPERTY Voluntary Transfers of Possession. Voluntary Transfers of Possession. – Possession of personal property acquired by having property transferred to them voluntarily by previous owner. – Purchases: Exchange of consideration.

© 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 8 GIFTSGIFTS Donor intends to make a gift. Donor intends to make a gift. Donor delivers gift property to the donee. Donor delivers gift property to the donee. Donee accepts the gift. Donee accepts the gift. Gifts fall into three categories: Gifts fall into three categories: – Inter vivos: lifetime gifts made while transferor alive. – Testamentary: completed after owner dies, provisions in a person’s will. – Gifts causa mortis: meet special requirements about donor’s intention.

© 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 9 GIFTSGIFTS Gifts Causa Mortis--Donor making gift because donor expects to die. Requirements: Gifts Causa Mortis--Donor making gift because donor expects to die. Requirements: – Donor intends to make the gift; – Gift made in contemplation of death; – Gift actually or constructively delivered; and – Donor must die from the contemplated cause, if not gift will be revoked.

© 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 10 INHERITANCE Inheritances: person who died has a valid will covering the property, the recipient specified receives the property. Inheritances: person who died has a valid will covering the property, the recipient specified receives the property. Property Received by Intestate Succession: Property of a person who dies without a valid will is transferred to recipients by intestate succession. Property Received by Intestate Succession: Property of a person who dies without a valid will is transferred to recipients by intestate succession.

© 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 11 ACCESSIONACCESSION Custody or title of property may be involuntarily transferred by true owner. Custody or title of property may be involuntarily transferred by true owner. Accession occurs when: Accession occurs when: – Person adds value to property that person does not own. – Legal question arises as to title of value added. – Title normally remains with rightful owner depending on circumstances.

© 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 12 ACCESSIONACCESSION Accession: Innocent Trespasser may acquire title in the following situations: Accession: Innocent Trespasser may acquire title in the following situations: – Due to work performed on property causing it to lose its original identity – A great difference in value exists – A completely new type of property has been created

© 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 13 ACCESSION Willful Trespasser. Willful Trespasser. – Knows has no right to the property. – Liable for any damages caused. – Not entitled for any compensations for improvements. Bona Fide Purchaser for Value. Bona Fide Purchaser for Value. – Person who buys property in good-faith, for reasonable value, and without actual or constructive knowledge that there are any problems with the transfer.

© 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 14 CONFUSIONCONFUSION Personal, fungible property of two or more people mixed together and can’t be separated. Personal, fungible property of two or more people mixed together and can’t be separated. Caused by wrongdoing of one owner or without any misconduct. Caused by wrongdoing of one owner or without any misconduct. Without any misconduct, parties each receive an undivided interest. Without any misconduct, parties each receive an undivided interest. If intentional wrongdoing, different rules apply. If intentional wrongdoing, different rules apply.

© 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 15 CONFUSION New mixture not divisible, title passes to the innocent party. New mixture not divisible, title passes to the innocent party. New mixture divided, wrongdoer entitled to receive portion of new mixture. New mixture divided, wrongdoer entitled to receive portion of new mixture.

© 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 16 LOST PROPERTY Property unintentionally lost by the true owner. Property unintentionally lost by the true owner. Person who finds the lost property has good title to the property. Person who finds the lost property has good title to the property. True owner is only one with better title to property than finder. True owner is only one with better title to property than finder. Finder entitled to keep possession unless statute provides possession should go to police. Finder entitled to keep possession unless statute provides possession should go to police.

© 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 17 MISLAID PROPERTY Property intentionally set somewhere by the owner. Property intentionally set somewhere by the owner. Manner and placement and location of property indicate whether owner forgot property or lost it. Manner and placement and location of property indicate whether owner forgot property or lost it. Owner who mislaid property must remember where property was left to reclaim it. Owner who mislaid property must remember where property was left to reclaim it. Finder of mislaid property has good title against everyone but true owner. Finder of mislaid property has good title against everyone but true owner.

© 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 18 ABANDONED PROPERTY Owner not interested in owning a piece of personal property. Owner not interested in owning a piece of personal property. Property is relinquished to someone else. Property is relinquished to someone else. That person will become the new owner of the property. That person will become the new owner of the property. This type of transfer considered a gift. This type of transfer considered a gift.

© 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 19 PROTECTION OF PERSONAL PROPERTY Owner fails to protect property adequately and is taken by someone else. Owner fails to protect property adequately and is taken by someone else. Owner will suffer a temporary or permanent loss. Owner will suffer a temporary or permanent loss. Owner should be aware of legal or illegal methods property may be taken. Owner should be aware of legal or illegal methods property may be taken. Owner should note insurance can reduce the risk of some losses. Owner should note insurance can reduce the risk of some losses.

© 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 20 CONVERSIONCONVERSION Occurs when a person wrongfully takes or interferes with the property of another. Occurs when a person wrongfully takes or interferes with the property of another. Owner may recover the property and sue for damages. Owner may recover the property and sue for damages. Can occur when owner voluntarily releases personal property to another person, who then uses it in a manner not authorized. Can occur when owner voluntarily releases personal property to another person, who then uses it in a manner not authorized.

© 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 21 ESCHEAT Rightful owner of property cannot be found and property revert to the state government. Rightful owner of property cannot be found and property revert to the state government. Policy behind the doctrine is that state is more deserving than anyone else if true owner cannot be found. Policy behind the doctrine is that state is more deserving than anyone else if true owner cannot be found. Occurs when heirs cannot be found or when person does not keep careful records. Occurs when heirs cannot be found or when person does not keep careful records.

© 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 22 UNCLAIMED PROPERTY Title does not transfer to the government. Title does not transfer to the government. Provide rules about when the property is “unclaimed.” Provide rules about when the property is “unclaimed.” Acts proscribe the following steps: Acts proscribe the following steps: – Holder required to report to state it has unclaimed property. – Holder attempts to formally notify the owner. – Property is transferred to the state. – State once again tries to notify the owner.

© 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 23 JUDICIAL SALE Person loses civil lawsuit, court orders that person to make payment/judgement to the other party. Person loses civil lawsuit, court orders that person to make payment/judgement to the other party. If person does not make payment, party entitled to payment procures a writ of execution. If person does not make payment, party entitled to payment procures a writ of execution. With writ sheriff can seize debtor’s property and sell it. With writ sheriff can seize debtor’s property and sell it.

© 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 24 JUDICIAL SALE After reimbursing sheriff’s office the remaining money is given to judgement creditor to satisfy the payment. After reimbursing sheriff’s office the remaining money is given to judgement creditor to satisfy the payment. The excess is transferred to the property owner. The excess is transferred to the property owner. Excess is governed by state law and by type of judgement. Excess is governed by state law and by type of judgement.

© 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 25 REPOSSESSIONREPOSSESSION Lender wants to protect an interest in a loan may create a security interest in some collateral. Lender wants to protect an interest in a loan may create a security interest in some collateral. Borrower does not repay loan under the terms of the contract, lender repossess the property. Borrower does not repay loan under the terms of the contract, lender repossess the property. If collateral is real estate, loan is called a mortgage. If collateral is real estate, loan is called a mortgage. Taking possession of property is called a mortgage foreclosure. Taking possession of property is called a mortgage foreclosure.

© 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 26 BAILMENTS OF PERSONAL PROPERTY Bailment arises when a person delivers personal property to someone else. Bailment arises when a person delivers 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 title) of the property. Bailee is one who has possession (but not title) of the property. Bailment exists when owner of property allows another person to have custody of owner’s personal property. Bailment exists when owner of property allows another person to have custody of owner’s personal property.

© 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 27 BAILMENTS OF PERSONAL PROPERTY Contract exists if bailee is giving up consideration. Contract exists if bailee is giving up consideration. Relationship governed by rules of bailments and rules of contracts. Relationship governed by rules of bailments and rules of contracts. Contract is not requirement for bailment. Contract is not requirement for bailment.

© 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 28 BAILMENTS OF PERSONAL PROPERTY Elements necessary for bailment: Elements necessary for bailment: – Bailor must retain title. – Possession of property delivered to bailee. – Bailee must accept possession. – Bailee must have possession for specific purpose and temporary control of property. – Parties intend property returned to bailor.

© 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 29 BAILMENTS OF PERSONAL PROPERTY Bailee’s Duty of Care: Bailee’s Duty of Care: – Disputes can arise when property is damaged while in bailee’s possession. – Issues concerns whether bailee took proper care of the property. – 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.

© 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 30 CLASSIFICATION OF BAILMENTS Classification affects bailee’s obligation and liability if damage occurs to property. Classification affects bailee’s obligation and liability if damage occurs to property. Bailor Benefit Bailments. Bailor Benefit Bailments. – Bailment solely benefits the bailor. – Bailee responsible for gross negligence in caring for the bailment property. Mutual Benefit Bailments. Mutual Benefit Bailments. – Both the bailor and bailee benefit. – Bailee liable for ordinary negligence.

© 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 31 CLASSIFICATION OF BAILMENTS Bailee Benefit Bailments: Bailee Benefit Bailments: – Bailment solely for the benefit of the bailee. – Bailee is liable for slight negligence in caring for the property.

© 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 32 BAILMENTS OF PERSONAL PROPERTY Limitations on a Bailee’s Liability: Limitations on a Bailee’s Liability: – State laws place limits on a bailee’s liability. – Bailment based on contract, may either increase or decrease liability of bailee. – Bailee must inform bailor of any limitation on bailee’s liability.

© 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 33 BAILMENTS OF PERSONAL PROPERTY Termination of a Bailment: Termination of a Bailment: – At end of period specified by parties or specified condition occurs. – By will of parties, if not specified. – Purpose or performance has been completed. – Either party causes a material breach. – If property is destroyed or becomes unfit. – By operation of law.

© 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 34 BAILMENTS OF PERSONAL PROPERTY Bailee has a general duty to return the property to the Bailor’s property to the Bailor. Bailee has a general duty to return the property to the Bailor’s property to the Bailor. – Exceptions to this rule are: Property is lost or stolen through no fault of the bailee. Property is lost or stolen through no fault of the bailee. Property is taken by legal process. Property is taken by legal process. Property is claimed by someone with better legal right to possession than bailor. Property is claimed by someone with better legal right to possession than bailor. Bailee has a lien on the property. Bailee has a lien on the property.