PERSONAL PROPERTY AND BAILMENT

PERSONAL PROPERTY AND BAILMENT

Source: 2010 Pearson Education, Inc., publishing as Prentice-Hall

Property Classification

Real Property

  • Defined as land and property that is permanently attached to it.

  • Examples include:

    • Buildings

    • Fixtures

    • Trees

    • Soil

    • Minerals

    • Timber

    • Plants

Personal Property

  • Defined as property that is not real property.

  • Examples include:

    • Books

    • Cars

    • Stock certificates

Personal Property Types

Tangible Property

  • All real property and physically defined personal property.

  • Examples include:

    • Buildings

    • Goods

    • Animals

    • Minerals

Intangible Property

  • Rights that cannot be reduced to physical form.

  • Examples include:

    • Stock certificates

    • Certificates of deposit

    • Bonds

    • Copyrights

Acquiring Ownership of Personal Property

Methods of Acquisition

  • Possession or capture

  • Purchase

  • Production

  • Gift

  • Will or inheritance

  • Accession

  • Confusion

  • Divorce

Ownership Acquired by Possession or Capture

  • Defined as acquiring ownership of unowned property in its natural state.

  • Historically important when developing countries but rare in modern society.

Ownership Acquired by Purchase or Production

Purchase

  • Involves acquiring property from its rightful owner.

Production

  • Involves creating a finished product from raw materials and supplies.

Ownership Acquired by Gift

Definition

  • A voluntary transfer of title to property without payment of any consideration by the donee.

Elements for a Valid Gift

  1. Donative Intent - The intention to make a gift.

  2. Delivery

    • Can be physical or constructive delivery of the property.

  3. Acceptance - The donee must accept the gift.

Types of Gifts

  • Gifts Inter Vivos:

    • Made during the donor’s lifetime.

    • Considered irrevocable transfers of ownership.

  • Gifts Causa Mortis:

    • Made in anticipation of death.

    • Can be revoked until the time of death.

    • Takes precedence over any prior will.

Gifting and Bequeathing in 2025

  • Annual Gift Tax Exemption:

    • May gift up to $19,000 annually to unlimited individuals without incurring gift tax.

    • Married couples: $38,000.

  • Lifetime Exclusion Amounts:

    • $13,990,000 per person.

    • $27,980,000 for married couples.

  • Gift Tax:

    • Amount over the limits may incur up to 40% taxation.

Gifting vs. Bequeathing

Differences

  • Gifting during life (inter vivos) means the donee gets donor’s original basis in the property.

  • Bequeathing means the donee gets the stepped-up basis or Fair Market Value (FMV) at the date of death, which may reduce capital gains tax if sold.

  • Note: The Biden administration seeks to change the stepped-up basis policy.

Gifting Hypothetical Example

  • Parents own a beach house acquired in 1970 for $500,000, current FMV $1.5 million.

    • Intervivos Gift:

    • Received original basis of $500,000.

    • Likely incurs capital gains tax on sale at $1.5 million.

    • Bequeath:

    • Received stepped-up basis of $1.5 million.

Uniform Gifts to Minors Act and Uniform Transfers to Minors Act

Purpose

  • Establish procedures to make irrevocable gifts to minors.

  • Allows for:

    • Gifts of money deposited in a financial institution.

    • Gifts of securities registered in the name of a trustee as custodian.

  • The donor or trustee acts as custodian of the funds.

Ownership Acquired by Will or Inheritance

  • Property is distributed to beneficiaries named in a will.

  • Property is also distributed to heirs as stipulated in inheritance statutes.

Ownership Acquired by Accession

Definition

  • Occurs when the value of personal property increases due to addition or improvement, whether through natural or manufactured means.

  • The accession belongs to the property owner.

    • Example:

    • A horse giving birth to a colt.

Improvement Considerations

  • If an improvement is made wrongfully, the owner still acquires the value of the improved property.

    • Example:

    • A thief stealing a car and putting in a new engine.

  • If improvement made mistakenly cannot be removed, the owner acquires the value of the improvement.

    • Example:

    • An addition to a house built larger than planned.

Ownership Acquired by Confusion

Definition

  • Occurs when fungible goods are commingled.

  • Examples include:

    • Oil, grain, cattle.

  • Owners share title to the commingled goods in proportion to their contributions.

Ownership Acquired by Divorce

  • Upon divorce, both parties obtain certain rights in the properties of their marital estate.

Mislaid Property

Definition

  • Property that the owner voluntarily places somewhere and then forgets it.

  • The owner of the premises may take possession against all except the rightful owner.

  • Their claim is superior to the rights of a finder.

  • Must take reasonable care of the property until reclaimed by the owner.

Lost Property

Definition

  • Property left behind due to negligence, carelessness, or inadvertence.

  • The finder obtains title against everyone except the true owner.

Estray Statutes

Finder’s Rights

  • The finder of lost or mislaid property can obtain clear title if:

    1. The finder reports the find to an appropriate government agency.

    2. The finder or government advertises the lost property.

    3. The owner does not claim the property within a specified period (e.g., one year).

Abandoned Property

Definition

  • Property considered abandoned if:

    1. An owner discards it with the intent to relinquish rights.

    2. An owner of mislaid property gives up attempts to locate it.

  • The finder of abandoned property acquires title.

Bailment

Definition

  • A bailment involves the owner of personal property (bailor) transferring property to another (bailee) to be held, stored, delivered, or for some other purpose.

  • Example:

    • Warehouse or trucking company holding property.

  • Title to the property is not transferred.

  • The bailee must follow the bailor’s directives concerning the property.

Parties to a Bailment

  • Bailor: Person transferring property.

  • Bailee: Person receiving property for safekeeping, storage, or transportation.

Elements to Create a Bailment

Requirements

  1. Personal Property:

    • Only personal property can be bailed.

  2. Delivery of Possession:

    • Bailee has exclusive control over the personal property and must knowingly accept it.

Case Study: Ziva Jewelry v. CWH, Inc. (Alabama 2004)

Case Facts

  • Smith works for Ziva Jewelry with $850,000 worth of jewelry in his car.

  • He stops at a car wash, and a thief steals his car with the jewels inside.

  • Ziva sues CWH for failing to safeguard the bailed vehicle.

Legal Issue

  • Did a bailment exist when CWH took custody of the car?

Holding

  • Decision: No bailment was created.

Rationale

  • A bailment requires the delivery of personal property to another for a specific purpose, with an implied or explicit contract for faithful execution.

  • CWH did not express or imply acceptance of responsibility for the jewelry in Smith's vehicle and thus no bailment could arise.

Elements to Create a Bailment (continued)

Bailment Agreement

  • A bailment may be express or implied.

  • Express bailments can be written or oral.

  • Under the Statute of Frauds, a bailment must be in writing if it exceeds one year.

  • Bailments may also be implied from circumstances.

Types of Ordinary Bailments

  1. For the sole benefit of the bailor:

    • Bailee takes care of property as a favor.

  2. For the sole benefit of the bailee:

    • Bailee uses the bailor’s property for personal reasons.

  3. For the mutual benefit of both parties.

Ordinary Bailee’s Duty of Care

Type of Bailment

Duty of Care Owed by Bailee

Liable to Bailor for

For the sole benefit of the bailor

Slight

Gross negligence

For the sole benefit of the bailee

Great

Slight negligence

For mutual benefit

Ordinary

Ordinary negligence

Duration and Termination of Bailments

Types

  1. Bailment for Fixed Term:

    • Terminates at the end of the agreed-upon term or sooner by mutual consent of parties.

  2. Bailment at Will:

    • Without a fixed term; can be terminated at any time by either party.

Special Bailments

Types of Special Bailees

  • Common Carriers

  • Warehouse Companies

  • Innkeepers

Warehouse Companies

Responsibilities

  • Bailee storing property for compensation.

  • Ordinary bailee owing duty of reasonable care.

  • Liable only for losses caused by their own negligence.

  • Can limit liability by offering the bailor an opportunity to increase limits for an additional charge.

  • Warehouse receipt indicates a lien on stored items for storage expenses.

Common Carriers

Definition

  • Offers transportation services to the public (e.g., airlines, railroads, trucking companies).

  • Represents a mutual benefit bailment.

  • Liable for loss or damage to goods, except in acts of God and other exceptions.

  • Can limit liability by offering the bailor an opportunity to purchase higher limits.

  • A bill of lading issued upon receipt of goods by the carrier-bailee.

Common Carrier Process

Parties Involved

  • Shipper (Bailor):

    • Transfers goods for shipment.

  • Common Carrier (Bailee):

    • Responsible for the shipment of goods.

  • Consignee:

    • The final recipient of the shipment.

Innkeeper’s Statute

Legal Framework

  • Traditionally held to a strict liability standard for lost personal property.

  • Most states have enacted statutes to limit innkeeper liability if a safe is provided and guests are notified about its availability.

  • May also set limits on the dollar amount of liability.