A bailment is different from a gift because

Legal Environment Of Business Course

Module 1 1. To what does property refer? Property refers directly to an object, specifically, an object that may be owned. That object may be a parcel of land or any other item that does not consist of a parcel of land, but which may also be owned. If the object consists of a parcel of land only, then that property may be defined as real property. If the object is other than a parcel of land, then that property is defined as personal property. It is often helpful to think in terms of whether an object is movable. If an object is movable, regardless of the size of the object, then that object is personal property. For example, the space shuttle is personal property. Despite the enormous size and the fact that it is housed in the largest building in the world, the shuttle itself is still movable. Further, the shuttle is not a parcel of land. It is therefore personal property. If the property cannot be moved, then the property must be real property. This is also true regardless of size. For example, a 12" by 12" square of land (1 square foot) is very small; nonetheless, it is a parcel of land, and therefore real property. Additionally, it is not movable either; this confirms its status as real property. Another helpful analysis tool is to first determine whether some object is real property or not. If it is not, regardless of any other characteristics it may have, that object is deemed personal property. In other words, all property must first be discerned as real or personal. Certainly, there are numerous and varied types of real and personal property (which we will explore in depth at a later period), however, initially, in all instances of sorting through any legal issue concerning property, we must first determine whether such property is real or personal. There is no third alternative. 2. Is an object that constitutes property always material or substantive? No. Property distinctions divide into two distinctions; tangible property and intangible property. Tangible property is property that is actual to our senses (may be seen, touched, physically taken into possession, etc.). Examples of tangible property include objects such as automobiles, appliances, clothing, and personal effects. Intangible property is the converse. Intangible property may not be seen, touched or physically taken into possession, but rather serve as evidences of an intangible object which contains an inherent value or right. Examples include copyrights, checks, promissory notes and certificates of deposit. 3. What is the role of the law with regard to property? The law of business is essentially concerned with two distinct aspects or concerns of property. The first concern is always a determination of where ownership of the property lies. The second concern is how, or in what manner, may ownership determine how the property may be used and/or transferred and what limitations, if any, may exist. Examples of this would include the right to exclusive possession, right to transfer by gift or sale, right to dispose or destroy and right to leave by will. The law is also fundamentally concerned with the manor in which property may be gained or lost. That is, how may one acquire and transfer title of property whether real or personal? First and foremost is the precept that no title to property of any type may be acquired by theft. From this, it logically follows that any person who may have attempted to receive property title from one who claimed title unlawfully (as in the instance of the thief) has, in fact, failed to receive title. The fundamental principle is that one may only transfer that which she owns. A thief does not own the object of his theft, nor can he hold title to the object of the theft. It is therefore

impossible for the thief to transfer title (something his does not own) to anyone. It is of no legal consequence that the person attempting to receive title did not know of the theft. It remains the case that one may only transfer title of an object that one lawfully owns and that one may only rightfully receive title to an object (property) from the lawful owner. 4. What are the lawful means of obtaining property and title to property? Typically, property of all types is acquired and transferred in the following five ways; gift, purchase, inheritance, creation and the possession of abandoned property. When one acquires property by means of a gift, the donor (person gifting the property) demonstrates an intent to make a gift (by words, writing or implied action) and subsequently causes delivery of the property to come into the possession of the donee (person receiving the gift). Therefore, the two elements essential in the completion of a lawful gift are 1.) A manifestation of intent by the donor to make a gift (words or act that a reasonable person would believe to be the basis of a gift), and 2.) Delivery of the property from the donor to the donee. Delivery of the gift can occur in either of two manners; first, the delivery may be actual (i.e., a prospective groom physically/actually giving an engagement ring to a prospective bride). The actual and physical item is transferred from the donor to the donee. Secondly, the delivery may take the form of constructive delivery. In the instance of constructive delivery, the donee provides an indirect means for the donor to take possession of the gift. For example, the donor may provide the donee with the number combination to open a safe in which an item exists that the donor wishes to gift to the donee. Also, the donor may provide a key to the donee of an automobile that the donor wishes to gift to the donee. The simplest analysis is to discern whether the donor gave the actual item to the donee physically or not. If not, then the delivery is said to have been constructive delivery. There exist two distinct types of gifts of property, each known by their respective Latin name. The first is the inter vivos gift. The inter vivos gift is the normal, ordinary gift between two living persons as described in the immediately previous paragraph. A second type of gift is also recognized by the law. This gift is the gift causa mortis. The gift causa mortis occurs when a property owner (with title and possession), upon the contemplation of imminent and impending death (such as one gravely injured in an automobile accident) chooses to make a gift to another person. In this type of gift, the donor chooses to make the gift specifically because of the circumstance of the close prospect of death. The additional requirement remains the same; there must be: 1.) Intent to make a gift and 2.) Delivery of the gift (either actual or constructive). Both elements remain essential. The difference with the gift causa mortis is that a third element is added (death of the donor). If the donor does not die in the circumstances surrounding the timing of the gift, the gift legally fails and the donor is entitled to regain ownership and title of the property. This gift is a holdover from the influence of the five-centuries-old common law. Purchase of property occurs when a buyer compensates a seller for having acquired the seller’s rights, possession and/or control over an object. Upon payment, the seller conveys his interests (rights of property ownership) to the buyer. Property may also be transferred by means of inheritance. That is, one may, upon the time of her death, determine to gift to another, by will, property owned during the lifetime of the giver. In this instance, the decedent leaves to another person property the decedent owned at the time of her death. Title to said property is transferred only after death and only after the necessary judicial proceedings have occurred after the death. In the instance in which one creates property, typically the creator of such property acquires ownership of the creation as well as title to same. Examples include an author writing a book; the author is the creator of the narrative of the book and receives a copyright. The book came into existence from the effort and design of the author and the law accordingly grants property title, ownership and possession to the author. This is an instance of creation of an intangible property

right and title. Creation of property may also be in the form of a physical entity, such as a painting, or sculpture. Again, the property would have been acquired through creation and belong to the creator, both title and possession. Property may be acquired through possession of abandoned property. In this instance, a distinction must be made between lost property and abandoned property. Lost property occurs when the owner of the property no longer has possession of the property because of an unintended inadvertence, negligence or accident, yet the owner had no intention of disclaiming title or possession of the property at the time she no longer had possession of the property. An example is someone inadvertently leaving a purse or wallet in a store. In the absence of evidence to the contrary, a reasonable person would assume that such property was not left by the true owner on purpose, but rather through accident and inadvertence. The purse or wallet in this instance would most likely be determined by a court of law to have been lost, not abandoned. In the case of lost property, no finder may ever acquire lawful title to the property. The true owner continues to have title despite not having possession or knowledge of where the item is. Abandoned property may come into being only if two qualifying criteria exist. Property may only be abandoned when the true owner actually and purposively discards the property while intending simultaneously not to reclaim the property at a later time. To effectively prove that property was abandoned, one must demonstrate evidence of a physical act (the property was found discarded) along with a mental act (at the time, the previous owner indicated, verbally or otherwise, that she had no intent to retain possession or title to the discarded property). If these elements are demonstrated, the person coming into possession of the abandoned property obtains the right of title and possession of the property. 5. What is a bailment of personal property? A bailment occurs any time one person transfers, to another, possession of personal property, but not title of said property. The party that relinquishes possession of the property is the bailor. The party receiving possession of the item is the bailee. The bailee never receives ownership (title) to the property, rather, the bailee only receives possession. 6. What are the essential elements of a bailment? All bailments are premised on the notion that the transfer of property is temporary and that the property will ultimately be returned to the bailor or to whomever the bailor designates. Common examples of simple bailment include loaning a friend your car, leaving your school books in a friend's locker, renting a tent and gas grill for the family reunion. Each of these is an instance in which a bailment has occurred. Possession of property has changed, but title to the property has not. The first element of an action of bailment is 1.) The parties have an agreement that an object of property will change possession from one party to another (although title to the property will not), and 2.) An actual delivery and acceptance of the property has occurred between the parties. In this respect the bailment is similar to the gift; there must be an intent to transfer property and there must follow a delivery and acceptance. Further, the delivery of the bailment must be such that it is clear that the bailee, and the bailee alone, has complete and exclusive control over the property of the bailment. The reason, as we will see somewhat later, is that accepting a bailment is not without a degree of responsibility. 7. Is there more than one type of bailment? Bailments fall into one of three primary areas. The first is where the underlying purpose of the bailment is for the bailor only (this is often referred to as a gratuitous bailment for the bailor). The second type is where the bailment exists to provide benefit only for the bailee (this is often referred to as a gratuitous bailment for the bailee). The final type of bailment is where both parties gain from the bailment (otherwise known as a mutual- benefit bailment).

8. What are the responsibilities and liabilities with regard to bailments? The responsibility of the bailee to the bailor depends primarily upon whom the benefit of the bailment falls. When the bailment is for the benefit of the bailor, as would be the case if a student (the bailor and owner of the books) wanted to leave his textbooks in the school locker of another student (the bailee and the person accepting the property) for the purpose of avoiding having to carry the textbooks to his own locker (at a much greater distance away), the only benefit is to the bailor. This is a gratuitous bailment for the benefit of the bailor only. In this instance, the bailee only need exercise minimal care to protect the books. Further, the bailee is only responsible to the bailor for the books if the bailee is greatly negligent with regard to protecting the books, for example, refusing to use the combination lock on the locker. In a bailment in which any benefit clearly accrues to the bailee, a different degree of care is required. For example, if one borrowed a friend's car, the owner of the car (the bailor) certainly does not receive any benefit, however, the person borrowing the car, and taking possession of the car (the bailee) would receive the only benefit- the use of the car for the convenience of the bailee. This too is a gratuitous bailment, however, here the bailee benefits. In any instance in which only the bailee benefits, the bailee must exercise great care of the property. If great care is not demonstrated and the bailment (property) is harmed or destroyed, the bailee is liable to the bailor. The single qualification is this; if the bailment is harmed or destroyed by a third party, or circumstances beyond the control of the bailee despite her best efforts, then the bailee is not responsible for the property to the bailor. Mutual-Benefit Bailment exists primarily in commercial business transactions. For example, one leaves her automobile in the care of the repair garage for the purpose of having the car repaired. The owner of the car expects to receive a repaired car and the owner of the garage expects payment for the services rendered for the repair. In this instance, the car owner is the bailor and the garage owner is the bailee. In mutual benefit bailments, the bailee is under obligation to use “reasonable care under the circumstances." This obligation is somewhat less stringent that the "extraordinary degree of care" required when the bailee receives the sole-benefit of the bailment, as discussed above.