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Chapter 17Personal Property: Bailment and Insurance


1. The statement is partly true and partly false.

Finders are keepers, to some extent. It depends upon the nature of the finding.

If property has never been owned, or if it has been abandoned, then the first finderie
the first person to pick it up with the intention of exercising rights with respect to it
does acquire rights that are good against the whole world.

A person who finds property, knowing that it belongs to another person, also acquires
rights good against almost the whole world. A thief enjoys a possessory right that is
effective against everyone except the original owner (ie the victim of the theft).

A person who finds property that another person lost also acquires rights good against the
whole worldexcept a person with a superior right to possession.

In contrast, losers weepers is not entirely accurate. Although property cannot be fully
enjoyed unless it is re-possessed, a person who loses property continues to hold title. That
title will defeat the title acquired by a finder.

2. Tangible property are things that can be touched, whereas intangible property are
things that cannot be touched. Examples of the former include goods and chattels, such as
furniture and books. Examples of the latter include copyrights and trademarks.

A chose in action is a thing that can only be enforced through legal action. For example,
while a cheque itself can be touched, the right underlying it (ie the right to receive the
payment of money) can only be realized through a legal action. A chose in possession, on
the other hand, is a thing that can be physically possessed. It is, for instance, possible to
touch a desk or a fish.

3. The acquisition of property rights generally depends on an element of intention.

There are several possibilities.
Two people may enter into a contract whereby personal property is transferred
from one to the other, as in the case of the sale or lease of a truck.
One person may intend to give a gift, and the recipient may intend to accept it.
One person may intend to abandon property, and another may subsequently intend
to take control of the item. Likewise, one person may (without intention) lose
property, and another may subsequently intend to take control of the item.
Along a slightly different line, personal property rights can sometimes be acquired
through creation.
One person may spontaneously conceive a song or devise an idea for a book.

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Chapter 17Personal Property: Bailment and Insurance

4. A consignment is a type of bailment. A bailment is a legal relationship that exists

when one person (the bailee) has possession of a chattel that belongs to another person
(called a bailor). A bailment may take many forms, depending upon the circumstances
and the parties intentions.

A consignment is a particular type of bailment that occurs when an owner gives property
to another person for the purpose of selling it. The owner is called the consignor and
the person making the sale is called the consignee. When the consignee sells the
property on behalf of the consignor to a purchaser, ownership passes directly from the
consignor to the purchaser. The consignee only ever had control and possession of the
property for the purpose of making the saleit was never the owner.

5. As a general rule, a person is entitled to keep property that it finds on someone

elses premises only if the property is found in a public, as opposed to private, part of the
premises. However, if the property is found in an area over which the occupier had a
manifest intention to exercise control, then the occupier is entitled to keep the property.
Of course, in neither case do the finders rights trump those of the true owner.

6. Personal property rights do not last forever. They can be lost in several ways.
A persons right to a piece of property may be given up as a result of a contract, as
when a car is sold or rented to someone else. (All rights are lost under a sale,
whereas only some rights are temporarily lost under a rental.)
Personal property rights presume the existence of property. Consequently, the
rights are lost if the property is destroyed, as when a painting is totally consumed
in a fire. (In that case, however, the loss of the rights in the painting may be
replaced by a new set of rights to receive the benefits of an insurance policy.)
Property rights are not lost merely because the property becomes lost. The
situation is different, however, if property is abandoned, in which case the
relinquishment of the thing is intentional.
Property rights may be lost if a thing becomes attached to, or mixed with, land or
other personal property. An important illustration of that proposition involves
fixtures (such as dishwashers) that are attached to real property.

7. A fixture is a chattel that has been sufficiently affixed, or attached, to land (or to a
building, which is itself a fixture). Once a chattel becomes a fixture, it belongs to the
owner of the premises. In order to decide whether or not a chattel has become a fixture,
the court will consider the following factors.
Degree of Attachment A chattel is more likely to be considered a fixture if it is
actually attached to a building, than if it merely sits under its own weight.
Purpose of Attachment A court is influenced by the objective intention
served by placing the chattel in or on the premises. The key issue is whether or
not a reasonable person would believe that the chattel became part of the
premises. If it was installed in order to enhance the value of the premises, then it
is probably a fixture. In contrast, if the installation was merely done to make
better use of the chattel itself, then it is less likely to be a fixture.

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Chapter 17Personal Property: Bailment and Insurance

Tenants Fixtures Finally, there are special rules that would apply if the
premises were rented. The courts are concerned that tenants might unfairly lose
ownership over things that they add to their premises. The same rule applies to
trade fixtures.

8. A bailment occurs when one person temporarily gives up possession of property

with the expectation of getting it back. The bailor is the person who delivers the property
and the bailee is the person who receives the property. Even though the specific
possibilities for a bailment are virtually endless, every bailment fulfills the same three
requirements. First, one person must voluntarily deliver control and possession of
property to another person. Second, the property must be delivered for a particular
purpose. And, finally, the property must be delivered with the intention that it will be
returned or disposed of as directed.

9. As a general rule, a bailment exists only if one person intends to deliver control
and possession of property to another person. In contrast, a licence exists if one person
provides another person with permission to do something that would otherwise be
wrongful. Although the two concepts may be difficult to distinguish in practice, the
difference can have important consequences.

A good illustration of that distinction may arise if, for instance, you park your car on my
parking lot. If we have merely created a licence, then you are entitled to park on my land,
but you have not given me control and possession of your car. I therefore am not obliged
to protect your vehicle. In contrast, if I did receive control and possession of your car
under a bailment, then I will have some obligation to take care of your vehicle. The
distinction between a licence and a bailment is therefore critically important in terms of
risk management.

In deciding whether a relationship is a bailment or a licence, it is necessary to ask how a

reasonable person would view the parties intentions. A bailment will exist if, according
to the reasonable person, the parties intended for possession and control of the chattel to
be substantially handed over. Otherwise, there is only a licence.

10. It is not true to say that a bailor never has any obligations with respect to the
quality of the property. On the contrary, if the bailor is in the business of renting goods,
the law requires it to use reasonable care in providing appropriate equipment. (A rental
agreement is a bailment because the bailor expects that the property will be returned at
the end of the transaction.) For instance, if someone is injured as a result of using the
rental equipment, the bailor may be held liable if it knew, or ought to have known, that
the equipment was defective. The bailor may also be held liable if it fails to warn the
bailee of any unusual dangers, unless the bailee was already familiar with the type of
equipment it was renting.

11. Broadly speaking, a lien is a security device. It provides a way in which a creditor
can enforce a debt. There are basically two possibilities.

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Chapter 17Personal Property: Bailment and Insurance

Sometimes a lien allows a creditor to have a particular piece of property belonging to a

debtor to be sold in order to generate the money needed to satisfy a debt. In Chapter 16,
for instance, we considered the vendors lien and the purchasers lien that may arise in
connection with a contract to buy and sell land. If the purchaser does not pay the price
after receiving title, the vendor is entitled to have the land sold to a third party in order to
generate a fund from which the price can be covered. Similarly, if the purchaser has paid
a deposit, but the vendor has refused to complete the sale, the purchaser can have the land
sold to a third party if the vendor does not repay the deposit.

Chapter 17 considered a different type of lien. A debt may arise in connection with a
bailment. A property owner may fail to pay a warehouseman for the cost of storage. A car
owner may fail to pay a garage for cost of repairs. In some situations, the creditor may
have a statutory right to exercise a lien in the form of a forced sale. More commonly,
however, the creditor merely has a possessory lien. The creditor is entitled to retain
possession of the property until the debtor discharges the debt. If the creditor loses
possession because the debtor legitimately re-acquires the chattel, then the lien is lost
(though the debt, of course, remains outstanding).

12. The general rule in civil litigation is that the plaintiff must prove that the
defendant wrongfully caused a loss. However, in a bailment arrangement, the bailor
usually has little way of knowing exactly what happened to its property while it was in
the bailees possession. For that reason, the bailor (as plaintiff) may have a difficult time
satisfying the usual burden of proof. To alleviate that difficulty, the courts will sometimes
shift the burden of proof to the bailee who usually has direct knowledge of the situation.
That shift of burden is premised upon the satisfaction of several criteria. First, the bailor
must prove that the damage or loss occurred during the course of the bailment. Second,
the shift must not unfairly prejudice the bailee. If those requirements are met, the burden
will shift to the bailee, who must then show that it was not responsible for the loss. But
even then, liability will only arise from a failure to take reasonable care. The bailee can
avoid liability by proving that the loss occurred without its breach.

13. Because a bailment occurs when the bailors goods are in the bailees possession,
it is often impossible for the bailor to prove how the goods came to be lost or damaged
during the bailment. Consequently, once the bailor has established the existence of a
bailment, the law shifts the burden of proof by requiring the bailee to disprove
responsibility for any loss or damage. The bailee, however, is not a guarantor or insurer
of the goods, meaning that the bailee is not liable for instance every loss or damage.
Instead, the law merely requires the bailee to demonstrate that the loss or damage
occurred despite the fact that the bailee exercised reasonable care.

The defence of reasonable care is not available, however, in a case of deviance. The idea
of deviance refers to the fact that the bailee has failed to follow the bailors instructions
or requirements in dealing with the goods. That would be true, for example, if a
homeowner (bailor) left furniture in the possession of a warehouse (bailee). Even if the
bailor does not impose any express obligations, the normal implication is that the
furniture will be stored safely and unused. If the property is lost or damaged despite the

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Chapter 17Personal Property: Bailment and Insurance

bailees reasonable care in following those directions, liability would not be imposed. In
contrast, if the warehouse owner allowed the furniture to be used by a friend, then such
deviation from the owners instructions would bar the defence of reasonable care. The
bailee would be liable for any loss or damage, even if it had exercised reasonable care.

14. A common carrier offers to deliver any goods for any person in exchange for a
price. That does not mean, however, that every business that transports goods for a price
is a common carrier. The company must offer its services without reserving the right to
refuse to deliver some sorts of goods. For example, a trucking company that refuses to
transport fragile goods is not a common carrier.

15. The statement means that a court will generally hold a common carrier liable for
any loss or damage, even if it was not personally at fault. In that sense, the carrier insures
the property because it must pay money if the property is lost, damaged, or destroyed.
There are, however, three types of defences that may be available to a common carrier
once the shipper has established that property was not delivered in good condition.
War or Act of God A carrier is not liable if goods are harmed as a result of war
or an act of God, such as an earthquake or flood. In either event, however, the
carrier might be held responsible if it carelessly exposed the shippers property to
Inherent Vice and Shippers Fault A carrier is not liable if a shippers goods
suffered damage as a result of an inherent vice, which is a defect in the goods
themselves. Similarly, a carrier is not responsible for loss or damage that is due to
the shippers fault, as when fragile goods are poorly packed.
Exclusion Clause By far the most important defence arises from the use of
exclusion clauses. An exclusion clause is a contractual term that protects one
party from liability. As usual, judges interpret such clauses narrowly and insist
that they be sufficiently drawn to a shippers attention before a contract is created.
Furthermore, in the present context, exclusion clauses must be approved by the
Canadian Transport Commission to ensure that customers are treated fairly.
Within those limitations, however, exclusion clauses provide an important risk
management mechanism for both parties. The carrier is relieved of responsibility
and the person transporting the goods is alerted to the fact that it should purchase
property insurance.

16. A sub-bailment occurs when property that is already held under bailment is
transferred into a further bailment. The person who originally delivers the property is
called the original bailor. The person who originally receives the property and then
transfers it into a further bailment is called the bailee/bailor. The person who receives the
property under the subsequent bailment is called the sub-bailee. A bailee is only allowed
to place the property into a sub-bailment with the bailors express or implied permission.
Often the law recognizes that consent for a sub-bailment may come from the
circumstances unless there is evidence to the contrary.

17. Liability insurance is called third party insurance because it involves three
parties. The insured purchases a policy from an insurer. That policy indemnifies the

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Chapter 17Personal Property: Bailment and Insurance

insured if the insured is held liable to a third party. Consequently, while the essential
purpose is to protect the insured party from the financial burden of being held liable to a
third party, an important side-effect is to provide the third party with a source of
compensation for its own loss or injury. The point can be illustrated with a simple
example. You bought liability insurance from an insurance company. You committed a
tort against me and thereby inflicted a loss of $50 000. If you are held liable, your insurer
will indemnify you by paying $50 000 to me.

Property insurance is called first party insurance because it is intended to protect the
insured party directly, regardless of the participation of someone outside of the insurance
relationship. The point can be illustrated with a simple example. You owned an expensive
painting. You bought property insurance from an insurance company. The painting was
destroyed in a fire through no ones fault. The insurance company will pay the value of
the painting to you.

As a matter of risk management, most businesses should purchase both types of

coverage. The pool construction industry provides an excellent example. If an employee
carelessly leaves the gate open after filling a new pool with water, a child may
accidentally fall in and drown. The pool company would probably be held vicariously
liable for the employees negligence. As such, liability insurance would protect the
company from that sort of risk. And given that the pool construction industry often uses
expensive and specialized pieces of equipment, the pool company would benefit from the
protection afforded by property insurance in the event that the equipment is lost,
damaged, or destroyed.

18. Property insurance merely provides indemnification, which is reimbursement for

a loss that has occurred. Indemnification is never profitable and, at most, will provide a
way of avoiding the insureds loss.

The concept of indemnification is related to the requirement of an insurable interest. The

law prevents a person from obtaining insurance unless it has an insurable interest that
is, unless the person would benefit from the existence of the property and would be worse
off if it was damaged. In that way, the concept of an insurable interest is consistent with
the goal of indemnification insofar as a person can only be protected from a loss that it
could actually suffer.

The fact that property insurance is limited to the loss that has actually occurred means
that it is also important to avoid excessive insurance. A person cannot claim
indemnification for the same loss more than once. If a loss is covered by two or more
policies, the doctrine of contribution states that if the insurers can split the loss among
themselves. They are not required to pay, in total, more than the value of the insureds
single loss.

Because of the concept of indemnification, it is also important to avoid insufficient

insurance. Insurance companies often include co-insurance clauses in their policies that
state if the insured does not maintain a certain level of coverage, it may be held partially

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Chapter 17Personal Property: Bailment and Insurance

responsible if an accident causes a loss of a lesser extent. Put another way, if an accident
occurs and the damage to the insureds property is less than the required coverage, then
the insured will be a co-insurer to the extent that it did not buy enough coverage. Co-
insurance will be calculated as follows.

amount of coverage purchased x actual loss = insurers liability

minimum coverage required under clause

19. Property (or first-party) insurance consists of a contract between the insured and
the insurer. The insured is worried that its property may be lost, damaged, or destroyed. If
so, it will suffer a loss. It therefore purchases property insurance from the insurer. If and
when the property is lost, damaged, or destroyed, the insurer must pay a benefit to the
insured (eg the cost of replacement). If the incident occurred innocently, the story comes
to an end at that point.

The analysis is more complicated if the insureds loss was tortiously inflicted by a third
party. In that instance, there is a danger that the insured will double recover. The
tortfeasor may be sued for damages and the insurer may be compelled to pay a benefit.
Property insurance, however, is based on the theory of indemnification. In the event of a
loss, the insured is to be restored to the original position, but no more. Property insurance
is not intended to create a windfall in the insureds hands.

The issue of double recovery could be avoided by holding that the tortfeasor is immune
to liability once the insureds loss is covered by insurance. On that approach, however,
the tortfeasor would not be required to bear the cost of the damage that it wrongfully
inflicted upon the insured. It would have no incentive to act lawfully and with greater

Insurance law addresses those problems through the doctrine of subrogation. Subrogation
allows one party to stand in another partys shoes. Although it may operate in a number
of ways, the current question is concerned only with the concept of subrogation
associated with property insurance.

Having paid a benefit under the policy (thereby indemnifying the insured), the insurer is
entitled to be subrogated to the insureds tort claim against the tortfeasor. After the insurer
has successful prosecuted that claim, all of the parties are left properly situated. The
insured party is restored to the original position, but no more. The tortfeasor is compelled
to bear the cost of the wrongfully inflicted loss. And the insurer serves two important
social functions (ie indemnifying the insureds loss and holding the tortfeasor
accountable), while being entitled to operate a profitable business by retaining the
premiums paid by the insured for the protection.

20. Aside from basic property insurance and liability insurance, many specialized types of
insurance may be important for a business, depending upon the circumstances.
Business interruption insurance provides coverage for losses incurred as a
result of downtime. It can include, for instance, compensation for lost profits,

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Chapter 17Personal Property: Bailment and Insurance

wasted expenditures, and relocation expenses. It is important if, for some reason,
a business is forced to shut down operations for a time.
Key person insurance provides such a fund as protection against the loss of
important members of a business. A business may suffer a substantial economic
loss if an important member of its organization dies or becomes incapacitated.
Although that person will be missed, a company may find it easier to adjust to the
loss if it has access to funds with which it can hire and train a replacement.
Hacker insurance provides protection from the economic consequences of
computer saboteurs. The release of a single virus can easily cost the global
economy billions of dollars as websites crash and hard drives are erased.
Although the insurance industry is still coming to terms with that problem, hacker
insurance may provide an important safety net. Because of the potential size of
the losses, however, coverage tends to be expensive and therefore is often
practical only for enterprises that rely heavily upon the Internet, such as eBay and
Life, health, and disability insurance for employees and their families
provides protection in the event of health problems. Typically, the employer and
the employee reach an agreement in which both contribute to the cost of the
premium. The employers portion is part of the employees total remuneration
package. Such arrangements are advantageous to employees because, while they
could individually purchase insurance for themselves, the costs of group coverage
are substantially lower.
Bonds are used to provide comfort in some business contexts. A fidelity bond
provides coverage when an employee steals money, equipment, or other assets
from a business or one of its clients. First-party fidelity covers the companys
own property. Third-party fidelity covers property belonging to a client. A
surety bond is used to assure a client that it will be financially protected if a
job is not performed as promised. For instance, you may be concerned about a
construction companys ability to complete a new building on time. If so, you
might insist upon a surety bond that would allow you to receive compensation
from an insurance company if the project is delayed.


1. This is an interesting exercise because many students will find the answer to be
counter-intuitive. There is a natural inclination to believe that an apparent thief cannot
retain the proceeds of a crime. As a matter of law, however, rights of possession are
protected unless there is some positive basis for holding otherwise. As long as a person
can establish some right to possession, that right will prevail against everyone except a
person with a superior right of possession. Accordingly, the police in this exercise cannot
confiscate a chattel merely because they believe that Costello does not have the best right
of possession. Lawyers sometimes formulate that proposition by saying that there is no
general defence of jus tertiiie it is no defence to say that some third party has a
superior right.

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Chapter 17Personal Property: Bailment and Insurance

In the decision upon which this exercise is based, Lightman LJ held in favour of Costello
on the basis of orthodox property law principles. Costello, as possessor of the vehicle,
had a better right to the car than everyone except the true owner. He also explained that,
as a matter of tort law, possession ... is entitled to the same legal protection whether or
not it has been obtained lawfully or by theft or by other unlawful means.

[Based on Costello v Chief Constable of Derbyshire Constabulary [2001] 1 WLR 1437


2. This question requires an examination of the rules governing fixtures. A

distinction must b drawn between land and chattels; between real property and personal
property. A fixture is a chattel that has been affixed to land. The key concept is that once a
chattel is affixed to land, it is transformed from personal property to real property.
Consequently, ownership passes to the party that owns the land, even if the chattel was, at
the moment immediately before affixation, owned by someone else.

In the current case, the basic rule works in favour of Aust and against Froelich. Under the
terms of the conditional sales agreement between Lowe and Froelich, the oven belonged
to Froelich until Lowe paid the purchase price in full. Nevertheless, assuming that Lowe
affixed the oven to the property upon which the restaurant was operated, the oven ceased
to be a separate chattel that could be owned by Froelich, and it became part of the land
that was owned by Lowe. As such, the oven was subject to the mortgage that Lowe had
granted in favour of Aust. And since Aust was entitled to foreclose upon the real property
when Lowe failed to make his mortgage payments, she was entitled to acquire ownership
of the land and everything attached to it.

Froelich might respond with two arguments.

First, he might argue that the oven never lost its identity as a separate chattel
because it had not been sufficiently affixed to the land. However, while every case
turns on the facts, it is very likely that the oven would be considered a fixture in
the present circumstances. It was not merely resting under its own weight, but was
instead physically incorporated into the building itself. Moreover, the purpose of
that affixation was not merely to make better use of the oven, but rather to
enhance the value of the premises. In the circumstances, a reasonable person
would probably conclude that the purpose of the affixation was to make it part of
the property.
Second, Froelich might argue that the oven was a tenants fixture, and as such,
could be removed from the premises (as long as the removal would not cause
irreparable damage to the premises). That argument would fail, however, for the
simple reason that Lowe was not Austs tenant, but rather her mortgagor. The rule
therefore would not apply.

3. Although Helen actually purchased ownership of certain goods from Franklins,

her use of the shopping cart constituted a bailment. She was allowed to take control and

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Chapter 17Personal Property: Bailment and Insurance

possession of the cart for the purpose of transporting her goods to her car, at which point
the store would resume possession. Consequently, Franklins was the bailor and Helen
was the bailee. Furthermore, although students would have to work to realize the point,
Franklins was a bailor for reward. In other words, it received a benefit in exchange for
Helens use of its cart, just as it would if it expressly rented the trolley to her. The
relevant benefit to Franklins arose from the fact that customers like Helen indirectly gave
consideration for the use of its shopping carts by visiting the store (or perhaps, more
narrowly, by purchasing goods). Consequently, although the use of the cart did not fall
within the scope of the Sales of Goods Act (since it was obtained under a bailment, rather
than under a sale), the court would imply a condition into the bailment relationship that
would require Franklins to use reasonable care in providing a safe and functional cart to
Helen. In the circumstances, it apparently breached that obligation and therefore could be
held responsible for her injuries.

Although the point falls outside the scope of this chapter, students might also recognize
that Helen could sue Franklins in tort under the cause of action in negligence.

[Based in part on Cottee v Franklins Self-Service [1997] 1 Qld 469 (CA).]

4. This exercise raises the issues involving the acquisition and loss of property
rights. As a general rule, ownership of a chattel continues unless and until the owner
disposes of the asset with the intention to relinquish rights. A gift or a sale, for example,
involves not only a transfer of possession, but also the owners intention for title to pass
to the recipient. A mere transfer of possession, without more, is not sufficient to divest the
owner of title.

Just as property rights may be lost in various ways, so too they may be gained by various
means. A person who takes possession of ownerless property, with the intention of
asserting ownership over the chattel, acquires title. Likewise, the finder of lost property
acquires title to the property. That title, however, is good against the whole world except
the true owner. Accordingly, while the finder of lost property can assert rights against
every other person, the finder has no rights as against the true owner. The common law
thereby recognizes a hierarchy of rights.

The essential factual issue in this case is whether Wicks, or his agents or estate,
abandoned the property or lost the property. If the drawings were abandonedwith the
intention to relinquish ownershipthen Harnett was entitled to take possession, with the
intention to assert dominion, and thereby acquire the best title. Alternatively, if the Wicks
drawings were not abandoned, but merely misplaced or forgotten, then Harnett could
acquire property rights that were enforceable against the whole world except Wicks (or
his estate).

The trial judge held that the cartoons had been misplaced, rather than abandoned. The key
evidence pertained to Wicks lifelong desire to retain possession and ownership over all of
his work. In the circumstances, it was highly unlikely that he intended to abandon the
cartoons contained in the two garbage bags.

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Chapter 17Personal Property: Bailment and Insurance

Because Wicks retained a superior title to the drawings, Harnetts actions, in selling two
of the drawings and in refusing to hand over the rest, constituted the torts of conversion
and detinue. The court accordingly ordered Harnett to (1) pay damages of $425, and (2)
deliver up the remaining cartoons.

[Based on Wicks Estate v Harnett (2007) 48 CCLT (3d) 155 (Ont SCJ).]

5. This case requires a consideration of three aspects of personal property

ownership: (i) abandonment, (ii) first possession of abandoned property, and (iii) the right
to a remedy for infringement of a property interest.

Although the dispute arose between Popov and Hayashi, it is necessary to first set aside
the interests of Major League Baseball, the corporation that had purchased the baseball
and provided it for use in the game. As the owner of that baseball, MLB prima facie
would have enjoyed the right to sue anyone who interfered with its right to possession. As
some students might know, however, MLB has a standing policy of abandoning
ownership of balls that are hit into the stands. (The same is true of the NHL and hockey
pucks). A different policy applies, however, in the NFL and the CFL, presumably because
footballs cost more than $100, whereas baseballs and hockey pucks cost less than $10.
Footballs that enter the stands must be returned to the field, unless a player has
deliberately thrown it to a fan, in which case ownership passes to the fan and the player is
billed by the league. On that point, it is interesting to observe the soccer ball that David
Beckham, of the English national squad, booted into the stands on a missed penalty kick
during the 2004 European Championship in Lisbon. Although a fan managed to hide the
ball under his shirt, sneak it out of the stadium, and subsequently sell it on E-Bay, there
would be a strong argument, at least in Canada or the United States, that he had no right
to do so, and that the ball remained the property of, say, the organizing committee.
(Perhaps the laws or practices in Portugal are materially different.)

Once MLB abandoned property in the property, the baseball could be owned by the first
person to take control of it with the intention of asserting ownership. It is clear that Popov
intended to own the ball. On the evidence, however, he did not acquire sufficient control.
Although the ball began to enter his glove, the mob prevented him from completing the
catch. Hayashi, who was not part of that mob, then took control of the ball with the
requisite intention.

It would therefore appear that the ball belongs to Hayashi, rather than Popov. And if that
is correct, then Popov has no basis for suing Hayashi for the tort of conversion. In the
actual case upon which this question is based, however, McCarthy J of the Superior Court
of California purported to exercise his equitable jurisdiction to fashion a completely
new rule that he felt struck a better balance between the parties. It will be useful to quote
that judgment at length.

Mr Popov has not established by a preponderance of the evidence that he would

have retained control of the ball after all momentum ceased and after any

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Chapter 17Personal Property: Bailment and Insurance

incidental contact with people or objects. Consequently, he did not achieve full

That finding, however, does not resolve the case. The reason we do not know
whether Mr Popov would have retained control of the ball is not because of
incidental contact. It is because he was attacked. His efforts to establish
possession were interrupted by the collective assault of a band of wrongdoers.

A decision which ignored that fact would endorse the actions of the crowd by not
repudiating them. Judicial rulings, particularly in cases that receive media
attention, affect the way people conduct themselves. This case demands
vindication of an important principle. We are a nation governed by law, not by
brute force.

As a matter of fundamental fairness, Mr Popov should have had the opportunity to

try to complete his catch unimpeded by unlawful activity. To hold otherwise
would be to allow the result in this case to be dictated by violence. That will not

Here Mr Popov seeks, in effect, a declaratory judgment that he has either

possession or the right to possession. In addition he seeks the remedies of
injunctive relief and a constructive trust. These are all actions in equity. A court
sitting in equity has the authority to fashion rules and remedies designed to
achieve fundamental fairness.

Consistent with this principle, the court adopts the following rule. Where an actor
undertakes significant but incomplete steps to achieve possession of a piece of
abandoned personal property and the effort is interrupted by the unlawful acts of
others, the actor has a legally cognizable pre-possessory interest in the property.
That pre-possessory interest constitutes a qualified right to possession which can
support a cause of action for conversion.

Possession can be likened to a journey down a path. Mr Popov began his journey
unimpeded. He was fast approaching a fork in the road. A turn in one direction
would lead to possession of the ball he would complete the catch. A turn in the
other direction would result in a failure to achieve possession he would drop
the ball. Our problem is that before Mr Popov got to the point where the road
forked, he was set upon by a gang of bandits, who dislodged the ball from his

Recognition of a legally protected pre-possessory interest, vests Mr Popov with a

qualified right to possession and enables him to advance a legitimate claim to the
baseball based on a conversion theory. Moreover it addresses the harm done by
the unlawful actions of the crowd.

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Chapter 17Personal Property: Bailment and Insurance

It does not, however, address the interests of Mr Hayashi. The court is required to
balance the interests of all parties.

Mr Hayashi was not a wrongdoer. He was a victim of the same bandits that
attacked Mr Popov. The difference is that he was able to extract himself from their
assault and move to the side of the road. It was there that he discovered the loose
ball. When he picked up and put it in his pocket he attained unequivocal dominion
and control.

If Mr Popov had achieved complete possession before Mr Hayashi got the ball,
those actions would not have divested Mr Popov of any rights, nor would they
have created any rights to which Mr Hayashi could lay claim. Mr Popov, however,
was able to establish only a qualified pre-possessory interest in the ball. That
interest does not establish a full right to possession that is protected from a
subsequent legitimate claim.

On the other hand, while Mr Hayashi appears on the surface to have done
everything necessary to claim full possession of the ball, the ball itself is
encumbered by the qualified pre-possessory interest of Mr Popov. At the time Mr
Hayashi came into possession of the ball, it had, in effect, a cloud on its title.

An award of the ball to Mr Popov would be unfair to Mr Hayashi. It would be

premised on the assumption that Mr Popov would have caught the ball. That
assumption is not supported by the facts. An award of the ball to Mr Hayashi
would unfairly penalize Mr Popov. It would be based on the assumption that Mr
Popov would have dropped the ball. That conclusion is also unsupported by the

Both men have a superior claim to the ball as against all the world. Each man has
a claim of equal dignity as to the other. We are, therefore, left with something of a

Thankfully, there is a middle ground.

The principle at work here is that where more than one party has a valid claim to a
single piece of property, the court will recognize an undivided interest in the
property in proportion to the strength of the claim.

Here, the issue is not intent, or concurrence. Both men intended to possess the ball
at the time they were in physical contact with it. The issue, instead, is the legal

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Chapter 17Personal Property: Bailment and Insurance

quality of the claim. With respect to that, neither can present a superior argument
as against the other.

Mr Hayashis claim is compromised by Mr Popovs pre-possessory interest. Mr

Popov cannot demonstrate full control. Albeit for different reasons, they stand
before the court in exactly the same legal position as did the five boys. Their legal
claims are of equal quality and they are equally entitled to the ball.

The court therefore declares that both plaintiff and defendant have an equal and
undivided interest in the ball. Plaintiffs cause of action for conversion is
sustained only as to his equal and undivided interest. In order to effectuate this
ruling, the ball must be sold and the proceeds divided equally between the parties.

Students might ask whether McCarthy J reached an appropriate conclusion. On the one
hand, his judgment has a certain intuitive appeal insofar as it apparently allowed both
parties to win. On the other hand, the judgment is subject to several serious criticisms.
First, it appears that the judge simply formulated a new rule to deal with a difficult
situation. Time will tell whether this is another instance in which hard facts make bad
law. Second, the new rule arguably encourages litigation and hence raises court costs. A
rule that clearly favoured one party over the other might create more certainty and
predictability, and therefore better foster out-of-court settlements.

The story has an interesting coda. As ordered by the judge, the ball was sold by auction.
However, perhaps because of the delay, and perhaps because of the law suit itself (which
many people regarded as unseemly and selfish), the purchase price was only US$450 000
substantially less than the US$3 200 000 that the McGwire ball had fetched just a few
years earlier. Consequently, neither party had much reason to celebrate in the end.
Hayashi reported that his legal expenses were around $200 000, leaving very little, if
anything, for himself. Popov fared even worse. His lawyers presented a bill for $473 500
a whopping $248 500 more than his share of the sale proceeds. When Popov refused
to pay, he was sued by his lawyers.

In another interesting twist, Bonds home run ball was purchased by Todd MacFarlane,
who had also purchased the McGwire ball. MacFarlane is a Canadian (from Calgary)
who made his fortune with Spawn comic books. MacFarlane also features prominently in
Cases & Problems #10 in Chapter 5. As might be recalled, he was sued in defamation for
creating a vicious character named Antonio Twistelli (aka Tony Twist). Tony Twist,
unfortunately, is also the name of a former NHL player. The real Mr Twist took offence at
the suggestion that he was a bloodthirsty gangster, and sued in a St Louis court. An
American jury awarded US$24 500 000 in damages. That verdict was set aside on appeal,
but a second jury similarly found for the plaintiff and awarded US$15 000 000.

[Based on Popov v Hayashi 2002 WL 31833731 (Cal SC).]

6. This question can be answered in six steps.

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Chapter 17Personal Property: Bailment and Insurance

The basic rule is that once the bailor proves that its goods were lost during a
bailment, the burden of proof shifts to the bailee to prove that it did not carelessly
cause the loss.
In this case, however, OA would be subject to an even heavier burden. OA is a
common carrier because it offers, without reserving a general right of refusal, to
transport any goods for any person anywhere. Consequently, as a common carrier,
OA would be treated as an insurer of Mediterranean Imports silk.
An exception to that standard can arise, however, with respect to losses that occur
as a result of war. The facts of this case would appear to fall within that exception.
OA lost the protection of that exception, however, when it negligently chose a
route that exposed Mediterranean Imports cargo to the risk of war, even though
safe alternatives existed and indeed were adopted by other carriers.
In a last attempt to avoid full responsibility, OA would argue that paragraph 73 of
its contract with Mediterranean Imports limited its liability to $500, even though
the silk was valued at $500 000. A court likely would, however, interpret the
exclusion clause narrowly. And since the exclusion clause did not refer to losses
occasioned by war, it would not be applicable in this case.
Mediterranean Imports therefore probably would be entitled to recover $500 000
compensation from OA.

7. This question requires a very careful reading of the insurance policy. As

explained in the text, general principle of contra proferentem states that any ambiguity in
a document shall be construed against the drafter. Accordingly, an insurance policy, as a
standard form contract written by the insurance company, will be interpreted in favour of
the customer in a situation of doubt.

It also is important to read an insurance policy in context. In this case, Bobcat Marina
made it clear at the outset that it wanted the widest possible insurance policy.
Consequently, while it certainly was possible for the policy certainly to contain an
exclusion clause, any doubts would be resolved in favour of the customer.

The factual issue in this case pertains to the meaning of property in the exclusion
clause. If that term includes the dock and the forklift, then liability would be excluded
and the insurance company would not have to indemnify Bobcat. As held in the case
upon which this exercise is based, however, the term property actually is ambiguous.
Its scope is uncertain. The trial judge discussed those ambiguities.
The exclusion upon which Lloyds relies in relation to the forklift provides
that there is no coverage for damage to property unless such property is contained
in a securely locked building. I have noted that building [is] defined but the
word property is not. In construing an insurance contract, the court must look to
the entire document and reject words and provisions which are inconsistent with
its main purpose. Lloyds interpretation of its exclusion 2.3. makes no practical or
commercial sense. Property could mean real or personal property. It could
include possessory or other proprietary rights. Lloyds interpretation of the
exclusion would require the plaintiff marina to keep all of its ice chests, fuel
pumps, docks, chairs, tables, firewood and equipment in a securely locked

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Chapter 17Personal Property: Bailment and Insurance

building or compound all of the time. This makes no practical or commercial

sense. Exclusion 2.3. does not identify the hours the plaintiff was required to keep
its property all locked up. If the insurer intended to restrict its lock-up requirement
to after hours only, as asserted by its counsel, it could have and should have said
so. If Lloyds intended to exclude from coverage such equipment as the forklift,
then it should have and could have specifically said so in exclusion 2.3. by using
those words. It did not, opting instead to use the word property but leaving it
I find that exclusion clause 2.3. is too broad in relation to the interest that
Lloyds seeks to protect. Its meaning is unclear and ambiguous. Lloyds counsel
suggested that I read down the exclusion, in light of what now appears reasonable,
but I am not able to do so. If a court allowed such an approach, insurers would
bear less of the insured risk and could routinely require their insureds to agree to
the broadest possible covenants, knowing that insurers could later ask a court to
determine the maximum reasonable exclusion. In giving a broad and liberal
interpretation of the provisions of Lloyds policy, the policy must be construed
against its maker. To accept the position of the insurer would be to rewrite the
policy. I cannot do so.
A policy exclusion must be construed narrowly. The contra proferentem
rule of interpreting policies of insurance applies to interpret exclusion 2.3 in
favour of the plaintiff. The Lloyds policy should be interpreted, to that extent,
against its maker.

The Ontario Court of Appeal agreed.

First, the term property is not defined in the exclusion or elsewhere in
the policy. It is therefore unclear whether, for the purpose of the exclusion,
equipment in the nature of a forklift was intended to come within the scope of
the term property. We observe in this connection that it would have been a
simple drafting matter for the policy to state that, for the purpose of the s 2.3
exclusion, the word property includes all equipment. Yet, this language does
not appear in the policy.
Second, the s. 2.3. exclusion contains an exception for property that is
contained in a securely locked building, but the exclusion contains no language
indicating when the property that is subject to the exclusion must be secured in
a locked building or compound so as to trigger the exception to the exclusion.
Given all these circumstances, we agree with the trial judge that the
exclusion in question is ambiguous and, on a narrow construction, should not be
read to exclude the marinas indemnification claim in respect of the forklift.

[Based on 1599624 Ontario Ltd v Lloyds Underwriters [2007] ILR I-4621 (Ont SCJ),
affirmed on point (2007) 65 CCLI (4th) 187 (Ont CA).]

8. The parties relationship consisted of a bailment. A bailment exists when one

party, called the bailee, has possession of property that belongs to another party, called
the bailor. Bailment is a generic description of a broad category of relationships. The
circumstances giving rise to a bailment may vary widely. In this instance, the bailment

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Chapter 17Personal Property: Bailment and Insurance

took the form of a consignment. The plaintiff, as bailor, handed over the two Persian rugs
to the defendant, as bailee, for the purpose of having the goods sold to a third party.

Because the bailors goods are in the bailees possession, there is a danger that the
property will be lost or damaged to the bailors detriment. The law therefore requires the
bailee to act with appropriate care in protecting the goods. The care that is appropriate in
any given case depends upon the circumstances.

An important distinction is drawn between gratuitous bailments and bailments for

reward. The former occurs when the bailee does not anticipate receiving any benefit from
having possession of the bailors goods. The latter occurs when the bailee does anticipate
receiving a benefit as a result of having possession of the bailors goods. In this instance,
the parties relationship consisted of a bailment for reward. While the defendant was not
actually paid (because the goods were not sold under consignment), it was expected that
the defendant would receive a 20 percent commission upon selling one or both of the

The standard of care also is influenced by the nature of the goods on bailment. In this
instance, the goods consisted of valuable Persian rugs. So too, the standard would be
influenced by the fact that the defendant is an expert of sorts. She is in the business of
selling valuable goods on consignment. Finally, the content of the defendants standard of
care would be influenced by the fact that she had noticed two men acted suspiciously
with respect to the plaintiffs property.

In all of the circumstances, the standard of care expected of the plaintiff would be
relatively high. That is not to say, however, that she was an insurer of the plaintiffs
goods, as would be true of a common carrier. The defendant merely was required to act
with the level of care and prudence that a reasonable person would exercise with respect
to his or her own valuables.

Although students may plausibly come to a different conclusion, the court in the case
upon which this exercise is based concluded that, notwithstanding the loss, the defendant
acted with sufficient care. That seems right. The defendant had informed the plaintiff of
the dangers, she had taken the usual precautions (eg activating an alarm system), and she
took additional steps that were suited to the circumstances (eg hiding the rugs under other
merchandise). Indeed, it is the plaintiffs actions that seem careless. Despite being warned
of the risk of theft, she neither collected her property promptly, nor arranged insurance.

[Based on Backmirzie v 1500569 Ontario Ltd (Unreported 6 December 2010) (Ont SCJ).]

9. This question requires students to demonstrate an understanding of the nature of

property insurance, liability insurance, and the concepts of indemnification and
subrogation. It can be answered in six steps.
As a result of its first party property insurance, Western would be entitled to
indemnification from its own insurer, Fortress. Fortress therefore would pay $100
000 to Western.

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Chapter 17Personal Property: Bailment and Insurance

The principle of indemnification, however, means that while Western was the
victim of a tort committed by Thames (negligence or perhaps Rylands v Fletcher),
Western could not recover compensatory damages from Thames. If it did so, it
would receive more than indemnification. It would recover its loss twice; once
from Thames under the tort action and once from Fortress under the insurance
Fortress therefore would be subrogated to Westerns rights against Thames.
Consequently, Fortress would undertake, at its own expense, a tort action against
As a result of purchasing third party insurance, Thames would be entitled to
indemnification from Sentinel. The insurer would be required to pay any damages
awarded against the insured. Furthermore, as explained in Chapter 3, Thames
could also compel Sentinel to defend the action at its own expense.
Assuming that Westerns action against Thames was good, the end result would
be that Fortress would indemnify Western and then recover the same amount from
Although the point is not discussed in the text, Sentinel would shift that loss from
itself by distributing it among its various customers by means of the premiums
that it charges.

10. As discussed in the text, the Supreme Court of Canada in Kosmopoulos v

Constitution Insurance Co held that it was possible for a person to have an insurable
interest even if the property in question was owned by another person. The relevant
question is whether or not the person seeking insurance benefited from the existence of
the property and would be worse off if it was lost, damaged, or destroyed. In
Kosmopoulos, the court held that that test was satisfied because the person seeking
insurance coverage was the primary shareholder in a company that owned the assets in

This question is based on Romani v Symons General Insurance Co (1987) 25 CCLI 230
(BC SC). The facts are one step removed from Kosmopoulos insofar as Roma France Ltd
was never incorporated and Horst therefore was not a shareholder. Rather, Horst and his
brother simply agreed that Jurgens property would be used as part of a business that they
both would operate. In that situation, the British Columbia Supreme Court nevertheless
held that Horst did have a sufficient insurable interest and that the insurance company
was therefore required to honour the policy and pay the benefit when the property was
destroyed by fire.

Although students should be able to arrive at that conclusion, the question is primarily
aimed at testing their understanding of the applicable test. They should therefore focus on
the following facts: (i) Horst paid the expenses associated with transporting the goods
from France to British Columbia, (ii) Horst gave Jurgen $11 000 to invest in additional
supplies and equipment, (iii) the brothers formed the intention to use the property in a
company that they expected to operate jointly. Quite clearly, then, Horst benefited from
the existence of the property and, while he did not have any ownership rights, he suffered
a loss as a result of the fire.

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Chapter 17Personal Property: Bailment and Insurance

11. This question is intended to provide students with an additional opportunity to

work with the difficult concept of co-insurance. There are three scenarios. In each
instance, the co-insurance clause in the contract effectively required Nocturna to purchase
at least $48 000 worth of coverage ($60 000 x 80% = $48 000).

In the first scenario, the total loss exceeds the level required by the co-insurance clause.
Consequently, the co-insurance penalty would not be triggered and Nocturna would be
entitled to the full amount of coverage that it had purchased. Accordingly, although the
total loss was $50 000, Citadel would be liable to pay $30 000.

In the second scenario, the total loss is less than the level required by the co-insurance
clause. Consequently, the co-insurance penalty would be triggered and Nocturna would
be responsible to the extent that it did not buy sufficient coverage. Since it bought only
62.5 percent of the protection required under the co-insurance clause ($30 000 rather than
$48 000), it can recover only 62.5 percent of its actual loss (40 000 x 62.5% = $25 000).

amount of coverage purchased x actual loss = insurers liability

minimum coverage required under clause

$30 000 x $40 000 = $25 000

$60 000 x 80% (= $48 000)

In the third scenario, the total loss is again less than the level required by the co-insurance
clause. Consequently, the co-insurance penalty would be triggered and Nocturna would
be responsible to the extent that it did not buy sufficient coverage. Since it bought only
62.5 percent of the protection required under the co-insurance clause ($30 000 rather than
$48 000), it is, in the first instance, limited to 62.5 percent of its actual loss (30 000 x
62.5% = $18 750). And from that amount, Nocturna would be responsible for the $5000
deductible. In the final analysis, Citadel therefore would be required to pay $13 750.

amount of coverage purchased x actual loss = insurers liability

minimum coverage required under clause

$30 000 x $30 000 = $18 750

$60 000 x 80% (= $48 000)

12. The decision upon which this exercise is based described the facts as a classic
bailment case. As often is true, evidence is lacking. The plaintiff alleges that goods were
bailed to the defendant, but not returned. The defendant denies any knowledge of the
goods or their fate. While the law of bailment has developed some rules to help overcome
evidentiary difficulties, each case depends largely upon issues of credibility.

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Chapter 17Personal Property: Bailment and Insurance

A bailment occurs when one person temporarily gives up possession of property with the
expectation of getting it back. More specifically, a consignmentwhich is a type of
bailmentoccurs when an owner gives property to another person for the purpose of
selling it. In either event, the bailor or consignor, as the person who hands over the
property, remains the owner. The bailee or consignee, who receives the goods, acquires
possession, but not ownership.

A threshold issue in this case is whether the factual events actually occurred as alleged.
That is largely an issue of credibility. In the case upon which the exercise was based, the
judge accepted the plaintiffs allegation. He was influenced in that decision by (1) the fact
that the plaintiff was more candid and believable as a witness, (2) the list of forty items
that the plaintiff was able to produce, and (3) the nature of the parties long-term
relationship, including the fact that the defendant admitted receiving twenty-seven of the
alleged forty items. Following the usual private law standard of carethe balance of
probabilitiesthe court found that the plaintiffs version of events probably was true.

Having established the existence of the bailment, the plaintiff cannot adduce any
evidence as to the fate of the missing jewelry. That is a common problem in bailment
cases. By definition, the plaintiffs property is in the defendants possession. The plaintiff
therefore often has no way of knowing what has happened to the goods. For that reason,
the law has developed a special rule. Once the plaintiff has proven the existence of a
bailment, the burden shifts to the defendant to disprove any blame. In other words,
whereas the rules of civil litigation normally require the plaintiff to positively prove that
the defendant was responsible for a loss or injury, this special rule requires the defendant
to show that the loss or injury occurred without its own fault. If the court is provided with
no explanation at all, then the defendant is held liable.

Applying that rule to this case, the defendant has failed to dis-prove responsibility. By
simply denying the existence of the bailment, the defendant does nothing to counter the
presumption that the defendant was to blame.

[Based on Bel-Pas Jewellers Ltd (cob Marquis Jewellers) v 1365683 Ontario Inc (cob
Heritage Auctioneers) [2006] OJ No 516 (Ont SCJ) (QL).]

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