PART IV. Bailments

BAILMENTS

=225. Bailment Defined.= A bailment has been defined to be "A delivery of goods for the execution of a special object, beneficial to the bailor, the bailee or both, upon a contract express or implied, to carry out this object, and dispose of the property in conformity with the purpose of the trust." It is the giving possession of personal property to another for the purpose of having the property cared for, improved or used, with the understanding that when the purpose of the delivery is fulfilled, the property shall be returned to the bailor or disposed of according to his directions.

A bailment differs from a sale in that the title to the property remains in the bailor, and possession is given the bailee, while in a sale, the title or ownership of the property is transferred to the purchaser, while possession may remain in the seller. Bailment is a broad subject covering many transactions. Loans, pledges, and deliveries of property of every nature, in which mere possession is given another without transfer of title are included. If A leaves his watch with B, a jeweler, for repairs, the transaction is a bailment. If A delivers property to B, a transportation company, to be conveyed to C, the transaction is a bailment. If A loans his knife to B, the transaction is a bailment.

=226. Parties to a Bailment Contract.= There are two parties to a bailment contract. The one who gives possession of chattel property to another, reserving title to himself, is called the bailor, and the one who receives possession of the property under these conditions is called the bailee. A bailment is a contract. Parties to a bailment must be competent to contract. (See Competency of Parties, chapter on Contracts.) Parties under legal age may avoid contracts of bailment. If A, fifteen years of age, hires a horse from B, a liveryman, for one hour for $2.00, B cannot compel A to carry out his contract if A objects on the ground of infancy. But if A injures the horse he is liable in damages to B. An infant is liable for his torts, but not for his contracts.

=227. Classification of Bailments.= Bailments are usually divided into three classes; bailments for the sole benefit of the bailor, bailments for the sole benefit of the bailee, and bailments for the benefit of both the bailor and bailee. A common example of a bailment for the sole benefit of the bailor is a delivery of property to the bailee, to be kept by the bailee gratuitously for the accommodation of the bailor, or delivery of property to the bailee to have work performed on it, without compensation to the bailee. Examples of bailments for the sole benefit of the bailee are loans to the bailee without compensation to the bailor. Bailments for the mutual benefit of bailor and bailee include deliveries of property to carriers, pledges, renting property, or hiring the bailee to perform work on the property bailed, or hiring the bailee to care for the property.

=228. Elements of a Contract of Bailment.= It is sometimes said that a bailment for the sole benefit of the bailor is not a contract by reason of there being no consideration. A consideration may consist of any benefit to the party making a promise, or any detriment to the one to whom the promise is made. The giving up of the property bailed to the bailee is considered a detriment to the bailor, even though the bailee receives no benefit. For a transaction to constitute a bailment, there must be a delivery of the property bailed to the bailee, and an acceptance by him of the property. This delivery may be actual or constructive, as by delivery of a warehouse receipt, or a bill of lading. The delivery must be sufficient to enable the bailee to secure the possession of the goods, and to control the possession during the period to be covered by the bailment, to the exclusion of the bailor. The property must be in existence to be bailed. A contract of bailment need not be express; it may be implied as well--a thief or a finder of property is a bailee for the true owner.

=229. Title to Property Bailed.= The title to property bailed does not pass to the bailee. Mere possession passes to the bailee. It is not necessary that the bailor have title to the property to bail it. If he has right of possession he may, under certain circumstances, bail it. A may rent a livery stable, including horses and carriages, of B, for three years, with the understanding that he will operate the business in the usual way. A does not have title to the horses and carriages, but he may hire them to C, or to anyone he chooses. This transaction with C constitutes a bailment, in which the bailor does not have title to the property bailed. He has, however, sufficient right of possession to enter into a bailment contract. The principal distinction between a bailment and a sale of personal property is that, in the latter case, title passes to the purchaser regardless of change of possession of the property, while in the case of a bailment, possession of the property must pass to the bailee, while title is not disturbed.

=230. Bailments for the Sole Benefit of the Bailor.= Where personal property is deposited with another for safe keeping, or for the purpose of having work performed on it, without compensation to the bailee, the transaction is called a bailment for the sole benefit of the bailor. The liability of a bailor for the loss or injury of property intrusted to his care, depends upon the nature of the property itself, and upon whether the bailee receives compensation for his services. Three degrees of care and negligence, respectively, are recognized in bailments; slight, ordinary and great care, and gross, ordinary and slight negligence. What constitutes ordinary care or negligence is determined by considering what a man of ordinary prudence would do under the circumstances in question. Any case of negligence above or below this standard constitutes great care or gross negligence. If A, in going to lunch, leaves his umbrella in B's office, and the umbrella is stolen, B is not liable to A, if he exercised slight care. If A, a lawyer, is obliged to go to police court to try a criminal case, and leaves his diamond pin with B, a brother attorney, B is obliged to exercise only slight care, as in the case of the umbrella, and is liable only for gross negligence. But slight care means a much greater degree of care in case of the diamond pin than in the case of the umbrella. In case of a bailment for the sole benefit of the bailor, the bailee is obliged to exercise only slight care, and is liable only for gross negligence. He receives no compensation for the service, and for this reason is not obliged to exercise a great degree of care. Property cared for gratuitously for the accommodation of the bailor, or to be carried to some place, or to have something done to it gratuitously, constitutes this class of bailments.

=231. Bailments for Sole Benefit of Bailee.= Property loaned to a bailee for the latter's accommodation constitutes a bailment for the sole benefit of the bailee. A borrows B's horse to drive to Y. A pays B nothing for the use of the horse. A must exercise great care in the use of the horse, and is liable to B for slight negligence. It is no defense, in case the horse is injured while in A's possession, that A acted as an ordinarily prudent man would act under the circumstances. He must act as an ordinarily prudent man would act when exercising great care. If, from the circumstances connected with the injury to the horse, it is determined that an ordinarily prudent man would have been guilty of slight negligence in the method of handling the horse or causing the injury, A is liable to B for the injury to the horse.

A court said on this point, "A bailee who is a borrower must use extraordinary care to protect the property loaned to him, and is responsible for the slightest neglect. He must exercise all the care and diligence that most careful persons exercise in the transaction of their own affairs."

If the bailee uses the property for any purpose other than that for which it was bailed, or if he exceeds the authority of the bailor in the use of the property, he is liable for injuries resulting. For example, A borrowed B's oxen to plow up a hedge. A used the oxen to draw a load of stone. A stone rolled off the cart and injured one of the oxen. A was held liable for the injury.

=232. Bailments for Benefit of Both Bailor and Bailee.= The majority of bailments are for the benefit of both bailor and bailee. This class of bailments includes the hiring of personal property. A rents B's automobile for three hours, at three dollars an hour. This is an example of this class of bailments. This class also includes pledges or pawns of goods. If A pledges ten shares of stock in a corporation to his bank for a loan, this transaction constitutes this form of bailment. This also includes the hiring of a bailee to carry goods from one place to another. The most common example of this class of bailments is that of common carriers. For example, A employs B, an express company, to carry a package of jewelry from Cleveland to Chicago. The bailment is for the mutual benefit of both A and B. Any case in which one party employs another to carry goods from one place to another for compensation is included in this class of bailments, and is discussed more at length in the chapter on Common Carriers.

Hiring a person to care for personal property for compensation is included in the class of mutual benefit bailments. A traveling salesman leaving his trunk and satchel with a hotel-keeper is a common example. Where one person hires another to perform work or services on the thing bailed, the transaction constitutes a mutual benefit bailment. For example, if A leaves his overcoat with B, his tailor, to be cleaned and pressed, the transaction constitutes this form of bailment. In mutual benefit bailments the bailee has the right to use the property bailed only for the purposes of the bailment. If A rents B's automobile, he is entitled to use it during the period covered by the contract. If he rents it for a particular designated trip, he cannot use it for any other trip. In a mutual benefit bailment, when the bailee hires out the use of a chattel, there is an implied contract on his part that the chattel is fit for the purpose for which it is to be used, and that it may safely be used for such purposes. A rents B's naphtha launch for the purpose of taking a lake ride. B has carelessly supplied the wrong fuel. An explosion results, injuring A. B is liable for the injury. In mutual benefit bailments, the bailee is obliged to exercise ordinary care, and is liable for ordinary negligence.

The bailee must act as an ordinarily prudent man would act under the same conditions in protecting and caring for the property. A rents a typewriter of B. If the typewriter breaks or gets out of order during ordinary usage, B must stand the loss. If the parties to a bailment of this class specifically contract as to who shall bear the loss in case of accident, or as to the degree of care which shall be exercised, these express stipulations prevail.

=233. Warehousemen and Storage Companies.= A person who keeps a place for the storage of goods for a compensation is a warehouseman or storage-keeper. In a few states, public warehouses are provided for by statute. In these states, the statutes define the duties and liabilities of warehousemen. These public warehousemen are generally required to take all goods offered for storage, no matter who the owner may be, if the goods are in condition to be stored and if the storage charges are tendered.

Most warehouses operate their business as private enterprises. A few states provide by statute for public warehouses. Private warehousemen may select their customers. They are not required to accept goods for storage if they do not so desire. The government provides warehouses for the storage of goods upon which customs or duties are to be paid. These warehouses are private enterprises authorized by the government to act as government warehouses. The government requires a bond of these warehousemen for the protection of itself, but the government is in no way responsible for the warehouseman's treatment of the goods, or for breaches of contracts between the warehousemen and their customers.

Warehousemen commonly issue receipts for goods stored with them. These warehouse receipts ordinarily are made payable to the customer's order, and may be negotiated. They are not generally recognized as negotiable instruments. A few states have statutes making them negotiable instruments, but outside these jurisdictions, warehouse receipts are merely evidences of ownership of the property. The purchaser takes the same right to the property which the original bailor had, with the additional right to sue the transferor if the title proves defective.

A warehouseman has a lien on the property for his charges. The warehouseman or storage-keeper must exercise ordinary care in the protection of the property. The bailor must reveal to the bailee the character of the goods stored. If the goods are of a dangerous character and injury results, the bailor is responsible to the bailee for damages, if he has failed to reveal the dangerous character of the goods.

=234. Degree of Care Required of Bailee.= A bailee of property is required to exercise a certain degree of care in the use, preservation and protection of the property placed in his possession, and is liable for a certain degree of negligence. The amount of care a bailee is obliged to exercise, and the amount of negligence for which he is liable, depends upon the kind of property bailed, and whether the bailment is for the sole benefit of the bailor, the bailee, or for the mutual benefit of both the bailor and the bailee. If the property bailed is of great value, or so delicate that it is easily lost, destroyed or injured, a greater degree of care is required on the part of the bailee than if the property is of little value, or is of such a nature that it is not easily damaged, lost or destroyed.

If A, with B's permission, stores his wagon in B's barn, and the wagon is stolen, B is not liable unless he was grossly negligent. He was not paid for the bailment, and was obliged to exercise only slight care in the protection of the wagon. If, however, A leaves his watch with B while he attends a ball game, and the watch is stolen, B must have exercised greater care than in the case of the wagon by reason of the value and nature of the property bailed. Otherwise, he will be liable. In this case as well as in the case of the wagon, B received no compensation for the bailment, and is obliged to exercise only slight care in the protection of the property bailed, and is liable only for gross negligence. What constitutes slight care and gross negligence differs materially in the case of the wagon and in the case of the watch.

In connection with bailments, care is said to have three degrees, great, ordinary and slight. Negligence is also said to have three degrees, gross, ordinary and slight. Ordinary care or negligence is the standard for testing each case. After ordinary care or negligence is determined, slight or great care, and slight or gross negligence is determined by ascertaining whether the care or negligence is above or below ordinary. Any care greater than ordinary is great care; any care less than ordinary is slight care. Any negligence greater than ordinary is gross negligence. Any negligence less than ordinary is slight negligence. If a person takes such precautions in the use, preservation, and protection of the property as an ordinarily prudent person would take of his own property under similar circumstances, he is said to exercise ordinary care. The degree of care required of a bailee depends upon the kind of a bailment in question, as well as upon the kinds of property bailed.

If the bailment is for the sole benefit of the bailor, the bailee receiving no compensation for his inconvenience and work, he is required to exercise only slight care, and is liable only for gross negligence. If the bailment is for the sole benefit of the bailee, the bailor receiving no compensation for his inconvenience and the loss of the use of his property, the bailee is required to exercise great care in the use and preservation of the property, and is liable for slight negligence. In case of mutual benefit bailments, the bailee is obliged to exercise ordinary care in the use and protection of the property, and is liable for ordinary negligence. Two classes of mutual benefit bailees, innkeepers and common carriers, do not come within the above rule. These are known as exceptional mutual benefit bailments, and are discussed under separate chapters.

=235. Rights of Bailee as Against Bailor.= A bailee has the right to keep the property, to use it according to the terms of the contract of bailment, and to defend this right even against the bailor himself. While the title to the property in question remains in the bailor, the right of possession during the period covered by the contract of bailment is in the bailee. He may retain possession of the property for the purpose of the bailment. A bailee is entitled to use the property bailed, and is restricted only by the limitations of the contract. If the bailee uses this property in a way not authorized by the contract of bailment, he is liable in damages to the bailee.

Where a mutual benefit bailment requires the bailee to use skill in connection with the property bailed, the bailor must exercise a degree of skill ordinarily used by persons who perform similar work. If the bailee fails to use this degree of skill, he is liable in damages to the bailor. For example, if A leaves his horse with B, a blacksmith, to be shod, and B attempts the work, but performs it so unskillfully, or carelessly that the horse is injured or lamed thereby, B is liable to A for the damage caused.

=236. Rights of Bailee as Against Third Persons.= A bailee has the right to keep the property bailed as against third persons who endeavor to interfere with his possession. The bailee is not permitted to dispute the title of the bailor for his own benefit. If, however, the property is taken away from the bailee by action at law, by one whose title is superior to that of the bailor, the bailee is relieved from liability to the bailor. In this event, the one who has the paramount title coupled with the right of immediate possession, may take the property from the bailee. If the bailee yields possession to one whose right of possession and title are inferior to the bailor's, the bailee is answerable to the bailor for any losses sustained. The bailee cannot confer good title upon anyone to whom he attempts to sell the property bailed, even though the purchaser buys without notice of the bailment. Anyone who injures the property while it is in the possession of the bailee is responsible either to the bailor or bailee for the damages.

=237. Lien of Bailee.= A bailee who has performed work on the article bailed, for which he is to be paid a consideration, is said to have a lien for the value of the work performed, or materials furnished. By a lien is meant the right of the bailee to retain possession until the value of his labor or material has been received. At common law, a livery stable keeper had no lien upon horses fed and cared for. By statute in most states, livery stable keepers now have a lien upon horses left with them. If a bailee is employed to perform work or labor upon personal property, and the property is destroyed without fault of the bailee after part of the work has been performed, the bailee may recover for the amount of work performed and materials furnished, unless the contract of bailment is to the effect that the entire job is to be completed before any payment is made.

A bailee loses his lien by parting with possession of the property. At common law, a bailee could not sell the property to enforce his lien. By statute in most states, the bailee is permitted to sell the property, by giving notice of the time and place of sale to the bailor, or by foreclosing his lien by a legal action.

PLEDGES

=238. Pledge Defined.= A pledge is one form of a mutual benefit bailment. It is a deposit of personal property by a debtor with a creditor as security for a debt, the title to the property remaining in the debtor until the property is disposed of by the creditor in accordance with the express or implied agreement of pledge. A pledge differs from a chattel mortgage in that possession of personal property is given a creditor for the purpose of securing a debt, the title remaining in the debtor. In case of a chattel mortgage, the title to the personal property passes to the mortgagee, who is the creditor, subject to revesting in the mortgagor, who is the debtor, in case of payment of the mortgage debt. In a chattel mortgage, possession of the property generally remains in the debtor.

A owes B $100.00. He gives B possession of a diamond ring as security for the debt. If A does not pay the $100.00 when due, B may retain possession of the ring until he receives $100.00 from A, or he may sell the ring at public sale, advising A of the time and place of sale. If the ring sells for more than $100.00, B must pay A the excess of $100.00.

Pledges form an important part of present day business. Pledges of bonds, stocks and negotiable paper are common in transactions with banks. Banks commonly make loans, taking a promissory note secured by a pledge of stocks, bonds, negotiable instruments, or other personal property. Their loans are commonly called loans on collateral or loans on collateral security.

=239. Parties to a Pledge.= A pledge of chattel property is a contract express or implied. The party giving the property as security to his creditors is called the pledgor, the party receiving the property is called the pledgee. Like any contract, it requires competent parties. (See Competency of Parties, chapter on Contracts.) A person mentally insufficient, intoxicated, or an infant, is not competent to make a contract. An infant's contracts of pledge, like any of its contracts are voidable, but not void. The infant may carry out the contract if he chooses. An infant's contracts are not illegal. They cannot be enforced against an infant, however, if he objects by reason of infancy. A competent party, contracting with an infant, cannot void his contract on the ground of infancy of the other contracting party. Most contracts of pledge are implied. If A owes B $10.00 and gives B his watch as security, B impliedly has the right to retain possession of the watch until A pays him $10.00. B also has the right after A fails to pay him the $10.00 when due, to sell the watch at public auction, and apply as much of the proceeds as is necessary to the payment of his debt. In most pledges of importance where securities are pledged, the contract of pledge is reduced to writing, and a stipulation is made giving the pledgee the right to sell the property at public or private sale without notice to the pledger, and permitting the pledgee himself to be a purchaser at the sale. No matter what the contract of pledge provides, the sale should be public, notice of which should be advertised, and notice of the time and place should be given the pledgor.

=240. Personal Property Which May Be Pledged.= Any kind of personal property which is the subject of transfer may be pledged. This includes personal property having a tangible existence, as well as that which is intangible. That is, choses in action as well as choses in possession may be pledged. A promissory note, a certificate of stock, or a bond which is an evidence of something tangible or the right to obtain something tangible, is the subject of a pledge, as well as furniture, jewelry and other tangible personal property. Property which has no active or potential existence is not the subject of a pledge. A person cannot pledge a horse which he expects to purchase, or a crop which he expects to grow on the land of another. A person may, however, pledge a growing crop.

=241. The Debt Secured.= A pledge or delivery of personal property is for the purpose of securing a debt owing the pledgee. The existence of a debt is one of the essential elements to a valid pledge. A delivery of personal property to another in the absence of a debt may constitute a bailment for the sole benefit of the bailor, the bailee, or for the mutual benefit of both parties. To constitute a pledge, however, there must be a debt owing the pledgee, and the property must be delivered to him, and accepted by him as security for the debt. The debt must be legal, and must be supported by a sufficient consideration to support the contract of pledge.

A won $50.00 at cards from B. B gave A his watch as security for the debt. B was permitted to recover possession of his watch from A by legal action, since the gambling transaction was illegal. B did not legally owe A $50.00. An illegal debt cannot support a contract of pledge. If, for any reason, the debt is not owing or is not valid, it will not support a contract of pledge.

=242. Title to Property Pledged.= The legal title or ownership of personal property pledged remains in the debtor or pledgor. A right of possession is given the pledgee. This is sometimes called a special property. A pledge differs from a sale in that, in a sale, the title or ownership of the personal property passes to the purchaser, while the possession may remain in the seller. In a pledge, however, the possession passes to the pledgee or creditor, while the title remains in the pledgor or debtor. A pledge differs from a chattel mortgage in that, in the latter, the title passes to the creditor or mortgagee, subject to revesting in the mortgagee or debtor, upon the latter's paying the mortgage debt.

There is probably one exception to the rule that title to property pledged does not pass to the pledgee, and that is in case of negotiable instruments. A negotiable instrument endorsed in blank, or made payable to bearer passes like currency by delivery. A pledge of such paper passes title to the pledgee. A pledge of negotiable paper not endorsed in blank, or not payable to bearer should be made by proper endorsement. In this event title passes to the pledgee. The title is revested in the pledgor by proper indorsement, or by delivery, if the instrument is transferable by delivery, when the debt secured is paid. A pledgee of negotiable paper, who takes it before it is due without notice of defenses, is an innocent purchaser for value without notice, and as such, is entitled to the rights of an innocent purchaser for value without notice. (See Innocent Purchaser for Value Without Notice, chapter on Negotiable Instruments.)

=243. Collateral Securities.= Loans by banks are frequently made on collateral securities. This means that the borrower gives a bank a promissory note for the amount, and pledges personal property to secure the note. The contract of pledge may be by separate written instrument, or it may be made a part of the note itself. Where made a part of the note, the note is called a collateral note. (See Collateral Note, chapter on Negotiable Instruments.) Any kind of property which is the subject of a pledge may be used as collateral security. Stocks, bonds, and even commercial paper are commonly used. Jewelry, bills of lading, and warehouse receipts are not infrequently used in this kind of a pledge. Collateral security given as security for a promissory note or other negotiable instrument is a pledge. The rules governing ordinary pledges govern this kind of pledge as well. The only practical distinction between a collateral loan and an ordinary loan is that, in a collateral loan, the debt is evidenced by a negotiable instrument which is secured by a pledge of personal property.

=244. Rights and Duties of Pledgor and Pledgee.= A pledgor has the right to have his pledged property returned to him upon payment of the debt secured by the pledge. He also has the right to have the property carefully preserved and cared for while in the possession of the pledgee. The pledgee is entitled to retain possession of the property pledged until the debt owing him is paid. He may re-pledge the property if he so desires. If the pledged property is negotiable paper, the pledgee must collect the paper as it falls due, and observe all the requirements necessary to preserve the rights of the pledgor. If the property pledged is tangible personal property, the pledgee must use the care of an ordinarily prudent man in the preservation and protection of it. He is not permitted to use property which may be injured by use, and should not use the property except to the extent that it is necessary for its preservation. If the pledgee sells or transfers the debt secured, the purchaser is entitled to the benefit of the pledge. That is, if A owes B $500.00 and pledges five shares of stock to B as security for the debt, and B sells the debt to C, C is entitled to the benefits of the pledged certificates of stock. If B gives C possession of the stock, C may retain the same until he receives the $500.00 from A. If B does not turn over the shares of stock to C, C may bring an action to compel the transfer of possession to him.

=245. Disposal of Property by Pledgee After Default.= If the pledgor fails to pay the debt secured when due, the pledgee has the right to enforce his pledge. In the absence of any special agreement, the law impliedly gives the pledgee the right to sell the property at public sale, and apply as much of the proceeds of the pledged property as is necessary to the payment of his debt. This sale must be public. The pledgee must first notify the pledgor that he is in default of payment, and of his intention to sell the property, giving the time and place of the proposed sale. The pledgee cannot be a purchaser at the sale, unless so permitted by express stipulation in the contract of pledge. Many contracts of pledge are in writing, by the terms of which the pledgor waives notice of default and of time and place of sale, and permits the pledgee to sell at private sale, and to become a purchaser at the sale. When a pledgee is given the right to purchase by the contract of pledge, he cannot make a valid purchase without advertising the property, and without exerting himself reasonably to obtain the greatest amount possible for the pledged property at the sale.

In selling pledged property, notice of default should be given the debtor. He should also be notified of the time and place of sale. The sale should be advertised publicly, and should be public. The pledgee cannot himself purchase the property unless the contract of pledge expressly so provides. Even in this event, the sale will not be held valid unless it is public and fair in every way to the interests of the pledgor. A pledgee is permitted in some states to sell according to certain statutory methods provided. A pledgee may sell by foreclosing his lien in equity. This means by filing a written request in a court of equity to sell the property. In this event, the sale is conducted by order of court.

=246. Redemption.= A pledgor has the right to obtain possession of the property pledged, by paying the debt secured at any time before actual sale of the property. A pledgor sometimes agrees by the contract of pledge, to waive the right to redeem the property after default of payment of the debt secured. Courts will not enforce such a provision of the agreement against him. The pledgor is permitted to redeem the property by paying or tendering the amount of the debt at any time before sale of the pledged property. If the pledgor is in default of payment, however, and agrees by separate agreement, made subsequently to the contract of pledge, that the pledgee may keep the property pledged in satisfaction of the debt, he is bound by this agreement.

MORTGAGES OF PERSONAL PROPERTY

=247. Mortgages of Personal Property Defined.= By mortgage of personal property, is meant the transfer of title to personal property by a debtor to a creditor; the possession of the property usually remaining in the debtor, and the transfer being made for the purpose of giving the creditor security for the debt, the debtor having the right to secure a return of title to the property by paying the debt within a stipulated time. It is a conditional sale. It is not absolutely necessary that possession of property which is the subject of a chattel mortgage, remain in the debtor. Possession may be given the creditor with the understanding that possession and title are to revest in the debtor when the latter pays the debt secured. As a matter of business practice, however, possession of personal property which is the subject of a chattel mortgage, remains in the debtor, the creditor taking the title as security for the debt, with the right to secure possession or sell the property in case the debtor fails to pay the debt secured when due. When possession of personal property is given a creditor as security for a debt, the transaction is usually in the form of a pledge. In a pledge, title remains in the debtor, but possession is given the creditor. The distinguishing features of a sale, bailment or pledge, and a mortgage of personal property are important. In a sale of personal property title passes to the purchaser, while possession usually remains in the seller until the purchase price is paid. In a pledge, which is a form of a bailment, title remains in the bailor, and possession only is given the bailee or creditor. In case of a chattel mortgage, possession remains in the debtor, while title passes to the creditor subject to revesting in the debtor upon payment of the debt secured. The debtor, or person giving the mortgage, is called the mortgagor, the creditor, or person receiving the mortgage, is called mortgagee.

=248. What Kinds of Personal Property May Be Mortgaged.= The rule is usually stated as follows: Any interest in personal property which may be the subject of a present sale may be mortgaged. Any tangible personal property such as furniture, horses, cattle and clothing, as well as intangible personal property, such as promissory notes, contracts, and shares of stock may be mortgaged. It is not necessary that the mortgagor have absolute, unencumbered title to the property to give a mortgage. An owner may give several mortgages on the same property. He may mortgage his interest as long as any remains. If A owns a stock of goods worth $10,000, he may give successive mortgages to different creditors to whom he is indebted. He must practice no fraud, however. He must make each mortgage subject to the prior ones, and must reveal the facts to the creditor taking the mortgage. But he is permitted to mortgage his remaining interest.

=249. A Mortgage of Personal Property as Security for a Debt.= A mortgage of personal property is a contract, and must be supported by a consideration. Mortgages are usually given to secure loans of money. They may, however, be given to secure any kind of obligation. A mortgage of personal property may be given to secure advances of money to be made in the future, as well as present or past advances or obligations. It is usually held that a past indebtedness is sufficient consideration to support a mortgage, as to all persons, except one who may have been defrauded out of the property mortgaged.

=250. Form of Mortgages of Personal Property.= To constitute a transaction a chattel mortgage, there must be an agreement by which title to personal property is transferred to a creditor upon condition that it is to revest in the debtor upon the latter paying a certain sum of money, or fulfilling an obligation, within a certain time. As between the mortgagor and mortgagee themselves, an oral chattel mortgage is binding, unless within the provisions of the Statute of Frauds. (See Statute of Frauds, chapter on Sales.) Most states provide that contracts for the sale of personal property involving more than $50.00 must be in writing to be enforceable. This provision applies to chattel mortgages. If possession of the mortgaged personal property is given the mortgagee under an oral mortgage, the transaction is binding, not only between the parties thereto, but as to third persons as well. Most states provide by statute that as against third persons who purchase the property, or as against creditors of the mortgagor, the chattel mortgage must be in writing, and be recorded or filed with a public official, in case possession of the mortgaged property is left with the mortgagor. This question is discussed more at length in the following section.

=251. Filing and Recording Mortgages of Personal Property.= Most states have statutes providing that chattel mortgages must be filed or recorded with a designated public official to be effective as against creditors, subsequent purchasers or mortgagees. This requires that the mortgage be in writing, and be deposited or recorded according to the provisions of the statute with the designated public official. For example, if A orally mortgages his horse to B to secure a loan of $40.00, the mortgage may be binding between A and B, but if C, a creditor of A, secures a judgment against A and levies on the horse, his levy is superior to B's mortgage. If A sells the horse to D, who has no notice of the mortgage to B, D's rights to the horse are superior to B's. If A gives a mortgage in writing to E, who records his mortgage according to statute, his rights to the horse are superior to B's. The statutes of the different states require these mortgages to be refiled at stated intervals. Most states require them to be refiled each year. Some require them to be refiled only every three years.

=252. Rights of Mortgagor in Property Mortgaged.= A mortgage of personal property ordinarily contains a stipulation that the mortgagor shall retain possession until after default of payment of the mortgage debt. Some states have statutory provisions giving the mortgagor the right of possession of the mortgaged property before default of payment of the mortgage debt. It is the custom at the present time to give the mortgagor possession of the property before default. If a mortgagor having possession of the property has it stored on his own behalf, and the warehouseman acquires a lien on the goods for his charges, his lien is inferior to the mortgage. The same is true if a mechanic acquires a lien for repairs upon the property.

A mortgagor may mortgage his interest in the personal property by giving a second mortgage. The second mortgagee takes the mortgagor's right to have the property revest in him upon payment of the debt secured by the first mortgage. A mortgagor may sell his interest in the property, subject to the interest of the mortgagee. If the mortgage stipulates that a mortgagor cannot sell his interest, this stipulation is binding. A mortgagor has the right to pay the debt secured, and by this means to have the title to the property revest in him.

=253. Rights and Liabilities of Mortgagee.= A mortgagee of personal property has a conditional title to the property. If the mortgagor does not pay the debt secured, according to the terms of the mortgage the mortgagee has the right to seize the property or at least to subject it to the satisfaction of his debt. The mortgagee has the right to sell the debt secured by the mortgage. In the absence of an express stipulation to the contrary, a transfer by a mortgagee of the debt secured by the mortgage, transfers the mortgage. An assignment of a chattel mortgage apart from the debt secured, passes no interest to the transferee. A mortgagee has the right to seize the property upon default of payment of the debt secured, if the mortgage contains a stipulation to that effect. The mortgagee has the right to foreclose his lien. By this is meant that he has the right to file a petition in a court of equity asking that the property be sold, and that his claim be paid from the proceeds first, and that the mortgagor's right to pay the debt and secure a return of the property be cut off. This is discussed under the section on foreclosure.

=254. Mortgagor's Right of Redemption.= In law, a mortgage is regarded as a security for a debt, rather than as a transfer of property. By a chattel mortgage, a transfer of title to personal property is made by a debtor to a creditor as security for a debt. The debtor has the right, however, to secure a return of the title to the property by paying the mortgage indebtedness according to the terms of the mortgage. When the debtor fails to pay the debt when it is due, absolute title to the property vests in the mortgagee or creditor. The law, however, permits the debtor or mortgagor to pay the debt at any time before actual sale of the property by the mortgagee, together with interest and expenses, and thus secure the title to the mortgaged property. This is known as the mortgagor's equity of redemption.

Legal title is vested absolutely in the mortgagee upon failure of the mortgagor to pay the mortgage debt when due. The mortgagor, however, is permitted to pay the debt with expenses at any time before sale of the property, and by this means to secure a return of the title to the property. This makes a mortgage of personal property in effect a security for a debt, rather than a transfer of title. The purpose of the law is to give the creditor or mortgagee the right to secure the payment of his debt out of the mortgaged property, and nothing more. Most states have statutes providing a method by which a mortgagor may obtain his equity of redemption. Where there are no statutes, this right must be enforced by a petition in a court of equity.

=255. Mortgagee's Right of Foreclosure.= Equity permits the mortgagor to recover the mortgaged property by filing a petition in a court of equity, even after he has defaulted in paying the mortgage debt, by tendering the amount due, together with interest and expenses. This right of the mortgagor may be cut off by an equitable right enforced on the part of the creditor or mortgagee. This right is called the mortgagee's right of foreclosure. When the debtor or mortgagor is in default, the creditor or mortgagee is permitted to file a petition in a court of equity, setting forth the fact, and asking the court to order the property to be sold, the expenses to be paid, the mortgage debt to be satisfied, and the balance of the proceeds of the sale to be paid to the debtor or mortgagor. After this proceeding has been resorted to and completed, the debtor cannot enforce his equity of redemption.

The common method afforded a mortgagee of foreclosing a mortgagor's equity of redemption is by the petition in equity above described. Many of the states have provided statutory methods which may be followed. Some mortgages by express stipulation give the creditor or mortgagee the right to seize the property and sell same upon default of the debtor to pay. This takes the place of an equitable foreclosure. When a mortgage contains a power of sale stipulation, the mortgagee may seize the property when the mortgagor defaults, and sell the same at public sale. The excess recovered over the mortgage debt and expenses, must be paid the mortgagor. If possession of the property cannot be obtained peaceably, the mortgagee must bring an action in replevin, by which possession is obtained by an officer of the court. In some jurisdictions, a mortgagee is permitted to seize and sell mortgaged property upon default of the debtor, even though the mortgage contains no power of sale stipulation. The sale must be bona fide and public, or it can be set aside at the instance of the defrauded mortgagor.

CARRIERS

=256. Carriers Defined.= Carrier is the term applied to individuals or companies engaged generally or specially in carrying goods or passengers from place to place. The business of carriers has grown rapidly with the development of this country. The business of steamboat, railway, express, and electric package companies forms an important part of present day affairs. Carriers are usually classified as common or private. Both common and private carriers may carry either passengers or goods. Carriers of passengers are discussed in a separate chapter.

=257. Common Carriers of Goods.= A common carrier of goods is one who represents himself as engaged in the business of carrying goods from place to place for anyone who desires to employ him. A common carrier of goods is liable as an insurer of the goods. By reason of this exceptional liability attaching to a common carrier, it is important to know who are common carriers. Everyone who carries goods from place to place is not a common carrier. To constitute a person a common carrier, there must be a representation on his part of a willingness to carry goods belonging to anyone who desires to employ him for that purpose. A common carrier need not necessarily hold himself out as willing to carry all classes of goods. He may limit his business to carrying a peculiar class of goods, and still be a common carrier. It may be stated as a rule that anyone who holds himself out as willing to carry goods of any person is a common carrier. Common examples of common carriers are railroad companies, express companies, public transfer companies, and electric package companies. An express company, in holding itself out as willing to carry goods of any person, is a common carrier.

If persons carry goods only on special contract, and choose their customers, they are private carriers, and are not liable as insurers of the goods entrusted to their care. Anyone may engage in the business of a private carrier, and so long as he does not hold himself out as a common carrier, he cannot be compelled to accept for carriage goods against his will, neither is he liable as an insurer of the goods. A private carrier is an ordinary bailee. If he agrees to carry for compensation, he must exercise ordinary care, and is liable for ordinary negligence. The business of a common carrier is said to be one of the exceptional mutual benefit bailments. The exceptional liability of a common carrier is discussed under a separate section.

=258. Implied Liability of a Common Carrier.= In early days when pirates infested the seas and stagecoach robberies were common, it was an easy matter for a common carrier to conspire with robbers and thieves, in unjustly depriving the owner of the goods entrusted to the carrier's care. By reason of the opportunity given a common carrier fraudulently to deprive a shipper of his goods, the law at an early time placed the exceptional liability of an insurer upon a common carrier. The relation between a shipper and a carrier, after goods are placed in the hands of the carrier, is one of mutual benefit bailment. The liability of a common carrier, however, is not limited to the liability of an ordinary mutual benefit bailee. Common carriers and innkeepers are said to be exceptional mutual benefit bailees. This exceptional liability is placed on them by reason of the opportunity given them fraudulently to deprive the owners of their goods, and to compel the carriers to protect the goods against robbery and theft.

A common carrier is liable as an insurer of the goods entrusted to his care. He cannot avoid liability by acting as an ordinarily prudent man would act under the circumstances in protecting and caring for the goods, but he must actually protect them or be liable to the owner for their loss or damage. There are a few exceptions discussed under a separate section. If A employs B to keep, feed, and care for his horse for six months, for fifty dollars, and B puts the horse in his stable, where it is stolen, together with B's own horse, B is not liable to A for the loss of the horse, if he acted as an ordinarily prudent man would act under the same conditions. If, however, A delivers his horse to B, a railroad company, to be shipped from Buffalo to Chicago, and the horse is stolen from B's possession, B must pay A the value of the horse. He is not permitted to say that he exercised ordinary care in the protection of the horse. This is what is meant by the exceptional liability of a common carrier. While the reason for this exceptional liability of a common carrier has largely passed away by the practical extermination of highway robbers and pirates, the exceptional liability of common carriers remains as a part of the law. This exceptional liability is not a matter of express contract between the shipper and the carrier, but is impliedly a part of the contract.

=259. Exceptions to the Liability of a Common Carrier as an Insurer.= A common carrier of goods is not absolutely liable as an insurer of the goods entrusted to his care. If the goods are lost, injured, or destroyed by an Act of God, by a public enemy, by negligence of the shipper, by the inherent nature of the goods, or by the exercise of public authority, the carrier is not liable as an insurer.

By Act of God is meant an inevitable act arising without the intervention or aid of a human agency. A loss of goods by a storm, by lightning, or by earthquake is an example. If the goods are lost or injured as a result of any act of the shipper, the carrier is not liable as an insurer. A carrier is permitted to adopt and enforce reasonable regulations relating to the packing and shipment of goods. If the shipper negligently packs goods so that they are injured by reason thereof, the carrier is not liable as an insurer. If the shipper improperly addresses packages, and they are lost by reason thereof, the carrier is not liable as an insurer. If the shipper accompanies live stock, and injury occurs by reason of the carelessness of the shipper, the carrier is not liable as an insurer.

By public enemy is meant a power at war with a nation. This includes pirates. Mere insurrections, robberies, thefts, mobs, and strikes are not included in this class of public enemies. If a loss of goods occurs by means of public enemy, a carrier is not liable as an insurer of the goods. If the loss occurs through the inherent nature of the goods, without the negligence of the carrier, the latter is not liable as an insurer. For example, if fruit spoils as a result of warm or cold weather, if the carrier is not in any way at fault, he is not liable as an insurer, since the loss occurs on account of inherent defects of the goods. If animals injure themselves while in the carrier's possession by reason of their viciousness, or fright, which injury could not have been prevented by reasonable care on the part of the carrier, the latter is not responsible.

If the goods are lost or injured by reason of the exercise of public authority, the carrier is not liable as an insurer. If the goods, while in the possession of the carrier are seized upon attachment, or by levy on execution by the creditors of the shipper, the carrier is not liable if he promptly notifies the shipper.

=260. Limiting Common Law Liability by Special Contract.= The common law liability of a common carrier of goods is that of an insurer. It matters not how the loss or injury occurs, whether without, or through the carelessness of the carrier, the latter is liable for the loss, if it does not come within the recognized exceptions. Carriers commonly endeavor to limit their exceptional liability by making a special contract with a shipper, by the terms of which the carrier limits his exceptional liability in case of loss.

There is considerable conflict of authorities between the different states as to whether a carrier may limit his exceptional liability at all by special contract. Where permitted to limit this liability, there is considerable controversy as to the extent to which a carrier may limit his liability by special contract. The courts of most jurisdictions agree that a common carrier cannot limit his exceptional liability by special contract as to his own negligence or the negligence of his servants. This special contract by which a common carrier limits his exceptional liability as an insurer is usually in the form of a written contract signed by the shipper or in the form of stipulations in the bill of lading given to the shipper and called to his attention.

If a carrier accepts a carload of hay for shipment, without limiting his common law liability by special contract, and the hay is destroyed by fire, the carrier must respond in damages for the loss, regardless of his negligence. If, however, the carrier enters into a special contract with the shipper to the effect that the carrier shall not be liable for loss by fire, and the hay is destroyed by fire without negligence of the carrier or his agents or servants, the carrier is not liable in damages.

=261. Limiting Common Law Liability by an Agreed Valuation.= Common carriers frequently attempt to limit their liability for loss or injury to goods by stipulations in a bill of lading, that in case of loss, the valuation shall not exceed $50.00, or some specified amount. If the shipper does not notify the carrier that the valuation is a greater amount, the amount mentioned in the bill of lading is the valuation fixed by special contract. In case of loss there is a great variety of holdings as to whether a carrier may limit his liabilities to the amount mentioned in the contract. Probably the courts in the majority of cases hold that such a stipulation is valid in case of losses arising not by reason of the negligence of the carrier or his agents. The courts of a few jurisdictions hold that the stipulation as to valuation is good even as against the negligence of the carrier or his agent.

So far as interstate shipments are concerned, the question is settled by the Federal Interstate Commerce Act of 1906. This act provides that as to shipments from one state to another, such a stipulation is not valid. The language of the Interstate Commerce Act relative to this question is as follows:

A common carrier receiving property for interstate transportation shall issue a receipt or bill of lading therefor, and be liable to the holder for any loss, damage or injury to the property, and no contract, receipt, etc., shall exempt the carrier from the liability thereby imposed.

At present, so far as interstate shipments are concerned, a common carrier cannot limit his common law liability by a special contract.

=262. Bills of Lading and Shipping Receipts.= Bill of lading, or shipping receipt is the term applied to the receipt given a shipper by a carrier, when goods are delivered into the latter's possession. A bill of lading serves two purposes. It is a receipt of the shipper from the carrier for the goods delivered to the latter, and it is a contract representing the agreement between the shipper and the carrier. It is usually held that the terms printed on the bill of lading are binding on the shipper, even though the bill is not signed by him. A bill of lading represents the title to the goods. It may be transferred like a negotiable instrument. A purchaser takes the position of the shipper. A bill of lading is negotiable in the sense that it represents title or ownership of the goods, and in the sense that a purchaser takes the right of the shipper in the goods. But it is not negotiable in the sense that a purchaser takes a better position than the original holder had.

=263. Title to Goods After Delivery to Common Carrier.= In the absence of special agreement to the contrary, where a party in one town purchases goods from a party in another, the goods to be delivered by common carrier, title to the goods passes to the purchaser when the goods are delivered to the carrier properly packed and addressed. This kind of a sale is commonly called a sale F. O. B. place of purchase, "F. O. B." means "free on board." Careful business people, in making sales or purchases, specify whether the goods are to be F. O. B. place of shipment, or F. O. B. place of delivery. If the sale is F. O. B. place of delivery, title does not pass to the purchaser until the goods are delivered at the place specified. If the goods are lost by the carrier, the loss falls on the shipper or carrier, and not on the purchaser. If goods are shipped F. O. B. place of shipment, or if no agreement is made about shipment or payment of freight, title passes to the purchaser when the goods are properly delivered to the carrier. If the goods are lost, the loss falls on the carrier or purchaser, and not on the seller. Where no stipulation is made relative to payment of freight or carrier's charges, the law presumes that the purchaser is to pay the carrier's charges. Sales are sometimes made in which it is specified that the freight charges are to be allowed. This means that the shipper is to pay the carrier the freight charges. If the goods are lost, the loss falls on the purchaser. If there is an express stipulation that the goods are to be delivered at the place of delivery by the seller, this means that title does not pass to the buyer until the delivery is made at that place, and the shipper or seller stands the risk of loss in transit.

=264. Duty of Common Carrier to Accept Goods for Carriage.= A common carrier of goods holds himself out to the public as ready to carry the goods of anyone who desires to employ him. The carrier may demand payment of reasonable charges in advance. He may also enforce reasonable regulations relating to the packing, delivery, and addressing of goods. Carriers are not obliged to carry goods other than the kinds they purport to carry. For example, an express company representing itself to the public as a carrier of light packages cannot be forced to accept heavy machinery for carriage. A carrier cannot be compelled to accept goods not belonging to the class it represents itself as being in the business of carrying. But a carrier must accept for carriage goods of the class it purports to carry, no matter by whom tendered. If the bill of lading offered by the carrier contains stipulations not agreeable to the shipper, the latter may demand the carrier to carry the goods under the terms of the implied common law liability of a carrier. The carrier is excused from accepting goods in the event of a great and unexpected bulk of business. He must, however, furnish sufficient equipment to meet the general requirements of business.

=265. Stoppage in Transitu.= Where goods sold on credit have been delivered to a carrier, if the vendor learns that the purchaser is insolvent, he may order the carrier to withhold delivery of the goods. This is called stoppage in transitu. This question is also discussed in the chapter on sales. The vendor may compel the carrier to withhold delivery of goods by giving him written or oral notice to that effect. To be effective, this notice must be given before the carrier has surrendered possession of the goods to the purchaser. If the carrier delivers the goods to the purchaser after receiving notice from the seller to withhold shipment, he is liable in damages to the seller. If the purchaser has received possession of the bill of lading, and has sold it to a bona fide purchaser, as to the latter, the seller cannot exercise the right of stoppage in transitu. If the carrier is in doubt about who is entitled to possession of the goods, he may file a petition with a court, called an interpleader, asking the court to determine who is entitled to possession of the goods.

=266. Delivery of Goods by a Carrier.= The manner of delivery of goods required of a common carrier, depends largely upon usage and custom. In large cities, express companies and carriers of small packages usually make deliveries to residences and places of business. In small towns, and in the country they usually deliver at their depots or store rooms only. Persons dealing with common carriers are bound by their customs, and by reasonable regulations of the carriers. Carriers by water and rail ordinarily deliver at their depots and warehouses only. The purchaser is obliged to call for his goods. The carrier is obliged to give the purchaser notice that the goods have arrived. If the purchaser fails to call within a reasonable time thereafter, the exceptional liability of a common carrier ceases, and the liability of a warehouseman attaches. A warehouseman is obliged to exercise only ordinary care in the protection of the goods, while a carrier is an insurer of the goods.

If a carrier delivers goods to the wrong person, he is liable in damages to the owner. If the consignee refuses to accept the goods, the carrier should notify the shipper of this fact. The carrier's liability then becomes that of a warehouseman.

Goods are frequently delivered to a carrier C. O. D. (collect on delivery). A carrier, in this event, is required to collect a specified amount from the purchaser before delivery. The purchaser is entitled to inspect the goods. Title to goods sent C. O. D., is in the purchaser, the possession only being reserved by the owner for the purpose of collecting certain charges, ordinarily the purchase price.

=267. Charges and Lien of Common Carrier.= A common carrier usually stipulates by special contract with a shipper the amount of charges for carriage. In the absence of special contract, the carrier is entitled to a reasonable amount for this service. The United States Congress has the right to regulate charges for interstate carriage. The states may, through their legislatures, regulate the rates within their respective jurisdictions. A carrier has a lien on the goods carried for his charges, and may retain possession of the goods until these charges are paid.

=268. Discrimination by Common Carrier.= A common carrier represents himself as willing to carry the goods of anyone who desires to employ him. Business depends to a large degree upon the facilities offered by carriers, notably by railroads. If certain business men or interests are favored by carriers, competition in the same line is eventually destroyed. For this reason, the law prohibited discrimination on the part of a common carrier. All persons shipping under the same conditions must be treated alike. The policy of the law is to promote competition. There are cases which hold that a carrier is permitted to charge one person a less rate than another, if the latter is not charged an unreasonable rate. But this rule does not apply where the parties are competitors and where the difference in rate charged is for the purpose of destroying competition. The matter of discrimination is now regulated largely by interstate commerce legislation discussed under a separate section.

=269. Carriers of Mail.= The Constitution of the United States gives Congress the power to establish postoffices and post roads. Under this provision, the postoffice department has been created. It is a department of the government. While the postoffice department carries mail for compensation, it is a department of the government and not a common carrier. The government cannot be sued without giving its consent. It is an elementary principle that a government or sovereign power cannot be sued by its citizens. If the mail is lost, the government cannot be sued for damages. The government employs postal clerks, postmasters and mail-carriers to operate the postal system. These agents or servants of the government are required to give bond to the government. If they violate their contract, or neglect their duties, the government may collect its losses on these bonds. A person whose mail is lost cannot sue a postoffice agent on his bond. If, however, a person whose mail is lost can trace the loss to the carelessness of a particular postmaster or mail-carrier, he may sue such postmaster or carrier for damages sustained.

=270. Interstate Commerce Act.= The United States Constitution gives Congress the power to regulate interstate commerce. The United States Congress enacted interstate commerce regulations in 1887, 1889, 1891, 1895 and in 1906. The present United States interstate commerce regulation is commonly known as the Interstate Commerce Act of 1906. This act provides for an interstate commerce commission, consisting of seven members. Each member receives a salary of $10,000 a year. The act compels carriers engaged in interstate or foreign commerce to publish a schedule of charges for carrying property. Carriers who give rebates or offset, or discriminate between shippers in any way, are subject to heavy fines, and the officers and agents are subject to imprisonment. The commission is authorized to investigate the profits and charges of carriers, and to fix the maximum and minimum rates for carriage as well as the proportion of through rates to which each of several carriers is entitled. Persons discriminated against may make complaints to the commission. The commission may investigate these complaints as a court by summoning witnesses, and by taking testimony. The commission may award damages to the party injured. If the carrier refuses to comply with the orders of the commission, the latter may invoke the machinery of the United States courts to enforce its order. When matters are removed to a United States court, the finding of the commission makes out a prima facie case.