Article

Pick Up and Delivery Versus Self-Storage Unit Rental
Is There Really a Difference? You Bet There Is!
by: Kenneth Piken, Esq

Mini-Storage Messenger
July 2004

The concept of portable vaults dates back to the luxury liners of the 1950s and 1960s where the vault was brought to your home so you could load for your cruise. It was then taken to your cabin so as not to burden you with such things as unpacking. What has now evolved are custom designed vaults that best suit the individual company and public elevators. They are stored in "locations unknown" and brought to the customer in return only upon full payment. The portable vault entity maintains care, custody, and control over the property.

Understanding The Concepts
In order to understand pick up and delivery (portable vault) storage and distinguish that from the rental of real estate (which is by most definitions the proper definition for self storage), it is necessary to start with Black's Law Dictionary, the recognized publication to attorneys (having been published since 1891). Black's defines bailment over the course of two and a half pages. The opening definition is "A delivery of something of a personal nature by one party to another, to be held according to the purpose or object of the delivery, and to be returned or delivered over when that purpose is accomplished" and that is citing a case from England going back to 1851.

There are various types of bailment:

Bailment for hire
Constructive bailment
Gratuitous bailment
Involuntary bailment
Lucrative bailment

All of these come up with the same generic category of care, custody, and control for another person's goods, but the level differs depending upon the type of bailment. For example, a gratuitous bailment is one that a reasonably prudent person would exercise under similar circumstances (courtesy package acceptance) without being compensated, as opposed to a bailment for hire which is virtually a safeguarding situation.

Section 182 of the Lien Law of the State of New York (which is one of the earlier lien laws enacted) defines self service storage as a rental of real estate. There is a sharp disparity between the rental of real estate and a bailment and merely using the appearance of mini storage (as is the case with portable vaults) does not negate the level of the duty that must be exercised.

Most states recognize the Uniform Commercial Code as one of the, if not the defining treatise in commercial transactions. Its definition of a warehouseman is quite brief, as stated in Section 7 102: "a person engaged in the business of storing goods for hire." It cannot be seriously suggested that a pick up and delivery service is not storing goods for hire. While that is true for physical contact such as holding one's watch for safeguarding, portable vault services do not give rise to that physical contact with the customer's property (personally). It is equally a far cry to suggest that the person is renting real estate.

So What Is The Real Issue?
It is interesting to note from a historical perspective that back in the 1980s when investment tax credits were in their full swing, many companies were utilizing the service of converted cargo containers and retro fitting them to mini storage units. There were enormous tax advantages, and most utilized all. However, the definition of the rental of real estate is to negate the transaction as that being one of mini storage rental rooms. It has been suggested in almost a comical sense that as long as the cargo container is affixed to the ground, it constitutes a rental of real estate, however, and is no longer qualified as an investment tax credit item.

Enter today and a different dilemma. The limitations of liability that have existed and evolved over the years have been continuously upheld by the courts. As long as there is no finding of fraud or overreaching on the part of the facility operator, the facility owner can readily protect itself from intrusive claims through the well known device known as "limitation of liability." There seems to be a variety of tracks to follow, one of which would be the limitation of liability per square foot basis. The other is lump sum value declared. With Appellate Courts upholding these, there seems no need for great concern and one would, of course, argue that the portable vault limitation should be upheld as well. While it is true at first blush that the limitation can be upheld in some form, some interesting case law has developed over the past 20 years. One of those cases has to do with the liability as a warehouseman and the burden of proof in such a case.

If the goods are somehow not present at the time of expected delivery or turnover, a creative plaintiffs attorney usually couches this in terms of conversion, i.e. you have converted the property of another to your own use. If conversion is established, then the civil equivalent of theft has occurred, and it is fairly universally held that the limitation of liability fails. The lead case is called ICC Metals v. Municipal Warehouse Co., 50 NY2d 657, 431 NYS2d 372, and the burden shifts. This was found by the Court to be fair and reasonable as to how the customer can possibly know what happened to their goods when they were entrusted to a warehouseman.

Once again, referring to the legal bible known as Black's Law Dictionary, conversion is defined as "an unauthorized assumption and exercise of the right of ownership over goods or personal chattels belonging to another, to the alteration of their condition or the exclusion of the owners rights." As in the case of bailment, actual physical contact must apparently be had with the goods before any of these claims can be asserted. In its simplest form, if you do not come into physical contact with the goods, there can be no bailment. If there is no bailment, there can be no conversion. If there is no conversion then, presumably, your limitation of liability will be upheld.

The purpose of the article is to define the differences between self service storage rental on the one hand, and on the other, pickup and delivery service, however, the concept of portable vault has not been identified and defined. There are many avenues and remedies that portable vault companies utilize, including the rental of designated floor space to define one's property with the transfer of the closet to be merely a convenience factor. Certainly, arguments can and will be made. Loopholes in the law involve risk, and once a loophole is not sought after, it can be pretty well established that the facility will not have a problem.

All is not lost. The facility conducting the portable vault operation can, in fact, have a bailment and still protect itself with limitation. The duty of care of a warehouseman as similarly defined by the Uniform Commercial Code is:

"A warehouseman is liable for damages for loss of or injury to the goods caused by his failure to exercise such care in regard to them as a reasonably careful man would exercise on the like circumstances, but unless otherwise agreed, he is not liable for damages which could not have been avoided in the exercise of such care."

The key to this definition is clearly the word "agreed." I as an operator, agreed to take certain risks. I do not agree to take others and if you and I cannot agree, we cannot do business or alternatively I am going to take whatever steps I deem necessary in which to protect my interests. This is a classic scenario of breaking down the law to its every day terms.

An interesting turn occurred in the courts in 1990 and the concept of presumption of theft and conversion was not extended to the transit portion of portable vaults (or trucking in general). The case that refused to extend the principle was Art Masters Associates Ltd. v. United Parcel Service, 77 NY2d 200, 566 NYS2d 184.

The ability to better utilize space is the goal of any real estate developer. Many facilities have integrated the services such as archive retrieval where customers pay for cube rather than square foot and still other facilities have integrated wine storage and cigar storage.

There can be little question that utilization of portable vaults for pickup and delivery services certainly better utilizes space. There are no hallways and dead office space to deal with, thereby increasing occupancy square footage upwards of 20 percent. The opportunity to stack containers also affords the company to double the rentable square footage, bearing in mind the cost of the vehicle, driver, liability insurance and, of course, the ultimate risk of that being categorized as a bailee for hire with the ultimate possible theft or conversion of a customer's goods rendering the facility absolutely liable.

Over the past 25 or 30 years, as this industry has developed, it is remarkable to note that conventional warehousing originated the industry. Self service storage clearly took the lead for many years and now warehouses (in a hybrid sense) have taken over, however, in a limited way.

Caveat to the operator, the transactions are sharply different with substantially different legal exposures and risks and one might find a facility relying on the limitation of liability only to learn that said limitation has been banished due to case law and definition of the transaction.

Kenneth M. Piken, ESQ, is a practicing attorney and senior partner in the New York based law firm of Kenneth Piken & Associates. Mr. Piken was General Counsel for the New York Self Storage Association for over 15 years, has lectured throughout the country, and has written numerous self-storage-related articles for major trade publications.

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This article is provided courtesy of Kenneth M. Piken and Associates with the permission of Mini-Storage Messenger magazine. © MiniCo, Inc. All Rights Reserved. It is not intended for further reproduction/distribution without the exclusive permission of MiniCo, Inc. www.minico.com

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