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Property I
University of Pennsylvania School of Law
Parchomovsky, Gideon

Property Outline – Parchomovsky, Fall 2011
        I.            INTRODUCTION: What is Property
A.      William Blackstone
·         Blackstonian Ideal of Property (1765-98): That sole and despotic dominion which one man claims and exercises over the external things of the world in total exclusion of the right of any other individual in the universe.
o    3 core elements:
§  1. Scope of Owners’ rights and powers (absolute dominion)
§  2. Number of Owners (ideally, 1)
§  3. Things (assets) – tangible/intangible
o    Modern view : derision of Blackstone; Property not actually absolute (ex: c/n pollute neighbor’s lands, eminent domain)
B.      Modern Definition of Property
·         Property law governs relationships among people that involve control over valuable assets. The rules of property mediate conflicting claims over valuable resources. (more fluid concept
o    Property = A Bundle of Rights :
§  (1) Right to Exclude
§  (2) Right to Use
§  (3) Right to Transfer
·         Intersection with other areas of law and 5th AM elevates to the status of life and liberty
C.      Rules v. Standards
·         Rules:
o    Advs – Certainty, Uniformity/Equality, Administrability (easy to apply); Lowers decision-making costs; lowers conflict/litigation costs; Fosters reliance (Investment)
o    Institution: Legislature
o    Adopt when clarity and certainty needed
·         Standards:
o    Advs: Flexibility (Fairness and lack of predictability for all situations); Dynamism (less exp to adjust): Saves cost of highly specified rule creation
o    Institution:  Courts
o    Adopt when system is likely to change over time and have many permutations
D.      Fairness v. Efficiency (ECONOMIC ANALYSIS)
·         Fairness – Vague notions of justice/equality, no one theory
·         Efficiency: Maximize wealth as measured in $$ terms.
o    Pierson Dissent: Eliminate all foxes and most efficient means is to give incentive to chase them.
·         PROBLEM: Goals and Means to Achieve them
o    Definition – Not clear to define goals we wish to pursue (ex Pierson – eliminate all foxes? 90 % of them?)
o    Values and Goals:  preferences change over time and what looks efficient in Time A is not in Time B (ex: Ghen – killing whales efficient now but what if society moves toward conservation)
o     Information affects how we react to goals and means à values to change over time (ex: Foxes become crucial to exco system)
o    Means –Skills/specialization : if we want to encourage skill, focus on result and not on pursuit.
E.        Note on Externalities
·         Externality: The effects of one’s actions on all other ppl, the cost of which is not fully borne by actor. Effect that 1st person is not forced to take into acct: C/Bs that they d/n consider.
o    Consumption becomes based not on what you pay but only on benefit that you want (i.e. drinking at a party)
·         Ex: Littering not eliminated because person who litters gets large marginal benefit but bears only minimal cost (municipal taxes).
F.       Property Regimes
·         Commons Property à Private Property
o    Pierson:  ferae nature animal becomes priv prop
o    Locke: mixing labor makes C à P
·         Tragedy of the Commons: Actors improve own condition to detriment of others.
o    Garrett Hardin: Freedom in the commons à ruins and overconsumption.  Commons dweller will externalize costs to other group members. Resources in commons will always be abused. (cf Pollution)
§  Ex: whole forest of trees will be chopped down because individual gets big benefit for small fraction of cost.
·         Common Ownership Models (not all bad as Demsetz says they are):
o    1. Open Access:  resources avail to all; no controls on use
o    2. Controlled Access: multiple owners agree on controls
·         Harold Demsetz Theory of Property Rights: Private Property
o    Utilitarian maximizing of welfare: Private property is best way to achieve the internalization of all externalities. Ideal of single owner in which all benefits and costs concentrated.
§  Common Property flawed because ppl d/n take into acct effects of actions on neighbors. Because owner c/not exclude others, lacks a direct incentive to economize in the use of land in a way that takes into acct effects on others. Private Property owners, however, will maximize land’s present value (broker whose wealth depends on how well he takes into acct effects of prop)
§  Involves Transition costs: define assets and rights, allocate rights, protect rights.
·         Factors that affect cost:  Demand increase and price increases; Preferences; Technology (helps lower cost of establishing, defining and protecting rights. Ex: barbed wire)
§  When benefits from internalization > transition costs, assets from common to private property
§  Ex of Fur and Native Am tribes in Canada – once fur d/n have value but when demand increased à made sense to est hunting grnds and PP rights in animals.
o    CRITIQUE:
§  1. VIRTUES of common ownership (Dem ignores in attacking specific form of open access). In real world, Social Norms might minimize externalities.:
·          Low cost of common resource management
·         Increases value of some resources
·         Sociability in atomized society
§  2. Hierarchical structures to minimize CO dangers
§  3. Imagines self-interest maximize who will engage in excessive grabbing
§  4. Imagines One Way Street Communal à Private. Reality could demand Private à Communal where costs of protecting PP too high. (ex: © law – file-sharing technologies have put pressure on private property there. Lessig pushes for all CO)
§  5. Apolitical world assumed.
·         Prop regimes established thru legislation w/ politicians who wish to maximize aggregate welfare as agents à in reality may act at behest of interest grps and c/not assume most efficient outcome.
§  6. Michael Heller : Tragedy of the Anti-Commons: Formalization of too many property rights à underuse of assets.
·         Ex: Prop in Russia – Holdup Problem that resulted from cumbersome prop rights system where 1 person owns store, another the window, etc etc.; IP – applying for next patent requires you to seek permission from all patents you used
§  7. Leaps from assuming efficiency-maximizing behavior of individs to efficiency-maximizing behavior of society.
§  8. Ignores how value-laden transition processes might be.
·         Ely: Property systems redistribute wealth in society
·         Reich: Property nourishes individuality/healthy diversity
·         Friedman: PP essential to political freedom. Alienability liberates individuals.
o    Opposition – Jeffersonian Civil Rs – tension arises from unfettered alienability.
      II.            Acquisition and Conflicting Claims
A.       Acquisition by Capture of Wild Animals
·         Theories of Obtaining Property Rights
o    1. First in Time:  First to Possess resource gains ownership over it (Pierson maj – means actual capture or mortal wounding)
o    2. Labor Theory (Locke): (Pierson dissent). (1) Ownership of Body; (2) Ownership of Labor; (3) Establish rights in external resources by mixing labor w/ external resources.
§  Starting point of common ownership à Private Property
§  Application to Pierson: Arguably, no Labor is “mixed” in getting to fox.
·         Wounded or Trapped Wild Animals
o    1. RULE of ACTUAL CAPTURE and Secure Possession (Pierson v. Post) (like First in Time)
§  General Rule: A person who first captures resources is entitled to them.
§  Wild Animals: If wild animals are captured, they belong to the capturer. Capture is required, and chasing is not good enough.
·         If animals has been mortally wounded  so that capture is almost certain then animal is captured.
·         Reasonable prospect of catching and pursuit is not good enough.
§  Modern Application: IP
o    2.  CUSTOM (When Possession Unattainable) (Ghen v. Rich) (Parking Spots)
§  General Rule: In some hunting trades, where custom thought to be more efficient in getting animals à different rule.
§  Applied when: (1) Custom embraces an entire business; (2) Custom is of limited application – specific, not broad; (3) Industry depends on the custom
§  WHY? Customs based on superior knowledge.
·         Crts likely to defer to social norms/industry practice when they are fair and align w/ greater social interest.
·         Assumption that groups know what is good for them.
·         General advantages of using norms : (1) Save in information costs; (2) Efficient way to coordinate behavior (3) Gap-filling where no law; (4) High cost to sue
§  Reasonable Custom (Ghen)
·         May be governed by Scarcity Principle (Parking spot “dibs” – amt of spots available determine how reasonable custom is)
§  CRITIQUE (of using Social Norms)
·         (1) Efficiency of the Custom (Ghen) based on changing values of the times
o    May not be efficient to all (ex: exclusionary norms)
·         (2) Problem with industry/social norms as law: Social norms are bottom-up, should they be binding
·         (3) Low Information Costs may not apply to all ( i.e. Outsiders)
·         (4) Problem with Enforceability
o    Does social punishment (ignore) work? Parch says yes,  social net works are very powerful
·         (5) Vagueness
o    But, so is law.
·         (6) No Formal Mechanism to Change
o    Ex: Long-lasting exclusionary norms in housing market
o    3. Maintaining Possession (Ghen)
o    4. No MALICIOUS Interference with the Right to Capture. FAIR PLAY. (Keeble v. Hickerengill)
§  General Rule: A person who d/n want to capture the animal cannot maliciously interfere w/ a person in the process of entrapping animals. They can, however, compete for the same animals.
§  Constructive Possession: Property owner has legal claim to animal while they are on his land but claim ends when they leave his land.
·         Relativity of Possession :
o    Good right in Poacher for Public Order – Poacher X has more right to wild animals he captures when he trespasses on Y’s property than all world except Y. C/not just jump on poacher
·         Termination of Rights in Animals
o    1. Animals Ferae Naturae  – when you release back into natural habitat you lose rights and animal then is subject to rule of capture.
o    2. Animals Revertendi (Domesticated) – if they return to wild, you cannot re-capture. Not subject to rule of capture.
§  Value in domestication for economy (don’t just let rights go away so fast)
§  Allowing animals to graze w/o risk of possession lowers monitoring cost
o    Liability upon release?
§  Can still be owner and have no liability (ex: gov releases animals into park, may have property rights but still not be liable for harm)
§  But can think you are no longer owner and have liability: release pet who bites à may be liable.
·         CASES
o    Pierson v. Post (NY 1805) (Tomkins) – rule of actual capture. First-in-time, First-in-Right. (goes against CUSTOM)
§  Issue: Post hunting on uninhabited beach w/ pack of hounds While he was in pursuit of a fox, Pierson intervened, shot the fox and carried animal off. Post sues – Who has occupancy in the fox?
§  Result: Pierson wins because he physically seized

me various sorts of strategic behavior: veto rights à majority rules
§  PROBLEMS: High set up costs, problem w/ minority, intensity of preferences not acted for
o    4. Regulation: Decider on how much each takes
§  PROBLEM: Info hard to get, costs of enforcement, regulator always looking for next job in industry he regulates.
o    5. Nationalization: Gov assumes ownership
§  PROBLEM: Inefficient monopoly
 
Water
·         1. Ground Water (like oil)
o    1. Absolute Rights (Free Use)à Rule of Capture (Minority Rule – ME): Owner can extract as much water as he wants from under prop even if à adverse effects to neighbors
§  Lockean Waste Limitation when used (c/not extract to waste)
o    2. Reasonable Use/Amount (Majority Rule): Owner can extract only reasonable amt subject to other SO’s rights to w/draw a reasonable amt from same reservoir
o    3. Correlative Rights :allows every SO to w/draw a certain portion of the ground water based on the % of the aquifer underlying the property.
·         2. Streams and Lakes
o    Nature of water makes for problematic rules: ever-changing resource.
o    Rule 1 of Reasonable Use [E Coast]: Every riparian owner has the right of use, subject to the same rights of other riparian owners to do the same (i.e. reasonable use); Can divert water so long as not harmful to those downstream.
§  Stratton v. Mt. Hermon Boys’ School  (Mass Appellate Court, 1913) –  Diversion itself should not lead to damages; need showing of actual damage.
·         P, owner of mill on small stream, sues D, upper riparian proprietor of boys school for wrongful diversion to non-contiguous land.
·         Holding:  Stratton could show enough harm to establish harmful diversion.
§  PROBLEMS – it’s too “equal”!
·         (1) Indeterminacy of Reasonableness (stated by Stratton court)
·         (2) Does not maximize efficient use/Ignores relative efficiency of competing uses àex: riparian owner w/ old mill that needs a lot of water.
·         (3) Impossible burden of information for each neighbor
·         (4) All Riparian owners w/ some benefit à Absurd results in drought
·         (5) Ignores potential/relative suitability of land (some better suited)
·         (6) Asset Configuration; leads to many skinny lots.
o    Rule 2 of Superiority of Right by Appropriation for Beneficial Use [West Coast states]: Riparian owner gets first in time rights if they use for beneficial reasons
§  Coffin v. Left Hand Ditch Co (CO 1882): Award appropriation with ownership.
·         Facts: P claims to own prop by virtue of appropriation of water that’s carried to ditch and used to irrigate land. Beneficial agricultural use.
·         Holding:  P has right to use water they’ve appropriated.  Diversion is not improper use that works against ownership; Appropriation > Riparian Ownership
·         Policy: (1) Approp rule in CO because water has high value and arid climate w/ little rainfall so state/nat’l gov encourages diversion and use of water for agriculture.; (2) In  West, protection of investments made in reliance on prior use. D/n want  to prevent useful/profitable cultivation.
§  PROBLEMS:
·         (1) Monopoly via appropriation
·         (2) Incentive to be first in time à Premature Investment
·         (3) Incentives to overconsume
o    Ex: In arid state, want to est prior right
·         (4) Relative efficiency of competing uses not considered
·         (5) Barrier to Entry: Current/Prior users protected @ expense of future users (ex: 19th C, good for agriculture and now you want water to cool down servers)
·         3. Diffuse Surface Water  (ex: rain on prop, melted snow)
o    ISSUE: Disposal and Discharge – Liability instead of Acquisition (what happens when you try to get rid of it)
o    1. Natural Flow Doctrine (Rule at Common Law): Can drain SW in natural drainage paths as long as (a) d/n change flow; (b) d/n  change amt of water à not liable for damages as result of activity.
o    2. Common Enemy Rule (Complete Immunity) (Minority): Dispose of unwanted SW in any way, so can neighbors. Neighbors must self-protect.
§  PRO: parties =ally situated w/ respect to risk
§  CON:
·         No symmetry: unlevel land where water flows down, pond on 1 prop
·         Certainty: Highly uncertain effect in which you never know how neighbors will harm you. Property supposed to be stabilizing.
§  Where it’s law, limited to  not negligently causing avoidable harm to neighbors
o    3. Reasonable Use Rule (Majority): B