Class 1: What is Property?
2 Conceptions of Property: 1-22
1. Traditional view: Property is a right to a thing that is good against the rest of the world (in rem)
2. Modern conception: Property is a collection of rights, with content that varies according to context and policy choices (bundle)
Jacque v. Steenberg Homes (Supreme Court of Wisconsin, 1997)
Facts: Jacques are the landowners; Steenberg Homes wants to deliver a mobile home and they determine that the best route is through the Jacque’s land.
– Steenberg asks permission, Jacques don’t grant it, but Steenberg goes through anyway
– Steenberg assessed a $30 citation, Jacques sue for intentional trespass – there is no damage caused to Jacques property, jury awards $1 in nominal damages but $100k in punitive damages
– Steenberg appeals the award of punitive damages claiming that the award of nominal damages will not sustain such a high punitive damages award
– Three questions before the court: 1) can award of nominal damages for intentional trespass to land support punitive damage award; 2) whether law can apply to present case; 3) is $100k in punitive damages in this case excessive?
Holding: 1) when nominal damages are awarded for an intentional trespass to land, punitive damages may be awarded according to the jury’s discretion; 2) this applies to the present case; 3) award of $100k in punitive damages is not excessive
Reasoning: Both the individual and society have significant interests in deterring intentional trespass to land, regardless of lack of measurable harm
– The right to exclude is one of the most essential sticks in the bundle of rights; that right has no meaning if it’s not protected by the State
– Intentional trespass causes actual harm to the individual and society regardless of whether or not that harm can be measured in dollars
– People expect wrongdoers to be punished – punitive damages has that effect
– $30 citation is not likely to restraint Steenberg from similar conduct in the future
– Harms of intentional trespass include loss of feeling of security and violation of personal space
– Theories supporting the court upholding the punitive damage award:
a. Loss of opportunity to use land
b. Harm to society by not deterring/ setting bad precedent
c. Prevention of violence: $30 citation will not likely deter conduct, so awarding punitive damages is another method of punishment and that serves to discourage people from taking the law into their own hands
d. Privacy: Protection of property-owners expectation of privacy
e. Physical feeling of lost protection
f. Respect for the law: Courts should back up what the law says meaningfully
g. Exclusion from property: fundamental/traditional property right (fear of adverse possession)
h. Violations to personhood
– Jacque rule channels people to seek advance permission, which is economically efficient because it encourages people to plan ahead and gives owners opportunity to warn/give notice
Hinman v. Pacific Air Transport (9th Cir., 1936)
Facts: Plaintiff sues Defendant commercial airline operator on ad coelum theory for trespass because it operates planes at less than 100 feet above the Plaintiff’s land
Holding: No trespass, so holding for ∆.
Reasoning: Plaintiffs sue on ad coelum theory – when you own land, you own “from the center of the earth to the sky”
– Court rejects this theory because it was invented at a time when the use of space above the land was confined to narrow limits – modern life makes that rule impractical
– The phrase/rule was never meant to be taken literally – if so, it would produce an absurdity
– Instead court invokes possessory theory – if you can possess the space, it’s part of your property
– The air is incapable of private ownership, except insofar as one may actually use it
– Plaintiffs allege no specific injury, and therefore, they state no claim upon which relief can be granted
Class Discussion: Epstein says: this actually is a trespass, but damages are really small, and you get a benefit yourself in that you get to trespass over other people’s land “implicit in kind compensation” (Wagner thinks not so much)
– Now we think of airspace and waterways as public property – individuals can’t possess
– The exception is if you build up, then that is your airspace.
Two Philosophical Views of Property
1. J.E. Penner: Property is the right to exclude people from a thing, rather than elaborating the right to use – it doesn’t have to do with people, it’s about the thing itself (in rem)
A. The thing always has the same rules regardless of owner/parties
B. In rem right: creates duties in a large and indefinite class of others, inherent in the thing
i. Vs. in personam rights: duty in a small and definitely ascertained number of others (classic example: contract)
2. Tom Grey: Property is a “bundle of sticks” – each right (i.e. to divide, mortgage, etc.) is a stick
A. Not a unified view – instead there are lots of different rights, each contingent on others
a. can be owned by more than one person
b. Owner can sell off particular aspects of control
c. Can be sold off in temporal dimensions.
Class 2: What is Property?
The Trespass/Nuisance Divide: 22-40
1) A nuisance is an unreasonable interference to property. Protects the use and enjoyment of land.
a. Private Nuisance: Intentional and unreasonable, or negligent/reckless, or creates dangerous conditions. Affects a small group.
b. Public Nuisance: An unreasonable nuisance on land causing a general public problem, for example pollution.
c. Reasonableness is evaluated by balancing (1) the gravity of the harm with the (2) social value of the activity alleged to cause the harm (“utility of conduct”).
d. Invasion theory of nuisance: a nuisance only occurs when something comes over the property.
e. “Normal use” theory of nuisance: nuisance disputes are decided by enforcing the general understanding in the relevant community of what constitute “normal uses” of land.
f. Temporal priority theory of nuisance: The first use to be established is given a presumption of validity relative to a later, incompatible use.
g. “Neighborliness” theory of nuisance: Ask whether the defendant or the plaintiff has been acting in a way consonant with the general norms of “neighborliness.” For example, this theory would lead to a finding that a spite fence is a nuisance.
2) Hendricks v. Stalnaker (p. 23)
Hendricks v. Stalnaker (Sup. Ct. of Appeals of W.V. 1989)
Facts: Water well and septic system could not coexist within 100 ft of each other. Hendricks and Stalnaker had adjacent lots. Hendricks sued under theory that water well was nuisance. Stalnaker installed the water well one day before the septic system would have been approved. Hendricks won below. Jury found that the water well was a nuisance and the trial judge ordered it to be abated. No damages awarded.
Holding: Well was not a nuisance. Stalnaker wins.
Legal Reasoning: The conduct was not negligent, reckless, or abnormally dangerous, so to be a nuisance it must have been intentional and unreasonable. Although it was intentional (because Stalnaker intentionally built the well), it was not unreasonable. Unreasonableness is determined by balancing the competing landowners’ interests. The balance is at least equal, if not in favor of the water well.
· Note that the court does not perform a rigorous cost-benefit analysis even though it claims to do so.
· Hendricks seems to lose because Stalnaker installed the well first. This is problematic, because it’s hard to know who is first in many situations, and it encourages rushing and a possible waste of resources.
· Another reason for Stalnaker’s win is that it was a tie, and Hendrick’s bore the burden of proof.
3) How do intentional trespass and intentional nuisance compare?
a. Intentional trespass: It doesn’t matter if it was a reasonable trespass. Strict liability.
b. Intentional nuisance: Unreasonableness and harm are elements.
4) EXCLUSION vs. GOVERNANCE
a. Exclusion strategy (decisions about resource use are delegated to an owner who acts as the manager or gatekeeper of the resource)
b. governance strategy (focus on particular uses of resources without regard to other attributes of the resource).
1) In a transaction-cost-free world, entitlement doesn’t matter because either way the higher value use will occur.
a. But, there’s no such thing as a costless transaction, so entitlements do matter.
i. So, entitlements should be given to the highest value user, because that will approximate the idealized world with no transaction costs.
b. Also, causation (who caused the harm) doesn’t matter, because both parties cause the harm: if either party were not there, there wouldn’t be any harm.
2) Farming/Ranching example:
a. Cattle eat/trample the crops, so there’s an inconsistent use between the neighboring farmer and rancher. So, who should get the entitlement? Coase says in all these cases, there’s a more valuable use for the land.
i. So, if you give the farmer the entitlement, and farming is more valuable, there will be no transaction and there will be farming on the land.
ii. But, if the entitlement is given to the rancher, the farmer will pay to be able to farm. He’ll pay up to the value of the farming.
iii. So, in either situation, the higher value use (farming) will occur. So, the entitlement does not matter.
3) Limits to the Coase Theorem:
a. Higher value use is different in different places.
b. It’s hard to know what the higher value use is.
c. People are not rational actors (behavioral economics)
d. Multi-party bargaining: it’s must hard to apply Coase with more than two parties.
Property and Contract
1) Bargaining in the shadow of the law:
a. If there is an entitlement initially (ex ante), people can bargain around the entitlement, and
b. After the result in a case (ex post), you can still bargain/negotiate.
2) From a policy perspective, bargaining is good. Why?
a. More likely to reach an efficient solution, because people know what they value property at better than what the law says.
b. Avoids litigation.
c. Lower transaction costs.
3) But, there are also limits to bargaining:
a. People without money may not be able to effectuate what they want.
b. There might be reasons why we don’t want the highest and best use of a property to occur.
4) What can we do in our system of property to encourage bargaining?
a. Make the ex ante entitlements clear.
5) Reasons to stop bargaining:
a. Avoid unhealthy uses of land
i. ex: a polluting factory
b. Worries about the bargaining process
i. ex: unconscionability
c. Difficulties bargaining in big groups
6) Why does bargaining fail?
a. Bilateral monopolies:
i. Party A can only negotiate
Least amount of state intervention. Once the original entitlement is decided upon, the state does not try to decide its value.
2. They involve a collective decision as to who is to be given the initial entitlement, but not as to the value of the entitlement
3. Means mandatory injunctive relief.
ii. Whenever someone may destroy the initial entitlement if he is willing to pay an objectively determined value for it, an entitlement is protected by a liability rule.
1. Liability rules involve an additional stage of state intervention: entitlements are protected and their transfer of destruction is allowed on the basis of a value determined by some organ of the state.
2. Means payments of monetary compensation.
iii. An entitlement is inalienable to the extent that its transfer is not permitted
Set by the court or state and it’s unchangeable.
Amount of state intervention?
Backed up by police power of the state; least amount of state involvement – parties themselves determine how the right is allocated.
More state intervention; state determines the value.
Most state involvement because the state determines who has the right and mandates that it’s unchangeable.
Who values the entitlement?
The parties themselves, usually
The state usually
iv. Policy Considerations:
1. When transaction costs are low, courts should prefer property rule protection. Efficiency concerns can be satisfied by the possibility of exchange.
2. When transaction costs are high, there may be circumstances in which shifting to a liability rule is preferred, at least on efficiency grounds. In situations where there are numerous parties, using a property rule can result in free rider or holdout problems. Also, courts may have more limited information than the parties about the benefits and costs of allocating entitlements.
3. The parties, themselves are in the best position to value the property rights.
4. Property rules may not work out when we are protecting non-economic value. E.g. Jacques – value that can’t be determined monetarily.
Rule 1 – Pile
Rule 2 – Golden Press
Rule 3 – Hinman
Rule 4 – Spur Industries
Ex ante/Ex Post problem
c. Ex ante analysis refers to an analysis of the situation before some critical event like an accident, or a contract, or a commitment to a particular use of resources takes place.
i. It shouldn’t matter where we set the entitlement because the parties will bargain until efficiency is reached.
d. Ex post analysis refers to an analysis of the situation after such a critical event occurs.
i. Ex post analysis creates difficulties (including bilateral monopoly problems) making it more likely that the parties will haggle or strategically try to bargain to “extort” a huge payment from A, which could result in an inefficient outcome.
Class 4: What is Property?
Branches of Common Law
1) Contract Law: bargained-for benefits and harms
2) Tort Law: non-bargained-for harms
3) Restitution [property law]: non-bargained-for benefits
a. It’s not really property law, but these situations seem to occur around property issues.
1) Basic elements:
a. an “enrichment” of the defendant;
b. at the expense of the plaintiff
c. under circumstances that are “unust.”
2) Producers Lumber & Supply Co. v. Olney Building Co. (p. 68)
Producers Lumber & Supply Co. V. Olney Building Co. (Ct. of Civil Appeals of TX 1960)
Facts: D was a “mistaken improver”; believed he owned the lot when it in fact been sold to P. D builds house on the property with a value of $5,000. Parties attempt to resolve issue unsuccessfully; D maliciously tears down house. Trial court awards P $600 (cost of removing debris). P appeals, asking for $5,900 (value of the house plus exemplary damages of $300). Court of Appeals finds for P and awards $5,900.
Holding: Judgment in favor of Producers; $5,900 awarded ($5,000 value of house + $300 found by the jury as exemplary damages b/c Olney acted maliciously + $600 awarded by the trial court (which was the amount to restore the lot to how it was before construction began)).