Property I Outline

Blais

Property

Spring 2013

I. Basis of Property Rights

Ownership interests:

§ Right to possess

§ Right to exclude

§ Right to convey

§ Right to use and enjoy

§ Property rights: relationship between parties with respect to a thing

§ Ownership rights can be divided temporally, geographically, conceptually

A. Creating Property Rights

Rule of Discovery

ú Rule of Discovery: First discoverer has the right with respect to all other discoverers (Euro discoverers with respect first Euro discoverer); sovereign discoverers decide rights of native inhabitants

ú Rule of Conquest: First discoverer has the sole right to acquire the property from the occupants by purchase or conquest

§ Relationship between inhabitants and discoverers

§ The US was the sole conveyor of lands (original title) through rule of discovery and conquest; any other claim of title was inferior

§ Case: Johnson v. M’Intosh (SCOTUS – 1823)

· Facts: Johnson had title from Indians; M’Intosh had title from US

· Holding: Only sovereign has the ability to grant title; M’Intosh had superior title – the discovery of the Indian-occupied lands of this nation vested absolute title in the discoverers, and rendered the Indian inhabitants themselves incapable of transferrin absolute title to others.

ú Possession and priority of possession are legal conclusions, not objective facts.

Many disputes depend on priority of possession: Who had it first?

But the real question is which of the observable facts “count” as possession:

– Here, Marshall explains why Native American occupancy did not “count” as possession for purposes of “first-in-time” principle under the Discovery doctrine but European “discovery” counts even if no white person has ever occupied the land in question.

ú In deciding what counts as possession, some acts count more than others:

Cultivation, fencing, alteration of the land have historically counted more than hunting, gathering, using the fruits of the land without marking or changing the land.

ú Source of property rights:

Marshall makes clear that he views the sovereign as the source of all property rights. What does that mean? Is there a role for abstract principles of justice or natural law in determining property rights?

ú First in time: first time valid claim in title

ú Chain of Title: Quality and content of title depends on the title that your grantor/pred had; his title depends on what his grantor hadàcan only grant what you have

§ Severability of title: Property rights are a “bundle of rights” with separable elements that don’t always remain together

§ Relativity of Title: One person’s title may be better than another person’s but worse than a different person’s; disputes over property rights depend on relative claims of the parties

Capture – Wild Animals

ú Rule of Capture: actual capture OR mortally wounding + continued pursuit is sufficient for capture

§ Continued pursuit is equivalent to mortal wounding bc hunter has done all he could do

§ Policy:

· Rewards effort (labor theory)

· Increases competition

· Clarifies wounder/pursuer

· Ease of administration

§ Case: Pierson v. Post (1805)

· Facts: 2 men hunting, one in hot pursuit; 2nd man comes in a kills the fox and takes him

· Holding: First to capture takes possession – mere pursuit vests no right in the pursuer. Property in wild animals is only acquired by occupancy, and pursuit alone does not constitute occupancy or vest any right in the pursuer (must deprive of natural liberty).

§ Case: Ghen v. Rich (1881)

· Facts: man kills a whale and it later surfaces on a distant beach; finder tries to claim the whale

· Holding: Original injurer gets the whale because it is equivalent to mortal wounding/continued pursuit (based on industry custom). When all that is practicable in order to secure a wild animal is done, it becomes the property of the securer who has thus exercised sufficient personal control over the wild animal.

o Courts may recognize custom of trade in place of general rule

o Not a sport, but an industry – economic considerations

ú Constructive possession: if an otherwise unowned object/animal is on someone’s property, that thing is constructively theirs under first possession/rule of capture

§ Possessors of land have the right to pleasure and profit derived from that land

§ Policy: Keep trespassers out; decreased altercations; discourage investment in defensive infrastructure; encourage LO to use land productively by giving certainty that investment is protected; discourage self-help

§ Case: Keeble v. Hickeringill (1707)

§ Facts: Keeble is hunting ducks on his land and Hickeringill (not on Keeble’s land) shoots a gun to scare the ducks away

· Malicious interference with socially beneficial trade loses

· Cannot interfere with capture if the goal is not to capture (Pierson-interference was for capture)

§ Note: the reasoning behind this case does not promote conservation

§ Capture or control, in conjunction with being first in time, guides legal analysis of the ownership of wild animals. Somewhat of a departure – but natural and logical extension.

§ Ratione soli – owner of land has constructive possession of wild animals on his land – but theory of malicious interference with trade dominated here.

Natural Resources and Theory of the Commons

§ Natural Resources: legally similar to wild animals; once an animal returns to its “wild and free state” it no longer belongs to anyone à cannot be seen as trespassing on someone else’s land when it is in the ground

· Cases: Hammonds v. Central Kentucky Natural Gas (1934)

o Facts: CK put natural gas into a cavern, part of it is under H’s property; H sues for trespass/ damages

§ Holding: Natural gas is in its wild state when it returns to the ground and doesn’t belong to anyone (no trespass – like a released wild animal)

§ Tragedy of the Commons (Demsetz): efficient private actions might lead to inefficient outcomes for society

· Externality: cost/benefit of doing a transaction that is not borne by the parties making the decision

o Socially inefficient v. privately efficient

· How to solve tragedy of the commons:

(1) Private agreements: enforceability is difficult; high transaction costs; holdouts and free riders likely

(2) Regulation by statute or administrative regulation: very high information costs; high enforcement costs, continuous monitoring

(3) Property Rights: most efficientàall externalities are internalized; privately efficient = publicly efficient; law covers excessive capture; enforcement costs apply

§ Example

Assume there is an oil field underlying land owned by ten owners. The field contains 100 barrels of oil worth $1.00 each. Also assume that there are no extraction costs or other costs for obtaining and selling the oil. If the oil is subject to the rule of capture, here is a simple illustration of the effect of one owner extracting one barrel of oil:

Owner

Value before extraction

Benefit from extraction

Value after extraction

1

.10x$100=$10

(1/10 interest in 100)

+$1

.10x$99=$9.90 + $1.00 = $10.90

2-10

.90x$100=$90

(9/10 interest in 100)

0

.90x$99=$89.10

total

$100

$100 (no loss in social value, just a redistribution)

Total value left in reservoir is $99.00, each interest owner still owns 1/10 interest, but Owner 1 took out $1.00 and keeps it all. Her cost — $.10; her profit – $.90 cents. Where did the profit come from? She imposed a $.10 cost on each of the other owners.

Now suppose that the price of oil drops to $.50 a barrel, but extracting 1 barrel still decreases the value of the oil in the reservoir by $1.00. This might be the case if there is an oversupply of oil in the marketplace so that the price is likely to go up in the future and investors are willing to pay $1.00 per barrel now for oil left in the ground.

Should the owners extract and sell the oil? No, the social cost of extracting is greater than the social benefit.

But if Owner 1 extracts, it costs her only 10 cents, so she will pump the oil and sell for 50 cents. Her profit is $.40. But the value of the reservoir decreased 1.00 for a social benefit of $.50. This is a net loss to society of $.50. The extraction is privately efficient and socially inefficient.

Owner

Value before extraction

Benefit from extraction

Value after extraction

1

.10x$100=$10

(1/10 interest in 100)

+$.50

.10x$99=$9.90 + $.50 = $10.40

2-10

.90x$100=$90

(9/10 interest in 100)

0

.90x$99=$89.10

total

$100

$99.50 (loss in social value of $.50)

This is the tragedy of the commons – when common ownership causes privately efficient behavior to be socially inefficient by collecting profits in one person and spreading costs among many.

Not all common ownership situations lead to tragedies of the commons – only where the private gain from extracting is less than the social cost of extracting but still high enough to cover the private cost of extracting will there be a disconnect between the private incentives and the socially beneficial decision.

§ Water Resources: governed by rule of capture in Texas

· Adopted because the court did not know anything about groundwater

(1) Policy: original goal in applying rule of capture was to prevent industry/agriculture from being inhibited; this goal no longer holds

§ Change in application of rule of capture to water must come from the legislature