Property
Blais
Spring 2011
“Ownership” is a term for a bundle of rights associated with property. It defines the relationship between a party and a thing and/or the relationship between two parties and a thing. Property rights establish how property is acquired, what rights are acquired, why, and how those rights are transferred.
Creating Property Rights
Acquiring Property Rights to Unowned Property
Discovery
1. Definition: “Entails the sighting or finding of hitherto unknown or uncharted territory; it is frequently accompanied by a landing and the symbolic taking of possession, acts that give rise to an inchoate title that must (on one view) subsequently be perfected, within a reasonable time, by settling in and making an effective occupation.” pg. 11
2. Principle of allocating land among Europeans and European countries. The discovering country has superior rights over other European countries.
a. Differs from conquest, which establishes rights between discoverer and natives.
b. Casebook defines conquest as “the taking of possession of enemy territory through force, followed by formal annexation of the defeated territory by the conqueror.” pg. 11
c. European nations had superior rights over Indians. Indians were physically first and have right of occupancy (peaceful), but not right to convey; can only convey to US govt on US terms. Justification: Lockean argument that what you do with land affects your ability to claim title; do you put it to productive use (cultivation) or do you leave it in “state of nature”, as (Europeans then believed) Indians did? Policy favored putting it to productive use.
3. Johnson v. M’Intosh (SCOTUS, 1823) – The Piankeshaw and Illinois tribes sold Johnson’s predecessors land in 1773 and 1775. The Piankeshaw, through a treaty, gave title to the U.S. in 1795. M’Intosh received the land from the U.S. in 1818, and Johnson received the land from his predecessors in 1819.
a. First in time principle is basis for acquisition by discovery. It is a question of law and not fact.
b. In this case, first in time is not clearly determinative. M’Intosh received his title before Johnson, so he could be seen as first in time (actual possession). However, Johnson’s predecessors received title first, and so he takes the “time” aspect of his predecessors’ title (first in legal conveyance, not occupancy).
c. Advantages of first in time: encourages people to acquire, take possession, develop land (a “third-in-time” rule would encourage people to hold back and wait); easy to administer (easily settled, less litigation of disputes); workable; promotes stability; acts as proxy for subjective principle of fairness; Labor theory of value: the one there first has been working land the longest.
d. Disadvantages of first in time: first user may not be making most efficient use of the land. Sometimes difficult to define “first”, i.e. what counts as first? It rewards luck, accident, chance discovery. Requires you to trace chain of title far back into past; may be difficult.
e. Chain of title: trace title back in time to original grantor; 1st chain is the valid title
f. M’Intosh wins – first legally recognized grant (Indians to U.S.) and policy reasons (to recognize otherwise would cause dislocation of titles, widely held principle in U.S. and European legal systems).
4. Opinion presents six issues of property law:
a. Chain of title – current title depends on predecessor’s title; you can’t pass on more rights than you had in the first place, although you can give less
b. Severability of title – the separating of rights in the ownership bundle; different rights in different circumstances; can have some but not others; e.g. possession, occupancy, conveyance, use and enjoyment.
c. Relativity of title – relationship of rights relative to other parties; your rights are defined in relation to another. A’s title better than B’s, but weaker than C’s.
d. Legal terms like ownership and possession are legal conclusions, not facts.
e. In deciding possession, some factors count more than others. (Intensity and visibility of use might be a factor e.g. in adverse possession case.)
f. Source of property rights (e.g. natural law, positive law) – usually look to state sovereign or state law
Capture
What counts as “occupancy”, i.e. possession, for wild animals (ferae naturae)? “Possession” can be unclear here; rather, what acts are sufficient to confer a property right in the wild animal?
1. Pierson v. Post ( SC of NY, 1805) – Post was hunting a fox on unowned land; before he could capture or mortally wound it, Post killed and carried away the fox.
a. Illustrates relativity of title – is what Post did sufficient for possession with regards to Pierson’s claim?
b. Precedent lacking – cases were deciding poacher/hunter (vs. hunting on land no one owned). English cases were governed by statute, which is lacking here. So, look to ancient authorities (“natural law scholars”), opinions of experts in law. Why use these? For continuity, certainty; objectivity, as opposed to those directly involved in case. They are not binding, but are instructive/persuasive.
c. Majority rule: “possession” is either
i. Actual capture, or
ii. Mortal wounding and continued pursuit
d. Why use this rule?
i. Administrability – easy to administer
ii. Easy to determine “possession” – more objective standard
iii. Certainty, predictability
iv. Few disputes, quarrels, lawsuits
e. Dissent: should award possession to one who has a “reasonable prospect” similar to Locke’s labor theory (more subjective standard), ancient authorities irrelevant, should look at fairness standard
i. Custom in trade – would award Post the fox
ii. Consequentialist argument – what policy do we want to encourage? In this case, want to encourage the hunting of foxes, so perhaps hunters won’t pursue foxes if worried that another hunter can step in at the last minute and take the fox.
2. Reasoning through analogies
a. Must decide analogy warranting principle – what ties analogy together
b. The analogy can easily be manipulated:
i. Example: Swimsuit, Umbrella, Rain Coat
ii. Can group any two of the three based on criteria (swimsuit & umbrella = things found on a beach; umbrella & rain coat = things people have when it rains; swimsuit & rain coat = apparel)
3. Downside of “obvious” rules – fairness is diminished; can’t be tailored to other goals
a. Here, the rule seems to favor poor behavior by Pierson
4. Rule vs. Standard
a. Rule is clear but won’t work justly in all cases; a rule will be either overly-broad or under-inclusive
b. A “reasonable” standard allows more flexibility; good if fairness and efficiency are impotant
5. Dissent’s argument of relying on custom
a. Pros: expertise; different rules for different sports, since different sports have different goals (some may favor speed or efficiency, others style); consequentialist argument about encouraging hunters to hunt foxes
b. But, aristocratic fox hunting with dogs and horses is not most “efficient” way of killing foxes, compared to shooting or trapping; they are not hunting for economic gain
GENERAL RULE OF CAPTURE – to gain a property right in a wild animal, one must actually capture the animal (actual possession) or reduce it to certain control by trapping it or mortally wounding it and remaining in continued pursuit (constructive possession)
6. In Texas, rule of capture applies to groundwater
7. HYPO: Tresspasser T1 goes onto land owner LO’s land and catches a fox. LO sues T1 for fox.
a. Who wins? LO. But why? LO is not in “possession” of the fox.
b. Constructive possession – “constructive” is basically a legal word of defining possession without actually having possession and is a means of obtaining a desired outcome
c. In this case, constructive possession will treat the LO as if he possessed the fox because don’t want trespassers to encroach on privately-owned land for policy reasons (altercations, have to invest capital in defensive strategies like fences, fewer efficient investment in property, want to promote security). This seems to encourage autonomy and personal investment: right to exclude (one of the sticks in the bundle or rights).
d. Why not have a trespass rule and capture rule solely? Don’t want trespassers weighing the value of fox with penalty of breaking the law.
trespass? Could say plaintiff has suffered no damages and has no claim. Trespassing discouraged as matter of policy because of the reasons above; that problem doesn’t apply here since presence of gas belowground does not reduce Hammonds’ incentives to use land – she could exploit the gas herself, and own it by right of capture, if she chose.
5. So two arguments: we don’t own the gas, thus not a trespass, or yes we own the gas, but it isn’t a trespass since the reasons for discouraging trespass aren’t present in this situation.
Tragedy of the Commons
Situation that occurs when valuable resources are owned in common. The common ownership leads to an externality. T of the C is defined as when the sum of privately efficient behavior makes society worse off, i.e. is socially inefficient. Individuals have incentive to use up common resources, not conserve them. Incentives are efficient for each actor but inefficient in aggregate.
Hypo: Oil field under land with 10 surface owners; each barrel $1, 100 barrels in total. Each owner’s interest worth $10; other 9 have $90. 1 owner pumps 1 barrel; his interest $9.90 plus made $1; others have $89.10 under rule of capture. This redistributes value but there is not loss in social value.
Externality: cost or benefit of market transaction that affects people who are not part of the transaction.
So, the incentive is for each owner to pump as fast as possible to maximize own share. But dumping too much on market at once depresses price, hurts all producers. (Also, geophysically, pumping too fast may reduce efficiency of recovery.) If depressed price is $0.50, then first pumper has $9.90 + $0.50; other 9 still have only 89.10; so 50 cents of value is wasted. The $0.90 is the externality. Why? Total cost = $1.00. Internal cost is $0.10. Thus, external cost is $0.90.
Not all externalities lead to “tragedy of commons” – only if externalized cost exceeds the overall social benefit of the resource use. Externality can also be a benefit (example: improving one’s own home increases value of neighbor’s home).
Ways to Prevent Tragedy of the Commons
1) Private agreement – bind all owners together to no partake in the privately efficient behavior. But:
a. Information costs – tracking down all owners and locating them incurs costs
b. Strategic bargaining – one owner holds out at the end; gives that owner unfair bargaining power
i. “Hold Out” – strategic bargainer who disproportionately wants more of the benefit
ii. “Free Rider” – someone who neglects to pay but still enjoy benefits (example: national defense). Don’t contribute their fair share.
c. Enforcement costs – need a mechanism to keep owners bound to the agreement
2) Government regulation – have the owner who engages in privately efficient behavior compensate the other owners. But:
a. Information costs – still have to track down all owners. Plus, have to figure out the cost to the owners, which may be difficult to monetize. Example: Calculating the cost of pollution to an individual.
b. Administrative costs – it costs money to have a central governmental entity to implement and enforce the scheme
3) Privatization – assign property rights in order to internalize the externalities by dividing up property rights to the resource. Makes current owner take into account all costs of decision (including future costs), and allows current owner to plan to get future benefits, since now not worried that someone else may deplete now and not be able to capture future benefit. But:
