II. Property
B. Acquiring property rights (cont'd.)

    Pierson (d) v. Post (p) (no number) (Supreme Court of New York, 1805) -- first possession of fugitive resources. The issue of property rights to an animal you are in hot pursuit of.  (CU147)

1. What are the facts of the case? 
   (hunter=Post / taker=Pierson)
2. What did the appeals court decide?
3. In what way(s) does the decision promote efficiency?
4. What reasoning did the dissenting judge offer?
5. In what way(s) would the opposite decision promote efficiency?
6. Which side was more consistent with Haslem v. Lockwood?

Illustrates first possession.
Highlights trade-off: incentive benefits vs. litigation costs
Decision: Promotes efficiency by lowering litigation costs with a "bright-line" rule
Dissent: Favored promoting incentives for hunters who improve social welfare by killing foxes (in the case, the hunter was denied the fox)

    Hammonds v. Central Kentucky Natural Gas Co. 255 Ky. 685 (1934) -- first possession vs. tied ownership. Hammonds sued that Central Ky had taken gas from under her 54 acres. (Contrasts first possession vs. tied ownership.)

1. What are the facts of the case?
2. What did the court decide?
3. Did the court assign property rights to oil and gas on the basis of first possession or tied ownership?
4. What incentives does the court decision create for Hammonds?
5. Does first possession make economic sense in this case? Why?

    Applying ownership rules:
    tied ownership for stationary resources
    first possession for fugitive resources: water, oil, wild animals

2. Transfer of property rights

    Proof of possession: paper titles or physical possession. (P81)

    Legend of livery of seisin (delivery of title): title recorded by thrashing a child to instill memory of the recording. (CU151)
    Major contracts require witnesses. (CU152)

    "Bona fide" purchaser. (P79)

    Ex: You go to a swap meet / See $500 of stereo equipment you would like to buy / You ask to see the receipt to be sure it's a good deal / You buy it / The police come to your house and tell you that the equipment you bought was stolen, and the original owner wants it back.

    Who owns the stereo equipment?

    American rule: Buyer accepts risk. (CU153)
    Purchaser gets good title from an agent of the seller but not from a thief. (P79). 
    Buyer cannot acquire title from someone who doesn't have it. 
    Your option is to try to recover your money from the seller of the stolen equipment.

    European rule: Original owner accepts risk.  (CU153)
    In Europe, can acquire title with "good faith" purchase, making reasonable inquiry of valid title.

    American rule: buyer beware makes theft less profitable
    European rule: owner beware encourages precaution by owners
    In Spain: "American Rule" for merchant buyer of items stolen from households; "European Rule" for private buyer of items stolen from merchants. (CU154)
    American rule beneficial in cases such as art since one precaution is not to display the art. (P79)

    "title insurance": private insurance which provides compensation to current owners who turn out not to be true owners.
    Torrens system uses public fund to compensate true owner instead.
    Tradeoff--title insurance is more efficient since private, but Torrens system is better by allowing higher valued user (current user) to retain possession without transaction cost of buying the property. (P79)

Example1: Houston and Baker v. United States Gypsum Co. 652 F.2d 467 (1981) -- (Stack Island)

1. What are the facts of the case?
2. What was the final decision of the appeals court?
3. Who had actual legal title to Stack Island?*
4. So what reasoning did the court use to justify awarding the property to Houston and Baker?
5. Did Houston and Baker actually do anything with the island over the statutory period? If so, what? Why does that matter?
6. Was Houston and Baker's conduct hidden or flagrant? Why does the difference matter?
7. What benefits does a decision of this sort generate?
8. What costs?

    Houston and Baker v. U.S. Gypsum illustrates transfer of property rights by adverse possession.

    * The lower portion of Stack Island lies inside the property lines of U.S. Gypsum, giving U.S. Gypsum legal title. Houston and Baker have "color of title" but not legal title: their deed states that they own the "accretions" to Stack Island, but that provision cannot legally extend their property boundaries inside U.S. Gypsum's property lines. Any part of the accretions that occur inside U.S. Gypsum's property lines would be the legal property of U.S. Gypsum.

    Adverse possession: gaining title to real estate by 
    (i) actual and exclusive possession 
    (ii) over a continuous statutory period 
    in a manner that is 
    (iii) hostile to the owner's use rights and 
    (iv) "open and notorious."

    = squatters' rights

    "Most adverse possessions are mistakes caused by uncertainty over boundary lines." (P78)
    Statute of limitations phases out stale evidence. (P78)

    Benefits of adverse possession: helps clear title and move property to highest valued use. 
    "In general, a rule for acquiring title by adverse possession lowers the cost of establishing rightful ownership by removing the risk that ownership will be disputed on the basis of the distant past." (CU155)

    Cost: owners must monitor land and eject trespassers. (CU155)

Example2: Found property

    "Finder's keepers"

    Law distinguishes "between lost and mislaid items, 'lost' meaning that the owner doesn't realize the property is missing." and so doesn't search for it. 
    Finder becomes keeper of lost items. (P82)

    Estray statutes
    For property above a stipulated value, finder must appear in court and complete a document. The court advertises. After passage of stipulated time (usually a year), title passes.

    Benefit: lower information costs
by encouraging the finder inform the courts (CU156)

    Ex: Huthmacher v. Harris's Administrators, 38 Pa. 491 (1861): A party purchased at an administrator's sale a drill machine, which had hid away in it by the deceased a quantity of notes, to the amount of about $3,000, money to the amount of over $500, and two silver watches and a pocket compass of the value of $ 60.25.

    Who owns the hidden items?
    It was held that nothing but the machine was sold or passed to the purchaser, neither party knowing that the machine contained any such articles.

    Law of restitution

    "Better to give the finder a reward, the domain of the law of restitution, for finding, rather than ownership of the thing found." (P81)

    Benefit: avoids over-investment in search and precaution. (P81-2)
    Found treasure escheats to the government, which can choose reward. (P36)