C. Exercising property rights

    William Blackstone, English jurist, Commentaries on the laws of England, 1765-1769--the best known description of the doctrines of English law and the basis for university legal education in England and the U.S.

    Goal: a set of rights that best ensures efficient use of property
    Benchmark: "Blackstonian" bundle of land rights

    Right #1: "Ownership by a single individual"

    "When many people use the same piece of land, tragedies of shirking and grabbing lurk." (LEA184)
    "After hundreds of years of socialization, Hutterites have not been able to dispense with their intrusive methods of social control." (LEA185)

    What rights would you want specified in your title?

    Right #2: "in perpetuity"

    perpetuity: fee simple

    alternatives:
    temporary: lease
    lifetime: usufruct
    "entitles its owner to continue his current land use as long as he can." (LEA187)

    Which is more efficient? Why?

    usufruct, empirically, lead to under-investment and over-exploitation by failing to identify successor (LEA187)
    "Consistent with the efficiency thesis, as land becomes scarcer, technology advances, and literacy improves, a group tends to move away from the classic usufruct and toward the fee." (LEA188)
    "[T]he preeminent advantage of an infinite land interest is that it is a low-transaction cost device for inducing a mortal landowner to conserve natural resources for future generations." (LEA188)

    infinite land titles were granted in: ancient Egypt, Greece, Japan, the Ibo of Nigeria, and the Navajo. (LEA189)

    Right #3: "of a territory demarcated horizontally by boundaries drawn upon the land, and extending from there vertically downward to the depths of the earth and upward to the heavens"

    Facilitates clear, comprehensive ownership; accommodates erecting and excavating activities

    "Under English common law, a landowner has a right to lateral support, meaning that his neighbor has a duty to continue to provide the support that the adjacent land would receive under natural conditions." So neighbor's pit cannot cause slippage of owner's property. (F114)

    alternative: separate surface and subsoil rights: Coal in PA.
    PA cases, "a state constructed largely out of coal," separates surface, support and mineral rights. (F113)

    An implication of this right is that courts actually have two legal rules for the initial assignment of property rights:

    Rule 2: tied ownership
    you own the land, you own what's under it

    Comparing the two rules

Situation:
    2 homeowners: Yu and Mi
    Each property has a valuable resource underground
    Each worth $20K today, $30K tomorrow
    If you extract it and don't sell it, it gets stolen

    Example 1: gold

Step 1: construct a payoff matrix for the decision by Yu and Mi to mine today or tomorrow

Step 2:  Indicate the cell they will end up in with the two alternative property assignment rules
    Which is more efficient?
    Tied ownership advantage: avoids rent-seeking costs such as preemptive investments

    Ex2: oil
    First possession advantage: cheaper to administer (lower cost of verifying rights)

    what distinguishes the examples?
    gold = a stationary resource
    oil = a fugitive resource

    Efficient application of ownership rules:
    tied ownership for stationary resources
    first possession for fugitive resources: water, oil, wild animals

    Resulting incentives for fugitive mineral resources:
    (1) Consolidate ownership of properties spanning the resource
    (2) Coordinate extraction

    Edwards (app.) v. Sims (resp) 232 Ky. 791 (1929)

    Cast of characters:
    Edwards: owner of property with cave entrance
    Lee: owner of adjacent property
    Sims: appellate judge

1. Can you describe for us any one of these characters in this case?
2. ... any of the remaining two characters?
3. ... the final character?
4. The case is actually an appeal of an appeal in the midst of a trial in progress. What can you tell us about the apparent facts of the trial case itself?
5. You are a judge in a case in which Edwards owns a mine. Lee owns adjacent property and sues to block Edwards from extending his mine under Lee's property. Would you rule in favor of Lee or Edwards? Why or why not?
6. You are a judge in an identical, except that instead of owning a mine, Edwards owns the only entrance to a cave that he has developed for commercial purposes. Would you rule in favor of Lee or Edwards? Why or why not?
7. In what economically meaningful sense do think a cave is different from a mine?
8. In the case of Edwards vs. Sims, do you think that the majority opinion or the dissent provides better economic incentives? Why?

    Illustrates the importance of thoughtfully defining property boundaries.
    Challenges the appropriateness of rigid adherence to "bright line" rules for property boundaries.
    Subsequent history: Lee prevailed at trial: Awarded damages = proportionate past profits earned by Edwards and an injunction against further trespass.
    Lee filed his suit after nearby Mammoth Cave, by then a national park had made attempts to acquire Great Onyx Cave via eminent domain, and a jury had fixed its value at $396,000.
    A good case can be made that Lee's suit was an example of rent-seeking behavior.

    Right #4: "with absolute rights to exclude would-be entrants,"
    Ensures integrity of boundaries

    Ploof (p) v. Putnam (d) 81 Vt. 471 (1908) -- Ploof, wife and 2 children sailing on Lake Champlain. (CU161)

1. What are the facts of the case?
2. What did the Supreme Court of Vermont decide? (affirmed judgment against defendant and remanded [for damages])
3. You are a homeowner. Two young men chased by others huddle on your porch but make no effort to come inside. The chasers remain in the street. You push the men off of your property and they get injured in a street fight with the assailants. They sue you for damages. Do you think you would be liable?
4. You are a homeowner. The youths pound on your door and ask you to let them in. You refuse, and the young men get injured in a street fight. Do you think you would be liable?
5. You are a homeowner, but you aren't home. Your full-time butler pushes the young men off the porch. You are sued. Do you think you would be liable?
6. You save a boat from sinking in a storm by throwing overboard the heavy luggage of another passenger. Who do you think should bear the cost of the lost luggage, you or the passenger whose luggage you threw overboard?
7. Would your answer differ if you owned even heavier luggage that you did not throw overboard?
8. You are a judge: Ploof had recently finished delivering supplies to Putnam when the storm struck. After attempting to depart, Ploof decided instead decided to lash his boat to Putnam's dock. Putnam did not attempt to unlash the boat but then sues Ploof for damages to the dock. All parties agree that Ploof's were reasonable given the severity of the storm. Would you award damages to Putnam? Vincent (p) v. Lake Erie Transport Co. (d) (1910)

    Lesson: The "doctrine of necessity" => the rule against trespass is a "qualified right" not an absolute right

    "The intruder can defeat it by showing that his land use, which is incompatible with the injured landowner's, is more valuable." (P54) 
    = the private-necessity exception to the general rule against trespass. (CU161)

    The highest-value user or lowest-cost avoider of damages depends on circumstances.

    Right #5: "with absolute privileges to use and abuse the land,"
    relatively few restrictions in use under common law aside from noninterference (externalities) (F110)
    "children are difficult to pen" so landowners must fence dangerous property (P53)

    limitations on land use:
    Restrictive covenants (F125)
    Zoning regulations

    Sanborn (p) v. McLean (d) 233 Mich. 227 (1925) -- Defendant's deed contained no restrictions nor did the subdivision map. Defendant still could not open a commercial business on his plot. The original owner of the subdivision sold the first set of plots with restrictions against commercial development. Although other plots were later sold without the commercial development restriction, the owners of these plots were held to the restriction because there was an implied negative easement at the time those lots were sold. The defendant had constructive notice of the negative easement because the recorded deeds to other lots in the subdivision contained the restriction. (F126)

1. What are the facts of the case?
2. What did the Supreme Court of Michigan decide? (affirmed  judgment in favor of plaintiff to enforce the negative easement subject to modification that the structure can remain if converted to a use consistent with the negative easement)
3. You live in a condominium complex. Your deed contains no relevant use restrictions. You convert your ground floor to a beauty shop and your neighbors sue to close down your business.
4. It turns out that their deeds restrict usage to residential purposes only, as part of an original restrictive covenant on all of the consolidated properties of the complex. Do you think the court could use those other deeds as reasons to close down your business?
5. What could you have done to find out if you could open a beauty shop?
6. What if you could point out similar businesses in condos on streets along the outer edge of your complex, just not your own street? Would that have been sufficient search?
7. How can a use restriction of this sort promote efficiency?

    Lesson: use rights may be implicitly restricted subject to reasonable search costs.
    Restrictions can increase efficiency by making aggregate property values rise. (an externality)
    Applies the concept of "constructive knowledge": information that a reasonable person "knew or should have known"

    Rebundling is limited by ability of 3d parties to find out via inspection or record search. (F125)