NARRATOR: Thanks for joining this episode of the No. 86 lecture series, in which Professor Richard Epstein discusses the key components of property law. This lecture is part of a series with Professor Epstein on how simple Common Law principles give us tools we can use to deal with complex technological and social challenges. Professor Epstein is one of the most prominent legal scholars of our day. He is the inaugural Laurence A. Tisch Professor of Law at NYU School of Law, a Senior Fellow at the Hoover Institution, and Professor of Law Emeritus and a senior lecturer at the University of Chicago. As always, the Federalist Society takes no position on particular legal or public policy issues; all expressions of opinion are those of the speaker. - PUBLIUS: What is property? What sort of rights are inherent in the ownership of property? How is ownership established? RICHARD EPSTEIN: In dealing with the systems of property, it is important to understand that there's sometimes a grievous mistake in the conventional wisdom, which refers to properties in arbitrary constellation of rights, and duties that therefore can be changed at will by the state because there's nothing of deep substance there. The correct view on this subject is exactly the opposite. If you're talking about a system of property that is acquired by a system of first possession, what you want do is to make sure that the owner has a useful bundle of rights that permit for it's maximum development and use. So, with respect to land, it has the following dimensions. Property has to be infinite at duration because if there's a time limit, you can never quite figure out when that time limit should expires and what should be done after it is expired. So infinite horizons essentially allow for development. Properties also in three dimensions, and so the first basic approximation is he who owns soils, owns the depths and owns the air, that allows for interaction to take place. You can now mine on the one hand, and build foundations for your house on the other, and also build upward, so you're not confined to simply a plan. And then what happens is the property that you have is often in need of disposition. What the basic rules provide for is that you can so divide that particular property that you have, and the way you can divide is whole variety of arrangements. You can divide it by leases. You can divide it by life estates. You can divide it by mortgages. The theory is as you start to divide these particular interest, what happens is the gains from trades you can have are great then if the only choices you have were outright ownership transfer on the one hand, or a no transfer at all. So a divided interest in property, are in fact, the devices by which social gains start to take place. Yes, once it turns out that you've acquired property, and over time, and in three dimensions, the next question is how you use it? The basic rule on this is you make do with your property what you please because you will gain from that particular use and others peoples will not [inaudible 00:02:59]. But the major qualification on that should be instantly apparent, which is you're never allowed to use your property in ways which make it impossible for other people to use theirs, and so what happens the use of property which is allowed in the first interest is subject to a series of boundary constraints. Namely that you're not allowed to commit nuisances against your neighbors. Generally speaking, people agree that once you own a property it is, you have right to exclude others, there's much more controversy as to whether or not you can use your property. But the simple point here is that exclusion without the right of use, leaves property values. Virtually every legal system says that all individuals are entitled to use their property as they see fit, and that in turn is subject to another qualification, namely that you can not use it in a way that injures other individuals, typically creating nuisances, noises, filth, and stench that essentially make it impossible for neighbors to make a like use of their own property. Once it turns out that we define what property is, both in space and in time, it becomes clear that it has to involve more than the right to exclude. Property which you can not use is worthless. Therefore, the conventional uses of property, for farming on one hand, mining, and for building on the other, are generally built into the basic common law definition of property rights. In order to understand how this system works, there are many key cases in property that you have to pay attention to. Perhaps the first and most famous of these is Pierson v. Post in which the question is, how it is you acquire ownership of a fox. There's a very learned discussion as to whether or not the first possession rule is in fact created either by custom on the one hand or by positive law on the other. Then after you deal with that, you have to figure out how you protect these laws. There are famous cases which deal with the issue of exclusivity of which the most famous perhaps is Jacque v. Steenberg, and the issue here is to whether or not a person in desperate necessity is entitled to use the property of another for his own advantage or with the opposition of it's particular owner. Then there's going to be cases on the disposition of property over time. This gets involved in what is commonly called the rule against perpetuities, in which the state starts to impose limitations on the way in which you can divide property over time so that you so fracture the interest that you can not combine them for resale or for valuable use. Then you have to deal with rules that have to do with the mortgaging of property, and the extent to which property can be subject to foreclosure with giving adequate notice and protection to various individuals. So each of the divide interests in property then created an elaborate set of rules and they cohere and cause, figures out how each of these relationships, how sales, how leases, how mortgages, how easements work separately, and then a sophisticated understanding is how you put them together into common unit developments where all of these devices are in fact deployed simultaneously. The best case which deals with this is the case called [Naupausent 00:08:30]. It's concern with the governor's instructions of planned unit communities which essentially are a development of modern times, were given the high price of property, then trying to figure out how to get many people together in a given area, and you need to have very elaborate rules regulating both their private interest on the one hand, and their common interest on the other. When one is dealing with these particular systems, it's important to understand that oftentimes government interference, whether it be by statue on the one hand or common rule, common law rule on the other hand, can seriously disrupt voluntary arrangements. Perhaps the best illustration of this in modern times has to deal first with the leases and then with mortgages. When you have a particular system in which judges require an implied warranty of habitability, it can often be the case that the standards are so stringent that the entire voluntary market will shut down because no tenant can afford to pay the landlord the amount of money that is required under the deposit of law to bring property up to certain standards. If you have a system of rent control which keeps rent artificially low, it turns out that property will not move to its highest value user, and furthermore, that the landlord strapped for cash will, generally speaking, not be able to make sufficient repairs of the property in question. To figure out where the major departures take place, consider for example the system of rent control where rent is fixed at maximum levels. Under these circumstances, the tenants who are sitting in possession have automatic renewal, the properties can not therefore be moved to higher leases, landlords become reluctant to create new properties, and in fact the entire thing results in a regulatory struggle as to what kind of renting leases can be made to deal with the increased cost that the landlord incurred. Similarly, when you turn to mortgages, the paperwork can be overwhelming difficult and block the transactions from taking place. The rules on foreclosures can be so arduous, that tenants could remain in the possession of the property for very long periods of time, such that it turns out to depreciate in value as it is not cared for. One needs to have prompt removal of the faulting tenants in order for the system of lending to work well. PUBLIUS: You’ve discussed some of the rules that govern property ownership. Can you say more about how people acquire property of various types? How does private acquisition work when you start from a common pool of resources? RICHARD EPSTEIN: In dealing with natural law principles, one often invokes something known as the harm principle. It says that no individuals entitled to do those acts that harm other people. It's important to understand both the use and misuse of that principle. This principle makes perfectly good sense when you're trying to prevent the use of force and fraud because those activities when done by all individuals reduce overall wealth and satisfaction in society, but it is extremely dangerous to use that principle to the extent that one competitor loses customers to a new enteron, under those circumstances the harm principle in effect stops those particular transactions that improve overall social welfare. So the key understanding is, force and fraud are covered by the harm principle, but competitive losses are not. In dealing with the acquisition of property, one has to take into account that there are different kinds of assets that are acquired by different rules. So with land, the simple rule is you occupy it and mark off the boundaries. With respect to chattels, like clamshells and so forth, you just pick them up and put them into your hands. The difficulties with wild animals that could start to run away. The general principle is that he who captures the animal is its owners. The elaboration on that is, if I wound an animal, and somebody tries to scope it up before I can capture it is generally regarded to be mine. So what happens is the rules of acquisition of property are sensitive to the nature of assets that are being acquired. Now, these rules of captures with respect to animals are also subject to further refinement because all animal are not alike. A fox can typically be captured by one person. A whale is much more complicated animal, and often extensive levels of cooperation are needed in order for the capture to take place. So with the whales, what happens, you develop other kinds of rules, and they are of two sorts. The first type of rules is consensual. You send a boat out and all the members of the crew are involved in the capture. What will happen is the captain will develop a system in which each of the particular seaman will get his fair share of the take. But often times when you are dealing with whales, one boat will essentially woo the whale and somebody else may capture it. Then you have to develop a system that will allocate the gains between the two party's, and it turns out these rules differ from one kind of whale to another. Perhaps the most famous case on this is a case called Ghen v. Rich in which the ship which disabled the whale was unable to capture it and it floated ashore. Somebody who found the whale on shore removed from it, its oil and sold it. Now, the owner of the original boat that killed the ship sued to recover the proceeds. The court held that you can sell the whale that you found on shore, but what you had to do was give notice to it's owner so that it was captured. Then to make sure the notice was given, the fellow who gave it got some modest sum of money that covered his particular expenses. What happens is, when the capture requires the coordination of separate parties, but the common law developed quite cleverly was rule which made sure that when you looked at the total value of the whale, there was portion between the various parties so everybody made a net gain, and this could not possible be done if the fellow who found the thing, when it came up on the shore, could sell the oil and keep it to itself. As the court said, if the casual finder can keep the whale, nobody will be able to hunt them down in the first place. So essentially, these rules of possession are not only specific to animals, as against other things, but they vary from one type of animal to another. The rules of capture for whales and for foxes are subject to another problem. Any particular hunter who captures a whale or a fox is indifferent, relatively speaking, to the destruction of the entire species. Whales can be over hunted to the point of extension. What happens is there's no way you can alter the rules dealing with the possession of animals to prevent this from happening, so you need to put into place other social institutions to deal with excessive capture. These are rules that are essentially designed to stop what you call the common pool problem. What you have to do therefore is to limit the number of animals that can be captured. The appropriate function of the state is to stop the tragedy of commons by limiting the total amount of the catch, and by further by assigning amount that can be captured to individual actors so that they can remain in business. This requires a large institution framework that the common law can not develop. One of the questions that one has to ask is, can you stabilize a commons? And the answer is yes, but the key element is to distinguish between closed and open commons. For example, suppose you have a large number of people who own private parts of land, which they use for planting crops during the summer, but they also own animals, which graze in the mountains at that time. When they come back down, it turns out that the small parts of land are very bad for the animals in question. What you do is you create a close commons by taking down the separate walls, allowing the animals to roam within it. The way in which you control the tragedy is each person allowed to inject into that particular commons only that number of animals which is proportionate to the land value that he contributes. You can control entry, you can create a system of common ownership, which is going to efficient. Whereas, if you insist that each particular person can only graze during the winter, his crops on his own particular part of land, all will perish. What is quite striking is very primitive cultures from a very early stage have figures out how to develop this situation where when you're growing crops you treat land as private property, and when you're husbanding animals during the winter season, you treat is as common property. An open commons can not be stable because under those circumstances anybody could send their animals on to the particular land, at which point the amount of forage would be quickly consumed, leading again to the over consumption that turns out to be fatal. When one looks at the rules of first possession it is easiest to understand that with respect to land. One understands in fact that sooner or later you will have to have these common arteries, but in the state of nature what happens is one person goes, occupies a piece of land, give notice to the world by marking it off, perhaps by putting stones at the corners. At that particular point what will happen is that the map will slowly fill in, each person taking land and protecting it. There's always been a great question as to whether or not you're allowed to take as much land as you want. When a state of nature, this tends not to be a problem because if you try to make your land too extensive you will not be able to defend it against wild animals. What typically happens is that people choose land that give them defensible borders. When you start to work in a more civilized society, often times there are other ways in which you define the land. If you dealing for example with the homesteaders, the basic rules was that everybody could essentially occupy a part of land which they acquired, but it would have a certain maximum size, say 160 acres associated with it. But the key point here to understand is that the individual acquisition is a decentralized method by which land is reduced to procession and thereafter one has to superimpose upon the grid which allows things to be connected one to another. When one is dealing with land that is to be reduced to private property the current system is one of decentralized acquisition. People go out, and they acquire a piece of land, and mark its boundary lines, and then other people come perhaps somewhat later in time, and they do the same thing. Slowly what happens, if you look at the map, the vacant spots get filled in with individual pieces of ownership. If you do that, the situation will clearly be stable, but it will not be self sufficient because it does not provide for the infrastructure that is needed to make this coherent. What you do on the map is you start with private possession, and then what you do is you develop the common elements, the streets, the highways, and the sewers, which allow you to link things together. One of the interesting features is when you're dealing with land, say in a town, how do you make a plan for dealing with future development of the roads that link things together? One very clever devices is that the city fathers, they do is they put down a grid, which indicates where the highways are going to go, and the small streets are going to go. They let people acquire whatever land they want, but make it clear to them that when the time comes to build the roads and the highways out, any private structures that have is going to have to be removed. This very clever coordination device is means that people when they build on their own plots of land will not build where they think the streets and highways are going to come. So by a single device you can have decentralized acquisition of property on the one hand and a coordinated infrastructure on the other. PUBLIUS: Can you tell us more about how property rules work? What happens when two people dispute ownership? How about property transfers? How do we deal with renting and leasing property? RICHARD EPSTEIN: When we talked about the rules of the acquisition of property, we stressed first possession. The person who acquires the property and keeps against the rest of the world. But often times the system goes awry, and somebody takes the property, which someone previously owned, that second person is called the adverse possessor. Immediately you have two questions that you have to solve. One is the question of how the original owner can recover the property against the adverse possessor, and the answer is generally speaking, he can do so if he brings the suit in a period of time, a kind of statute of limitations. The second feature is what's the position of the adverse possessor is against the rest of the world, and the answer there is the doctrine of [inaudible 00:33:24] which says that against everybody but the true owner, the adverse possessor can effect exclude them. Both of these rules absolutely critical for the system. If in fact you do not allow the original owner to recover from the adverse possessor, you have a free for all for theft, and on the other had if you don't allow the adverse possessor protection against anybody else, it means that once property is taken it from its true owners it can never be secure because everybody could take from everybody else. So again, these two rules are designed to prevent the property free for all. The basic maximum of common law has been prior in time is higher and right. It is not first in time is highest and right. The reason you have to put it in the particular passion is that if it turns out that "A" first acquires property and then "B" takes it from "A" and then "C" takes from "B", you have to figure out what the relationship on ownership is going to be between "B" and "C". The doctrine of relative title says that "B" in effect prevails over "C", even though "A" could prevail over both of them. The so called doctrine of [inaudible 00:35:02] the right of the third person says, if "B" turn out to sue "C", "C" can not set up the title of "A" as a defense of the action. Again, this is absolutely critical for the operation of the system, because it can not be one act of adverse possession takes place, which is very common in primitive societies. No property rights will ever be stable, and the rule against [inaudible 00:35:25] makes sure that won't happen by keeping the original party out of the dispute so that only the relative titles between "B" and "C" that matter. Thus far, we've been speaking about property as acquisition from the below, but it turns out historically often properties acquired by conquest. At that particular point, individual owners obtained their title not by first possession, but by obtaining it from the conquering ruler. The Devise act in English law was the conquering act of England in 1066 by William the Conqueror. What he then did was to create a system in which he awarded his chief officials by giving them property. Essentially, they were now property and service relationship held of the crown. The individuals who his tennis in chief in turn managed to dissolve or to hand discharge their obligations by creating further forms of subinfeudation. This in effect is a top down system, in which what happens is that the rights of each of tenants in hierarchy are determined by the contracts that he or she had with the parties above them, and the contracts that they enter into the property down below. It's a very elaborate set of rules. People would say these rules are irrelevant, but in fact the same thing happens today in connection with leases. Somebody owns a piece of property, and what they do is now lease some fraction of it to a person. That person now has two choices, they can lease or sublease some fraction of it to a third person, and they continue it on down, or the can assign their interest to somebody else. When you start to think about these things, what you do is you have chains of title, and what you must be able to do is to figure out the relationships between any two parties who are in direct contact with each other, so called privity, and those which are further removed. So as to give a very simple example of how this works, if it turns out that the head tenant is in breach of his obligations to the landlord, and he's evicted the subtenant necessary disappears from the view as well because his rights can not rise above those of the landlord. [inaudible 00:38:05]is understanding the multiple intricacy of this system required a tremendous amount of ingenuity. Whether you're talking about the medieval feudal system or the modern lease system, the contractual devices that were used were designed secure possession and security for everybody inside this elaborate framework. The next question is, when you talk about the division of property rights, one of the common forms of division is essentially to have concurrent owners. That is two people who take possession of the property at the same time and who share between themselves in some kinds of proportion. What the system of property rights does with respect to these common ownership is to create two different sets of arrangements. One of them is how all of the owners together can ward off the rest of the world. Essentially, their combined rights means that the protection of their exclusive rights is going to be honored by the law, strangers can not ousts them from possession. The much more difficult situation is the arrangement of the rights amongst those tenants who are in possession at the same time. Generally speaking, joint tenants are not tenants under a partnership agreement. They own no fiduciary duties to each other. What happens is each can take as much as he wants out of the particular arrangement until the other fellow starts to push back. Of these arrangements there's two kinds, and it's important to understand their major difference. One of them is a joint tenancy, usually between husband and wife. Such that at the death of the first, the property then goes to the other under the right of survivorship. Typically, only in marriage do you find situations where the natural object of benevolence from one party is in fact the cotenant. Typically, when you have tenancies in commons, their between brothers and sisters, or between business partners, and the rule there is that when one persons dies he can divide his property to whom ever he sees fit, who then becomes a cotenant of the surviving party. For business arrangements this is a much more efficient situation because it turns out that the testamentary objectives of a tenant in common usually do not involve the cotenant. So you've got these dual forms operating side by side, and the next thing that you have to worry about as with corporations is to figure out how you allocate the many governing duties. Who maintains the property, who repairs the property, who approves the property. Typically, these things are solved more my contract than by general rules because of the idiosyncratic nature of the relationships. One of the grave difficulties that one has with a section of property when you create either a landlord tenant relationship or feudal relationship between the lord and vassal is what is it that the person down below is required to supply to the person above and also in a contrary direction. So with respect to feudalism. The original system was one in which somebody who received land from the king or the superior lord had to supply services in the form of military assistance. Under these circumstances, the king would always want to make sure that his vassals provided it directly to him, and did not want them to be able to fragment the obligation. So subinfeudation in which the chief lord kept all of his obligations, and then divided them amongst the subtenants was the order of the day. When these arrangements became commuted into money, all of a sudden the complicated structure of three or more tiers became very inefficient. What you did is you had assignments of property interest to the new entrite because it's much easier to divide financial obligations then it is to divide service obligations. This was crystallized in England by a statute called Choir [inaudible 00:42:44] which in the year 1290 forbid subinfeudation and the statute only passed only after the service obligations of the knights services was it called, were comminuted into cash. When you're dealing with modern landlord, tenant relationships, a landlord relationships are essentially of several types. Some case the leases are very simple. The only thing the tenant gets is bare possession of the property and the landlord has no particular service obligations. This often happens with respect to agricultural lease. The general view is that each interest is separate so that if the tenant is ousted from the property by a third party, he can't say to the landlord, you're responsible. It's as though he bought the property himself and now has to continue to pay the lease rent just as he would not be able to recover the money if had paid a lump sum at the beginning. But modern lease is typically a service arrangement in which the landlord undertakes a lot of obligations to supply heat, doorman, and so forth to the tenant. Here the two interests are no longer independent but dependent upon one another. It is almost universally understood that if the landlord does not supply his particular obligation the tenant is going to be relieved of his. Exactly what the relieve takes is not always clear, in some cases its a cessation of rent, and in other cases you're allowed to vacate the premise under the circumstances. In other cases you're allowed to force him to provide it. There's a general lesson here, which is the law is pretty clear when it comes to stating obligations but once people go off the rails, such as there's a breech there is often a huge lack of clarity as to what the appropriate remedy is. Is it abandonment, is it damages, is it a requirement for specific performance. The hardest thing for law students to understand is that even if the rights and duties are crystal, it turns out the remedial choices are deeply complex. Thus far in speaking about the kinds of arrangements that exist among parties, we've tended to concentrate on two or very small numbers of situations. It turns out as land becomes more valuable, it becomes very important to be able to increase the density of occupation. Which means that there's many more shared obligations between parties. Instead of everybody having his own driveway, there's one driveway that's shared by numbers of people. The question is how do you organize these arrangements? As a matter of first principle, the correct answer is as follows. First of all what you do is get a common owner, and with that common owner than does is create a series of contracts with individuals which specify what units their going to occupy, and how they're going to fund their share of the common obligations, and how the governing structure for the arrangement is going to take place. The second function is to sure that when you do this with one person, that everybody who wants to buy into the common association, has no lease of what the particular arrangement are so that they will not be misled as to the situation between the owner of the property on the one hand, and the prior purchases, say of a condominium and cooperative units. What you need to do to have an arrangement in which all of these things are recorded to give notice, and then basically freedom of contract in their organization. It turned down under the classical law it was often very difficult to do this because there are a set of artificial limitation on freedom of contract with respect to the creation of which land works. It was generally said, for good reason perhaps, that there could never be affirmative obligations on the part of people that take care of land of others. The service obligation has nothing to do with the property transactions, and everybody would want them to be covered independently. When you start dealing with larger associations, and you have obligations with respect to the maintenance and care of unions with a question as to whether or not you purchased common resources from a central supply, this touch and concern requirement is essentially an nuisance. What the judges did therefore, was to make sure that in virtually every case where the contract in question was promoting the efficiencies of the operation, they were on it. The only covenants that essentially are dubius today have nothing to do with law of property, they have to do with the use of covenants in violation of the antitrust laws by having cartels that restrict new entry into certain lines of business or covenants that have to do with racial discrimination, which today are governed by the public housing law. Well, if you're talking about affirmative obligations you certainly don't want that to preclude the ability of a condominium or a corporative association to give assessment against its members secured by their units, and sure enough in the famous Napansen case they essentially relaxed the requirement to allow these liens to take place. The old rules use to say that only the party who owned the property could have a right with respect to covenant or an easement. That means you could not create independent condominium associations to run the place, and sure enough what happened they relaxed that rule as well so that a condominium association could have powers of governing with respect to an organization even though it was not a property owner under the circumstances. What these adaptations proof is that a very simple model, give notice to the world of what you've taken and have freedom of contract in the organization dominates. What the Napansen case further shows that ability of the judges to sort of relax these rules in fashion which it makes it possible for the entire system to work efficiently. NARRATOR: Thank you for listening to this episode in the Common Law unit of the No. 86 lecture series, where Professor Richard Epstein looks at long-established common law and regulatory patterns, and lays out six core principles as building blocks. His approach has roots in Roman Law, Anglo-American Common Law, and early Constitutional practice. These rules regulate human interactions in ordinary social life, and deal with individual autonomy, property and first possession, freedom of contract, and tort. The spirit of debate of our Founding Fathers animates all of the No. 86 content, encouraging discussion and critical reflection relative to how each subject is widely understood and taught in law schools and among law students. Subscribe to the No. 86 Lecture series on your favorite podcast platform to have each episode delivered the moment it’s released. You can also go to fedsoc.org/no86 for more lectures and videos on Property, Contracts, and the Common Law. Thanks for listening. See you in class! - Transcript [for YouTube - no speaker names/verbatim] Thanks for joining this episode of the No. 86 lecture series, in which Professor Richard Epstein discusses the key components of property law. This lecture is part of a series with Professor Epstein on how simple Common Law principles give us tools we can use to deal with complex technological and social challenges. Professor Epstein is one of the most prominent legal scholars of our day. He is the inaugural Laurence A. Tisch Professor of Law at NYU School of Law, a Senior Fellow at the Hoover Institution, and Professor of Law Emeritus and a senior lecturer at the University of Chicago. As always, the Federalist Society takes no position on particular legal or public policy issues; all expressions of opinion are those of the speaker. - What is property? What sort of rights are inherent in the ownership of property? How is ownership established? In dealing with the systems of property, it is important to understand that there's sometimes a grievous mistake in the conventional wisdom, which refers to properties in arbitrary constellation of rights, and duties that therefore can be changed at will by the state because there's nothing of deep substance there. The correct view on this subject is exactly the opposite. If you're talking about a system of property that is acquired by a system of first possession, what you want do is to make sure that the owner has a useful bundle of rights that permit for it's maximum development and use. So, with respect to land, it has the following dimensions. Property has to be infinite at duration because if there's a time limit, you can never quite figure out when that time limit should expires and what should be done after it is expired. So infinite horizons essentially allow for development. Properties also in three dimensions, and so the first basic approximation is he who owns soils, owns the depths and owns the air, that allows for interaction to take place. You can now mine on the one hand, and build foundations for your house on the other, and also build upward, so you're not confined to simply a plan. And then what happens is the property that you have is often in need of disposition. What the basic rules provide for is that you can so divide that particular property that you have, and the way you can divide is whole variety of arrangements. You can divide it by leases. You can divide it by life estates. You can divide it by mortgages. The theory is as you start to divide these particular interest, what happens is the gains from trades you can have are great then if the only choices you have were outright ownership transfer on the one hand, or a no transfer at all. So a divided interest in property, are in fact, the devices by which social gains start to take place. Yes, once it turns out that you've acquired property, and over time, and in three dimensions, the next question is how you use it? The basic rule on this is you make do with your property what you please because you will gain from that particular use and others peoples will not [inaudible 00:02:59]. But the major qualification on that should be instantly apparent, which is you're never allowed to use your property in ways which make it impossible for other people to use theirs, and so what happens the use of property which is allowed in the first interest is subject to a series of boundary constraints. Namely that you're not allowed to commit nuisances against your neighbors. Generally speaking, people agree that once you own a property it is, you have right to exclude others, there's much more controversy as to whether or not you can use your property. But the simple point here is that exclusion without the right of use, leaves property values. Virtually every legal system says that all individuals are entitled to use their property as they see fit, and that in turn is subject to another qualification, namely that you can not use it in a way that injures other individuals, typically creating nuisances, noises, filth, and stench that essentially make it impossible for neighbors to make a like use of their own property. Once it turns out that we define what property is, both in space and in time, it becomes clear that it has to involve more than the right to exclude. Property which you can not use is worthless. Therefore, the conventional uses of property, for farming on one hand, mining, and for building on the other, are generally built into the basic common law definition of property rights. In order to understand how this system works, there are many key cases in property that you have to pay attention to. Perhaps the first and most famous of these is Pierson v. Post in which the question is, how it is you acquire ownership of a fox. There's a very learned discussion as to whether or not the first possession rule is in fact created either by custom on the one hand or by positive law on the other. Then after you deal with that, you have to figure out how you protect these laws. There are famous cases which deal with the issue of exclusivity of which the most famous perhaps is Jacque v. Steenberg, and the issue here is to whether or not a person in desperate necessity is entitled to use the property of another for his own advantage or with the opposition of it's particular owner. Then there's going to be cases on the disposition of property over time. This gets involved in what is commonly called the rule against perpetuities, in which the state starts to impose limitations on the way in which you can divide property over time so that you so fracture the interest that you can not combine them for resale or for valuable use. Then you have to deal with rules that have to do with the mortgaging of property, and the extent to which property can be subject to foreclosure with giving adequate notice and protection to various individuals. So each of the divide interests in property then created an elaborate set of rules and they cohere and cause, figures out how each of these relationships, how sales, how leases, how mortgages, how easements work separately, and then a sophisticated understanding is how you put them together into common unit developments where all of these devices are in fact deployed simultaneously. The best case which deals with this is the case called [Naupausent 00:08:30]. It's concern with the governor's instructions of planned unit communities which essentially are a development of modern times, were given the high price of property, then trying to figure out how to get many people together in a given area, and you need to have very elaborate rules regulating both their private interest on the one hand, and their common interest on the other. When one is dealing with these particular systems, it's important to understand that oftentimes government interference, whether it be by statue on the one hand or common rule, common law rule on the other hand, can seriously disrupt voluntary arrangements. Perhaps the best illustration of this in modern times has to deal first with the leases and then with mortgages. When you have a particular system in which judges require an implied warranty of habitability, it can often be the case that the standards are so stringent that the entire voluntary market will shut down because no tenant can afford to pay the landlord the amount of money that is required under the deposit of law to bring property up to certain standards. If you have a system of rent control which keeps rent artificially low, it turns out that property will not move to its highest value user, and furthermore, that the landlord strapped for cash will, generally speaking, not be able to make sufficient repairs of the property in question. To figure out where the major departures take place, consider for example the system of rent control where rent is fixed at maximum levels. Under these circumstances, the tenants who are sitting in possession have automatic renewal, the properties can not therefore be moved to higher leases, landlords become reluctant to create new properties, and in fact the entire thing results in a regulatory struggle as to what kind of renting leases can be made to deal with the increased cost that the landlord incurred. Similarly, when you turn to mortgages, the paperwork can be overwhelming difficult and block the transactions from taking place. The rules on foreclosures can be so arduous, that tenants could remain in the possession of the property for very long periods of time, such that it turns out to depreciate in value as it is not cared for. One needs to have prompt removal of the faulting tenants in order for the system of lending to work well. You’ve discussed some of the rules that govern property ownership. Can you say more about how people acquire property of various types? How does private acquisition work when you start from a common pool of resources? In dealing with natural law principles, one often invokes something known as the harm principle. It says that no individuals entitled to do those acts that harm other people. It's important to understand both the use and misuse of that principle. This principle makes perfectly good sense when you're trying to prevent the use of force and fraud because those activities when done by all individuals reduce overall wealth and satisfaction in society, but it is extremely dangerous to use that principle to the extent that one competitor loses customers to a new enteron, under those circumstances the harm principle in effect stops those particular transactions that improve overall social welfare. So the key understanding is, force and fraud are covered by the harm principle, but competitive losses are not. In dealing with the acquisition of property, one has to take into account that there are different kinds of assets that are acquired by different rules. So with land, the simple rule is you occupy it and mark off the boundaries. With respect to chattels, like clamshells and so forth, you just pick them up and put them into your hands. The difficulties with wild animals that could start to run away. The general principle is that he who captures the animal is its owners. The elaboration on that is, if I wound an animal, and somebody tries to scope it up before I can capture it is generally regarded to be mine. So what happens is the rules of acquisition of property are sensitive to the nature of assets that are being acquired. Now, these rules of captures with respect to animals are also subject to further refinement because all animal are not alike. A fox can typically be captured by one person. A whale is much more complicated animal, and often extensive levels of cooperation are needed in order for the capture to take place. So with the whales, what happens, you develop other kinds of rules, and they are of two sorts. The first type of rules is consensual. You send a boat out and all the members of the crew are involved in the capture. What will happen is the captain will develop a system in which each of the particular seaman will get his fair share of the take. But often times when you are dealing with whales, one boat will essentially woo the whale and somebody else may capture it. Then you have to develop a system that will allocate the gains between the two party's, and it turns out these rules differ from one kind of whale to another. Perhaps the most famous case on this is a case called Ghen v. Rich in which the ship which disabled the whale was unable to capture it and it floated ashore. Somebody who found the whale on shore removed from it, its oil and sold it. Now, the owner of the original boat that killed the ship sued to recover the proceeds. The court held that you can sell the whale that you found on shore, but what you had to do was give notice to it's owner so that it was captured. Then to make sure the notice was given, the fellow who gave it got some modest sum of money that covered his particular expenses. What happens is, when the capture requires the coordination of separate parties, but the common law developed quite cleverly was rule which made sure that when you looked at the total value of the whale, there was portion between the various parties so everybody made a net gain, and this could not possible be done if the fellow who found the thing, when it came up on the shore, could sell the oil and keep it to itself. As the court said, if the casual finder can keep the whale, nobody will be able to hunt them down in the first place. So essentially, these rules of possession are not only specific to animals, as against other things, but they vary from one type of animal to another. The rules of capture for whales and for foxes are subject to another problem. Any particular hunter who captures a whale or a fox is indifferent, relatively speaking, to the destruction of the entire species. Whales can be over hunted to the point of extension. What happens is there's no way you can alter the rules dealing with the possession of animals to prevent this from happening, so you need to put into place other social institutions to deal with excessive capture. These are rules that are essentially designed to stop what you call the common pool problem. What you have to do therefore is to limit the number of animals that can be captured. The appropriate function of the state is to stop the tragedy of commons by limiting the total amount of the catch, and by further by assigning amount that can be captured to individual actors so that they can remain in business. This requires a large institution framework that the common law can not develop. One of the questions that one has to ask is, can you stabilize a commons? And the answer is yes, but the key element is to distinguish between closed and open commons. For example, suppose you have a large number of people who own private parts of land, which they use for planting crops during the summer, but they also own animals, which graze in the mountains at that time. When they come back down, it turns out that the small parts of land are very bad for the animals in question. What you do is you create a close commons by taking down the separate walls, allowing the animals to roam within it. The way in which you control the tragedy is each person allowed to inject into that particular commons only that number of animals which is proportionate to the land value that he contributes. You can control entry, you can create a system of common ownership, which is going to efficient. Whereas, if you insist that each particular person can only graze during the winter, his crops on his own particular part of land, all will perish. What is quite striking is very primitive cultures from a very early stage have figures out how to develop this situation where when you're growing crops you treat land as private property, and when you're husbanding animals during the winter season, you treat is as common property. An open commons can not be stable because under those circumstances anybody could send their animals on to the particular land, at which point the amount of forage would be quickly consumed, leading again to the over consumption that turns out to be fatal. When one looks at the rules of first possession it is easiest to understand that with respect to land. One understands in fact that sooner or later you will have to have these common arteries, but in the state of nature what happens is one person goes, occupies a piece of land, give notice to the world by marking it off, perhaps by putting stones at the corners. At that particular point what will happen is that the map will slowly fill in, each person taking land and protecting it. There's always been a great question as to whether or not you're allowed to take as much land as you want. When a state of nature, this tends not to be a problem because if you try to make your land too extensive you will not be able to defend it against wild animals. What typically happens is that people choose land that give them defensible borders. When you start to work in a more civilized society, often times there are other ways in which you define the land. If you dealing for example with the homesteaders, the basic rules was that everybody could essentially occupy a part of land which they acquired, but it would have a certain maximum size, say 160 acres associated with it. But the key point here to understand is that the individual acquisition is a decentralized method by which land is reduced to procession and thereafter one has to superimpose upon the grid which allows things to be connected one to another. When one is dealing with land that is to be reduced to private property the current system is one of decentralized acquisition. People go out, and they acquire a piece of land, and mark its boundary lines, and then other people come perhaps somewhat later in time, and they do the same thing. Slowly what happens, if you look at the map, the vacant spots get filled in with individual pieces of ownership. If you do that, the situation will clearly be stable, but it will not be self sufficient because it does not provide for the infrastructure that is needed to make this coherent. What you do on the map is you start with private possession, and then what you do is you develop the common elements, the streets, the highways, and the sewers, which allow you to link things together. One of the interesting features is when you're dealing with land, say in a town, how do you make a plan for dealing with future development of the roads that link things together? One very clever devices is that the city fathers, they do is they put down a grid, which indicates where the highways are going to go, and the small streets are going to go. They let people acquire whatever land they want, but make it clear to them that when the time comes to build the roads and the highways out, any private structures that have is going to have to be removed. This very clever coordination device is means that people when they build on their own plots of land will not build where they think the streets and highways are going to come. So by a single device you can have decentralized acquisition of property on the one hand and a coordinated infrastructure on the other. Can you tell us more about how property rules work? What happens when two people dispute ownership? How about property transfers? How do we deal with renting and leasing property? When we talked about the rules of the acquisition of property, we stressed first possession. The person who acquires the property and keeps against the rest of the world. But often times the system goes awry, and somebody takes the property, which someone previously owned, that second person is called the adverse possessor. Immediately you have two questions that you have to solve. One is the question of how the original owner can recover the property against the adverse possessor, and the answer is generally speaking, he can do so if he brings the suit in a period of time, a kind of statute of limitations. The second feature is what's the position of the adverse possessor is against the rest of the world, and the answer there is the doctrine of [inaudible 00:33:24] which says that against everybody but the true owner, the adverse possessor can effect exclude them. Both of these rules absolutely critical for the system. If in fact you do not allow the original owner to recover from the adverse possessor, you have a free for all for theft, and on the other had if you don't allow the adverse possessor protection against anybody else, it means that once property is taken it from its true owners it can never be secure because everybody could take from everybody else. So again, these two rules are designed to prevent the property free for all. The basic maximum of common law has been prior in time is higher and right. It is not first in time is highest and right. The reason you have to put it in the particular passion is that if it turns out that "A" first acquires property and then "B" takes it from "A" and then "C" takes from "B", you have to figure out what the relationship on ownership is going to be between "B" and "C". The doctrine of relative title says that "B" in effect prevails over "C", even though "A" could prevail over both of them. The so called doctrine of [inaudible 00:35:02] the right of the third person says, if "B" turn out to sue "C", "C" can not set up the title of "A" as a defense of the action. Again, this is absolutely critical for the operation of the system, because it can not be one act of adverse possession takes place, which is very common in primitive societies. No property rights will ever be stable, and the rule against [inaudible 00:35:25] makes sure that won't happen by keeping the original party out of the dispute so that only the relative titles between "B" and "C" that matter. Thus far, we've been speaking about property as acquisition from the below, but it turns out historically often properties acquired by conquest. At that particular point, individual owners obtained their title not by first possession, but by obtaining it from the conquering ruler. The Devise act in English law was the conquering act of England in 1066 by William the Conqueror. What he then did was to create a system in which he awarded his chief officials by giving them property. Essentially, they were now property and service relationship held of the crown. The individuals who his tennis in chief in turn managed to dissolve or to hand discharge their obligations by creating further forms of subinfeudation. This in effect is a top down system, in which what happens is that the rights of each of tenants in hierarchy are determined by the contracts that he or she had with the parties above them, and the contracts that they enter into the property down below. It's a very elaborate set of rules. People would say these rules are irrelevant, but in fact the same thing happens today in connection with leases. Somebody owns a piece of property, and what they do is now lease some fraction of it to a person. That person now has two choices, they can lease or sublease some fraction of it to a third person, and they continue it on down, or the can assign their interest to somebody else. When you start to think about these things, what you do is you have chains of title, and what you must be able to do is to figure out the relationships between any two parties who are in direct contact with each other, so called privity, and those which are further removed. So as to give a very simple example of how this works, if it turns out that the head tenant is in breach of his obligations to the landlord, and he's evicted the subtenant necessary disappears from the view as well because his rights can not rise above those of the landlord. [inaudible 00:38:05]is understanding the multiple intricacy of this system required a tremendous amount of ingenuity. Whether you're talking about the medieval feudal system or the modern lease system, the contractual devices that were used were designed secure possession and security for everybody inside this elaborate framework. The next question is, when you talk about the division of property rights, one of the common forms of division is essentially to have concurrent owners. That is two people who take possession of the property at the same time and who share between themselves in some kinds of proportion. What the system of property rights does with respect to these common ownership is to create two different sets of arrangements. One of them is how all of the owners together can ward off the rest of the world. Essentially, their combined rights means that the protection of their exclusive rights is going to be honored by the law, strangers can not ousts them from possession. The much more difficult situation is the arrangement of the rights amongst those tenants who are in possession at the same time. Generally speaking, joint tenants are not tenants under a partnership agreement. They own no fiduciary duties to each other. What happens is each can take as much as he wants out of the particular arrangement until the other fellow starts to push back. Of these arrangements there's two kinds, and it's important to understand their major difference. One of them is a joint tenancy, usually between husband and wife. Such that at the death of the first, the property then goes to the other under the right of survivorship. Typically, only in marriage do you find situations where the natural object of benevolence from one party is in fact the cotenant. Typically, when you have tenancies in commons, their between brothers and sisters, or between business partners, and the rule there is that when one persons dies he can divide his property to whom ever he sees fit, who then becomes a cotenant of the surviving party. For business arrangements this is a much more efficient situation because it turns out that the testamentary objectives of a tenant in common usually do not involve the cotenant. So you've got these dual forms operating side by side, and the next thing that you have to worry about as with corporations is to figure out how you allocate the many governing duties. Who maintains the property, who repairs the property, who approves the property. Typically, these things are solved more my contract than by general rules because of the idiosyncratic nature of the relationships. One of the grave difficulties that one has with a section of property when you create either a landlord tenant relationship or feudal relationship between the lord and vassal is what is it that the person down below is required to supply to the person above and also in a contrary direction. So with respect to feudalism. The original system was one in which somebody who received land from the king or the superior lord had to supply services in the form of military assistance. Under these circumstances, the king would always want to make sure that his vassals provided it directly to him, and did not want them to be able to fragment the obligation. So subinfeudation in which the chief lord kept all of his obligations, and then divided them amongst the subtenants was the order of the day. When these arrangements became commuted into money, all of a sudden the complicated structure of three or more tiers became very inefficient. What you did is you had assignments of property interest to the new entrite because it's much easier to divide financial obligations then it is to divide service obligations. This was crystallized in England by a statute called Choir [inaudible 00:42:44] which in the year 1290 forbid subinfeudation and the statute only passed only after the service obligations of the knights services was it called, were comminuted into cash. When you're dealing with modern landlord, tenant relationships, a landlord relationships are essentially of several types. Some case the leases are very simple. The only thing the tenant gets is bare possession of the property and the landlord has no particular service obligations. This often happens with respect to agricultural lease. The general view is that each interest is separate so that if the tenant is ousted from the property by a third party, he can't say to the landlord, you're responsible. It's as though he bought the property himself and now has to continue to pay the lease rent just as he would not be able to recover the money if had paid a lump sum at the beginning. But modern lease is typically a service arrangement in which the landlord undertakes a lot of obligations to supply heat, doorman, and so forth to the tenant. Here the two interests are no longer independent but dependent upon one another. It is almost universally understood that if the landlord does not supply his particular obligation the tenant is going to be relieved of his. Exactly what the relieve takes is not always clear, in some cases its a cessation of rent, and in other cases you're allowed to vacate the premise under the circumstances. In other cases you're allowed to force him to provide it. There's a general lesson here, which is the law is pretty clear when it comes to stating obligations but once people go off the rails, such as there's a breech there is often a huge lack of clarity as to what the appropriate remedy is. Is it abandonment, is it damages, is it a requirement for specific performance. The hardest thing for law students to understand is that even if the rights and duties are crystal, it turns out the remedial choices are deeply complex. Thus far in speaking about the kinds of arrangements that exist among parties, we've tended to concentrate on two or very small numbers of situations. It turns out as land becomes more valuable, it becomes very important to be able to increase the density of occupation. Which means that there's many more shared obligations between parties. Instead of everybody having his own driveway, there's one driveway that's shared by numbers of people. The question is how do you organize these arrangements? As a matter of first principle, the correct answer is as follows. First of all what you do is get a common owner, and with that common owner than does is create a series of contracts with individuals which specify what units their going to occupy, and how they're going to fund their share of the common obligations, and how the governing structure for the arrangement is going to take place. The second function is to sure that when you do this with one person, that everybody who wants to buy into the common association, has no lease of what the particular arrangement are so that they will not be misled as to the situation between the owner of the property on the one hand, and the prior purchases, say of a condominium and cooperative units. What you need to do to have an arrangement in which all of these things are recorded to give notice, and then basically freedom of contract in their organization. It turned down under the classical law it was often very difficult to do this because there are a set of artificial limitation on freedom of contract with respect to the creation of which land works. It was generally said, for good reason perhaps, that there could never be affirmative obligations on the part of people that take care of land of others. The service obligation has nothing to do with the property transactions, and everybody would want them to be covered independently. When you start dealing with larger associations, and you have obligations with respect to the maintenance and care of unions with a question as to whether or not you purchased common resources from a central supply, this touch and concern requirement is essentially an nuisance. What the judges did therefore, was to make sure that in virtually every case where the contract in question was promoting the efficiencies of the operation, they were on it. The only covenants that essentially are dubius today have nothing to do with law of property, they have to do with the use of covenants in violation of the antitrust laws by having cartels that restrict new entry into certain lines of business or covenants that have to do with racial discrimination, which today are governed by the public housing law. Well, if you're talking about affirmative obligations you certainly don't want that to preclude the ability of a condominium or a corporative association to give assessment against its members secured by their units, and sure enough in the famous Napansen case they essentially relaxed the requirement to allow these liens to take place. The old rules use to say that only the party who owned the property could have a right with respect to covenant or an easement. That means you could not create independent condominium associations to run the place, and sure enough what happened they relaxed that rule as well so that a condominium association could have powers of governing with respect to an organization even though it was not a property owner under the circumstances. What these adaptations proof is that a very simple model, give notice to the world of what you've taken and have freedom of contract in the organization dominates. What the Napansen case further shows that ability of the judges to sort of relax these rules in fashion which it makes it possible for the entire system to work efficiently. Thank you for listening to this episode in the Common Law unit of the No. 86 lecture series, where Professor Richard Epstein looks at long-established common law and regulatory patterns, and lays out six core principles as building blocks. His approach has roots in Roman Law, Anglo-American Common Law, and early Constitutional practice. These rules regulate human interactions in ordinary social life, and deal with individual autonomy, property and first possession, freedom of contract, and tort. The spirit of debate of our Founding Fathers animates all of the No. 86 content, encouraging discussion and critical reflection relative to how each subject is widely understood and taught in law schools and among law students. Subscribe to the No. 86 Lecture series on your favorite podcast platform to have each episode delivered the moment it’s released. You can also go to fedsoc.org/no86 for more lectures and videos on Property, Contracts, and the Common Law. Thanks for listening. See you in class!