NARRATOR: Thanks for joining this episode of the No. 86 lecture series, where we discuss the foundational principles of Property Law - the rights and duties of ownership - as well as current topics in the academic literature (such as environmental considerations). Today’s episode features Donald Kochan, Professor of Law and Deputy Executive Director of the Law and Economics Center at Antonin Scalia Law School. 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: Professor Kochan, in another episode, we talked about how property is acquired. Now I want to talk more about what rights an owner has. First of all, how do we prove something is owned? DONALD KOCHAN: The recording system provides a centralized repository in which individuals with claims to property can stake their claim, assert their claim in an official public place. That public place can be searched. Those records can be searched. Oftentimes, this is a county courthouse where individuals who purchase are expected to go and search the records to find out who has made a claim to the property. If a purchaser discovers that someone other than the seller has a claim to the property, then they are on notice by looking at the records. Then they are on what's called record notice of the adverse claim. They should've known in advance not to buy the property. As such, if they went ahead and bought the property, then it's their fault. They are not a good faith purchaser. They should've at least known that they should've gotten a substantial discount based on the risk of someone else making an adverse claim to the property. You cannot be a good faith purchaser against the other adverse party who's making a claim to the property if you had record notice. Other ways that you can get notice is through actual notice. You're told, "Hey." You show up at a property, and someone other than the property owner is living there. They say to you when you show up and as you're examining the property, they say, "Yes, I am the owner of this property, and here is my deed." You now have actual notice that someone is making an adverse claim to the property other than you as purchaser from this claimed seller. Another way that you can have notice of an adverse claim into the property is something called inquiry notice. This is where there's a red flag raised, that's the trigger, that someone other than the owner might be making a claim to the property. This is where you see someone other than the property owner hanging around the property, seeming to be living there. You have an obligation to inquire. That's a red flag. Someone other than the property owner is enjoying and using this property. Who are these people? That's a red flag that says, "I should ask why are these people here. What's happening here?" You're on inquiry notice, and if the threshold red flag is raised, then you have an obligation to inquire upon whether or not someone has an adverse interest. Your failure to inquire is not an excuse. The knowledge you would've gained from inquiring is attributed to you whether you inquire or not, which means it's treated much like you would have actual notice of what you would have discovered had you done the investigation that the law requires you to do. If any of these three things have revealed to a purchaser the existence of an adverse claimant, record notice shows an adverse claimant, actual notice of someone else making a claim to the property other than the seller and other than you, or inquiry notice, there's been some red flag raised and if you had investigated, asked questions about this red flag, you would have discovered the existence of an adverse claimant, then the purchaser cannot claim that they weren't on notice of the adverse claimant, which means that the purchaser is subject to that adverse claim provided that adverse claim is legitimate. If, however, we have a situation in which they did not have notice and could not have had notice of the adverse claimant, in other words, looking at the records, they would not have found the adverse claimant, they were not given any actual knowledge, and there were no red flags raised that there would be any adverse claimants out there, then one may be able to claim that they are a good faith purchaser. I bought this property believing there were no adverse claimants. I bought this property believing there were no servitude holders that have a claim on this property. I bought this property without knowing that there was a lien on this property because you took out a loan from someone who placed a lien, but they didn't record the lien, so there's no way you could've found out about that. If you did not know or could not have found out, then you could be a good faith purchaser, which means that the good faith purchaser has the possibility of winning against even an adverse claimant who otherwise would have superior title to the property. It's a complicated system in which the people with better claims don't always win against good faith purchasers. But we can't get too worried about that or feel too much pity for those folks because they had an easy way to protect their interests. The recording system exists so that anyone with a claim to property has the opportunity to record their interests at the county courthouse or wherever the point of recordation is in your jurisdiction. Your failure to do so is what put you in this bind because if you had just recorded your interest, you would've alerted the would-be purchasers out there in the world of your interest, and you would've been protected. The point being the recording exists for a purpose. We incentivize people to record by telling them, "If you don't, there's a chance that the property could be sold to someone else or sold to someone else without knowledge of your interest, your limited interest in the property, like a servitude." You will not have a legal claim against them. If you record, we will give you the benefit of making that recordation constitute record notice so that anyone who purchases property is under an obligation to go look at the records, and furthermore, if they choose not to, that knowledge will be imputed upon them. In other words, every purchaser has a duty to look at the records, and if the purchaser fails to look at the records, what they would've found will be imputed against them anyway, such that if they would've found the existence of an adverse claim, they would be responsible for knowing that. Why do we want to incentivize recording? Because recording itself helps to create a high level of confidence in who owns what. Recording actually facilitates market transactions because it gives individuals who purchase property high confidence that what they're purchasing will be their own and that they can ward off other potential claimants afterwards. It increases the value of the property because the purchase of property thereafter comes with the confidence that you are purchasing something for which you will have security against adverse claimants, so that raises the price and increases the value of the property. It facilitates credit. Someone is not going to give you a loan for a property if they do not actually believe that you will be able to own that property. In other words, I'm not going to loan you a million dollars to purchase a piece of property as a bank if I believe that someone else can come and take that away from you, because the property itself is the collateral for the loan. I'm going to lose all my collateral. I need to have confidence if I'm a lending institution that that collateral is secure against adverse claimants as well. The financing of property acquisition is dependent on the recording system as well. There are a variety of other ways in which the recording system facilitates exchange, but it is principally that it is a tool by which those market participants who engage with the property can gain reliable and comprehensive information about the ownership interest in a piece of property, which they know that the courts are going to also use for purposes of determining property disputes. All of this together lends a high degree of confidence and stability into the system of property ownership that otherwise could not exist. PUBLIUS: What are some of the responsibilities that ownership entails? Do you have the right to do whatever you want with your own property? DONALD KOCHAN: We have principles in property which are not just about rights, they're also about responsibilities. And so we have the golden rule, do unto others as you would have done unto you. Or in property it's known as sic utere tuo ut alienum non laedas and that is that, "Use your property so as not to injure another." So you can use your property. You do have a right to do so. But you can't do it in a way that harms someone else. This of course is the underlying concept of nuisance law, for example. So I have a right to use my property to play really loud music if I want to. We think that, "Well, it's my property. I can use it as I wish, so I want to play loud music." Well, your ability to play loud music is limited by the harm that you might be doing to others. You cannot use your property in a manner that harms others, and so if my neighbor is being harmed, their reasonable use and enjoyment of their property is being interfered with by my unreasonable use of my property. Then they have recourse under the system of property law to limit how I use my property. Why? Because I'm causing negative externalities. In other words, I'm using my property in a way that harms another, for which I am not paying any cost unless the court system imposes that cost on me. And so you cannot use your property in such a way as to cause negative externalities, externalizing harm from the use of your property onto others. And that responsibility is in the property system as much as rights are in the property system. Again, this allows for peaceful coexistence because it means that I get to use my property but I have a limitation, an inherent limitation built into the common law that I cannot use my property in such a manner as to harm someone else's property, and if I do, then it is a responsibility of the government, who is also a protector of the neighbor's property, to prevent me using my property in a way that accomplishes that harm. That's the concept of reciprocity that there is a reciprocal obligation on my neighbor to also use her property not to harm me. So yes, the limitation on how I use my property in the [Latin 00:56:46] principle means that I don't truly have unlimited power to use my property as I wish. It is inherently limited. But that makes a lot of sense when I understand that my neighbor is also subject to the same limitation in that my neighbor can't use her property in a way that harms me. So I get the benefit as much as a burden from this reciprocal rule in which each of us have reciprocal limitations as much as we have reciprocal rights, which can be enforced by the courts. Again, part of the well ordered society that is facilitated by a system with strong property rights and a system of courts who are going to resolve disputes between property owners and between property owners and non property owners. PUBLIUS: One of the obvious disputes that comes to mind is trespass. What are some of the rules about that? DONALD KOCHAN: Trespass is the unlawful entry onto the land of another. It is also the unlawful remaining on the land of another without their consent. Trespass is about protecting the fundamental feature of property, which is the right to exclude. If someone trespasses on your land, they are violating your right to exclude. As a consequence, trespass is enforced in the courts even if there is no real harm to the property owner from the trespass itself. In other words, it's basically as soon as you trespass, you have committed a wrong, and that wrong is actionable in a court. Now, let me give you an example. If I were to cross your property and not cause you any harm, you're not there for the day, I'm not interfering of any of your use of the property. I do it in a very careful way in which I leave no residue of my presence. It would be easier for me to cross your property to deliver my mobile home to your neighbor's property. I just need to drive it across a driveway that you already have there, and it's going to cause you no harm whatsoever. I do not have a right to do that without your permission. Property ownership involves permission to enter. Even though it may be the most efficient route for me to take and even if I'm not causing harm to you, you have a right to exclude me from trespassing across your property. If you tell me no, I can't just go ahead and do it anyway and say, "Hey, no harm, no foul." Trespass doesn't work that way. Trespass says the harm is in the invasion of the property right itself. Trespass really is at the heart of the features and attributes of property. It says that your right to exclude is an enforceable right even if there is no harm caused to you as a result of it. Now, trespass therefore allows us to not only exclude, but it allows us to decide who to include. Trespass actually facilitates market exchange. In other words, I can sell my right to include. If you're actually getting a savings from using my property, for example, to deliver a mobile home to the neighbor's property, and it's cheaper and easier for you, then you should be willing to pay me for that access right. The access to my property is itself something which can be sold, and it doesn't matter that I might not be harmed. The harm is in the fact that I lost the ability to sell you the right to enter. We help facilitate market exchanges, including access rights, by starting with the presumption you can't access without permission because that now creates value in the property. If other people wish to access it, if other people wanted to come on it, they can buy that right from you. They can buy the permission that you could offer to them. In that sense, we see how the right to exclude itself creates a market for goods that can flow or values that can flow to others from your property, but only if the exchange actually occurs. Sometimes societal values will trump property rights. One of the things you learn early on is that property rights are conditioned by other social values. Consequently, even something as strong as trespass, which is generally governed by a property rule, a right to exclude, generally governed by this ability to enjoin others from violating the right, nonetheless must give way to other societal values at times. The exceptions that have come up to say that although technically this is a trespass, it will not be actionable, usually are to protect some other societal value. For example, your trespass may be excused if you have to trespass on the property to save the life of another. If someone is dying on your driveway and medical personnel come onto the driveway to save this person's life, then either by statute or even by common law recognition, this is sometimes an excusable trespass. Other times, things are not considered a trespass because we say that something you've done has put you into a situation in which access to your property should be more open or at least subject to regulation or subject to the imposition of other social values. A prime example of this is taught in many property classes about a farm where migrant workers are invited on to labor on it. This is different than the normal strict liability kind of case. Here you have invited people to come and work during the day on your farm. The question in a classic case, State versus Shack, was whether or not the owner of the farm could exclude the farm workers from having both medical personnel and legal personnel, medical assistance and legal assistance come on the property to meet with the migrant workers. Could they exclude the medical workers and the legal aid workers? The court there said, "No." That by opening your land to the migrant workers in the first place, you could not, because of other social values including the facilitation of access to these kinds of medical and legal services for the migrant workers, the owner could not exclude these folks and call their presence there a trespass. There will be times when social values will trump and decide that you are required to allow some people to enter your property, such that those social values can be advanced. We should be very careful, and the law is very careful about why they allow for those kinds of exceptions because every exception diminishes the opportunity to monetize access to the property in a way that is intended by protecting the right to exclude. PUBLIUS: What about nuisance? DONALD KOCHAN: Nuisance, particularly what's called private nuisance is an unreasonable interference with the reasonable use and enjoyment of another's land. It's an unreasonable use of your own land in a manner that causes a substantial interference with the reasonable use of someone else's land. Let me give you an example. If you are playing loud music in your house, so loud that the other person next door can't sleep, so you're playing loud music at unreasonable hours at unreasonably loud levels. The substantial interference is that your neighbor cannot use and enjoy their property in a reasonable way. It would be reasonable for someone to expect to be able to sleep in their property as a use and enjoyment during normal sleeping hours, and so your use of your own property is subject to an inherent common law limit in nuisance law, which says that you can only use your property in such a way as not to injure another. Remember, we go back to the basic principle of sic utere tuo ut alienum non laedas, that you can't use your property in a way that harms another person's property. This is a common law limitation, inherent limitation on the use of your property. Nuisance just is derived from that general principle that some unreasonable interferences with the reasonable use and enjoyment of another's property is an unreasonable use of your property. As such, you can be enjoined from doing so or be required to pay damages for the interruption of the use and enjoyment of your neighbor's property. Another example would be in some jurisdictions, if you're smoking in your backyard and that smoke somehow goes into your neighbor's yard in the way that they now are consuming secondhand smoke. There is a question as to whether or not that is the use of your property in a way that causes an odor that goes into someone else's property or even a contaminant that goes into someone else's property and causes harm to that neighboring property's use and enjoyment. There are these ways in which you are limited in how you can use your property if it causes harm to another person's property. A third example would be let's say you have nauseous odors coming from other sources, such as animals that are causing it so that your neighbor can't open their windows at night or open their windows during the day for that matter. This too may be a nuisance. These are your typical sort of trans boundary effects that are not internalized. Again, nuisance is about negative externalities. It is about situations in which you are not internalizing the costs of your own use of your property. When you are causing foul smells on your property, you are not internalizing the costs. Other people are bearing the costs of your activity. You are imposing negative externalities on those folks, and as such, you are violating not only the sic utere principle, but you are also causing an unreasonable interference which will be considered a nuisance and can either subject you to damages, liability, or your neighbor may be able to get an injunction against you doing the activity in the first place to prevent the nuisance from even occurring. PUBLIUS: I have one more question about ownership and property rights. What about environmental concerns? Should those override traditional property rights even if they don’t involve nuisance? DONALD KOCHAN: A robust system of property rights is not at all antithetical to environmental preservation or conservation. In fact, property rights are often critical to making sure that certain resources are conserved. For example, we have issues of overfishing. If a pond is full of fish but no one has any rights to the fish, in other words, there's no ability to allocate the fishing rights in a way that says, "I own the pond and all the fish in it." If I own the pond and all the fish in it, then I have the ability to allocate rights to individuals such that they can take only so many fish, and they have to pay to take the fish that they take. Now I as the owner of that resource want that resource to recharge. I want this to be a sustainable resource. I don't want just one weekend of fishing and then all the fish are gone. I want to be able to offer this every weekend. I have an incentive to find ways to conserve and maintain the fish population in a way that ensures there will be a constant flow of fishermen coming and asking me to buy rights to extract some fish from my pond. If I own the pond, I can do that. If I don't own the pond, then I have no ability and no incentive to actually help maintain that stock of fish. I'm getting nothing out of maintaining the stock of fish. I'm not going to recharge the stock in any way. I'm not going to control the extraction in a way that preserves it in perpetuity because I'm not gaining anything out of it. If I can monetize this asset of the fish, I'm more likely to maintain that population of fish. Conservation of the fish becomes a priority because it becomes economically valuable to conserve those fish. That's one reason why giving me ownership in that resource makes me a good steward of that resource because I can extract long-term economic gain by being a good conservation steward and far more than I could if I just took the one shot, let's deplete the stock entirely, and let it go, let all the fish go away. Now let's assume that we have a pond similar in nature in which no one owns the pond and no one owns the fish. Everyone can come and fish that pond. This is a commons problem, and so we learn from the tragedy of the commons that the incentives there are that no one who comes to fish has any incentive not to over fish. Why? Because everyone is out for themselves, and so the only way that you gain is if you take as many fish as you can. There's no benefit to leaving any fish behind because it will just be snatched up by the next person. Everyone has an incentive to over fish and take it all out in a way that does not preserve the pond whatsoever. The classic example of the commons is a grazing commons in which the question is how many sheep do you bring to graze on the commons? If everyone brought only one sheep, then the commons might be able to sustain itself. The grass might be able to regrow. One guy sees another guy bring two sheep one weekend to graze. It's like, "I should bring three." The next guy says, "Well, I should bring four." All of a sudden, there are so many sheep because no one can exclude the other. Note that the fisherman, the person who owned the pond and sold the fishing rights, the reason that they could sell the fishing rights was because that ownership came with the ability to exclude the fishermen from taking any fish at all and thereafter were able to control how many fish they took. On the commons in the grazing situation, if no one has the ability to say, "You can't bring in three sheep," we're going to have everyone wanting to exploit the resource to its greatest extent and no one wanting to conserve the resource. Property rights themselves are a gate keeping function that allow for exclusion, which allows for sustaining and conserving resources. That's one of the key ways in which property rights can in fact be not only used but sometimes created in natural resources such that you give someone the incentive to be the guardian of that resource because they will be able to gain from that resource by sustaining it rather than allowing it to be depleted. That's one way in which property rights actually serve quite well, especially in natural resources conservation. Other ways are of course that we can borrow from common law to create common law environmental concerns. In other words, there are a number of things which are already controllable by the common law if only we tried. Environmental pollution, for example, is often the creation of a nuisance, which is controllable by the common law. We have trespass, which also allows for if sludge comes onto my property, I may be able to claim that that is the injection of someone else's property onto mine without my consent or permission, and that constitutes a trespass, and I can bring a lawsuit against those individuals for that. There are common law remedies for most environmental concerns, and the more we tap into those common law remedies and look at technology, such as ways to put tags on air pollution and ways to track. There's a lot of ways in which the common law can work together with technological innovations to ensure that there's traceability opportunities for polluters to pay. There's a rich amount of opportunity in traditional property systems to allow for environmental regulation through private ordering that oftentimes will be superior to public ordering, top-down methods which don't incentivize the kinds of behaviors that property rights can. NARRATOR: Thank you for listening to this episode of the No. 86 Lecture series on Property Law. 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 lectures and videos on Federalism, Separation of Powers, the Judiciary and more. Thanks for listening. See you in class!