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santhos kk
Year : 2008
School : University of Houston Law Center
Book : Marcilynn A. Burke
Professor : Marcilynn A. Burke
Subject : Marcilynn - Property
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Property Outline

Property Outline

Property Rights - a method of allocating or distributing costs and benefits (resources, wealth, and/or power)

Types of Property

  • open access

  • controlled access

  • personal

  • real (land)

  • marital

  • image/persona

  • intellectual

Purposes of Private Property

  1. to internalize externalities: to have more of the costs of a person's activities concentrated on that person

  2. to reduce the transactions costs of agreeing w/ the community (negotiating costs, holdouts, freeriders, policing the agreement, info costs, …)

  3. to promote efficient use of resources (utilitarian view)

  4. to adjust to new cost-benefit possibilities (as seen in fur trade)

  5. to ensure political freedom (free from the feudal hierarchy)

Harold Demsetz - Theory of Property Rights

Main Arguments

  • property rights emerge in order to internalize externalities whenever gains of internalization outweigh costs of internalization

  • privatizing property leads to efficiency

3 types of property (according to Demsetz)

  1. Common - everyone has a right to use it, no one has right to exclude anyone else; initial state of property

  2. Private - owner has right to use and exclude all others

  3. State - state can exclude people as long as it uses accepted procedure

Externalities - costs or benefits (normally costs) of a decision that were not considered when the decision was made; often causes misallocation of resources

Transactions Costs - costs incurred when making/arranging exchanges or systems of exchanges

  • negotiation costs, search costs, enforcement costs, …

  • free riders - people who don't help towards goal b/c they know that other people with their same interests will do the work, but they still reap the reward

  • hold-outs - people that have exaggerated view of their property and thus, hold out for more than their property is really worth

With private ownership, externalities still remain

    • potential neglect or damage of other's property

    • cost of having to reset lines of ownership if circumstances change

    • costs of future generations to maintain lines

So, private property does eliminate some externalities, but some remain and even some new ones are created.

What makes common property problematic?

    • people don't receive benefits for what they put into it, so there are no incentives to invest/improve in the land

    • externalities

Argument against Demsetz

    • the cost of transition from communal to private can make the switch value-neutral or even value-negative

    • Demsetz assumes all people are rational maximizers (which is often not the case)

Garrett Hardin - Tragedy of the Commons

    • believes the great pressure being put on resources is due to over population

    • thinks the commons of “breeding” must be abandoned, “freedom to breed will bring ruin to all”

Tragedy of the Commons - situation when no one has the right to exclude anyone from using land, it becomes overused and ultimately leads to inefficient results and possible elimination of the resource

    • even if people recognize the tragedy, they will still exploit the resources unless govt. steps in (this is different from Demsetz b/c Demsetz believes people will change by themselves, w/o govt. intervention)

    • rebuttal to pure Adam Smith theory that people pursuing individual gain can also help society as a whole (ex. over-fishing)

What common resources are at risk? (few examples)

    • Fish (almost all animals)

    • air (quality),

    • natural parks

      • possible solutions by Hardin:

      • privatize parks (problem - price of entry goes up)

      • limit people coming in by lotto system

          • land in general

        What makes the common resources tragic? - Scarcity

          • Note: sometimes a resource can become scarce b/c of the trouble policing it.

        James Acheson - Lobster Gangs (pg 129)

        Issue - The lobster grounds are essentially a common, so how did the lobster fisherman prevent overutilization?

          • set up groups who had certain boundaries for only their group to fish in

          • if someone didn't respect the boundaries their traps would be damaged and threats would be made

          • even though there was a formal process by the govt., they preferred this informal process

        Main Point

          • Acheson thinks the problem is not necessarily communal property, but open access property (no controls on usage)

          • A solution that should get more attention is that of communal property agreements (as demonstrated by the lobster gangs)

        Note: Open access is not always tragic; ex - internet, post office, ect…


          • the property that people feel strong emotional attachment to (opposite of fungible property)

          • theory that helps explain why the law protects some property more than others

        Erving Goffman - Mental Patients and Property (pg 1)

        Steps in institutional process - 1) dispossession (your belongings are taken away), 2) physical nakedness (stage where you have no possessions), 3) coarse replacements (you are given items you would never choose to wear), 4) identify kit (all the things you use to portray yourself to the world), 5) control (is lost), 6) territory (you try and develop some sort of territory, especially when all your other prop has been taken)

        Purpose: to leave the old person behind and form a new person

        Autonomy - we derive a large part of our autonomy by our ability to control our own possessions

        Extension of Self - we use our property (clothing, hair products, make up…) as an extension of ourselves to show ourselves to the world

        First come, first served vs. Strongest takes what he wants (2 diff. ways to distribute property)

          • First come first served (DEFAULT RULE in property)

            • adv: gives everyone an equal chance; compared to strongest takes it encourages civilized behavior and has incentives for behavior (getting their first)

            • disadv: does not allocate by merit or need

          • Strongest takes what he wants

            • adv: can create land utility maximization b/c the strong probably develop better

            • disadv: lacking sense of community, can dispossess weaker people

        Margaret Radin - Property and Personhood (pg 8)

        Personhood v. Fungible

          • Personhood - your wedding ring, heirloom, body parts

          • Fungible (no strong attachment) - cash, makeup, …

          • To determine: How much pain is felt at loss? Can it be easily replaced?

          • It is best to view a continuum w/ personhood on one end and fungible on the other, property can be anywhere along the continuum depending on the individual

          • Legislative implications

            • suggests a law limiting eminent domain, but no such law exists

            • objects near the personhood end of the continuum are generally more protected

        Personal Attachments to Property

          • can be considered healthy or a fetish

          • to distinguish whether healthy or fetish, it is helpful to look at moral consensus

            • healthy: house, heirloom

            • fetish: shoes, clothes

        Property v. Liability Rules

          • Property - you cannot force me to sell, only I will give it up is for the right price

          • Liability - law recognizes the property is mine, but there are circumstances where you can be forced against your will to sell; also circumstances where if you interfere with the enjoyment of my property, I can only receive damages, I can't make you stop

        Dichotomies of Property

          • Utilitarian - maximization of welfare (property v. liability rules)

          • Personhood - continuum from fungible to personal

          • Welfare Rights - entitlement to property necessary for personhood, can take others fungible property if it impinges upon another's personhood

        Radin's 3 Propositions

        1. At least some conventional property interests in society ought to be recognized and preserved as personal

        2. Where we can ascertain that a given property right is personal, there is a prima facie case that that right should be protected to some extent against invasion by government and against cancellation by conflicting fungible property claims of other people

        3. Where we can ascertain that a property right is fungible, there is a prima facie case that that right should yield to some extent in the face of conflicting recognized personhood interests

        Ronald Coase - The Problem of Social Cost (pp 200)

        Reciprocal Problem

          • the problem with the question, “who gets what?” is that it doesn't take into effect the reciprocal nature

            • we only see, “A harms B and thus how should we restrain A?”; we need to add, “but to avoid harm to B, we would harm A” (thus seeing the reciprocal nature)

            • We should ask, “Should A be allowed to harm B or should B be allowed to harm A; how do we avoid the more serious harm?”

        Coase Theory

          • in the absence of transactions costs, parties will bargain to come up w/ the most efficient results, regardless of how legal property rights are initially allocated (in other words, the ultimate result, which maximizes production, is the same, no matter what the initial delineation of rights)

        Transactions costs include:

          • finding the parties with which to deal

          • informing parties that you wish to deal

          • negotiation costs, drafting the agreement costs

          • inspecting and policing compliance w/ agreement

        So what happens w/ transactions costs?

          • the most efficient result may not be realized

          • in the presence of transactions costs, parties will only re-allocate property rights if increase in value of production exceeds the transactions costs

        2 Views of Coase Theory

          • The Invariance Proposition (strong): In a world of zero transactions costs, a change in legal rules will have no effect on the allocation of resources. (this has been pretty much disproven)

            • Universally agreed to be untenable because changes in law may have “wealth effects”; putting liability on ranchers might reduce the wealth of individuals who own land suited for ranching. This might mean that an allocation of resources that was efficient before, no longer is.

          • The Efficiency Proposition (weaker): Regardless of initial entitlements in a world of zero transactions costs, individuals will bargain to garner all possible gains from trade. (this still holds value)

        The Cow Hypo Point

          • Regardless of law saying who has to pay for fence or who is liable for damages, result is the same

          • The only difference is who pays for what, but the cow level and the fence being built or not remain the same


        • the real world does operate w/ transactions costs, so it does matter who has original entitlement

        • transactions costs mean the results will not be the same regardless

        Robert Ellickson - Order w/o Law (Shasta County) (pp 210)

        Restates Coase Theory

        • Invariance Proposition

            • No transactions costs leads to complete enforcement. No violation of an entitlement will be ignored.

        • Efficiency Proposition

            • regardless of the content of the law, people will structure their affairs to their mutual advantage

            • parties will resolve their disputes “beyond” the shadow of the law

            • neighbors override formal law w/ their informal norm of cooperation

        • there will be incomplete enforcement based on “live and let live” philosophy

            • based on reciprocity, repeat players (multi-plex relationships), and necessity of preserving future relationships

            • b/c transactions costs, it makes complete enforcement costly, so certain things are “let go” by residents with the assumption that they will be “let off” of something else in the future (reciprocity)

            • residents also realize that damage to their crop might occur from other natural sources (weather, wild animals) so they don't want to go after someone else every time something happens, especially when it might not have even been any person's fault

          • Mental Accounting

            • Average Reciprocity of Advantage - idea that over the long run, the live and let live philosophy helps us all

            • Account Balance: people keep balance in their head of how many times they have helped others compared to how much that person has helped them. If the number gets out of control, they will ask for some sort of payment (rarely money), normally help repairing damage

            • Creditor v. Debtor: there is a desire to be a creditor rather than a debtor so you don't feel like you owe someone something (so you don't want someone to pay you back right away, you refuse payment so you have the “you owe me” power in the future)

          • How to control deviants (severity increases as list lowers)

            • Informal Control - Self-help

          • truthful gossip

          • threaten to kill intruding animals

          • kill animals (very rare)

            • Formal Control - tell a public official so that public official will put pressure on deviant

            • Claim for monetary relief (informally asking for relief)

            • Formal legal claims

          • Situations conducive to informal norms of cooperation

            • homogeneous population

            • scarce population density

            • rural area

            • sense of reputation

          • Notes

            • you could argue this is a critique of Coase b/c this is based on neighborhood cooperation through attitudes, not a pure economic market

            • could also argue this is supporting Coase's efficiency theory b/c it supports the notion that people will structure their affairs to their mutual advantage, regardless of the law

        -----Theories of Ownership & Acquisition-----

        Theories of ownership:

        • Occupancy vs. Possession - the right to live there vs the right to own the land

        • First-in-time (first in possession)

          • Two big questions - Who's first, and what counts as possession?

          • Pros: Simple rule; should be easy enough to figure out; encourage initiative; security/certainty/preserving public peace; possession creates expectations that shouldn't be thwarted unless necessary

          • you have to start somewhere, this rule seems as fair as any others

          • encourages people to make use of the land (b/c you gain possession by putting work in)

          • Cons: You might want a more complicated rule that recognizes merit/hard work w/ the property; Might want a more efficient/fair method of distribution

          • not everyone has equal chance to get their first

          • the person who gets their first, might not use the land the best (anti-utilitarian)

          • Alternatives: Key - there's nothing self-evident about first-in-time

            • Gov't takes all property and distributes it by other means - auction, lottery, sale, etc

        • John Locke's Labor Theory - You mix your labor with the land; this is how you acquire property

          • difference from occupancy v. possession - the labor theory is a theory of gaining possession, “occupancy v. possession” is just showing the difference in occupying land vs. actually possessing land (shown by Indians b/c Court said they occupied, but did NOT possess land)

          • Locke thought land only became possessed after an actor had put his labor into that land

        • Modern-day claims - Having title based on documents and deeds - there have been modern disputes w/ such things as native Americans

        Acquisition by Discovery

        Johnson v. M'Intosh


        • P had claim for property b/c he received grant from Indian Chiefs

        • D had claim for same property by grant from US govt.


        • If no one owns property before, how do we decide ownership?

        • when does someone “get” the land first? (Who was first in time?)

        History of Possession

        • when Europeans showed up, the land became theirs by title by discovery, but this ownership is not complete b/c Indians still have right of occupancy (Europeans hold title w/ Indians having right to occupy)

        • With regards to later Europeans showing up, the “first come, first right” theory was used

        • All Europeans had right by either

        1. purchase, or

        2. conquer

        • As soon as Indians moved from area where they had occupancy rights, they gave up all rights (including occupancy) to the discovering Europeans of that land by “title of abandonment”

        • For Indians to gain complete title, they had to conquer the discovering Europeans or buy the land

        • At the end of the Revolutionary War, England, by treaty, gave all land it owned by discovery/conquer to US

            • US also became monopsony (only one that could buy land from Indians)

        Court's Ruling

          • following the history of possession, the land belonged to the US, not the Indians, so D wins


          • this system of acquisition by discovery/conquer was the accepted world practice at the time (among the world's superpowers anyway)

          • Occupancy v. Possession

            • Europeans put labor into the land, therefore they gained possession

            • Indians only occupied the land, they did not cultivate it, so they don't gain possession (similar to Locke theory)

          • Treaty of Guadalupe Hidalgo

            • ended war btwn Mexico and US

            • Mexico ceded 55% of its territory

            • Provided protection of property rights of Mexican nationals living in the ceded area

            • Guaranteed protection of Mexican land grants until the US deleted the relevant provision in the ratification of the treaty

        Acquisition by Capture

        Pierson v. Post


          • Post is in pursuit of fox

          • While this is going on, Pierson kills the fox


          • What amount to possession or occupancy

        Court's Ruling

          • possession occurs when animal is mortally wounded, “mere pursuit is not enough”

          • dicta: if this was on Post's land, it would be Posts regardless of who killed it;

            • Ratione soli - “according to the soil”; assigns property rights to landowners for resources on their land

          • Reasoning: maintains simple, uniform law

          • Uses writings from ancient scholars


          • possession occurs during the chase (must be a “proper” chase)

          • Reasoning

          • uses common hunter's law, which he says will lead to greater adherence of the law by hunters

          • Majority's law discourages hunters from engaging in hunting foxes b/c it allows free-riders to take the spoils of the hunter's labor

        The Role of Custom

        Ghen v. Rich


          • Whale fisherman (P) kills whale and it comes to shore a couple days later, as is common

          • A man found the whale and sold it to D instead of notifying P, as is customary

        Court's Ruling

          • Court upholds the whaling custom which is: the whale belongs to P, possession occurs when P fatally wounded (and killed) the whale

          • Once someone has taken possession, that property becomes theirs and all private property rights exist

          • Policy: no one would engage in whaling if they didn't have the right to the whale they killed

        When should courts follow custom? - Policy

          • According to the court

          • It's a limited application; it works well in this arena; it covers the entire business; it's unlikely to disturb the understanding of what it means to own property

          • This rule doesn't conflict w/ Pierson v. Post b/c the whale HAS been mortally wounded, and the whaler literally couldn't do any more.

          • According to Richard Epstein

        • Should follow custom if it's universal/ingrained in all mankind.

          • According to Judge Posner

        • Depends on the industry.

        • When you're dealing with customers or business partners, custom should rule b/c partners are going to establish customs that enhance/prolong relationships,

        • If you're dealing with bystanders or unaffiliated entities, custom probably shouldn't apply b/c bystanders/unaffiliated people won't KNOW the customs; they can't really have assumed the risk as they don't know about it

          • According to Ellickson

        • Customs were created to maximize actor's wealth

        • free-rider problem is MUCH worse than in Pierson v. Post.

        • Value is completely in the whale here, while the fox hunt is really just about the hunt.

        • Level of investment in whaling will be affected.

        Constructive Possession

        Keeble v. Hickeringill (pg 27)


          • Keeble was hunting fowl on his land and neighbor shot off gun to make the fowl disperse

          • Keeble hunted fowl for his livelihood

        Court's Ruling

          • Keeble had constructive possession of the fowl when they were over his land

            • Ratione soli - assigns property rights to landowners for resources on their land

          • Competition is legal, but disturbance cannot be allowed, so if neighbor wanted to hunt fowl on his own land that is ok, but he can't scare Keeble's away (opening a competing school vs. preventing kids from going to school analogy). Neighbor's interference is malicious, not productive.

          • Court's goals/Instrumental ends

        • giving Keeble constructive possession of the ducks creates incentives for him to keep hunting, which benefits the overall market

        • Efficiency - create incentives for people to creatively and positively use their land


          • Pierson v. Post uses Keeble as precedent, but the judge used an inappropriate opinion of Keeble that did not include the difference in hunting for trade and hunting for sport. Keeble probably would have drawn a difference btwn the two.

          • Whenever we choose “rule of capture” (whoever captures it owns it - unless prvt prop) the extraction of the resource will increase (this is what we wanted 200 yrs ago, but now it's causing problems)

        Robert Cooter (pp 209)

          • The law should assign entitlements to the party who values them most, so that the costly process of exchanging entailments is unnecessary.

          • Alternatively, if the party who values the entitlement the most cannot be identified, the entitlement should be assigned to the party who can initiate an exchange at the lowest cost.

        Capture & Wild Animals Hypos

        • T, a trespasser, captures a wild animal on the land of O, landowner, and carries it off to her own land where she confines it in a cage. T1 trespasses on T's land and takes away the animal.

          • In T vs. T1, who should win?

            • Arguing for T1 - T was wrong, and T1 was wrong too, so why get involved at all? Why acknowledge that T has any rights against T1's claim?

            • But - law is likely to recognize T rather than T1, as T actually possessed the animal - captured/put in a cage, signifying that it was his.

          • What if O goes and takes back the animal, then T sues O? O, because the landowner has constructive possession via ratione soli, and it was taken while O had the right of capture. O still has “title.” This is what the law is going to protect.

            • Some jurisdictions might have a problem with O's trespass, though, as the law would rather see O sue to get it back than go trespass to get it.

        • Farmer (F) is bothered by wild migrating geese on her land and shoots them in violation of fish/game laws. Government confiscates them and F sues for their return. Govt wins; court says that the govt owns wild animals, may regulate their takings, and may confiscate animals taken in violation.

          • So next year, F sues govt for damage to her field caused by the geese. Court holds that the govt does NOT own wild animals and is not liable for any damage caused by them.

          • Why? govt has exclusive right of capture (form of constructive possession) - but not actual ownership. Goals- preserve wild animal populations, but not indemnify everyone who those animals might harm. Legal fiction expressing the importance of state being able to regulate consumption of a resource.

        Oil & Gas

        • There is a common pool of oil beneath A's and B's land.

          • Does A have a remedy if B starts draining the pool? No, it's rule of capture, whoever captures it, owns it

            • Could have a regime in which A could get an injunction, if B is draining it excessively

            • Unitization - get everyone together and drain the resource cooperatively, decide how to split up the profits

            • Rule of Capture can lead to overexploitation in situations like this, where it's in both parties' best interest to take as much as they can as fast as they can.

          • Suppose B's well starts on her land but angles down so that it “bottoms” underneath A's land. Does the rule of capture apply? If the end of the well is underneath A's land and B goes into that area and gets it, B is guilty of trespass

          • Suppose A reinjected oil that moves under B's land. B sues to recover damages for use and occupation of her land by A's oil. No recourse for B, as the pool is common property.

            • Old model -- A is not liable because the oil/gas is no longer A's oil. It's fugitive again.

            • Today - even though the reinjection put it into the common pool, ownership still belongs to A.

        Carol Rose, Possession as the Origin of Property (pp 180)

          • we will all be richer when property claims are unequivocal b/c that unequivocal status enables property to be traded and used at its highest value

        Pierson presents 2 principles for determining ownership, seemingly at odds w/ each other:

        1. notice to the world through clear act

        2. reward to useful labor

        However, these principles are actually NOT at odds.

          • The clear act principle suggests that the common law defines acts of possession as some kind of statement. Moreover, some statutory law requires the acquiring party to keep on “speaking” (or adverse possession is possible)

          • This statement and continuance of speaking requires effort, which is rewarded w/ continuing land possession

          • Thus, it turns out the common law of first possession, in rewarding the one who communicates a claim, does reward useful labor; the useful labor is the very act of speaking clearly and distinctly about one's claims to property.

        Views on Johnson v. M'Intosh

          • the Indians nomadic use of land led to unproductive results b/c no inentices to produce

          • the common law of first possession only works for a commercial people, whose activities with respect to the objects around them require an unequivocal delineation of lasting control so that those objects can be managed and traded

        Text and Sub-text

          • the “text” is the first possession, or the clear act

          • the “sub-text” is the world recognizing the act

        Theories of Ownership

          • Locke theory - an original owner is one who mixes his labor w/ a thing and, by compiling that labor with the thing, establishes ownership of it

        • Problems: not self-evident who owns even if labor is mixed, no guidance on scope (how much labor req'd?)

          • Consent from Humanity - theory stating the owner gets consent from the rest of humanity, who were the first recipients from God

        • Problems: administrative costs (how much would it cost for everyone to get together and decide who owns what?)

          • Common Law Possession/Occupancy - first possession is the root of title (maxim of common law)

        • Problems: when do you possess? Is mere occupancy possession?

        Acquisition by Creation

        Principle - the assertion is that if you create something - if in the sense you are first in time - then that something is most certainly yours to exploit

        INS v. AP


          • INS was stealing (appropriating & using as own) AP's news by means of grabbing it off bulletin boards AND bribing AP employees, etc

          • INS was using the info and printing it in their own newspapers and in several cases, getting it to the west coast papers before AP could, hurting the sales of AP's papers

          • INS is reaping what it didn't sew


          • is there a property right in the news? Do the rights survive after publication? Was INS engaging in unfair competition?

        Court's Ruling

          • Once news is published, it is common property to the general public, but NOT to competitors (the difference is competitors are using the news for profit)

          • Court calls the news “quasi-property” - there is a right to reap what you sew in that they have the right to distribute what they collected

          • INS was engaging in unfair competition b/c it was, in effect, stealing AP's labor

          • Policy - no one would gather new if these practices were able to continue b/c it would not be profitable

        • problem w/ this is that it doesn't consider AP's ability to internalize the problem and innovative new ways to stay profitable

        Cheney Bros. v. Doris Silk Corp.


          • Cheney makes and sells silk patterns

          • Cheney cant get copyrights b/c the patterns sale life are too short-lived

          • D steps in and steals the patterns and Cheney wants his patterns protected

        Court's Ruling

          • it is not up to the court to extend copyright rules, that is left to the legislature

          • the common law custom allows others to imitate - “a man's property is limited to the chattels which embody his invention. Others may imitate them at their pleasure”

          • Policy - reasoning for imitation allowance is that it creates competition which leads lower prices which leads to innovation

          • Limits INS v. AP to its facts

        Smith v. Chanel

          • court held that a perfume company could claim in advertisements that its product was the equivalent of the more expensive Chanel No. 5

          • since Chanel's perfume (No. 5) was not patented, Smith had a right to copy perfume even though Chanel put in much more effort and expense

          • imitation is the lifeblood of competition

          • It could be argued that Smith is being a freerider by “stealing” effort Chanel used in creating perfume

        IP Laws

          • w/ IP laws, the govt is trying to balance interests of

          • public, in having low priced goods

          • private businesses, in having reward for labor

              • undercutting does help the public b/c it lowers the prices, but we need to make sure not to eliminate incentives for new development

              • 3 types of IP protections

              • patent - protects useful and non-obvious processes or products

              • copyright - protects expressions of ideas (not the ideas themselves)

              • trademark - protects words and symbols

              • Douglas Baird, Common Law IP (cb 57)

                  • w/o IP rights, the products are public goods (non-exclusive)

                • investing in R&D can be not worth it b/c others can imitate and “steal” your work

                • Imitators sell at lower cost

                • Getting information is cost free (or very low cost) for the imitator

                • Information may be under-produced b/c there aren't as many incentives to go out and get info

                  • w/ IP rights, there are costs to maintaining exclusivity/limiting access

                  • larger investment in R&D

                  • IP exclusive rights prevent imitators to some degree

                  • Recoup all R&D and hopefully some profit

                  • Limit access to information (transactions costs)

                  • More information produced b/c incentives to private individuals to go out and find/create new info

                • Difference btwn Wheat and IP (differentiation good vs. non-differentiation good)

                  • w/ wheat an imitator cannot undercut (at least substantially) the price b/c the cost of production is same for all producers

                  • w/ IP, an imitator can undercut price b/c they don't have to pay for high costs of R&D

                Virtual Works v. Volkswagen


                • Virtual Works registered website w/ domain “”

                • After this, an act prohibiting cyber-squatting was passed - Does it matter that this was passed after?? - the act of registering isn't the only wrong -also the intent and continuing wrongful profit so the wrong was continuing even after the bill passed

                • Virtual Works was using the domain as their website and Volkswagen associates/dealerships approached Virtual Works and offered to buy the domain name

                • Virtual Works then went to Volkswagen Corp. and told them if they didn't buy the domain from them, they would auction the domain name to the highest bidder

                • In deposition, Virtual Works admitted that they knew the domain name was similar to Volkswagen and they hoped they would one day get a buy-off


                • the ACPA made it illegal for a company to register a domain that is the same or confusingly similar to a registered trademark or famous mark w/ bad faith

                Issues - 2 part test

                1. Did Virtual Works act in bad faith?

                2. Did Virtual Works use a domain name that is identical or confusingly similar to a famous mark?

                Virtual Works Argument

                • since the domain name ended in “.net” it is not confusingly similar b/c the “.net” ending is only available for ISP's and not car manufacturers

                Court's Ruling

                • Virtual Works is found to have violated ACPA

                • there is evidence of bad faith by Virtual Works b/c they planned to profit by selling the name and they threatened Volkswagen w/ the auction

                • “vw.nwt” is confusingly similar to Volkswagen's famous mark, “VW”

                Property in One's Persona

                Right of Publicity - right to one's likeness, name, ect…

                • assignable during life; descendible at death (you can leave it to someone at your death)

                White v. Samsung


                • Samsung had commercial w/ robot in wig in front of Wheel of Fortune board

                • White sues for violation of her right to identity


                • White wins - court says there was no deception intended, but White has a “marketable celebrity identity value”

                • the right of publicity is not limited to appropriation of name or likeness

                  • Viewed separately, the individual aspects of the ad say little. Viewed together, they leave little doubt about the celebrity the ad is meant to depict.


                • The court has gone too far b/c the court is now protecting the right of identity even if someone simply reminds public of someone

                • This ruling will punish even those making parody for entertainment purposes (which is what is happening in this case), which have normally been allowed

                Moore v. Regents of the Univ. of California


                • Patient (P) had rare disease and MD told him he needed to do several tests

                • In these tests, MD extracted tissue from patient and stored it, w/o patients permission, to use in later research

                • MD told P he needed to do several follow up visits where MD continued to extract P's tissue for research purposes w/o P's consent

                • MD later receives patent for a cell line he created using P's tissue cells, which is possibly worth millions


                • Does P have property rights in his cells once they are removed from his body?

                • Conversion - wrongful exercise of rights over someone else's property

                Lower Courts

                • Trial Court: no property rights; Appellate Court: yes property rights

                Court's Ruling

                • there are no property rights in cells once they have been removed from your body, so there is no conversion, but there is a sufficient claim for lack of informed consent

                • Once cells are removed, they are no longer property of the patient, in this case MD allowed to receive a patent b/c his cell line was unique of P's cells

                • No case law to support (rejects publicity cases applied by appellate court)

                  • Reasoning

                • UAGA prohibits the selling of organs for transplant - court takes this as evidence legislature does not intend organs to be property

                • Court says it is up to legislature to extend property rights b/c they are better equipped to research effects


                  • UAGA only prohibits sale of organs for transplant, but allows for other for various other reasons such as gifts for transplants - says this shows that legislature gives you a certain “a bundle of rights” (which is what property rights are) to your organs

                  • Why isn't non-disclosure enough?

                • if P would have known the MD would have taken and used cells, P would have never agreed

                • reasonably prudent person would have refused

                • doesn't punish all the MDs who gain from research; only punishes the one MD who took the cells


                  • Concern w/ extending conversion to body parts

                • could deter scientists b/c they will have to make sure they have proper property rights to all tissues they are using or they could be liable - this would create disincentives for research

                • possibility of poor people selling their intestines and other body parts which would be bad for their health

                Margaret Radin, Market Inalienability (pp 336)

                  • market inalienability: can't be sold

                  • alienability: can be given away or abandoned

                Main Concern

                  • law & eco analysis bases on presumption that everything is a commodity is flawed b/c some things should not be suspect to commodification, especially human life

                  • when everything is a commodity market, people are solely commodities and thus are robbed of personhood


                  • There is a commodification fetish - felling that everything should be in a market (Posner)

                  • there is a spectrum of what should be commodified, on one end is Marx (who believed commodification was wrong) and on the other end is Posner (who thinks everything should be commodified)

                • while Radin isn't completely in agreement w/ Marx, she does believe some things should be more near the Marx end b/c

                  1. risk of error: by buying into the rhetoric of “everything is a market”, we can make market miscalculations

                  2. injury to personhood - people feel like commodities, not people

                  3. transformation of the texture of the human world: negative impact on our conception of humans; limits who we can be as people


                  Heller & Eisenberg, The Anti-Commons in Biomedical Research

                  • the tragedy of the anti-commons is the underuse of a scarce resource b/c the govt. gives too many people the right to exclude others

                  • compared to the tragedy of the commons - the overuse of a scarce resource b/c no one has right to exclude others

                  Unintended Results of Privatizing Research

                    • Stacking Licenses - Research institutions start patenting their findings, but a bad result formed:

                  • patents from upstream research limit people doing downstream work from using needed info and when downstream developers have to buy from upstream researchers, their profits can be eliminated by greedy upstreamers

                    • Problems in Post-Social Economies

                  • govt gave several diff. people several different rights - resulted in everyone having too many rights to exclude others and no one having enough rights by themselves

                  • illustration: no one put their products in stores b/c of all the divested rights, instead create sale-stands in the streets in front of the stores

                    • Concurrent Fragments

                  • very expensive and difficult to get rights from all different patent owners to put together a product or to do research

                  Patent Pools - get a group of people to work together to rearrange their rights sensibly

                    • transactions costs

                  • high costs of engaging in working together and putting a dollar value on rights

                    • heterogeneous interests

                  • different actors have differing interests (making products that can make money v. making products that further research)

                    • cognitive basis

                  • there is a tendency to over-value your own discoveries and under-value others

                  Acquisition by Adverse Possession

                  Adverse Possession - transfer of interest in land w/o the consent of the prior owner and even in spite of the dissent of such owner. A forced conveyance.

                  • rule that someone can become owner of someone else's land (transfer title) if they have met the 4 requirements

                    1. Actual physical exclusive protection

                    2. Open and Notorious

                    3. Adverse and under claim of right or title

                    4. Continuous occupation for the statutory period

                    Elements of Adverse Possession

                    1. Actual, physical, exclusive possession

                      • Not shared w/ the owner

                      • Triggers a cause of action for trespass or wrongful entry against which the SoL runs.

                      • Want to make sure they are sticking to their claim and acting like a true owner

                  • Open and notorious

                    • Acts of entry have to reasonably inform an attentive landowner that someone is on her property - notice such as cultivation or enclosure.

                    • Adverse and under claim of right or title

                      • “Hostile” - deals w/ AP's state of mind, differing views on “hostile” (see Manillo v. Gorski)

                      • Hostility - the actual adversity (in opposition to true owner)

                      • Color of title vs. claim of title -

                        • Color - claim founded on a written instrument or some sort of decree that is defective (some jurisdictions require color of title for AP)

                        • Claim - Not in possession subordinate to the owner, but claiming it for oneself

                      • Theories of “claim of title” - relevancy of state of mind, showing hostility

                        • Objective. State of mind of the adverse possessor is irrelevant because the purpose is to quiet title after a reasonable period of time; only matters that possession was adverse. (Connecticut Doctrine)

                        • Good faith. State of mind matters. You must have good faith or honest occupation. Paying taxes - often seen as part of “good faith” occupation (you think your occupation is legal)

                        • Aggressive trespasser. State of mind matters. You must be adverse and hostile and thus know that you are trespassing; you have to know you are taking from someone else. (Maine Doctrine)

                      • Partly so the owner doesn't think that the occupant will make no claim, and partly to reward the productive acts of occupancy

                      • “The earning theory”

                      • Continuous occupation for the statutorily required period

                        • Occupation = the usual/customary use of the land; doesn't mean you have to be there 24/7 - as an actual owner would do as appropriate to the type of property

                        • Makes sure owner has enough time to discover the wrongful possession and do something about it

                        • Also makes sure the adverse possessor is really sticking to his claim of right, earning the land, and getting very attached to it.

                        • Note: Hemholz study shows US courts hold good faith to be unofficial 5th requirement

                          Why does the law have AP? - Policy

                          • efficient allocation of scarce resources

                          • reliance interest of 3rd parties; protects 3rd party purchasers, lenders, etc… by avoiding situation where 3rd parties deal w/ someone who is really not the true owner, even though it seems as if they are (by having the requirements of AP)

                          • reliance interest of adverse possessor by allowing adverse possessor to move on w/ life and not worry if he has title or not (after AP occurs)

                          • Desirability of quieting title; promotes security and allows people to arrange their affairs (quieting the debate over who is owner)

                          • Preventing the loss or decay of evidence; w/o the statute of limitations, claims could be brought up several years later, making evidence difficult to attain

                          • Discourage sleeping owners; makes owners act to remove trespassers

                          Van Valkenburgh v. Lutz


                          • 1912: Lutz (P) buys lots 14 and 15, and uses a path on lots 19-22 to travel on

                          • 1920: P builds a small cottage on lot 19 for his son to live in

                          • 1928: P looses his job and starts to tend a garden he started on lot 19

                          • 1937: Van Valkenburghs (D) buy the lots west of lot 19 and start to quarrel w/ P

                          • 1947: D buys lots 19-22, take possession of lot 19, and have attorney send P a letter to clear out

                          • 1947: P agrees to clear out, but claims to have a prescriptive right to use the traveled way on lots 19-22

                          • 1947: D blocks the traveled way w/ a fence

                          • P brings action to enjoin D from interfering w/ his traveled way

                          Lower Courts

                          • trial court rules for P; appellate court affirms


                          • possession required for 15 yrs

                          • must demonstrate actual occupation under claim of title or claim of right

                          • actual occupation means that the land has been enclosed or “usually” cultivated and improved

                          Court's Ruling

                          • Meeting the statute requirements

                            1. the time limit - yes

                            2. actual possession under claim of title or claim of right - no, P knew the land wasn't his and he was never trying to take it (P had no “hostility”) - no “adverse” possession

                            3. land has been enclosed, or usually cultivated and improved - no

                            • while there has been some enclosure (rock boundaries) there is not enough

                            • P was only using small amount of lot, not enough to have AP over whole lot (this is not a widely accepted theory)

                            • Even though P had farmed the land and built a small home on it, court found these activities do not “improve” the land and P did not do enough to usually cultivate

                              • What state of mind (hostility requirement) is required by the court for AP?

                            • adverse possessor must think the land is not his, but hostily try and take it/gain title to it (aggressive)


                              • said P did improve the land through the house and farming

                              • P's admission he knew the land wasn't his doesn't matter b/c he did this after the SOL had already run

                            Marengo Cave v. Ross


                              • P and D are neighbors and underneath their land is a cave

                              • The entrance is on D's land and D discovers the entrance and charges people to come and explore the cave

                              • D's business operates, much to the knowledge of P, for many years and after the SOL expires, P learns that part of the cave is under his land and brings suit to quiet his title to that part on theory of ad coelum

                              • ad coelum - if you own the land, you own what above and below it

                            Court's Ruling

                              • no AP, court says possession was not open and notorious

                            Other possible rules

                              • cave belongs to owner of entrance

                              • first in time to discover, owns

                            Manillo v. Gorski


                              • D was conveyed title and entered into possession of lot

                              • D's son made certain additions to D's house which caused the house to go over (by a few inches) onto P's lot

                            P's argument

                              • to establish title by AP, the entry into and continuance of possession must be accompanied by an intention to invade the rights of another in the lands (i.e., a knowing, wrongful taking)


                              • Does and entry and continuance of possession under the mistaken belief that the possessor has title to the lands involved exhibit the requisite hostile possession to sustain the obtaining of title for AP?

                              • Did D's acts meet “open and notorious” standard”?

                            3 views of Hostility

                            • Main Doctrine (or aggressive trespasser) - requires a knowing, wrongful taking; mistakes are of no avail - to be hostile/advers/making claim of title you have to know you are taking from someone else

                            • Connecticut Doctrine (or objective) - intent is irrelevant, it only matters that it was hostile (does hostile here simply mean adverse? - yes inconsistent w/ true owner)

                            • Good faith Doctrine - requires a belief that you are right in your possession (if US courts require this as a 5th requirement, how can it be a view of hostility?) - must be a mistake, intent is relevant - you think your occupation is lawful

                            Court's Ruling

                            • Hostility - the requirement for entry and continuant possession does not require a knowing intentional hostility (adopts the Connecticut Doctrine) - is there a majority ruling? Seems to be heading towards good faith - says Hemholz, argue all 3, courts just seem to prefer

                            • Notoriety - no presumption of notice arises from such a minor encroachment (it was only a couple inches over the line) along a common boundary; in such a case, only where the true owner has actual knowledge thereof may it be said that he possession is open and notorious

                            • small entry does not create constructive knowledge

                            Thomas Merrill, Property Rules, Liability Rules, and Adverse Possession (pp 190)

                              • Hemholz study - US courts tend to hold good faith as a 5th requirement for AP

                              • Traditional Property Rules - before judgment the TO's interest is protected by a property rule: no one (including the AP) can take it from the TO w/o his consent. After entry of judgment awarding the AP title by adverse possession, the AP's possession is protected by a property rule: no one (including the TO) can take it from the AP w/ his consent.

                              • Warsaw v. Chicago - suggests different system than traditional property rules: Before judgment the TO's entitlement would be protected, as before, by a property rule. But after judgment, the entitlement would remain w/ the TO, protected now by what Calabresi and Melamed call a “liability rule”. The significance of this is we see innovative remedies in cases of bad faith. This applies to bad faith, not good faith

                            • Property rule - no one can take the property from the owner without his consent.

                            • Liability rule - we can take the property from the owner w/o his consent by paying the fair market value of the property taken (in cases such as these, the transfer is still forced, but TO is compensated FMV)

                              • From the Homholz study and Warsaw v. Chicago, Merrill comes up w/ theory - purely coercive transfers are socially undesirable, and thus we do not want to reward them. Liability rules are a desirable sort of middle ground that reduce incentives for coercive transfers.

                            Howard v. Kunto (cb 136)


                              • all of the deeds on a street specify different lots than the deed holders have been living on

                              • Kunto's house is on C, but deed says D

                              • Moyer's house is on B, but deed says C

                              • Howard's deed says A & B

                              • Howard gives Moyer deed to B in exchange for deed to C

                              • Howard (P) sues Kunto (D) to quit title (get title from Kunto)

                            D's Argument

                              • Kunto claims adverse possession


                              • Is a claim of adverse possession defeated b/c the physical use of the premises is restricted to summer occupancy? (it was a summer house and thus Kunto only used it in the summer)

                              • May a person who receives record title to tract A under the mistaken belief that he has title to tract B (right next to A) and who subsequently occupies tract B, for the purpose of establishing title to tract B by adverse possession, use the periods of possession of tract B by his immediate predecessors who also had record title to tract A? (Kunto had not had title to the land long enough by himself to satisfy AP)

                            Court's Ruling

                              • AP Elements

                            • Actual Occupation - yes, they have a house on the property, the fact that D only uses it during the summer is not important b/c he is still using it as a TO would

                            • Color of Title/Claim of title

                              • Color of Title - no, they do not have any written document for this property

                              • Claim of Title - yes, they held out to everyone as if it was their property and everyone thought it was there property (state of mind - court used objective, based on actions - court found their actions seemed to show claim of title)

                            • Open and Notorious - yes; the presence of their house on the property and they hfact they were there in the summers, as a TO would be

                            • Continuity for statutory period - yes; tacking - allowing past trespassers time of trespassing to be added onto current trespassers time if the transactions were voluntary (voluntary includes privity)

                            ---- Real Estate Transactions ----

                            Basic Steps

                            1. Brokerage

                            • Getting the ball rolling

                            • usually not a lawyer

                            1. Negotiations

                            • buyer and seller negotiate various aspects

                            1. Earnest Money Contract or Agreement of Purchase of Sale

                            • forms the basis of the relationship

                            1. Financing Conditions Precedent

                            • securing the loan

                            1. Inspection Conditions Precedent

                            • contract will provide ways the K can be eliminated if conditions are not met

                            • ex. property being condemned

                            1. Title Conditions Precedent

                            • examine the title (finding restrictive covenants…)

                            • grants insurance policy

                            1. Preparation of Core Documents

                            • the deed

                            1. Preparation of Ancillary Documents

                            • mortgage or deed of trust

                            1. Closing

                            • execution of the documents

                            1. Title Insurance, Funding, Recording, Delivery, Possession

                            Marketable Title

                            Marketable Title - A title not subject to such reasonable doubt as would create a just apprehension of its validity in the mind of a reasonable, prudent and intelligent person, one which such persons, guided by competent legal advice would be willing to take and for which they would be willing to pay fair value.

                              • After a title search, title guy would say “title is ok.”

                              • Title = your interest in land/the property

                              • Buyer is protected upon resale - even if this buyer doesn't care, the next buyer might, and that could cause buyer a big loss trying to resell it. Buyer1 might only be able to get a discounted price b/c of lack of marketability.

                            Lohmeyer v. Bower (cb 479)


                              • Lohmeyer entered into contract to buy lot from Bower

                              • An abstract of title on the home showed that the original subdivider had placed a restrictive covenant requiring that any house on the lot must be at least 2 stories - the lot currently had a one-story house on it

                              • The lot also violated a city zoning ordinance b/c the house was too close to a boundary line

                              • Lohmeyer brought suit to rescind the contract


                              • Is the title marketable?

                            Lower Court

                              • ruled in favor of Bower and decreed specific performance of the K

                            Court's Ruling

                              • Restrictive Covenant - the restrictive covenant's existence makes the title unmarketable b/c it is an encumbrance. The waiver in the K does not have significance b/c the K is breached due to the fact that the restrictive covenant has been violated. Lohmeyer agreed to waive the existence of the restrictions, not the fact that they were already being violated. - Note: contracts of sale excludes restrictve covnenants of record but not violations of them

                              • Zoning - Mere existence does not make title unmarketable. The fact that there was a current zoning violation, however, can make title unmarketable. Further, the seller cannot simply fix the problem b/c then buyer would be forced to purchase something he didn't bargain for.

                              • Trial Court reversed, contract rescinded


                              • A restrictive covenant is an encumbrance and makes title unmarketable.

                              • Zoning restrictions do not make title unmarketable (unless, as here, they are currently being violated and fixing them would change the “nature of the property”).

                              • Why do restrictive covenants make title unmarketable but zoning does not?

                            • parties create restrictive covenants and w/ parties, we are talking about property interest

                            • govt creates zoning restrictions and w/ govt, there is no property interest

                            • the buyer shouldn't be able to get out of deal b/c of govt regulations

                            Equitable Conversion - doing what “ought to be done”. The buyer is viewed in equity as the owner from the date of the contract (thus, having “equitable title”); the seller has a claim for money secured by a vendor's lien on the land. (The seller is also said to hold the legal title as a trustee for the buyer.)

                            • ex. A fire burns the house btwn signing and closing. In this situation, the seller should still have insurance, so seller should pay. (you can attempt to include situations such as these in the K)

                            Duty to Disclose

                            Stambovsky v. Ackley (cb 484)


                            • P enters into K to buy house from D

                            • P later finds out the house is well-known for being haunted

                            • P wishes to rescind the K b/c the existence/reputation of ghosts lowers the value of the house and thus should have been disclosed

                            Caveat Emptor

                            • “buyer beware” - general rule that puts obligation on buyer to discover defects

                            • Exceptions - partial performance, active concealment, special relationship (many modern courts have required disclosure of all material info)

                            Court's Ruling

                            • does not apply caveat emptor b/c inspections of the house by the buyer could not have discovered the ghosts, contract is rescinded (Prof thinks P could have discovered about reputation of ghosts)

                            • caveat emptor mostly applies to physical, little defects

                            • equitable ruling


                            • There was an “as is” clause in the K; why didn't it bind? “As is” clauses are effective, but they apply to physical defects and don't apply where the facts are peculiarly within the knowledge of the party invoking the clause - so “as is clauses” don't apply to latent defects, but yes to patent defects? Not necessarily - use the “facts are peculiarly within the knowledge” language as a test

                            • Fair Market Value - How would you find the FMV for this house?

                            • difficult b/c when determining FMV, houses around the area are used as determinants, but there are no surrounding houses that are also haunted

                            Johnson v. Davis (cb 488)


                            • Davis (buyers) buys Johnson's (sellers) home

                            • Sellers say there is no leak problem (active concealment)

                            • After buyers move in, roof begins to leak badly after only one rain


                            • Is there fraudulent concealment?

                            Court's Ruling

                            • sellers did fundamentally conceal material defects and K should be rescinded b/c buyer relied on sellers misrepresentation

                            • Dicta - seller has duty to disclose material defects which are not readily observable to the buyer

                            • note: Professor says this dicta is questionable b/c the fact that the roof had a leak was probably readily available


                              • It's not that buyer couldn't have discovered the problem, it's that seller affirmatively misrepresented the roof's condition. Seller is in best position to avoid mistakes like this.

                              • it is inefficient (misallocation of resources) to enforce the K when the facts are misrepresented

                            Material Defect - something that would impact the decision of a reasonably prudent buyer (also, if seller knows that a certain defect would be material to the buyer for some special reason, then that defect is material, even if it wouldn't be to an ordinary, reasonably prudent person)

                              • disclosure is required if the info would effect habitability or resale value

                            Is there a duty to disclose all material information or just material info that is not readily available to the buyer? Yes - If it is readily available don't you just have to not affirmatively misrepresent? - yes

                            Lempke v. Davis (cb 494)


                              • P's garage is poorly built and wants to sue builder, but the garage was built for a previous owner, so P is not in privity w/ the builder

                            Traditional Rule

                              • you cannot sue on implied warranty of quality w/o privity

                            Court's Ruling

                              • rejects traditional rule and says privity is not necessary to enforce implied warranty of quality

                              • Reasoning

                            • public policy - houses often change owners, incentive to builders to build well

                            • equity - fairness to a subsequent buyer

                              • Economic Loss v. Personal Injury & Tort v. Contracts - traditional role of tort is to protect against personal injury - only tort available was for misrepresentation - but if you are suffering from economic loss you would sue under contract law, but that requires privity- so this is a way around using traditional tort or contract law

                            • law has traditionally drawn a line btwn the two, but this court says the line is too difficult to implement and should be eliminated

                              • Limitations (for implied warranty of quality)

                            • latent defects

                            • reasonable amount of time

                            • workman like quality (doesn't have to be perfect)

                            Contract of Sale

                            Jones v. Lee (cb 502)


                            • buyer puts down $6k on a house and enters into K to buy the house

                            • buyer later wishes to rescind the K, offering the 6k as damage

                            • seller refused the termination of the K and when it became clear the buyer was not going to honor the K, seller sold to someone else

                            • seller sold the property for $70k less than the contract sale price she had w/ buyer

                            Trial Court

                            • awarded damages to seller for difference btwn original K price and later sold price ($70k)

                            Court's Ruling

                            • Loss of Bargain” rule should be measured at the time of breach

                            • The later sold price can be evidence as to what the value of the house was at the time of breach


                            • when a breach occurs, we want to fulfill expectation damages

                            • Possible Remedies for breach of K:

                            • Loss of Bargain rule

                            • Special Damages - damages made in reliance

                            • Punitive Damages - normally not allowed, but allowed in this case b/c the facts show the breaching buyers acted irresponsibly and disrespectfully

                            • Specific Performance - more likely to enforce on seller b/c it's hard to make buyer purchase something he doesn't want

                            • Majority Rule - allows for incidental and consequential damages

                            Tacking Problem - pg 142

                            1) If A was forced out, he would still be in possession, so in 2006 he could eject B. There is no tacking in this case b/c A and B were not in privy, so B cannot claim AP in 2006.


                            • in every state the statute of limitations is extended if specified disabilities are present

                            • A disability is immaterial unless it existed at the time when the cause of action accrued

                            • examples:

                            • minor

                            • mentally insane

                            • imprisoned

                            Disabilities Problems - pg 143

                            1a) O's heir has 10 yrs after O's death to institute suit (AP would not acquire title)

                            b) H's disability is not included, only O's (AP would acquire title)

                            2) Must be brought by 2001, H's disability does not matter (AP would acquire title)

                            3) 2003, A person's own disabilities don't tack on (O's original disability is cured 13 yrs after 1980, so you get 10 yrs from that point)

                            4) B could consider indemnity agreement against A or B could sue A to quiet title.

                            Components of contract of sale:

                            • Earnest money - putting money down to hold the prop; shows that buyer is serious; makes seller willing to take home off the market & reserve for buyer. Supports reliance interest of both parties. Protection against market fluctuations (for both) - buyer may back out if market gets good, but seller at least has some money from it. Works the other way too. Protects the benefit of the bargain.

                            • Down payment - lender requires - goes to seller - write it to title company (not real imporatn, just knw amount of down payment is required by lender to show lender proof); it tells the lender you're serious (so they will give you the rest of the mortgage loan). Indicates buyer's commitment to the transaction. Lender knows that they will at least have the down payment if the buyer defaults.

                              • Now you can buy with almost nothing down. Not always necessary. Came about bc of PMI

                            • PMI - private mortgage insurance. Generally adds $65-$100 to monthly pmt. It's there to protect the lender against default by buyer. Idea being that the lower the down pmt, the more likely buyer is to walk away from property when buyer is in financial trouble. (buyer doesn't have that much equity in the house) If buyer had actually put 20% down, buyer is less likely to walk away and lose it. But if buyer puts 5% down, more likely to disregard that. Gives lender incentive to lend to buyer even if you don't have much $$$ to put down. - insures the lender - allows lender for PMI if under 20%

                              • Can be cancelled after buyer has 20% equity in the property. But lenders make it very difficult for you to cancel it b/c they like the coverage.

                              • Various ways to avoid it - 80/20s, 80/10/10 down pmt

                            The Deed

                            Types of Deeds

                            • General Warranty

                            • warrants title against all defects in title, whether they arose before or after the grantor took title

                            • broadest responsibilities

                            • Special Warranty

                            • warrants title against the grantor's own acts, but not the acts of others

                            • Quitclaim

                            • no warranties; conveys whatever interest/title the grantor has, which could be nothing

                            Components of the Deed

                            • Location of Property

                            • Salutation

                            • Grantor name and residence

                            • Consideration, receipt of consideration, and method of payment (a nominal fee is usually placed on the deed so other people don't see how much you paid for the property)

                            • Granting grantee the property and grantee residence

                            • Description of property

                            • Habendum (to have and to hold)

                            • Warranty

                            • Any limitation of title or the interest

                            • Execution date and place

                            • Execution

                            • Acknowledgment (notary)

                            Required for Deeds

                              1. Intent to transfer

                              2. Signature of grantor (before notary to comply w/ recordation)

                              3. must name an ascertainable grantee (ex. “my surviving children”)

                              4. description of conveyed property

                            Note: consideration not technically required b/c land can be given away (but always in a paid conveyance)

                            Types of Warranties (not only general warranty deeds, still under special warranties, just to your own actions

                            • Present (breached, if ever, at time of deed; generally not assignable)

                            1. covenant of seisin - the grantor warrants that he owns the estate that he purports to convey

                                • Livery of seisin - old ceremony where they gave you a clod of dirt to convey ownership; back before written records, not used anymore

                          • covenant of right to convey - grantor warrants that he has the right to convey the estate (in most cases, this covenant serves the same purpose of seisen, but it is possible for someone to have siesien and not have the right to convey.)

                          • covenant against encumbrances - grantor warrants that there are no encumbrances on the property. (encumbrances include, among other things, mortgages, liens, easements, and covenants)

                                • Often has exception language - covenant against encumbrances “except for these….”

                            • Future (can be breached after deed is executed; usually assignable)

                            1. covenant of general warranty - grantor warrants that he will defend against lawful claims and will compensate the grantee for any loss that the grantee may sustain by assertion of superior title

                            2. covenant of quit enjoyment - grantor warrants that the grantee will not be disturbed in his possession by anyone w/ superior title (basically the same as covenant of general warranty and is left out of several deeds for this reason)

                            3. covenant of further assurances - grantor promises that he will execute any other documents required to perfect the title conveyed

                            Brown v. Lober (cb 518)


                            • Bost buys property, the seller maintained a 2/3 interest in the mineral rights

                            • Bost later conveyed the property to Brown by general warranty deed (containing no limitations)

                            • Brown tries to sell mineral rights and are told they only own 1/3 of the rights

                            • Brown brings action for constructive eviction by breach of quiet enjoyment warranty and breach of general warranty

                            Court's Ruling

                            • found no breach of quiet enjoyment b/c Brown has not been disturbed b/c no one has come to take the minerals - mere existence of paramount title does NOT constitute breach of quiet enjoyment

                            • found no breach of general warranty b/c the SOL has run b/c this warranty was breached at time of transfer of the deed (but isn't this a future warranty? - can it not continue to be breached as time goes on?) Once it is breached (here, it was breached at conveyance) the SOL starts running.


                            • Brown cannot claim AP b/c he was not claiming the mineral rights as his

                            • A title search would have alerted Brown to this problem at time of purchase, so the moral of the story is always conduct a title search

                            • ad coelum - if you own the land, you own what is above and below it; this principle is holds as true unless there has been some prior change, as there had been in this case

                            Frimberger v. Anzellotti (cb 521)


                            • D's brother (predecessor in title) subdivides the land and transfers land by quitclaim to D

                            • D's brother had developed on some land considered wetlands

                            • D sells by general warranty deed to P

                            • P tries to improve on land and finds out about land violations

                            • P does not diligently try to work w/ regulations dept. - P just sues D

                            Court's Ruling

                            • D did not know about the defects (they were latent) and latent conditions on property in violation of govt regulations are not encumbrances, so no breach of warranty against encumbrances


                            • this ruling is consistent w/ Lohmeyer b/c of the timing of the violation; this case is suing after closing and the P in this case has not yet been impositioned b/c the govt has not said P will have to give back land to govt, so these requested damages are purely speculative and out of seller's control (granting damages would give no incentive for P to keep costs low)


                            Sweeny v. Sweeny (cb 533)


                            • Maurice deeded his farm to John; this was recorded

                            • Another deed was made that says Maurice gets the land back - there was an oral condition that this was only to be recorded if John was to die first - Maurice kept this deed

                            • Maurice did this do prevent his wife from ever inheriting his land

                            • Maurice continues to live on the land and even leases a part of the land to a 3rd party

                            • Maurice dies and widow wants land from John


                            • Whether the second deed (from John back to Maurice) is valid and if so, whether or not a condition (here, “only to be recorded if John dies first) claimed to be attached to the deliver is operative.

                            Court's Ruling

                            • the only purpose of making second deed was if John died first, but the only way that would have worked is if John delivered the deed before his death

                            • a concern is this condition is not written

                            • court is concerned about fraud (people lying about oral conditions)

                            • In hostility towards oral conditions, the second deed is deemed to be valid (there was valid delivery) and widow gets the land - the oral condition is dismissed and Maurice deemed to have been given back title to 2nd deed

                            • as soon as the second deed was made (and essentially delivered b/c Maurice kept the second deed, so it was “delivered” from John to Maurice) Maurice got the title to the land back

                            Rosengrant v. Rosengrant (cb 536)


                            • old couple physically handed over thier deed to their nephew in front of a banker, but didn't record it and then kept the deed in their (not the nephew's) security deposit box

                            • Banker told nephew to come get the deed and record it when old couple died

                            • After old couple died, nephew retrieves the deed and goes to record it

                            • Would be-inheriting family member sues saying the deed is void b/c

                              1. it was never legally delivered and

                              2. alternatively since it was to be operative only upon recordation after the death of the grantors (old couple) it was a testamentary instrument and was void for failure to comply w/ the statute of wills

                              • at trial a teller at the bank (the original banker was dead) said it was the custom of that bank to allow grantors to come and make modifications to deeds in their deposit boxes (Court uses this to say there was no delivery)


                              • Was this escrow (the deposit box) revocable?

                              • Are escrows revocable by their nature in general?

                              Court's Ruling

                              • found there was not a valid delivery of the deed b/c

                                1. grantor still had ability to revoke/modify the deed even though he had already given the deed to 3rd party (deposit box); the escrow in this case was not neutral, but an agent of the grantor

                                2. to have a valid delivery there must be “an intent to forever part w/ all lawful right and power to retake or repossess the deed” (if revocable, then void)


                                • Problem w/ Ruling - court ignores the purpose of the grantors going to the bank w/ the nephew and their intent of giving the land to him

                                • Alternatives

                                • old couple could have created a life estate, leaving the property to the nephew upon their death

                                • old couple could gave given the nephew the deed to keep before their death

                                • Malpractice note - Before the old couple's death, they asked a lawyer if the delivery was good on the deed and he said that it was. Is this lawyer liable for malpractice? A: Probably not, but he should have done more research and looked into banking customs

                                Mortgage & Foreclosure

                                Hypo: What happens when buyer has 2 mortgages (1st for $150k and 2nd for $30k) and defaults?

                                A: at foreclosure, the 1st mortgage is paid in full first and the 2nd mortgage gets the rest (up to the $30k) if any extra is left. (Can 2nd mortgagor still bring a deficiency judgment?)

                                Murphy v. Financial Dev. Corp. (cb 546)


                                • 1966: Murphy purchases home

                                • March 1980: Murphy refinances home, now valued at $46k

                                • Sept. - Oct. 1981: Murphy loses his job, falls 7 months behind on mortgage payments, and after negotiations fail, lenders give notice of intent to foreclose in October - Murphy then pays the 7 months of late payments, but not the $643 in new costs and legal fees accrued by the lender

                                • Nov. - Dec. 1981: Lender sets new date for foreclosure sale, then pushes it back to Dec. upon payment of a $100. Murphy then asks for another postponement, but it is denied and the property is sold for $27k (to an agent of the lender). Lender then turns around and sells the property to Southern for $38k.

                                • note: the lender did very little advertising of this sale

                                • 1982: Murphy sues lender to set aside sale or alternatively receive money damages

                                General Rule

                                • Lender/Mortgagor in their fiduciary relationship, has a duty of good faith and due diligence

                                Trial Court

                                • finds lender failed to exercise good faith and due diligence in obtaining a fair price

                                • awards damages to Murphy; doesn't rescind sale b/c 2nd buyer was BFP

                                Court's Ruling

                                • found lender did not use due diligence, but did act in good faith (b/c lender obeyed all regulations concerning foreclosures)

                                • if lenders follows statutory requirements then they have good faith

                                • due diligence goes beyond just following the statutory requirements in that it requires an effort by lender to get a fair price (not necessarily the FMV)

                                • court says lenders could have 1) advertised more 2) postponed the sale to a more busy time or 3) set a minimum price

                                • damages should be btwn fair price (not necessarily FMV) and price obtained at foreclosure sale

                                • 2 key factors in decision

                                  1. substantial loss of equity (large difference btwn value of house and sale prices)

                                  2. lenders were trying to be slick (by selling the property for a much higher price the next day)

                                  Bean v. Walker (cb 554)


                                  • D bought home from P, the sale contract provided that D would pay P a certain monthly installment over a 15 year period

                                  • P kept legal title of the property and agreed to convey the property to D upon payment in full

                                  • The K also held if D defaults, P can keep all the prior payments

                                  • D had made improvements, paid insurance, and paid taxes on the land for over 8 years, when D lost his job and defaulted on P

                                  Court's Ruling

                                  • court uses equitable conversion

                                  • buyer bas equitable title (while seller had legal title)

                                  • equity is “doing what ought to be done”, here, making sure the buyer is not taken advantage of

                                  • even though there is a K, not a mortgage, it is treated as a mortgage and thus seller must go through foreclosure to retain full title

                                  • Dicta: exceptions this rule

                                    1. buyer abandons property

                                    2. buyer had only paid minimal amount on the K (not enough for equity to overpower)

                                    Title Assurance: The Recording System

                                    Purposes of Title Assurance/Recording System

                                    1. Public recordation

                                    2. Preservation in a secure place

                                    3. Equitable doctrine of bona fide purchaser (protect the BFP by having information on title readily available to them)

                                        • Recording acts broadened equitable doctrine of BFP to protect a subsequent BFP against prior unrecorded interests.

                                        • The one who DOESN'T record (wild deed) is the one who will get the loss imposed on them. They're the cheapest cost avoider. We're not going to punish BFP when the deed can't be found through a reasonable search even though it is first in time.

                                        • Common law rule of “first in time, first in right” still controls unless a person qualifies for protection under a recording act

                                    America has developed a public recording system to assure purchasers of land that they have good title to the land purchased. Public records are not always perfect, and buyers often purchase private title insurance.

                                    1. Indexes - compilation of property interests

                                    • Grantee Index - lists by grantee's surname

                                        • search to make sure no easements are on the property

                                    • Grantor Index - lists by grantor's surname

                                        • search to make sure no owner transferred to 2 people (the former of which is not in the “chain”)

                                        • important to look even after grantor took possession to see if anyone else made claim

                                        • when conducting a title search, go up the grantor index and then down the grantee index, to make sure you don't miss anything - doesn't matter, you can go either way just makes more sense to start w/ grantor b/c you know them

                                    • Tract Index - very rare, lists by property location; easier to use of one exists b/c you only have to look at that one particular parcel of land entry

                                    Luthi v. Evans (cb 565)


                                    • Owens grants all oil & gas lease rights in a certain county to Tours (this system of granting all rights in a certain area is called a Mother Hubbard clause)

                                    • Owens later gave her interest in one of the tracts she had given Tours to Burris

                                    • Burris performed a personal inspection and researched for abstract of title and neither came up w/ Tours (b/c of the confusion over the Mother Hubbard clause - it didn't list each plot by name, just all in that area)

                                    • This was a notice recording system jurisdiction


                                    • the only way court will hold subsequent purchaser responsible for knowing about Tours, is if Tours had complied w/ recording rules

                                    • The index only lists the specific tracts in agreement, it did not list all the others included in the Mother Hubbard clause

                                    Court's Ruling

                                    • Mother Hubbard clauses do not give constructive notice to subsequent purchasers, so Burris does not have constructive notice

                                    • If subsequent buyer has actual notice, then constructive notice is not required

                                    • Specific description of the property in the deed conveyed is required for constructive notice


                                    • Mother Hubbard clauses do NOT give constructive notice

                                    • What could Tours have done? A: gone through and listed the specific tracts included in the Mother Hubbard clause

                                    • Policy: if subsequent purchasers were required to go through and check Mother Hubbard clauses and then search to see what land was owned by grantor, it would be an inefficient result - Tours was the cheapest cost avoider

                                    • An index is NOT an essential part of the record (although it is in some jurisdictions), so the purchaser is charged with constructive notice of a record even though there is no official index which will direct him to it

                                        • the fact that a deed is not properly indexed by the register of deeds will NOT prevent constructive notice (jurisdictional)

                                    Improper Indexing

                                    - Two ways to handle:

                                      1. Choice A - A purchaser is charged with constructive notice of a record even though there is no official index which will direct him to it. An index is not an essential part of the record. (rob majority)

                                      2. Choice B - To record means turn it in & have them note it down; grantee has the duty only of the initial indexing; the subsequent purchaser takes the risk of faulty indexing thereafter. Which method is majority? - no, jurisdiction by jurisdiction

                                        • Basically, requiring a little more out of the purchaser/grantee to make sure at least he did everything he could to make sure it would be indexed

                                        • this rule is chosen so as to not burden a grantee beyond the initial filing

                                        • It would be inefficient to think that a grantee would constantly check on the operations of the recorder to make sure that he properly indexes at every point in time.

                                    Orr v. Byers (cb 574)


                                    • Orr obtains judgment in excess of $50k on Elliott

                                    • The judgment is recorded under the name “Elliot” (misspelled)

                                    • Elliott sells his property to Byers - when Byers does search he does not find the judgment b/c it is misspelled

                                    • Orr sues Byers and Elliott

                                    P's Argument

                                    • Orr argues that Ds had constructive notice of the abstract of judgment through idem sonans

                                        • idem sonans - though a person's name has been inaccurately written, the identity of such person will be presumed from the similarity of sounds btwn the correct pronunciation and the pronunciation as written

                                    Court's Ruling

                                    • the misspelling was material and it would place an additional burden on title searcher to require them to search all names that are similar to the one they are searching for

                                    • court rejects idem sonans in this situation

                                    • Idem sonans is a valid doctrine, but not widely used in property law (says this case, but note this case is the MINORITY OPINION, in most courts Orr would have won) - so most courts would require Byers to look under all possible spellings - probably not all misspellings, but close ones like this case


                                    • What could have Orr done? A: he could have checked and made sure the name on the abstract of judgment was spelt correctly (he was the lowest cost avoider)

                                    2. Types of Recording Acts

                                      1. Race

                                        • Between two successive purchasers for value (distinguished from inheriting/getting a gift), the person who wins the race to record prevails.

                                        • Notice (TX)

                                              • An unrecorded instrument is invalid against a subsequent purchaser for value without notice. Thus a subsequent purchaser without notice prevails (even if the subsequent purchaser does not record!). Can be actual or constructive.

                                            • Shelter Rule - A person who takes from a BFP that is protected by the recording act has the same rights as her grantor. Thus if C buys from B who was protected by recording statute, C is protected even if A (who received title first but didn't record) records before C. C is granted the same protection (“shelter”) that B had.

                                            1. Race-Notice

                                            • A subsequent purchaser for value is protected against prior unrecorded instruments only if the subsequent purchaser (1) is without notice of prior instrument and (2) records before the prior instrument is recorded.

                                              • Zimmer Rule - a race-notice statute protects the subsequent purchaser who first records his own conveyance only if all prior conveyances in his chain of title are so recorded (thus, his deed is not “wild”)

                                            Messersmith v. Smith (cb 583)


                                            • Prior to May 7, 1946: Caroline and Fred Messersmith are co-tenants w/ equal shares

                                            • May 7, 1946: Caroline executes and delivers quit claim deed to Fred (P)

                                            • April 23, 1951: Caroline executes mineral lease to Smith

                                            • May 7, 1951: Caroline conveys 2 mineral deeds w/ warranty for undivided
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