Property Law October 3 2012 for harms Recall Cases Discussed Earlier Common law is divided into three areas 1 property law 2 contracts 3 compensation Ploof vs Putnam 1908 In many situations a court may simply clarify what the property rights are so if the current allocation is inefficient bargaining can occur to reallocate o Once the winning party has the rights they can sell the rights to the losing party o Many times all the court does is clarify property rights which can lead to bargaining o Bargaining costs should be lower once property rights are assigned If bargaining is not possible then the court s decision allocates the property rights Ploof s family sailing on a lake and a violent and unanticipated storm emerges so they turn to the nearest island private island owned by Putnam Putnam not present but had instructed employees to not allow ppl to stop at his island employees do not allow Ploof to tie to his dock so boat goes back out and capsizes and the family suffers injuries Ploof sues Putnam for damages Plaintiff brought suit charging that the defendant through employees intentionally untied the boat from the dock when they had a duty to permit the tying up to the dock until the storm had passed Doctrine of Necessity Common law precedent when necessary perhaps bc of inability to control movements that were fully inaugurated entry onto the land and interference with property are legal that would under ordinary circumstances be considered as a trespass o Particularly applicable when human life is in peril o Court says that there are circumstances where typical private property rights are not applicable October 10 2012 Calabresi Melamed Property Rules Liability Rules and Inalienability Harvard Law Review 1972 1 Entitlement the right to use an asset or resource An entitlement can be protected by a property rule a liability rule or by inalienability Property Rule upon by the seller Liability Rule Inalienability Someone who whishes to remove the entitlement from its holder must obtain it from the holder in a voluntary transaction in which the value of the entitlement is agreed o Asset cannot be transferred except through voluntary processes i e bargaining o A private property right Liability rule an entitlement can be taken or destroyed by someone willing to pay after the taking an objectively determined value o Even if you are allowed to use the private property and cause damage you have Inalienability transfer is no permitted at all even between a willing buyer and a willing to pay for the damage seller o i e historic site o Even if you own this land you cannot use it for xyz purpose and cannot sell it to someone else to use it for xyz purpose There is nothing in the Doctrine of Necessity that specifies what happens if someone enters someone else s property and does damage can be problematic Coase s Argument Sturges v Bridgman 1879 It was of course the view of the judges that they were affecting the working of the economic system and in a desirable direction The judges view that they were settling how the land was to be used would be true only in the case in which the costs of carrying out the necessary market transactions exceeded the gains which might be achieved by any rearrangement of rights Best Cost Avoider Principle If the costs of bargaining to reallocate rights exceed the efficiency benefits of reallocation through bargaining o The least expensive course of action may be to suffer the consequences the cost of reallocating exceed the benefits unless rights can be redefined either to facilitate bargaining or failing that to approximate the efficient outcome Judges want to rule in a way that leads to the lowest costs damages General Rules or Case by Case If best cost avoider principle applied case by case 2 o Create uncertainty about property rights o Reduces the chance for bargaining General rule i e Doctrine of Necessity o Applied only when transactions costs appear to prevent bargaining and failure to reallocate involves very high costs o Coase prefers this way bc ppl can know or at least anticipate what the rules are o Creates conducive environment to encourage bargaining good Problems with Doctrine of Necessity Weakens incentives to bargain encourages trespass and disputes Even when bargaining is not possible encourages trespass where property owner s costs exceed benefits to trespasser To offset these incentives o Punish trespass when bargaining is possible o Make trespasser pay damages even when the doctrine is applied liability rule Vincent v Lake Eire Transport Co 1910 Captain stays tied to dock even after contract terms are over because of severe storm o Captain making decisions repeatedly to stay ties to dock damaging the dock by doing so if did not have to pay the damage would be an externality Jury awarded damages to dock owner Vincent dock owner wanted compensation for damages to dock Defendant appealed arguing that under the doctrine of necessity the damages arose under circumstances that could not be avoided and which were beyond the control of the defendant Appeals court agreed that the doctrine of necessity applied but also found that the damages were not simply due to accident beyond the control of the defendant o Liability rule situation bc damages must be repaid o Liability rule mans that damages doers need to take into account the consequences of all of their actions efficient incentives 3 Dissenting Opinion Continuous Nuisance One judge argued that as long as the ship was lawfully there when the storm broke and had no reasonable option then the result was an unavoidable accident Chronic continuous invasion of another person s property o One person s enjoyment of a resource is disturbed on a continuing basis by another s noise vibration or pollution Nuisances are not the same as eternality o Nuisance can be an externality o Nuisance can also be when one party is aware of the damages they are causing and property rights are clear o Externality property rights are not clear Remedies for Continuous Nuisances by the Defendant Apply when the plaintiff wins solutions imposed on defendant Property Rule o 1 Temporary injunction orders defendant to temporarily stop doing whatever is generating the nuisance Allowed to start up again if the plaintiff agrees Defendant must convince plaintiff to allow him to start again Defendant usually bargains with plaintiff Liability Rules o 2 Temporary damages defendant must pay the plaintiff for past harms Implies