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Chapter 7—The Property-Based

Legal System

REED SHEDDREED SHEDD PAGNATTARO PAGNATTARO MOREHEAD MOREHEAD

F I F T E E N T H E D I T I O NF I F T E E N T H E D I T I O N

TheThe Legal & Legal & RegulatoryRegulatory Environment of of BusinessBusiness

McGraw-Hill/IrwinCopyright © 2010 by The McGraw-Hill Companies, Inc. All rights

reserved.

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Introduction

“The legal concept of property

is vital to understanding how law provides a foundation for the

private market.”

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Learning Objectives To analyze the connection between a property-based legal system and prosperity.

To understand property as an exclusive legal fence and to identify narrow applications of property even when they are not traditionally called “property”.

To grasp and apply the rules of security interests.

To evaluate the statement that private property promotes the common good and be able to furnish examples.

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think

TANKthink

TANKthinkthink

TANKTANKIs it likely for a nation to be prosperousIs it likely for a nation to be prosperousand maintain a vibrant market without and maintain a vibrant market without having a strong concept of privatehaving a strong concept of privateproperty?property?

a.a. YesYesb.b. No No

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Property

Ownership Property Means

Private, exclusive rights in

resources.

The legal right to exclude or keep

others from interfering.

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Property System

Arguably the most significant issue for any society is how it

orders the relationships among people concerning limited and

valued resources.

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Property System

Limited resources

State vs. private property

State comes into being to address problem of

Legal frameworks to address problem

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Property System

Property is central to societal prosperity

Property is central to societal prosperity

Promotes IncentivesPromotes Incentives

Establishes conditions for capital

formation

Establishes conditions for capital

formation

Makes resources easily divisible

Makes resources easily divisible

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Basic Divisions of Property

Real Property Personal Property

Land and interests in land

All other resources – that are movable

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pop

QUIZpop

QUIZpoppop

QUIZQUIZPrivate property premises the marketplace inPrivate property premises the marketplace inwhat ways?what ways?

a.a. promoting incentives for risk and promoting incentives for risk and development.development.b.b. recognizing divisibility of resources.recognizing divisibility of resources.c.c. creating conditions for capitalcreating conditions for capitalformation.formation.d.d.all of the above.all of the above.

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Acquisition of Resources

Gift Exchange Accession

Methods by which resources can be acquired

ConfusionAdverse

Possession

1st Possession Original Possession

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Types of Ownership

Fee simple – maximum

Life estate – for lifetime

Leasehold – rights of tenant

Concurrent – multiple owners

• Joint – different shares

• In common – all together

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Deed(transfer of

title)

 

Deed(transfer of

title)

 

Registration(notice)

 

Registration(notice)

Title and Title and RegistrationRegistration

Title and Title and RegistrationRegistration

Ownership Title

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Legal right of passage across

land

Specialty Property Applications

Easements Bailments

Goods placed into another’s possession

to be returned in future

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Security Interests In land

•Mortgages

•Deeds of trust

•Land sales contracts

Recording statutes – notice

Exercising property Interests

Foreclosure

Deficiency

Right of Redemption

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Secured Transactions Applies to personal property

Security interest in personal property given as collateral

Attachment

Perfection

Financing statement

PMSI

Priority problems

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Limitations on Property and the Common Good

Private property has limits

Private property right is always subject to the right of others

Private property gives way to the common good of society

• Eminent domain

• Taxation

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pop

QUIZpop

QUIZpoppop

QUIZQUIZDo secured interests that are recordedDo secured interests that are recorded““first in time” always take priority overfirst in time” always take priority overcompeting interests recorded later?competing interests recorded later?

a.a. YesYesb.b. NoNo

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Use of land that causes

inconvenience or damage to the

public

 

Use of land that causes

inconvenience or damage to the

public

 

Unreasonable use of one’s property

so as to cause interference with enjoyment or use of another’s land

 

Unreasonable use of one’s property

so as to cause interference with enjoyment or use of another’s land

Nuisance

Public Private

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Zoning

Exercise of police powers

Regulation of land use through zoning ordinance

Limits to:

Use

Aesthetics

Variances

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Duration Limitations on Property

Patents And

Copyrights

Rule against perpetuities

• Lives in being plus 21 years

• Prevents multi-generation control of

one’s property interests

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Eminent Domain

5th Amendment

Government taking private property for public use

Just compensation• market value

• may have jury determine

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Taxation

To fund public services

• roads

• education

• law enforcement

• courts

• National defense

Article I, Section 8 of U.S. Constitution – federal taxation

Income tax – 16th Amendment