How is an ownership interest transferred between individuals?
• Contracts – Contract law provides rules under which people agree to exchange value. Contracts, express and implied, are the dominant manner by which individuals exchange real and personal property. Contract law is a staple of a developed rule of law system. Enforceable contract rights provide confidence in undertaking economic activity with others. Increased confidence drives economic productivity.
⁃ Discussion: Do you believe that contract law has an effect on economic activity? Why or why not? If so, what is the effect and why?
⁃ Practice Question: Abby and Frank are sitting in the cafeteria eating their lunch. Abby notices that Frank has a delicious chocolate bar. Frank notices that Abby has a bag of his favorite potato chips. Abby agrees to trade her potato chips for Frank’s chocolate bar. Who owned the chocolate bar and potato chips before and after the trade?
Lost, Mislaid & Abandoned Items
These include situations in which an individual loses ownership rights to another person.
⁃ Lost Items – Things that are lost may also acquire a new owner through possession. Most states have a statutory procedure in place for establishing ownership rights in lost property. These statutes generally require that the lost property be advertised for a period of time in an effort to notify the original owner. If, however, the original owner fails to claim the lost item, ownership rights vest in the individual who found the item. The purpose of such statutes is to avoid the situation where no one owns or makes beneficial use of lost items. Without following this procedure, the finder of the lost property obtains limited ownership rights through possession, which may always be subject to challenge by the original owner.
⁃ Mislaid Items – These are items that are lost or left behind by an individual. It commonly arises when someone leaves clothing or accessories behind in a store or restaurant. The owner of the location where the item was left becomes the guardian of the property until retrieved. After a reasonable amount of time without the owner coming to claim the item, the guardian of the property may follow the statutory procedure to establish ownership rights. In the absence of following a procedure to establish ownership, the holder has limited ownership rights simply by possession.
⁃ Abandonment – Mislaid or lost property may be deemed “abandoned”. If a mislaid or lost item is abandoned, the finder may retain the item and claim ownership. The key attribute is that the original owner must demonstrate “an unequivocal intent to abandon the property”. Intent can be inferred from conduct, such as stopping looking for it, permanently leaving the geographic area, etc.
⁃ Discussion: Do you agree with this treatment of lost or mislaid items? Why or why not? What would be an alternative approach to dealing with ownership rights in lost or mislaid property?
⁃ Practice Question: Tamara finds a valuable diamond ring laying on the sidewalk. She takes it home and puts it in her jewelry box. Years later, she gives it to her daughter as a present. One day, her daughter is approached by a stranger who claims that she was the original owner of the ring when it was lost. If the stranger’s claims are true, who has ownership of the ring?
How is an ownership interest transferred between individuals?
• Acquiring Resources through Gift – A gift is a transfer of ownership from one party to another without the consideration (mutual exchange of value) necessary to establish an enforceable contract. A gift may, however, transfer ownership of property. A gift normally transfers ownership at the time that the owner expresses intent to transfer the property and physically surrenders the property to someone else who accepts it. The individual receiving the gift must act to accept the gift to make the transfer final.
⁃ Note: The gift made during a person’s life is known as an “inter vivos” gift. A “testamentary gift” is one that is made through a will or other testamentary document.
⁃ Example: The last will and testament expresses the donative intent necessary for a transfer of property. An executor or personal representative may be charged with delivering the property in accordance with the deceased’s intent. Lastly, the recipient of the inheritance must accept the inheritance. If the intended recipient rejects the inheritance, there is no enforceable transfer of property.
⁃ Discussion: What is your opinion regarding the transfer for property by gift? Should a gift be enforceable under the law? If so, at what point should the gift or intended gift be enforceable?
⁃ Practice Question: Elsa has a beautiful dress made of satin that she rarely wears. She decides to give the dress to Ingrid. Ingrid is extremely excited to receive such a lavish gift. Before Elsa surrenders the dress, however, she changes her mind. She informs Ingrid of her change of heart without any ounce of remorse. Who is the owner of the dress before and after Elsa reneges on the promise?
How do individuals acquire an “ownership” interest in property?
Accession – Accession refers to additions to existing property to modify it in a way that results in new property. Accession is very similar to creation of something new. That is, if you add something to raw materials, you own the product that you make from the raw material.
• Example: I build a tree house with lumber that is not mine. I used property that was not mine, so I am liable for the value of the lumber. But, I own the product of my labor (the tree house). Of course, in my situation, the person may be able to file a legal claim against you if you do not pay for the lumber.
• Discussion: Do you believe that something created from raw materials should be considered new property? In the business context, should ownership rights in newly created property vest in the owner of the raw materials?
• Practice Question: Tom needs a place to live. He owns land, but he does not have the money to build a house. One day, he is riding by a construction site. Out front is a large stack of lumber that belongs to Angie, the general contractor. Tom comes back that evening and steals all of the lumber to build himself a house. Tom is a skilled carpenter and using the lumber it only takes him a week to frame in his house. If Angie learns that Tom stole his lumber, does she effectively own Tom’s house? Why or why not?
Acquiring Resources Through Possession
• Rule of First Possession – The first person to reduce previously un-owned things to her possession becomes its owner. In reality, there are few things that have never been previously possessed or owned.
⁃ Example: An individual may obtain ownership of real property through “original entry” or “title by occupancy”. This is where the government grants ownership rights in land to individuals willing to settle or claim a stake in the land. This rule was important during the founding and colonizing of the United States.
⁃ Discussion: How do you feel about the principle that the first possessor of property owns it? What are the benefits of this principle? What are the negative aspects of the principle?
⁃ Practice Question: Ernest is walking down the street when he sees a flash of light and a large object fall from the sky. Ernest immediately recognizes that a meteor has hit the earth. He runs over to where the meteor landed and finds that the meteor contains a large chunk of precious metal. He picks up the precious metal and takes it home. Does Ernest own the metal?
This is a situation where someone legally gains ownership or title to someone else’s property by wrongfully claiming rights of use or possession of that person’s land. There are several elements that must be present to claim an ownership interest in property through adverse possession:
⁃ Open – The individual(s) claiming possession must be open about their claim of ownership. Openness is generally characterized as living upon or using the land as an owner would.
⁃ Example: Hiding or squatting on land intentionally out of site of others will not qualify as an open claim of ownership.
⁃ Notorious – The individual’s presence on the land must be known by others. This is closely related to openness. If others are aware that a person is claiming ownership of the land, it serves to substantiate all other elements of adverse possession statutes or common laws.
⁃ Example: Setting up a mailbox to receive mail would demonstrate that the claim of ownership is known or notorious.
⁃ Actual – The claim of ownership of the land must be actual, rather than nominal. Simply claiming or voicing an ownership interest without physical possession or control of the land is not sufficient. It requires the person to assert her ownership rights through actual possession or control.
⁃ Exclusive – The claim of ownership must be to the exclusion of others. As previously defined, property is something held or possessed to the exclusion of others. The individuals claiming ownership must seek to exclude others from claiming those same ownership rights. This can thwart a claim of adverse possession through group squatting (vagrant community) efforts if not done or undertaken by all squatters as an exercise of group ownership.
⁃ Continuous – The claim of ownership must be continuous throughout the entire period of adverse possession. Breaks in periods of claimed ownership stop the statutory period from running and starts it over when ownership rights are claimed again.
⁃ Wrongful – The individual claiming ownership cannot have the permission or legal right to use the land. If an individual has the legal right (such as through a rental contract) to be on the land, it is not wrongful.
⁃ Statutory Period – Each jurisdiction with an adverse possession statute requires that the possession take place for a prescribed period. The statutory period typically ranges from 7 – 20 years depending upon the jurisdiction and the nature of the property interest. The time period may also vary depending upon the nature of the ownership interest claimed in the land. For example, claiming an easement interest in land may require use for a shorter or longer period than claiming fee simple ownership of the property.
The recognition of ownership through adverse possession seeks to promote beneficial use and ownership of property. If property lays dormant for a period that is sufficient to allow for adverse possession, it is not being beneficially used. This harms economic productivity and is contrary to the public good.
⁃ Discussion: What do you think about this law? Is it fair? Should someone be able to acquire legal ownership of someone else’s property without her consent? Are you convinced by the government’s justification for this law? Is there any way you would alter the law to make it more fair?
⁃ Practice Question: Trina has owned a small parcel of land in town for about 15 years. When she decides to sell the house, she pays a surveyor to draw up a plat of the land. To her surprise, her plot is slightly bigger than she originally suspected. Further, it appears that the neighbors built part of their garage on her land about 12 years ago. What are Trina’s rights with regard to the land encroached upon by her neighbor’s garage?
How is an ownership interest transferred between individuals?
• Confusion – In some cases, individuals will combine their property in ways that makes it indistinguishable. In this situation, there is an amalgam of property to which the contributors have a claim. If a contributor seeks to withdraw her property, she will not receive the exact same property contributed.
⁃ Example: Think of farmers placing their grain collectively in storage silos. In such a case, the individuals contributing property retain ownership of an amount of property equal to their original contribution. In a way, this is a transfer of property between individuals.
⁃ Discussion: Can you think of other situations where combined property of multiple individuals can become indistinguishable? Are there any situations in which confusion of combined property could detriment one or more of the property owners?
⁃ Practice Question: Bert is a cattle rancher in Texas. Every year, he drives his cattle from his West Texas ranch to a more northern location where there is more water and better grazing. At the end of the year, he drives the cattle back down to his southern ranch. Bert has never felt the need to brand or tag his cattle until time to send them to the market. Unfortunately, during one of his annual cattle drives, many of his cows become mixed in with a neighbor rancher’s cattle. Neither Bert nor his neighbor can identify their actual cows, so they agree to divide the cows based upon size and total number. In this scenario, has any change of ownership taken place?