The Public Nature of Private Property

Michael Diamond, Robin Paul Malloy, Robin Paul Malloy

• Publisher: Routledge
• Year: 2016
• ISBN:
  9781317018544
• Edition: 1
• Topic: Droit
• Subtopic: Droit des biens

What, exactly, is private property? Or, to ask the question another way, what rights to intrude does the public have in what is generally accepted as private property? The answer, perhaps surprisingly to some, is that the public has not only a significant interest in regulating the use of private property but also in defining it, and establishing its contour and texture. In The Public Nature of Private Property, therefore, scholars from the United States and the United Kingdom challenge traditional conceptions of private property while presenting a range of views on both the meaning of private property, and on the ability, some might say the requirement, of the state to regulate it.

Chapter 1 The Public Nature of Property Rights and the Property Nature of Public Law

J. Peter Byrne

DOI: 10.4324/9781315553740-1

This chapter, ‘The Public Nature of Property Rights’, argues that statutes adjusting the terms of ownership should be considered to be part of property law just as fully as are common law rules. As a description of positive law, this may seem a mere truism. That statutes displace the common law is an elementary principle of state constitutional law.¹ Moreover, statutes create many forms of property rights; federal copyright and patent, for example, are nearly entirely statutory. But for more traditional assets, such as land or goods, the law of which has been rooted in the common law, judges and scholars seem often to treat legislation as a second-class and suspect form of law. We are accustomed to think of traditional property rights of possession, use, exclusion, and transfer as being largely created by the common law but subsequently limited by legislation and regulations that shrink the domain of property.

My claim will be that there is no essential difference between what we may term the private law and the public law of property. Property law creates rights and duties in regard to resources regardless of whether it originates in the common law or in local, state, or federal legislation. Legislation that limits or conditions earlier established property rights is as much part of property law as is legislation that creates or enhances the capacity to exclude or convey. Common law has no normative precedence. The opposite impression reflects our historically situated perspective and the ideological struggles of our time.

I hope that I am saying something more than reiterating the “bundle of sticks” argument. From Morris Cohen to Laura Underkuffler, fine scholars have disaggregated property and considered the distribution of interests as conscious policy choices.² This approach has always made sense to me, because the persistence of private property depends upon the continuing consent of the community, which protects and gives endurance to specific private interests in resources because it enhances human welfare more generally (even if not in every specific case). Some scholars have brought to the foreground arguments about what values property should advance: autonomy, efficiency, stability, human flourishing, and equality. Legal realists’ insistence on the bundle of sticks approach reflects their support for regulation of use resisted by claims that such regulation violated property rights enshrined in the common law. Although normative arguments can be compelling, I do not plan to enter that fray here. My concern rather is with legal technology, advances in which have made it possible to recognize and shape interests in assets that the common law system simply lacked the capacity to conceive or implement. Common law came earlier in time, but rapidly changing social conditions conjured legislation and regulations to increase our legal capacity to deal with new demands and values.

Take contemporary local historic preservation regulation, for a preliminary example. Such laws recognize the interest of a community resident in preventing the demolition of an old, lovely building that she passed with pleasure twice every day for twenty years on her walk to and from the bus stop, while preserving the owner’s exclusive right to propose a plan to redevelop the site.³ One might argue that historic preservation has some kind of common law core, that the community resident acquires a prescriptive easement in perpetuating the visible aspects of the significant building based on her cognitive or cultural bonding with it over time. The problems with such an approach are legion. The law we actually have is much more efficient and fair. An administrative agency, aided by an expert staff, evaluates the historic significance of the buildings and appropriateness of what the owner proposes, as well as the concerns of interested persons, in a process aiming at balance and accommodation.⁴ Both the resident and the owner have interests or rights that count, although of differing characters and strengths. The common law lacks the resources in rule formation and in administrative decision making to recognize both interests without creating holdouts, a massive anti-commons, and stalemate. Courts could not recognize the validity of each resident’s interest without conceptualizing it as some kind of prescriptive servitude that would create an indeterminate number of vetoes on an owner’s desired project, essentially destroying the owner’s use rights.

Despite the greater efficiency and fairness of regulatory approaches to many asset uses, some courts give normative precedence to the common law of property and treat legislation as its antithesis. While this stance may have ideological roots, it takes a jurisprudential form. Judicial invigoration of the regulatory takings doctrine, for example, highlighted by Lucas,⁵ sought to use constitutional legerdemain and no little natural law to bar new legislative limits on property rights of use without paying just compensation, which would have made them impracticable. While the prospect of a robust regulatory takings doctrine is troubling on constitutional and policy grounds,⁶ some of the supporting reasoning also is puzzling on jurisprudential grounds. Lucas itself privileges “background principles” of common law against legislation. Justice Scalia’s opinion structures its analysis to preclude consideration of the public interests served by the challenged legislation. Some proponents embrace the Blackstonian precept that property means absolute dominion, arguing that environmental or other use regulations destroy property. A robust exposition of this perspective was given by then Justice Janice Brown of the California Supreme Court, dissenting from her court’s upholding of a San Francisco ordinance requiring mitigation payments for eliminating affordable housing:

But private property, already an endangered species in California, is now entirely extinct in San Francisco. The City and County of San Francisco has implemented a neo-feudal regime where the nominal owner of property must use that property according to the preferences of the majorities that prevail in the political process—or, worse, the political powerbrokers who often control the government independently of majoritarian preferences. Thus, “the lamb [has been] committed to the custody of the wolf.” (6 The Works of John Adams, supra, at p. 280.) San Francisco has redefined the American dream. Where once government was closely constrained to increase the freedom of individuals, now property ownership is closely constrained to increase the power of government. Where once government was a necessary evil because it protected private property, now private property is a necessary evil because it funds government programs. (citation omitted)⁷

Even with generous allowance for poetic license, this is so wrong: the market for land and buildings in San Francisco remains one of the most desirable in the country, which is what makes the mitigation payments system possible. That system was designed to support the retention or replacement of property interests of low-income residents. Moreover, feudalism was a property regime—indeed, the origin of our own. And legislative innovations have contributed to the evolution of property law over its entire history.⁸ Justice Brown, like other property zealots, uses the term “property” to describe the common law property rules extant at the end of the nineteenth century.

Property law certainly has changed in modern times, adopting new legislative approaches to adapt to new economic, political, and environmental problems. What after all was the legal difference between a common law nuisance doctrine protecting the neighboring property owners and a legislative rule specifying what uses you cannot pursue? The main features of the legislative fix through zoning are prospective clarity and some over-inclusivity, the filtering of a wide range of interests and concerns of voters (not just neighboring land owners), decisionmaking by democratically responsible officials rather than by judges, and less encouragement to rely upon a perpetuation of current rules. No court could have created this system through common law adjudication. The blend of legislation, planning, administrative adjudication, and political voice constitute a new legal technology. My focus just now is not the merits of any a particular land use policy or allocation of rights, but that legislation and administrative oversight create new opportunities to recognize a variety of rights and duties, none of which should be considered “outside” property law. As a property innovation, zoning may increase or decrease the scope of free action of any interested party and contemplates a “public interest” mediating many individual interests through various public processes.

To develop my claim and test whether it has any explanatory power, I now want to consider two examples at greater depth. The first example of public regulation adjusting the scope of property rights we might consider is the successful transformation of creditor interests in a debtor’s commercial property from fraudulent conveyances to property rights. Grant Gilmore gave an exhaustive account of the various hesitating steps in this process for different forms of collateral in his classic treatise, Security Interests in Personal Property. But the basic story line is simple. Early in the nineteenth century, courts generally held that a conveyance of title to goods while retaining possession of them was fraudulent as to the seller’s creditors. “The law will not and ought not to permit the owner of personal property to create an interest in another, either by mortgage or absolute sale, and still to continue to be the ostensible owner.”⁹ Chancellor Kent’s view of the matter was slightly less absolute: “Delivery of possession is so much of the essence of the sale of chattels, that an agreement to permit the vendor to keep possession is an extraordinary exception to the usual course of dealing, and requires a satisfactory explanation.”¹⁰ The concern in all these cases is that ordinary unsecured creditors will erroneously but naturally believe that a merchant owns the goods in his possession and thus will overestimate his creditworthiness. If the merchant failed or entered bankruptcy, the unsecured creditors would find that the debtor’s assets were claimed as property by the secret transferee. This legitimate concern led courts routinely to invalidate such arrangements to protect the reliance of ordinary creditors.

As markets expanded and financing became more sophisticated, however, commercial interests argued for greater leniency to facilitate secured lending on the basis of equipment, inventory, and accounts receivable.¹¹ It made no commercial sense to take these commercial assets out of the possession of the borrower, who needed them to conduct his business and generate the revenue to repay the debt. A Virginia court admitted that such transactions were not actually fraudulent but objectionable because deceptive in fact. “A preventive of the evil may be found in requiring the parties to give notoriety to the transaction; but that is a matter beyond the province of judicial recognition, and requires the aid of legislative enactment.”¹² State legislatures soon enacted diverse statutes that allowed creditors to obtain nonpossessory interests in certain of their debtor’s property, provided they file a specific form of public notice. Interestingly, courts suspicious of such a legislative innovation sometimes invalidated chattel mortgages and other security interests on technicalities to protect the more familiar rights of unsecured creditors.¹³ After many false starts and an accumulation of experience with various forms of collateral, these acts were superseded by the mid twentieth century by the general security interest in personal property provided by Article Nine of the Uniform Commercial Code.

This innovation decreased the rights of unsecured creditors and enhanced the rights of secured creditors. Under the common law approach, all the unsecured creditors together enjoyed a limited commons of sorts in the debtor’s assets, consisting of a conditional right to appropriate them upon a court finding default by the debtor and obtaining exclusive rights through the process of levy and execution. Facilitating security interests worked a form of enclosure, under which the secured creditors’ collateral was “walled off” from the debtor’s general remaining assets, beyond the reach of the unsecured creditors’ capture. These security interests are property rights. When perfected by filing or otherwise, they are good against the whole world, respected in bankruptcy and protected by the Takings Clause. Unsecured creditors encountered a new obligation to check these records to determine if their debtor’s assets were encumbered, depriving them of their traditional reliance on assets visibly in the debtor’s possession. The filing system itself is a form of public property, which all can access, but which can charge a user’s fee to those filing notices.

The creation of security interests in personal property required legislation. The new rules establishing the rights of secured creditors had to be promulgated comprehensively, synchronically, and prospectively. Court adjudication of individual cases might have evolved over time away from precedents treating nonpossessory security interest as fraudulent, although at real cost in confusion and unfairness, but could never have solved the notice problem. Only legislation and appropriations could create offices to receive and manage publicly available notices of creditor interests. Nor could courts create comprehensive legal systems to specify how such property interests could be created, perfected, and enforced, so that lenders would have confidence in the efficiency of the new devices. The emergence of security interest required changes in economic needs and legal attitudes, but also an advance in legal technology that made new rights and duties feasible. It now would be anachronistic to claim that security interests are not property because they depend on legislation and bureaucratic management, or because they limit the rights or frustrate traditional expectations of unsecured creditors. One may still criticize aspects of security interests as inefficient or unfair, even as “neo-feudal,” but not competently argue that they are not property, despite their legislative orig...