Agenda for 10 th Class

1. Agenda for 10th Class • Admin stuff • Handouts • Slides • Intellectual Property • Polinsky on Coase Theorem (optional) • Review of • Calabresi & Melamed • Coase • Nuisance • Easements (continued) • Real Covenants & Equitable Servitudes

2. Assignment for Next Class • Review any questions we did not discuss in class today • Read Intellectual Property Handouts • Questions to think about / writing assignments • Questions after Feist • 2 (WG1), 3a (WG2), 3b (WG3)…. 3f (WG7) • Questions after Campbell • 1 (WG1), 2 (WG2) ….. 7 (WG7) • Optional • Polinsky on Coase Theorem • Also discusses Calabresi & Melamed • Altman video on Calabresi

3. Calabresi & Melamed • .

4. Coase Theorem I • If there are no transactions costs, resources will be allocated efficiently regardless of the legal rule. • “Efficiency” means that the party the values the right more will get it. • Where “values more” means is willing and able to pay more • Suppose neighbors value clean air $100 and it would cost the factory $50 to end the pollution, factory will end pollution regardless of the legal rule.

5. Coase Theorem II • If there are no transactions costs, resources will be allocated efficiently regardless of the legal rule. • “Efficiency” means that the party the values the right more will get it. • Where “values more” means is willing and able to pay more • Suppose neighbors value clean air $50 and it would cost the factory $100 to end the pollution, factory will pollute regardless of the legal rule.

6. Coase Theorem & Transactions Costs • If transactions costs are high (e.g. there is a collective action problem), legal rule may matter • Property rule may lead to inefficient result, because negotiation may be too costly or may breakdown • Suppose neighbors value clean air $100 and stopping pollution costs $50. • If factory has right to pollute protected by property right • Efficiency requires negotiation in which neighbors pay factory between $50 and $100 • If there are many neighbors, they may not be able to agree on a negotiation strategy • Or, even if neighbors can agree on a negotiation strategy, bargaining may break down • Suppose neighbors value clean air $50 and stopping pollution costs $100 • If neighbors have right to clean air protected by a property right • Efficiency requires negotiation in which factory pays neighbors between $50 and $100 • But neighbors may not be able to agree on negotiation strategy • One neighbor may hold out for larger payment • Bargaining may breakdown • Liability rules may therefore be superior • But only if court can correctly assess damages

7. Nuisance • Traditionally • If activity interfered substantially with neighbor’s use and enjoyment of the property, and if activity was unreasonable, then neighbor could get an injunction against the activity. • Calabresi & Melamed Rule #1 (if harm substantial and activity unreasonable) • Calabresi & Melamed Rule #3 (if harm insubstantial or activity reasonable) • Property rules -- may cause inefficiency, if transactions costs are high • Modern cases sometimes • Weigh costs and benefits of activity and interference with use and enjoyment • Refuse injunction if benefits of activity outweigh harm to neighbors • But require compensation to neighbors (Boomer) • Calabresi & Melamed Rule #2. • May allow inunction against nuisance • But require payment to party causing nuisance (Spur) • Calabresi & Melamed Rule #4 • This is very rare • Spur involved compensation by developer, not by all neighbors • Liability rules

8. Easements • Easement is right to use property of another for specific purpose • Rights of way (e.g. driveway) • Utilities (water, sewer, electricity) • Negative easements • View easements (not to block view) • Solar easement (not to block solar panels) • Conservation easements (to prevent development) • Lateral easement (not to remove support for house on neighboring property) • Creation • By grant or reservation in deed • By necessity • Right of way for landlocked parcel (Thomas) • By prescription • Actual, open & notorious, hostile & adverse, continuous & uninterrupted use for prescriptive period (usually same as statute of limitations for adverse possession) • Easement appurtenant • Runs with land. Binds/benefits later holders of property • Easement in gross does not run with land. Disfavored. Must be clear.

9. Felgenhauer • 1971 Felgenhauers purchased lot • In 1974-78 Felgenhauers operated restaurant • Deliveries made through back over lot owned by bank • 1982. Felgenhauers reopened restaurant • Deliveries through back lot resumed • 1984. Restaurant leased to Enloes (who sold to others) • Deliveries through back lot continued, even though Enloes did not think had right to do so • 1988. Bank constructs fence with gate for Enloes’ access • 1998. Sonis purchased bank property • 1999. Sonis told Felgenauer tenant that planned to cut off acces • Felgenauer sues to quiet title • Court holds that Felgenauer had acquired easement by prescription • 1982-1988 • Even though Enloes never claimed right to use bank property • “claim of right” means “without permission” e.g. without license or lease (same as “hostile”) • Construction of gate in 1988 does not show permission • B/c after prescriptive period

10. Felgenhauer • Do you think the court reached the right decision in Felgenhauer? What is the best argument for the contrary result? • How would the Coase Theorem apply to Felgenhauer? What is the efficient result? Would/could the parties have bargained to it even if the court had ruled there was no easement? If the parties could/would have bargained to the efficient solution, why does it matter which way the court ruled?

11. Real Covenants & Equitable Servitudes • 3 kinds of servitudes • Easements • Covenants • Equitable servitudes • Covenants and Equitable Servitudes are essential the same • Both are agreements that run with the land • But covenants are enforced by damages • Equitable servitudes are enforced by injunctions • Same agreement may be both • Traditionally • Both covenants and equitable servitudes require • Intent to bind successors • Subject “touches and concerns” property • Equitable servitudes require • Notice (usually through depositing agreement in recording office) • Real covenants require • Horizontal privity – satisfied if covenant is put in deed by common grantor (e.g. when property subdivided) (not required in Cal.) • Vertical privity – satisfied if both inherited or purchased property (but neither leased)

12. Real Covenants & Equitable Servitudes II • Restatement 3rd tries to simplify and unify • No distinction between easements, real covenants, and equitable servitudes • Only require • Intent • Not violate public policy • Arbitrary, spiteful, capricious, unreasonable, unconscionable • Notice required to bind successors • Not required • Touch & concern • Horizontal privity • Vertical privity • Not explicitly adopted anywhere • But reflects trends to simplification of law

13. Neponsit • Covenant required payment of Property Owners’ Association dues • “for maintenance of roads, paths, parks, beach, sewers and … other public purposes” • Q: Does covenant to pay dues “touch and concern” the land? • Yes • Q: Can Property Owners’ Association enforce, even though not in “privity of estate”? • Yes • Do you think the court reached the right decision in Neponsit as a matter of law and/or policy? What is the best argument for the contrary result? • How would Neponsit be resolved if the Restatement (Third) were followed by New York in 1938?

14. Fong • 1940 /1944. Fogarty sold lots 4 & 5 to predecessors of Junior & Senior Fongs • No height restriction • Mauka (mountain) side of street • 1940 agreement of sale (a/s) as to lot 4 & deed as to lot 5 • 1944 deed as to lot 4 • 1941/1943. Fogarty sold lot 11 to predecessor of Hashimotos • Height restriction in recorded deed • Makai (ocean side) of street • Suit by Senior Fongs to enforce height restriction • Court refused enforcement • No horizontal privity, b/c Fogarty only retained legal title to lot 4 in 1941-43 under a/s not yet memorialized in deed • Fongs cannot enforce, b/c lot 11 deed does not give them right to enforce • No common scheme, b/c only 3 of 15 lots subject to height restriction • 4th lot “similarly situated” not burdened

15. Fong Questions • Do you think the court reached the right decision in Fong as a matter of law and/or policy? What is the best argument for the contrary result? • How would Fong be resolved if the Restatement (Third) were followed by Hawaii in 2000?