Agenda for 3 rd Class

1. Agenda for 3rd Class • Admin stuff • Handouts • Good Faith Purchasers • Demsetz • Lunch on Friday, 1-2PM, Rm 106 • Seating chart • Writing grades • Posted to webpage • Feedback by email • Review of Friday’s class • Bailments • Introduction to Good Faith Purchasers

2. Assignment for Next Class • Review any questions we did not discuss in class today • Good Faith Purchasers handout • Prepare to answer all questions • Demsetz reading • Hard • I will lecture • Writing assignments • WG1 (Q1), WG2 (Q2), WG3 (Q3), …. WG7 (Q7) • In one paragraph, summarize the main point of Demsetz’s article. In particular, why do property rights exist and when are they likely to come into being? (all writing groups) • Optional • Examples & Explanations. Ch 5 (Good Faith Purchasers)

3. Review of Last Class I • Relativity of title • True owner • Finder • Converter • In a dispute between A and B, A must show she has better title than B • A cannot prevail by showing that C has even better rights than B • That is, A cannot prevail by pointing to ius tertii (rights of a third-party) • Finder has superior title to someone who takes from her (converter) • Converter cannot prevail by pointing out that finder has inferior title to true owner • Prior possessor has nearly all rights of owner • Finder1 has superior title to Finder2 • Converter1 has superior title to converter2 • Presumption that possession is rightful unless person can prove superior rights • Rights of finders depend on where property found • Public property. Finder has rights superior to all but true owner • Private property. Most courts say owner of land/building has rights superior to finder

4. Review of Last Class II • 4 categories of objects • Lost objects • Object that left owner’s possession unintentionally (e.g. fell out of pocket) • Finder has rights superior to all but owner • Mislaid property • Object that the owner put down intentionally, but then forgot • Owner of place where object put down has rights superior to finder • Most courts presume that when object is found on private property, it was mislaid rather than lost • Some courts have abandoned the distinction between lost and mislaid property • Abandoned property • Anyone can take and get full rights immediately. Owner relinquishes all rights • Treasure trove • Gold, silver, cash intentionally buried, but owner now unknown • England – belonged to king • US. Belongs to finder or owner of land. Varies from state to state

5. Review of Last Class III • Common law • Law built up case by case -- no legislation of constitutional provision • Rule always subject to debate • Even if court sets out a rule (“holding”), future lawyers and judges are free to expand or contract • Holding is “dicta,” not binding • Only combination of facts and outcome is binding precedent • Later courts must formulate rules that would lead to same outcome in prior cases • Even if reasoning or holding is somewhat different • Common law rules • Technically state law • Each state’s courts make common law for that state • No federal common law • Decisions in one state are not binding on courts in other states • Almost always subject to modification or abolition by statute • Common law • Mostly unique to US and other countries with legal systems based on English law

6. Review of Last Class IV • Holding as announced in Amory v Delamirie • Finder of jewel has title superior to everyone except owner • Later courts expand holding • Finder of personal property has rights superior to everyone except owner • Possessor of personal property has rights superior to everyone except owner or person from whom prior possessor wrongfully took property • Later courts narrow holding • Finder of personal property on public propertyhas rights superior to everyone except owner, but a person who possesses land or buildings has rights superior to the finder and everyone else except the owner. • Holdings are expanded or narrowed depending on • Each judge’s or court’s view of justice • Policy considerations • What is most likely to result in return of object to owner • What is likely to minimize disputes, taking, violence, and mistakes

7. Review of Last Class V • Common law has many virtues • Case by case adjudication ensures that judge and jury have lots of facts so outcome and/or rule may be more likely to be just • Less subject to special interest influence than legislation • May be faster to adjust to new technologies and circumstances than legislation • Posner – Common law is efficient • Common law has problems too • Judges know a lot about facts of cases in front of them, but may not know much about other cases that may be affected by their decision • Unlike legislators, cannot hold hearings to gather facts and hear all points of view • Solutions are limited to remedies between parties before court • Possession to Armory or Delamirie • Cannot not order owner to pay Armory 10% reward if Armory brings jewel to police station • Sometimes best solution requires complex regulatory/societal solution • Japanese law on finders • Marshall could decide whether Johnson or M’Intosh got land • But probably could not have protected Native Americans from expropriation

8. Bailments I • Typical situations • Owner gives car (and keys) to parking valet • Owner puts objects in bank safe deposit box • Opening box requires 2 keys – 1 held by owner and 1 held by bank • Not bailment -- Parking car in unattended, metered outdoor lot • 3 elements • Delivery of personal property by owner or prior possessor (bailor) to another (bailee) • For limited purpose (e.g. safekeeping, repair, or transport) with expectation of return in same condition • Acceptance by bailee • Bailment may arise out of • Explicit contract • Bailor and bailee agree in writing or orally • Conduct • Bailor gives object to bailee under circumstances that both would ordinarily understand imply bailment • E.g. Driver gives keys to car to valet • Constructive bailment • Finder is bailee for owner

9. Bailments I • Obligations of bailee • Generally • Deliver object to bailor upon demand • Bailee strictly liable for misdelivery or non-delivery • Safeguard the object • Bailee usually liable if object damaged through negligence • This is “common law” of bailment • May be modified by state courts or state legislatures • May be modified by statute • E.g, UCC says warehouse only liable for misdelivery if negligent • May be modified by contract • E.g. contract that says bailee only liable for misdelivery if negligent • E.g. contract that says no bailment (e.g. recipient not liable even for negligent damage or misdelivery) • Some states may not enforce • E.g. limitation of liability to $1000 • Bailment rules are “default” rules • Can be modified by explicit agreement • Very few contract rules are “mandatory”

10. Allen v Hyatt Regency • Allen parked car in hotel parking lot • Automated ticket booth at entrance • Ticket said hotel not liable for fire, theft or collision • Allen parked and retained key • Regular security patrol • Human at exit booth • But only checks time on ticket to determine proper payment amount • Car missing • Allen sues hotel • Majority: Hotel liable • Reason? • Dissent: • No bailment, b/c no delivery of possession

11. Questions I • 1. Which is more persuasive, the majority or dissenting opinion? • 2. Assume that bank safe deposit boxes are considered bailments in Tennessee. How could you use that fact to argue that the situation in Allen v Hyatt was also a bailment? How could argue that, even if a safe deposit box creates a bailment, the situation in Allen v Hyatt does not? • 3. Same facts as Allen v Hyatt, except Allen had left 5 gold bars in the trunk. When he sued the hotel, he claimed not only the value of the car but also the value of the gold bars. Should Allen be able to recover the value of the gold bars? Why or why not? Would it matter if Allen had told the hotel concierge, before parking the car, that it had 5 gold bars in the trunk? • 4. Suppose Allen’s car was insured against theft. Does that matter? Note that it is much cheaper for people to insure their cars against theft than to litigate bailment disputes. When one buys insurance, about eighty percent of premia go to pay claims and only about twenty percent are used for administrative expenses, advertising, and litigation. When parties litigate, about fifty percent of the money goes to lawyers, and only about half goes to pay the plaintiff. Does that change your view of whether situations such as Allen v Hyatt should be construed to create bailments? Why or why not?

12. Questions II • 5. Assume the same facts as in Allen v Hyatt, except the facility was completely automated. There was no attendant at the exit booth. Instead, persons who had paid for parking received an electronic ticket from the hotel lobby, and, when they inserted that ticket into a machine near the exit gate, the gate automatically lifted. No hotel security patrolled the garage, and hotel employees entered the garage only to clean it or to respond to problems, which was rare. Who should win and why? • 6. Suppose Lady Fennell accidently left her mink coat in the lobby of the Wilshire hotel. A hotel employee found it and brought it to the hotel lost and found room. Later that day, am unknown woman went to the lost and found and asked if they had found a black coat. The attendant said “yes,” and handed the unknown woman Lady Fennell’s mink coat. The next day, Lady Fennell came to the hotel and asked if they had found her mink coat. Upon learning that they had given her coat to an unknown woman, Lady Fennell sued the hotel for the value of her coat. Who should win and why? • 7. Same facts as question 6, except Lady Fennell had left a large diamond ring in the pocket of her coat, so she sued not only for the value of her coat but also the value of her diamond ring. Who should win and why?

13. Questions III • 8. Why isn’t the hotel insulated from liability by the ticket, which states the hotel “assumes no responsibility for loss through fire, theft, collision or otherwise to the car or its contents [and] that cars are parked at the risk of the owner”? Can you argue that the ticket should protect the hotel from liability? • 9. Suppose that, upon entering the garage, but before receiving a ticket, an attendant at the gate booth handed Allen a contract that included ten paragraphs, one of which stated, “the hotel assumes no responsibility for loss through fire, theft, collision or otherwise to the car or its contents. Cars are parked at the risk of the owner.” Allen signed the contract without reading it. Should the case have come out differently? Why or why not? • 10. Same facts as question 9, except that one of the other ten paragraphs of the contract states, “The car owner promises to pay the hotel $10,000 one month after this contract is signed.” Allen’s car is not stolen, and he successfully drives it out of the parking lot after his hotel stay. One month later, the hotel sends him a request to pay $10,000 pursuant to the contract. Is Allen legally obligated to pay the $10,000? Why or why not?

14. Questions IV • 11. Same facts as Allen v Hyatt, except there is a large sign at the entrance booth to the parking lot that states, “The hotel assumes no responsibility for loss through fire, theft, collision or otherwise to the car or its contents. Cars are parked at the risk of the owner.” If Allen’s car was stolen, would the hotel be liable? Why or why not? • 12. Suppose Allen parked his car at a restaurant parking lot, which is a flat vacant lot next to the restaurant. The attendant asks for $10 and directs him where to park. Allen asks how late the lot is open, and the attendant says, “I’m here until 10PM. You can leave your car here until 6AM, if you want.” Allen returns to pick up his car at 9:30 PM. Neither the attendant nor his car are in the lot. Allen sues the lot owner for the value of his car. Is the lot owner liable? Why or why not?

15. Questions IV • 13. Suppose Lady Fennell lost her mink coat in Griffith Park. Prof. Rose finds it and wears it to Spago Restaurant in Beverly Hills, where she gives it to the coat room clerk. When she is finished with her meal, Prof. Rose goes to the coat room to collect the coat. By coincidence, Lady Fennell is there at the same time, retrieving her sable fur coat. As the coatroom clerk brings the mink coat to the counter, Lady Fennell recognizes it and tells the clerk, “That’s my coat. I lost it yesterday in Griffith Park. Please give it to me.” To whom should the clerk give the coat? • 14. Same facts as Allen v Hyatt, except Hyatt is able to track down the car thief. The thief has already sold the car. Hyatt sues the thief for the value of the car. Should Hyatt prevail? If Hyatt prevails, can Allen also sue the thief for the value of the car?

16. Good Faith Purchasers I • General common law rule • Can only give or sell rights that actual have • So if A has superior title to B, and B sells to C, A has superior rights to C • “Nemo dat quod non habet” or “Nemo dat” for short • Good faith purchaser rule • Common law rule has been modified by statute to protect good faith purchaser • Suppose A sells ring to B, and B pays using a check on account with no money. • When the check bounces, A can get the ring back from B • But if B has sold the ring to C, A cannot get the ring back from C • Good faith purchaser is • Person who buys object in completed transaction • Not person who receives object as gift or buys on credit • Person who acted in “good faith” • No reason to be suspicious of seller’s title

17. Good Faith Purchasers II • Good faith purchaser (C) only gets full title if seller (B) had “voidable title” • Not if seller was • Thief • Finder • Bailee • Voidable title • Someone (B) who purchases property in circumstances that the seller (A) could rescind • Bad check • Fraud or other deception • Policy • Facilitate commerce • Both A and C are “innocent” • But A should have taken more care

18. Good Faith Purchasers III • UCC 2-403 • (1) … A person with voidable title has power to transfer a good title to a good faith purchaser for value. When goods have been delivered under a transaction of purchase the purchaser has such power even though • (a) The transferor was deceived as to the identity of the purchaser, or • (b) The delivery was in exchange for a check which is later dishonored, or • (c) It was agreed that the transaction was to be a “cash sale,” or • (d) The delivery was procured through fraud punishable as larcenous under the criminal law. • Remember paradigm transaction • A sells ring to B, • B is bad. Paid with dishonored check or is fraudster • B sells right to C, where C is a good faith purchaser • “person with voidable title” = B = “purchaser” • “good faith purchaser for value” = C • “transferor” = A

19. Good Faith Purchasers IV • If A entrusts an object to B who regularly sells that kind of good, and B sells it to a C in the ordinary course of business, then, if A sues C, C wins • Not covered by UCC 2-403(1), because B does not have “voidable title,” • b/c did not purchase object • UCC 2-403 • (2) Any entrusting of possession of goods to a merchant who deals in goods of that kind gives him power to transfer all rights of the entruster to a buyer in ordinary course of business. • (3) “Entrusting” includes any delivery and any acquiescence in retention of possession regardless of any condition expressed between the parties to the delivery or acquiescence and regardless of whether the procurement of the entrusting or the possessor’s disposition of the goods have been such as to be larcenous under the criminal law.