business law

PROPERTY LAW

Property rights are explicitly provided for in the 5th Amendment to the U.S. Constitution: “No person shall be…deprived of life, liberty, or property without due process of law; nor shall private property be taken for public use, without just compensation.” The term “property” refers to ownership rights in things not the things themselves. Property rights include the right to exclusive use of property, income from it and the right to dispose of it. Those who drafted the Constitution considered property rights essential to the notion of freedom under law. Property rights were viewed as an indispensable incentive to production, invention and innovation. Production and industrialization, in turn, were the basis of American power and security.

The industrialization of England in the 1700s served as a model for the United States. “An Inquiry into the Nature and Causes of the Wealth of Nations” (3/9/1776), by Adam Smith, outlined the causes and effects of England’s spontaneous industrialization and subsequent rise to world power status. Specifically, Smith cited the “profit motive” unleashed by the existence of property rights in Great Britain. Specifically, it was Britain’s unique common law that strengthened property rights to a point sufficient to trigger investment in plant and equipment.

England’s common law system was brought to the America via immigration. In Colonial America, the law recognized property owners as having absolute dominion over their land although no one could use his or her land to harm another. The balancing of rights, however, has shifted over time. During the 1800s, emphasis was on competition and rapid industrialization. Conflicts between landowners and developers were usually resolved in favor of developers. After the Depression of the 1930s, property rights were circumscribed as government sought to protect society from irresponsible and harmful uses of private property. Laws were passed to restrain the profit motive in favor of preserving historic landmarks and environmental resources.

State governments have “police power” (per the 10th Amendment) to limit the exercise of private property rights. This power is often exercised via enactment of zoning regulations restricting land use in the public interest. States also have the power to take private property for public use (the right of eminent domain per the 5th Amendment) if they pay “just compensation.” The Supreme Court, however, hasn’t been successful in precisely establishing what constitutes a “taking” as opposed to a regulation. Landowners often argue that regulations are so intrusive as to constitute takings. In 1978 the Supreme Court ruled that New York City, as part of a historic landmarks preservation program, could limit the private development of Grand Central Station. The owners (Penn Central Railroad), on the other hand, argued that compensation was due, specifically for the air rights above the station taken by the regulation. They had planned to build an office tower and were being required to forgo substantial profit. The court ruled in favor of the city on the theory that the law served a valid public purpose while leaving the owner with economic use of the land. (Furthermore, there was no physical occupation of the land by government.) Other cases involving environmental regulations followed and were usually resolved in favor of the government on the same theory.

Takings have been authorized for the purpose of “economic development” even though the constitution stipulates that private property can only be taken for public use not public purpose. The U.S. Supreme Court set that precedent with their decision in Kelo v. New London Connecticut.

State governments have “police power” to limit the exercise of private property rights per the 10th Amendment and also the power of “eminent domain” to take private property per the 5th Amendment, as mentioned above. The Supreme Court, however, hasn’t been successful to date in precisely establishing what constitutes a “taking” as opposed to a regulation. Landowners often argue that regulations are so intrusive as to constitute takings.

Real property is defined as rights in land and things permanently attached while personal property is defined as movable objects including intangibles such as patents, copyrights and trademarks. Title to personal property can be acquired in a variety of ways including purchase, creation (manufacture), capture (acquiring previously unowned property) and finding. Title, of course, refers to ownership rights. Purchasing a camera, for example, gives the buyer the right to take pictures but not the right to duplicate the technology and sell similar cameras.