978-1285770178 Lecture Note Unit 7

Unlock access to all the studying documents.

View Full Document

The legal structures that support our ideas about property are crucial to the continuation of the basically

capitalist economic system in which we live. Private property is at the heart of pure capitalist ideology. That does not

prevent ethical issues from arising over the control, transfer, use, and protection of private property.

FOCUS OUTLINE

I. Inheritance Rights and Virtual Property

Participants in the virtual worlds of cyberspace can amass virtual property that has actual value—“gold coin”

in Second Life or Bitcoin, for example. Whether the participants’ heirs can inherit this “wealth” depends in part

on the policies of the worlds in which it was created and exists. Generally, an account holder can designate a

person to access the account after the holder’s death—a digital executor through Digital Beyond, for example.

Otherwise, the account will most likely be erased.

II. Finder’s Rights

An early case illustrates, in the context of finders’ rights, the doctrine of the relativity of title. If two contestants,

neither of whom can claim absolute title to property, are before the court, the one who can claim prior

2 INSTRUCTOR’S MANUAL TO ACCOMPANY BUSINESS LAW: COMMERCIAL LAW FOR ACCOUNANTS

possession will likely have established sufficient rights to the property to win the case. This can be the rule

even when both contestants acquired the property illegally—only the true owner would have better title than

both.

III. Bailee’s Duty of Care

Both legal and ethical questions sometimes arise in the context of bailments. Bailees can limit their liability for

the loss of bailed goods, but not exclude liability for their own negligence. Of course, the degree of care

required can depend on which party most benefited from the bailment.

IV. Land-Use Regulations and the “Takings Clause”

• There is no general rule to indicate that a specific situation will be deemed a taking. When property

owners claim that a “regulatory taking” has occurred, the courts decide the issue on a case–by-case

basis.

• For example, when a hurricane reduced the size of a Florida beach, the state proposed to extend the

shore by adding sand to land that was submerged. Under state law, the sudden reduction wrought by the

hurricane caused beachfront property owners to suffer a loss, and the state’s sudden extension of the

beach meant that the new land belonged to the state. The owners challenged the extension decision,

arguing that it was a taking.

A. THE COURTS DISAGREE

A Florida state court agreed with the property owners, but on appeal, the Florida Supreme Court reversed

and the United State Supreme Court held that the state had not engaged in an unconstitutional taking.

The Court reasoned that there was no taking because the owners did not show their rights to contact with

the water were superior to the state’s right to fill submerged land.

B. A QUESTION OF FAIRNESS

Local governments need authority to regulate land use to preserve natural resources. Private property

owners complain that they should not have to bear the costs of creating a benefit that all members of the

public enjoy.

TEACHING SUGGESTIONS

1. Ask the class to discuss whether an academic degree or a professional licenses should be considered

marital property in view of the fact that they are not transferable property rights. Would a better remedy be

to grant the spouse a right to a share of the income realized by the holder of the degree or license?

2. Have students debate the issues raised by the section on the bailment of textbooks. Should the person

who has possession of the textbook always be liable for the loss? Should the standard always be

one of reasonable care, or are there some situations that should involve a greater or lesser standard?

Are there any circumstances in which strict liability should be the standard?

3. Ask students about the extent to which private property owners should bear the cost of environmental

regulations and other legislation to control land use. At a time when government generally is being forced

UNIT SEVEN: FOCUS ON ETHICS—PROPERTY AND ITS PROTECTION 3

by constituents to cut expenses, should courts be holding that property owners are entitled to just

compensation? Are these courts out of step with fiscal conservatism? Are these courts peopled with

activist jurists who are attempting to legislate environmental policy by forcing government to “pay up

or shut up”?

4. “Moral hazard” occurs when individuals or companies have an incentive to act negligently or to engage in

activities that will result in payment by an insurance company. Ask students to discuss whether the so-called

“moral hazard” problem is more illusory than real. The fact that people obtain insurance in the first place does

not necessarily mean that they will be less careful with their property because there is always a chance that

the insurance company will not pay the claim. Ask students whether the securing of insurance will invariably

increase the likelihood of moral hazard because most people who obtain insurance are presumably prudent

individuals who wish to safeguard their property.

Cyberlaw Link

What steps can be taken by vendors of intangible and easily duplicated property such as software

to prevent unauthorized reproductions? Must vendors rely simply on the ethical scruples of users or

are there other ways in which unauthorized duplications can be reduced?

ADDITIONAL QUESTIONS

1. What is the legal basis for treating university degrees and professional licenses as marital property?

In most community property states, all property acquired after marriage is owned equally by each spouse. Some

states have characterized degrees and licenses awarded after the marriage commences as marital property

2. Who owns body tissue? Should patients have the right to share in any proceeds that may result from

experiments with tissues that have been removed from their bodies? The courts have not yet permitted patients

to benefit financially from the commercial applications of their bodily tissues. One recent court decision simply held

3. How should a court decide which of two possessors—both of whom have wrongfully acquired the

same property—is entitled to keep the property? In general, the courts award possession to the party who

possessed the property first—even though that party wrongfully acquired possession. This outcome presumes, of

4. When does a land use regulation become so onerous as to constitute a taking? A regulation that de–

prives the owner of any beneficial use of his or her land and thus renders the property essentially worthless will be

4 INSTRUCTOR’S MANUAL TO ACCOMPANY BUSINESS LAW: COMMERCIAL LAW FOR ACCOUNANTS

5. Can a bailment be created without actual or constructive delivery of the item to the bailee? No. A

bailment cannot be created if the item is never delivered to the bailee. The essence of a bailment is the taking of

6. Why are adverse possessors permitted to acquire title to land? The doctrine of adverse possession was

developed not to punish landowners but instead encourage them to use their undeveloped lands. Adverse pos–

7. Are domain names property? Are they subject to garnishment? A domain name qualifies as property,

albeit arguably intangible personal property. Whether such property is subject to garnishment, however, can be a

difficult question. At least one court has held, in a case in which a plaintiff sought to obtain the right to force a sale of a

8. If a landlord feels it violates his or her religious principles to rent premises to an unmarried couple,

should the law, in the interest of preventing discrimination in housing, compel the landlord to rent? As usual,

courts reached different conclusions. In one case, the Minnesota Supreme Court concluded that the landlord’s right

under the Freedom of Conscience provision of the Minnesota constitution outweighed any interest of a tenant to

9. Must a person who insures his property refrain from taking any actions that might otherwise increase

the risk of catastrophic loss on the property? Because the terms of the insurance contract are based on the

inherent characteristics of the property to be insured, it is likely that the property owner will be required to answer

many questions regarding his or business practices, including the extent to which the property is maintained and the

types of activities that occur on the property. Moreover, the insurance policy will probably require an affirmative

10. Should illegitimate children be barred from inheriting property absent a will or specific state statute to

the contrary? Illegitimate children have traditionally been accorded few rights under the law regarding their right to

inherit property from their biological parents. Recent changes in the law, however, have made it easier for illegitimate

children to inherit property. Whether it is right or wrong for such children to be able to inherit property depends on

UNIT SEVEN: FOCUS ON ETHICS—PROPERTY AND ITS PROTECTION 5

ACTIVITY AND RESEARCH ASSIGNMENTS

1. Ask students to do a little research to determine the effects of the ban on redlining and what the effects might

be without it. Does prohibiting redlining help to revitalize decaying neighborhoods? Does it result in more

loan defaults? Are lenders’ profits undercut? When redlining was allowed, how was it used and what were

the results? If redlining were allowed today, would some neighborhoods decay faster? Would the cost of

loans go down? Are any of these results appropriate ends for government to legislate? If government were

to drop the prohibition, would the “market” effect the same results? If not, what might happen?

2. Obtain copies of several standard property insurance policies and pass them out to the class. Ask students to

read the policies and determine whether or not the requirements for continued coverage eligibility under the policies

preclude any significant risk that the insured will be less diligent in taking care of his or her property after the policy is

issued.

3. Have students talk to insurance agents or agencies to learn about the insurability of persons with serious

health problems—cancer, for example, or AIDS, or a family history of early death. Are there people who are

uninsurable? If so, why are they uninsurable? Is it unethical to refuse to insure those who are most likely to

need the insurance? What happens to those who are refused coverage? Ask students to share with the class

what they learn and what they think. In the same vein, is it ethical to refuse coverage to those whose genes

reveal a high probability that a currently healthy person may some day contract a disease?

PROPERTY AND ITS PROTECTION—

 ANSWERS TO THE LEGAL REASONING QUESTIONS 

1. A Facebook game, FarmVille, allows members to manage virtual crops together. Would there be

any benefit in being able to pass on to one’s heirs “the fruits of one’s virtual labor”? Why or why not?

There are two possibilities. If an heir, such as a spouse or child or sibling, wishes to continue managing virtual

crops with the other members of the Farmville community, then inheriting the decedent’s crops would have

value. Or if there are those who are willing to pay real dollars to enter FarmVille with a large holding, then

there are actual monetary benefits to be gained.

2. Does the law strikes a fair balance between the rights of parties with respect found property? Why

or why not? It seems that the perspective of the disappointed finder is only basis on which to disagree with

the law’s balance between the rights of parties with respect to found property.

This may be illustrated with the two principles noted in the text. The old adage “finders keepers, losers

weepers” is part of the law. Thus, if the rightful owner of an item of lost property cannot be found, its finder

can acquire good title to the property against everyone—except the true owner. Under the doctrine of the

relativity of title, if two contestants, neither of whom can claim absolute title to property, come before a court,

the one who can claim prior possession will likely have established sufficient rights to the property to win the

case.

6 INSTRUCTOR’S MANUAL TO ACCOMPANY BUSINESS LAW: COMMERCIAL LAW FOR ACCOUNANTS

Under both principles, the “truest” owner in terms of time of right is entitled to possession of the disputed

personal property. If this owner cannot be located, then its finder acquires the right. This is a fair balance of

the parties’ rights.

3. Do the different standards of care that apply to bailed goods reflect underlying ethical values? If

so, how? Yes, the different standards of care that apply to bailed goods reflect underlying ethical values. The

text fills out the answer to this question by setting out the principles and illustrating them with simple–to-grasp

examples.

The standard of care expected of a bailee clearly shows how property law reflects ethical principles. For

example, a friend asks to borrow your business law text for the weekend. You agree to loan your friend the

book. In this situation, which is a bailment for the sole benefit of the bailee (your friend), most people would

agree that your friend has an ethical obligation to take great care of your book. After all, if your friend lost your

book, you would incur damages. You would have to purchase another one, and if you could not, you might

find it difficult to do well on your homework assignments and examinations.

The situation would be different if you had loaned your book to your friend totally for your own benefit.

Suppose that you are leaving town during the summer, and your friend offers to store several boxes of books

for you until you return in the fall. In this situation, a bailment for the sole benefit of the bailor (you) exists. If

your books are destroyed through the bailee’s (your friend’s) negligence and you sue the bailee for damages,

a court will likely take into consideration the fact that the bailee was essentially doing you a favor by storing

the books. Although bailees generally have a duty to exercise reasonable care over bailed property, what

constitutes reasonable care in a specific situation normally depends on the surrounding circumstances,

including the reason for the bailment and who stood to benefit from the arrangement.

4. Is it fair for courts to decide whether a regulatory taking has occurred on a case–by-case basis,

rather than articulating a general rule on which landowners can rely? Why or why not? Regulations to

control land use, including environmental regulations, are prevalent throughout the United States. Generally,

these laws reflect the public’s interest in preserving natural resources and habitats for wildlife. At times, their

goal is to enable the public to have access to and enjoy limited natural resources, such as coastal areas.

Although few would disagree with the rationale underlying these laws, the owners of the private property

directly affected by the laws often feel that they should be compensated for the limitations imposed on their

right to do as they wish with their land.

The Fifth Amendment to the U.S. Constitution gives the government the power to “take” private property

for public use. The Fifth Amendment attaches an important condition to this power, however. When private

land is taken for public use, the landowner must be given “just compensation.”

In cases alleging that a “regulatory taking” has occurred, the courts apply these principles on a case–by–

case basis. In other words, there is no general rule that a landowner can cite to indicate whether a specific

situation will be deemed a taking. Considering the unique quality of each parcel of land, the individualized

situation of each owner, and the variety of purposes and implementations of the regulations that may

interfere, it seems only fair that the courts should decide whether a regulatory taking has occurred on a case–

by-case basis and not baldly articulate a general rule. Such a rule might be easier for owners to cite, but its

application might be less inclined to take into consideration the unique circumstances



UNIT SEVEN: FOCUS ON ETHICS—PROPERTY AND ITS PROTECTION 7