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As for third parties, another set of problems in bailments concerns their in rem aspect: From the point of view of the outside world, the bailee may appear to be the owner because the bailee is in possession and possession is often (but not always) associated with ownership.35 If the bailee is of a mind to be deceptive, then innocent third parties might mistakenly purchase the item from the bailee. In general, U.S. law is less protective of good faith purchasers from bailees than many other legal systems, but if the owner has entrusted the good to a merchant who deals in that type of good, a good faith purchaser for value will have better title than the bailor.36 The idea is that at least in these situations the bailor has more control over creating the appearance of ownership. In other situations some kind of estoppel might apply if the bailor has done something out of the ordinary to clothe a nonmerchant bailee with the trappings of apparent ownership.
Abandonment and Destruction
Owners might want to dispose of an asset but not to anyone in par- ticular—just eliminate their own ownership. In the case of personal property this is usually unproblematic. People throw away personal property all the time, subject to laws against littering and polluting. To count as abandonment, a person needs to have an intent to disclaim possession (and ownership) with no intent of resuming it, and perform some act manifesting that intent.
For interests that are less than full ownership of land, the rules for abandonment are similar to those in personal property. Many cases involving disused railroad rights of way raise this question.
35.Thomas W. Merrill & Henry E. Smith, The Property/Contract Interface, 101 Colum. L. Rev. 773, 811–20 (2001) (detailing the blend of contract and property elements in the law of bailments).
36.U.C.C. § 2-403(2).
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Something more than discontinuing train service is usually required. Taking up the tracks would be one act that would indicate an intent to abandon.37 For full ownership of land, abandonment is usually not an option.38 The law seeks to prevent land in private ownership from failing to have an owner. Otherwise all sorts of nasty environmental problems and other nuisances might be left for society to clean up. (These are more likely to be covered by statute these days, but the concern retains some validity.) It is true that an owner may lose the land if taxes are not paid, but the government need not accept ownership of the land. No one is ever forced to accept ownership of any asset.
The right to destroy mainly comes up in the case of personal property but can also apply to structures attached to land. (Land itself is harder to destroy.) Generally unless a person can be found incompetent and a guardian appointed, a person is free to destroy his or her own property. You can destroy your own watch, even if it is a Rolex. Courts occasionally intervene to prevent destruction directed in a will,39 but even here one can question the wisdom of strong constraints on owners’ freedom. Although it might appear that a dead person does not experience the harm or the satisfaction from the destruction, people generally might experience happiness knowing that their instructions will be carried out after their deaths. Also, in many situations a person making the decision to direct destruction in a will could sell or devise the object (or a future interest in the object to take effect on their death; see Chapter 5), implying that the owner does take into account the opportunity cost of the destruction. (Recall Demsetz’s theory that an owner acts as a broker between the future and the present; see Chapter 3.) Nevertheless, the apparent waste of an asset that has positive value
37.See, e.g., Presault v. United States, 100 F.3d 1525 (Fed. Cir. 1996).
38.Pocono Springs Civic Ass’n, Inc. v. MacKenzie, 667 A.2d 233 (Pa. 1995).
39.For a dramatic example, see, e.g., Eyerman v. Mercantile Trust Co., 524 S.W.2d 210 (Mo. Ct. App. 1975).
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to society is painful to observe, and in certain high-profile contexts, laws prevent destruction directly. Notably, Italy has strong laws preventing destruction of works of cultural significance, in an example of private rights being subject to overriding rights in the public, here against destruction. Historic preservation laws in the United States similarly remove an owner’s right to destroy buildings that have been determined to have architectural or historic significance.
Transfer by Sale, Gift, and Inheritance
Much of the time an owner wishes to eliminate his or her ownership while creating ownership rights in another—to designate a new gatekeeper. This can be done for consideration (sale), gratuitously (gift), or by succession on death (will or intestacy).
Sales of goods are usually covered in contracts and commercial law courses. Property issues arise where the question is whether the seller really has the rights to transfer. We return to this issue, for both personal and real property, in Chapter 7. For real property, sales are quite complex and take place over an extended period of time. After the sale, the contract “merges” with the deed so that the buyer may only sue on the deed, which often includes warranties (such as of title).
Except for assets that are inalienable (which they might be for personhood reasons, for example), the policy of the law is to promote alienability. Courts distinguish between total and partial restraints on alienation. Total restraints on alienation, such as a gift of a painting to a friend on the condition that it may never be sold, are always struck down as violating this policy. Partial restraints are subject to a more nuanced treatment. Generally speaking, partial restraints are invalid only if they are unreasonable. For example, condominium units in a retirement community may be subject to a restriction that they may only be sold to someone over a certain age. This is likely to be regarded as reasonable, given that it does not
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unduly circumscribe the universe of potential buyers and furthers a reasonable purpose in maintaining the identity of the community. In some cases a partial restraint on alienation may even promote alienation: The original owner would not be comfortable alienating the asset without the restraint. The retirement condominium might be an example of both beneficial effects of such restraints. Nevertheless, much in this area (as in so many others) rests on empirical guesswork. If owners face the future benefits and costs of the restraints they place on their property (through the price it fetches today—recall the discussion of Demsetz in Chapter 3 and of the right to destroy in this chapter), then we might ask why a doctrine is needed to invalidate any restraints (other than ones that violate some independent public policy such as antidiscrimination). Perhaps some restraints make the alienation process in general too cumbersome by giving buyers more to be on the look out for. Or perhaps the law is a little paternalistic in this regard.
Alienation need not mean sale. Assets can be given away. Gifts are often embedded in a social context where reciprocity is expected, and there are traditional societies in which gift-giving is a major component of the economy. Neverthless, American law treats gifts as distinct from contracts and sales. For a valid gift there must be a donative intent, delivery, and acceptance. The delivery requirement can sometimes be fairly formalistic—as where A wants to give something to B but remain as bailee for B. To do this A may have to hand the thing over to B and then take it back.
Some gifts are conditional on an event happening. Defeasible fees, which we consider in Chapter 5, are commonly used to make conditional gifts. Another important and special type is a gift causa mortis. Here the owner designates someone else to receive the object on the condition that the owner dies; otherwise the owner will keep it. Think of a car owner planning to climb Mount Everest, who tells a friend that the friend is to have the car if the owner doesn’t make it back.
Gifts causa mortis are a substitute for wills. Wills and intestate succession are the subject of a special course, Trusts and Estates,
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and we offer only the briefest sketch here. Basically, the ability to transfer on death is an important and well-recognized power of ownership under American law. Compared to the typical civil-law system, testators under American law have much freedom to designate who takes. One of the few exceptions is the spousal elective forced share, which allows spouses cut out of a will (or otherwise unhappy with a decedent’s disposition) to take a legislatively prescribed portion of the estate, often one-third. Otherwise testators are free to designate the objects of their bounty.
Wills are subject to a variety of formalities such as attestation by two witnesses. Will formalities have been somewhat relaxed of late. But they are hard to eliminate altogether, because when a will becomes relevant the testator is no longer around to ask what he or she meant. And once the testator is dead, interested parties are only too willing to offer self-serving versions of the decedent’s intent (not to mention the possibility of coercion or undue influence to write a will in the run up to the death). The reason gifts causa mortis and other will substitutes are sometimes regarded with suspicion is that they can wind up allowing an end run around these formalities.
If a person dies without a will (as most do), or a will is found totally or partially invalid, intestacy statutes will kick in to designate the decedent’s heirs, usually the decedent’s spouse and any children, and then relatives. If there are no heirs and no will, the property escheats to the state. Even in intestacy an owner can be thought of as exercising a power, in that intestacy is like a default will, and there is an attempt to mimic what the average decedent would put in a simple will if there were one. People have a natural desire to help their children and immediate relatives, but as the debates over inheritance taxes attest, there is disagreement about how much weight to give this desire as against other things society might do with resources that owners leave at death. Intestacy and even wills involve the probate process, and to avoid this, welladvised people often use trusts, a highly flexible device to which we return in Chapter 6.