Characteristics of proprietary interests

In this chapter, we outline the distinctive features of property interests and how they differ from non-proprietary interests in things. Most of these points come up again in other chapters (some of them in more detail): the object of this chapter is to draw together some recurrent themes.

General enforceability

We saw in Chapter 2 that the essential characteristic that distinguishes proprietary interests in things from non-proprietary interests is their range of enforceability. A non-proprietary interest is essentially bilateral: generally only one other person is under a duty correlative to the right held by the right holder. A proprietary interest, on the other hand, is generally enforceable: if I hold a property right, everyone in the world (or, in the case of some types of right, everyone in the world except a privileged class) has a correlative duty. The classic illustration of the general enforceability principle is provided by the decision in Hill v. Tupper, extracted below, where the court held that, where a canal company which had (among its other rights in the canal) an exclusive right to put pleasure boats for hire on the canal, transferred that right to Hill, Hill became entitled to prevent the canal company from also putting boats on the canal for hire, but was not entitled to prevent Tupper, a stranger, from doing so.

What are registration systems for?

In this chapter, as in the previous one, we are looking at registration primarily as a means of protecting private property rights. A property registration system can provide more effective ways of dealing with, or averting, the kind of difficulties over the enforceability and priority of property interests that we considered in the previous chapter, and can also facilitate proof of title, as we noted in Chapter 10. This not only makes the assets the subject of the registration system more freely marketable – assets are more easily traded if title can be proved quickly, cheaply and with certainty – but also helps promote security of title. Infringements of an interest holder's rights are easier to combat (and therefore less likely to occur) when the interest holder's title is beyond dispute.

However, it is important to appreciate that a state might decide to set up a property registration system for purposes other than the protection of private rights. One of our oldest property registers, the Shipping Registry, was set up by the Navigation Act 1660 primarily for the protection of British trade. British-owned ships were required to be registered in their local British port to enable the port authorities to ensure that foreign-owned ships did not trade from British ports, and that various privileges were accorded only to British-owned ships.

Introduction

When a person takes or retains possession of land or goods without the consent of the person entitled to them, three consequences follow. The first is that the person taking possession thereby acquires a title to an interest in the land or goods that is immediately effective against the whole world except those with a better right to possession. The second (modified but not removed altogether for registered land by the Land Registration Act 2002) is that the person who is dispossessed thereby acquires a right to recover possession (or, in the case of goods, a right to sue for damages and/or the return of the goods) which will be lost if not exercised within a limitation period. The third is that a title lost because not exercised within the limitation period is extinguished. It is not transferred to the usurper – the title the usurper acquired by taking possession in the first place simply becomes no longer subject to challenge from the person whose title is extinguished.

There are two distinct principles requiring justification here. We considered the justifications for the first principle – that possession, even if wrongfully taken, confers an entitlement protectable by law – in Chapter 7. In this chapter, we concentrate on the second principle – that those entitled to possession will be deprived of all entitlement without compensation merely as a result of neglecting to take action against usurpers in time.

Rationale of enforceability and priority rules

Any legal system that allows multiple property interests to subsist in the same thing at the same time must have rules governing their enforceability and priority. Enforceability questions arise when O, the holder of a property interest (for example, the fee simple interest in a plot of land, or a twenty-one-year lease of a flat, or ownership of a painting), grants a subsidiary interest to someone else, S (for example, O grants S a right of way over the plot of land, or sublets the flat to her for five years, or declares he holds the painting on trust for her), but then transfers his own interest to P. In what circumstances will S's interest in the plot of land, the flat and the painting be enforceable against P, so that P holds it subject to S's interest?

Priority questions arise when two or more subsidiary interests are carved out of O's interest, and we need to know which takes priority over the other. The subsidiary interests might all be of the same nature – for example O might first mortgage his fee simple in the plot of land, his lease of his flat and his picture to his Bank B to secure his overdraft of £1 m, but then have a charging order made under the Charging Orders Act 1979 over all three assets to secure a debt of £500,000 he owes to C. If the total value of the three assets is less than £1.5 m, B and C need to know how their interests rank as between themselves.

Introduction

As we saw in Chapter 7, the essential similarity between leases and bailments is that, in both cases, possession becomes vested in a non-owner for a limited period. If the thing in question is land, the interest created is a lease, and if it is a chattel the interest created is a bailment. However, as we see in this chapter, the differences between leases and bailments are much greater than the similarities. Although the common law originally considered each to be part of the law of personal property, they have very different historical roots and have developed along separate lines so that, even now, there is almost no resemblance between the two legal institutions. This causes some difficulty in our legal system. A lease of land is a sophisticated but somewhat inflexible institution, not easily adjustable to meet changing social and commercial expectations (see, for example, Prudential Assurance v. London Residuary Body [1992] 2 AC 386, discussed below), and this can limit its usefulness. On the other hand, it is a clearly defined property interest which is relatively easy to protect and enforce against third parties, and it would be very useful if a similar interest could be created in goods, particularly commercially tradable ones like aircraft, works of art or computer equipment. However, although bailments of such goods are often called leases, they remain in law bailments, and it is very doubtful whether even the most careful drafting can give a bailee of goods the same rights and protection as a lessee of land.

Derivative acquisition

In Chapter 11, we looked at the way property interests are acquired by original acquisition, in particular by taking possession of things. In this chapter, we look at the derivative acquisition of property interests, through transfer of interests and through the grant of subsidiary property interests. In most cases, a property interest passes from one person to another, or is carved out of a larger property interest, because the parties intend this to happen and deliberately take steps to achieve it. The transaction may be a gift from one to the other or it may be part of a bargain, with value provided in exchange. We are mostly concerned in this chapter with straightforward intentional dispositions like these.

There are two principal issues is this chapter. The first concerns the way in which property interests pass from one person to another. This is essentially a matter of formalities – the formal requirements that the law imposes for a property interest to pass from one person to another. We look at this in sections 12.2 and 12.3 below. Section 12.2 covers general principles about formalities rules, why we have such rules and what the rules are. Section 12.3 highlights one particular and complex area, which is how and when equitable property rights arise out of contracts to acquire property rights in the future, and out of attempted legal transactions which fail because of a failure to comply with formalities rules.

In this chapter, we will consider the essentially dynamic quality of property. While it is important that the categories of property are clear and certain, it does not follow from this that the list should be eternally fixed and incapable of development. As you will see, there is constant pressure to recognise new property interests, although, for reasons we shall examine, it is not easy for an interest to cross the threshold into property. However, the history of property bears witness to the constant expansion of the range of property interests in response to society's changing needs and increasing complexity.

In section 9.1 we will consider the reasons why the property label is (and is not) attached to certain interests. While in section 9.2, we shall illustrate the dynamic nature of property by examining examples of interests that have (at least intermittently!) been accorded proprietary status. We will contrast this, in section 9.3 where we consider the law's general reluctance to embrace new property interests, with an example that did not even fleetingly cross the property threshold. This will enable us to examine the principles which underscore the recognition of new property interests before subjecting them to a critical evaluation, in section 9.4, when we consider a comparative and economic study which casts doubt on much that has gone before. Finally, in section 9.5 we will turn to speculate on possible new directions in which the law of property might develop.

PRELIMINARY OVERVIEW

Given the unfamiliar nature of this study, an extended preliminary overview is called for. The most fundamental question of law and legal theory is: What is the nature of a legal system? Many leading scholars and theorists of law in the twentieth century, including H. L. A. Hart and Hans Kelsen, viewed a legal system as essentially a system of rules. In developed Western societies, however, a legal system is far more than this. It is made up of diverse functional units only one major variety of which consists of rules. These diverse units are, in turn, duly organized in complex ways to form a system. To grasp the nature of a legal system, it is first necessary to understand the diverse functional units of the system. These include institutions, such as legislatures and courts, legal precepts, such as rules and principles, nonpreceptual species of law, such as contracts and property interests, interpretive and other legal methodologies, sanctions and remedies, and more. A discrete legal unit does not function independently. It must be combined and integrated with other units.

INTRODUCTION

The freedom to enter into and realize the benefits of legally valid contracts is a fundamental freedom recognized in all developed Western societies. Without this freedom, countless choices in the planning and conduct of economic and other activities of life would simply not be open. Individuals would be far less autonomous. Scope for individual self-realization would be vastly diminished. Goods, services, real property, and much else could not be bought and sold in the ordinary ways. Free market economic activity could not flourish.

Contracts and property interests are major functional units in Western legal systems. They are species of nonpreceptual law, and take their own overall forms. As we will see, these forms are very different from the forms of rules and other preceptual law. The forms of contracts and property interests also differ greatly from the institutional forms of legislatures and of courts. Here, then, we focus not on contracts and property as branches of substantive law, but rather on the distinctive overall forms of these two important types of nonpreceptual law. Because many see such “law” as consisting only of substantive content without form, a major corrective is required here, too.

The legal systems of developed Western societies fully recognize discrete contracts.

INTRODUCTION

In this chapter I continue to concentrate on one type of preceptual form – the overall form of a legal rule – that workhorse precept in all developed systems. First, the purposes of rules and of their overall form are summarized. We then analyze more fully how choices of features within this form contribute to the creation of a rule, and how in the course of this, two-way interactions occur between such choices and choices of policy or other complementary content. Form leaves its imprints and other effects on content, and content in turn shapes form. These interactions, which are set forth throughout in the idiom of choices, are analyzed to advance understanding of the attributes of legal rules, including their makeup, unity, instrumental capacity, and distinctive identity. This will also lay bare more fully the credit due to choices of form in rules for the realization of ends and values.

The role of rationality in the construction of rules will be addressed throughout. Given the founding purpose of creating the functional unit of a legal rule, reason obviously requires adoption of the overall form of a rule.

INTRODUCTION

A legal methodology may be defined as a systematic general approach to the duly purposive and consistent execution of a recurrent type of major task arising in the making or application of law. A methodology is thus a special type of functional legal unit. A legislature may adopt tenets of a methodology more or less all at once or a highest court may evolve tenets of a methodology case by case over time. A methodology may not be fully developed in a jurisdiction at a given time.

In many jurisdictions within developed Western systems, generally authoritative methodologies are recognized in some measure for the duly purposive and consistent execution of at least the following major types of tasks: interpreting statutes, interpreting contracts, and interpreting written constitutions. Methodologies may also exist for the application of case-law precedent, and for the drafting of statutes, and of contracts.

The use of a methodology for the duly purposive and consistent execution of a major and recurrent type of task arising in the making or application of law is to be contrasted with purported execution of such a task without resort to any methodology.