1

McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All Right Reserved

The Legal & Regulatory

Environment of Business 16e

Chapter 7

The Property-Based Legal

System

Reed Pagnattaro Cahoy Shedd Moorhead 7-2

2

Learning Objectives

To critique property as an exclusive legal fence and to

identify applications of property even when they are

not traditionally called “property”.

To recognize the connection between a property-

based legal system and prosperity.

To organize and apply the rules of security interests.

To analyze the statement that private property

promotes the common good and be able to furnish

examples.

7-3

think

TANKthink

TANKthink

TANKIs it likely for a nation to be prosperous

and maintain a vibrant market without

having a strong concept of private

property?

a. Yes

b. No

7-4

3

Introduction

“The legal concept of

property

is vital to understanding

how law provides a

foundation for the

private market.”

7-5

Property

OwnershipProperty Means

Private,

exclusive

rights in

resources.

The legal right to exclude or keep

others from interfering.

7-6

4

Property System

Arguably the most significant

issue for any society is how it

orders the relationships among

people concerning limited and

valued resources.

7-7

Property System

Limited

resources

State vs. private

property

State comes into being

to address problem of

Legal

frameworks

to address

problem

7-8

5

Property System

Property is central to

societal prosperity

Promotes

Incentives

Establishes

conditions for

capital formation

Makes resources

easily divisible

7-9

Basic Divisions of Property

Real Property Personal

Property

Land and interests

in land

All other resources –

that are movable

7-10

6

pop

QUIZpop

QUIZpop

QUIZPrivate property influences the marketplace

In what ways?

a. promoting incentives for risk and

development.

b. recognizing divisibility of resources.

c. creating conditions for capital

formation.

d. all of the above.7-11

Acquisition of Resources

Gift Exchange Accession

Methods by which

resources can be acquired

ConfusionAdverse

Possession

1st Possession Original Possession7-12

7

Acquisition of Resources

Finding Property

Methods by which

resources can be acquired

Lost Mislaid

Abandoned

7-13

Types of Ownership

Fee simple – maximum

Life estate – for lifetime

Leasehold – rights of tenant

Concurrent – multiple owners

• Joint –all together (survivorship)

• In common – different shares (no

survivorship)

7-14

8

Deed(transfer of

title)

Registration(notice)

Title and

Registration

Ownership/Title

7-15

Legal right of

passage across

land

Specialty Property Applications

Easements Bailments

Goods placed into

another’s possession

to be returned

in future

7-16

9

Security Interests

In land

•Mortgages

•Deeds of trust

•Land sales contracts

Recording statutes – notice

Exercising property Interests

Foreclosure

Deficiency

Right of Redemption

7-17

Secured Transactions Applies to personal property

Security interest in personal property given as

collateral

Attachment

Perfection

Financing statement

PMSI

Priority problems

7-18

10

Limitations on Property and the

Common Good

Private property has limits

Private property right is always subject to the

right of others

Private property gives way to the common

good of society

• Eminent domain

• Taxation

7-19

pop

QUIZpop

QUIZpop

QUIZDo secured interests that are recorded

“first in time” always take priority over

competing interests recorded later?

a. Yes

b. No

7-20

11

Use of land that causes

inconvenience or

damage to the public

Unreasonable use of

one’s property so as to

cause interference with

enjoyment or use of

another’s land

Nuisance

Public Private

7-21

Zoning

Exercise of police powers

Regulation of land use through

zoning ordinance

Limits to:

Use

Aesthetics

Variances

7-22

12

Duration Limitations

on Property

Patents

And

Copyrights

Rule against

perpetuities

• Lives in being plus 21 years

• Prevents multi-generation

control of one’s property

interests

7-23

Eminent Domain

5th Amendment

Government taking private property for

public use

Just compensation

• market value

• may have jury determine

7-24

13

Taxation To fund public services

• roads

• education

• law enforcement

• courts

• National defense

Article I, Section 8 of U.S. Constitution – Federal

taxation

Income tax – 16th Amendment

7-25

Food for thought…

Imagine living in a society where you, as an

individual, had little or no right to own real

and personal property and had no rights to

exclude others from the real and personal

property in your possession.

Without our system’s legal fence, what

incentive would you have to do well in

school or even attend school?

7-26