How to solve (or avoid) the exactions problem.

• Author: Epstein, Richard A.
• Position: Symposium: A Festschrift in Honor of Dale A. Whitman

1. INTRODUCTION

   It is my great honor to deliver the Earl F. Nelson lecture for the year 2007. I have never met Mr. Nelson, but I have looked at the roster of distinguished people who have spoken in this lecture series, and I am pleased to have my name added to such an august list. I would also like to add my tribute to Dale Whitman, to whom this Conference has been dedicated. I regard him as a one-man version of Mr. Inside and Mr. Outside, a reference to--for those of you who remember--the old Army teams from the 1940s that sported a backfield with Glenn Davis and Doc Blanchard. In our context, the inside guy is the master of private law, in Dale's case mainly the law of mortgages. The outside guy is the master of public law, who knows a great deal about takings, eminent domain and state regulation. I mention Dale's combination of talents not only because they are relevant to his very distinguished career, but also because they are relevant to the problem that I shall tackle in this lecture: how to identify and then solve the exactions problem.

   In dealing with a question of this sort, most public lawyers start with the original document, the Constitution. The tools of their trade are the interpretive ones associated with textual analysis in its historical context. The underlying subject matter of the particular transaction is a decidedly second-order concern. In contrast, I came into constitutional law quite by accident, and with a certain degree of regret, for at heart I remain very much a private lawyer. My starting points of reference are the routine transactions between ordinary individuals, none of whom have any of the special prerogatives of the state. From that baseline, I seek to figure out how those relationships should be altered when one of the parties is the state, with its own unique powers of coercion. That difference in starting point matters, for where you begin will, in large measure, tell you something about where you're going to end up. Those scholars and judges who treat constitutional law as the quintessential public law subject always find ways to introduce huge degrees of discretionary power for the state in its dealings with ordinary, private interests. Those, relatively few of us who start from the private law perspective on property fights veer in exactly the opposite direction, by finding that these rights resist easy incursion by state regulation. Clearly, public lawyers have to yield something to private lawyers in their calculations. Just as clearly, private lawyers have to yield something to the public lawyers who are also concerned with the effort to guard private rights from government regulation. Both sides will end somewhere in the middle, but not necessarily at the same place. By starting at opposite ends, the inevitable frictions of legal doctrine and its application make it unlikely that the two intellectual ventures will end up at the same middle position.

   Given this private law perspective, I plan to start not with the Constitution, and not with the power of the state through its permit power to condition the use or disposition of property upon the willingness of a landowner to engage in certain kinds of actions or to refuse to engage in certain kinds of actions. Instead, I will start with the ideas of property which I then use as a basis for understanding constitutional doctrine. That approach is congenial to my own personal education in law, which began at Oxford in the fall of 1964. My first course at Oxford was Roman law, which is a subject that I teach to this day. My views on property law have been heavily influenced by the Roman conceptions, which in fact shaped the views of many great English and American writers at the time of the founding of our Constitution. So like a good Romanist or early common law lawyer, I shall start with the private law conception of property in order to explain how that framework lets us understand the sophistication of modern private transactions, in contrast to the crude conceptions of private property that dominate constitutional discourse.

2. THE COMPLETENESS OF PRIVATE PROPERTY REGIMES

   Let us concentrate on the law of land. Although there will be some variations, the basic rule holds that the party who first takes possession of the surface owns the exclusive rights to the skies above the land and to the center of the earth below the land. (1) Over that physical space, each owner enjoys a trinity of three key rights. The first is the right to (exclusive) possession; the second is the right to the use and the fruits of the land; the third is the right of disposition. (2) The right to maintain exclusive possession gives the owner the shell, while rights of use and disposition give that person the fruit that lays inside of it, which can be either consumed, invested or traded. Quite simply, there is no point in excluding everybody else if the owner is not allowed to do anything with the land over which he has these exclusive rights.

   One key in the land law question asks how any legal system allows for the transfer of ownership between parties. There are two such forms of transfer, the first of which is relatively unproblematic, and the second of which is vital for understanding takings law. The unproblematic form of transfer allows the owner to convey his land voluntarily to somebody else who steps into his shoes. If a potential buyer values the property more than its current owner, the law devises forms that allow for the orderly shift in ownership. The key condition is that the gains from the transaction must exceed the cost of putting the transaction together. Accordingly, the basic mission for simple property transactions is twofold: to increase the security of the transaction and to reduce the cost of their execution; otherwise the frictions in the system will prevent the productive disposition of property. Early Roman lawyers, medieval English lawyers, and modern lawyers have all worked desperately to figure out what kind of combination of deeds, witnesses, and recording systems are best able to reduce those transactions costs. These outright transactions are not particularly problematic because the new buyer just stands in the shoes of the old seller, as the new donee stands in the shoes of the old donor. All relationships between transferor and transferee end the moment the transaction is completed.

   The much more difficult challenge to any system of property law arises when the gains from trade and cooperation depend on the creation of multiple ongoing interests in the same thing. These new patterns of ownership can happen in any number of different ways. In the Roman system, for example, you could create a family settlement under which one person is entitled to a usufruct, that is the uses and fruits of the property during his or her life, and then afterward the property would go back to the original owner; in the American and the English law we call the analogous arrangement one of "interests" or "estates" instead of usufructs. Our system of multiple interests in property is in fact more complicated than the Roman, because we allow successive life estates in different people in the same piece of land, where the Romans, it appears, did not allow for successive usufructs.

   These details to one side, the basic argument in both systems is that dividing the property between the two parties creates benefits which exceed the value of the property when kept in the hands of a single owner. That division is valuable not only in family planning--where it is tied to lives--but also in commercial cases, as in a simple lease of property that creates a landlord-tenant relationship. Once the two (or more) parties adopt one of these divided relationships, it is no longer possible to have a clean deal; now the law must figure out how to regulate the use of the party in possession of the property to make sure that his use does not prejudice those people who will take possession after him. This outcome can be accomplished by contract or by the law of waste.

   The partition of property can also take place in at least two other ways. By the first method, rights over property are given not only to persons who are successive occupants of land, but also to neighbors. Accordingly, the law regulates what we call in English and American law easements and restrictive covenants, both of which were treated under Roman law as servitudes--a term adopted by the recent Restatement of Property, which goes out of its way to abolish the distinction between easements and covenants. (3) An easement allows one person to enter onto somebody else's land in ways that would otherwise count as trespasses. (4) These rights of way could be only for individuals to walk, or they could allow for the movement of animals and vehicles. Both the easement and its scope are created by voluntary transactions, which satisfy the usual mutual gain requirement. In contrast to easements stand restrictive covenants, which prohibit an owner from making uses of his own property that would be otherwise lawful. (5) As a matter of general land law, these uses are quite innocuous; yet your neighbor would prefer that you not do them. One of the most common covenants stipulates that an owner will not build a house above a certain height to protect a neighbor's view. (6)

   What makes these servitudes difficult is that they are not just personal affairs between the two original parties, but often are intended to benefit and burden anyone who acquires either plot of land thereafter. The law therefore has to find ways to ensure that these arrangements bind not only the original transactors but also subsequent takers of both the dominant and the servient interests. Most critically, in terms of validity, all private law systems make no distinction whatsoever between the validity of easements and restrictive covenants. The only distinctions that survive are technical: do you identify...