The Rule of Reason in Property Law

Abstract

Property rights cannot work if they are not clear, and scholars generally assume that the best way to attain this goal is to define property rights by relatively rigid rules. However, recent evidence suggests that the intuitive view may be mistaken. The subprime crisis shows that clear rules do not produce clear titles if owners do not follow those rules. And during the twentieth century property law moved dramatically away from rigid rules toward flexible standards. Standards turn out to be crucial to property law, as well as increasingly important in property doctrine.

Empirical evidence and historical experience alike demonstrate that rules cannot be applied without being supplemented by standards to determine the scope of those rules. Conversely, standards achieve predictability through core exemplars, precedent, and presumptions. Thus rules and standards are less distinct from each other than one might imagine. Standards perform crucial functions for property law. They perform systemic functions to shape the infrastructure and the outer contours of the property system by (1) setting minimum standards compatible with the norms of a free and democratic society, (2) protecting the justified expectations of consumers, and (3) responding to externalities and systemic effects of the exercise of property rights. Standards also determine the scope of property rights by (4) distinguishing cases; (5) resolving conflicting norms; (6) excusing mistakes; (7) escaping the "dead hand" of the past; and (8) deterring the "bad man" from abusing property rights.