A new work by Professors Daniel Klerman and Stefan Bechtold, Personal Property Servitudes Revisited, is an excellent case study in when and how property rules should and can evolve. Professors Klerman and Bechtold inquire whether those buying and selling personal property (chattels) can write contracts that legally bind purchasers just as those buying and selling real property can use real covenants and equitable servitudes to bind future purchasers.
Equally as important, the authors ask whether buyers and sellers of personal property should be able to write such contracts. The traditional answer has been “no.” For a long time, concerns about notice, tracing, and administrability have limited the recognition and enforcement of servitudes attached to personal property in its transfer.
Professors Klerman and Bechtold persuasively make the case that the objections to personal property servitudes are mostly outdated—especially as technological aids help to overcome traditional obstacles to managing a personal property system that includes servitudes. The authors contend that these changes call for a “more nuanced debate about which servitudes should be enforced and which should not.” (P. 4.)
Their article provides an excellent survey of legal scholarship for and against personal property servitudes. It then explains the benefits of personal property servitudes and seeks to dispel some of the concerns with heightened recognition of them. The last third of the article examines myriad potential objections or obstacles to effective enforceability and avoidance of manipulative uses of personal property servitudes.
The traditional property-based objections to personal property servitudes have included that subsequent purchasers would have a hard time identifying the existence and scope of servitudes in personal property. Before having the confidence to engage in or set the price in a transaction, purchasers would be required to spend time, money, and other resources researching whether servitudes exist or verifying sellers’ claims regarding the existence or nonexistence of servitudes.
The ability to reliably predict what you own and limits on the ownership bundle is key. When rights are not clear or the risk of hidden threats to full ownership lingers, prices could be discounted for the risk of undiscovered information that might make a buyer’s ownership questioned or limited at some future date due to a claimed servitude. Simply the litigation costs to fight the application of a servitude might be an impediment to optimal investment in purchasing personal property. And such information costs could stymie beneficial transactions altogether or inefficiently increase transaction costs for the transfer of personal property.
To address these concerns, the authors devote the middle sections of the article to discussing the mechanics of overcoming or minimizing these notice and information cost hurdles, including exploring existing registry models (such as ship and motor vehicle registries, intellectual property registries, and real property recording systems) for guidance.
Professors Klerman and Bechtold then explore new electronic registries and technologies—and their potential to inform the growth of personal property servitude registries. They explain that existing registries and new technology (including blockchain, QR codes, RFID chips, NFC tags, and the like) could be used to create information repositories and verification devices that reduce these information costs. Quite simply, we have tremendous technological capability to “tag” personal property and track sales and attributes we may wish to attach through servitudes.
Similarly, Professors Klerman and Bechtold propose a management system for low-value, obsolete, and “orphan” servitudes. They explain that an easily accessible and searchable registration system could be a prerequisite for beneficiaries to be able to enforce their servitudes.
Moreover, registration fees could be charged to minimize creation of non-valuable servitudes and renewal fees could ensure and test the continuing value of enforcing a servitude over time.
Finally, requiring beneficiaries to post up-to-date contact information could ensure coordination between burdened owners and beneficiaries (including, of course, the ability to negotiate for the removal of the servitude should a current owner value the release more than the beneficiary values the retention of the servitude).
If Professor Klerman and Bechtold are correct about the administrability of personal property servitudes, their enforcement could greatly enhance our capacity to achieve certain objectives of the property system and enhance freedom of contract.
Personal property servitudes preserve the autonomy of owners who get to choose the terms and conditions associated with the transfer of their property. The greater power to choose not to sell or even to destroy includes the lesser power to transfer but with conditions.
Personal property servitudes allow goods to move in commerce that might otherwise be hidden away or held by parties because they fear what would happen if they transfer them. (These kinds of concerns are well known reasons for giving finders priority rights to encourage them to introduce the items into commerce rather than hiding them away in a drawer.)
A servitude may very well decrease the value of property because it limits what can be done with it and limits the pool of potential buyers. But, so long as the information cost hurdles are overcome by the plethora of new technologies available to trace ownership and servitude terms, the price can be adjusted to account for that.
Rational sellers will be reluctant to place servitudes on their personal property unless the value is greater than the foregone profit from being able to offer the same property in the market at a higher price without the servitude. That seems to be a pretty good check against silly servitudes.
Similarly, Klerman and Bechtold’s suggestion that registration and renewal fees must be paid to make a personal property servitude enforceable will ensure that un-valued servitudes will disappear over time rather than lingering as zombie servitudes burdening commerce by encumbering chattel in a way that unduly slows its movement to higher and better uses and users.
Sometimes a servitude might add value, especially if it helps preserve some characteristic of the personal property that will itself be a marketable component of the property that the acquirer can offer to future buyers who are willing to pay a higher price because of the servitude.
For example, imagine a painting with a servitude that it shall never be removed from its original frame which the artist herself carefully selected to enhance the visualization of the artwork. The owner of the artwork, who is subject to the personal property servitude, can offer the artwork for sale and make a credible claim that it has never been removed from the original frame.
The credibility comes from the existence of the servitude and a background expectation of past enforcement by the original seller or their assigns should the servitude have been violated. The new buyer accepts the terms of the servitude and pays more for the item than the buyer would have paid had no servitude existed because the buyer now owns an asset imbued with this extra guarantee of authenticity that makes the artwork even more valuable when this new buyer becomes the next seller.
Professors Klerman and Bechtold have proposed a path that could revolutionize what it means to truly own personal property. Their article is very likely to uniquely influence the future evolution of property law in a changing world.
