I read an interesting case for property tonight, and thought I'd share it. Read the set up and tell me how you would decide the case, if you were the judge. This is a pure reasoning exercise. I'm not interested in the right answer with respect to the American legal system; given this case, what would your decision be, and what rules would you lay down to handle future situations like this? (Legal sticklers, note: I changed the names and the fact situation slightly. The changes aren't material, they just make it easier to convey the situation)
Defendant, Delta International, owned a set of 8 lots. They were approached by Mr. Pikopolous, a wealthy financier who wanted to purchase one of the lots to build his dream home on. Delta accepted, and the deed was transferred. Mr. Pikopolous then became quite busy with his job and put off work on his new home for the foreseeable future.
Delta International, unfortunately, kept poor records. About a month later they commenced construction of houses on the 8 lots. Nobody had amended their construction plans to remove from them the lot that had been sold to Mr. Pikopolous. Consequently, when Mr. Pikopolous returned to his plans to build his dream home he found a new house on his property.
Mr. Pikopolous and Delta International entered negotiations over what to do. Mr. Pikopolous was understandably upset because the house Delta had built was completely unlike the one he wanted for his dream home. He was generally unwilling to negotiate with Delta International. Eventually, the president of Delta International snapped and ordered a crew to demolish the house. They left a large mess on the lot. Mr. Pikopolous sued.
A jury has made the following determinations: First, Delta International acted in good faith in building the house. They honestly believed that they owned the property, and did nothing blameworthy in constructing the house. Second, the content of the negotiations is fuzzy; Pikopolous alleges that Delta tried to intimidate him into a settlement; Delta alleges that Pikopolous was trying to extort an unreasonable deal from them using pity. Third, Delta acted maliciously when they demolished the house. On the basis of these findings, the jury has found that Delta is liable to Pikopolous, and must pay him damages.
The cost of cleaning up the mess they left and restoring the lot to its pre-construction condition is estimated at $10,000. The value of the house that Delta destroyed is estimated at $1,000,000.
The question for you to answer: Should Delta be required to pay Pikopolous $10,000 or $1,000,000? To frame it more clearly: Is Delta's obligation merely to restore the land to the state it was in prior to any interference? Or, once constructed on his land, did the house properly belong to Pikopolous, and was Delta's destruction of it an act of trespass and destruction?
I would say they owe him only the $10,000. The land was his, but the house erroneously built on it was Delta's. As a non-lawyer I may have some trouble formulating rules that would make good precedent, but I'll give it a shot.
Mr. Pikopolous' intent was to buy an empty lot. He paid for such a lot. Delta International's intent was to build a house for their ownership. They paid for such construction. Therefore the goal of any goings-on should be to restore to each party what that party intended to possess. Unfortunately, with the house being destroyed, that isn't entirely possible. At least, then, nothing should be granted by this case to a party which didn't intend to own it.
Mr. Pikopolous did not buy a million-dollar house along with that property, and so for purposes of damages he should not be considered to have owned it. It's unfortunate that the house was demolished before an agreement could be reached, but theoretically that gave Delta the opportunity to take back any building materials which were still of value and therefore repossess the house to whatever degree was possible (and by taking the initiative to demolish it Delta implied their acceptance of those terms of recovery). The difference in value between the built house and the recovered materials cannot be charged to anyone other than Delta, since it was their mistake in building on a lot they did not own. The difference in value between the purchased lot and the eventually-returned lot constitutes the only other damage caused by the mistake, and therefore that is what Delta should owe to Mr. Pikopolous.
Whew. So what actually happened?
Can I amend that? The difference in value between the built house and any recovered materials, as I mentioned in my third paragraph, cannot be charged to anyone but Delta. That's partly because it was their mistake to build there, but more pressingly because they were the ones to demolish it and thereby convert the house, which was their (inconveniently located) asset, into some recoverable materials, whatever those may have been worth.
How long was the house up before it was demolished, anyway? I wonder what the neighbors thought.
To answer the time question, one detail I omitted was that Pikopolous discovered what was going on after the house was about 90% finished and they were just putting the final touches on it. So this all went down while Delta still owned everything and there were no neighbors yet.
There were two opinions in this case, which was decided by a panel of three judges. The initial jury verdict was for the $10,000, which Pikopolous appealed. Two of the judges ended up deciding for Pikopolous, and one wrote a dissent arguing for Delta. So it ended up being the million dollars.
As for the reasoning, it's a bit stretched in the majority opinion.
Broadly, the rule is that if you build something on somebody else's property, that's your problem. That is to say, if I build an outhouse on your lawn, or a factory, or whatever, since it's your property, and I know it's your property, whatever I built is now yours. You can sue me for trespassing and force me to remove it, or you can just keep it, but you now own it and you don't owe me anything. It's treated like a gift. If the rule were otherwise, I could go around building outhouses on people's lawns and demanding payment for them, or using them against their will.
There's an exception is if I have a good faith belief that I'm building on my property. I have to affirmatively believe, for good reason, that I own the property I'm building on (Whether Delta was justified in its belief is an interesting question that is taken off the table by the jury's determination that they acted in good faith). In that case, the court treats it as a case of "Unjust Enrichment" of the true owner of the land.
The presumption, here, is that, first, the building party is entirely innocent in building the property. It's not they're fault they screwed up, and they shouldn't be culpable. Further, it's assumed, if a building was completely constructed and the builder was acting in good faith, that the true owner of the land was acting in bad faith. You would, after all, probably notice if I started building a factory on your lawn, and have a duty to tell me to get off your property. The assumption is that the true owner realized the mistake, but let the builder keep going in the hopes of getting the building when he was done. What's goofy here is that there isn't a test of whether the owner acted in bad faith; the court only asks about good faith on the builder's part. I have a lot of qualms about this doctrine.
The default rule, in good faith cases, is that the builder has a property right in the building. The parties have two choices: A. the land owner can pay a court-determined fair value for the building. The building now belongs to the land owner. B. the builder can pay a court-determined fair value for the land he built on. The building and the land now belong to the builder. At the end of the day, one party owns the land and the building, and there's room for negotiation in the middle.
So under that rule, Delta owned the house. But then Delta decided to engage in what the court calls "self help" and smashed up the thing. This is where the majority and the dissent differ in their opinions.
The majority holds that the default is that Pikopolous owns the house; Delta doesn't get a property right until a jury determines that they acted in good faith. It's great that a jury eventually found that they did act in good faith, but Delta messed everything up by demolishing the building. If they had gone to court after settlements broke down, they probably would have been able to force Pikopolous to pay a fair market value for the house, or they could have bought the land back from him and he could have gone somewhere else.
The dissent feels that it was Delta's house as soon as they built it in good faith, regardless of a jury's determination. Therefore, if they wanted to destroy it that's their right.
Basically, you're right, and the law was on Delta's side. But the majority judges just got really pissed that Delta destroyed the house rather than going to the courts when settlement talks fell through. They created the vague, stretched justification that it wasn't his house until the jury decided it was (which generally isn't how things work), but what they were really saying is, "You're right, but we're making you pay big damages because we don't like you or how you behaved."
This is almost an example of "Hard Cases Make Bad Law." That is, when you decide a case you're creating a binding precedent on future courts. In this case, it's probably not such a bad rule to say "When you have a property dispute, don't throw a tantrum and destroy what you're fighting over." Still, it's always worrisome when a court decides to carve out a special exception because they either really like or really don't like one of the parties; it opens a window for less sympathetic parties to exploit in the future.
Ooh. I tend to agree with you. I see the motivation to make the damages amount to more than a slap on the wrist for Delta, since they behaved poorly about the screwup, but that seems like a very weird way to go about it.
It's a bizarre piece of temporal logic, really: at time X you acted thus, possibly in good faith. At time X+5 a jury will determine whether you indeed acted in good faith (I suppose we are currently at time X+4). At time X+3 something else occurred, the significance of which depends on your good faith or lack thereof, but having not yet reached time X+5 you didn't yet have any official good faith under which to be acting. Therefore you were acting in bad faith. Since you acted in bad faith at that time, X+3, we will consider you to have been in bad faith about the whole thing from time X onward. It's like a time-machine paradox, since it negates the eventual jury decision of good faith. Or some kind of Schrodinger's Building Company: until they were observed to have been in good faith, they were neither in good faith nor not in good faith?
This was fun, by the way. Please feel free to host Amateur Law Hour again as your blogging schedule permits.
I should point out that I omitted some information about the settlement discussions that was contained in the decision. The main reason was because it would sort of give the rule away if I said over what terms they were arguing.
But it's interesting; the majority and the dissent both spend time (needlessly) on the content of the settlement discussions. The majority throws in a bunch of testimony from the case record to prove the point that the president of Delta is A Very Bad Man. The dissent, however, presents evidence that Pikopolous was acting like a bastard. He was offering them a ludicrously small amount of money for the house(I changed the money values in my example to account for inflation, but he was basically offering $20,000 for a million dollar home that he intended to turn around and sell for the full value). If they didn't sell it to them, he was threatening to sue for trespassing and get an injunction forcing them to pay to remove the house.
Basically, Pikopolous was offering them a choice between selling for practically nothing and taking a massive loss on the house, or taking an even more massive loss removing the house. Pikopolous figured he had them over a barrel and could extort the house from them for basically nothing. Delta's president realized this, got really angry, and destroyed the house out of spite.