Re: KOL418 | Corporations, Limited Liability, and the Title Transfer Theory of Contract, with Jeff Barr: Part II; see comments there.
From Brian Moss:
Stephan thanks for replying to my questions in the comments section of KOL418.
I am not a lawyer or legal academic, my educational background is in Math and Computer Science, and my current specialty is cyber security for critical infrastructure, so I apologize in advance if I’m not as precise in my language as you are used to – any coaching on that is much appreciated.
I have been fascinated with TTTC since hearing about it years ago and love the idea of taking an existing practice (contracts) that doesn’t follow from first principles and reframing in a different way that allows for the same or similar outcomes but in a first principles respecting way. In computer science this concept is similar to a concept called code refactoring, in case you find that interesting.
If would definitely like to take you up on your zoom offer, but if you’re alright with it I would like to clarify my thoughts with a few questions and likely follow up’s.
After reading your replies and rereading my original question, I’ll try and reformulate and clarify.
The background context is that this transfer of title is happening just as Robinson Cruso is meeting enough people that there is now the concept of private property. Since this is new contact with other people, there are no social norms or background culture that that could add implied (suppletive I think you called them) conditions. I am not sure I am explaining properly, but I am trying to get to the point where only explicit conditions exist.
In this context does fraud exists or does fraud only exist when there is an implied conditional title transfer with the condition that fraud is now allowed? I think there is not fraud in this case, but wanted to clarify. If there is fraud in this case can you point me to any reading to help me better understand why.
Kinsella:
The background context is that this transfer of title is happening just as Robinson Cruso is meeting enough people that there is now the concept of private property. Since this is new contact with other people, there are no social norms or background culture that that could add implied (suppletive I think you called them) conditions. I am not sure I am explaining properly, but I am trying to get to the point where only explicit conditions exist.
I think there will always be some background assumptions, no matter how sparse. The reason is that no agreement or contract can ever be complete, except perhaps for very simple ones–say, contemporary exchanges (no future element) with no warranties at all, i.e., “as is”. If there is any future element or condition then something not anticipated might happen even if you have a 100 page contract. In this case you must either implicitly or explicitly resort to some dispute resolution process and some arbiter who has to decide be resort to some external principles, including custom, common sense, evidence, and so on. Any contract has some communicative element, this is how we distinguish consent from aggression. This means some form of langauge, and language is always imprecise. It is always contextual, in a context.To the extent Crusoe is in “society” with others, this implies the possibilty of some form of communication–if only simple forms like “yes” or “no,” “you may have this,” “you may use this,” “you may not touch me,” and so on–even if by a gesture.
I.e., in my view it’s impossible to imagine “only explicit conditions” exist for the same reason that it’s it’s impossible to have a complete contract. BTW what I call suppletive, may be more of a civil law term; I’ve heard the term “gap fillers” too. This includes resort to notions of good faith and so on. Or instead of a gap filler– you could simply say “We agree to XYZ, and if anything else comes up that we have not explicitly contemplated, or that we disagree on, then we simply agree to let third party T decide and we will go with whatever he says.” But even this is a type of gap filler and has to be at least implicitly contemplated.
In this context does fraud exists or does fraud only exist when there is an implied conditional title transfer with the condition that fraud is now allowed? I think there is not fraud in this case, but wanted to clarify. If there is fraud in this case can you point me to any reading to help me better understand why.
You would have to be clearer about the nature of the transaction here. My point is more of a general one; I am trying to show what fraud is in general and why it can be treated as a type of trespass or rights violation–That’s what I discuss in ch. 9, Part III.E. I am not so much concerned about particular cases. Those will have be worked out in particular cases. The point is that ownership of a resource means the right to exclude. (See ch. 2, Appendix I, “Property as a Right to Exclude”. (And by the way “ownership” is only a social concept; Crusoe has no ownership or property rights; they only emerge in society–when others enter the picture. That’s why I distinguish the action-category of possession (see e.g. ch. 11, “External Resources” section) from the normative-legal concept of ownership or property rights.) Owning a resource doesn’t mean a right to use it, it means a right to exclude others. To exclude others, or to give them permission, means you have to communicate yes or no–you have to communicate somehow. Language is presupposed.
But this implies that trespass arises when an outsider uses your resource without your permission. If they have your permission, it’s not trespass. This is the key point.
In the TTTC we conceive of contract as simply the manifestation by the owner of a thing of his permission for someone else to use or have the thing. I can let you use my car, sit in my car, or buy my car. In each case I, the owner, communicate my consent to you to use the car. If I sell it outright this is permanent and now you own the car. If I loan it temporarily or lease it to you, then it’s temporary. To distinguish this permitted use from trespass, we have to identify whether the owner did or did not manifest his consent to this usage. If someone cuts me open with a knife, it might be a consensual, permitted use (a surgeon) or it might be battery (someone stabbing me). Etc.
So I am viewing contract not as a separate thing. IT’s just what an owner does with his owned thing. Transferring ownership is just an outcome of the fact that people own things and until they sell them they maintain the right to exclude others. So owning a thing implies the right to give it away or loan it or sell it. But as noted, this condition can be simple, or complicated; it can be temporary, or permanent; it can be immediately and contemporaneous and unconditional (say, a gift); or it it can be future oriented in which case it is necessarily conditional (since the future is not certain).
Because of these various ways permission can be specified or limited, these communications, (manifested) intentions, and so on by the owner A, must be consulted to determine whether the usage of owner A’s resource, by B, is trespass or not. That is the key thing.
Now in the case of fraud I am basically throwing out conventional notions of fraud and starting over. Conventional notions of fraud are vague and confused; it includes mere “dishonesty” which is not per se a crime, and so on (just as people refer to copying erroneously as “ripping off” or “stealing” to argue for IP etc.). I’m saying that in a contractual exchange where the owner gives away ownership of the thing conditional upon something done by the other party, then depending on the nature of the transaction and the communications of the parties, the usage may be apparently consented to, but actually not. Just as a surgeon may be said to be committing a battery on you if he operates on you when you did not give “informed consent.”
So back to your query. A and B exchange apples and oranges. You cannot say there is no fraud simply because they are new to society and there are no background conditions. There have to be some otherwise society and language and ownership and trade would not be possible. They may be very sparse but they are there to some degree. You may also be conflating somewhat differnt things: warranty, versus “caveat emptor,” vs. fraud. These can be related but are not the same. Sure, if you have two parties who agree to a totally nonconditional exchange wtih zero warranties, it’s “as-is”, and they waive even the background assumption of good faith (I am not sure this is even possible), I guess then such an exchange resembles a bare-bones exchange that is similar to economic exchange and “you see what you get” or “you get what you see” and the concept of fraud becomes almost impossible to imagine. For example normally I would trade my apples in exchagne for your orranges; you are saying to me, “I give you my oranges in exchange for your ‘apples'”–where “apples” has a meaning (see how language or communication matters). The concept of “exchange” means that the two title transfers are related to each others. That is why the transfer of oranges to you is conditional; they transfer only if you are giving me “apples” (that means: real apples, good apples; not fake or rotten or poisoned apples). If you knowingly give me rotten apples then you know that you are not receiving the ownership of my oranges (even if I don[t yet know) because you know that the transfer of the oranges was conditional upon you not deceiving me as to the nature of the apples you are handing over.
(BTW something similar to an as-is transfer that basicaly has no warranty at all is the “quitclaim” deed I mention briefly in LFFS — see ch. 9, n. 41.)
Now if A and B waive all such conditions including good faith so that A’s taking B’s oranges, even after giving him rotten apples, is not trespass and not fraud, this is basically because it’s no longer an exchange: instead of A’s apples being (conditionally) transterred to B, and B’s oranges (conditionally) being transferred to A, there are no conditoins, so there is no legal exchange; there are now two separated and isolated title transfers (basically gratuitous gifts). And in this case, yeah, A now owns B’s apples and is not committing theft or trespass precisely because B gavem them to A without condition. But in a normal “exchange” each title transfer is conditional upon something about the other title transfer, and in this case it is possible for one party to be using the other’s property without their (informed) consent.
Let me know if this makes sense and if you want to discuss further.
Moss:
Thank you very much for the detailed answer. I think I understand what you’re saying.
For a conditional title transfer to take place, an offer must by definition be communicated through a mutually understood form of communication.
If one party doesn’t meet the conditions (for any reason, including dishonesty) but still takes possession and won’t relinquish it, they have has committed theft.
Assuming I have the correct understanding above, then do I understand the reason that future oriented title transfers are inherently uncertain, for the same communication reason? I.e. That by communicating it is future oriented, it is by definition uncertain because the mutually understood definition of “future” includes lack of certainty.
Kinsella:
Thank you very much for the detailed answer. I think I understand what you’re saying.
For a conditional title transfer to take place, an offer must by definition be communicated through a mutually understood form of communication.
This is true of any title transfer, whether conditional or not.
If one party doesn’t meet the conditions (for any reason, including dishonesty) but still takes possession and won’t relinquish it, they have has committed theft.
The main issue is: did the title transfer occur, or not. This depends on what the conditions were and whether they were fulfilled. So the main question is ownership, title. Not possession. The secondary question would be theft: was someone using or in possession of something without the consent of the owner. To answer this question we need to know who the owner is, and then, whether he did or not consent to the other party’s possession. In the specific case of fraud then can say that he didn’t. But suppose you want to buy my car but you want to try it out first. So I say “you can drive my car for a week and if you like it and want to buy it, wire me a payment by the 7th day and it’s yours. If you don’t, then just return it to me.” So let’s imagine on the 7th day you wire me the money; now the car is yours. But let’s say you don’t. Okay, well the conditional title transfer didn’t happen so you are now in possession of my car. But are you trespassing or committing theft? No, because I consented to this use-arrangement. But if you don’t return it to me, or let me get it, now you are committing theft. But not because of the contract, but because I am the owner.
Assuming I have the correct understanding above, then do I understand the reason that future oriented title transfers are inherently uncertain, for the same communication reason? I.e. That by communicating it is future oriented, it is by definition uncertain because the mutually understood definition of “future” includes lack of certainty.
Well, let’s imagine a present title transfer, but one that is conditional. In that case it is conditional only because a condition was specified, though it is hard to imagine many such conditional present title transfers except exchanges in which case there could be fraud. I suppose you could imagine a unilateral, gratuitous transfer like this: A owns a car and wants to give it to his niece but only if she is currently enrolled in college. She lies and says she is, and drives off in the car. In that case the conditional title transfer did not happen so she is in possession of a car she does not own. Again this is similar to fraud or theft by trick.
But in most cases the conditional title transfer is future-based because it is the transfer of a future thing. Because the existence of the future thing is uncertain, that it why that conditional title transfer is inherently uncertain. It is not uncertain because this was communicated; it is uncertain because the future is uncertain–and moreoever we can expect both parties to know this and be aware of this since it is known that the future is uncertain.
Of course other conditions could be added which are not based on the existence of the item, e.g. “I hereby give you my car in a week, but only (1) if the car exists, and (2) only if you have enrolled in college.” In this case the first condition is implicit and inherent in the nature of future title transfers, but the second is not; it is explicit and optional. So in practice the donor/transferee need not even mention condition 1 since it is implied and unavoidable. If I say I hereby give you my car in a week, then it is going to happen, assuming the car exists. If I add the second condition, then it only happens if the car exists, and if the second condition was met.
Make sense?
Moss:
Thank you for the response, I really appreciate your time. It is helping me refine my understanding and how to articulate my thinking.
What I was trying to say is that I think every title transfer is conditional, even a gratuitous one way title transfer. It is conditional against the fraud you described previously. i.e. that the property and title in the offer, is actually owned by the offeror and that the description of the property and the title is an actual reflection of reality to the best of the offeror’s knowledge.
Imagine a gratuitous one way title transfer of a given item, where the item is effectively garbage for whatever reason (e.g. rotten food, broken bike, etc), is the receiver now on the hook for the cost to dispose of the item, or did the title not actually transfer because the condition of the description of the property and title not being fraudulent was not met. Or even worse if the item was toxic and difficult to impossible to get rid of, but not described as such in the offer.
On the future title transfer topic, I think we are saying the same thing, but my description was not very clear. I wasn’t trying to say it was communicated that the existence of the future property is uncertain, but that it was communicated in the offer that what is being transferred is future property. In the offer, the property will be either implicitly or explicitly ascribed the “future” attribute, and thus all parties know the property’s existence is uncertain.
Have a great evening and thank you again for taking the time to reply.
***
Hi Stephan. Potentially strange question, I’m wondering if you have a list or somehow keep track of articles that critique the title transfer theory of contract? If so, could you point me to them? Not sure I’ll ever get to it, but I’ve always wanted to write an article and I thought a response to a critique might be a good place to start.
Kinsella:
I don’t think I’ve kept systematic track of them. What comes to mine is:
(a) Randy Barnett’s consent theory of contract, which I think is flawed but I am not aware if anyone in the mainstream legal profession has taken it seriously enough to do so, and I have only done so obliquely by simply doing a different theory. And he has not responded to mine except as noted in “The Title-Transfer Theory of Contract,” footnote 13.
(b) Perhaps Konrad Graf’s differing approach to mine regarding bitcoin ownership–I can’t recall it is directly related to my contract views but it might at least tangentially implicate them. Konrad Graf, Are Bitcoins Ownable?: Property Rights, IP Wrongs, and Legal-Theory Implications [PDF]
(c) Łukasz Dominiak and Tate Fegley, “Contract Theory, Title Transfer, and Libertarianism,” discussed here briefly, Kinsella, “Libertarian Answer Man: An Inquiry Regarding the Title Transfer Theory of Contract [Łukasz Dominiak & Tate Fegley on Contract Theory].”
Moss:
I am on vacation with my family at our cottage this week and enjoyed re-listening to your two part discussion with Jeff Barr in KOL414 | Corporations, Limited Liability, and the Title Transfer Theory of Contract, with Jeff Barr: Part I and KOL418 | Corporations, Limited Liability, and the Title Transfer Theory of Contract, with Jeff Barr: Part II.
I wanted to restate a few things from the podcasts and make sure I understand them correctly.
Title is divisible in many ways – time, duration, scope. It can also be divisible by a condition.
When a lender transfers the title of $1000 to the borrower, the title includes the condition that the borrower doesn’t try to spend the money on lottery tickets. The lender retains the title with the condition that the borrower does try and spend the money on lottery tickets.
This means the lender could sell that title, borrow against it, etc
I think this implies that any condition logic and its inverse can be used to divide up title.
If this is correct, then I think it means that if the borrower does try to buy a lottery ticket, the title doesn’t transfer back to the lender, the lender had the title all along, just with a condition that is now met. I think this is a good thing, since in a contract there aren’t future transfers of title, but instead current transfers of title to future goods. and this is just that same logic. There aren’t any future conditional transfers of title, instead there are current transfers of conditional title to future goods.
I think this also means that the backup web of future conditional title transfers imagined to mitigate against a future good not existing (like the $1100 repayment), those would actually be current (at the time of the $1000 loan) transfers of conditional title to future goods.
There are a few other items too from the podcasts, but no time to write them out now unfortunately.
Thank you for taking the time to review my thoughts.
I love listening and reading what you produce, especially on TTTC.
Kinsella:
When a lender transfers the title of $1000 to the borrower, the title includes the condition that the borrower doesn’t try to spend the money on lottery tickets.
Well it could include this condition. That would increase complexity, monitory cost, etc.
The lender retains the title with the condition that the borrower does try and spend the money on lottery tickets.
I would say the borrower obtains title otherwise he is not able to spend it. Alternatively you could say it’s co-owned and it can only be spent with the consent of both for specified types of purchases, but this is complicated. Alternatively you view it as owned by the borrower but it he does certain things then this triggers a transfer back to the lender. As I wrote in “The Title-Transfer Theory of Contract”:
“the loan agreement could be structured to contain conditional title transfers whereby the title to the loaned funds transfers back to the creditor at the moment the debtor attempts to spend the funds in an impermissible way, such as gambling. If the borrower attempts to spend the $1000 on lottery tickets, for example, then title instantly transfers to back to the creditor. At this point the debtor is merely in possession of money now owned (once again) by the creditor, and must return it and not spend it. If at this moment the (former) debtor buys lottery tickets he is actually stealing the creditor’s money—not the future $1100 that is not yet due, but the $1000 held by the debtor but now owned by the creditor because of the triggering of the conditional title transfer term in the contract.”
