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Kinsella on Liberty Podcast: Episode 418.
This is a followup to KOL414 | Corporations, Limited Liability, and the Title Transfer Theory of Contract, with Jeff Barr: Part I. See that episode for more information and notes.
In Part III, we need to talk about corporations. For more on that, see Corporate Personhood, Limited Liability, and Double Taxation.
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Followup exchange:
On Tue, Aug 20, 2024 at 11:31 AM <> wrote:
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.
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 basically 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) transferred to B, and B’s oranges (conditionally) being transferred to A, there are no conditions, 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.
In the example of the person getting their nails done, do I understand correctly that:
1. the purchaser offers to transfer title to $30 (these are present dollars, not future dollars) now, for the nail salon to give him a manicure, and that the purchaser will transfer possession of the $30 after the manicure service
2. the nail salon worker agrees to the offer, and at the moment of agreeing to the offer, title of the $30 (present dollars) is transferred to the nail salon.
Now if the purchaser doesn’t transfer possession of the $30 after the manicure this is theft.
In the case the purchaser never had the $30 in the first place to transfer to the nail salon, is it still theft, because it is theft through fraud?
What if the purchaser thought they had $30 in good faith, does that matter?
I am basing this off my reading of the “Fraud” section on page 34 of “A LIBERTARIAN THEORY OF CONTRACT: TITLE TRANSFER, BINDING PROMISES, AND INALIENABILITY”
What is not clear, is that the example provided, Ethan knows the apples are rotten, but the article doesn’t elaborate what happens if Ethan didn’t know the apples were rotten and thought they were in good condition. It is not clear which party has the onus to ensure the property being offered for transferred is as represented and that the offeror does actually have title to the property being offered.
In the text it says that “Karen conditions the transfer of title to her $20 on Ethan’s not knowingly engaging in “fraudulent” activities …”, this makes me assume that without Karen including that condition in the offer, that there would be no default assumption that there is a condition against fraudulent activities? If that is the case, I would further assume that unless a condition is included that states the offeror does have title to the property being offered and the property is in the condition being represented?
Or does this all mean that these conditions are inherent, and that unless there is a condition that the title to the property has not been confirmed by the offeror and that the condition of the property has not been confirmed by the offeror?
I know there is a concept of implied conditions vs explicit conditions, but implied conditions generally arise from tradition and social norms. The idea that the offeror of title to property has the obligation to ensure they actually have that title, and that the property is as they represent, regardless of tradition and social norms – but that just might be my biased social norms.
My gut tells me that your answer is going to be that it is an implied condition because of social norms, and that the parties are taking on the risk that a judge may decide one way or the other if the conditions are not explicitly defined.
Kind Regards,
Brian
“In the example of the person getting their nails done, do I understand correctly that:
1. the purchaser offers to transfer title to $30 (these are present dollars, not future dollars) now, for the nail salon to give him a manicure, and that the purchaser will transfer possession of the $30 after the manicure service
2. the nail salon worker agrees to the offer, and at the moment of agreeing to the offer, title of the $30 (present dollars) is transferred to the nail salon.”
They can structure it in various ways. Usually you don’t pay ahead of time for a service, though that could be done. In that case you pay now (present owned resource) and the service provider makes a future transfer to you of $30 as a refund *if* they do not complete the service.
But in most cases I think it would be structured where you pay after the service, similar to when you eat at a restaurant and pay after service is rendered. So I think it would be: “A transfers to B title to a future $30 conditional upon B performing the service. When B does polish A’s nails the condition is fulfilled and how $30 on A’s pocket switches ownership: it is now B’s money. If A refuses to pay she is basically stealing B’s money. A type of theft.
“Now if the purchaser doesn’t transfer possession of the $30 after the manicure this is theft.”
Again, it depends on the way the deal is structured. But in any case, the only reason it’s theft, after the service, if A refuses to pay, is that A is now *in possession of* actual money that B now owns. If for some reason the money was stolen from A or ruined or destroyed before A could pay B, A would not be stealing “the money” that B owns since it does not exist. (Presumably A is not bankrupt and has other money or assets that she can pay B, and we can assume auxilary title transfers such as: “A hereby conditionally transfers $30 to B upon completion of services; if for any reason A does not possess or own said money A hereby conditionally transfers other owned resources to B sufficient to pay the debt” and so on.
“In the case the purchaser never had the $30 in the first place to transfer to the nail salon, is it still theft, because it is theft through fraud?”
It depends on the situation. If A has $30 in her pocket and owns it, then the agreement would result in a *future* title transfer of the $30 *conditional upon” services being rendered. Now if A has no money on her, then presumably the contract refers to “other money” she owns; say, in her bank account or in her piggy bank at home. At the money B does the nails, then the conditional title transfer is triggered and now $30 of A’s money, wherever it is located, becomes’s B’s money and now B is entitled to demand it and A just turn over some of her assets because $30 worth is now owned by B.
“What is not clear, is that the example provided, Ethan knows the apples are rotten, but the article doesn’t elaborate what happens if Ethan didn’t know the apples were rotten and thought they were in good condition.”
Then if the parties were in good faith they would have to determined what auxiliary conditional title transfers would now kick in. Probably there is no implicit theft or fraud in this case. All B could do is ask A to not knowingly transfer rotten apples. the contract terms might say something like this: A hereby transfers title to his apples to B in exchange for B transferring title to his oranges; and vice-versa. If if turns out the apples are bad, A agrees to transfer title to the oranges back to B and/or pay some reasonable compensation to B”, and so on.
“It is not clear which party has the onus to ensure the property being offered for transferred is as represented and that the offeror does actually have title to the property being offered.”
If custom and context and precedent do not make it clear, then the parties would be well served to specify in the terms of their contract. If they don’t, they are taking the risk that an arbitrator hearing the case might rule against them.
“In the text it says that “Karen conditions the transfer of title to her $20 on Ethan’s not knowingly engaging in “fraudulent” activities …”, this makes me assume that without Karen including that condition in the offer, that there would be no default assumption that there is a condition against fraudulent activities?”
No, I am just making explicit a background condition that is normally implicit and presupposed; the presumption of “good faith.” It need not be stated at all, IMO. See on this ch.9 of LFFS, https://www.stephankinsella.com/lffs/, text note 62 and note 62 itself.
The point is this: I am explaining why some actions called “fraud” can actually be characterized as a type of theft–when the “defrauder” is knowingly using someone’s property without their permission–their consent–their *informed* consent. If A and B exchange apples and oranges and each knows that the title the received thing is conditional upon the quality of the thing given being as represented, then if A *intentionally gave bad apples to B” then A *is aware that* he *does not have permission to take or use B’s oranges, *even if B is not (yet) aware of this.” It’s akin to a patient agreeing to an appendectomy–so that there is consent–but if the doctor removes another organ while in there, there was no informed consent.
But if A was in good faith and unaware the apples were rotten he is not intentionally (knowingly) using B’s oranges without B’s permission. He is unaware that title has not transferred, as is B. So if he eats them then B discovered the apples were bad, it’s too late for B to demand the oranges be returned, so he has to demand some other form of payment. This means that the simple agreement really contains a large number of implied auxiliary backup conditional title transfers. This is really not that complicated if you think about it; it’s how contracts work already.
” If that is the case, I would further assume that unless a condition is included that states the offeror does have title to the property being offered and the property is in the condition being represented?”
I think you can normally assume such conditions are implied due to the context, custom, common sense, and so on. The point is fraud is a crime only to the extent it is a type of theft, e.g. theft by trick, but this is an intentional tort or crime that requires the “trespasser” be intentionally using someone’s property without their informed consent. That is why if A is lying he is knowingly using B’s oranges without permission and this is a type of conversion or theft. A can implicitly or explicitly promise not to intentionally deceive B, and this is why the good faith rule is presumed as a background condition in all such agreements; but he cannot promise to be infallible or never to make a mistake or error; and B is well aware of this. For this reason parties to contracts will either assume implied auxiliary title transfers in such cases or they will write them down or they will just have an arbitration clause throwing it to the decision of a judge; or they will buy insurance; or first inspect the other’s apples/oranges to make sure; or maybe they will write an “as is; no warranties” term into their contract. They can do what they want, they can structure they deal as they want. If they fail to specify then they are taking the risk that they might lose in a dispute because the arbitrator might side with the other guy. If the stakes are high people will take greater measures, write tighter contracts, and so on.
“Or does this all mean that these conditions are inherent, and that unless there is a condition that the title to the property has not been confirmed by the offeror and that the condition of the property has not been confirmed by the offeror?”
We cannot armchair everything but we can assume that the parties operate in world where language and words have meanings, there are customs and well known laws, remedies, rules, and they will rely on this, and if they are unsure or do not like the background or “default” (suppletive) legal provisions that will kick in, they can contract around it with a detailed contract.
This hard to do here b/c there can be so many questions. I am happy to have short (say, 30min) zoom call with you to field more questions to try to make this all clearer. Let me know if so. nskinsella@gmail.com