Chapter 19 Property Rights and the Theory of Contracts
The right of property implies the right to make contracts about that property, to give it away or to exchange titles of ownership for the property of another person.
Unfortunately, many libertarians devoted to the right to make contracts hold the contract itself to be an absolute,
Note, and therefore maintain that any voluntary contract whatever must be legally enforceable
in the free society.
Their error is a failure to realize that the right to contract is strictly derivable from
the right of private property, and therefore that the only enforceable contracts, that
is, those backed by the sanction of legal coercion, should be those where the failure
Failure of one party to abide by the contract implies the theft of property from the other
party. In short, a contract should only be enforceable when the failure to fulfill it
is an implicit theft of property. But this can only be true if we hold that validly enforceable
contracts only exist where title to property has already been transferred, and therefore,
Where the failure to abide by the contract means that the other party's property is retained
by the delinquent party without the consent of the former.
Implicit theft.
Hence, the proper libertarian theory of enforceable contracts has been termed the title transfer
theory of contracts.
Let us illustrate this point.
Suppose that Smith and Jones make a contract, Smith giving $1,000 to Jones at the present
moment in exchange for an IOU of Jones agreeing to pay Smith $1,100 one year from now.
This is a typical debt contract.
What has happened is that Smith has transferred his title to ownership of $1,000 at present
in exchange for Jones agreeing now to transfer title to Smith of $1100 one year from now.
Suppose that when the appointed date arrives one year later, Jones refuses to pay.
Why should this payment now be enforceable at libertarian law?
Existing law, which will be dealt with in greater detail below, largely contends that
Jones must pay $1100 because he has promised to pay, and that this promise set up in Smith's
mind the expectation that he would receive the money.
Our contention here is that mere promises are not a transfer of property title, that
while it may well be the moral thing to keep one's promises, that it is not and cannot
be the function of law, that is, legal violence in a libertarian system to enforce morality,
in this case, the keeping of promises.
Our contention here is that Jones must pay Smith $1100 because he had already agreed
to transfer title, and that non-payment means that Jones is a thief, that he has stolen
the property of Smith.
In short, Smith's original transfer of the $1,000 was not absolute but conditional, conditional
on Jones paying the $1,100 in a year, and that, therefore, the failure to pay is an
implicit theft of Smith's rightful property.
Let us examine, on the other hand, the implications of the now prevalent promise or expectations
theory of contracts.
Suppose that A promises to marry B. B proceeds to make wedding plans, incurring costs of
preparing for the wedding. At the last minute, A changes his or her mind, thereby violating
this alleged contract. What should be the role of a legal enforcing agency in the libertarian
society? Logically, the strict believer in the promise theory of contracts would have
have to reason as follows. A voluntarily promised B that he or she would marry the other. This
set up the expectation of marriage in the other's mind. Therefore, this contract must
be enforced. A must be forced to marry B.
As far as we know, no one has pushed the promise theory this far. Compulsory marriage is such
Such a clear and evident form of involuntary slavery that no theorist, let alone any libertarian,
has pushed the logic to this point.
Clearly liberty and compulsory slavery are totally incompatible, indeed, are diametric
opposites.
But why not, if all promises must be enforceable contracts?
A milder form of enforcing such marriage promises has, however, been employed, let alone advocated
in our legal system.
The old breach of promise suit forced the violator of his promise to pay damages to
the promisee, to pay the expenses undergone because of the expectations incurred.
But while this does not go as far as compulsory slavery, it is equally invalid.
For there can be no property in someone's promises or expectations.
These are only subjective states of mind, which do not involve transfer of title, and
therefore do not involve implicit theft.
They therefore should not be enforceable, and in recent years breach of promise suits
at least have ceased to be upheld by the courts.
The important point is that while enforcement of damages is scarcely as horrendous to the
Let us pursue more deeply our argument that mere promises or expectations should not be
enforceable.
The basic reason is that the only valid transfer of title of ownership in the free society
is the case where the property is, in fact, and in the nature of man, alienable by man.
All physical property owned by a person is alienable. That is, in natural fact, it can
be given or transferred to the ownership and control of another party. I can give away
or sell to another person my shoes, my house, my car, my money, etc. But there are certain
Human vital things which in natural fact and in the nature of man are inalienable, that
is, they cannot in fact be alienated, even voluntarily. Specifically, a person cannot
alienate his will, more particularly his control over his own mind and body. Each man has control
over his own mind and body. Each man has control over his own will and person, and he is, if
If you wish, stuck with that inherent and inalienable ownership.
Since his will and control over his own person are inalienable, then so also are his rights
to control that person and will.
That is the ground for the famous position of the Declaration of Independence, that man's
natural rights are inalienable, that is, they cannot be surrendered even if the person wishes
is to do so.
Or as Williamson Evers points out, the philosophical defenses of human rights are founded upon
the natural fact that each human is the proprietor of his own will.
To take rights like those of property and contractual freedom that are based on a foundation
of the absolute self-ownership of the will, and then to use those derived rights to destroy
Rousseau argued trenchantly against the validity of a slave contract.
When a man renounces his liberty, he renounces his essential manhood, his rights, and even
his duty as a human being.
There is no compensation possible for such complete renunciation.
It is incompatible with man's nature, and to deprive him of his free will is to deprive
his actions of all moral sanction.
The convention, in short, which sets up on one side an absolute authority, and on the
other an obligation to obey without question, is vain and meaningless.
Is it not obvious that where we can demand everything we owe nothing?
Where there is no mutual obligation, no interchange of duties, it must surely be clear that the
actions of the commanded cease to have any moral value.
For how can it be maintained that my slave has any right against me when everything that
he has is my property?
His right being my right, it is absurd to speak of it as ever operating to my disadvantage.
Or, in short, if a man sells himself into slavery, then the master, being an absolute master, would then have the right to commandeer the funds with which he had bought the slave.
Hence the unenforceability in libertarian theory of voluntary slave contracts.
Suppose that Smith makes the following agreement with the Jones Corporation.
Smith, for the rest of his life, will obey all orders under whatever conditions that the Jones Corporation wishes to lay down.
Now, in libertarian theory, there is nothing to prevent Smith from making this agreement and from serving the Jones Corporation and from obeying the latter's orders indefinitely.
The problem comes when, at some later date, Smith changes his mind and decides to leave.
Shall he be held to his former voluntary promise? Our contention, and one that is fortunately
upheld under present law, is that Smith's promise was not a valid, that is, not an enforceable,
contract. There is no transfer of title in Smith's agreement, because Smith's control
are inalienable.
Since that control cannot be alienated, the agreement was not a valid contract and therefore
should not be enforceable.
Smith's agreement was a mere promise, which it might be held he is morally obligated to
keep, but which should not be legally obligatory.
In fact, to enforce the promise would be just as much compulsory slavery as the compulsory
Every Marriage Considered Above.
But should Smith at least be required to pay damages to the Jones Corporation, measured
by the expectations of his lifelong service which the Jones Corporation had acquired?
Again, the answer must be no.
Smith is not an implicit thief.
He has retained no just property of the Jones Corporation, for he always retains title to
to His Own Body and Person.
What of the dashed expectations of the Jones Corporation?
The answer must be the same as in the case of the disappointed suitor or bride.
Life is always uncertain, always risky.
Some people are better and some are poorer entrepreneurs, that is, forecasters of future
human action and events of the world.
The prospective bride or bridegroom or the Jones Corporation are the proper locus of
risk in this matter.
If their expectations are disappointed, well then they were poor forecasters in this case,
and they will remember the experience when dealing with Smith or the breacher of marriage
promise in the future.
If mere promises or expectations cannot be enforceable, but only contracts that transfer
for Property Titles, we can now see the application of the contrasting contract theories to an
important real-life case.
Do enlistee deserters from the army, as well as draftees, deserve total amnesty for their
actions?
Libertarians being opposed to the draft as compulsory slavery have no difficulty in calling
for total exoneration for deserting draftees.
But what of enlistees who enlisted in the army voluntarily, and setting aside the case
of those who may have enlisted only as an alternative to the compulsory draft?
The promise theorist must strictly advocate both punishment of the deserters and their
compulsory return to the armed forces.
The title transfer theorist, on the contrary, maintains that every man has the inalienable
has no right to control his own body and will, since he has that inalienable control in
natural fact, and therefore that the enlistment was a mere promise which cannot be enforceable,
since every man has the right to change his mind at any time over the disposition of his
body and will.
Thus seemingly minor and abstruse differences over the theory of contracts can and do imply
Why Vital Differences Over Public Policy
In contemporary America, outside the glaring exception of the armed forces, everyone has
the right to quit his job, regardless of whatever promise or contract he had previously incurred.
Unfortunately, however, the courts, while refusing to compel specific personal performance
In short, refusing to enslave the worker, do prohibit the worker from working at a similar
task for another employer for the term of the agreement.
If someone has signed an agreement to work as an engineer for Aramco for five years and
he then quits the job, he is prohibited by the courts from working for a similar employer
for the remainder of the five years.
It should now be clear that this prohibited employment is only one step removed from direct
compulsory slavery and that it should be completely impermissible in a libertarian society.
Have the employers then no recourse against the mind changer?
Of course they do.
They can, if they wish, voluntarily agree to blacklist the errant worker and refuse
to employ him.
That is perfectly within their rights in a free society.
What is not within their rights is to use violence to prevent him from working voluntarily
for someone else.
One more recourse would be permissible.
Suppose that Smith, when making his agreement for lifelong voluntary obedience to the Jones
Corporation, receives in exchange $1 million in payment for these expected future services.
Early then, the Jones Corporation had transferred title to the one million dollars, not absolutely,
but conditionally, on his performance of lifelong service. Smith has the absolute right to change
his mind, but he no longer has the right to keep the one million dollars. If he does so,
he is a thief of the Jones Corporation's property. He must therefore be forced to return the
Let us take a seemingly more difficult case. Suppose that a celebrated movie actor agrees
to appear at a certain theater at a certain date. For whatever reason, he fails to appear.
Should he be forced to appear at that or some future date? Certainly not, for that would
be compulsory slavery. Should he be forced, at least, to recompense the theater owners
for the publicity and other expenses incurred by the theater owners in anticipation of his
appearance? No, again, for his agreement was a mere promise concerning his inalienable
will which he has the right to change at any time. Put another way, since the movie actor
If the actor has not yet received any of the theater owner's property, he has committed
no theft against the owners or against anyone else, and therefore he cannot be forced to
pay damages.
The fact that the theater owners may have made considerable plans and investments on
the expectation that the actor would keep the agreement may be unfortunate for the owners,
but that is their proper risk.
The theater owners should not expect the actor to be forced to pay for their lack of foresight
and poor entrepreneurship.
The owners pay the penalty for placing too much confidence in the actor.
It may be considered more moral to keep promises than to break them, but any coercive enforcement
of such a moral code, since it goes beyond the prohibition of theft or assault, is itself
an invasion of the property rights of the movie actor, and therefore impermissible in the libertarian society.
Again, of course, if the actor received an advance payment from the theater owners,
then his keeping the money while not fulfilling his part of the contract would be an implicit theft against the owners,
and therefore the actor must be forced to return the money.
For utilitarians shocked at the consequences of this doctrine, it should be noted that many, if not all, of the problems could be easily surmounted in the libertarian society by the promises requiring a performance bond of the promisor in the original agreement.
In short, if the theater owners wish to avoid the risk of non-appearance, they could refuse
to sign the agreement unless the actor agreed to put up a performance bond in case of non-appearance.
In that case, the actor, in the course of agreeing to his future appearance, agrees
also to transfer a certain sum of money to the theater owners in case he fails to appear.
Since money, of course, is alienable, and since such a contract would meet our title
transfer criterion, this would be a perfectly valid and enforceable contract.
For what the actor would be saying is, if I do not appear at Theater X at such and such
a date, I hereby transfer as of the date the following sum to the theater owners.
Failure to meet the performance bond will then be an implicit theft of the property
of the Owners.
If then the theater owners fail to require a performance bond as part of the agreement,
then they must suffer the consequences.
Indeed, in an important article, A.W.B. Simpson has pointed out that performance bonds were
the rule during the Middle Ages and in the early modern period, not only for personal
services but for all contracts, including sales of land and money debts.
These performance bonds evolved on the market as voluntary penalty or penal bonds in which
the contractor obligated himself to pay what was usually twice the sum he owed in case
of failure to pay his debt or fulfill his contract at the agreed upon date.
The voluntarily contracted penalty served as an incentive for him to fulfill his contract.
Thus if A agreed to sell a parcel of land in exchange for B's agreed upon payment of
a money price, each would obligate himself to pay a certain sum, usually twice the value
of his contractual obligation in case of failure to pay.
In the case of a money debt, called a common money bond, someone who owed $1,000 agreed
to pay $2,000 to the creditor if he failed to pay $1,000 by a certain date.
Or more strictly, the obligation to pay $2,000 was conditional upon the debtors paying $1,000
by a certain date.
Hence the term conditional penal bond.
In the above example of a contract to perform personal service, suppose that the failure
The failure of the actor to appear cost the theater owner $10,000 in damages. In that case, the actor would sign or execute a penal performance bond, agreeing to pay $20,000 to the theater owner upon failure to appear.
In this sort of contract, the theater owner is protected, and there is no improper enforcement of a mere promise.
Of course, the agreed-upon penalty does not have to be twice the estimated value.
It can be any amount assented to by the contracting parties.
The double amount became the custom in medieval and early modern Europe.
In the course of his article, Simpson revises the orthodox historical account of the development of modern contract law.
The view that the theory of a sumpset, of basing the enforcement of a contract upon a mere promise, albeit with consideration, was necessary to provide a workable system of contract enforcement in supplement to the crude property rights concepts of the common law.
For Simpson shows that the rise of a subset in the 16th and 17th centuries in England was not the result of newfound attention to the world of business contracts, but rather a replacement for the rapid decline of the penal performance bond, which had served business needs well enough for centuries.
Studies. Indeed, Simpson points out that the performance bond proved to be a remarkably
flexible instrument for the handling of complex as well as simple contracts and agreements,
and the performance bond was formal enough to guard against fraud, yet easy enough to
execute for the convenience of commercial transactions. Furthermore, in its centuries
In these days of use, almost no creditors bothered to sue in the courts for damages, in a writ of covenant, since the damages had been fixed in advance in the contract itself.
As Simpson writes, there are obvious attractions from a creditor's point of view in contracts which fix a penalty in advance, especially when the alternative is assessment of damages by juries.
Why the Decline of the Penal Bond?
Because the courts began to refuse to enforce these obligations.
For whatever the reason, whether for misguided humanitarian or for more sinister reasons
of special privilege, the courts began to balk at the toughness of the law, at the fact
that they had been enforcing contracts to their full extent.
For the bond meant that for any default in performance, the whole penalty was forfeit.
At first, during the Elizabethan era, the courts of chancery began intervening to relieve
the debtor, the obligor, in cases of extreme hardship.
By the early 17th century, this relief was broadened to all cases in which misfortune
befell the obligor, and where he paid the contracted amount a short time later.
In such cases, he only had to pay the principal, contracted amount, plus what the courts decided
were reasonable damages, thus waiving the requirement to pay the agreed-on penalty.
The intervention expanded further in later years, until finally, in the 1660s and early
1670s, the Chancery courts simply outlawed penalty payments altogether, whatever the
and only required the defaulting obligor or debtor to pay the principal plus interest costs as well as reasonable damages assessed by the court itself, usually by a jury.
This rule was swiftly adopted by the common law courts in the 1670s and then formalized and regularized by statutes at the turn of the 18th century.
Naturally, since bonded penalties were no longer enforced by the courts, the institution
of the penal performance bond swiftly disappeared.
The unfortunate suppression of the performance bond was the result of a mistaken theory of
contract enforcement that the courts had adopted in the first place, namely that the purpose
of enforcement was to compensate the creditor or obligee for the default of the debtor,
That is, to make him as well off as he would have been without the making of the contract.
In previous centuries the courts had felt that compensation consisted of enforcing the
penal bond.
It then became fairly easy for the courts to change their minds and to decide that court-assessed
damages were compensation enough, relieving the harshness of the voluntarily stipulated
penalty.
The theory of contract enforcement should have had nothing to do with compensation.
Its purpose should always be to enforce property rights and to guard against the implicit theft
of breaking contracts which transfer titles to alienable property.
Defense of property titles and only such defense is the business of enforcement agencies.
Man writes perceptively of the tension between two ideas. On the one hand, we have the idea
that the real function of contractual institutions is to make sure so far as possible that agreements
are performed, for example, the enforcement of the penal bond. On the other hand, we have
the idea that it suffices for the law to provide compensation for loss suffered by failure
to perform agreements.
The latter view places severe limits on the enthusiasm with which performance is required.
Moreover, in contracts for personal services, such as the actor example above, a positive
value is attached to the right to break the contract so long as the defaulting party is
made to pay compensation.
What of gift contracts?
Should they be legally enforceable? Again, the answer depends on whether a mere promise
has been made or whether an actual transfer of title has taken place in the agreement.
Obviously, if A says to B, I hereby give you $10,000, then title to the money has been
transferred and the gift is enforceable. A, furthermore, cannot later demand the money
back as his right. On the other hand, if A says, I promise to give you ten thousand dollars
in one year, then this is a mere promise, what used to be called a nudum pactum in Roman
law, and therefore is not properly enforceable. The receiver must take his chances that the
donor will keep his promise. But if on the contrary A tells B, I hereby agree to transfer
If you offer $10,000 to you in one year's time, then this is a declared transfer of title at the future date, and should be enforceable.
It should be emphasized that this is not mere wordplay, much as it might seem so in particular cases, for the important question is always at stake.
Has title to alienable property been transferred, or has a mere promise been granted?
In the former case the agreement is enforceable because a failure to deliver the transferred property is theft.
In the latter case it is a mere promise which has not transferred title to property,
a promise that may be morally binding but cannot be legally binding on the promisor.
Hobbes was not engaging in mere wordplay when he correctly wrote,
For words alone, if they be of the time to come, and contain a bare promise, nudum pactum,
are an insufficient sign of a free gift, and therefore not obligatory.
For if they be of the time to come, as tomorrow I will give, they are a sign I have not yet
given, and consequently that my right is not transferred, but remaineth till I transfer
it by some other act.
And if the words be of the time present or past as I have given or do give to be delivered
tomorrow, then this is my tomorrow's right given away today.
There is a great difference in the signification of the words between I will that this be thine
tomorrow and I will give it thee tomorrow.
For the word I will in the former manner of speech signifies a promise of an act of the
Let us now apply the contrasting theories to a pure gift agreement rather than an exchange.
A grandfather promises to pay his grandson's way through college.
After a year or two in college, the grandfather, whether from suffering business reverses
or from any other reason, decides to revoke his promise.
On the basis of the promise, the grandson has incurred various expenses in arranging
his college career and forgoing other employment.
Should the grandson be able to enforce the grandfather's promise through legal action?
In our title transfer theory, the grandson has no right whatever to the grandfather's
property, since the grandfather retained title to his money throughout.
A mere naked promise can confer no title, and neither can any subjective expectations
of the promisee.
The costs incurred by the grandson are properly his own entrepreneurial risk.
On the other hand, of course, if the grandfather transferred title, then it would be the grandson's
property and he should be able to sue for his property.
Such a transfer would have occurred if the grandfather had written, I hereby transfer
$8,000 to you, the grandson, or had written, I hereby transfer $2,000 to you at each of
of the following dates, 1 September 1975, 1 September 1976, etc.
On the other hand, on the expectations model of contracts, there are two possible variants,
either that the grandson would have a binding legal claim on the grandfather because of
the mere promise, or that the grandson would have a claim on the expenses that he had incurred
on the Expectation of the Promise Being Fulfilled Suppose, however, that the original statement
of the grandfather was not a simple promise, but a conditional exchange.
For example, that the grandfather agreed to pay the grandson's full college tuition, provided
that the grandson made weekly progress reports to the grandfather.
In that case, according to our title transfer theory, the grandfather has made a conditional
Transfer of Title.
Agreeing to transfer title in the future provided that the grandson performed certain services.
If the grandson in fact performed such services and continues to perform them, then the tuition
payment is his property and he should be legally entitled to collect from the grandfather.
On the other hand, as indicated above, the grandson could not be required to perform
from the Service should he change his mind, for that would be compulsory slavery.
He would be required, however, to repay the grandfather.
Under our proposed theory, would fraud be actionable at law?
Yes, because fraud is failure to fulfill a voluntarily agreed-upon transfer of property
and is therefore implicit theft.
If for example A sells to B a package which A says contains a radio and it contains only
a pile of scrap metal, then A has taken B's money and not fulfilled the agreed upon conditions
for such a transfer, the delivery of a radio.
A has therefore stolen B's property.
The same applies to a failure to fulfill any product warranty.
If, for example, the seller asserts that the contents of a certain package include 5 ounces
of product X and they do not do so, then the seller has taken money without fulfilling
the terms of the contract.
He has, in effect, stolen the buyer's money.
Once again, warranties of products would be legally enforceable not because they are promises,
because they describe one of the entities of the agreed-upon contract.
If the entity is not as the seller describes, then fraud, and hence implicit theft, have
taken place.
Would bankruptcy laws be permissible in a libertarian legal system?
Clearly not, for the bankruptcy laws compel the discharge of a debtor's voluntarily contracted
Debts, and thereby invade the property rights of the creditors.
The debtor who refuses to pay his debt has stolen the property of the creditor.
If the debtor is able to pay but conceals his assets, then his clear act of theft is
compounded by fraud.
But even if the defaulting debtor is not able to pay, he has still stolen the property of
of the Creditor by not making his agreed-upon delivery of the creditor's property.
The function of the legal system should then be to enforce payment upon the debtor through,
for example, forced attachment of the debtor's future income for the debt, plus the damages
and interest on the continuing debt.
Bankruptcy laws, which discharge the debt in defiance of the property rights of the
Debtor, virtually confer a license to steal upon the debtor.
In the pre-modern era, the defaulting debtor was generally treated as a thief, and forced
to pay as he acquired income.
Doubtless the penalty of imprisonment went far beyond proportional punishment, and hence
was excessive.
But at least the old legal ways placed responsibility where it belonged, on the debtor, to fulfill
One historian of American bankruptcy law, though a supporter of these laws, has conceded
that they trample on the property rights of the creditors.
If the laws of bankruptcies were based on the legal rights of individuals, there would
be no warrant for the discharge of debtors from the payment of their debts as long as
as they lived, or their estates would continue to exist. The creditor has rights which must
not be violated even if adversity be the cause of the bankrupt's condition. His claims are
part of his property. In defense of the bankruptcy laws, the utilitarian
economist might reply that once these laws are on the books, the creditor knows what
may happen to him that he compensates for that extra risk with a higher interest rate,
and that therefore actions under the bankruptcy law should not be regarded as expropriation
of the creditor's property.
It is true that the creditor knows the laws in advance, and that he will charge a higher
interest rate to compensate for the resulting risk.
The therefore, however, does not at all follow.
Regardless of foreknowledge or forewarning, bankruptcy laws are still violations and hence
expropriations of the property rights of the creditors.
There are all sorts of situations on the market where prospective victims may be able to maneuver
so as to minimize the harm to themselves of institutionalized theft.
The theft is no more moral or legitimate because of such praiseworthy maneuvering.
Moreover, the same utilitarian argument could be used about such crimes as mugging or burglary.
Instead of deploring crime against storekeepers in certain sections of a city,
we might then argue, as utilitarian economists, as follows.
After all, the storekeepers knew what they were doing in advance.
Before they opened the store, they knew of the higher crime rate at that location,
were therefore able to adjust their insurance and their business practices accordingly.
Should we say therefore that robbery of storekeepers is not to be deplored or even outlawed?
In short, crime is crime, and invasions of property are invasions of property.
Why should those far-seeing property owners who took some advance measures to alleviate
the effects of prospective crime be penalized?
Why should the law penalize the virtue of forethought?
The problem of defaulting debtors may be met in another way.
The creditor, taking account of the debtor's honest attempts to pay, may voluntarily decide
to forgive part or all of the debt.
Here it is important to stress that in a libertarian system which defends property rights, each
Each creditor may forgive only his own debt, may only surrender his own property claims
to the debtor.
There can then be no legal situation in which a majority of creditors compel a minority
to forgive their own claims.
Voluntary forgiveness of a debt may occur after the fact of default, or it may be incorporated
into the original debt contract.
In that case, A could lend B $1,000 now, in exchange for $1,000 a year from now, provided
that, given certain conditions of unavoidable insolvency, A would forgive B part or all
of that debt. Presumably, A would charge a higher interest rate to compensate for the
additional risk of failure. But the important point is that in these legitimate situations
In terms of forgiveness, the discharge of debt has been voluntarily agreed upon, either
in the original agreement or, after default, by the individual creditor.
Voluntary forgiveness takes on the legal philosophical status of a gift by the creditor to the debtor.
Oddly enough, while title transfer theorists see such a gift as a perfectly legitimate
and Valid Agreement to Transfer Title to Money from a Creditor to a Debtor.
Current legal doctrine has questioned the validity of such an agreement to forgive as
a binding contract.
For in current theory, a binding contract must be a promise exchanged for a consideration,
and in the case of forgiveness, the creditor receives no consideration in exchange.
But the title transfer principle sees no problems with forgiveness.
The creditor's act by way of releasing a claim is of the same kind as an ordinary act of
transfer.
In either case, the act is simply the manifested consent of the owner of the right.
Another important point.
In our title transfer model, a person should be able to sell not only the full title of
ownership to property, but also part of that property, retaining the rest for himself or
others to whom he grants or sells that part of the title.
Thus, as we have seen above, common law copyright is justified as the author or publisher selling
all rights to his property except the right to resell it.
Similarly, valid and enforceable would be restrictive covenants to property, in which,
For example, a developer sells all the rights to a house and land to a purchaser except
for the right to build a house over a certain height or of other than a certain design.
The only proviso is that there must at every time be some existing owner or owners of all
the rights to any given property.
In the case of a restrictive covenant, for example, there must be some owners of the
The Reserved Right to Build a Tall Building. If not the developer himself, then someone
who has bought or received this right. If the reserved right has been abandoned and
no existing person possesses it, then the owner of the house may be considered to have
homesteaded this right, and can then go ahead and build the tall building. Covenants and
other restrictions, in short, cannot simply run with the property forever, thereby overriding
This proviso rules out entail as an enforceable right. Under entail, a property owner could
bequeath this land to his sons and grandsons with the proviso that no future owner could
sell the land outside the family, a deed typical of feudalism. But this would mean that the
The living owners could not sell the property.
They would be governed by the dead hand of the past.
But all rights to any property must be in the hands of living, existing persons.
It might be considered a moral requirement for the descendants to keep the land and the
family, but it cannot properly be considered a legal obligation.
Money rights must only be accorded to, and can only be enjoyed by, the living.
There is at least one case in which the promised expectations model is in grave internal contradiction,
depending upon whether one stresses the promise or the expectations part of the theory.
This is the legal problem of whether purchase breaks higher.
Let's suppose that Smith owns a tract of land. He leases the land for five years to Jones.
Smith, however, now sells the land to Robinson. Is Robinson bound to obey the terms of the
lease, or can he oust Jones immediately? On the promise theory, only Smith made the promise
to lease the land. Robinson did not so promise, and therefore Robinson is not bound to respect
and the lease. On the Expectations Theory, the lease agreement generated expectations
in Jones that the land would be his for five years. Therefore, on the former grounds, purchase
breaks higher, whereas it cannot do so on the Expectations Model. The Title Transfer
Theory, however, avoids this problem. On our model, Jones, the leaseholder, owns the use
Use of the property for the contractual period of the lease. Five years of property use has
been transferred to Jones. Therefore Robinson cannot break the lease, unless of course the
breaking of hire under such conditions was expressly included as a provision in the lease.
There is one vitally important political implication of our title transfer theory as against the
The Promise Theory of Valid and Enforceable Contracts
It should be clear that the Title Transfer Theory immediately tosses out of court all
variants of the Social Contract Theory as a justification for the State.
Setting aside the historical problem of whether such a social contract ever took place, it
should be evident that the social contract, whether it be the Hobbesian surrender of all
Man's rights, the Lockean surrender of the right of self-defense or any other, was a
mere promise of future behavior, future will, and in no way surrendered title to alienable
property.
Certainly no past promise can bind later generations, let alone the actual maker of the promise.
As Rousseau states, even if a man can alienate himself, he cannot alienate his children,
They are born free, their liberty belongs to them and no one but themselves has a right
to dispose of it, for to alienate another's liberty is contrary to the natural order and
is an abuse of the father's rights.
And four decades before Rousseau, in the early 1720s, the libertarian English writers John
Trenchard and Thomas Gordon, in their Cato's Letters, widely influential in forming the
The Attitudes of the American Colonies, wrote as follows,
All men are born free, liberty is a gift which they receive from God himself, nor can they
alienate the same by consent, though possibly they may forfeit it by crimes.
No man can give away the lives and liberties, religion or acquired property of his posterity,
who will be born as free as he himself was born and can never be bound by his wicked
and ridiculous bargain.
The current law of contracts is an inchoate mixture of the title transfer and the promise
expectations approaches, with the expectations model predominating under the influence of
nineteenth and twentieth century legal positivism and pragmatism.
A libertarian, natural rights, property rights theory must therefore reconstitute contract
law on the proper title transfer basis.