WEBVTT NOTE 19. Property Rights and the Theory of Contracts 1 00:00:00.000 --> 00:00:05.000 Chapter 19 Property Rights and the Theory of Contracts 2 00:00:06.000 --> 00:00:17.000 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. 3 00:00:17.000 --> 00:00:26.000 Unfortunately, many libertarians devoted to the right to make contracts hold the contract itself to be an absolute, 4 00:00:26.000 --> 00:00:32.840 Note, and therefore maintain that any voluntary contract whatever must be legally enforceable 5 00:00:32.840 --> 00:00:35.160 in the free society. 6 00:00:35.160 --> 00:00:41.000 Their error is a failure to realize that the right to contract is strictly derivable from 7 00:00:41.000 --> 00:00:47.160 the right of private property, and therefore that the only enforceable contracts, that 8 00:00:47.160 --> 00:00:52.440 is, those backed by the sanction of legal coercion, should be those where the failure 9 00:00:52.440 --> 00:00:58.800 Failure of one party to abide by the contract implies the theft of property from the other 10 00:00:58.800 --> 00:01:05.140 party. In short, a contract should only be enforceable when the failure to fulfill it 11 00:01:05.140 --> 00:01:12.640 is an implicit theft of property. But this can only be true if we hold that validly enforceable 12 00:01:12.640 --> 00:01:20.500 contracts only exist where title to property has already been transferred, and therefore, 13 00:01:20.500 --> 00:01:26.100 Where the failure to abide by the contract means that the other party's property is retained 14 00:01:26.100 --> 00:01:31.140 by the delinquent party without the consent of the former. 15 00:01:31.140 --> 00:01:32.140 Implicit theft. 16 00:01:32.140 --> 00:01:39.340 Hence, the proper libertarian theory of enforceable contracts has been termed the title transfer 17 00:01:39.340 --> 00:01:42.100 theory of contracts. 18 00:01:42.100 --> 00:01:44.820 Let us illustrate this point. 19 00:01:44.820 --> 00:01:51.140 Suppose that Smith and Jones make a contract, Smith giving $1,000 to Jones at the present 20 00:01:51.140 --> 00:01:59.680 moment in exchange for an IOU of Jones agreeing to pay Smith $1,100 one year from now. 21 00:01:59.680 --> 00:02:02.420 This is a typical debt contract. 22 00:02:02.420 --> 00:02:09.000 What has happened is that Smith has transferred his title to ownership of $1,000 at present 23 00:02:09.000 --> 00:02:18.160 in exchange for Jones agreeing now to transfer title to Smith of $1100 one year from now. 24 00:02:18.160 --> 00:02:24.100 Suppose that when the appointed date arrives one year later, Jones refuses to pay. 25 00:02:24.100 --> 00:02:29.360 Why should this payment now be enforceable at libertarian law? 26 00:02:29.360 --> 00:02:34.360 Existing law, which will be dealt with in greater detail below, largely contends that 27 00:02:34.360 --> 00:02:41.840 Jones must pay $1100 because he has promised to pay, and that this promise set up in Smith's 28 00:02:41.840 --> 00:02:46.880 mind the expectation that he would receive the money. 29 00:02:46.880 --> 00:02:53.040 Our contention here is that mere promises are not a transfer of property title, that 30 00:02:53.040 --> 00:02:59.040 while it may well be the moral thing to keep one's promises, that it is not and cannot 31 00:02:59.040 --> 00:03:06.900 be the function of law, that is, legal violence in a libertarian system to enforce morality, 32 00:03:06.900 --> 00:03:10.260 in this case, the keeping of promises. 33 00:03:10.260 --> 00:03:17.180 Our contention here is that Jones must pay Smith $1100 because he had already agreed 34 00:03:17.180 --> 00:03:23.540 to transfer title, and that non-payment means that Jones is a thief, that he has stolen 35 00:03:23.540 --> 00:03:26.060 the property of Smith. 36 00:03:26.060 --> 00:03:34.020 In short, Smith's original transfer of the $1,000 was not absolute but conditional, conditional 37 00:03:34.020 --> 00:03:40.820 on Jones paying the $1,100 in a year, and that, therefore, the failure to pay is an 38 00:03:40.820 --> 00:03:45.540 implicit theft of Smith's rightful property. 39 00:03:45.540 --> 00:03:51.440 Let us examine, on the other hand, the implications of the now prevalent promise or expectations 40 00:03:51.440 --> 00:03:54.260 theory of contracts. 41 00:03:54.260 --> 00:04:00.700 Suppose that A promises to marry B. B proceeds to make wedding plans, incurring costs of 42 00:04:00.700 --> 00:04:07.720 preparing for the wedding. At the last minute, A changes his or her mind, thereby violating 43 00:04:07.720 --> 00:04:14.360 this alleged contract. What should be the role of a legal enforcing agency in the libertarian 44 00:04:14.360 --> 00:04:20.560 society? Logically, the strict believer in the promise theory of contracts would have 45 00:04:20.560 --> 00:04:28.000 have to reason as follows. A voluntarily promised B that he or she would marry the other. This 46 00:04:28.000 --> 00:04:34.040 set up the expectation of marriage in the other's mind. Therefore, this contract must 47 00:04:34.040 --> 00:04:39.660 be enforced. A must be forced to marry B. 48 00:04:39.660 --> 00:04:45.840 As far as we know, no one has pushed the promise theory this far. Compulsory marriage is such 49 00:04:45.840 --> 00:04:52.720 Such a clear and evident form of involuntary slavery that no theorist, let alone any libertarian, 50 00:04:52.720 --> 00:04:55.920 has pushed the logic to this point. 51 00:04:55.920 --> 00:05:02.240 Clearly liberty and compulsory slavery are totally incompatible, indeed, are diametric 52 00:05:02.240 --> 00:05:03.680 opposites. 53 00:05:03.680 --> 00:05:09.920 But why not, if all promises must be enforceable contracts? 54 00:05:09.920 --> 00:05:16.780 A milder form of enforcing such marriage promises has, however, been employed, let alone advocated 55 00:05:16.780 --> 00:05:18.800 in our legal system. 56 00:05:18.800 --> 00:05:24.760 The old breach of promise suit forced the violator of his promise to pay damages to 57 00:05:24.760 --> 00:05:31.800 the promisee, to pay the expenses undergone because of the expectations incurred. 58 00:05:31.800 --> 00:05:37.800 But while this does not go as far as compulsory slavery, it is equally invalid. 59 00:05:37.800 --> 00:05:43.360 For there can be no property in someone's promises or expectations. 60 00:05:43.360 --> 00:05:48.880 These are only subjective states of mind, which do not involve transfer of title, and 61 00:05:48.880 --> 00:05:52.720 therefore do not involve implicit theft. 62 00:05:52.720 --> 00:05:57.800 They therefore should not be enforceable, and in recent years breach of promise suits 63 00:05:57.800 --> 00:06:01.840 at least have ceased to be upheld by the courts. 64 00:06:01.840 --> 00:06:07.200 The important point is that while enforcement of damages is scarcely as horrendous to the 65 00:06:07.200 --> 00:06:22.480 Let us pursue more deeply our argument that mere promises or expectations should not be 66 00:06:22.480 --> 00:06:24.120 enforceable. 67 00:06:24.120 --> 00:06:30.240 The basic reason is that the only valid transfer of title of ownership in the free society 68 00:06:30.240 --> 00:06:38.160 is the case where the property is, in fact, and in the nature of man, alienable by man. 69 00:06:38.160 --> 00:06:44.560 All physical property owned by a person is alienable. That is, in natural fact, it can 70 00:06:44.560 --> 00:06:51.000 be given or transferred to the ownership and control of another party. I can give away 71 00:06:51.000 --> 00:06:58.440 or sell to another person my shoes, my house, my car, my money, etc. But there are certain 72 00:06:58.440 --> 00:07:04.800 Human vital things which in natural fact and in the nature of man are inalienable, that 73 00:07:04.800 --> 00:07:12.240 is, they cannot in fact be alienated, even voluntarily. Specifically, a person cannot 74 00:07:12.240 --> 00:07:21.000 alienate his will, more particularly his control over his own mind and body. Each man has control 75 00:07:21.000 --> 00:07:28.420 over his own mind and body. Each man has control over his own will and person, and he is, if 76 00:07:28.420 --> 00:07:34.260 If you wish, stuck with that inherent and inalienable ownership. 77 00:07:34.260 --> 00:07:41.180 Since his will and control over his own person are inalienable, then so also are his rights 78 00:07:41.180 --> 00:07:44.540 to control that person and will. 79 00:07:44.540 --> 00:07:49.200 That is the ground for the famous position of the Declaration of Independence, that man's 80 00:07:49.200 --> 00:07:56.280 natural rights are inalienable, that is, they cannot be surrendered even if the person wishes 81 00:07:56.280 --> 00:07:58.400 is to do so. 82 00:07:58.400 --> 00:08:04.400 Or as Williamson Evers points out, the philosophical defenses of human rights are founded upon 83 00:08:04.400 --> 00:08:09.920 the natural fact that each human is the proprietor of his own will. 84 00:08:09.920 --> 00:08:15.520 To take rights like those of property and contractual freedom that are based on a foundation 85 00:08:15.520 --> 00:08:22.240 of the absolute self-ownership of the will, and then to use those derived rights to destroy 86 00:08:22.240 --> 00:08:33.800 Rousseau argued trenchantly against the validity of a slave contract. 87 00:08:33.800 --> 00:08:39.520 When a man renounces his liberty, he renounces his essential manhood, his rights, and even 88 00:08:39.520 --> 00:08:42.120 his duty as a human being. 89 00:08:42.120 --> 00:08:47.080 There is no compensation possible for such complete renunciation. 90 00:08:47.080 --> 00:08:52.720 It is incompatible with man's nature, and to deprive him of his free will is to deprive 91 00:08:52.720 --> 00:08:55.960 his actions of all moral sanction. 92 00:08:55.960 --> 00:09:01.720 The convention, in short, which sets up on one side an absolute authority, and on the 93 00:09:01.720 --> 00:09:07.680 other an obligation to obey without question, is vain and meaningless. 94 00:09:07.680 --> 00:09:12.620 Is it not obvious that where we can demand everything we owe nothing? 95 00:09:12.620 --> 00:09:19.140 Where there is no mutual obligation, no interchange of duties, it must surely be clear that the 96 00:09:19.140 --> 00:09:23.820 actions of the commanded cease to have any moral value. 97 00:09:23.820 --> 00:09:29.820 For how can it be maintained that my slave has any right against me when everything that 98 00:09:29.820 --> 00:09:32.540 he has is my property? 99 00:09:32.540 --> 00:09:39.100 His right being my right, it is absurd to speak of it as ever operating to my disadvantage. 100 00:09:39.100 --> 00:09:53.100 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. 101 00:09:53.100 --> 00:10:00.100 Hence the unenforceability in libertarian theory of voluntary slave contracts. 102 00:10:00.100 --> 00:10:05.100 Suppose that Smith makes the following agreement with the Jones Corporation. 103 00:10:05.100 --> 00:10:14.100 Smith, for the rest of his life, will obey all orders under whatever conditions that the Jones Corporation wishes to lay down. 104 00:10:14.100 --> 00:10:25.100 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. 105 00:10:25.100 --> 00:10:33.020 The problem comes when, at some later date, Smith changes his mind and decides to leave. 106 00:10:33.020 --> 00:10:39.420 Shall he be held to his former voluntary promise? Our contention, and one that is fortunately 107 00:10:39.420 --> 00:10:46.940 upheld under present law, is that Smith's promise was not a valid, that is, not an enforceable, 108 00:10:46.940 --> 00:10:52.820 contract. There is no transfer of title in Smith's agreement, because Smith's control 109 00:10:52.820 --> 00:10:57.700 are inalienable. 110 00:10:57.700 --> 00:11:03.680 Since that control cannot be alienated, the agreement was not a valid contract and therefore 111 00:11:03.680 --> 00:11:06.260 should not be enforceable. 112 00:11:06.260 --> 00:11:11.900 Smith's agreement was a mere promise, which it might be held he is morally obligated to 113 00:11:11.900 --> 00:11:16.980 keep, but which should not be legally obligatory. 114 00:11:16.980 --> 00:11:22.700 In fact, to enforce the promise would be just as much compulsory slavery as the compulsory 115 00:11:22.700 --> 00:11:25.660 Every Marriage Considered Above. 116 00:11:25.660 --> 00:11:31.260 But should Smith at least be required to pay damages to the Jones Corporation, measured 117 00:11:31.260 --> 00:11:37.060 by the expectations of his lifelong service which the Jones Corporation had acquired? 118 00:11:37.060 --> 00:11:40.260 Again, the answer must be no. 119 00:11:40.260 --> 00:11:42.500 Smith is not an implicit thief. 120 00:11:42.500 --> 00:11:48.980 He has retained no just property of the Jones Corporation, for he always retains title to 121 00:11:48.980 --> 00:11:52.800 to His Own Body and Person. 122 00:11:52.800 --> 00:11:56.980 What of the dashed expectations of the Jones Corporation? 123 00:11:56.980 --> 00:12:02.260 The answer must be the same as in the case of the disappointed suitor or bride. 124 00:12:02.260 --> 00:12:05.780 Life is always uncertain, always risky. 125 00:12:05.780 --> 00:12:11.460 Some people are better and some are poorer entrepreneurs, that is, forecasters of future 126 00:12:11.460 --> 00:12:14.740 human action and events of the world. 127 00:12:14.740 --> 00:12:20.340 The prospective bride or bridegroom or the Jones Corporation are the proper locus of 128 00:12:20.340 --> 00:12:22.740 risk in this matter. 129 00:12:22.740 --> 00:12:28.700 If their expectations are disappointed, well then they were poor forecasters in this case, 130 00:12:28.700 --> 00:12:33.480 and they will remember the experience when dealing with Smith or the breacher of marriage 131 00:12:33.480 --> 00:12:36.260 promise in the future. 132 00:12:36.260 --> 00:12:42.860 If mere promises or expectations cannot be enforceable, but only contracts that transfer 133 00:12:42.860 --> 00:12:49.420 for Property Titles, we can now see the application of the contrasting contract theories to an 134 00:12:49.420 --> 00:12:52.460 important real-life case. 135 00:12:52.460 --> 00:12:59.220 Do enlistee deserters from the army, as well as draftees, deserve total amnesty for their 136 00:12:59.220 --> 00:13:00.700 actions? 137 00:13:00.700 --> 00:13:06.500 Libertarians being opposed to the draft as compulsory slavery have no difficulty in calling 138 00:13:06.500 --> 00:13:10.640 for total exoneration for deserting draftees. 139 00:13:10.640 --> 00:13:16.820 But what of enlistees who enlisted in the army voluntarily, and setting aside the case 140 00:13:16.820 --> 00:13:22.720 of those who may have enlisted only as an alternative to the compulsory draft? 141 00:13:22.720 --> 00:13:28.380 The promise theorist must strictly advocate both punishment of the deserters and their 142 00:13:28.380 --> 00:13:32.160 compulsory return to the armed forces. 143 00:13:32.160 --> 00:13:38.080 The title transfer theorist, on the contrary, maintains that every man has the inalienable 144 00:13:38.080 --> 00:13:44.380 has no right to control his own body and will, since he has that inalienable control in 145 00:13:44.380 --> 00:13:52.080 natural fact, and therefore that the enlistment was a mere promise which cannot be enforceable, 146 00:13:52.080 --> 00:13:57.280 since every man has the right to change his mind at any time over the disposition of his 147 00:13:57.280 --> 00:13:59.600 body and will. 148 00:13:59.600 --> 00:14:06.360 Thus seemingly minor and abstruse differences over the theory of contracts can and do imply 149 00:14:06.360 --> 00:14:10.840 Why Vital Differences Over Public Policy 150 00:14:10.840 --> 00:14:16.920 In contemporary America, outside the glaring exception of the armed forces, everyone has 151 00:14:16.920 --> 00:14:24.280 the right to quit his job, regardless of whatever promise or contract he had previously incurred. 152 00:14:24.280 --> 00:14:30.560 Unfortunately, however, the courts, while refusing to compel specific personal performance 153 00:14:30.560 --> 00:14:39.480 In short, refusing to enslave the worker, do prohibit the worker from working at a similar 154 00:14:39.480 --> 00:14:44.220 task for another employer for the term of the agreement. 155 00:14:44.220 --> 00:14:49.680 If someone has signed an agreement to work as an engineer for Aramco for five years and 156 00:14:49.680 --> 00:14:55.800 he then quits the job, he is prohibited by the courts from working for a similar employer 157 00:14:55.800 --> 00:14:58.900 for the remainder of the five years. 158 00:14:58.900 --> 00:15:04.800 It should now be clear that this prohibited employment is only one step removed from direct 159 00:15:04.800 --> 00:15:13.060 compulsory slavery and that it should be completely impermissible in a libertarian society. 160 00:15:13.060 --> 00:15:16.920 Have the employers then no recourse against the mind changer? 161 00:15:16.920 --> 00:15:18.360 Of course they do. 162 00:15:18.360 --> 00:15:23.780 They can, if they wish, voluntarily agree to blacklist the errant worker and refuse 163 00:15:23.780 --> 00:15:25.580 to employ him. 164 00:15:25.580 --> 00:15:29.380 That is perfectly within their rights in a free society. 165 00:15:29.380 --> 00:15:35.060 What is not within their rights is to use violence to prevent him from working voluntarily 166 00:15:35.060 --> 00:15:37.620 for someone else. 167 00:15:37.620 --> 00:15:40.620 One more recourse would be permissible. 168 00:15:40.620 --> 00:15:46.140 Suppose that Smith, when making his agreement for lifelong voluntary obedience to the Jones 169 00:15:46.140 --> 00:15:54.580 Corporation, receives in exchange $1 million in payment for these expected future services. 170 00:15:54.580 --> 00:16:01.660 Early then, the Jones Corporation had transferred title to the one million dollars, not absolutely, 171 00:16:01.660 --> 00:16:08.760 but conditionally, on his performance of lifelong service. Smith has the absolute right to change 172 00:16:08.760 --> 00:16:15.940 his mind, but he no longer has the right to keep the one million dollars. If he does so, 173 00:16:15.940 --> 00:16:21.900 he is a thief of the Jones Corporation's property. He must therefore be forced to return the 174 00:16:21.900 --> 00:16:36.860 Let us take a seemingly more difficult case. Suppose that a celebrated movie actor agrees 175 00:16:36.860 --> 00:16:43.620 to appear at a certain theater at a certain date. For whatever reason, he fails to appear. 176 00:16:43.620 --> 00:16:49.220 Should he be forced to appear at that or some future date? Certainly not, for that would 177 00:16:49.220 --> 00:16:55.220 be compulsory slavery. Should he be forced, at least, to recompense the theater owners 178 00:16:55.220 --> 00:17:00.820 for the publicity and other expenses incurred by the theater owners in anticipation of his 179 00:17:00.820 --> 00:17:07.820 appearance? No, again, for his agreement was a mere promise concerning his inalienable 180 00:17:07.820 --> 00:17:14.820 will which he has the right to change at any time. Put another way, since the movie actor 181 00:17:14.820 --> 00:17:19.540 If the actor has not yet received any of the theater owner's property, he has committed 182 00:17:19.540 --> 00:17:25.640 no theft against the owners or against anyone else, and therefore he cannot be forced to 183 00:17:25.640 --> 00:17:27.560 pay damages. 184 00:17:27.560 --> 00:17:32.200 The fact that the theater owners may have made considerable plans and investments on 185 00:17:32.200 --> 00:17:38.220 the expectation that the actor would keep the agreement may be unfortunate for the owners, 186 00:17:38.220 --> 00:17:40.920 but that is their proper risk. 187 00:17:40.920 --> 00:17:46.400 The theater owners should not expect the actor to be forced to pay for their lack of foresight 188 00:17:46.400 --> 00:17:49.200 and poor entrepreneurship. 189 00:17:49.200 --> 00:17:54.680 The owners pay the penalty for placing too much confidence in the actor. 190 00:17:54.680 --> 00:18:01.040 It may be considered more moral to keep promises than to break them, but any coercive enforcement 191 00:18:01.040 --> 00:18:07.800 of such a moral code, since it goes beyond the prohibition of theft or assault, is itself 192 00:18:07.800 --> 00:18:15.800 an invasion of the property rights of the movie actor, and therefore impermissible in the libertarian society. 193 00:18:15.800 --> 00:18:20.800 Again, of course, if the actor received an advance payment from the theater owners, 194 00:18:20.800 --> 00:18:28.800 then his keeping the money while not fulfilling his part of the contract would be an implicit theft against the owners, 195 00:18:28.800 --> 00:18:33.800 and therefore the actor must be forced to return the money. 196 00:18:33.800 --> 00:18:51.800 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. 197 00:18:51.800 --> 00:18:58.100 In short, if the theater owners wish to avoid the risk of non-appearance, they could refuse 198 00:18:58.100 --> 00:19:05.900 to sign the agreement unless the actor agreed to put up a performance bond in case of non-appearance. 199 00:19:05.900 --> 00:19:11.020 In that case, the actor, in the course of agreeing to his future appearance, agrees 200 00:19:11.020 --> 00:19:18.060 also to transfer a certain sum of money to the theater owners in case he fails to appear. 201 00:19:18.060 --> 00:19:23.580 Since money, of course, is alienable, and since such a contract would meet our title 202 00:19:23.580 --> 00:19:29.940 transfer criterion, this would be a perfectly valid and enforceable contract. 203 00:19:29.940 --> 00:19:35.500 For what the actor would be saying is, if I do not appear at Theater X at such and such 204 00:19:35.500 --> 00:19:42.940 a date, I hereby transfer as of the date the following sum to the theater owners. 205 00:19:42.940 --> 00:19:47.340 Failure to meet the performance bond will then be an implicit theft of the property 206 00:19:47.340 --> 00:19:49.260 of the Owners. 207 00:19:49.260 --> 00:19:54.720 If then the theater owners fail to require a performance bond as part of the agreement, 208 00:19:54.720 --> 00:19:57.620 then they must suffer the consequences. 209 00:19:57.620 --> 00:20:04.540 Indeed, in an important article, A.W.B. Simpson has pointed out that performance bonds were 210 00:20:04.540 --> 00:20:10.080 the rule during the Middle Ages and in the early modern period, not only for personal 211 00:20:10.080 --> 00:20:16.600 services but for all contracts, including sales of land and money debts. 212 00:20:16.600 --> 00:20:23.000 These performance bonds evolved on the market as voluntary penalty or penal bonds in which 213 00:20:23.000 --> 00:20:29.820 the contractor obligated himself to pay what was usually twice the sum he owed in case 214 00:20:29.820 --> 00:20:36.140 of failure to pay his debt or fulfill his contract at the agreed upon date. 215 00:20:36.140 --> 00:20:43.140 The voluntarily contracted penalty served as an incentive for him to fulfill his contract. 216 00:20:43.140 --> 00:20:49.060 Thus if A agreed to sell a parcel of land in exchange for B's agreed upon payment of 217 00:20:49.060 --> 00:20:56.060 a money price, each would obligate himself to pay a certain sum, usually twice the value 218 00:20:56.060 --> 00:21:01.340 of his contractual obligation in case of failure to pay. 219 00:21:01.340 --> 00:21:07.840 In the case of a money debt, called a common money bond, someone who owed $1,000 agreed 220 00:21:07.840 --> 00:21:15.440 to pay $2,000 to the creditor if he failed to pay $1,000 by a certain date. 221 00:21:15.440 --> 00:21:23.360 Or more strictly, the obligation to pay $2,000 was conditional upon the debtors paying $1,000 222 00:21:23.360 --> 00:21:25.560 by a certain date. 223 00:21:25.560 --> 00:21:29.680 Hence the term conditional penal bond. 224 00:21:29.680 --> 00:21:34.800 In the above example of a contract to perform personal service, suppose that the failure 225 00:21:34.800 --> 00:21:51.800 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. 226 00:21:51.800 --> 00:21:59.800 In this sort of contract, the theater owner is protected, and there is no improper enforcement of a mere promise. 227 00:21:59.800 --> 00:22:05.800 Of course, the agreed-upon penalty does not have to be twice the estimated value. 228 00:22:05.800 --> 00:22:09.800 It can be any amount assented to by the contracting parties. 229 00:22:09.800 --> 00:22:14.800 The double amount became the custom in medieval and early modern Europe. 230 00:22:14.800 --> 00:22:22.800 In the course of his article, Simpson revises the orthodox historical account of the development of modern contract law. 231 00:22:22.800 --> 00:22:41.280 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. 232 00:22:41.280 --> 00:23:01.280 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. 233 00:23:01.280 --> 00:23:07.000 Studies. Indeed, Simpson points out that the performance bond proved to be a remarkably 234 00:23:07.000 --> 00:23:13.920 flexible instrument for the handling of complex as well as simple contracts and agreements, 235 00:23:13.920 --> 00:23:19.000 and the performance bond was formal enough to guard against fraud, yet easy enough to 236 00:23:19.000 --> 00:23:24.920 execute for the convenience of commercial transactions. Furthermore, in its centuries 237 00:23:24.920 --> 00:23:37.920 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. 238 00:23:37.920 --> 00:23:51.920 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. 239 00:23:51.920 --> 00:23:55.420 Why the Decline of the Penal Bond? 240 00:23:55.420 --> 00:24:00.760 Because the courts began to refuse to enforce these obligations. 241 00:24:00.760 --> 00:24:06.280 For whatever the reason, whether for misguided humanitarian or for more sinister reasons 242 00:24:06.280 --> 00:24:12.320 of special privilege, the courts began to balk at the toughness of the law, at the fact 243 00:24:12.320 --> 00:24:16.840 that they had been enforcing contracts to their full extent. 244 00:24:16.840 --> 00:24:23.460 For the bond meant that for any default in performance, the whole penalty was forfeit. 245 00:24:23.460 --> 00:24:28.860 At first, during the Elizabethan era, the courts of chancery began intervening to relieve 246 00:24:28.860 --> 00:24:34.420 the debtor, the obligor, in cases of extreme hardship. 247 00:24:34.420 --> 00:24:40.100 By the early 17th century, this relief was broadened to all cases in which misfortune 248 00:24:40.100 --> 00:24:46.580 befell the obligor, and where he paid the contracted amount a short time later. 249 00:24:46.580 --> 00:24:53.260 In such cases, he only had to pay the principal, contracted amount, plus what the courts decided 250 00:24:53.260 --> 00:25:00.680 were reasonable damages, thus waiving the requirement to pay the agreed-on penalty. 251 00:25:00.680 --> 00:25:06.420 The intervention expanded further in later years, until finally, in the 1660s and early 252 00:25:06.420 --> 00:25:13.460 1670s, the Chancery courts simply outlawed penalty payments altogether, whatever the 253 00:25:13.460 --> 00:25:27.460 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. 254 00:25:27.460 --> 00:25:38.460 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. 255 00:25:38.460 --> 00:25:44.020 Naturally, since bonded penalties were no longer enforced by the courts, the institution 256 00:25:44.020 --> 00:25:48.740 of the penal performance bond swiftly disappeared. 257 00:25:48.740 --> 00:25:53.540 The unfortunate suppression of the performance bond was the result of a mistaken theory of 258 00:25:53.540 --> 00:25:59.560 contract enforcement that the courts had adopted in the first place, namely that the purpose 259 00:25:59.560 --> 00:26:06.800 of enforcement was to compensate the creditor or obligee for the default of the debtor, 260 00:26:06.800 --> 00:26:13.200 That is, to make him as well off as he would have been without the making of the contract. 261 00:26:13.200 --> 00:26:18.320 In previous centuries the courts had felt that compensation consisted of enforcing the 262 00:26:18.320 --> 00:26:20.320 penal bond. 263 00:26:20.320 --> 00:26:26.220 It then became fairly easy for the courts to change their minds and to decide that court-assessed 264 00:26:26.220 --> 00:26:32.500 damages were compensation enough, relieving the harshness of the voluntarily stipulated 265 00:26:32.500 --> 00:26:33.880 penalty. 266 00:26:33.880 --> 00:26:39.740 The theory of contract enforcement should have had nothing to do with compensation. 267 00:26:39.740 --> 00:26:46.200 Its purpose should always be to enforce property rights and to guard against the implicit theft 268 00:26:46.200 --> 00:26:52.320 of breaking contracts which transfer titles to alienable property. 269 00:26:52.320 --> 00:26:59.280 Defense of property titles and only such defense is the business of enforcement agencies. 270 00:26:59.280 --> 00:27:05.800 Man writes perceptively of the tension between two ideas. On the one hand, we have the idea 271 00:27:05.800 --> 00:27:12.640 that the real function of contractual institutions is to make sure so far as possible that agreements 272 00:27:12.640 --> 00:27:19.160 are performed, for example, the enforcement of the penal bond. On the other hand, we have 273 00:27:19.160 --> 00:27:25.320 the idea that it suffices for the law to provide compensation for loss suffered by failure 274 00:27:25.320 --> 00:27:28.240 to perform agreements. 275 00:27:28.240 --> 00:27:34.400 The latter view places severe limits on the enthusiasm with which performance is required. 276 00:27:34.400 --> 00:27:40.920 Moreover, in contracts for personal services, such as the actor example above, a positive 277 00:27:40.920 --> 00:27:46.720 value is attached to the right to break the contract so long as the defaulting party is 278 00:27:46.720 --> 00:27:50.480 made to pay compensation. 279 00:27:50.480 --> 00:27:52.880 What of gift contracts? 280 00:27:52.880 --> 00:27:58.480 Should they be legally enforceable? Again, the answer depends on whether a mere promise 281 00:27:58.480 --> 00:28:04.760 has been made or whether an actual transfer of title has taken place in the agreement. 282 00:28:04.760 --> 00:28:12.440 Obviously, if A says to B, I hereby give you $10,000, then title to the money has been 283 00:28:12.440 --> 00:28:18.520 transferred and the gift is enforceable. A, furthermore, cannot later demand the money 284 00:28:18.520 --> 00:28:25.280 back as his right. On the other hand, if A says, I promise to give you ten thousand dollars 285 00:28:25.280 --> 00:28:32.120 in one year, then this is a mere promise, what used to be called a nudum pactum in Roman 286 00:28:32.120 --> 00:28:38.720 law, and therefore is not properly enforceable. The receiver must take his chances that the 287 00:28:38.720 --> 00:28:45.800 donor will keep his promise. But if on the contrary A tells B, I hereby agree to transfer 288 00:28:45.800 --> 00:28:55.800 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. 289 00:28:55.800 --> 00:29:06.800 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. 290 00:29:06.800 --> 00:29:13.800 Has title to alienable property been transferred, or has a mere promise been granted? 291 00:29:13.800 --> 00:29:21.800 In the former case the agreement is enforceable because a failure to deliver the transferred property is theft. 292 00:29:21.800 --> 00:29:27.800 In the latter case it is a mere promise which has not transferred title to property, 293 00:29:27.800 --> 00:29:33.800 a promise that may be morally binding but cannot be legally binding on the promisor. 294 00:29:33.800 --> 00:29:39.800 Hobbes was not engaging in mere wordplay when he correctly wrote, 295 00:29:39.800 --> 00:29:47.120 For words alone, if they be of the time to come, and contain a bare promise, nudum pactum, 296 00:29:47.120 --> 00:29:53.000 are an insufficient sign of a free gift, and therefore not obligatory. 297 00:29:53.000 --> 00:29:59.560 For if they be of the time to come, as tomorrow I will give, they are a sign I have not yet 298 00:29:59.560 --> 00:30:05.540 given, and consequently that my right is not transferred, but remaineth till I transfer 299 00:30:05.540 --> 00:30:08.180 it by some other act. 300 00:30:08.180 --> 00:30:15.620 And if the words be of the time present or past as I have given or do give to be delivered 301 00:30:15.620 --> 00:30:21.460 tomorrow, then this is my tomorrow's right given away today. 302 00:30:21.460 --> 00:30:27.040 There is a great difference in the signification of the words between I will that this be thine 303 00:30:27.040 --> 00:30:31.340 tomorrow and I will give it thee tomorrow. 304 00:30:31.340 --> 00:30:37.180 For the word I will in the former manner of speech signifies a promise of an act of the 305 00:30:37.180 --> 00:31:02.020 Let us now apply the contrasting theories to a pure gift agreement rather than an exchange. 306 00:31:02.020 --> 00:31:06.820 A grandfather promises to pay his grandson's way through college. 307 00:31:06.820 --> 00:31:11.480 After a year or two in college, the grandfather, whether from suffering business reverses 308 00:31:11.480 --> 00:31:16.120 or from any other reason, decides to revoke his promise. 309 00:31:16.120 --> 00:31:20.640 On the basis of the promise, the grandson has incurred various expenses in arranging 310 00:31:20.640 --> 00:31:25.200 his college career and forgoing other employment. 311 00:31:25.200 --> 00:31:31.520 Should the grandson be able to enforce the grandfather's promise through legal action? 312 00:31:31.520 --> 00:31:36.800 In our title transfer theory, the grandson has no right whatever to the grandfather's 313 00:31:36.800 --> 00:31:41.960 property, since the grandfather retained title to his money throughout. 314 00:31:41.960 --> 00:31:48.280 A mere naked promise can confer no title, and neither can any subjective expectations 315 00:31:48.280 --> 00:31:50.320 of the promisee. 316 00:31:50.320 --> 00:31:56.640 The costs incurred by the grandson are properly his own entrepreneurial risk. 317 00:31:56.640 --> 00:32:02.160 On the other hand, of course, if the grandfather transferred title, then it would be the grandson's 318 00:32:02.160 --> 00:32:06.800 property and he should be able to sue for his property. 319 00:32:06.800 --> 00:32:11.540 Such a transfer would have occurred if the grandfather had written, I hereby transfer 320 00:32:11.540 --> 00:32:20.440 $8,000 to you, the grandson, or had written, I hereby transfer $2,000 to you at each of 321 00:32:20.440 --> 00:32:29.440 of the following dates, 1 September 1975, 1 September 1976, etc. 322 00:32:29.440 --> 00:32:35.760 On the other hand, on the expectations model of contracts, there are two possible variants, 323 00:32:35.760 --> 00:32:40.800 either that the grandson would have a binding legal claim on the grandfather because of 324 00:32:40.800 --> 00:32:47.240 the mere promise, or that the grandson would have a claim on the expenses that he had incurred 325 00:32:47.240 --> 00:32:53.860 on the Expectation of the Promise Being Fulfilled Suppose, however, that the original statement 326 00:32:53.860 --> 00:32:59.340 of the grandfather was not a simple promise, but a conditional exchange. 327 00:32:59.340 --> 00:33:05.320 For example, that the grandfather agreed to pay the grandson's full college tuition, provided 328 00:33:05.320 --> 00:33:10.720 that the grandson made weekly progress reports to the grandfather. 329 00:33:10.720 --> 00:33:16.320 In that case, according to our title transfer theory, the grandfather has made a conditional 330 00:33:16.320 --> 00:33:18.320 Transfer of Title. 331 00:33:18.320 --> 00:33:25.160 Agreeing to transfer title in the future provided that the grandson performed certain services. 332 00:33:25.160 --> 00:33:31.000 If the grandson in fact performed such services and continues to perform them, then the tuition 333 00:33:31.000 --> 00:33:37.840 payment is his property and he should be legally entitled to collect from the grandfather. 334 00:33:37.840 --> 00:33:43.080 On the other hand, as indicated above, the grandson could not be required to perform 335 00:33:43.080 --> 00:33:48.800 from the Service should he change his mind, for that would be compulsory slavery. 336 00:33:48.800 --> 00:33:54.400 He would be required, however, to repay the grandfather. 337 00:33:54.400 --> 00:33:58.880 Under our proposed theory, would fraud be actionable at law? 338 00:33:58.880 --> 00:34:05.740 Yes, because fraud is failure to fulfill a voluntarily agreed-upon transfer of property 339 00:34:05.740 --> 00:34:09.020 and is therefore implicit theft. 340 00:34:09.020 --> 00:34:15.660 If for example A sells to B a package which A says contains a radio and it contains only 341 00:34:15.660 --> 00:34:22.980 a pile of scrap metal, then A has taken B's money and not fulfilled the agreed upon conditions 342 00:34:22.980 --> 00:34:27.060 for such a transfer, the delivery of a radio. 343 00:34:27.060 --> 00:34:30.660 A has therefore stolen B's property. 344 00:34:30.660 --> 00:34:35.580 The same applies to a failure to fulfill any product warranty. 345 00:34:35.580 --> 00:34:41.260 If, for example, the seller asserts that the contents of a certain package include 5 ounces 346 00:34:41.260 --> 00:34:47.300 of product X and they do not do so, then the seller has taken money without fulfilling 347 00:34:47.300 --> 00:34:49.420 the terms of the contract. 348 00:34:49.420 --> 00:34:53.660 He has, in effect, stolen the buyer's money. 349 00:34:53.660 --> 00:35:00.380 Once again, warranties of products would be legally enforceable not because they are promises, 350 00:35:00.380 --> 00:35:05.880 because they describe one of the entities of the agreed-upon contract. 351 00:35:05.880 --> 00:35:12.020 If the entity is not as the seller describes, then fraud, and hence implicit theft, have 352 00:35:12.020 --> 00:35:14.700 taken place. 353 00:35:14.700 --> 00:35:18.900 Would bankruptcy laws be permissible in a libertarian legal system? 354 00:35:18.900 --> 00:35:25.380 Clearly not, for the bankruptcy laws compel the discharge of a debtor's voluntarily contracted 355 00:35:25.380 --> 00:35:30.740 Debts, and thereby invade the property rights of the creditors. 356 00:35:30.740 --> 00:35:36.580 The debtor who refuses to pay his debt has stolen the property of the creditor. 357 00:35:36.580 --> 00:35:42.300 If the debtor is able to pay but conceals his assets, then his clear act of theft is 358 00:35:42.300 --> 00:35:45.020 compounded by fraud. 359 00:35:45.020 --> 00:35:51.180 But even if the defaulting debtor is not able to pay, he has still stolen the property of 360 00:35:51.180 --> 00:35:56.900 of the Creditor by not making his agreed-upon delivery of the creditor's property. 361 00:35:56.900 --> 00:36:02.620 The function of the legal system should then be to enforce payment upon the debtor through, 362 00:36:02.620 --> 00:36:08.660 for example, forced attachment of the debtor's future income for the debt, plus the damages 363 00:36:08.660 --> 00:36:12.540 and interest on the continuing debt. 364 00:36:12.540 --> 00:36:17.380 Bankruptcy laws, which discharge the debt in defiance of the property rights of the 365 00:36:17.380 --> 00:36:22.780 Debtor, virtually confer a license to steal upon the debtor. 366 00:36:22.780 --> 00:36:28.020 In the pre-modern era, the defaulting debtor was generally treated as a thief, and forced 367 00:36:28.020 --> 00:36:31.420 to pay as he acquired income. 368 00:36:31.420 --> 00:36:36.500 Doubtless the penalty of imprisonment went far beyond proportional punishment, and hence 369 00:36:36.500 --> 00:36:38.220 was excessive. 370 00:36:38.220 --> 00:36:44.980 But at least the old legal ways placed responsibility where it belonged, on the debtor, to fulfill 371 00:36:44.980 --> 00:36:58.220 One historian of American bankruptcy law, though a supporter of these laws, has conceded 372 00:36:58.220 --> 00:37:02.660 that they trample on the property rights of the creditors. 373 00:37:02.660 --> 00:37:07.180 If the laws of bankruptcies were based on the legal rights of individuals, there would 374 00:37:07.180 --> 00:37:11.780 be no warrant for the discharge of debtors from the payment of their debts as long as 375 00:37:11.780 --> 00:37:18.600 as they lived, or their estates would continue to exist. The creditor has rights which must 376 00:37:18.600 --> 00:37:25.340 not be violated even if adversity be the cause of the bankrupt's condition. His claims are 377 00:37:25.340 --> 00:37:31.300 part of his property. In defense of the bankruptcy laws, the utilitarian 378 00:37:31.300 --> 00:37:36.720 economist might reply that once these laws are on the books, the creditor knows what 379 00:37:36.720 --> 00:37:42.680 may happen to him that he compensates for that extra risk with a higher interest rate, 380 00:37:42.680 --> 00:37:48.640 and that therefore actions under the bankruptcy law should not be regarded as expropriation 381 00:37:48.640 --> 00:37:51.400 of the creditor's property. 382 00:37:51.400 --> 00:37:55.960 It is true that the creditor knows the laws in advance, and that he will charge a higher 383 00:37:55.960 --> 00:38:00.040 interest rate to compensate for the resulting risk. 384 00:38:00.040 --> 00:38:04.740 The therefore, however, does not at all follow. 385 00:38:04.740 --> 00:38:11.100 Regardless of foreknowledge or forewarning, bankruptcy laws are still violations and hence 386 00:38:11.100 --> 00:38:15.340 expropriations of the property rights of the creditors. 387 00:38:15.340 --> 00:38:20.860 There are all sorts of situations on the market where prospective victims may be able to maneuver 388 00:38:20.860 --> 00:38:26.100 so as to minimize the harm to themselves of institutionalized theft. 389 00:38:26.100 --> 00:38:31.940 The theft is no more moral or legitimate because of such praiseworthy maneuvering. 390 00:38:31.940 --> 00:38:38.940 Moreover, the same utilitarian argument could be used about such crimes as mugging or burglary. 391 00:38:38.940 --> 00:38:43.940 Instead of deploring crime against storekeepers in certain sections of a city, 392 00:38:43.940 --> 00:38:48.940 we might then argue, as utilitarian economists, as follows. 393 00:38:48.940 --> 00:38:52.940 After all, the storekeepers knew what they were doing in advance. 394 00:38:52.940 --> 00:38:57.940 Before they opened the store, they knew of the higher crime rate at that location, 395 00:38:57.940 --> 00:39:03.540 were therefore able to adjust their insurance and their business practices accordingly. 396 00:39:03.540 --> 00:39:10.100 Should we say therefore that robbery of storekeepers is not to be deplored or even outlawed? 397 00:39:10.100 --> 00:39:16.620 In short, crime is crime, and invasions of property are invasions of property. 398 00:39:16.620 --> 00:39:21.620 Why should those far-seeing property owners who took some advance measures to alleviate 399 00:39:21.620 --> 00:39:26.100 the effects of prospective crime be penalized? 400 00:39:26.100 --> 00:39:31.060 Why should the law penalize the virtue of forethought? 401 00:39:31.060 --> 00:39:35.260 The problem of defaulting debtors may be met in another way. 402 00:39:35.260 --> 00:39:41.060 The creditor, taking account of the debtor's honest attempts to pay, may voluntarily decide 403 00:39:41.060 --> 00:39:45.020 to forgive part or all of the debt. 404 00:39:45.020 --> 00:39:50.680 Here it is important to stress that in a libertarian system which defends property rights, each 405 00:39:50.680 --> 00:39:57.680 Each creditor may forgive only his own debt, may only surrender his own property claims 406 00:39:57.680 --> 00:39:59.560 to the debtor. 407 00:39:59.560 --> 00:40:05.440 There can then be no legal situation in which a majority of creditors compel a minority 408 00:40:05.440 --> 00:40:09.560 to forgive their own claims. 409 00:40:09.560 --> 00:40:15.480 Voluntary forgiveness of a debt may occur after the fact of default, or it may be incorporated 410 00:40:15.480 --> 00:40:18.760 into the original debt contract. 411 00:40:18.760 --> 00:40:27.120 In that case, A could lend B $1,000 now, in exchange for $1,000 a year from now, provided 412 00:40:27.120 --> 00:40:33.880 that, given certain conditions of unavoidable insolvency, A would forgive B part or all 413 00:40:33.880 --> 00:40:40.380 of that debt. Presumably, A would charge a higher interest rate to compensate for the 414 00:40:40.380 --> 00:40:46.320 additional risk of failure. But the important point is that in these legitimate situations 415 00:40:46.320 --> 00:40:52.240 In terms of forgiveness, the discharge of debt has been voluntarily agreed upon, either 416 00:40:52.240 --> 00:40:59.120 in the original agreement or, after default, by the individual creditor. 417 00:40:59.120 --> 00:41:05.960 Voluntary forgiveness takes on the legal philosophical status of a gift by the creditor to the debtor. 418 00:41:05.960 --> 00:41:11.760 Oddly enough, while title transfer theorists see such a gift as a perfectly legitimate 419 00:41:11.760 --> 00:41:17.600 and Valid Agreement to Transfer Title to Money from a Creditor to a Debtor. 420 00:41:17.600 --> 00:41:22.320 Current legal doctrine has questioned the validity of such an agreement to forgive as 421 00:41:22.320 --> 00:41:24.800 a binding contract. 422 00:41:24.800 --> 00:41:31.400 For in current theory, a binding contract must be a promise exchanged for a consideration, 423 00:41:31.400 --> 00:41:37.800 and in the case of forgiveness, the creditor receives no consideration in exchange. 424 00:41:37.800 --> 00:41:42.820 But the title transfer principle sees no problems with forgiveness. 425 00:41:42.820 --> 00:41:48.640 The creditor's act by way of releasing a claim is of the same kind as an ordinary act of 426 00:41:48.640 --> 00:41:50.160 transfer. 427 00:41:50.160 --> 00:41:57.240 In either case, the act is simply the manifested consent of the owner of the right. 428 00:41:57.240 --> 00:41:59.040 Another important point. 429 00:41:59.040 --> 00:42:04.960 In our title transfer model, a person should be able to sell not only the full title of 430 00:42:04.960 --> 00:42:11.520 ownership to property, but also part of that property, retaining the rest for himself or 431 00:42:11.520 --> 00:42:15.800 others to whom he grants or sells that part of the title. 432 00:42:15.800 --> 00:42:23.080 Thus, as we have seen above, common law copyright is justified as the author or publisher selling 433 00:42:23.080 --> 00:42:27.840 all rights to his property except the right to resell it. 434 00:42:27.840 --> 00:42:33.800 Similarly, valid and enforceable would be restrictive covenants to property, in which, 435 00:42:33.800 --> 00:42:40.200 For example, a developer sells all the rights to a house and land to a purchaser except 436 00:42:40.200 --> 00:42:46.540 for the right to build a house over a certain height or of other than a certain design. 437 00:42:46.540 --> 00:42:53.480 The only proviso is that there must at every time be some existing owner or owners of all 438 00:42:53.480 --> 00:42:56.680 the rights to any given property. 439 00:42:56.680 --> 00:43:01.440 In the case of a restrictive covenant, for example, there must be some owners of the 440 00:43:01.440 --> 00:43:07.200 The Reserved Right to Build a Tall Building. If not the developer himself, then someone 441 00:43:07.200 --> 00:43:13.000 who has bought or received this right. If the reserved right has been abandoned and 442 00:43:13.000 --> 00:43:18.260 no existing person possesses it, then the owner of the house may be considered to have 443 00:43:18.260 --> 00:43:24.720 homesteaded this right, and can then go ahead and build the tall building. Covenants and 444 00:43:24.720 --> 00:43:31.360 other restrictions, in short, cannot simply run with the property forever, thereby overriding 445 00:43:31.360 --> 00:43:43.480 This proviso rules out entail as an enforceable right. Under entail, a property owner could 446 00:43:43.480 --> 00:43:50.120 bequeath this land to his sons and grandsons with the proviso that no future owner could 447 00:43:50.120 --> 00:43:56.620 sell the land outside the family, a deed typical of feudalism. But this would mean that the 448 00:43:56.620 --> 00:44:00.140 The living owners could not sell the property. 449 00:44:00.140 --> 00:44:04.060 They would be governed by the dead hand of the past. 450 00:44:04.060 --> 00:44:10.540 But all rights to any property must be in the hands of living, existing persons. 451 00:44:10.540 --> 00:44:14.860 It might be considered a moral requirement for the descendants to keep the land and the 452 00:44:14.860 --> 00:44:20.580 family, but it cannot properly be considered a legal obligation. 453 00:44:20.580 --> 00:44:28.220 Money rights must only be accorded to, and can only be enjoyed by, the living. 454 00:44:28.220 --> 00:44:35.340 There is at least one case in which the promised expectations model is in grave internal contradiction, 455 00:44:35.340 --> 00:44:41.780 depending upon whether one stresses the promise or the expectations part of the theory. 456 00:44:41.780 --> 00:44:46.620 This is the legal problem of whether purchase breaks higher. 457 00:44:46.620 --> 00:44:53.780 Let's suppose that Smith owns a tract of land. He leases the land for five years to Jones. 458 00:44:53.780 --> 00:45:00.180 Smith, however, now sells the land to Robinson. Is Robinson bound to obey the terms of the 459 00:45:00.180 --> 00:45:07.500 lease, or can he oust Jones immediately? On the promise theory, only Smith made the promise 460 00:45:07.500 --> 00:45:13.980 to lease the land. Robinson did not so promise, and therefore Robinson is not bound to respect 461 00:45:13.980 --> 00:45:20.180 and the lease. On the Expectations Theory, the lease agreement generated expectations 462 00:45:20.180 --> 00:45:26.820 in Jones that the land would be his for five years. Therefore, on the former grounds, purchase 463 00:45:26.820 --> 00:45:34.340 breaks higher, whereas it cannot do so on the Expectations Model. The Title Transfer 464 00:45:34.340 --> 00:45:40.860 Theory, however, avoids this problem. On our model, Jones, the leaseholder, owns the use 465 00:45:40.860 --> 00:45:46.940 Use of the property for the contractual period of the lease. Five years of property use has 466 00:45:46.940 --> 00:45:53.520 been transferred to Jones. Therefore Robinson cannot break the lease, unless of course the 467 00:45:53.520 --> 00:46:00.980 breaking of hire under such conditions was expressly included as a provision in the lease. 468 00:46:00.980 --> 00:46:06.740 There is one vitally important political implication of our title transfer theory as against the 469 00:46:06.740 --> 00:46:11.180 The Promise Theory of Valid and Enforceable Contracts 470 00:46:11.180 --> 00:46:16.340 It should be clear that the Title Transfer Theory immediately tosses out of court all 471 00:46:16.340 --> 00:46:22.500 variants of the Social Contract Theory as a justification for the State. 472 00:46:22.500 --> 00:46:28.100 Setting aside the historical problem of whether such a social contract ever took place, it 473 00:46:28.100 --> 00:46:33.180 should be evident that the social contract, whether it be the Hobbesian surrender of all 474 00:46:33.180 --> 00:46:38.820 Man's rights, the Lockean surrender of the right of self-defense or any other, was a 475 00:46:38.820 --> 00:46:45.940 mere promise of future behavior, future will, and in no way surrendered title to alienable 476 00:46:45.940 --> 00:46:47.900 property. 477 00:46:47.900 --> 00:46:56.300 Certainly no past promise can bind later generations, let alone the actual maker of the promise. 478 00:46:56.300 --> 00:47:03.060 As Rousseau states, even if a man can alienate himself, he cannot alienate his children, 479 00:47:03.060 --> 00:47:08.600 They are born free, their liberty belongs to them and no one but themselves has a right 480 00:47:08.600 --> 00:47:15.260 to dispose of it, for to alienate another's liberty is contrary to the natural order and 481 00:47:15.260 --> 00:47:19.000 is an abuse of the father's rights. 482 00:47:19.000 --> 00:47:25.020 And four decades before Rousseau, in the early 1720s, the libertarian English writers John 483 00:47:25.020 --> 00:47:31.160 Trenchard and Thomas Gordon, in their Cato's Letters, widely influential in forming the 484 00:47:31.160 --> 00:47:35.960 The Attitudes of the American Colonies, wrote as follows, 485 00:47:35.960 --> 00:47:42.800 All men are born free, liberty is a gift which they receive from God himself, nor can they 486 00:47:42.800 --> 00:47:49.160 alienate the same by consent, though possibly they may forfeit it by crimes. 487 00:47:49.160 --> 00:47:56.020 No man can give away the lives and liberties, religion or acquired property of his posterity, 488 00:47:56.020 --> 00:48:01.520 who will be born as free as he himself was born and can never be bound by his wicked 489 00:48:01.520 --> 00:48:05.400 and ridiculous bargain. 490 00:48:05.400 --> 00:48:10.920 The current law of contracts is an inchoate mixture of the title transfer and the promise 491 00:48:10.920 --> 00:48:17.060 expectations approaches, with the expectations model predominating under the influence of 492 00:48:17.060 --> 00:48:22.220 nineteenth and twentieth century legal positivism and pragmatism. 493 00:48:22.220 --> 00:48:29.300 A libertarian, natural rights, property rights theory must therefore reconstitute contract 494 00:48:29.300 --> 00:48:32.660 law on the proper title transfer basis.