Libertarian Answer Man: Breach of Contract, Binding Obligations, and Impossibility

A libertarian colleague asked me something like this:

Some time ago, I recall you wrote a piece on property rights where you argued (I think) that the inability to pay on a credit transaction was not a fraud because of the doctrine of impossibility. (I’m clearly paraphrasing in hopes that you will recognize the piece to which I’m referring.) I can’t seem to find it. (Perhaps it’s in the JLS or some reply to Van Dun.)¹

If you know the piece, could you direct me to it?

I replied something like this:

I didn’t use the legal doctrine of impossibility exactly, because this doctrine emerged as a patch to the binding-promises conception of contract, which I do not agree with; but the reasoning is not completely dissimilar. (Moreover, as noted below: inability to pay might be breach of contract [though I disagree even with this], but it is not fraud—nor “implicit theft.”)

Long-short: future goods do not yet exist, so when you transfer a present good in exchange (economically) for a future one, both parties realize the future good is uncertain, as the future is uncertain. So the future title transfer is always conditional—on condition is that both parties exist, and the future good exists. If it exists, it has to be transferred. If it does not exist, there is nothing to be transferred, so failure to transfer a non-existent thing is neither theft nor “fraud” of any sort. Moreover, failure to pay a debt because of insolvency etc. is never “fraud” or even “contract breach” (nor “implicit theft,” as Rothbard and Block unfortunately suggest), according to (a proper interpretation of) the Rothbardian title-transfer theory of contract. So it is not that you are excused from performing a promised obligation because it is impossible; it is simply that the condition of the title transfer is not satisfied—so nothing transfers.

It would be like if I told you: “X, if you give me a dollar, I will give you whatever happens to be inside this closed shoebox.” If the shoebox contains an egg—you own the egg. If it is empty, then nothing transfers to you since there is nothing inside the box. In the civil law, this is similar to the sale of a hope. (Go to about 19 minutes of this lecture: KOL225 | Reflections on the Theory of Contract (PFS 2017); see also La. Civil Code art. 2451: “Art. 2451.  Sale of a hope
A hope may be the object of a contract of sale.  Thus, a fisherman may sell a haul of his net before he throws it.  In that case the buyer is entitled to whatever is caught in the net, according to the parties’ expectations, and even if nothing is caught the sale is valid.” )

In short, it’s not that it’s impossible. It’s that there is nothing to transfer—so nothing transfers. The doctrine of impossibility in the positive law is not without merit but it is an outgrowth of the binding-obligations theory of contracts, the idea that contracts are binding obligations that result from certain promises + formalities (consideration, cause, etc.). The same conception of contract gives rise to the doctrine of breach of contract—if you don’t “perform” the obligation owed, you are “in breach.” And then “damages” are owed.

But this is all wrong. The positive law is wrong. In the Misesian-Rothbardian (with a Hoppean-Kinsellian gloss) version of property rights and libertarian justice, there is no such thing as a binding contractual obligation, nor is there such a thing as breach of contract. It is true that the legal profession, courts, and the positive law classify matters according to the binding promises view, but this is not correct, and not compatible with Rothbard. Contracts are simply transfers of title to owned resources. The transfer can be conditional or unconditional. If the good or resource to be transferred is in the future, the transfer is necessarily conditional since the future is uncertain (and so is the existence of this future good).

I explain this in Part III.D et pass. of chapter 9 from LFFS, “A Libertarian Theory of Contract: Title Transfer, Binding Promises, and Inalienability.” See also the subsequent section on Fraud, and the preceding section on “Rothbard’s Mistake?” re inalienability. Hell, just read the whole paper. I’ve significantly updated and revised it since its original version.

Moreover, we have to distinguish between economic “exchange” and “sales” and legal exchange and sale. These concepts are not the same since they apply to different realms of phenomenon yet the words are the same and the interactions covered are similar and related; and so so people conflate them. I go into this in chapter 11 of LFFS, “Selling Does Not Imply Ownership, and Vice-Versa: A Dissection“—see,in particular, p. 276, the section “Economic vs. Normative Realms of Analysis: Ownership vs. Possession.”

I would suggest you read both chapters. It might address your queries, or at least apprise you of my approach to these matters. If you have more questions or want to discuss further let me know.

1. He is referring to “Reply to Van Dun: Non-Aggression and Title Transfer,” a revised version of which will appear in Legal Foundations of a Free Society (2023) [LFFS]. [↩]