≡ Menu

Libertarian Answer Man: Contracts over Non-existing Things

“Q – can you have a valid contract over things that don’t exist?

and especially if there’s no property title being transferred?

like it’s buying the idea of a kilometre? or a ‘rare sat’?”

Okay here’s how others might say: there is no thing to transfer so the contract is null and void, or something like that. That is because they think of contract as some kind of independent thing—a relationship, a legal “obligation.” And that one of the effects of a contract is that someone gets title to something that they agreed to, etc etc. This view of contract also thinks of the parties as being obligated to each other, and if they don’t perform their obligation they are in breach and owe damages, etc.

My view is that contract is just the word we use to describe what an owner of a scarce resource does with it. I.e., it’s just an application of ownership or property rights. If I own a car, or a house, or my body, I can permit you to use it, by consenting, or I can deny consent—I can exclude you. This requires some kind of language, communication. So I manifest my consent by saying “you may kiss me” or “you may use my car” or “welcome to my home for my dinner party.” Or I can say “don’t touch me” or “stay away from my home” etc.

I can also use this power of ownership to facilitate trade and exchange. I can let you use my car for a day, or I can let you use it forever—that is, I can give it to you. You can give me your money. This is what we call a contract: an arrangement between people to have various conditional title transfers. It’s not like the contract is a separate, existing thing. Thus, in the TTToC, there really are no “obligations,” and there is no such thing as “breach” of contract. There are just networks of conditional title transfers. Some explicit, others implicit — implied by context, custom, and so on.

So if I say “here is my car; I give it to you”, you can call this a contract (even if it’s a simple, contemporaneous, unconditional, unilateral, and gratuitous one). But it’s really just me transferring ownership of my car to you.

Now notice that executory contracts—future based ones—are always, necessarily conditional. That is because they are transfers of future goods, but those future goods’ existence is uncertain. Suppose I have a box and I say “I will sell you this box for $100. The box either contains a pet rock, or it doesn’t; I don’t know.” If you buy the box, you are buying whatever is inside it. If you open it and there was nothing in it, no title transfers; there is no pet rock to transfer. (The title to the $100 does transfer—assuming fiat is ownable, which is another issue but let’s leave that alone.) In the civil law we might call this the “sale of a hope” and something similar happens with gambling, like the lottery. https://www.legis.la.gov/legis/Law.aspx?d=109493

So if I say “I hereby give you the moon” then… nothing happens. I don’t own the moon. Likewise, suppose I have borrowed Joe’s corvette. I say “I hereby give you this corvette.” But I don’t own it, so no title transfers.

So. Back to your question. “can you have a valid contract over things that don’t exist?

and especially if there’s no property title being transferred?”

First of all, contract just is the transfer of title, or partial usage rights, over an owned resource. If there is no owned thing or no title being transferred, then this just means.. there is no owner transferring his property, and that’s what the word contract refers to. It’s like if two actors on stage pretend to make a contract—it’s not real, they are just acting, pretending. So if I pretend to sell you or give you something I don’t own, like the Brooklyn Bridge, it’s not that “the contract” is “invalid”; it’s that there was no title transfer.

All that said, in some cases, you could imagine something like this: I tell you that I have in my garage a special perpetual motion machine that generates 100kw of power forever for free. It’s a total lie. I offer to sell it to you in exchange for your Tesla. So you give me your Tesla. Then I am unable to produce the non-existent generator. There can be possible title transfers, damages, fraud charges, etc., because of this. But again even here it is not that the contract is “invalid” it’s that you can only transfer title to (a) something that exists, (b) that you own, and (c) that is alienable (i.e., not your body). When this happens we call it a contract or use the concept of contracting to explain what happened.

Make sense?

{ 0 comments… add one }

Leave a Reply

© 2012-2024 StephanKinsella.com CC0 To the extent possible under law, Stephan Kinsella has waived all copyright and related or neighboring rights to material on this Site, unless indicated otherwise. In the event the CC0 license is unenforceable a  Creative Commons License Creative Commons Attribution 3.0 License is hereby granted.

-- Copyright notice by Blog Copyright