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KOL418 | Corporations, Limited Liability, and the Title Transfer Theory of Contract, with Jeff Barr: Part II

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Kinsella on Liberty Podcast: Episode 418.

This is a followup to KOL414 | Corporations, Limited Liability, and the Title Transfer Theory of Contract, with Jeff Barr: Part I. See that episode for more information and notes.

In Part III, we need to talk about corporations. For more on that, see Corporate Personhood, Limited Liability, and Double Taxation.

 

For more discussion of the comments below, see Libertarian Answer Man: Future and Conditional Title Transfers Under the Title-Transfer Theory of Contract.

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  • Brian August 17, 2024, 3:58 pm

    In the example of the person getting their nails done, do I understand correctly that:
    1. the purchaser offers to transfer title to $30 (these are present dollars, not future dollars) now, for the nail salon to give him a manicure, and that the purchaser will transfer possession of the $30 after the manicure service
    2. the nail salon worker agrees to the offer, and at the moment of agreeing to the offer, title of the $30 (present dollars) is transferred to the nail salon.

    Now if the purchaser doesn’t transfer possession of the $30 after the manicure this is theft.

    In the case the purchaser never had the $30 in the first place to transfer to the nail salon, is it still theft, because it is theft through fraud?

    What if the purchaser thought they had $30 in good faith, does that matter?

    I am basing this off my reading of the “Fraud” section on page 34 of “A LIBERTARIAN THEORY OF CONTRACT: TITLE TRANSFER, BINDING PROMISES, AND INALIENABILITY”

    What is not clear, is that the example provided, Ethan knows the apples are rotten, but the article doesn’t elaborate what happens if Ethan didn’t know the apples were rotten and thought they were in good condition. It is not clear which party has the onus to ensure the property being offered for transferred is as represented and that the offeror does actually have title to the property being offered.

    In the text it says that “Karen conditions the transfer of title to her $20 on Ethan’s not knowingly engaging in “fraudulent” activities …”, this makes me assume that without Karen including that condition in the offer, that there would be no default assumption that there is a condition against fraudulent activities? If that is the case, I would further assume that unless a condition is included that states the offeror does have title to the property being offered and the property is in the condition being represented?

    Or does this all mean that these conditions are inherent, and that unless there is a condition that the title to the property has not been confirmed by the offeror and that the condition of the property has not been confirmed by the offeror?

    I know there is a concept of implied conditions vs explicit conditions, but implied conditions generally arise from tradition and social norms. The idea that the offeror of title to property has the obligation to ensure they actually have that title, and that the property is as they represent, regardless of tradition and social norms – but that just might be my biased social norms.

    My gut tells me that your answer is going to be that it is an implied condition because of social norms, and that the parties are taking on the risk that a judge may decide one way or the other if the conditions are not explicitly defined.

    Kind Regards,

    Brian

    • Stephan Kinsella August 18, 2024, 1:22 am

      “In the example of the person getting their nails done, do I understand correctly that:
      1. the purchaser offers to transfer title to $30 (these are present dollars, not future dollars) now, for the nail salon to give him a manicure, and that the purchaser will transfer possession of the $30 after the manicure service
      2. the nail salon worker agrees to the offer, and at the moment of agreeing to the offer, title of the $30 (present dollars) is transferred to the nail salon.”

      They can structure it in various ways. Usually you don’t pay ahead of time for a service, though that could be done. In that case you pay now (present owned resource) and the service provider makes a future transfer to you of $30 as a refund *if* they do not complete the service.

      But in most cases I think it would be structured where you pay after the service, similar to when you eat at a restaurant and pay after service is rendered. So I think it would be: “A transfers to B title to a future $30 conditional upon B performing the service. When B does polish A’s nails the condition is fulfilled and how $30 on A’s pocket switches ownership: it is now B’s money. If A refuses to pay she is basically stealing B’s money. A type of theft.

      “Now if the purchaser doesn’t transfer possession of the $30 after the manicure this is theft.”

      Again, it depends on the way the deal is structured. But in any case, the only reason it’s theft, after the service, if A refuses to pay, is that A is now *in possession of* actual money that B now owns. If for some reason the money was stolen from A or ruined or destroyed before A could pay B, A would not be stealing “the money” that B owns since it does not exist. (Presumably A is not bankrupt and has other money or assets that she can pay B, and we can assume auxilary title transfers such as: “A hereby conditionally transfers $30 to B upon completion of services; if for any reason A does not possess or own said money A hereby conditionally transfers other owned resources to B sufficient to pay the debt” and so on.

      “In the case the purchaser never had the $30 in the first place to transfer to the nail salon, is it still theft, because it is theft through fraud?”

      It depends on the situation. If A has $30 in her pocket and owns it, then the agreement would result in a *future* title transfer of the $30 *conditional upon” services being rendered. Now if A has no money on her, then presumably the contract refers to “other money” she owns; say, in her bank account or in her piggy bank at home. At the money B does the nails, then the conditional title transfer is triggered and now $30 of A’s money, wherever it is located, becomes’s B’s money and now B is entitled to demand it and A just turn over some of her assets because $30 worth is now owned by B.

      “What is not clear, is that the example provided, Ethan knows the apples are rotten, but the article doesn’t elaborate what happens if Ethan didn’t know the apples were rotten and thought they were in good condition.”

      Then if the parties were in good faith they would have to determined what auxiliary conditional title transfers would now kick in. Probably there is no implicit theft or fraud in this case. All B could do is ask A to not knowingly transfer rotten apples. the contract terms might say something like this: A hereby transfers title to his apples to B in exchange for B transferring title to his oranges; and vice-versa. If if turns out the apples are bad, A agrees to transfer title to the oranges back to B and/or pay some reasonable compensation to B”, and so on.

      “It is not clear which party has the onus to ensure the property being offered for transferred is as represented and that the offeror does actually have title to the property being offered.”

      If custom and context and precedent do not make it clear, then the parties would be well served to specify in the terms of their contract. If they don’t, they are taking the risk that an arbitrator hearing the case might rule against them.

      “In the text it says that “Karen conditions the transfer of title to her $20 on Ethan’s not knowingly engaging in “fraudulent” activities …”, this makes me assume that without Karen including that condition in the offer, that there would be no default assumption that there is a condition against fraudulent activities?”

      No, I am just making explicit a background condition that is normally implicit and presupposed; the presumption of “good faith.” It need not be stated at all, IMO. See on this ch.9 of LFFS, https://www.stephankinsella.com/lffs/, text note 62 and note 62 itself.

      The point is this: I am explaining why some actions called “fraud” can actually be characterized as a type of theft–when the “defrauder” is knowingly using someone’s property without their permission–their consent–their *informed* consent. If A and B exchange apples and oranges and each knows that the title the received thing is conditional upon the quality of the thing given being as represented, then if A *intentionally gave bad apples to B” then A *is aware that* he *does not have permission to take or use B’s oranges, *even if B is not (yet) aware of this.” It’s akin to a patient agreeing to an appendectomy–so that there is consent–but if the doctor removes another organ while in there, there was no informed consent.

      But if A was in good faith and unaware the apples were rotten he is not intentionally (knowingly) using B’s oranges without B’s permission. He is unaware that title has not transferred, as is B. So if he eats them then B discovered the apples were bad, it’s too late for B to demand the oranges be returned, so he has to demand some other form of payment. This means that the simple agreement really contains a large number of implied auxiliary backup conditional title transfers. This is really not that complicated if you think about it; it’s how contracts work already.

      ” If that is the case, I would further assume that unless a condition is included that states the offeror does have title to the property being offered and the property is in the condition being represented?”

      I think you can normally assume such conditions are implied due to the context, custom, common sense, and so on. The point is fraud is a crime only to the extent it is a type of theft, e.g. theft by trick, but this is an intentional tort or crime that requires the “trespasser” be intentionally using someone’s property without their informed consent. That is why if A is lying he is knowingly using B’s oranges without permission and this is a type of conversion or theft. A can implicitly or explicitly promise not to intentionally deceive B, and this is why the good faith rule is presumed as a background condition in all such agreements; but he cannot promise to be infallible or never to make a mistake or error; and B is well aware of this. For this reason parties to contracts will either assume implied auxiliary title transfers in such cases or they will write them down or they will just have an arbitration clause throwing it to the decision of a judge; or they will buy insurance; or first inspect the other’s apples/oranges to make sure; or maybe they will write an “as is; no warranties” term into their contract. They can do what they want, they can structure they deal as they want. If they fail to specify then they are taking the risk that they might lose in a dispute because the arbitrator might side with the other guy. If the stakes are high people will take greater measures, write tighter contracts, and so on.

      “Or does this all mean that these conditions are inherent, and that unless there is a condition that the title to the property has not been confirmed by the offeror and that the condition of the property has not been confirmed by the offeror?”

      We cannot armchair everything but we can assume that the parties operate in world where language and words have meanings, there are customs and well known laws, remedies, rules, and they will rely on this, and if they are unsure or do not like the background or “default” (suppletive) legal provisions that will kick in, they can contract around it with a detailed contract.

      This hard to do here b/c there can be so many questions. I am happy to have short (say, 30min) zoom call with you to field more questions to try to make this all clearer. Let me know if so. nskinsella@gmail.com

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