An economic analysis of civil versus common law property.

Author:Chang, Yun-chien
Position::Introduction through II. Property as a Structured Bundle of Relations, p. 1-35
 
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Common law and civil law property appear to be quite different, with the former emphasizing pieces of ownership called estates and the latter focusing on holistic ownership. And yet the two systems are remarkably similar in their broad outlines for functional reasons. This Article offers a transaction cost explanation for the practical similarity and the differing styles of delineating property and ownership in the two systems. As opposed to the "complete" property system that could obtain in the world of zero transaction costs, actual property systems employ structures characterized by shortcuts in order to achieve property's substantive goals of protecting interests in use. Overlooking this structure leads to the bundle of rights picture of property, even though property is a structured bundle of relationships. The architecture of property consists in part of four basic relationships, and a number of characteristic features of property automatically arise out of this architecture, including exclusion rights, in rem status, and running to successors. Where civil law and common law differ is in their style of delineation, which reflects the path dependence and network effects from a common mode of legal communication and initial investment in feudal fragmentation in the common law and Roman-inspired holistic dominion in civil law. This transaction cost explanation for the functional similarities but different delineation process in the two systems promises to put the comparative law of property on a sounder descriptive footing.

INTRODUCTION

Fragmentation is a theme in property theory, but the theory of property itself is deeply fragmented. At first blush, a major fault line in property lies between common and civil law. As is well known, civil law systems tracing back to Roman law place heavy emphasis on ownership (dominion) and are highly grudging in giving in rem effect to lesser interests like leaseholds. By contrast, the common law emphasizes the estate system and its many methods of carving up property, from life estates to defeasible fees and various future interests. And in the common law tradition in a broader sense, the equity courts developed the trust, which is largely unknown in traditional civil law. Sometimes this conventional wisdom about the gulf between common and civil law of property goes so far as to claim that there is no such thing as ownership in the common law. (1) Feudalism lives!

This stark cleavage between common and civil law has taken on a new life with the so-called "legal origins" literature, (2) which has influenced the World Bank's pronouncements on development. (3) Supposedly, having a common law rather than a civil law system correlates with economic growth. Different versions of the literature posit different causal mechanisms as lying behind the correlations (to the extent that they have persisted in the face of continued testing and methodological questioning). (4) Despite the favorable attention for their tradition, common law legal theorists have been quite unreceptive to this branch of economic literature, partly because they doubt that the kinds of doctrines that distinguish civil from common law could possibly have real world effects, much less effects on the scale that the legal origins literature purports to find. (5)

How, if at all, is the distinction between civil and common law property important? Life goes on in the two systems in strikingly similar fashion. Putting aside for the moment special features like the trust, ownership under the civil law and fee simple ownership of land in the common law system (and for the most part the respective notions of full ownership of personal property) coincide to a remarkable extent in their basic features: a possessory right to prevent invasions subject to qualifications such as for necessity, and supplemented by duties (for example, for lateral support or to shovel sidewalks). Lesser interests, like leases and easements, despite some differences, bear a close resemblance in the two systems. So is the supposed difference between the two systems non-existent at the functional level, putting labels like "dominion" and "estate" aside?

Upon closer inspection, the fault lines between common law and civil law are more subtle than conventionally thought, although in a sense they are more important and interesting. This Article will identify these more subtle fault lines and offer a transaction cost explanation for them.

One reason the fault lines between common and civil law are both less and more apparent than they should be stems from a failure to make some basic distinctions. First, property's purpose of protecting interests in use differs from the structure it employs to achieve this purpose. Property serves our interests in using things--this is the reason we have property. Other desirable features of property--its promotion of stability, autonomy, investment incentives, fairness, and efficiency--all trace back to this basic interest in the use of things. (6) But property law serves these substantive purposes and the overarching interest in use in an indirect fashion, through a particular structure. To see this, consider the zero transaction cost world of Coase's thought experiment. (7) In that world, we could serve each individual's interest in use vis-a-vis every other individual's potential use interest by specifying the rights and duties (privileges and so forth) that hold pair-wise between all the members of society with respect to the most articulated uses of the smallest fragments of things. This is intractable in our world. So instead, property uses shortcuts and strategies--what we call "structure" here--to achieve an approximation. (8) In an exclusion strategy, property law delineates lumpy things and defines rights to them using crude proxies of boundary invasion and touching: this roughly corresponds to trespass and conversion (keep off or don't touch without permission). For certain important conflicts the law uses governance strategies to mediate them--think devices such as nuisance or covenants designed to prevent odors or excessive building height. The point is that, in our world, the structure based on exclusion and governance is not as transparent to the use interests of property as it could be if transaction costs--and delineation costs in particular--were lower.

Both property's use interests and structure can be distinguished from what we will call the style of property delineation. The same use interests, and even the same structures, can be implemented in a number of ways. To take a familiar example, we can achieve roughly the same result by carving out an easement as a right to use from full ownership on the one hand or endowing contracts (covenants) with the ability to bind successors and third parties on the other. The result is the same--a use right in the owner of the dominant tenement and a corresponding duty in the owner of the servient tenement--but the route there is different.

A similar contrast of top-down versus bottom-up routes can be seen on a far grander scale in civil versus common law property, when they employ different styles of delineating property. As a first approximation, civil law starts with a strong notion of full ownership--dominion--and then grudgingly carves lesser interests out of it (iura in re aliena). By contrast, the common law defines estates from the bottom up: they are carved out of larger estates, but their definition in terms of length and various features is not seen as tightly bound up with full ownership. Technically, under the full feudal interpretation of the common law, only the monarch has full ownership. Title too is relative, such that A can have better title than B and C, and B can have better title than C. The basic contents of these carved out interests are roughly similar in common and civil law when it comes to the types of discretion over uses that it gives the holder of the interest. And property law in the two systems affords similar contours of protection in terms of possessory actions and trespass. But the method of getting there--the style--is different.

At this point one might ask whether style is trivial. (9) We say no, for several reasons. First, from the internal point of view, what we are calling style closely corresponds to the theory behind the two systems, and is very real to participants. Thus, style has a certain reality from an internalist perspective. The internal perspective is not one to which law and economics has paid much attention, but our second goal is to show that style is amenable to economic analysis. Third and finally, style does matter at least around the edges, and our economic analysis can explain how style matters. In certain pockets of property law, even a slight push from style can make a difference, particularly in areas on the borderline between property and contract such as landlord-tenant. Moreover, style interacts with use interests and structure in predictable ways.

Returning to civil versus common law property, we take as our starting point the growing attention to how civil and common law are more congruent in their major structures for functional reasons than traditional theory would have it. (10) We argue that civil and common law property systems have been perceived to be separated by an unbridgeable gap, because the two traditions have each failed to distinguish sufficiently between property's structure and its style. As long as property responds to functional needs and those needs are somewhat similar across modern societies, various systems of property law will bear a strong resemblance to each other. (11) The basic indirect relationship between interests in use and the legal interests (as with the life estate and the superficies) is an inevitable feature of the overwhelming transaction costs of the "complete" property system envisioned on many versions of the bundle of rights theory...

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