An economic analysis of civil versus common law property.

Author:Chang, Yun-chien
Position:III. Common Law Property through Conclusion, with footnotes, p. 36-55
 
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  1. COMMON LAW PROPERTY

    Although the common law shares with the civil law the basic exclusion-governance architecture, the common law employs a style that results in less of a focus on the "things" of property. The common law of property is not usually thought of as a law of things, and the bundle of rights picture has only brought things further out of the focus for property theorists. Much of the de-emphasis on things can be laid at the door of the estate system. One can say that whereas the land law in civil law systems is one of ownership, it is one of estate in the common law countries. (106)

    1. Focus on the Estate System to the Exclusion of Other Lesser Property Interests

      What is an estate? It is a piece of ownership. Originally, in the feudal system that William the Conqueror introduced into England after 1066 and Henry II reformed greatly, the King himself was the only full owner. (107) Out of full ownership were carved lesser legal interests: in return for rights to land, the tenant ("holder" of the interest) would be obligated to provide service to the lord. These services started out as military but were gradually supplanted by monetary obligations. (108) A tenant could turn around and subinfeudate all the way down to land holding peasants. The feudal obligations were abolished in 1660 with the Statute of Tenures, (109) bur the system of dividing property rights in the United States tracks the feudal system, with modifications. (The 1925 land reform legislation in England largely did away with the system of legal estates. (110)) Now the system of estates basically measures property interests by time (which includes conditions and limitations that can cause an interest to end).

      These days, interests are rarely carved up using the estate system directly. Instead, other than leases, interests less than fee simple absolute or full ownership are created in trust, a device tracing back to the activities of the courts of equity and the desire of feudal tenants to avoid certain monetary obligations. The conventional view of the trust is that it splits ownership into legal and equitable sides. (111) The trustee holds the legal title and therefore can deal with the property and, if there are no instructions to the contrary, can alienate the trust corpus, managing the corpus and its substitutes over time in a fashion consistent with fiduciary duties. The beneficiary holds equitable title, meaning that the fiduciary duties are owed to the beneficiary and that the beneficiary has the right to the proceeds of the corpus according to the terms of the trust when it was set up by the settlor. Also, if the trustee wrongfully alienates trust assets, the beneficiary can follow them into the hands of purchasers who had notice or did not give value.

      The flip side of the great attention to divisions by time and the extensive use of the trust is that the common law system does not regard as central to property a variety of other types of division. Security interests are a type of conditional property right that tends to be covered more in commercial law than in property courses. Even the status of leases as both contract and property has been cloaked in some confusion: leases give possessory rights and are somewhat standardized as to subtypes, but they are otherwise customizable. (112) And crucially while they "run" to successor landlords, they are avoidable in bankruptcy like contract rights. Likewise, bailments have not received much attention, despite being widespread, as in coat checks, parking, and the like. But again, bailments sit uncomfortably at the intersection of the in rem and the in personam. (113)

    2. Transaction Cost Explanations

      Our transaction cost theory of the common law has a practical and theoretical aspect. The common law of property is not as different from civil law as conventional wisdom would have it. In both systems the broad contours of the system and their basic architectural features are dictated by the overwhelming transaction cost savings of a property system featuring the structured relations and essential features discussed in Part II. Nonetheless, in terms of style, civil law and common law take different starting points in their delineation of legally protected interests less than full ownership.

      The combination of possibly large fixed costs and the original needs of the conquering Normans lent the common law system its particular character. Originally, the goal of the system was to buy loyalty for the new Norman ruling class and above all for the King. (114) The mechanism of time- and condition-based infeudation fit the bill nicely. Much delineation effort in the form of fixed costs went into setting up the system. (To the extent that pre-Norman law was consistent in terms of style of delineation with the full feudal system, no change was necessary.) Once the original feudal motivation disappeared the question was what to do with the system. The fixed costs of a highly articulated system had already been incurred. The degree of fragmentation--or more accurately the types of fragmentation--is the reflection of path dependence. We can see this at work these days; it is widely acknowledged that we do not need as many defeasible fees as we have, but there is little constituency for reform. We would never set the system up with as many interests as we currently have, but inertia (possibly helped along by the self-interest of lawyers) keeps it that way. (115)

      Importantly, the generative quality of the basic estate system means that much can be accomplished with a very small set of interests, and the larger set that we have is mostly a matter of inconvenience. Functionally complex structures of multiple future interests are possible because the various methods of decomposition can feed themselves (for instance, a life estate, followed by a remainder in life estate, followed by a remainder in fee simple). (116) Thus, as argued above, the common law system is a (somewhat complex) common form of legal communication with attendant network effects.

      The common law system never invested more than other systems in articulating other dimensions of division, except for the trust. And the trust relieved a lot of the pressure from the inadequacies of these divisions; property rights could be divided in unconventional ways (conditioned on various events and according to the limited discretion of the trustee) without needing to involve significant in rem effects. (It thus also made the estate system easier to use as well.) So path dependence offers an explanation for why the common law is flexible about divisions without needing an elaborate theory of iura in re aliena (rights in the property of another) along the lines of the civil law.

      England's different history also receives an explanation. In England, land records were quite inadequate, partly because of privacy concerns and an inability to mandate registration. (117) In 1925, the reform of land records meant that with not that much additional effort, a nationwide reform of the estate system could be undertaken. In the United States, land records go back to Colonial times, and any reform effort would have to be a state-by-state affair, helped along by uniform acts. Such an effort is underway, but it is too early to tell what headway it will make.

  2. CIVIL LAW PROPERTY

    Civil law jurisdictions differ in their law of property, just as American property law and English property law are not clones of each other. Indeed, the property laws of France and Germany are conceptually different in many ways. (118) As explained earlier, our account can explain mixed systems (in a sense, "mixed" is a matter of degree). In a comparative discussion of civil law property systems, this Article for obvious reasons cannot handle civil codes in every country. In this Part, we will use civil codes from six countries as our major targets: Germany, France, the Netherlands, Japan, China, and Taiwan. Germany's civil code, the Burgerliches Gesetzbuch (BGB), is probably the most influential civil code in the world, and has been taken as a model by many other countries like Japan, China, Taiwan, Korea, Greece, Switzerland, and Austria. (119) France's Code Napoleon was promulgated in 1804 and has also influenced many countries such as Spain, Portugal, and Romania. (120) The Netherlands passed a brand new and highly-praised civil code, Burgerlijk Wetboek (BW), in 1992. Japan borrowed heavily from Germany, (121) but invented some new ideas. China's domestically highly contentious Property Law came into force in 2007. (122) China inherited the German model through Taiwan's civil code and modified it with the legal tradition of the former U.S.S.R. to accommodate state- or collectively-owned land. (123) Taiwan's property law is a mixture of elements from Germany, Japan, and Switzerland, as well as customary law from before the codification in 1930. Local variations do exist, but in terms of the style of delineating property rights, civil codes regarding property are more similar to each other than they are to common law property regimes. In the following, we will demonstrate how civil law property regimes are based on ideas that are internally inconsistent or theoretically difficult. We will also offer a transaction cost explanation.

    1. Dependence on the Notion of the "Thing"

      The dependence of civil law property on the notion of things is immediately apparent in the title of the law. Property law in Germany is called "Sachenrecht," literally translated as the law of things. (124) Sachen (things) only include corporeal objects, thus excluding claims corresponding to intellectual property rights. (125) One can only have a true right of ownership in a corporeal object, but not an incorporeal object. Property systems in the Netherlands, (126) Japan, (127) China, and Taiwan (128) use basically the same conceptual framework. Nevertheless, in French law, incorporeal objects are...

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