Optimal standardization in the law of property: The numerus clausus principle.

Author:Merrill, Thomas W.

    A central difference between contract and property concerns the freedom to "customize" legally enforceable interests. The law of contract recognizes no inherent limitations on the nature or the duration of the interests that can be the subject of a legally binding contract. Certain types of promises--such as promises to commit a crime--are declared unenforceable as a matter of public policy. But outside these relatively narrow areas of proscription and requirements such as definiteness and (maybe) consideration, there is a potentially infinite range of promises that the law will honor. The parties to a contract are free to be as whimsical or fanciful as they like in describing the promise to be performed, the consideration to be given in return for the promise, and the duration of the agreement.

    The law of property is very different in this respect. Generally speaking, the law will enforce as property only those interests that conform to a limited number of standard forms. As it is stated in a leading English case, "incidents of a novel kind" cannot "be devised and attached to property at the fancy or caprice of any owner."(1) With respect to interests in land, for example, the basic forms are the fee simple, the defeasible fee simple, the life estate, and the lease. When parties wish to transfer property in land, they must specify which legal form they are using--fee simple, lease, and so forth. If they fail to be clear about which legal interest they are conveying, or if they attempt to customize a new type of interest, the courts will generally recast the conveyance as creating one of the recognized forms. Of course, the law freely allows customization of the more physical, tangible dimensions of ownership rights. Property comes in all sorts of shapes and sizes. But with respect to the legal dimensions of property, the law generally insists on strict standardization.

    Every common-law lawyer is schooled in the understanding that property rights exist in a fixed number of forms. The principle is acknowledged--at least by implication--in the "catalogue of estates" or "forms of ownership" familiar to anyone who has survived a first-year property course in an American law school.(2) The principle, however, is by no means limited to estates in land and future interests; it is also reflected in other areas of property law, including landlord-tenant, easements and servitudes, and intellectual property. Nor is the principle confined to common-law countries; to the contrary, it appears to be a universal feature of all modern property systems.(3) In the common law, the principle that property rights must conform to certain standardized forms has no name. In the civil law, which recognizes the doctrine explicitly, it is called the numerus clausus--the number is closed.(4) We adopt this term for purposes of our discussion here, which focuses primarily on the common law.

    As befits a doctrine that has no name, the principle that property rights must track a limited number of standard forms has received very little examination in Anglo-American legal literature. We have discovered only one full-length English-language article on the numerus clausus.(5) This is again in contrast to the civil law, where the doctrine is widely acknowledged by commentators as being a substantive limitation on the definition of property, as in Germany,(6) or a limitation on the circumstances in which property rights can be enforced against third parties, as in Japan(7) and perhaps France,(8) or at least an unstated design principle.(9)

    Particularly striking is the virtual absence of any treatment of the numerus clausus by scholars influenced by the law-and-economics movement. The principle that property forms are fixed and limited in number represents an extremely important qualification to the principle of freedom of contact--a principle widely regarded by law-and-economics scholars as promoting the efficient allocation of resources. A willing buyer and a willing seller can create an infinite variety of enforceable contracts for the exchange of recognized property rights, and can describe these property rights along a multitude of physical dimensions and prices. But common-law courts will not enforce an agreement to create a new type of property right. Remarkably, virtually no effort has been made to theorize about whether this critical qualification to freedom of contract is justifiable in economic terms.(10)

    The primary candidate for an economic explanation has been the suggestion that the numerus clausus is a device for minimizing the effects of durable property interests on those dealing with assets in the future,(11) and in particular the effects of excessive fragmentation of interests, or an "anticommons."(12) On this view, the numerus clausus serves to prevent situations in which too many individuals have a veto right over the use or disposition of a resource. But whatever the merits of this anti-fragmentarian view for other property doctrines, it does not fully explain the numerus clausus, which is aimed at limiting types of rights, not the number of rightholders. As we show below, limiting fragmentation is at best an incidental effect of the numerus clausus, and does not appear to be a sufficiently robust explanation to account for the universal nature of the doctrine and its tenacious hold on postfeudal legal systems.(13)

    When one turns to the snippets of commentary on the numerus clausus found in more conventional Anglo-American legal literature, one finds that the attitude is often one of hostility. Scholars and judges tend to react to manifestations of the numerus clausus as if it were nothing more than outmoded formalism. For example, the idea that property may exist only in prescribed forms is implicitly debunked by quoting Holmes's aphorism that "it is revolting to have no better reason for a rule of law than that so it was laid down in the time of Henry IV."(14) Taking this position one step further, Critical Legal Studies (CLS) scholars have portrayed the doctrine of fixed estates as perniciously reinforcing hierarchical social relations. As one CLS-inspired source puts it, the "formalistic, box-like structure" of property law, that is, the numerus clausus, reflects a "feudal vision of property relationships designed to channel (force?) people into pre-set social relationships."(15)

    A related source of antipathy to the numerus clausus may be the perception that it is a trap for the unwary. The menu of recognized property forms is relatively complex, and any attempt to venture beyond simple sales of goods and short-term leases into the arcane worlds of future interests, easements and covenants, or intellectual property requires the advice of a lawyer. When unsophisticated or poorly advised actors enter these worlds, they may find that courts force the transaction into one of the established "boxes," with the result that the actors' intentions are frustrated. By contrast, actors who are sophisticated or well-advised can almost always manipulate the menu of options so as to realize their objectives.(16) In this sense, the numerus clausus discriminates in favor of those who are well-endowed with legal resources and against those who are poorly endowed.(17)

    A third source of the antagonism toward the numerus clausus may be the lessons supposedly learned from the reform movement in landlord-tenant law. This reform effort has often proceeded under the banner of discarding outmoded "property" concepts in favor of the greater flexibility and attention to the parties' intentions associated with "contract" precepts.(18) By extension, other features of property law that deviate from the norms of free contract may fall under a cloud of suspicion. Here again, standardization of forms is associated with the ancien regime, and contractual norms are assumed to be more open, fair, and egalitarian.

    These casual criticisms of the numerus clausus fail to confront what to us are the essential questions. Before condemning standardization of forms and embracing a regime of contractual freedom with respect to the legal dimensions of property, one must first engage in a series of inquiries: What are the costs and benefits of standardization in defining property rights? To what extent should standardization of rights be supplied by the government rather than relying solely on owners' incentives to conform to the most-widely used forms? If the government plays a role in standardizing rights, what is the appropriate division of labor between courts and legislatures in enforcing standardization and in making the inevitable changes to the menu of standard forms that must occur over time?

    In Part II of the Article, we survey the common law of property in an effort to ascertain the extent to which the numerus clausus is a recognized feature of that law. We find that, in practice, courts and lawyers routinely abide by the principle, even if they are unaware of its existence. Perhaps because it is so little discussed or recognized, however, modern American courts sometimes waver when faced with a direct challenge to the numerus clausus, and flirt with the notion that property forms should be subject to modification by contract.

    In Part III, we set forth a positive theory of the numerus clausus, and in particular, why property rights, unlike contract rights, are restricted to a limited number of standardized forms. The root of the difference, we suggest, stems from the in rem nature of property rights: When property rights are created, third parties must expend time and resources to determine the attributes of these rights, both to avoid violating them and to acquire them from present holders. The existence of unusual property rights increases the cost of processing information about all property rights. Those creating or transferring idiosyncratic property rights cannot always be expected to take these increases in measurement...

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