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Common Law Principles Part I: Property and Contracts

How are property and contracts law fundamentally related? Professor Donald Kochan explains that property relies on the concept of ownership. Ownership needs to be verifiable for someone to claim, sell, or exchange property. A system of recorded contracts enables these transactions to take place. https://youtube.com/watch?v=R5sf7GI3_tY


The fundamental question in any property dispute is who owns and who does not own the particular piece of property. Why? Because that idea of ownership comes with certain entitlements. One is to exclude others, another is that you have the entitlement to transfer the property to someone else. If I own something, I have the right to give it to someone else in free exchange but I need to have a level of ownership in order to do that. The person who buys or contracts with me for the property needs to have confidence that I own it, that I had a right to sell it. If I didn't have a right to sell it, they're certainly not going to want to purchase it because they're purchasing the right to own it and sell it themselves. Let me give you an example. If you are selling a house, you want to project to the world that you are the owner. Why? Because you're going to get a higher price for the house. Who's going to want to buy a house from someone who doesn't own the house? It would be a silly proposition that you would pay a million dollars to someone who claims to own a house if you did not have some confidence in their ownership of that house. But if they can prove to you that they own the house, which is why we have recording statutes that allow for public information to be projected to the world, that gives the world confidence that you have recorded and solidified your rights under the law to ownership, it's verifiable. It's a way that buyers out there can verify that you're the owner. That recording system then adds this tremendous amount of confidence to the contracting world because now the people who are out buying it know that if they purchase it from you, they're not just purchasing the house, they're purchasing all of the attributes of ownership that you have, including the right to exclude. As another example, imagine if you are buying an expensive Rolex watch and you go to the store, it's going to be priced at a certain value. Now, when you're walking the streets, someone might open their jacket and offer you a Rolex watch from inside at a much lower price. But you don't actually know, a) whether or not that is stolen and whether or not the person has a right to sell it, or b) whether it's counterfeit. You're going to pay a higher price for the watch which has greater indicia of legitimate ownership than you would the one where you fear that there is an owner with superior title other than the seller that may come at some point and try and dispossess you of the property. So the price of property often reflects the level of confidence you have in the ownership of the seller and the exchange is more likely to occur when that confidence is high And so contracts are dependent on property. If you did not have the concept of ownership, you could not have the confidence necessary to facilitate exchange in contracts. So contracts has to look to ownership principles and property principles in order for it to be effective in a free market.

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