Transition From in Rem to in Personam Dimensions of Property - Essay Example

ID No. 994 Words Why Did Economists And Economically Orientated Lawyers Lose Sight Of TheIn Rem Dimension Of Property? 1 Traditionally, property is regarded as a right to a thing, good against the whole world or an indefinite class of persons. It is a right in rem. In this sense, property rights impose a duty and attach to anyone, thus, providing a sense of security to a person who introduces improvement to the resources (Merrill and Smith 361). And since it attaches to an indefinite class of persons, even to those without contractual relations with the person who introduces an improvement to property, the entailing transaction cost is low. Right in personam, on the other hand, arises out of contractual relations or judicial judgments. It applies to personal properties or choses in action. In contrast to the right in rem, parties in this relationship are definite and known. The corresponding duties arising out of the relationship are also defined by the contract entered into or by the law. In the desire of the economists and economically oriented lawyers to define property in the context of the economic system, they drifted away from the in rem concept of property. They sought to determine property relationships in an economic perspective using some variables. This evolved property as a right to a thing to a mere collection of rights and privileges which are easily distributable, categorizing it as rights in personam. Although proponents of the in rem concept have variations in their approach, they retain property as right to a thing as their groundwork for analysis. One such proponent is William Blackstone who defines property as the “sole and despotic dominion” a man exercises over things to the exclusion of others (361). Although he is criticized for promoting absolute right to property, his concept affords a security to an owner who introduces improvements to his resource with the assurance that no one will intervene in his property or take the fruits of his labour. Another proponent, Adam Smith, sees the difference between right in rem and right in personam. Other than property, he believes that rights referred to as exclusive are real rights. Intellectual property right is considered a real right because an author of a book has the exclusive right to the creation. Anyone can be excluded from copying it during the existence of the copyright. Property serves as a baseline for exchange wherein the owner can vindicate his legal claim. Jeremy Bentham, the founder of modern utilitarianism, emphasizes more on the functional aspect of property. Property secures the expectation and future advantages that could be derived from the thing. Without this security afforded to the property, no one would strive to labour knowing that someone else would deprive him to enjoy the fruits. When in the early twentieth century, Wesley Hohfeld proposed the theory of jural opposites and correlatives, the concept of the in rem right begins to change. The correlatives or opposites of a right, for instance, is no-right; for a privilege, there is a duty; for a power, there is disability; and for an immunity, there is liability (364). He recognizes the difference between right in rem and right in personam. The difference lies on the persons to whom the rights attach, whether they are definite or numerous. However, he enunciates that in personam and in rem rights proceeds from and can be classified as the same types of rights, duties, etc. This reduces the definite group of in rem rights to in personam rights similar to the bundle-of-rights. The legal realists generally support Hohfeld’s view but differ on what the bundle-of-rights consist of. While one sees the bundle-of-rights as a mere collection of functional attributes (e.g. right to use), another sees them as equities. For the realists, the move to dethrone the concept of property as a natural right is politically motivated. Since property is a mere collection of interests, which social convention determines, the state may intervene, regulate and redistribute property. The state may vary the list of interests for the general welfare, thereby allowing greater state intervention on the economy and reducing the constitutional rights guaranteed to property owners (365). Although law and economics movement was skeptical towards state intervention, its economic scholars embraced the legal realists conception of bundle-of-rights. To them, property is a listing by the state of permitted uses of a limited resource - the hyper-realist conception of property attributed to Ronald Coase. His 1960 article, The Problem of Social Cost, becomes the groundwork for later theorist on this subject. Although it focuses on the influence of law on the economic system, it did not attempt to use economics to explain the structure of the law itself. Right is not unlimited. For Coase, property is a “bundle or collection of rights to carry out certain actions with respect to resources” (367). The first part of the article deals with the analysis of social costs with respect to spillover effects or externalities with zero transaction costs, while the second part of his article deals on problems with positive transaction costs. Under the first, property rights serve as baselines wherein the use rights exchanged through a contract. Assuming that there is no transaction cost involved, the liability assigned for the social cost will not affect the use resources. Property rights have a minute role in achieving a solution to the problem. When there is no contractual exchange, property rights should only serve as authoritative allocations of use rights similar to when there is contractual relation. In his examples on two-party conflicts and English nuisance cases, courts serve as delineator of rights as to who is entitled to a resource in issue. The two-party conflicts reflect in personam rights involving particular use rights. In the positive transaction cost where the cost of the assignment of rights exceeds from the gains of such transactions, the focus in resolving conflicting rights is transaction cost. Property rights have no importance other than a list of rights resulting from the court’s resolution of the conflict. Besides his concern on nuisance cases, Coase also dealt in providing a system of allocation of the broadcast spectrum and its resultant social cost on the assignment of use rights. The pricing system, according to his article, Federal Communications Commission, is a better method in the allocation of resources than regulation by a government agency (371). Property rights granted to broadcasters, which can be bought and sold again in the market, can better allocate the broadcast spectrum than regulation by the government. The privatization of broadcast rights is hard to define and enforce due to its invisible nature. He approached this problem by explaining that what FCC allocates is the “right to use a piece of equipment to transmit signals in a particular way” (371), not the ownership of frequencies. The list of permitted uses of a particular broadcasting equipment would as a consequence disallow the transfer of rights to another for purposes other than broadcasting (e.g. two-way radio). Such transfer would require regulatory intervention by the state. In contrast, under the in rem concept, the owner can utilize it to other uses not prohibited and prior regulatory approval is not required. Viewing property in terms of in personam rights constrains resolution of conflicts involving large number of parties. The list-of-uses concept can solve conflict in a small number of parties, but when the parties increase, public regulation is necessary. Three schools of thought followed Coase’s view of property as a collection of use rights. The first school, called the “ new institutional economics”, is concerned with transaction costs in understanding economic phenomena, including the institution of property. It draws inspiration from the first part of Coase’s article and portrays property rights in essentially contractarian terms. Under the contractarian perspective, Yoram Barzel espoused that in a multitude of assets with each having many attributes, some attributes can be subject of specific contracts (376). Attributes not reflected in a contract because of positive transaction costs belongs to the public domain. Anyone who can capture these attributes in the public domain is the residual claimant. An actor who has more of the residual claim can affect the value of attributes of a resource. When the effort is more difficult to monitor, the actor will take more payment in the form of a residual claim. The economic concept of property rights is identical to that of a residual claimant. His basis for analysis is not property but contract. The role of property can be comprehended by “understanding contracts and the transaction-cost constraints that preclude complete assignment of all elements of economic value by contract” (377). The process starts with contractual exchange, and anything left out after utilizing all the possible contract is the property. Property is not a baseline but a residuum of value. The in rem aspect remains in the background for use only when the possibilities for contracting run out. A second school of thought based its analysis from the second half of Coase’s article. It focused on property as a device for adopting collectively imposed solutions to disputes over resource uses and treats property as if it were a branch of tort law. It suggests that courts should resolve conflicts on the use of resources through “value-maximizing collective solutions” (378). The outcome of a court determination is a list of use rights. This perspective views property as a list of rights. Robert Cooter, in his article, seeks to develop a unified theory of the common law and property rights. Breach of a construction contract, government take-over of property and nuisance law involve tort law. In the examples given, there is efficient allocation of resources if the courts will enforce legal rules that provide incentives for conflicting parties to take precautionary measures to minimize social costs. Even with respect to the property law examples given, that of government takings and nuisance disputes, Cooter regards property as the allocation of use rights that emerges after court adjudication. The third school lumps all collectively allocated use rights together under the blanket term “ entitlements” and distinguishes between “property rules” and “ liability rules.” It introduces forced exchange as the preferred option for dealing with large-number problems where contractual exchange of use rights is not feasible. Entitlement is defined as the “collectively imposed assignment of use rights as between rival claimants”(380). As a synthesis of the contractarian and tort perspectives propounded by Guido Calabresi and Douglas Melamed, it further pushes into the background the in rem concept of property. They use variables such as economic efficiency goals, distributable goals and other justice reasons in determining a baseline against which contractual exchange could proceed or who to compensate in forced exchange (380). The bundle-of-rights can be customized in each situation. Right in rem is not mentioned. Neither can entitlements bind a large number of dutyholders. Rights and entitlements are determined according to what another person may do or claim. Property rules are used only to facilitate contractual exchange. In cases involving numerous claimants, discussion centers on liability and compensation rather than the in rem nature of property. In criminal laws, sanctions only serve as a deterrent to convert property rules into liability rules. They give security to person and property as they ensure the continuance to engage in contractual relations. Entitlements are mere bundles of in personam rights. The economists and economically oriented lawyers treat property in a different perspective, considering it as a bundle-of-right or as a residual of a contract. This change, according to Merrill and Smith, results from the problems brought about by the complexity of modernization. While the concept in rem evolved to provide order during the early social and economic development when security of ownership is the paramount concern, modern legal economists sought not order but the general welfare (398). But the problems in the advance economies to which legal economists seek to provide a solution exist at the apex of a pyramid. To fully appreciate the apex, the base should be considered and accurately understood. In this sense, the conclusion reached at the apex will not be distorted. Work Cited Merrill, Thomas W. and Henry E. Smith. “What Happened to Property in Law and Economics?” Yale Law Review, Vol. 111. 16 October 2001, 357-398. Read More