Volume 42 | Number 3 Summer 2007
The Disappearing Divide Between Property and Obligation: The Impact of Aligning Legal Analysis and Commercial Expectation
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“There is nothing which so generally strikes the imagination, and engages the affections of mankind, as the right of property[.]”1
The thesis of this article is simple and startling: equity, acceding to persistent commercial pressure, has effectively eliminated the divide between property and obligation, or between property rights and personal rights. Equity has achieved this in partnership with the common law and statute, but equity initiated the process and played a dramatic and innovative developmental role.
This idea that there has been a collapse of boundaries is no mean assertion, especially given the widely perceived importance of property, and the general assumption that there is a sharp doctrinal and functional divide between property and obligation. Most lawyers are familiar with Professor Sir Roy Goode’s 1987 article on ownership and obligation. He notes that all legal systems sharply distinguish “property rights from mere personal rights to the delivery or transfer of an asset. I own property; I am owed performance of a transfer obligation.”2 Important consequences follow from the distinction, or so we always assume.
Lawyers are not the only ones to observe the division. Economists, too, are passionate advocates:3
Property rights . . . are among the most critical social institutions, providing the basis for resource-use decisions and for the assignment of wealth and political power. As such, the property regime profoundly influences both economic performance and income distribution in all economies. Property rights define the accepted array of resource uses, determine who has decision-making authority, and describe who will receive the associated rewards and costs of those decisions. Accordingly, the prevailing system of property rights establishes incentives and time horizons for investment in physical and human capital, production, and exchange. Cross-country differences in property rights result in important differences in economic development and growth . . . . The property-rights structure is also critical for the environment and natural resource use . . . [and] for establishing and protecting individual social and political rights within a society.4
All this warms the hearts of property lawyers. But doubts soon surface. Fifteen pages later, this same economist notes that “[i]t is useful to view property rights as contractual outcomes negotiated by parties . . . .”5 And Goode, still focusing on the divide between “owe” and “own,” observes a mere five pages into his analysis that “most obligations owed by B to A to transfer an asset to A are proprietary in nature rather than merely personal . . . .”6 He puts this down to equitable developments.
The difficulties are equally clear to many undergraduates. The typical common law classification scheme suggests that property is divided into real and personal property; personal property is, in turn, divided into choses in possession and choses in action (tangible and intangible property respectively).7 And then comes the rub.
Not all choses in action are property: put more starkly, not all obligations are property. Those “choses” that are not property, or “property rights,” are merely personal rights, or personal obligations. The boundary is never defined. Indeed, it is often described as subject to revision according to social and political norms.
Lack of a definitive boundary does nothing to diminish academic vigour in asserting the importance of the divide. This is not a matter of pure semantics or irrelevant jurisprudence. The distinction is critical for the very practical reason that property rights appear better protected than personal rights. Criminal law, tort law, and public/constitutional law may all afford property rights additional protection, but the starkest illustrations of the benefits of property rights are seen as insolvency protection, and as the opportunity to recover windfall gains (or unauthorised profits) when property rights have been misused. These special protective rights are not unqualified, but the general perception is that they operate to protect property rights, not personal rights.
It contradicts this perception to suggest that the supposed divide between property and obligation (and especially between proprietary and non-proprietary intangibles) is no longer sustainable. In supporting this claim, this chapter proceeds in two parts. The first part considers the historical development of a dramatically expanded notion of property. It shows how obligations, or personal rights, have been increasingly treated as property. The second and longer part demonstrates how each of the traditional tests commonly regarded as useful in distinguishing between property and obligation is disintegrating. Attributes once thought to be specific to “property” are increasingly being accorded to all manner of rights. In sum, these two parts suggest that not only is the class of property rights expanding, but that rights that continue to be labeled as “personal” are receiving “proprietary” protection. In short, the doctrinal and functional divide between property and obligation is disappearing.