The Property/Contract Interface

Abstract

The boundary between contract and property is often disputed, but one important difference inheres in the underlying nature of the structure of rights. Contract rights are in personam, meaning that they apply to persons directly and impose prescribed obligations on a small number of specifically identified dutyholders; property rights are in rem, meaning that they apply to persons insofar as they own particular things and impose generalized duties of noninterference on a large and indefinite number of dutyholders (the world). This article presents a functional justification for why the legal system utilizes these two modalities in fixing use rights in particular resources, grounded in differences in the pattern of information costs associated with each type: In personam rights impose a relatively large informational burden on a small number of parties; in rem rights impose a relatively small informational burden on a large number of parties. Given these differences in information costs, we can also make certain predictions about the nature of the legal doctrine that will be associated with each type of right. The article tests these predictions by examining four legal institutions that have long been regarded as falling along the property/contract interface: bailments, landlord-tenant law, security interests, and trusts. With respect to each institution, we find that the predicted doctrinal pattern generally holds. In personam relations are governed by flexible default rules designed to minimize the costs of delineating prescribed duties imposed on particular parties. In rem relations are governed by bright-line rules that impose immutable and standardized obligations on a large and indefinite class. Relations intermediate between in personam and in rem feature a degree of standardization beyond the in personam designed to provide notice or protection to informationally disadvantaged parties, but do not approach the full standardization associated with in rem relations. Moreover, these intermediate relations become more standardized as the informational problems become more widespread. We interpret these results to confirm that third-party information costs are critical in understanding the underlying distinction between property and contract.