Exploring the Interfaces between Contract Law and Property Law: A UK Comparative Approach

Publication Date01 Dec 2006
AuthorDavid Cabrelli,Sue Farran
13 MJ 4 (2006) 403
S F*and D C**
Contract and property law provid e two examples of distinct legal approaches: pragmati sm
and coherency.  e di erent natures and roles of contract law and property l aw also re ect
the distinct qualities of the rights characteristic of both these branches of the l aw, namely
rights in personam and rights in rem.  e deviations between the approaches of contract
law and property law can be seen most clearly in those transactions which rest upon the
interface of property l aw and contract law. Two transactions lying at this interface are (1)
the sale and purchase of property; an d (2) the creation and constituti on of rights in security
over property. In this paper, the nature of these two transactions will be analysed through
the looking-glass of two legal systems which are cited as providing example s of (i) the two
extreme approaches of pragmati sm and coherency and (ii) the comparative di erences
between them.  ese are the English law and Scots l aw systems.
e question is whether the positions adopted by Scots law and English law in respect
of the two selected transaction s are so di erent? In practical term s, the nature of the rights
that sellers and purchasers and security granters and security holde rs have at di erent
stages of the formation and completion of the tran sactions of sale and security is extremely
important, since whether the rig ht is a right in personam or a right in rem will determine the
private international law rules, taxation rules and insolvency rules which are applicable,
as well as the nature of the legal remedi es which are available to such parties.
e comparative analysis of this article i s conducted through the prism of  ve mandatory
principles which are considered to be a xiomatic in property law regimes grounded in the
Civilian Law tradition.  ese principles are: separation, abstraction, numerus clausus,
speci city and publicity. Once a comparative assessment of the applicability of these  ve
principles to the Scots law and English law systems is made , the extent to which these
* Senior Lectu rer in Law, School of Law, University of Dund ee.
** Lecturer i n Law, School of Law, University of Dundee.
Sue Farran and D avid Cabrelli
404 13 MJ 4 (2006)
principles are conceptually coherent and/or pragmatic will be considered and certain
conclusions drawn.
Keywords: Engli sh law, Scots law, Sale, Secur ity, Coherence, Prag matism, Comparative
Freedom of contract is a doctr ine which is generally embraced by a ll modern legal
systems. Where the doct rine is strict ly applied, legal pragmat ism is o en viewed as of
primary concern. I n the commercial arena, thi s manifests itself in t he requirement for
commercial expediency a nd practical results.  e  rm application of the doctrine of
freedom of contract therefore performs a n enabling function; it enables pa rties to use
contractual mechanisms to customize their a airs in a way t hat allows them to achieve
their desired outcome without impedi ment, thus facilitating com mercial expediency.
Contract law ‘underwr ites’ the freedom of contract doctrine by providi ng ‘o -the -rack’
default rules1, which legal p ersons are able to adopt or disapply at wil l.2 erefore,
mandatory rule s, which represent derogation from the overarching doctr ine of freedom
of contract, should be imposed l ightly in systems adhering to t his doctrine.
Such mandatory ru les are o en encountered in the  eld of propert y law and, as such,
they present certain challenges to legal sy stems which espouse the doct rine of freedom
of contract.  e norms of property law are v iewed as tools by which the primac y of
private property in societ y and the economy can be realized.3 is necessa rily involves
protecting the propert y rights of persons from third party at tack. To the extent th at the
protection of private property and propert y rights are viewed as essential, coherency of
immutable principle is par amount in property law.
e dichotomy between the di  erent natures and roles of contract and property law
re ects the diverse qua lities of the rights cha racteristic of both t hese branches of the
law, namely rights in personam and rights in rem. Taken to their extreme, t he former
(rig hts in personam) are rights in favour of a legal person a nd avail themselves agai nst
an identi able,  nite nu mber of persons only.4 Meanwhile, the lat ter (rights in rem) are
rights conferred in favour of a legal p erson in terms of their entitlement in a ‘t hing’;5
such rights in rem are immutable and ex igible against an i ndeterminate and inde nite
1 See Stephen Smith, Contract  eory, (OUP, 2003), 113–114, 306–314.
2 See T.W. Merril l and H.E. Smith, ‘ e Property/Contract I nterface’, 101 Columbia Law Review 773
(2001), 77 8.
3 See J.E. Penner, e Idea of Property in Law, (OUP, 2000), 30, and Ugo Mat tei, Basic Prin ciples of
Property Law : A Comparative Legal and Eco nomic Introduction, (Greenwood P ress, 2000), 6–7.
4 See K.G.C. Reid, e Law of Proper ty in Scotland, (Butte rworths, 1996), 8, pa ra. 3.
5 It is the right-holder’s entitlements in the ‘thi ng’ (the identi able piece of propert y) that essential ly
de nes the re al right. If there i s no ‘thing’, there is no rel ationship and therefore no rea l right. See
Exploring t he Interfaces betwe en Contract Law and Prope rty Law
13 MJ 4 (2006) 405
body of legal p ersons, or, erga omnes.6 us, the ‘contract’ and ‘property’ branches of
private law may be depicted as polariz ed to the extent that they represent manifestations
of the opposite extremes of coherency and prag matism.7 e v alue of coherent principles
in the law of property can b e substantially undermined by a doctrine which permits
parties to achieve, by ag reement, any result they wish, untram melled by any constraints.
Conversely, the merits of enabling parties to order their a airs by agreement can be
frustrated by a system of property law whose de ning characteristic is an excessive
rigidity of principle.
e deviations between approaches of contract and property law ca n be seen most
clearly in those tr ansactions which rest upon the interface of these branches of law.
In this article, points of contact between rights in personam and rights in rem will be
analyzed w ith reference to two important and speci c transactions: (1) the sale and
purchase of property; and (2) the creation and constitution of rights in security over
property.  e legal implications of cla ssifying a juridica l relationship as one of contr act
(i.e. rights in personam) or property (i.e. rights in rem) wil l be considered in the context
of these ‘border’ tra nsactions.
e aforementioned two transact ions will be ana lyzed through t he looking-glass
of the English and S cots legal systems, which a re cited as providing examples of t he
two extreme approaches of pragmati sm and coherency and the comparative di erences
between them. Engl ish law is perceived as a system which openly espouses the abilit y of
parties to order their a  a i r s by c o nt r a c t w i t h o ut f ea r o f be i n g c ut d ow n b y s t r i c t ma n d a to r y
rules of law. Matters such as the coherence of lega l principles must be sacri ced upon
the altar of practical expediency.8 Meanwhile , Scots law, which is a mixed system both
Merrill a nd Smith, ‘ e Propert y/Contract Interf ace’, 786–787, and K.G.C Reid, ‘Obligations a nd
Property: E xploring the Border’, Acta Jur idica 225 (1997), 226.
6 Or ‘the rest of the world’, as per Ba ron Hume, Lectures (1786–1822), (Vol II, Stair Socie ty Edinburgh
volume 13, 1949, ed. GCH Paton), 3.
7 See G.L. Gretton, ‘Rec eption Without Integ ration? Floating Ch arges and Mix ed Systems’, 78 Tul an e L aw
Review 307 (2003), 308, and S . Bartels and M. Mi lo, ‘Contents of Real Right s: Personal or Proprietar y.
A Principled His tory’, and J.H.M Van Erp, ‘Posit ive Duties in the Grey A rea between Contra ct and
Property Law’ in S. Bartels and M. Milo (eds.), Contents of Real Rights, (Wolf Legal Publishers, 200 4),
1–2, 149 –150.
8 Good examples are prov ided in the  eld of comme rcial law and pract ice. For example, when dis cussing
the practice of ‘cha rge-backs’ as a mea ns of creditors obtain ing securit y, Roy Goode expresses the
following vie w:
... the writer [prev iously] argued that t he giving of secu rity over receivables nec essarily involved t hree
parties ... a nd that it was conceptually impossible for the d ebtor to be given a security i nterest over his
own obligation to hi s creditor, eg for a bank to ta ke security over its ow n customer’s credit bala nce
... But the force of busines s practice can not be denied. ...  e prov ision of cash collater al to banks
and brokers is commonplac e. Accordingly conceptual proble ms such as the blurring of the dis tinction
between proper ty and obligation ... must y ield to business p ractice ... [writer’s emphasis]
e Legal Problems of Credit and Security, (Sweet & Ma xwell, 3rd ed. 2003), 93–94. See a lso S. Van Erp,
‘Civil and Com mon Property Law: Caveat Compa rator –  e Value of Legal Histor ical-Comparative
Analysis’, 3 European Review of Private Law 394 (2003), 404 . However, note Professor Clive ’s observation
(‘Access to Civil Law: Sc ottish-Dutch Lega l Event’, University of Leiden, 8 O ctober, 2004; unpubli shed)

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