March 19, 2001

1
March 19, 2001

• Good Faith Purchase of Stolen or Lost Goods
  (continued)
• http//www.j.u-tokyo.ac.jp/tfujita

2

• Owner Thief (Middle Person)-Buyer
• (Problem)
• How to allocate the theft risk among parties
  involved ?

3
Economic Perspective (primitive version)

• Prevention
• Which party is in the better position to avoid
  theft ?
• Risk bearing
• Which party is in the better position to insure
  the risk

4
Caveat

• Because the buyers can claim a warranty of title
  to a subsequent person (U. C. C. Art. 2-312,
  J.C.C. 566), it is not appropriate simply to
  compare the owner and the final buyer. Compare
  the owner and the buyer who purchased from a
  wrongdoer (thief or criminal receivers).

5
An Additional Question

• If it is difficult to determine who is in the
  better position to prevent theft categorically,
  why dont we adopt case-by-case approach to
  determine who is the least cost avoider in each
  particular case ?
• see, contributing negligence (or last clear
  chance test) in tort law

6
Additional Questions (contd)

• Is it sensible to give real owner a protection if
  and only if he/she has made a reasonable
  precaution (e.g., investment against theft) ?
• Neither the U.S. and Japan adopts such an
  approach and perhaps very few in the world does.
  Why ?

7
Should property law rules differ from torts?

• Unlike tort law, which takes a (remarkably)
  case-by-case approach to the problem of multiple
  causal agents, property law ---- perhaps
  because certainty of title is regarded as more
  important than is certainty of tort liability
  ---- looks for a general rule (as between O and
  B) and only infrequently allows particular
  circumstances to alter the rule. (Levmore, p.
  48)

8
Risk bearing

• Owner is usually in better position to insure.
• (property insurance usually contains coverage
  for theft risk while insurance for void title
  is rare, if not none.)
• Why insurance companies dont sell void title
  coverage for the buyers especially in the U.S.
  where good faith purchasers need protection ?

9
Risk bearing (contd)

• Two different implications.
• Few void title coverage imply the owner is a
  better risk bearer. Thus good faith purchaser
  should be protected.
• Insurance companies do not want to offer void
  title coverage because of the moral hazard
  problem of the buyer. Any protection of good
  faith purchaser would cause the same problem.
  Thus good faith purchaser should not be
  protected.

10
Post-theft behavior

• Original owner may often has replaced the
  property after theft.
• Buyer may, after all, have become quite
  attached to his new goods.
• ?Isnt it efficient to make the buyer keep the
  goods ? Otherwise, the owner will resell the
  returned goods to someone (perhaps to the buyer
  himself).

11
Schwartz and Scotts Argument

• Prof. Schwartz and Scott suggest the following
  analysis.
• The owner is not likely to be affected by any
  legal rule that allocate theft risk. Because,
  
• 1. The probability of recovery is law,
• 2. The owner has often replaced the goods,
• 3. Recovered goods are often not valuable to the
  owner because they are used and the thief and the
  others could have abused them.

12
Schwartz and Scotts Argument (continued)

• On the contrary, the purchaser from the thieve
  may well be influenced by the legal rule. Because
• 1. Though the probability of recovery is low,
• 2. The purchaser who surrenders the stolen goods
  must replace them, and
• 3. The purchaser has become familiar with the
  goods and therefore wishes to avoid the risks and
  costs associated with purchasing and using new
  items.

13
Schwartz and Scotts Argument (continued)

• Therefore, purchasers will be more responsive
  than owners to the legal rules allocating
  property rights in stolen goods.
• ? the U. C. C. rule of non-assignment is thus
  efficient.
• (Schwartz and Scott, pp.509-510.)
• Persuasive ?

14
Critical Assumption for Schwartz and Scotts
Argument

• Owner assign a negligible value to the potential
  benefits of the returned goods. (low probability
  and decreased value)
• Purchaser values such goods more than owners.
• Are they plausible?

15
Effects on Thieves Behavior

• Protection of good faith purchaser would
  arguably lead to an expansion of the market for
  stolen good.
• (Remember moral hazard argument)
• ?
• This gives thieves and commercial criminal
  receivers an incentive to increase their
  activity.
• ?
• Eventually, net social loss increase.
• Persuasive ???

16
Some institutional differences

• Definition of good faith purchase
• If the definition of good faith is something
  honesty in fact (U.C.C.1-201(19)), buyers
  moral hazard would be very serious cf. no
  negligence is required under J.C.C. Art. 192.
• Is there any police regulation for used goods
  market? In Japan, there is (Used Goods Dealing
  Act).

17
Further Considerations

• In addition to the question whether good faith
  purchaser needs protection, it should be
  considered that what form of protection is
  adequate. For example, more outright protection
  such as market-overt-rule in the U.K. or some
  intermediate solution as in Japan (or other Civil
  Law Countries) ?
• Is there any affirmative reason for intermediate
  solution rather than outright protection?

18
Post-theft behavior (revisited)

• The retuned goods are often not valuable for
  owner who may often has replaced the property
  after theft.
• Buyer may, after all, have become quite
  attached to his new goods.
• ? Requiring compensation Japanese law might
  arguably be a device to screen the owner for whom
  goods are still valuable.

19
Final questions

• Does the Rules on stolen goods differ because
  underlying fact differs (peoples behavior or
  market structure) ?
• Does the rule differ because the issue is
  something reasonable law maker would disagree?
• Or other possibility?