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Published on January 13, 2008

Author: Siro

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March 19, 2001:  March 19, 2001 Good Faith Purchase of Stolen or Lost Goods (continued) http://www.j.u-tokyo.ac.jp/~tfujita Slide2:  Owner – Thief – (Middle Person)-Buyer (Problem) How to allocate the “theft risk” among parties involved ? Economic Perspective (primitive version):  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 Caveat:  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). An Additional Question:  An Additional Question If it is difficult to determine who is in the better position to prevent theft categorically, why don’t 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 Additional Questions (cont’d):  Additional Questions (cont’d) 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 ? Should property law rules differ from torts?:  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) Risk bearing:  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 don’t sell “void title coverage” for the buyers especially in the U.S. where good faith purchasers need protection ? Risk bearing (cont’d):  Risk bearing (cont’d) 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. Post-theft behavior :  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. ⇒Isn’t it efficient to make the buyer keep the goods ? Otherwise, the owner will resell the returned goods to someone (perhaps to the buyer himself). Schwartz and Scott’s Argument:  Schwartz and Scott’s 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. Schwartz and Scott’s Argument (continued):  Schwartz and Scott’s 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. Schwartz and Scott’s Argument (continued):  Schwartz and Scott’s 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 ? Critical Assumption for Schwartz and Scott’s Argument:  Critical Assumption for Schwartz and Scott’s 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? Effects on Thieves’ Behavior :  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 ??? Some institutional differences:  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)), buyer’s 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). Further Considerations:  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? Post-theft behavior (revisited):  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. Final questions:  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?

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