Contract theory is the philosophy of what makes an agreement between two parties valid and enforceable. As Voluntaryism is rooted in property rights, starting with self-ownership, contracts chiefly revolve around property rights and how they are transferred or restricted within conditions of offer. One aspect of contract theory involves title transfer, the idea that ownership over a scarce resource is being given up in exchange for an agreed-upon trade of material goods. The other aspect of contract theory involves constraint on property rights where parties agree to restrict all or some of their property rights toward a goal in mutual agreement.

When consent is accurately manifested, and mutually agreed upon toward an end, that agreement can invoke duties and obligations by the parties to carry out their agreements or face consequences.

To help make these concepts readily understood, let’s look at a few applications that put these generalities into specific context.

Contract Theory and Title Transfer: Selling a Car

John and Mary want to strike a deal for a car sale. John has his car listed for $20,000 and Mary wishes to purchase the car at that price. Mary gives John $20,000, and John gives Mary the car keys along with a signed document officiating the sale with a declaration of title transfer.

In this situation, Mary originally had title to the $20,000 and John had title to the car. With their mutual agreement, the title to the $20,000 was transferred from Mary to John and John’s title to the car was transferred to Mary.

This contractual agreement is an acceptable form of trade under Voluntaryist norms because they both agreed to the sale and transferred their titles accordingly.

Now, let’s say that the two of them entered into a written agreement for the car sale and, this time, after Mary transfers her money to John through a bank wire, John refuses to give up the car and uphold his end of the bargain.

Under Voluntaryist norms, if John does not properly give up title to his car (his claim), then John is in breach and Mary has been harmed by having her property (the money) wrongly held by John.

Under Voluntaryist norms, John is responsible for making Mary whole for his wrongful withholding of the car.

There are a few options for ethical remedy at this juncture.

Mary, first and foremost, has the right to have her money returned as the title to the money has not been transferred without John completing his end of the bargain. At a minimum, in monetary terms, she needs to have her money returned plus any damages in what it costs her to get her money returned.

Alternatively, if John refuses to hand over the money or the car, it is ethical for Mary to have the car seized and given to her to complete the agreement. This could potentially be performed by a dispute resolution agency or, if the state is still around in some capacity, by the state agents.

If it can be shown that John’s attempt at contract was made in bad faith, that is, John was never intending to give over the car and the contract was a ruse to steal her money, then further punitive consequences can come into play for his breach.

When it comes to resolution, specific performance, that is, having someone complete their end of a contract deal with positive service action, is typically not favored over monetary damages to avoid complications that may come out of spite.

For a good example, imagine a concert singer cancels her appearance at a show because she doesn’t feel up to it. Forcing the singer to sing would not be a desirable outcome because the singer is unlikely to do a good job considering she already does not want to partake in the concert. It would also be tricky to force her to sing through threats and gun pointing as that would not look good in front of a live audience. Rather, damages can be assessed against her for not showing and/or for what is needed to make substitution with another singer if workable.

Unlike with a service, the specific performance of turning over physical goods may be desirable where substitution is not readily feasible.

Let’s look at another car deal example to see how.

Imagine a man named Phil comes into a bit of money through inheritance. Phil is dysfunctional and was already living humbly with a low-wage job. The sudden riches bestowed on him made him splurge on purchasing a rare sports car that he always dreamed of having. With what money he had left over, he decided to go to the casino thinking this was his lucky streak. Unfortunately for him, his luck was just running out and he lost the rest of the money he had at the casino. Desperate for money to hold him over, he decides to offer his rare car for sale in a scheme to get more money to gamble with.

In his contract for sale, he requires that a potential purchaser, Bob, give him a $5,000 deposit on the car with the car to be tendered 30 days after. Bob, wanting this rare car, agrees to the contract and makes the $5,000 deposit.

Phil takes the $5,000 deposit to the casino hoping to win big, but ends up losing that $5,000 deposit to the tables.

Phil is now broke, except for his rare car.

Bob has the rest of the payment ready on the 30^th day, but Phil refuses to hand over the car, begging for more time.

In this situation, it would be acceptable to require Phil to tender the car as the car is not readily available elsewhere and Phil has no money with which to return Bob’s $5,000.

In short, specific performance of fulfillment on a contract is more acceptable where:

• Monetary damages are not readily available.
• The performance would require only a title transfer, not ongoing service.
• Substitute goods cannot match the uniqueness of the property.

There will always be some situations where meaningful remedy is just not possible, like with those who truly have nothing to offer either in assets or money. With this risk observed, market incentives will lead toward insurances and assurances, like with insured transactions and/or escrows to help hold parties accountable and meet their obligations.

Contract Theory and Rights Constriction: Trade for Services

The other type of valid contract under Voluntaryist norms is pure service contracts. In pure service contracts, neither party is transferring title to physical property.

For example, imagine two professional massage therapists contractually agree to massage each other. The first massages the other according to their terms but, once finished, the other does not offer a massage back.

While there is no title transfer as this contract has no money or goods being exchanged, the restriction on property rights in mutual agreement is sufficient to make a valid contract.

The constraint on property rights is the agreement of the massage therapists to limit how they use their bodies (their self-ownership property right) in service of each other as opposed to any other activity.

When breach takes place, specific performance is an undesirable outcome because forcing a massage with someone already not wanting to give one is likely to make the situation uncomfortable for the recipient.

Instead of forcing the massage (or forcing any service performance), substitution could be made with monetary damages to make the massage therapist who did not get rubbed whole. The monetary damages could be metered according to substitute service cost plus anything needed to cover the costs in seeking remedy for an unfulfilled massage obligation.

In summary, Voluntaryists support consensual agreements surrounding title transfer and mutual property rights restrictions. When parties breach their agreement, damages can accrue, and those damages typically would be resolved monetarily unless turning over title to a physical property can reasonably be performed. Those who breach their agreements and, especially, who wrongfully withhold title to their property or who act in bad faith in not carrying out their obligations, can be sanctioned in market-based legal systems or, within incrementalism, by state agents acting within ethical property rights.

The means and manners of contracting within Voluntaryist theory is a matter of socio-economic norms based on market development. General guidelines for Voluntaryist-inspired practices will be addressed in a further article.

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