Is Freedom of Property Form Principle Efficient? ⎯ Interpretations of Article 757 of the Taiwan Civil Code and the Underlying Theory

Is Freedom of Property Form Principle Efficient? ⎯ Interpretations of Article 757 of the Taiwan Civil Code and the Underlying Theory

 

Title
Is Freedom of Property Form Principle Efficient? ⎯ Interpretations of Article 757 of the Taiwan Civil Code and the Underlying Theory
Author
Yun-Chien Chang
Keywords
Optimal Number of Property Forms, Numerus Clausus, Freedom of Property Form Principle, Custom, External Costs, Notice, Registration
Abstract
Recently, many Taiwanese and Chinese scholars criticized the numerus clausus
principle, and proposed freedom of property form principle instead. In 2009, the
Taiwan legislature amended Article 757 of the Civil Code, loosening the numerus
clausus principle, and allowing customs to create new property forms. Based on the
optimal standardization theory first proposed by Merrill & Smith, with the revision
by Hansmann & Kraakman and this article, I evaluate which institutional arrangement
to create property forms is the most desirable.
This article argues that although the numerus clausus principle (under which
the legislature monopolizes the creation of property forms) does not guarantee
creation of optimal number of property forms, it is not impossible for the number
of statute-created property forms to approximate the optimal number. The freedom
of property form principle, by contrast, will produce an over-optimal number of
property forms, because of the external costs of creating new property forms by
private transactors. When interpreting the newly-amended Article 757, the court, in
addition to the marginal social costs mentioned in the “amendment rationale” (drafted by the Department of Justice before sending the bill to the legislature),
should also take into consideration the marginal social benefit of creating new
property forms. In addition, new property forms on personal properties are difficult
to be verified by third parties. Thus, the court should adopt a strict standard of review
in recognizing new personal property forms created by customs. Finally, a
pre-requisite to recognize new property forms on real estate created by customs is
the existence of such customs in most regions in Taiwan.
Abstract Article

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