Thomas Jefferson – Series of 1869 $2 bill (Photo credit: Wikipedia)
“What follows is personal conjecture that I cannot prove and might contain fundamental errors. But I’ve considered these possibilities for over a decade and I remain convinced that they’re at least interesting and possibly correct:
According to Bouvier’s Law Dictionary (1856 A.D.), all rights flow from title.
For example, my “right” to drive or sell my car, is based on my “title” to that car. So long as I have valid title, I have the right to drive or sell that car. My “rights” to any property flow from my title to that property.
But since I lack title to your car, I have no right to drive it. If I attempt to drive or sell a car for which I have no title, I can be charged with a crime. The same is true for houses, computers or any other form of property. Rights flow from title.
Thus, if you have no title, you have no rights. If you have diminished title, you have diminished rights.
The idea that rights flow from title is, for most Americans, important and unexpected. I.e., most of us believe that we go to a Ford dealer to buy a physical automobile when, in fact, we are actually buying the title to the particular automobile. We don’t buy the car; we buy the title to the car. This distinction may seem irrelevant, but it’s vital. Legally, that 2,000-pound car is virtually insignificant. It’s the title that has value. When you “buy” a property, you’re not really “buying” the land, the car, the house—you’re “buying” the title to that property.
Anyone who doubts that rights flow from title and the real object of sales is the title rather than the tangible object, need only try “buying” a new Cadillac from some stranger on the street for $500. I guarantee that if you didn’t get a legitimate title to that Caddy, you’ve got nothing. When the police catch up with you, you’ll certainly loose possession of the Caddy and you’ll probably have to do some very fancy talking to avoid being charged with receiving stolen property (receiving property without a legitimate title).
Once you recognize that your right to drive the Caddy flows from the title to that car, you’ll begin to see that the critical element of every sale is not the physical property, but the title to that property. In the final analysis, ownership of the physical Cadillac is nothing. Ownership of the title to that Caddy is everything.
That being so, next time you purchase a car, you might want to spend less time relishing the new car smell and all the bells and whistles on the dashboard, and instead pay close attention to the real item of value: the title. But if you’re like most Americans, you don’t even know what the title to your car is.
Ancient principle
The relationship between title and rights is enshrined in the ancient principle that the person who owns the money also owns whatever that money is used to buy.
For example, suppose I give an employee $100 and send him to town to buy some groceries—who owns the groceries? Me or my employee? In fact, even if the receipt carries the employee’s name, if I owned the money, the groceries purchased with my “money” are legally mine.
(But did I really own that “money”?)
That same principle applies to the purchase of automobiles with bank loans. Because the bank “owns” the “money” (actually, credit) that you borrowed to purchase the car, the bank also owns title to the car—at least, until you repay the loan used to purchase the automobile.
(But did the bank really own the “money”?)
At first glance, most people would say the relation between title and rights seems fairly clear. But that relationship is actually quite subtle and confusing since every property contains two titles: legal title (right of ownership and control) and equitable title or interest (right of use or possession). While most of us understand whether or not we have a “title” to a particular piece of property, few of us know to ask what kind of title we have.
Determining the kind of title is critical since our rights “flow from title” and therefore our rights relative to a particular property vary hugely depending on whether we have: 1) legal title; or 2) equitable title; or 3) both titles (“perfect title”) to that particular property. The kind of title we have determines the kind of rights we have.
The difference between legal and equitable titles can be superficially illustrated by comparing the rights of a father who presumably “owns” his car to the rights of his teenage son who wants to “use” dad’s car.
If the father has legal title, then he owns the car and can do whatever he wants with it, whenever he wants. While he may give his son “equitable title” to use the car for his Friday night dates, that equitable title is always subject to Dad’s legal title and consequent right of absolute control. If dad says no cigarette butts in the ashtray, Junior had better do as dad says if he wants to use dad’s car again.
The person holding legal title always holds superior, controlling rights; the person holding equitable title has inferior and conditional rights. Dad can regulate or stop Junior from using Dad’s car anytime Dad wants, for any reason Dad thinks is appropriate—and Junior has virtually no recourse.
Figuratively speaking, the guy with legal title is always the “man”; the guy with equitable title is always the “boy”.
The man who owns the money . . .
If you read the text on the Federal Reserve Notes (FRNs) in your wallet, you’ll see, “THIS NOTE IS LEGAL TENDER FOR ALL DEBTS, PUBLIC AND PRIVATE.” Some people still regard this statement as an assurance that our paper “money” is as “good as gold”. They couldn’t be more mistaken.
I’m sure that pre-1933 gold coins were lawful “tender” with which people could buy both legal and equitable titles to property. When you held a gold coin in your hand, it was presumed that you owned that one ounce of gold and therefore held both legal and equitable titles to that one-ounce coin. Because you held both legal and equitable titles to the coin, you could use that coin to buy both legal and equitable titles to whatever good or product that you wanted to buy.
However, today, our currency is not “tender” (the term seen in Article 1 Section 10 Clause 1 of the Constitution and refers to gold and silver coin). Instead, we have pieces of paper (Federal Reserve Notes; “FRNs” and digital units of credit on our credit cards) that are labeled as “legal tender”. “Legal tender” is not equivalent to constitutional “tender”. With “tender” (gold/silver) you can buy both legal and equitable titles to property. With “legal tender” you can only acquire equitable title.
I’m convinced that “legal tender” (a kind of legal fiction that’s enforced by law) is a disability since the person using this inferior form of currency can only “purchase” equitable title to property. (The distinction between “buy” and “purchase” is enormous. You “buy” or “exchange” legal title, but you can only “purchase” or “transfer” equitable title.)
The “legal tender” statement on every FRN is the government’s/Federal Reserve System’s way of providing legal notice (just like the warnings on packages of cigarettes) that FRNs are not as “good as gold” and should not be used unless you’re willing to accept the “legal tender” disability.
FRNs are an inferior form of currency (not true money) because the Federal Reserve System loans FRNs into circulation. Being loaned into circulation, FRNs are similar to cars purchased with bank loans. I.e., so long as the money used to purchase the car belongs to the bank (until you completely repay the loan), title to the car remains with the bank. That may be part of the reason why the bank can repossess your car if you fall behind in your payments without even taking you to court. Until the original bank loan is completely repaid, you have no unaliened title to “your” car and thus no right to resist a taking by the bank that holds superior title. The bank can repossess your car just like a daddy can repossess a bicycle from his misbehaving child.
As another illustration, suppose I bought a very distinctive pen that was worth $200. Suppose I loaned my pen to Bob. Although I owned both legal and equitable titles to the pen, by loaning my pen to Bob, I would figuratively give equitable title to the pen to Bob. I would retain legal title to the pen (actual ownership). Bob would enjoy equitable title to use the pen so long as I agreed to lend it to him.
Bob’s friends and family would notice the distinctive pen Bob was using and, after a while, would begin to refer to the pen as “Bob’s pen”. People would routinely confuse Bob’s equitable right to use the pen with the legal right to own and control the pen.
But, if I loaned the pen to Bob, that’s my pen. Bob might be entitled to use that pen for years, but I can take my pen back anytime I please so long as I hold legal title. Hypothetically, I might even be able to argue in a court of law that, because Bob used my pen and my ink to write his latest novel, I’m therefore entitled to a percentage of the profits earned from selling that book.
Similarly, because FRNs are loaned into circulation, until the original loan that placed some particular FRNs into circulation is repaid, legal title to the physical pieces of green paper you carry in your wallet remains with Federal Reserve System. You may have equitable title to “use” those green pieces of paper, but you don’t own them. You don’t have legal title to the FRNs in your wallet.
That’s probably why police can seize (“repossess”) any sum of cash over $10,000 without going to court. In truth, the person holding all that cash has only equitable title to that $10,000 and thus no legal title and no legal right to resist the government’s seizure. Even though they may have honestly earned the $10,000, they can’t own legal title to that “currency”—any more than you own legal title to the FRNs in your wallet.
Thus, you and I may get to “use” (have equitable title to) the FRNs in our wallets (just as Bob can “use” my pen to write his novel), but legal title to those FRNs remains with the Federal Reserve System (just as legal title to my pen remains with me after I loaned the pen to Bob).
Bizarre implications
If this chain of conjecture is valid, we’re led to the seemingly bizarre implication that whenever we “purchase” property with FRNs, legal title to that property goes to the Federal Reserve System. (Remember? The party that owns the money, owns whatever that money is used to buy.) As a result, by making a purchase with FRNs, we may divide the title to that property such that the Fed receive legal title and we only receive the inferior equitable title (right to possess and use) to that property.
If so, legal title to everything we’ve ever “purchased” with FRNs (our homes, cars, boats, clothes, etc.) may belong to the Federal Reserve System. And although we get to “use” all that property and presume it to be our own, we have no more legal rights to “our” property than the teenage boy has to his father’s car. Yes, the boy’s equitable right to use that car will stand up against all other boys—but it will not stand up against any controls imposed by his dad. By virtue of his superior title, dad wins every time.
Legal exchange vs. equitable transfer
True “money” (generally, gold and silver) is known as a “medium of exchange“.
The word “exchange” is significant, since any transaction including legal title is described as an “exchange” while transactions involving only equitable title are called “transfers“. I.e., you “exchange” legal titles to property.
You can also simultaneously “exchange” legal and equitable title to property.
But when the title that’s changing hands between the seller and purchaser is only “equitable,” the transaction is a “transfer“.
In an actual “exchange” of legal titles, the parties are called the “buyer” and the “seller”. In a transfer of equitable title, the parties are identified as the “transferor” (corresponding to “seller”) and “transferee” (purchaser).
In a transfer there may be no true “buyer” since that term (and also “buy”) normally signals the “exchange” of a legal title. Instead, in a transfer of equitable title there’s a “seller” and a “purchaser“—one who merely receives equitable title to property. While the terms “buy” and “buyer” imply the exchange of legal titles to property, “purchase” indicates only the “transfer” of a property’s equitable title (and thus only the right to use—but not truly own and control—the property).
Certificates of (which?) title
The distinction between legal exchanges and equitable purchases is illuminated by Article 6687-1(24)(a) of Vernon’s Texas Civil Statutes (1994). That article declares that an automobile’s Certificate of Title must include:
“The name and address of the purchaser and seller at the first sale or transferee and transferor at any subsequent sale.” [emph. add.]
The “first sale” refers to the transaction between the new car’s manufacturer (seller) and the first person to “purchase“—not “buy” the vehicle. All subsequent “sales” of the (now) “used car” will be between “transferor” and “transferee“.
Why does the manufacturer “sell” his newly-manufactured auto to a “purchaser”? Because the “purchaser” pays in FRNs and therefore can’t personally acquire the legal title to the new automobile. Because FRNs are loaned into circulation, the Federal Reserve System retains legal title to the FRNs. The purchaser who holds FRNs in his wallet is only entitled to equitable title (right of use) to those FRNs. Thus, when FRNs are used to purchase property, the purchaser can only acquire equitable title. Legal title to the property purchased defaults to the owner of legal title to the FRNs—the Federal Reserve System.
All subsequent sales of the (now “used” car) will not affect the legal title since the original “purchaser” only acquired equitable title and, thus, has no legal title to sell. Therefore, all subsequent sales will be “transfers” of equitable title to the “used” car from the current owner (transferor) to another “purchaser” (transferee) who will only acquire equitable title to the “used” car.
Conjecture Applied
Let’s assume the previous conjecture is roughly correct.
And let’s assume that Bob is paying $20,000 for a new car today plus additional fees for “tax, title and license”.
I guarantee that when Bob pays an additional fee for the “title” (in “tax, title and license”), Bob believes he’s buying perfect “title” to his car from the STATE.
But Bob is a public school graduate and therefore ignorant. Bob doesn’t understand that when he paid $20,000 for the car, he didn’t buy the physical car, he purchased a title to that car. Bob doesn’t understand that the actual perfect title to the car is the MSO—the Manufacturer’s Statement of Origin. Bob doesn’t understand that when the car dealer sends the MSO to the STATE, that the STATE acquires legal title (ownership and control) over “Bob’s” car. Bob doesn’t understand that the “Certificate of Title” that the STATE sends back is not the actual “Title”—it’s merely a document that “certifies” that a title exists, that the STATE holds legal title (true ownership) to the car, and Bob holds equitable title (right of use).
Later, Bob might wonder why the STATE gave him a traffic ticket for not fastening his seat belt, not having a Drivers License, or not having insurance on “his” car. After all, if Bob hasn’t hurt anyone by having a accident with his car, where’s the injured party to complain about no seat belt, license or insurance?
But Bob doesn’t understand that by virtue of discharging his debt for the car with FRNs, he only acquired equitable title to the car—and the STATE acquired legal title. Bob doesn’t understand that by donating the MSO to the STATE, the STATE became the owner of the car and can set any rules and regulations it likes concerning the operation of its property.
I.e., if the STATE/owner of legal title to the car says the person driving the car must have a drivers license, the driver better have one. If STATE/owner of legal title to the car says the operator must fasten a seat belt and have insurance, the operator better comply—just as Bob once had to comply with his dad’s requirements, when Bob used his dad’s car to take his girlfriend to the Junior Prom.
The owner of legal title to the car has every right to set the terms under which its car can be used/“operated” by the holder of equitable title. All those traffic tickets aren’t really based on “law” so much as who holds legal title to the automobile.
Same principle applies to home and land. The STATE can tell you how high your grass can grow or how much junk you can have in the back yard because the STATE holds legal title to your land. You may have purchased equitable title your property, but that only entitles you to “use” that property on whatever terms are set by the STATE/owner of legal title to that property.
So long as you only hold equitable title to any of your property, you may think you “own” that property, but you don’t—you only have a right of use.
So long as you purchase property with FRNs, you’ll never purchase more than equitable title.
