WHY DOES PROPERTY LAW MATTER FOR COMMERCIAL LAW?

Commercial law is to a large extent the law of trade. Trading assets involves buying and selling them. This is often financed by loans which are secured against other assets. Buyers will not be content merely to have a contract obliging the seller to make them owners of goods, they want that contract to be fulfilled. A lender may only be willing to lend if the borrower gives a right in security that allows the lender to sell some of his or her property if the debt is not paid .

Trade also involves risk. Things may not work out as parties hope. If commercial transactions do not work out as parties hope, they may find that their assets are not sufficient to meet their obligations. That means that the debtor will not be able to pay every creditor in full. This situation is known as insolvency and it is handled through processes such as sequestration and liquidation, which are discussed later in this book. Crudely put, they involve selling off the debtor's assets and sharing the proceeds between the creditors. No one gets all that they are entitled to because there is not enough to go round.

In this situation, property rights in the debtor's assets are much more valuable than contractual rights against the debtor. They give direct access to the assets without the need to share with other creditors. Imagine that Susan has four tonnes of wheat and no other assets. She gets a bit confused and makes contracts for the sale of a tonne of wheat with six different people. She does not have enough wheat to fulfil all of the contracts. Insolvency processes are about sharing the four tonnes of wheat between the six buyers. None of the buyers will get a whole tonne (or its value) from the insolvency official.

If, however, Susan has transferred a tonne of wheat to Brenda (one of the buyers) before the insolvency process starts, then Brenda won't have to share her wheat with the other buyers. The insolvency process is about sharing Susan's assets between her creditors. Brenda's tonne is no longer one of Susan's assets.