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How Concession Theory Is Keeping Crypto Shielded From The Law?
- By Kriss
- Published on: August 9, 2021
In the context of blockchain communities, the ‘concession’ theory is reaching its limits.
The death of Sir Thomas Sutton, one of England’s wealthiest men, in December 1611 sparked an expected judicial battle over his bequest. One such claim, brought by Sutton’s nephew Simon Baxter, was to be a watershed moment in the history of corporation law.
Sutton received a Letters Patent from King James I just months before his death, allowing him to establish a “hospital for the relief of destitute, elderly, wounded, needy, or impotent individuals, and a free-school for the maintenance and education of impoverished children and scholars.” As a result, Sutton established a master and board of governors for the hospital, as well as granting it some of his properties.
Due to the problematic nature of the hospital’s corporate existence, it was unclear if it would be able to accept this property. Was this freshly opened hospital truly a business?
You might be thinking, “What a dumb question.” You’d be correct. This method of thinking is perplexing to us. A non-profit corporation may readily be formed today to transfer Sutton’s property in the manner indicated. But it was precisely out of this circumstance that our modern perspective arose.
Corporate legal personhood could not be created out of thin air until the Case of Sutton’s Hospital (1612). Instead, corporate personhood was developed in accordance with the entity’s social actuality. This was referred to as the “real entity” idea. A corporation was once thought to be “a living organism and a real person, with body and members and a will of its own […] it wills and acts through the men who serve as its organs, just as a man wills and acts through his brain, mouth, and hand.” The practical and social reality of a group came before its legal status.
Simon Baxter attempted to profit on the ambiguities surrounding Sutton’s last-minute altruistic gesture. He said that because the hospital was still in its early stages, the social organism required for it to be designated a corporation did not exist. “Until there is an actual hospital and poor in it, there cannot be governors of them,” Baxter’s lawyer, the famed Francis Bacon, argued, “for governors ought not to be idle, or as cyphers in algebra.” Property rights could not be legitimately transferred to the hospital if the grant was annulled. As a result, Baxter was set to inherit the hospital’s property that Sutton had left to it.
Sir Edward Coke, a distinguished jurist, disagreed with Baxter. Coke decided that “an Hospital in expectancy or intendment, or nomination, shall be sufficient to establish the name of an Incorporation, when the Corporation itself is solely in abstracto, and rests solely in intendment and consideration of the Law.” In other words, whether or not an entity deserved corporate personhood was no longer judged by its social actuality.
What mattered was how an entity interacted with the state. Coke’s reinterpretation emphasized the state’s capacity to grant an entity incorporation. This view of corporate legal persons, known as the “concession” doctrine, is still prevalent today. However, as I explain here, ‘concession’ theory is reaching its limits in the context of blockchain communities, 400 years later.
Concession theory ignores the reality that, whether or not they are recognized by the state, certain blockchain communities can behave as autonomous legal entities. This functional and social reality means the law should recognize the group’s personhood and regard the community as a single legal entity when truly decentralised (where members are bound together by game theory and a sense of collective identity).
But what can be done about these decentralized entities until the ‘real entity’ notion is reintroduced? One approach is to use trusts, which have been dubbed the “blessed backstairs of English law” by legal historian Frederic William Maitland. Because trusts do not have legal persons, they do not rely on a sovereign state. The principle of equity that underlies trust law, on the other hand, allows them to act as legal entities in certain circumstances. As a result, trusts are referred to as “unincorporated bodies” tautologically.
The advantages of trusts’ flexible governance led to the establishment of deed of settlement “companies” in the 18th century. Because of the trust structure, deed of settlement ‘companies’ were able to hold property and be sued by creditors as separate entities. They did, however, rely on the willingness of all stockholders to take legal action on their own.
Returning to the 1600s, Coke was eager to adopt a state-centric definition of legal personality, which was first employed in Sutton’s Letters Patent, which established the public school Charterhouse. For many in blockchain communities, however, the legacy of that fancy British public school is a refusal to extend the rule of law to decentralised communities and a legal rejection of their autonomous collective existence.
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Kiara Sofia Smith
My current focus is blockchain technology and cryptocurrency. One could even call me a blockchain “enthusiast.” I have worked for almost a decade on several financial projects related to the stock market news, fundamental research and technical analysis for several blogs.
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