Reflections on the Historical Origins and Economic Structure of the Law Merchant

I. IS THE LAW MERCHANT LAW? The purpose of this short essay is to make some introductory remarks to frame the debate about the historical evolution and economic structure of the Law Merchant. For these purposes the capitalization of the phrase should not mislead, for by the Law Merchant I mean nothing more pretentious than the commercial law rules-contractual, customary, and statutory-that govern transactions among merchants. It includes the rules governing sale, credit, insurance, transportation, and, probably, partnership. In approaching so salient a topic, it comes as something of a shock to realize that the first order of business in this venerable area is the extensive debate over whether there really is a Law Merchant at all. The positions on this matter are many and subtle, and it is worthwhile to give a capsule account of the overall situation. One point of broad agreement is that a body of law largely directed to the business transactions between merchants arose sometime during the Middle Ages. Much of this law derived from the Roman law of sale, but much of it, such as the creation of bills of exchange and similar credit instruments, was created by merchants in response to the difficulties of trading at a distance. There is further agreement that this law prized freedom of choice and speed of enforcement. There is yet further agreement that it had a distinct international cast in that a large number of transactions that fell within the scope of the Law Merchant involved trade between merchants from two or more nations. Thus, one party often had to sue in a court in which he faced the risk of discrimination as a foreigner. And last, there is some agreement that the principles that were embodied in the Law Merchant had some relationship to the ius gentium, or the law of nations as it has come clown to us from Roman times. But beyond that, there is massive disagreement. In his treatise An Exposition of the Principles of Estoppel by Misrepresentation, John Skirving Ewart takes the strong position that there was no independent body that constituted the Law Merchant but only the collection of national and local practices that governed merchant transactions. He wrote: The custom of financiers, as of social clubs or other organizations or coteries, is observed and enforced by the law; not because the financiers or clubs enacted or had power to enact laws, but because it is with reference to those customs that the parties have acted or contracted; and it is with reference to them, therefore, that rights and liabilities ought to be adjusted. When these or any other customs obtain general acceptance by the community they then pass into and for the first time become laws.1 In response, Francis Burdick in 1902 defended the existence of the Law Merchant, heaping scorn on Ewart for taking so skeptical a position. Burdick's chief evidence is the constant reference in the legal literature to matters that were decided in accordance with the Law Merchant, which seemed to suppose a coherent body of law.2 Ewart offered a reply that stressed that the Law Merchant had no greater claim to law than international law as a freestanding body of rules.3 That position has been defended after an exhaustive examination of the sources by J.H. Baker, who concluded that the Law Merchant was a body of principles that was only instantiated, at least in England, through common law decisions.4 Their appearance in the cases is somewhat delayed because in medieval times these principles were often enforced in specialized merchant courts. But once the action of assumpsit was made available, hints of the Law Merchant were found in the pleadings, in which they were often surplusage (under the liberal assumpsit pleading rules) that explained the background of the case but did not point to an extraterritorial body of law. The clear import of Baker's argument is that, as assumpsit reduced the cost of going to a common law court, the willingness to do so increased, so that any specialized law, if such there be, of the merchant courts became fully assimilated into the common law. …