Evolution of Commercial Law From

¶ … evolution of commercial law from the eighteenth century to the current international e-commerce era, with an eye towards specific crises and responses that led to formation of the current system of general commercial law.

These crises include the conflict between national law and the law merchant during the eighteenth century, the emergence of negotiable instruments in the early nineteenth century, the importance of new forms of insurance during the middle of the nineteenth century, the consolidation and monopolization of the Industrial Revolution, and the global effects of the internet on commerce and copyright.

Tracing these crises and the legal system's response allows one to better understand how the evolution of commercial law is constituted by a mixture of disruptive change and long-standing legacies, as each new generation contributes to the whole of the law while continuing to deal with the long-standing effects of centuries-old rulings. The evolution of commercial law from the eighteenth century all the way up to today can be characterized as both dramatic and expected, disruptive yet incremental.

This is because by the eighteenth century, many of the legal concepts and frameworks that make up contemporary commercial law were already in existence, albeit in modified forms. At the same time, however, the eighteenth century saw a period of global expansion that would change the face of the world forever, and as a result, commercial law was forced to adapt.

As European powers expanded their influence through colonization and imperial expansion, gradually commercial law became standardized across international borders, so that by the nineteenth and early twentieth century, international commercial law had largely coalesced into a unified system (albeit with plenty of room for isolationist economic policies, exploitation, and inequality).

Only with the development of the computer in the latter half of the twentieth century did commercial law undergo another dramatic change, as the combination of e-commerce and a larger trend towards globalization began to effectively erase whatever remaining international borders or legal distinctions still existed.

By tracing the evolution of commercial law from the eighteenth century to the current international e-commerce era, and particularly the development of the law merchant, negotiability, insurance, and antitrust efforts, it will be possible to see how commercial law, like all other areas of culture, politics, and business, has proceeded towards unification at an exponentially increasing rate, hindered only by conceptions of national identity or autonomy that appear positively provincial in light of the dramatic cultural, political, and economic developments of the last three hundred years.

To begin, it is necessary to point out that many of the key concepts and legal frameworks that constitute commercial law were created well before the eighteenth century, through the natural, contemporaneous evolution of common law and international (or inter-city) trade. For example, the twelfth century saw what one might characterize as the birth of the banking system, as trade expanded across the European and Asia continents. Trade caravans and traveling merchants needed ways to ensure that commerce could function effectively over the vast distances involved.

As a result, common standards and customs of trade and commerce developed, to the point that some merchants were using the forerunner of bank checks by the end of the twelfth century (Schaffer, Agusti, & Earle, 2009, p. 118). Over time, courts began to adopt the self-enforced common laws of the merchants ("lex mercatoria or law merchant,"), such that the trade developments of the twelfth century may be seen as the ancestors of contemporary commercial law (Schaffer, Agusti, & Earle, 2009, p. 118).

That the twelfth century law merchant represents a crucial point of understanding for appreciating the evolution of commercial law from the eighteenth century onward is evidenced by the fact that English commercial law was essentially born out of the codification and legitimization of the law merchant.

It is important to note that the law merchant, though developed largely independent of local common law courts, did not represent an entirely separate legal system, but rather a relatively distinct set of laws governing mercantilism that were simply not as widely recognized or used as the common law (understandable, considering they concerned themselves with a specific portion of the population) (Rogers, 2004, p. 20).

This distinction was further compounded by the fact that the law merchant, by nature, needed to deal with international law well outside the scope of common law courts, because it was intended to ensure efficient and trustworthy trade structures and strategies between international merchants, rather than domestic traders, whose disputes and contracts could more easily be handled by local courts.

This divergence between the law merchant and the regular common law courts precipitated a kind of minor crisis in eighteenth century England, the conclusion of which would result in the birth of a truly modern commercial law. By the middle of the eighteenth century, the differences between the law merchant and English common law were coming to a head, as the law merchant increasingly conformed to continental standards that differed in important ways from English law.

Although there were a number of important distinctions, one particularly obvious one will serve to illustrate the problem. Because the law merchant evolved from a system of unwritten rules and standards created and enforced by merchants themselves, merchants were frequently bound by their word, and although written contracts existed, they were no more or less concrete than simple verbal agreements (Schaffer, Agusti, & Earle, p. 118).

In contrast, English law held that individuals were only responsible for contracts recorded with a written signature, so disputes arose which could not be effectively resolved; English law requiring written signatures served to protect individuals from frivolous accusations and suits, but it resulted in practically unresolvable disputes that served to disrupt trade and discourage international cooperation.

In response to this legal crisis, one notable English barrister and judge, Lord Mansfield, took it upon himself to reconcile English common law with the internationally-used law merchant, bringing the former up-to-date with the latter while attempting to ensure that the protections offered by English law were not lost.

Mansfield "ruled that it was up to the English courts to say what the law merchant was and not merely what merchants thought it to be," and doing so was an attempt to inject into English law a number of legal concepts developed as part of the law merchant, such as the notion of good faith in contracts, or having a jury of peers determine the outcome of certain suits (in this case, a jury of merchants would rule on suits that dealt with both the law merchant and English common law) (Schaffer, Agusti, & Earle, 2009, p.

118). In addition to the conflict between English common law and the law merchant, there were a number of other domestic and international conflicts in the eighteenth century that contributed to the evolution and modernization of commercial law. The Jacobite Rebellion in Scotland led to a number of important reforms, as the system of feudal ownership and inconsistent commercial regulations allowed Charles to raise funds and supplies both internationally and domestically, much to the surprise of the British Crown (Reid, Reinhard, & Zimmerman, 2000, p. 160).

Although the 1707 Act of Union between England and Scotland "had provided that laws regulating trade, customs excises should be standardized," it was not until later in the century that this standardization actually began to occur, because the same conflict that existed between English common law and the international law merchant existed between Scotland and England; while England had developed its own legal culture largely apart from continental Europe (albeit sharing the same Roman influences), Scotland's legal system had largely evolved alongside the European one, which partially helps to explain Charles' success in coordinating his commercial and economic allegiances (Paisey & Paisey, 2004, p.

1041). Perhaps the biggest distinction between Scottish and English commercial law in the eighteenth century was the concept of judicial precedent, which English law held in high esteem but which Scottish law largely disregarded in favor of principle (Paisey & Paisey, 2004, p. 1040). Like the distinction between the verbal agreements of the law merchant and the signature requirement of English common law, the attention to principle over precedent was the result of Scottish law's closer association with continental modes of legal thought.

Over the course of the eighteenth, the English standard won out, although even then "English courts respected Scottish decisions" (Paisey & Paisey, 2004, p. 1043). Distinctions between Scottish and English law in the eighteenth century are an important topic in the evolution of commercial law, because they help to demonstrate the larger trend of unification and coordination that began with the emergence of the law merchant but which moved exponentially quicker over the course of latter centuries.

The standardization of English and Scottish law, as well as the integration of English law with the law merchant, may be seen as the first stages of a truly general concept of commercial law that exists above and beyond any national system, because for perhaps the first time, lawmakers, barristers, and judges began to realize that the economic system in which they lived ultimately subsumed any notion of national difference or distance.

However, even as Europe was rapidly developing a set of legal concepts and frameworks that served to coordinate and integrate its disparate commercial law systems, European colonialism required the development of legal systems that could adapt and deal with the particular needs of far-off colonies.

In general, colonizers attempted "to impose legal systems intact," but in the case of the Americas (and elsewhere) this proved largely impossible, as unforeseen situations meant that colonists themselves had to develop their own legal systems and concepts, frequently drawing on the legal thought of their home country but including novel developments that changed the shape of commercial law (Benton, 2002, p. 2).

Furthermore, simple geographical distance meant that colonizing countries could not effectively enforce their own laws, allowing the colonies themselves much freer reign to develop their own schools of legal thought (Klein, 2005, p. 170). Thus, at the same time that Lord Mansfield was integrating English common law and the law merchant in the 1760s, the American colonies were developing their own commercial law that, while naturally integrating concepts from English law, nevertheless represented disruptive and practically unprecedented evolutions in legal concepts.

While English and European commercial law developed out of a need to coordinate international trade and contracts, American commercial immediately before and after the Revolution was focused on dealing with interactions between individuals and sovereign states more closely aligned than the nations of Europe but nevertheless autonomous in a number of important areas.

As a result, "no development had a more shattering effect on American conceptions of the nature of contract than the necessity of forging a body of commercial law during the last decade of the eighteenth century," and the key concept which emerged from this newly-developed commercial law was the notion of negotiability and the transfer of the right to sue (Horwitz, 1977, p. 212).

Negotiable instruments had existed prior to the founding of the United States, but they were still a novel concept at the end of the eighteenth century, and one that "challenged a whole range of accepted legal notions" by upending common law tendencies to view the contract between two parties as sacrosanct (Horwitz, 1977, p. 212).

In some ways, one can view the development of commercial law in early America as the concurrent commercialization of law, because the introduction of negotiable instruments into American law meant that contracts themselves could become a kind of currency. This played an important role in the early years of the country, because promissory notes frequently served as a kind of de facto currency when cash was scarce, allowing commerce to proceed and keeping the burgeoning economy from grinding to a halt (Horwitz, 1977, p. 216).

However, it took some time for American courts to accept the notion of negotiability, because even as individuals exchanged promissory notes and bonds freely under the implicit assumption that they were negotiable, American courts in the eighteenth and early nineteenth repeatedly refused to acknowledge them as such, holding to the traditional common law notion that negotiability tended "to the deception and loss of individuals" (Horwitz, 1977, p. 219).

The courts' concern for the rights of "commercially unsophisticated groups" demonstrates an interest in equality and consumer protections that might surprise those whose view American commercial law prior to the Great Depression as a bleak landscape of capitalist exploitation, and serves to illustrate how the evolution of commercial law as a whole is, as previously mentioned, a process of disruptive change coupled with incremental change, such that contemporary commercial law is simultaneously unprecedented and positively familiar (Horwitz, 1977, p. 219).

In other words, everything is different and nothing has changed, because the arguments for and against the newly-developed concept of negotiability during the eighteenth and early nineteenth century are practically identical to the arguments for and against the complex financial instruments that make up the contemporary system of global finance.

Courts argued that negotiability would allow for unscrupulous individuals to take advantage of the uninformed (much in the way that credit-default swaps depend upon an entire class of underqualified borrowers), while proponents argued that negotiability was necessary in order to ensure the smooth functioning of the financial and economic system (in the same way that credit-default swaps allow banks to maintain fluidity).

Despite the initial reluctance to endorse negotiability, by 1809, the Supreme Court had affirmed the concept after a series of sometimes dramatic rulings, including a case in 1802 in which the Supreme Court reporter, William Cranch, inserted his own extensive argument in favor of negotiability as an appendix to the official opinion rejecting it (Horwitz, 1977, p. 221). In that case, Chief Justice John Marshall had decided that negotiability was not present in common law, and thus required a specific statute in order to be permissible.

Furthermore, he had rejected the notion of a general commercial law, and argued that the question was strictly a matter of state law (Virginia in particular).

Some seven years later, however, Marshall reversed himself in the same case, because in 1804, during a case entirely unrelated to negotiability, Marshall had made a seemingly offhand comment that was enough to open up the original suit for re-litigation (largely due to the fact that William Cranch was careful to include Marshall's comment in an official footnote, thus making it part of the overall decision) (Horwitz, 1977, p. 222).

Perhaps even more important than Marshall's eventual support of negotiability was his reversal in regards to the notion of a general commercial law that "existed independently of the decisional law of the states" (Horwitz, 1977, p. 223). This was crucial because it represented the first time the American government recognized the concept of a general commercial law, an idea which had only been solidified in Europe a few decades earlier.

This also marked a transition in the American legal system's ideological stance in regards to commerce, as "it is of more than passing interest that this first assertion of the power of the federal courts to enforce a general commercial law despite contrary state rule arose in order to establish a major procommercial legal doctrine that had consistently been opposed at the state level;" in short, Marshall's decision positioned the American legal system (and the general system of international commercial law that would eventually emerge) definitively in the service of capitalism.

This is why the similarity between the nineteenth-century debate over negotiability and the contemporary debate over complex financial instruments is so remarkable; Marshall's 1809 decision came down definitively on the side of commerce and the financial system (arguably at the expense of the public), and the ramifications of this decision are still being felt to this day. Negotiability continued to be debated over the rest of the nineteenth century, but there was no sufficient challenge to Marshall's decision.

In addition to negotiability, the other important commercial legal concepts that crystallized over the course of the nineteenth century concerned insurance. For the most part, insurance in the eighteenth and nineteenth centuries related almost exclusively to marine travel, as this was the most common mode of transit for goods, and as such represented one of the most vulnerable points in the entire chain of commerce.

There were of course exceptions, but these exceptions tended to prove the rule; for example, the case in which Lord Mansfield first attempted to introduce the doctrine of good faith was concerned with an insurance claim made on a fort, but even then the fort was important due to its position as a site of commerce and trade (Horwitz, 1977, p. 229). However, over the course of the nineteenth century, increased urbanization increasingly meant that fire insurance was more central to commerce than marine insurance.

For the first half of the nineteenth century, fire insurance was systematically discouraged, as courts "denied that one could recover for fires brought about his own negligence or that of his agents," generally in the belief that fire insurance would actually encourage negligence and fraud (Horwitz, 1977, p. 231).

However, a number of large urban fires including the 1835 New York fire and the 1871 "Great Chicago Fire" increasingly led justices to see the value of fire insurance, and subsequently insurance law came to include a number of expansive risks that would have previously been unconsidered a century earlier, when the threat of a ship sinking or a distant fort being captured were the most likely dangers for a business.

Thus, by the end of the nineteenth century, commercial law had developed into a robust general system incorporating a number of areas including insurance, negotiable instruments, and contract law, but there remained one area it had not yet evolved to include; namely, the robust regulation of commercial entities in the service of public health, human rights, and economic stability.

Though certain elements of commercial law prior to the late nineteenth and early twentieth centuries concerned themselves with protecting the public interest (such as the initial opposition to negotiability), for the most part commercial law had concerned itself with the arbitration of business disputes, rather than the regulation of business itself.

It was not until the excesses of the Industrial Revolution and the catastrophic effects of the Great Depression that lawmakers and the public saw the need for commercial law to include some regulation concerning the behavior and structure of commercial enterprises.

Though certain laws concerning human rights, such as the outlawing of child labor or the rights to overtime and vacation, constitute an important part of the evolution of commercial law over the course of the early twentieth century, in terms of the actual structure and function of commercial enterprises, nothing was more important than the emergence of anti-trust laws.

Large corporations and holding companies were in many ways the natural evolution of commercial enterprise following the Industrial Revolution, because in essence they merely represent one aspect of the larger trend towards consolidation; just as people increasingly moved into large urban centers, so too did capital flow towards more concentrated configurations.

The first few decades of the twentieth century saw some of the most aggressive antitrust operations in American history, and indeed it seems almost impossible to imagine that any government would go after contemporary monopolies or commercial oligarchies as fiercely as regulators went after Standard Oil and American Tobacco in the early twentieth century. The antitrust efforts of the early twentieth century represented an important development in commercial law because they codified and made explicit the assumption that competition is crucial for a successful economy to function.

Despite the charge that Theodore Roosevelt and others were "anti-business," the antitrust legislation of the Progressives was ultimately geared towards ensuring the survival of business, because without a sufficient degree of competition, commerce ceases to exists as such, and instead the economy becomes a kind of pseudo-capitalist state, wherein the process of buying and selling certain goods or services is nothing more than an illusion, because these transactions are ultimately occurring within the framework of a single (or a few) entities (Bittlingmayer, 1996, p. 365).

Thus, alongside the coordination of the law merchant with common law, the introduction of negotiability, and a broader application of insurance, the inclusion of antitrust doctrine within commercial law as a result of the developments of the early twentieth century represents one of key developments that shaped the general commercial law that exists today. One can divide the evolution of commercial law from the eighteenth century till now into relatively discrete periods, defined by the particular legal doctrines and concepts that emerged.

Commercial law of the early and mid eighteenth century was defined by efforts to coordinate national common law with the law merchant, while the late eighteenth and early nineteenth century was defined by the gradual acceptance of negotiability. Increased urbanization over the course of the nineteenth century led to the rise of insurance above and beyond marine insurance, and the wild, exponential growth as a result of the Industrial Revolution resulted in the anti-trust efforts of the early twentieth century.

All of these developments contributed to the formation of a general, international commercial law, but it would not be until the latter half of the twentieth century that this law would become truly international, and truly general, because it was only with the invention of the computer that commerce began to truly transcend national boundaries. While international commerce existed prior to the invention of the computer, this commerce was still limited by time and space; merchants might.