Evolution Of Commercial Law From Research Paper

Length: 15 pages Sources: 11 Subject: Business - Law Type: Research Paper Paper: #31883048 Related Topics: Copyright Law, Common Law, Evolution, Contract Law
Excerpt from Research Paper :

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...


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…

Sources Used in Documents:


Benton, L. (2002). Law and colonial cultures: Legal regimes in world history, 1400-1900.

Cambridge, England: Cambridge University Press.

Bittlingmayer, G. (1996). Antitrust and business activity: The first quarter century. Business History Review, 70(3), 363-401.

Brummer, C. (2007). The ties that bind? regionalism, commercial treaties, and the future of global economic integration. Vanderbilt Law Review, 60(5), 0_13-1408.

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