An essay on the early history of the law merchant

A 21st Century View of Transnational Commercial Law

A notarial document had to be witnessed, and the people in line often served that role. Once he had drawn the contract up, the notary was required to read it out to the witnesses. Many courts, too, conducted their business in public and not in formal courtrooms separated from the hustle and bustle of the marketplace Sachs , p.

An Essay on the Early History of the Law Merchant

The Middle Ages was a time of little privacy. The assumption that merchants needed a special law or institution to broker reputational information among them misconstrues the way the people of the time lived.

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Another ostensible role for the law merchant was to solve the ex ante problem of trust by providing a reputational database that would incentivize merchants to act honestly. While this assumption makes sense, no one has supported it with data about the amount of cheating that took place in pre-modern commerce. Yet the evidence seems to suggest that fraud was not insignificant Davis , pp.

One of the earliest accounts of international merchant groups is really a description of cheating. In , the monk, Alpert of Metz wrote that, [w]hen one [merchant] has accepted a loan or credit from another, and this one demands it back at the specified time, he [i. When one is discovered to have committed public perjury they maintain that nobody can prove this.

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When the object is so small that it can be concealed in one hand he uses the other hand to swear that it does not exist. Other evidence suggests that, although a poor reputation might have made it more difficult to engage in trade, it did not make it impossible. An interesting example comes from midth-century Bruges. Henceforth, no Hanseatic merchant was permitted to enter into a partnership with him nor to ship goods in the same vessel.

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He proceeded to become a citizen of Bruges and to set up shop as a moneychanger. When he died ten years later, he was one of the wealthiest men in town id. We know that the merchants used credit in their commercial purchases Dahl , p. But they likely also used it for daily purchases. The merchant who spent weeks or months in a foreign town did not just interact with the functionaries of the wholesale trade. He had to eat. His clothes had to be washed or mended. He had to buy candles, paper, pens and ink to write the obligatory business letters back to his partners at home Doumerc , p.

He ran a tab at the local drinking establishment, where he also acquired gambling debts Hardwick , p. Maybe he went to the tailor, maybe the shoemaker.

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  6. In an age when coins were not always sufficiently plentiful, when the small coinage necessary for daily shopping might not even exist Davis , pp. Merchants, local and foreign, were embedded in this web of credit and debt Nightingale , p. In such a society, just knowing the reputation of the person with whom one transacted was not enough. With the slowness and unpredictability of communication and travel, with the constant threat of localized or widespread crop failure, with the ever-present possibility of wars, fires, sudden devaluations of currency, and endemic disease, compounded by the lack of many kinds of personal and real property insurance, the possibility of defaulting on a loan was painfully real Howell , p.

    And when one person in the network defaulted, it could trigger a cascade of defaults Everitt , p. Medieval merchants needed more protection than private ordering could afford them, and they looked for it in government intervention. The law merchant advocates correctly diagnose one of the leading risks of inter-city trade in the Middle Ages: the foreigner had no automatic legal protection for his person and property, and he could find courts biased against him Trakman , pp.

    The foreigner was a suspicious character in the Middle Ages, a period so parochial and xenophobic that the peasant from the hinterlands was a foreigner in the neighboring town Ogilvie , p. Even merchants whose business was based on buying and selling to foreigners did not trust them Dahl , p. Private ordering alone could not solve a problem this culturally ingrained. Governments had to play an important role as guarantors to get people to transact despite the embedded distrust. Although lords and town governments often regulated commerce in the interests of their tax revenues and the wallets of the local merchant oligarchy, they had to ensure transparency in the conduct of trade if they hoped to attract repeat visitors Ogilvie , p.

    One of the biggest bones of contention arose in weights and measures. Sellers must have had a great deal of incentive to cheat on measurements, because governments early and often issued orders to ensure accuracy Davis , pp. Governments provided official scales and volume measures, paid sworn weighers and measurers, and required the private measures of shops such as taverns and bakeries to be tested and sealed Davis , p. When foreign merchants thought they had been cheated at the scales, had been sold goods that did not meet the established standards, or had been victims facing monopolistic price fixing, they complained vociferously to the town aldermen and local lords Stabel , p.

    The governments took these complaints seriously because the threat of boycott was real. The Hanseatic merchants, for example, decamped from Bruges repeatedly when their demands for better enforcement of the regulations and more lenient tax treatment were not met Murray , pp. Towns and fairs also had to provide adequate courts to encourage trade. Scholars depicting a medieval commercial world of merchants acting independently of the state assume the absence of impartial enforcement mechanisms, a gap that needed to be filled by private ordering solutions such as group reprisals Benson , p.

    Medieval merchants might have been surprised by this assumption, because they turned often to the secular and ecclesiastical courts to enforce their rights. Indeed, the evidence suggests that in some towns foreign merchants had a preference for litigating in local courts Ogilvie , pp. This makes sense—once one recognizes the existence of fully functional public courts during the Middle Ages—because private ordering could not match the coercive power of government id. Only a lord could compel debtors to appear and, as the Count of Flanders did, undertake to arrest debtors anywhere in Flanders if they fled a fair without paying Davis , p.

    While scholars have argued that group reprisal provided a private alternative that mimicked this enforcement function, reprisal was in fact a part of the public court system and depended upon government involvement to work Ogilvie , pp. Merchants also disliked it, and sought to have their community exempted from it whenever possible. Already during the 10th and 11th centuries Italian cities abolished reprisal, and by the 12th-century merchants from Germany, Flanders, and Italy obtained exemption from reprisal in their treaties with certain lords Ogilvie , pp.

    The Countess of Flanders exempted merchants attending the fairs of Flanders from reprisal in id. Even where courts ordered reprisals, it is not clear how well it worked.

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    Sometimes the government whose aid was sought in distraining a debtor or the fair which was supposed to be closed to the community of the offender simply ignored the mandate Bautier , p. Furthermore, contrary to the arguments of the law merchant advocates Benson , p. Instead judges relied on experts. They called in the brokers who mediated the contract, and they consulted the local inspectors of the particular product concerned Gilliodts-van Severen , pp. They occasionally even sought written evidence from a broker in another city about a contract in which he had been involved Van Houtte , p.

    If they had to go to a third party to resolve a dispute, they preferred arbitration Gilliodts-van Severen , p. We might assume this was because the arbitrators applied the law merchant.

    In fact, it appears that arbitrators were expected to apply either local law or the law of the hometown of the parties Ogilvie , p. In addition, public courts also played an important role in arbitration. Finally, while merchants used private contractual solutions, such as sureties and pledges, to try to guarantee that they would get paid Des Marez , pp. In Northern Europe, the powerful town councils provided noncontentious jurisdiction: the witnessing, sealing, and recording of contracts to ensure their validity and enforceability Des Marez ; Ogilvie , pp.

    The creditor had only to present the document before the court to enforce his rights Des Marez , p. Similarly, prior to the second half of the 13th century, at the fairs of Champagne merchants validated their contracts not before the court of the gardes of the fairs, but before town and ecclesiastical tribunals—the same authorities before whom they subsequently brought suit on those contracts Bautier , pp. Many towns even took action to ensure that debts their own merchants owed to foreigners were paid. Flemish innkeepers and brokers had to put up enormous bonds with the cities in which they worked so that if they went bankrupt their foreign merchant clients, for whom they performed local banking and services, would get paid Nicholas , p.

    The Hanse merchants in Flanders negotiated a privilege that guaranteed them priority of repayment in the event an innkeeper went bankrupt Greve , p. In , the Flemish town of Diksmuide went so far as to issue annuities in order to pay the debts its cloth merchants owed to a German merchant Stabel , p.

    So where do these observations leave the law merchant theory? First of all, the concept itself is not medieval. Medieval merchants seem not to have understood themselves to be governed by a uniform and universal customary merchant-created body of law. Nor did such a law merchant exist avant la lettre. Instead, when merchants could obtain their own law, they much preferred to do so. But when they could not, they followed the law of the places they traded.

    An Essay on the Early Histroy of the Law Merchant

    Those local laws often left little room for the development of specialized merchant sales customs by mandating so much about the act of sale and purchase, quality, and assumption of risk. Merchants would have had to know about these rules to trade successfully. Consequently, medieval towns and fairs provided a number of intermediaries—innkeepers and brokers, notaries and moneychangers foremost among them—to ensure that this information was adequately available. The law merchant was not necessary either to enable trade in a world of diverse rules or to convey reputational information.

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