The timeframe most commonly associated with the Middle Ages starts with the fifth and ends with the fifteenth centuries C.E. From the standpoint of the development of commercial legal institutions, the Middle Ages are a particularly important period. Many of these institutions were imported from Roman law through its mostly Italian “glossators” and (later “commentators”), but these had to be adjusted to the conditions of a resurgent trade after the eleventh century. The trial and error process that these institutions underwent, especially in the Late Middle Ages, prepared them for future use, particularly in continental Europe, and in that respect were their “incubators.” The medieval fairs discussed in later chapters1 also acted as incubators not only of their own legal institutions, but to institutions we use to this day such as bills of exchange and “futures” contracts and their “clearing” mechanisms. In addition, some of the fairs also implemented the principle of the “peace of the marketplace” or equality of treatment of foreign and national merchants, a principle responsible for the resurgence of international trade not only in the Middle Ages, but also after the Second World War when the General Agreement on Tariffs and Trade (GATT) was enacted following centuries of unrestricted mercantilism.2 An additional incubator of viable business practices was developed during this period, especially from the ninth to the thirteenth centuries, in Mediterranean trade. It helped shape the law and practice of partnerships, joint ventures, secured and unsecured loan agreements, and payment instruments of our day.
Similarly, “double-entry” bookkeeping was developed during the middle of this period.3 It allowed owners, partners, joint venturers, and third party creditors to ascertain the financial condition of a business by checking how the summary results of transactions had been entered as debits and credits in at least two sets of corresponding accounts: The total of debits had to equal that of credits. This practice made it easier to track the flow of money and the value of goods bought, borrowed, exchanged, sold, manufactured or stored, thereby increasing confidence and cooperation among partners and joint venturers as well as debtors and creditors. Together with the formalization of contracts by the use of notary publics as scriveners (also developed during this period),4 double-entry bookkeeping provided documentary evidence theretofore unavailable on contractual intent and performance. In sum, all of 140these practices contributed to the institutionalization of trust among certain groups of medieval merchants, especially those involved in international trade.
On the other hand, it must be remembered that the medieval period was largely dominated by feudalism. This was a social scheme whose basic tenets discouraged commerce by making the entitlement to land, goods and services depend not on contracts, but on the hierarchical “status” of the claimant. One need only contrast the unenforceability of an executory promise made by an “infanzon” (a hierarchically superior person in the feudal scheme of the Spanish province of Navarra) with the enforceability of an executory promise made by a “villano” (his feudal inferior)5 to realize how seriously feudalism impeded the enforcement of commercial contracts. Similarly, the prevailing medieval definition of usury, which deemed sinful and illegal any rate of interest, however small or comparable to that of the marketplace, prevented the proliferation of agreements to invest, joint venture, sell, or lend. Accordingly, during much of this period, these contracts were confined to certain regions where trade and investment were overtly allowed or where the ruling powers for utilitarian reasons looked the other way.
The reader should not be surprised if, as recently as the twentieth century, norms and attitudes on usury and formalities of commercial contracts closely resembling those of the Middle Ages reappeared in different locations and under different political auspices and social schemes.6 It may well be, then, that a contracting party’s status as a measure of his entitlement to goods and services is a more permanent fixture in man’s societal arrangements than Sir Henry Maine was inclined to believe.7
A better appreciation of the impact of economic and political forces contrary to the modern law of commercial contracts would be a good reason to learn more about medieval law. In addition, the method of reasoning employed by medieval theologians and jurists deeply influenced the drafting of the first and most influential codes of the nineteenth and twentieth centuries in the civil law world. Our understanding of how Aristotle- and Thomas Aquinas-inspired definitions and classifications of contracts, as discussed in Chapter 2,8 were used by the drafters of the Code Civil, the Spanish Civil Code of 1889, will improve our interpretation of these seminal sources.
Finally, we will focus on one of the less-known contributions of medieval law and commercial practice to the enforcement of executory promises, including those involved in sales, investments, and extensions of credit agreements. This contribution is found in the customs and practices of medieval Mediterranean Arab and Jewish traders and in the Rabbinic responsa to disputes prompted by these practices. These customs and practices and the responsa helped define the rights and obligations of one set of “religious brethren” when performing contractual and quasi-contractual duties for principals who could be employers or, more frequently, investors, partners or joint venturers. As will be discussed in a later section,9 this definition brought about a 141standard of commercial fairness that continues to govern commercial contracts of present-day commercial brethren throughout the trading world.
Professor Gino Gorla examined the law of southern European countries after the fall of Rome until approximately the eleventh century and found that during this period, the responsibility of a defaulting promisor was based more on tort or delict than on breach of contract.10 As will be discussed in connection with the formation of contracts in the common law and especially with the development of the concept of consideration, similar rationales supported the contractually-based actions on debt and detinue before common law courts.11 Causes of action based upon a promisor’s unjust enrichment at the expense of the promisee were also known in those jurisdictions, particularly when the enrichment resulted from a failure to reciprocate what had been received. The same was true with actions for fraud or deceit because of non-performance. Similarly, formal promises were enforceable not because of what the parties stated as their obligations, but because of their ritual or solemnity or magical or mystical value.12
By the eleventh century, the law of some of the Italian provinces started recognizing the notion that an obligation can indeed be derived from a contractual promise, but such a promise could only be enforced when it was preceded by the giving of something, as had been the case with the Roman “real” contracts of loans and bailments.13 Thus, contractual liability depended upon an unfulfilled exchange where one party had supplied goods or services and the other had not paid for them or failed to reciprocate in kind, a requirement known in medieval Italian law as “res vel factum.”14 The need for a res vel factum, i.e., a contractual performance in the broadest meaning of the term, was thus recognized as an element of the formation of the contract. If this element was not present, the promise was revocable. This restriction meant that executory promises or simple promises to perform in the future, even if associated with the four typical-consensual contracts of Roman law (a promise to sell, to hire, to enter into partnership or agency, or not) were not enforced during this period in the Southern European jurisdictions examined by Professor Gorla, and it would take a considerable amount of time before these Roman consensual contracts were enforced in these medieval jurisdictions.15
The requirement of an exchange of performances was so deeply rooted in medieval law that a promise to make a donation was only recognized when there was a counter-performance (Launegild o widerdonum). The counter-performance could be of symbolic value, like a glove, hat, cap, etc. Meanwhile, the payment of money or something of value as earnest money (arrhas) became a method of contracting, although each payment presupposed that performance or part performance was still pending. Finally, penalty clauses played an increasingly important role as remedies for non-performance 142in lieu of court-declared damages. This system of contractual sanctions was important also in view of the difficulties—then insurmountable—of a poorly operating judicial system and confusion between the powers and remedies of public and private entities.16
Generally, medieval Spanish law did not enforce promises based upon the mere consent of the parties. As pointed out by Gorla, early medieval Spanish law predominantly enforced obligations derived from tort (civil delict) or from contracts whose enforcement required the delivery of the thing (res) after having received something of value from the plaintiff-promisee. It will be recalled that these contracts were known as “real” in their Roman law days. Thus, the reader should not be surprised to find that a similar basis for the enforcement of contractual and contractual-tortious liability was relied upon by the English judges until the action of assumpsit was developed during the Later Middle Ages.17
In addition, contracts lacking an accepted form were enforced in the Southern European countries if arrhas had been given by a promisee or if they were concluded after carrying out the ritual of a public handshake (palmate). Still, no civil actions existed for non-performance of an executory promise. Criminal actions could be found where the state prosecuted the defaulting debtor and collected and kept the fines imposed upon the debtor. The aggrieved creditor did not benefit from these state proceedings. A creditor’s claim could be collected only by means of a cumbersome attachment procedure known as wadiatio.18
Much of the substantive law of contracts in Spanish medieval law is found in the provincial or “foral” law.19 As summarized by Professor Ferrandis Villela’s comments to Gorla’s description of Southern European law, the foral rules varied from province to province but some, such as those in the Fuero de Navarra, clearly illustrated the role of feudalism and class distinction in the enforcement of contractual promises.
Fuero de Navarra (undated, assumed to be 12th century): As a general principle, informal promises are unenforceable for unilateral and bilateral contracts … but this principle can only be invoked, as a defense and privilege, by noblemen of German ancestry (infanzones). In contrast, the lower class residents of Navarra (referred to as villanos) were bound by the mere utterance of their promises: “mas si villano es et promete, deve dar” (but if he is a resident of the village and he promises, then he must give).20
Fuero de Soria (undated, assumed to be 12th century): No formal requisites or penalty clauses are required for the enforceability of contracts. Nonetheless, the validity of certain contracts like a sale requires the delivery of arrhas or of a token thing or amount.21
Fuero Real (1254 A.D.): Agreements are enforceable whether in writing or not, even when there was no penalty agreed…. Nonetheless, the Fuero itself allows the parties to unmake the sale before partial or complete payment of the price.22
Why was the defense of failure of a necessary formality a “privilege” of the aristocracy and not one available to all contracting parties, including the villanos? Does this privilege imply that there were two sets of laws, one applicable to infanzones and another to villanos? How broad was this class of citizens or residents? Were these villanos all the inhabitants of a city (villa) much like the central European “burghers,” or were they only those inhabitants engaged in trade?23
From the tenth to the fourteenth centuries, many central and northern European cities began an evolution from rural ecclesiastical enclaves or “episcopal cities” to urban centers of professional or commercial trade. Henri Pirenne, the renowned Belgian historian of medieval Europe, described the ninth-century ecclesiastical enclave as having, at most, a small local market that provided for the daily needs of the numerous clergy and their employee serfs.24 These episcopal cities lived off the surrounding country’s rents and dues, as did the fortified castles built by feudal princes to protect their manors from periodic enemy invasions. The castles, referred to as “bourgs” or “burgs,” were usually composed of a rampart of earth or stones, surrounded by a moat and pierced with gates.25 Inside lived the defenders, including the feudal lord and the assigned clergy.
Commerce revived during the second half of the tenth century, and Pirenne attributed this revival to the emergence of a class of free merchants and artisans “from among the landless men, who lived … on the margin of a society where land alone was the basis of existence.”26 Many of these men were forced to leave their families simply to lighten the burden of feudal repayment of dues or charges. These men swelled the crowd of vagabonds who roamed through the country, going from abbey to abbey taking their share of alms reserved for the poor, hiring themselves out to the peasants at harvest time or at the vintage, and enlisting as mercenaries in the feudal troops in times of war. According to Pirenne, they were quick to profit from the arrival of ships and merchants along the coasts and in the river estuaries by reselling what they had bought or selling what they had stolen.27 Many of the more adventurous hired themselves to the Venetian and Scandinavian boats as sailors; others joined the merchant caravans which made their way to the incipient trading ports.
The story of St. Godric of Finchale, an early English merchant, is illustrative of the last resort and archetypally picaresque nature of commerce described by Pirenne 144as prevalent during this period. He was born at the end of the eleventh century in Lincolnshire of a poor peasant family:
[H]e was a beachcomber, on the lookout for wreckage cast up by the waves. Next, perhaps following some lucky find, he played the role of peddler and went about the country with a pack on his back. Eventually he accumulated a little capital and, one fine day, he joined a band of merchants met in the course of his peregrinations. With them he went from market to market, from fair to fair, from town to town. Thus become a merchant by profession, he rapidly realized profits big enough to enable him to form an association with his fellows, to load a ship in common with them and to engage in coastal trade along the shores of England, Scotland, Denmark and Flanders.28
In Spain, feudalism continued to force the local Godrics of Finchale to struggle for survival aided only by their determination and their quick wit, at least through the sixteenth century. It was not until approximately 1600 that feudalism entered its final crisis in Spain.29 Thus, in 1554, an anonymous author published the novel The Life of Lazarillo de Tormes, His Fortunes and Adversities (La vida de Lazarillo de Tormes, y de sus fortunas y adversidades), regarded as a pioneer example of the picaresque genre: a genre devoted to telling the tales of characters who were at times rogues, at times adventurers, and almost always tricky or quick-witted. In the words of Professor John Beverley:
The [Lazarillo de Tormes novel] tells of a small boy, born poor, whose father dies in war after being exiled for theft and whose mother … sends him off as the servant of a blind beggar (colloquially, a lazarillo). He works first for this beggar, then for an avaricious village priest, then for an impoverished hidalgo or gentleman, all the while experiencing enormous hunger and privation but learning how to “valerse por sí mismo” (“how to fend for himself” or literally, “to e obtain value for himself””). In a series of subsequent jobs his fortunes begin to improve. By the end, he has a wife and a home, which are given to him by a priest, and a position as pregonero, or towncrier. He feels himself to be “at the height of my good fortune,” but his own telling allows the reader—Your Grace—to see that the wife is the priest’s mistress, that Lazarillo is what in Spanish is called a cabrón, a man who permits the infidelity of his wife for profit or advantage.30 (Parenthesis added)
In his many jobs, Lazarillo often had to lie or aid and abet his employer’s lies or become a party to pretensions about a social status that neither his employer nor he held. Despite these “adversities,” he managed by cunning and determination to develop his own business and eventually his savings:
[O]ne day, when I was in the cathedral, one of the priests gave me a job. He provided me with a donkey, four jugs and a whip and I began to carry water around the city. That was my first step towards becoming a respectable citizen because now my hunger was satisfied. Every day I gave my employer thirty maravedís [a small coin] and on Saturdays I worked for myself. [Without telling the priest] I kept whatever I earned every day if it was more than thirty maravedís.31
In contrast with Lazarillo’s non-existent social status as a budding merchant, other merchants with a significant social status and close connections with the Spanish crown and church had emerged in sixteenth-century Spain. However, these were very few in number. In his much-praised account of the rise of one such merchant house, the Ruiz family,32 Henri Lapeyre notes that the history of commerce during the late Middle Ages, especially during the sixteenth century, is synonymous with the history of the great European commercial dynasties such as the Medicis in Italy, the Fuggers in Germany and in lesser, but nonetheless significant measure, the Ruizes in Spain and France. They were involved in “high commerce”: wholesale import and export of commodities, including the increasingly profitable wool trade, and in international banking and insurance.
In contrast with Lazarillo’s trade, the Ruiz’s was legitimized by its official and church connections. However, this only took place after the Ruiz family established that despite the Jewish sounding name of Simon, one of the founders of the dynasty, the family’s blood was “clean,” i.e., devoid of Jewish ancestry.33 Just to be on the safe side, it was not unusual for the Ruiz family to consult priests or theologians whenever a commercial contract could possibly be tainted with usury or the sin of avarice associated with Jewish business practices. The consultation was often accompanied by a request that the correspondent attest to the religious acceptability of the transaction in question.34
Despite the religious and social acceptability accorded to merchants devoted to “high commerce” such as the Ruiz family, Cato’s (the Roman censor’s) view of the merchant35 as inferior in morality to the farmer-soldier was quite popular in Spain during medieval times and in the centuries that followed, almost to the present day. Henry Lapeyre transcribes part of a report from 1512–1513 by an Italian Ambassador on the lack of a favorable attitude toward business as follows: “The Spaniards are not devoted to commerce because they consider it a dishonorable or shameful endeavor.”36
He also quotes Ramon Carande, an economic historian of Spain during the reign of Charles V (1516–1556), who described it as a society that definitely regarded commerce as a vile profession while admiring the dignity of the starving nobleman-employer of 146the Lazarillo de Tormes, who attempted to maintain the appearance of nobility despite lacking the means with which to pay for the services of his valet.37
Two centuries later, Wyndham Beawes, an English Consul to the ports of Seville and Sanlucar and author of a popular 1773 English commercial law manual, described the Spanish attitude toward trade as follows:
They have very considerable ports, equally well situated for commerce, both on the Biscayan and Mediterranean seas, and where large concerns are transacted, though principally by foreigners, as the Spaniards in general consider traffick to be a mean employ, and consequently a derogation from that gentility they almost all affect being born to….38
A few years ago, while lecturing at the Law School at the Technological Institute of Monterrey, Guadalajara campus, I was approached by a foreign diplomat who told me about a book on commerce and merchants she was writing for Mexican children. She added that the more she lived in that city, the more she realized how a culture that seemed so accepting of merchants during its pre-colonial period had such a negative view of them following the Spanish colonization.
In conclusion, it is important to keep in mind the contrast between the picaresque version of commerce present in Lazarillo’s “fortunes and adversities” and the theologically correct version of commerce exhibited by the Ruiz family in their dealings. Which of these two versions is closest to the reality of the modern commercial marketplace and why? Or is there no single marketplace reality and some marketplaces are more picaresque than others, and if so, where and why? On the other hand, is there any sense in thinking that our vast commercial marketplace could not have come about but for the transformation of the Godrics of Finchale and Lazarillos de Tormes from “bad” to “good” picaros? Some of the following sections of this chapter will attempt to shed light on this question.
Lest the reader assume that the picaresque was only a medieval way of doing business and that it was confined to the Lazarillos of that era, I will summarize a section of a fairly recent study of mine on the impact of secured commercial lending on the reduction of poverty.39
A 1999 study of the Central Bank of Brazil estimated that one-third of the approximately 40% per annum interest rate paid by Brazilian commercial borrowers was attributable to the difficulties and risks of loan collection and non-repayment.40 This is neither an unusual finding nor a recent phenomenon, either in Brazil or other Latin American countries. For example, my study, Law and the Credit Structure in 147Latin America41 showed that the percentages of discounted bills of exchange or drafts protested for lack of payment in Chile from 1958 to 1962 were, respectively, 31.5%, 26%, 34.4%, 37%, and 39.1%.42 This meant that out of, say, one hundred negotiable and credit instruments in circulation in Chile in 1962, almost 40 had not been paid at maturity. While during the same period the protests of negotiable instruments by Argentine banks fluctuated between one third and one half of the Chilean figures, the percentages of the aggregate uncollected secured and unsecured loans and discounted negotiable instruments in Argentina (gathered under the rubric of “quasi-money”) were, respectively: 2.5%, 2.7%, 6%, 9.5%, and 22.9%.43 In other words, of the total number of bank loans, direct or indirect extensions of credit, and negotiable instruments, as many as 22% during a peak year were in default.
Clearly, neither creditors nor debtors are well served by a legal system that makes collection so difficult and risky for creditors and so expensive for debtors. Inevitably, the cost of credit had to go up to subsidize the many bad loans. In fairness, however, the fault does not lie entirely with the legal system. A business culture of “winner take all, loser take none” and commerce practiced as a “tricky” or “picaresque” occupation have much to do with the cost of credit. The tricky or picaresque aspects of dealing with checks, drafts and promissory notes as credit instruments were reflected in responses given to me by Argentine bankers and merchants as part of the same study.
My first question was: “Why, if protests are so common and collection of negotiable instruments so difficult, are you still willing to take checks, drafts or notes in payment of what is owed to you?” In response, several of my respondents referred to what they described as the “false money psychology.” This “psychology” encouraged taking these instruments in payment with the understanding that as with other “false” money, they would be passed on to someone else in payment of what the taker owed to them. The next question was: “Yet, what if that someone else is equally aware of the falseness of the money, why would he take it?” The answer was: “Because the falsity is factored into the prices everyone charges for their goods or services.” In other words, a merchant would be willing to take a “false” check after he had charged his customer a much higher price than he would for a cash sale. He would demand a “cash down payment” which would cover a substantial part of his cost, and he would then gamble on the likelihood of collecting the remainder of the check by negotiating it to someone else, who would in all likelihood engage in the same picaresque calculation. I recall the interest that these answers evoked among my RAND Corporation44 economist-colleagues: Picaresque or tricky commercial behavior acquired an unforeseen economic importance as an explanation for the ever-increasing levels of prices in Argentina’s hyperinflation.
As I have stated elsewhere, the business culture of “winner take all, loser take none” is not peculiar to Latin America. It is present in those developing nations that continue to be guided by standards of fairness peculiar to agricultural survival-tribal 148societies.45 In these societies, only the members of one’s tribe, clan, family or circle of friends are considered insiders and factually or legally entitled to duties of fair dealing by their fellow insiders. In contrast, those who belong to other tribes, clans, families, or circles of friends are outsiders or “strangers” and, as such, are not entitled to the duties of fair dealing owed to insiders.46
This is not to say that strangers are totally without protection in developing nations. They are usually allowed to “purchase” a temporary protected status by paying the notorious bribe. Yet, this status is only temporary because it applies exclusively to a specific transaction or event. It is also temporary because it lasts only until the same or a better protection is made available to another (often competing) stranger willing to pay a similar or higher bribe. At this point, the stranger’s protection disappears or becomes subject to a bidding war.
The effects of a culture in which only the most minimal business duties are owed to strangers and the widespread feeling of distrust it inspires in market participants was apparent in the responses provided by middle class Costa Ricans to a 1968 questionnaire on their investment practices. When asked why the respondent, as a potential investor, preferred to invest in real estate mortgages that offered a much smaller return on invested capital than that yielded by the dividends of stock issued year after year by an industrial company, many respondents provided variants of the same answer: If the industrial company’s dividend return is such a good deal, why would it be offered to me, neither a member of the family nor a friend of those who run this company?
Side by side with the picaresque ways and the unenforceability of informal promises in lay law stood canon law. In the tenth and eleventh centuries, Roman law was rediscovered, taught and annotated first in Bologna, Italy, and subsequently in other learning centers in Italy and France. Initially, the teaching consisted of annotations (glosses) that purported to do nothing more than to clarify the meaning of original texts. These glossators were succeeded by a more intellectually ambitious group of teachers and scholars known as commentators. Unlike the glossators, some of the leading commentators attempted to assess the degree to which Justinian’s Corpus Juris Civilis could be used as living law for medieval Europe. Thus, Bartolo de Saxoferrato, an Italian fourteenth-century (1313–1357) law professor and the most influential of commentators, concluded that the Roman law refusal to enforce innominate, i.e., non-typified, contracts had little practical consequence in his time because contracts were commonly drafted by public notaries and this added formality 149made these innominate contracts enforceable throughout Italy and other European countries.47
The jurists charged with interpreting and applying Roman law to contractual disputes in medieval times were familiar with the moral and religious principles found in canon law. These principles not only condemned lies or misrepresentations as sinful behavior, but also decreed the fulfillment of unfulfilled promises (pacta sunt servanda). In fact, canon law granted an action of enforcement of promises before its own courts. Nevertheless, positive law (the law officially in force), in contrast to canon law, did not recognize an action for unkept promises, especially as related to atypical or innominate and preparatory contracts.48
The Middle Ages marked the resurgence of Aristotle’s legal philosophy as taught by the scholastics, particularly St. Thomas Aquinas in his Summa Theologica. As discussed in Chapter 2, scholastic legal thinking was characterized by the search for Aristotelian essences, i.e., the properties of objects that made them unique. Once these essences were identified, the scholastics went on to define each object in Aristotelian fashion by placing the species under their genuses. When Aristotle searched for the essence of justice, he found that justice could belong to the genus of virtue or was virtue itself.49
Aristotle also identified some species of justice. Prominent among these were the “distributive” justice and the “rectificatory” or “commutative” justice.50 While distributive justice was concerned with the allocation of political power and resources, commutative justice allocated rights and duties among private parties. In other words, it discerned the meaning of “the mine and the thine” (meum et tuum) in transactions such as sales, loans, leases, and other “acts of voluntary commutative justice.”51 A transaction was commutatively just when the parties’ performances were equivalent in value; if the transaction were unjust, commutative justice had to bring these performances back to the status quo ante point of equivalence.
Thus, Aristotle’s was a “static” model of adjudication. It attempted to bring the parties back to where they were before they started to or failed to exchange values. It did not compensate them for foreseeable damages such as the interest lost when unable to use or invest the undelivered monies. However, to grant even such a limited amount of damages, Aristotle would have had to reject his own faulty, but nonetheless influential, view that money was a sterile commodity incapable of earning interest or profits.52 As will be discussed in connection with the law of damages in civil law 150countries, the Aristotelian static view of contractual adjudication continues to influence the law of compensation for breach of commercial contracts in Spanish and Spanish-influenced Latin American law.
No other scholastic doctrine has exerted more influence on the law of commercial contracts of the Western world—especially those contracts that involved deferred performances—than the doctrine on usury. From the year 1050, usury was considered to be sinful, if not criminal, in most Western European countries.54 The contract for a loan was the one most generally involved with usury, but usury could be committed by any credit agreement whereby the amount received by the creditor was higher than the one given to the borrower.
Pope Urban III Decree Consuluit of 1187 established the bases for the regulation of usury:
(1) Usury is whatever is demanded in return in a loan beyond the loaned good itself; (2) the taking of usury is a sin prohibited by the Old and New Testaments; (3) the very hope of a return beyond the good itself is sinful; (4) usuries must be restored in full to their true owner; (5) higher prices for credit sales are implicit usury.55
The most influential argument in favor of the repression of usury was proposed by St. Thomas Aquinas in his Summa Theologica:
In those things whose use is their consumption, the use is not other than the thing itself; whence to whomever is conceded the use of such things, is conceded the ownership of those things, and conversely. When therefore, someone lends money under this agreement that the money be integrally restored to him … it is manifest that he sells separately the use of the money and the very substance [essence] of money [as money is a thing consumed by its use]. The use of money, however as it is said, is not other than its substance [essence]….56
More simply, the money lent is such an object that disappears with its use. The influence of Aristotle’s essences is clearly present in the previous argument: Money, by essence, is a consumable good. Yet, if it can be empirically proven that money is neither consumable by its use nor that it is a sterile commodity, the Thomistic reasoning, no matter how formally logical, must fall apart. And this proof is readily 151available by merely observing what normally happens with commercial loans. Because of these loans, the borrower acquires the ability to obtain and sell goods and with the proceeds of these sales, he can repay the money lent to him; conversely, with each repayment the lender is able to re-lend to the same or to other borrowers.
The Roman typification of the loan agreement as a “real” contract where title to the thing lent (money) is conveyed to the borrower in exchange for a promise of repayment is also clearly apparent in Aquinas’ reasoning. Raymond de Roover’s description of the most common method used by medieval merchants to avoid being characterized as usurious illustrates the central role of the Roman typification of the loan agreement as a “real” contract when attempting to avoid the imputation of usury:
Since the [direct] taking of interest was ruled out, the bankers had to find other ways of lending at a profit. The favorite method was by means of exchange bills (cambium per litteras). It did not consist in discounting as practiced today, but in the negotiation of bills payable in another place and usually in another currency. Interest, of course, was included in the price of the bill which was fittingly called a “bill of exchange.” Although the presence of concealed interest is undeniable, the merchants argued—and most of the theologians accepted these views—that an exchange transaction was not a loan (cambium non est mutuum) but either a commutation of moneys (permutation) or a buying and selling of foreign currency (emptio venditio). In other words, the exchange transaction was used to justify the credit transaction, and speculative profits on exchange served as a cloak to cover interest charges. Nevertheless, it was argued that a cambium was not usurious, since there could be no usury where there was no loan.57
Despite the weakness of the Thomistic argument and the endless attempts at evasion by merchants and consumers as well as by credit-starved government officials, the scholastic definition of usury and the justification of its prohibition prevented easy access to much-needed commercial, industrial, and consumer credit in medieval Western Europe. The serious economic consequences of this prohibition were apparent during part of the twentieth century in Western European economies such as Spain’s, which lacked an effective system of commercial banking until at least the second half of the twentieth century. This distaste for commercial lending was shared by other European government officials. For example, Amintore Fanfani, a high official and defender of the Italian fascist state during his tenure in a fascist office (but significantly not thereafter), listed the following merits of the scholastic doctrine of usury:
In the Middle Ages … [it was necessary to support] the intervention of public bodies in economic life as a check to individual activity and to defend the interests of society as a whole; in our own time, by calling for State intervention for the same reasons, the Church has remained faithful to her anti-capitalistic ethics.58
Notwithstanding Fanfani, the vast majority of medieval economy historians59 reach a negative conclusion on the impact of the scholastic doctrine of usury on commerce and economic development. As stated by an English historian: “Under the labyrinthine edifice of Scholastic casuistry … competition withered, the flow of credit congealed, and interest rates soared.”60
Raymond de Roover, the Belgian-American historian of the medieval economy and one of the few historians who found some positive features in the scholastic doctrine of usury, conceded that on balance, its application was quite negative:
The usury prohibition was designed to protect the borrower but it had the opposite effect. It may have retarded economic growth to the extent that it increased the cost of borrowing. The need for concealment and the use of subterfuges complicated matters. By being forced to operate on the [basis of bills of] exchange payable abroad, bankers had to rely on foreign correspondents paying them fees and commissions which they recovered from borrowers. Loss on the exchange was often so high that it swallowed the profits of the merchant who traded on credit. In this sense, and despite the doctrinal escape-hatches provided by the Schoolmen, the result of the usury prohibition was to increase both the cost and the risk of doing business.61
The combination of a highly formal contract law dependent upon a recovery in tort instead of contract, a feudal law which granted contractual privileges and immunities only to those with the appropriate political or military status, and the scholastic repression of commercial loans as usurious was responsible for a regression to a significant unenforceability of commercial promises during the Middle Ages, except those executed before notary publics. The positive contributions of medieval law to the development of the law of commercial contracts were found elsewhere, as will be discussed shortly. Meanwhile, the reader will profit from the following illustration of how a scholastic definition was relied upon by the Supreme Court of Spain a little over a decade ago. The following decision of May 16, 2000, attempts to distinguish the contract of “leasing,” known among United States lawyers as a “financial lease,” from a traditional loan agreement in a casuistic manner:
What is peculiar to the contract of leasing is its facilitation of the acquisition of a certain thing. The ontological reason of this agreement, which explains its socio-economic function, is the [lessee’s] need of a given object which according to a … 1988 statute, is going to be used for an agricultural, fishing, industrial, commercial, or handicraft or for a professional purpose by the person financed through this device…. [This person] accepts this legal formula, because of his need of the thing and his lack of economic resources with which to acquire its ownership … although he is given the possibility of such an acquisition by means of an option to purchase the thing at a later 153time…. On the other hand, what characterizes the loan of money is the borrower’s need for money itself, an object that in addition to being fungible is consumable by its use … requiring a transmission of ownership with the obligation to return the equivalent, with or without a premium or interest. Therefore, in the case of the loan, its relevance, the reason of being of this contract is to receive money … while in the contract of leasing what is financed is the acquisition of an object.62
Note that while the prohibition of usury has been eliminated or drastically attenuated in most Western countries, the Aristotelian-Thomistic reasoning seems to retain its influence in the above decision.
Does the reader agree with: 1) the characterization of the legal natures (read: Aristotelian essences) of the loan and the contract of leasing by the Spanish Supreme Court; and 2) the distinction made by the Spanish Supreme Court between the loan and financial lease agreements? Is this not a casuistic distinction without a difference? Isn’t an enterprise being financed by the loan of the amount that will make possible its use or the acquisition of an asset needed for its operations and growth? Why would the Supreme Court of Spain in the year 2000 wish to refer to the “consumption by use” feature of a loan as contrasted with the features of a financial lease?
More than one thousand letters, books of accounts, and other commercial documents that belonged to medieval Mediterranean and North African Jewish traders were discovered at the end of the nineteenth century in the “Geniza” of the Jewish cemetery in Cairo.63 This discovery provided a unique opportunity to observe everyday medieval trade as conducted by Jewish merchants in the Mediterranean, North African, and Near Asia regions.
The discovered documents illustrate how a trade formerly conducted by caravans, where merchants closely followed their wares on the backs of camels or mules and did not dare separate themselves from their cargo lest it be lost or stolen, was replaced by a trade of trusted intermediaries. These intermediaries were usually members of the same religion (Jewish or Muslim) and were entrusted with money and wares largely because of the religious-fraternal duties owed to those who had trusted them.64 Consider, for example, an extract of an eleventh-century letter from an Egyptian Jewish merchant to his Jewish correspondent in Sicily and Tunisia:
My lord, I have instructed Abu ’l-Bishr … to buy saffron for 80 dinars from the sums he owes me and to send everything to you. In case he is unable to buy the goods, he should send you the cash. If God ordains a safe arrival, take 25 dinars from it, add another 25 dinars on your side, and buy whatever God puts into your mind for the entire sum. This should be in partnership between my son Abu Ibrahim and your son Abu Sahl, as we have agreed, so that they should if God, the exalted, wills, follow in the footsteps of their grandfathers…. For the balance buy whatever God puts into your mind and send it by boat together with the sal ammoniac and whatever you still owe me.65
Please note the expanding “triangle” of entrustment in this letter: “A”, the original entrustor, instructed and entrusted “B” (who had previously been entrusted with sums he owed to A) to buy goods for the account of A and send them or their monetary value, again on trust, to C (A’s business partner or joint venturer). C, in turn, was entrusted by A to buy goods on behalf of A at his discretion, and to let these goods or their proceeds become the basis of a partnership between A’s and C’s sons.
The degree of entrustment apparent in the above-expanding triangle was supported by a set of customary duties among religious and commercial brethren eventually sanctioned by religious ordinances and “responsas.” The latter were opinions issued by experts on religious law in answer to questions submitted by rabbinical courts or, on occasion, by lay courts. A sampling of the sanctioned duties included the following:
(a) [W]henever a Jew lost any (money) [property], either by accident or through thievery … and another Jew found this property in the hands of a non-Jew and bought it from him—[even if] he did not know that this property originally belonged to a Jew—then if the original owner appeared and recognized his goods, the purchaser must return the goods to the original owner and was entitled to recoup only his expenses.66
(b) Similarly, and in order to prevent unscrupulous gentile creditors-pledgees from taking advantage of necessitous Jewish pledgors, a responsum recalled a restrictive customary ordinance that no one shall redeem (from a non-Jew) the pledge of a fellow Jew.67
(c) A Jewish merchant’s business relationship with a non-Jew was protected by bans and interdictions restraining other Jewish merchants from interfering with such a relationship (maarufia).68
(d) Jewish co-adventurers or passengers in the same commercial voyage were expected to protect a colleague’s weak and necessitous dependents in the 155event of his death or incapacity by picking up his “bundle,” i.e., transacting business on his behalf and turning the profits over to his surviving family.69
As is apparent in the above customary duties and responsa, those Jewish merchants were bound by a standard of fairness that required that each treat his colleague as a brother, meaning altruistically and not necessarily with a view to profit or loss. The measure of the duties owed to the commercial brother, then, was the latter’s welfare. This standard of fairness encouraged trust, and by encouraging trust it also encouraged an efficient and highly predictable method of doing business where formalities were rarely of the essence and where reliance was on a brother’s word. This is why telling the truth was a central feature not only of business practice, but also of dispute settlement. The truth was often established by the decision of which party (plaintiff or defendant) was supposed to take the “decisory oath.”70 The taking of this oath in vain carried with it tremendous religious and legal consequences because it required invoking the name of God.71
Reflecting the agricultural economy of the Jewish people during Biblical times, the Jewish Bible provides:
If thou lend money to any of my people, even to the poor with thee, thou shalt not be to him as a creditor; neither shall ye lay upon him interest (Exodus 22, 24).
And if thy brother be waxen poor and his means fail with thee, then thou shalt uphold him … Take thou no interest of him or increase; but fear thy God … Thou shalt not give him thy money upon interest, nor give him the victuals for increase. I am the Lord your God. (Leviticus 25, 36–38).
Thou shalt not lend upon interest to thy brother, interest of money, interest of victuals, interest of anything that is lent upon interest. Unto a foreigner thou mayest lend upon interest; that the Lord thy God may bless thee…. (Deuteronomy 23, 20–21).72
The application of the above rules obviously turns on the determination of who is a brother, a foreigner, or a stranger. Few times in the history of civilization have so many religious, legal, and economic doctrines depended on the meaning of words as seemingly transparent as “brother.” Depending on who was considered a brother, “foreigner,” or “stranger,” interest would or would not be charged. Depending on the above characterizations, lenders, vendors, partners, and joint venturers could face punishment as usurers.
Benjamin Nelson, a highly respected historian of religious ideas and particularly of the Biblical and post-Biblical notion of “brother,” maintains that the evolution of Deuteronomic command started out as a rule of tribal morality and by mid-nineteenth century, after the Reformation and Calvinism, became a rule of “universal brotherhood” which allowed market rates of interest to be charged by and to Jewish and non-Jewish lenders, investors, partners, and joint venturers.73
The very notion of usury began to be redefined in the Late Middle Ages.74 Finally, as a result of Henry VIII’s 1545 Statute of Usury, which set forth a permissible or legal rate and punished as usurious the rates charged above that rate, not only England but other trading nations began to adjust their usury rates.75 This re-definition is the one adopted in most free market economies where the law generally reflects the interest rate that prevails in the marketplace. Accordingly, the vast majority of commercial contracts are presently born free of the opprobrium of usury.
During much of the evolution described by Benjamin Nelson, Jewish merchants were subjected to “ghettoizing” prohibitions that prevented their participation in agriculture, industry and the professions. The result of this policy was to force Jews into the highly unpopular jobs of moneylenders and collectors of taxes.76 Since major segments of the Jewish community could only survive as moneylenders, rabbinical authorities had to relax the application of the Biblical prohibition of usury. This is how contracts that concealed various types of loans with interest were developed.
As part of this phenomenon, the contracts of partnership or joint venture known as “heter iska” were declared valid in various French Jewish communities from the eleventh to the thirteenth centuries.77 The agreement was embodied in a written instrument called the shetar iska. It commonly provided that a passive partner (in fact, the lender) would furnish a specific sum of money to the working partner (in fact, the borrower) for a joint venture. The working partner guaranteed that the passive partner would not lose his investment and also guaranteed a minimum return which was in fact the interest charged for the loan. In return, the passive partner gave complete freedom to the working partner to manage the former’s “investment.”78
George Horowitz, a United States Judaic scholar and lawyer, points out that while at the beginning of this practice it was necessary for the lender to present proof of the loss of his “investment” prior to demanding payment of the guarantee, eventually rabbinical interpretation deemed this evidence redundant; thereafter, the refund promise was payable without the need to present evidence of the loss.79 Therefore, as we look at the evolution of enforceable executory promises, it becomes apparent that the guarantee of repayment issued by the Jewish borrower in the shetar emerged as a 157medieval antecedent of the late twentieth-century “independent” or “abstract” undertakings discussed in a later chapter.80
Classic Roman-law-sanctioned guarantees such as the adpromissio (including variants such as sponsio, fideiussio, fideipromissio) were executed through the stipulatio.81 However, these guarantees were “accessory” promises or promises dependant on the existence and validity of their underlying principal obligation. If the principal obligation or duty was void, so was the accessory sponsio, fideiusssio or fideipromissio. In contrast, the iska guarantee in the shetar, once freed from the condition of having to prove the underlying loss, functioned as an abstract executory promise, independent of the loan qua underlying investment. Not surprisingly, the use of the shetar became very popular, especially after the incorporation of executory promises similar to those in the contemporaneous promissory note (either in favor of someone named in it or in bearer form).82 This kind of shetar functioned as quasi-currency of considerable circulation among medieval Jewish communities, particularly in Spain.83
Meanwhile, approximately two centuries after the transactions described in the Geniza letters and documents of the “brotherly” Mediterranean Jewish merchants took place, evidence of executory contracts for the “advance” or “forward” purchase of wool produced by English, especially Cistercian, monasteries and sold to international traders, many of whom were Italian, began to appear in records of the Exchequer court. We will discuss the significance of these contracts and related documents in a later section. Presently, I will examine important features of the resolution of contractual disputes between Jewish traders by Jewish religious authorities.
In his biographic essay about Maimonides,84 the Uruguayan historian-physician, Dr. Antonio Turnes, relates that Moshe Ben Maimon was born on March 30, 1135 in Cordoba, Spain. Later in life, he became known as Maimonides among non-Jews and as the Rambam among Jews. He lived in Cordoba during the first thirteen years of his life and then had to leave as a result of the conquest of the south of Spain by the religiously fanatic Almohades Islamic tribe. Maimonides’ family’s long pilgrimage took them to Egypt, where he died in 1204. While in Cordoba, Maimonides was educated in an atmosphere of tranquility and well-being. Despite his young age, he acquired a good knowledge of mathematics, astronomy, philosophy, and physics.85
In Egypt, Maimonides became the most famous physician in the Royal Court.86 He also achieved the status of a most respected theologian and philosopher, being responsible, among other things, for the adaptation of Aristotelian rationalism to Judaism. As a well-known rabbinical authority and community leader, Maimonides 158received numerous consultations from rabbis, rabbinical courts and religious scholars, some of whom officiated as first instance judges in disputes among Jewish merchants in Middle Eastern countries. The following are three of his responses:87
1) Question 20:88 The Burden of Proof in the Investment Contract: Executory Promise and Abstraction.
Jewish investor “A” gave money to another Jewish businessman “B” to invest in India. According to the sons of B, the ship in which he was traveling was wrecked and B died.89 A “sued the dead man’s sons. The sons said: Our father died. His ship was wrecked.”90 A replied by saying: “Bring proof that his ship wrecked and that he died.”91 “The sons said: ‘We are the heirs [of B, and that declaration, by itself should suffice], we do not have to bring proof. [Instead, if you doubt us,] [y]ou bring proof that … [B is] well and alive, and that he is [merely] delayed [in his return from India].’ ”92 If you can prove in addition that our father has properties or goods belonging to you, A, we will consider your claim as valid.93 The rabbi who heard the dispute asked Maimonides how he should decide. “Do the sons have to bring proof that the ship was wrecked and that he died? Or does the investor [A] have to bring proof that … [B was] alive and delayed?”94
Answer:
The sons of B did not have to bring the proof that B’s ship was wrecked and that he died in it demanded by A. Neither did A have to prove that B was well and alive as demanded by the sons of A. “But if the investor [A] will bring proof of the man’s death and will produce the bond shetar”95 executed in the presence of other Jewish witnesses and that B died in possession of the money or goods described in the shetar to be invested on behalf of A, then A has the right to claim what was stipulated in the shetar.96
The business transaction in dispute appears to be one where A entrusted B with a sum of money for investment in a joint venture. Apparently, it was not a simulated joint venture or one just to hide a true loan because if that were the case, A would have required a repayment guarantee of the capital and the interest in the shetar, a common stipulation with interest bearing loans, as noted earlier. The proof of B’s death was not as important in Maimonides’ eyes as was the presentation of a shetar and evidence of A’s goods or money in B’s possession. He had already found it unnecessary for B’s sons to prove his death after they had been validly declared his heirs. However, without presenting a shetar, A, not the heirs of B, had the burden to prove the presence of goods that belonged to him and the absence of a profit distribution. Could this burden of 159proof result from the commercial custom to rely on a shetar to document the entrustment of money and other valuables to an actual or potential joint venturer? Apparently so.
Under your own law, who would have the burden of proof of B’s death and presence of goods or money belonging to A and why? In all likelihood, you would have to take into account not only what was stipulated in the operative document, if any, but also the law that deals with the presumption of B’s absence or death, the law of successions applicable to his estate, the law of civil procedure on the action(s) brought by A, and of statutes of limitations applicable to the document in question, and so on. Why did all of these different sources of law not come into play in Maimonides’ Responsum? What presumptions did Maimonides rely on, i.e., rebuttable or irrebuttable, and why? Did he rely on a presumption of good faith as well? In some contemporary legal systems, the holder of an instrument equivalent to a shetar (say a promissory note or bill of exchange) is presumed to hold it in good faith unless proven otherwise by the defendant-promisor. Do you think that this presumption was implicit in Maimonides’ Responsum? How much flexibility does the presence of a solemn oath add to the reliance on presumptions?
2) Question 63b (G)97: The Implied Promise of an Accounting by the Working Partner and the Decisory Oath.
R and S were partners (shutaphim). [According to their original contract, R was entitled to] … three-fourths of the profit and S [to] one-fourth. R kept the accounts (cheshbon) [of the partnership]. When the work was completed, S asked R for his share [of the profits]. R gave [S] … a small sum [that S felt was too small] and S claim[ed] that his share is larger and [thus] demand[ed] R to go over the accounts with him. R declined saying: “I gave you your share.” How shall we decide?98
Answer:
R must go over the accounts with S. And if R claims that he had forgotten the details, he must take the partners’ oath (shvuat shutaphin) [and swear] that he gave … [S] all that he … [was entitled to and that he was] … unaware of [any other facts or details with respect to the requested accounting]….99
Apparently, in the commercial contract disputes adjudicated by Maimonides, the duty to provide a transparent accounting to one’s partner was customarily implied in partnership agreements and as such did not have to be specified in the contract, especially because of the fiduciary nature of these transactions. There are some indications (especially from the response discussed below) that the duty of restitution derived from a trusting relationship was not subject to a statute of limitation. A fortiori, if restitution is not subject to a statute of limitation, the duty to render transparent accounts when requested by the partner should not have been either.
The implicit promise of rendering transparent accounts relied on the decisory oath for its implementation. In the absence of a detailed accounting, the working partner had to take a special oath tailored to reflect the duties of partners to each other. Thus, 160the choice of which of the disputing partners should take the oath, given the fear surrounding such an oath, was in effect decisive and reflected Maimonides’ perception of which version of facts was the least credible. His own distrust of the oath taker’s version or non-version of events undoubtedly added fear to taking an oath. Notice that Maimonides gave no choice to R: either he rendered accounts in a satisfactory manner to S or had to take the oath. For R to claim that his memory was hazy was unacceptable. If that were the case, he would be ordered to take the feared partner’s oath. However, as will be evident in the subsequent Responsum, there are some exceptions:
3) Question 71a (TZA):100 An Implicit Executory Promise and the Decisory Oath.
[On his way to Sicily, “R” received objects of value from “S”. S said to R]: Take this with you.101 [There was no further agreement between S and R. R claims that his] intention was to accommodate S’s needs, [altruistically, without seeking any profit or commission. Yet,] … R did not say so.102
Thereafter, R worked on [one of the objects, presumably trying to improve its appearance] … and paid … with his own money…. [for his passage in the boat that was to take him to Sicily].103
[R’s boat] … was captured [by pirates], and they took from him, that which was his, [as well as] … that which belong[ed] to others, [as part of] the transaction (iska) [goods as well as other] … merchandise that he took as an agent (mishlo-ach). He, R, paid the ransom—50 dinars—and returned to his family and met S, and other people who gave him merchandise. Nobody [made any claim] because they [all] knew what had happened. Sixteen years went by during which he lived [in peace with all of those who entrusted goods or wares to him]…. Then, S … [became angry with] R, brought him to court and claimed … 42 dinars…. [In court, R said]: ‘Yes, I took … [“X” from S] but we did not have [any specific arrangement]…. Rather, I took it from him on my way, [to Sicily] and he left it with me without declaring if this was a profit sharing transaction (iska) or if I would be acting as … [his] agent (mishlo-ach). Most of the profit sharing transactions (hitasku-yot) (especially those involve[ing] sailing the ocean) stipulate that the businessman (mit-a-sek) gets one-third of the profit [and two-thirds go to the investor], in accordance with Gentile custom. Tell us how to decide: What is R’s responsibility? … [W]hat about the sixteen years that went by [without a claim]. Can it be considered that S … [forfeited his] rights [against R] as the two of them [have lived in the same place all this time]…. And what about S’s claim that he gave to R a loan, can we treat … [their arrangement as a loan or] as a profit sharing transaction (iska)? If R is found responsible, [then] for how much?
Answer:
Where terms are not spelled out and we have only hints [about the parties’ intent] from surrounding circumstances, and the [law] (halacha) [does not have the actual facts or] … true circumstances [before it], the resolution is left to what lies between man and his Creator. [In order to discern R’s] intention…. [a] solemn oath is required from R. R must take a solemn oath (upon a sacred object) that … [he] was robbed and lost [the items given to him by S], and that he did not take it in any other way than as an agent (mislo-ach) and that the circumstances led him to believe so. R must [also] take an oath that he did not take the … [objects from S] as a profit sharing transaction (iska), and that the circumstances led him to believe that S did not give it to him as a sharing transaction (iska). S does not have to take an oath unless R [authorizes that] … oath and [lets him] take the money [that would result from such an oath]. In this case, S must take … [an oath], declaring: “I sold [the objects] … to R, while the circumstances showed clearly that it was a sale (mecher) and not a profit sharing transaction (iska). [Finally,] … no statute of limitation (mechila) [applies] and the law of (shmita) (din shmita) does not apply either.104
In many, if not most cases, Maimonides used the oath to force the party whose version is the most dubious to risk his relation with “his Creator” by taking the decisory oath. On other occasions, however, as in the present case, Maimonides required the oath from the party with the most credible version of what had transpired so that by taking the suggested oath, that party would be immediately exculpated. Evidently, the latter was Maimonides’ intention in this case because he was aware of the findings by the original adjudicator that there was no indication that R took the things given to him by S in any capacity other than altruistically. No credible indication of a contrary intent appeared anywhere. Further, sixteen years had gone by since R returned and S did not claim anything during this time. Moreover, the terms of the oath required of R were entirely consistent with what he had already stated to the original adjudicator. Maimonides also empowered R to authorize S’s highly incriminating oaths, including the oath that S sold the items of value to R. It seemed a clearly established fact both with the local rabbi and with Maimonides that all that S said to R was, “Take this with you.” These words do not, by themselves, reflect a sale agreement. Maimonides’s own perception of the facts as found in his initial statement, “When terms are not spelled out and when what all we have is hints [about the parties’ intent]” is clearly contrary to what S would have to say in his oath as a seller: “I sold (the objects) to R and the circumstances showed clearly that it was a sale (mecher).” In other words, in a contemporary trial lawyer’s parlance, Maimonides was “setting up” S to perjure himself if R decided to request the seller’s oath, and both parties should have seen this coming.
Would an expression such as “take this with you” be an acceptable basis among contemporary merchants or traders to commence a business arrangement? Seemingly, this was a common method of doing business among the medieval Jewish traders. It was also common not to stipulate the exact percentage to be taken by the active and passive partners of sea voyages, relying instead on the application of “the Gentile 162custom” (a 2/3–1/3 arrangement). Under these circumstances, it is not surprising to find a proliferation of rabbinical law of oaths—one for a seller, another for an agent, another for a partner, and so on. However, these oaths required the support of a substantive law that enumerated the duties of the participants in this religious-brotherly trade. Would they be similar to those listed in § 5:9 above? How seriously enforced were these duties? Why would Maimonides reject the application of a statute of limitation to the duties of a possible partner, joint venturer, or agent? Apart from religious duties, is the reader’s opinion that commercial custom played a larger role as a source of commercial contract law among medieval Jewish traders than it does today in his local commercial or civil law, and if so, why? Please recall E. O. Wilson’s “iron rule” of genetic social evolution:
[S]elfish individuals beat altruistic individuals, while groups of altruists beat groups of selfish individuals.105
What does that iron law have to say about the above described practices of Medieval Jewish traders?
Finally, and anticipating the discussion in the Appendix, it may be useful to reflect at this early juncture on the limitations of the decisory oath relied upon by Maimonides. “Where terms are not spelled out and we have only hints [about the parties’ intent] from surrounding circumstances … the resolution is left to what lies between man and his Creator.”106 While Maimonides’ may well been the best justification for relying on the decisory oath in his time (including the “confessional” evidence that is still used in many civil law jurisdictions), would not evidence on the parties’ course of performance, course of dealing, and usage of trade as proven by witnesses (including the parties) in open court and subject to examination and cross-examination answer much of what was not spelled out by the parties?
In ancient Jewish law, the term Shaliah was applied to one’s agent and meant literally “one who is sent,”107 regardless of whether he was paid for his services or he acted gratuitously.108 These agents were subject to two not-necessarily-consistent principles of liability. The first stated “a man’s agent is as himself”109 (Shelucho shel adam kemoto) or “one who acts through an agent is in law regarded as if he does the act himself….”110 Among others, the consequences of this principle of legal identity between principal and agent were:
If Reuben says to Simeon: “Buy something for me,” and Simeon buys without stating whether he purchases it for himself or for someone else, then, in that 163case, Reuben acquires possession [of what was bought by Simeon] from the very moment of delivery. And even if Simeon purchases the article with his own money, he cannot, once the article has been delivered to him, claim that he meant to purchase it for himself.111
Such a relationship required loyalty and good faith from the principal as well as the agent. In order to prevent the principal from withdrawing his agent’s mandate, it was customary to submit the former to an oath to this effect. This procedure “served as an effective deterrent, but if, despite the oath, the principal revoked it, the revocation is effective. Agency is also terminated upon death of the principal.”112 The second principle as restated by Professor I.H. Levinthal is: “[A]nything done by the agent that tends to work harm to the principal, invalidates the act and cannot affect the principal.”113 One of the consequences of this principle was that acts or contracts entered into by an agent with the apparent authority of his principal that turned out harmful to the latter could be invalidated by him.
Obviously, it is not easy to reconcile this principle with the earlier principle of legal identity between principal and agent, for if they were legally identical, the acts performed by the agent should have been allowed to harm the principal. This conflict between the agent’s duty of utmost loyalty to the principal’s welfare and a third party’s reliance on the apparent authority to negotiate granted to an agent may not have been as significant in medieval “familiar” markets where most of the transactions were among parties known to each other. However, in the globalized marketplace, where most of the contracting parties are strangers to each other, this medieval principle has proven quite harmful.
Yet in due course, Talmudic law forbade the agent to act on the principal’s behalf when his act involved the violation of third party rights.114 Further, as pointed out by the Encyclopaedia Judaica, there are cases in which even if the agent digressed from his authorization or harmed the principal’s interests, it was impossible to invalidate his actions with respect to a third party or to return to the original situation.
In these cases the agent must indemnify the principal for the damage he caused. For example: Where the agent did not present himself as an agent in his dealings with a third party, in other words, where the agency was hidden; where the principal does not succeed in proving that the agency was only for the purpose of repairing and not to damage; and according to some authorities, where the agent intentionally mislead the third party into thinking that he was acting under authorization.115
Studies on the medieval use of “advance” contracts—executory contracts for the sale of wool in England—began appearing shortly around the middle of the twentieth century.116 That it took this long to unearth the details of these thirteenth- and fourteenth-century executory contracts is surprising when one considers that the wool trade was “the backbone and driving force in the English medieval economy.”117
As a result of these studies, it now appears that relatively informal English “recognizances” of promises to deliver wool at a future time were clearly enforceable in England during those two centuries. As discussed earlier in this chapter, such enforcement was not possible in continental Europe, except when the contracts containing the executory promises were clothed as notarial deeds. Yet, as late as in the nineteen sixties, E. Allan Farnsworth, among the most respected and influential scholars of the common law of contracts, reiterated the conventional wisdom that it was not until Slade’s case in 1602 that executory promises were finally enforceable in English law:118
The final triumph of this view came at the beginning of the seventeenth century in Slade’s case in which, on a jury finding that “there was no other promise or assumption, but only the said bargain,” all the judges of England resolved “that every contract executory imports in itself an assumpsit.”119
We have also learned since then that when breached, these agreements were regularly and quickly enforced, especially by the Exchequer court, and that English wool producers and their buyers or distributors used binding options and other agreements akin to forward contracts. As summarized by the English historian T.H. Lloyd: “Italian firms were … prepared to pay very high prices and to make long term contracts to get [the best English wool]…. [Thus] [t]he Italians, for instance, took the lion’s share of Cistercian [Monasteries’] wool and in 1294 were buying from 49 out of 74 monasteries.”120 Professors Bell, Brooks, and Dryburgh also refer to an unpublished manuscript by Professor Meir Cohn, a Dartmouth College professor of Development Economics, which shows that Italian merchant societies regularly engaged in other 165forward transactions (for a year in advance) that involved English papal tax receipts (with specified precise rates and dates of exchange) as well as future sales of glass and grain and risk transfer contracts such as “sea loans” and other forms of marine insurance.121
Such evidence led Bell, Brooks, and Dryburgh to conclude that:
The needs for derivative instruments and insurance were arguably much greater then than they are now … trade and sale[s] were far more risky; transportation was fraught with dangers including piracy or shipwrecks at sea and theft or confiscation by corrupt officials on land. Born of this need for some certainty in a highly uncertain world, wool-growers were willing to forgo some of their revenue for the future sale of their product in order to receive an up-front payment. The merchants with whom the wool producers did business, by contrast, had the financial resources to be able to bear these risks and to diversify them substantially away by transacting with a large number of different producers.122
Some historians questioned whether wool was actually sold in these advance or forward sales. They suggested that what may have appeared to have been advance payments for sales were in fact secured loans thereby “thinly disguising the levy of interest and the crime of usury.”123 As discussed earlier in this chapter, the determination of whether a given transaction was a sale of foreign exchange or a loan was not an easy one.124 Nonetheless, the transactional volume (national and international) of wool transactions was large enough to require that a major portion of the wool involved in these advance or executory contracts had to change hands. Further, official records show that many sales of wool did not even require advance payments, thereby attesting to their nature as sales to be executed in the future.125
On the other hand, it is very likely that large numbers of loans secured by wool were negotiated in thirteenth- and fourteenth-century England. As stated by a financial historian, in England it was acceptable that “ ‘a merchant who forgoes a chance to make a profit [by lending to his borrower] can reasonably take interest provided that his intention was honest and that he was not accustomed to make such loans.’ Reasonable rates of interest were argued to be of the order of 5 per cent-12 per cent….”126
Whether issued in connection with an advance of monies to procure the future sale of wool, with the payment for a future or present sale, or as a loan secured by wool, the recognizance (known originally as a recognicion) was an acknowledgment by the producer and seller of the wool that he had received an advance of money from the purchaser of the wool against its future delivery. This simple acknowledgment of a debt became so successful a means of collection that William Blackstone’s Commentaries on the Laws of England, written in 1765–1766, describes a much wider use of recognizances:
A recognizance is an obligation of record, which a man enters into before some court of record or magistrate duly authorized, with condition to do some particular act…. It is in most respects like another bond: the difference being chiefly this: that the bond is the creation of a fresh debt or obligation de novo, the recognizance is an acknowledgment of a former debt upon record; the form whereof is, “that A. B. doth acknowledge to owe to our lord the king, to the plantiff, to C. D., … is called the recognizee, “is cui cognoscitur;” as he that enters into the recognizance is called the cognizor, “is qui cognoscit.” This, being either certified to or taken by the officer of some court, is witnessed only by the record of that court, and not by the party’s seal: so that it is not in strict propriety a deed, though the effects of it are greater than a common obligation; being allowed a priority in point of payment, and binding the lands of the cognizor, from the time of enrollment on record.127
So effective were these recognizances as collection devices that a 1929 Publication of the Selden Society, which I will discuss shortly, referred to the recorded recognizance as documents “whereby the debtor practically signed judgment against himself.”128
Most of the references to contracts in which money was advanced for the sale and future delivery of wool appeared in the section of the Memoranda Rolls of the Exchequer devoted to recognizances of debt.129 The Exchequer was largely an administrative department whose functions were akin to those of present day ministries of the treasury in European and Latin American countries. It collected taxes, managed or supervised the allocation of revenues to expenditures, and was also a court of law and equity whose jurisdiction was originally limited to tax disputes and other matters of interest to the Crown.130
Eventually, administrative, fiscal and judicial data were filed in the Exchequer Court. In 1178, its judicial functions were largely transferred to a Court of Common Pleas also referred to as the Exchequer Pleas. This court “entertained every sort of business (including occasional pleas of the crown)” although crown suits were not as high-handed as had been the case in the immediate past.131
[At that time it became] common practice that the enrolment of debts entered into between private individuals in the Exchequer would be made primarily in the memoranda rolls, the principal records of the business of the Exchequer and its court…. [and] as the weight of business grew heavier, a separate section to record acknowledgments of indebtedness—Recogniciones (Recognisances)—was created in 1262.132
The Selden Society compiled and commented on the sources for the Law Merchant cases, procedures and provenance of these cases, among other subjects.133 It shows the reliance by merchants, especially those from foreign countries, on the recording of recognizances as a means to collect their debts from English wool producers quickly and inexpensively. According to the Selden Society, the right to record recognizances was attributable to Edward I:
Edward I … obtained the approval of Parliament for an ordinance, establishing an auxiliary and independent system of inrolling [recording] recognizances of debts whereby the debtor practically signed judgment against himself. This useful measure, strengthened by a supplementary ordinance two years later … was reinforced by a parallel provision for the special benefit of merchants visiting the staple towns.134
As reported by Bell, Brooks, and Dryburgh, despite the hundreds of collection writs filed, “it is remarkable how few pleas ended in punishment for one or the other party. Compromise and settlement appear to have been the order of the day.”135
The components of England’s successful medieval collection formula were: first, the parties’ use of relatively simple and standard agreements—without such a simplicity and standardization Bell et al. could not have concluded that the agreements “demystified important aspects of the sale, marketing and purchase of wool”;136 second, the recording of this agreement in an office of public records, which meant that the agreement became a “charge” or an enforceable security interest against the debtor or third parties; third, a streamlined enforcement procedure that enabled the creditor (with the initial help of the sheriff) to gain possession of the land and its “issues.”
The executory promises to deliver goods, services, or money among religious brethren depended upon a higher morality than that of the then-existing marketplace. Eventually, these religious commercial brotherhoods became lay associations of merchants. Some of the most successful ones relied on various types of limitation of liability.
Max Weber’s History of Commercial Partnerships in the Middle Ages137 describes how the general and limited partnerships of fourteenth-century Italy became engines 168of capitalist growth despite the severe restrictions on such investments at that time. The ability to limit the investor’s liability to what was invested in a partnership fund led to more predictable and confident investments and to the modern corporate form of doing business.
The working and silent partnerships (commendas) in which Florentine and other Italian businessmen invested, bore a striking resemblance to the earlier heter iskas of the Cairo Geniza letters and Maimonides’s Responsa. Whether or not these business ventures were the first stage of Weber’s “systematic rational pursuit of accumulating profits,” a stage which he identified with the beginning of capitalism, or were merely part of an earlier “pre-capitalist” stage,138 is of less importance than the mechanism that induced trust by the silent partners in their working partners.
In this respect, the lessons learned from the Cairo Geniza letters and Maimonides’s Responsa are instructive on the interplay between the predictability of outcomes as a result of the limitation of liability vis-à-vis third parties and trust among partners or associates. This trust was built on the basis of the standard of conduct of an altruistic brother. The brotherly or altruistic standard of commercial fairness may have existed among other groups of traders, but nowhere was it more apparent than in the above sources. Entrustment of a merchant’s money and wares to another was possible even where the commercial journeys were long and the perils serious. As such, the brotherly standard of commercial behavior stood in sharp contrast not only with the downright dishonest behavior of many merchants, but also with the picaresque methods of doing business that had begun to spread throughout the trading world.
These lessons are apparent today in the involvement of Jewish intermediaries in the world’s diamond trade and especially in the New York marketplace. As thoughtfully concluded by Duke University Law School Professor Barak Richman:
Given the importance of credit sales, the diamond industry depends overwhelmingly on the reliable enforcement of executory contracts. However, while most industries can employ state-sponsored courts to enforce payment after the delivery of goods, public courts are toothless to enforce credit sales for diamonds. Diamonds are easily portable and command extreme value throughout the world. A diamond thief encounters little difficulty in hiding unpaid-for or stolen diamonds from law enforcement officials, fleeing American jurisdiction, and selling the valuable diamonds to black market buyers. The courts’ failure to prevent flight amounts to a failure to enforce the executory contract. The failure of public courts requires diamond merchants to rely on trust-based exchange. Mutual trust among merchants—which the New York Times has called “the real treasure of 47th street”—assures dealers that by maintaining a trustworthy reputation, they will remain in good community standing and preserve the opportunity to engage in future lucrative transactions. Through this mutual trust, dealers comfortably engage in executory contracts despite the unreliability of state courts.139
Yet, what about the protected status of the “strangers” or “third parties” with respect to the brotherly relationship? How protected were they by the standard of fairness when applied only among the brotherly merchants? Not much, as illustrated by the effects of the ancient Hebrew principle of brotherhood between principal and agent (and its modern law variants): “[A]nything done by the agent that tends to work harm to the principal, invalidates the act and cannot affect the principal.”140 It took considerable rabbinic case law to instill a modicum of third party protection in the Hebrew law of agency.
Clearly, the standard of brotherly altruism worked well among a small group of merchants, but failed when it harmed strangers or third parties and ultimately the certainty of the marketplace, a place inhabited largely by strangers and third parties. Consider the impact of brotherly duties such as that of a commercial brother purchasing goods in an “open market.” As a commercial brother, he would have to give up to his brother, the victim of an embezzlement or thievery, those goods that were stolen or embezzled from the latter even though he had no knowledge that the goods were embezzled or stolen.141 Could this duty be imposed upon non-brothers or strangers? If it were so imposed, the vast majority of purchasers would have no certainty of acquisition. Mutatis mutandis, consider the duty to tell the truth about the goods or services one provides to the marketplace: If telling the truth were limited to one’s brethren, what third party or stranger would be willing to buy in that marketplace?
The inherent limitation of the fairness of brotherhood was pointed out, as a dilemma, by Hillel, a Jewish sage of Biblical times: “If I am not for myself, who will be for me, and if I am [only] for myself, what am I?”142 Far from being an exceptional dilemma, it is one routinely encountered by marketplace participants and the more powerful the participant, the more routine the dilemma. Consider, for example, the case of J.P. Morgan, without a doubt the most powerful banker and financial intermediary of the United States during the beginning of the twentieth century.143 On 170the one hand, he engineered the rescue of many important financial institutions from insolvency with his own monies as well as with monies he collected among fellow bankers. By doing this, he rescued the savings and investments of thousands of depositors and investors in these institutions. He is also credited with protecting the investments of those who bought stocks from his brokerage business by buying those companies who were poorly managed and bringing them to prosperity. In doing this, he was acting much as a Jewish medieval trader would have acted when obeying the duty to pick up his colleague’s “bundle.”144 Yet on the other hand, the same J.P. Morgan strongly opposed child labor legislation intended to protect millions of children from suffering the rigors of labor at a premature age and helped create railroad monopolies that fixed shipping prices to the detriment of thousands of farmers and consumers.
In a global marketplace, Hillel’s dilemma can be reformulated by asking how widespread the standard of commercial brotherhood should be. The answer started becoming apparent even in J.P. Morgan’s time by the movement to enact anti-trust legislation, followed in our own days by the movement to protect the growing number of consumers and investors against commercial abuses. At times, then, duties of a commercial brotherhood have been extended by legislation. But at other times, they have also been extended by wise and compassionate judges. As stated by Justice Benjamin Cardozo, one of the wisest and most compassionate of United States commercial law judges, in my repeated quote from Meinhard v. Salmon:
Many forms of conduct permissible in a workaday world for those acting at arm’s length, are forbidden to those bound by fiduciary ties. A trustee is held to something stricter than the morals of the market place. Not honesty alone, but the punctilio of an honor the most sensitive, is then the standard of behavior…. Only thus has the level of conduct for fiduciaries been kept at a level higher than that trodden by the crowd.145
This decision created a new standard, not only for the protection of the contracting parties, but also for third parties and strangers acting as investors, depositors or even consumers who entrusted their savings to merchants acting in a fiduciary capacity. As stated by Justice Cardozo in this decision (followed in more than 700 other decisions in the Anglo-American legal system), the standard he employed required “an undivided and unselfish loyalty,” or in other words, a brotherly standard of fairness.
Yet what about those transactions where such an entrustment did not occur or if it had occurred, could not be predicated upon an altruistic morality, but on the morality of marketplace reciprocity, i.e., on doing what participants in that marketplace would reasonably expect from each other and no more? After all, is this not the most common assumption among marketplace participants? This is precisely the type of expectation envisaged in the English wool trade: on one side was the provider of funds with which to help produce the wool and on the other were the producer and the seller of the wool. If the former was expected to supply funds, he had every reasonable expectation that 171he would receive the wool in the specified future. Incidentally, this was not, as should be recalled, the common stereotypical or typified transaction common in classical Roman law. What was most common was the simultaneous exchange of goods or services for money or for equivalent goods or services.
The participants in the wool trade came up with a transactional formula that has proven successful to this day. Consider the success of Article 9 of the U.C.C., Canada’s Personal Property Security Act, the Model Law of Secured Transactions of the OAS, and a growing number of enactments throughout the commercial world. All require that the secured lender and borrower enter into a security agreement, provide notice of his or her essentials either by recording a summary of it in a public office or by the creditor’s possession. They also allow a quick, fair, and inexpensive method of collection. Of these elements, the public notice component seems to be one of the least appreciated.
Much of the codified law on oath taking in France was modeled after the jusjurandum procedure of classical Roman law.146 The reader will recall from the description of the Roman classical procedure that it was divided into two phases—one before the praetor also referred to as in jure and the other before the judge (iudex) referred to as apud iudicem or in judicio.147 Oath taking (jusjurandum) could take place during either of these phases. An oath before the praetor had the same effect as a confession (confessio in jure): it would settle the issue before the praetor.148 When one party proposed to the other that it take the oath, the taking or refusal of the oath decided the dispute and was equivalent to a judgment (judicium).149 A defendant who had taken the oath, won before the praetor, and was subsequently sued in an action that involved the same issue was entitled to a praetorian defense (exceptio) equivalent to the one known in our time as res judicata. The Roman Digest’s reason for such a decisive outcome was its characterization of the proposal as a deferral to the other party of the adjudicative function of a judge (iudex).150 Such an oath was also referred to by the Digest as non-declinable (necessarium); the recipient either had to take it or had to propose that the proponent take it. A refusal to take the proposed oath was equivalent to an acceptance of the other party’s claim or defense (confessio).151
The second type of judicial oath was proposed by the iudex, although the parties could suggest it to him. It was not as decisive as the one before the praetor. It was a 172piece of evidence which the iudex weighed and could give it as much value as he thought was just and was often used where the iudex had to determine the value of the matter in dispute.152 The iudex could disregard it as just another piece of evidence and either acquit the defendant or order him to pay a lower sum than that sworn to by the taker of the oath.153
As noted by Professor Pedro A. Malavet of the University of Florida, decisory oaths are still alive, among other civil law countries, in France, Spain and Italy.154 The oath is generally a subdivision of the testimony of a party to a civil proceeding, known as a “confession” (confesión in Spanish), a reference to the fact that a party admission relieves the other party of the duty to prove a fact.155 Among the provisions referred to by Professor Malavet, the following are particularly relevant to our discussion:
Article 1357:
The judicial oath is of two types:
1) That which one party defers to the other to make the decision of the case depend on it: it is referred to as the decisory oath;
2) That which is deferred ex officio by the judge to one of the parties.
Article 1358:
The judicial oath may be deferred in any kind of dispute.156
Article 1235:
The judicial confession must be made before a competent judge and after the party who will benefit from it is on record as having filed an appearance.
Article 1236:
When a judicial confession is requested by means of an oath, the party who is requested to swear under oath will be able to defer the oath to the opposing party and if that party refuses to do so, it shall be deemed to have confessed [to the facts in question].157
Article 2736:
The oath is of two types:
1) the decisory oath, with which one party charges the other for the purpose of causing the case to be adjudged wholly or in part on the basis of the oath;
2) the supplemental oath, with which the judge on his own initiative charges one of the parties for the purpose of deciding the case when the claim or the defenses have not been fully proved, but are not totally without proof, or for the purpose of ascertaining the value of the subject matter of the claim, if such value cannot be otherwise ascertained.158
Stanford Law School’s Emeritus Professor John Henry Merryman, co-author of a highly informative and one of the most readable introductions to the civil law tradition, traces the origin of this rule to the concept of “legal proof” in the Middle Ages.159 The rules regarding the value of particular forms of evidence were used to replace trial by ordeal and other such proceedings. Professor Peter Herzog, another distinguished comparative law scholar cited by Professor Malavet, describes the decisory oath as follows:
The procedure requires (1) that a party tender the oath and (2) that the court approve the oath. It is as if the court decided that the case would be ready for summary judgment but for the existence of a particular factual finding. Rather than holding a full hearing, the court orders this one fact to be determined. The party may either refuse the oath, in which case they admit the cause of action against them, or may take the oath and win. The facts must be within the knowledge of the oath taker. “Thus, the plaintiff may tender an oath to the defendant on whether he has received money from the plaintiff, but not on whether somebody else (for whom defendant may be a surety) has received money.”160
Is there such a decisory oath present in your particular jurisdiction? How does the oath described by Professors Malavet, Merryman and Herzog differ from the oath used by Maimonides, and especially from the “partner’s oath”? Would such an oath be useful in contemporary commercial contract litigation? How does the “partners’ oath” and the above-described civil law confessional-decisory oath differ from an affidavit commonly used in various procedures of common law jurisdictions? Could decisory oaths and affidavits exist without credible deterrents against perjury? What is the relationship between the above-described oaths and the compulsory requirement of a writing for all or most contracts? Remember Andres Bello’s description of the sellers of oaths and the importance of the requirement of a writing in the enforcement of contracts?161 Finally, are decisory oaths and confessional evidence a functional equivalent for pre-trial discovery as well as examination and cross-examination of witnesses, including the parties to the commercial contract? Judging from the increasing number of “oral trial” statutes adopted by Latin American countries, the tide against confessional evidence is 174turning, and the NLCIFT has been fortunate to be part of a trend that is definitely improving the adjudication of commercial contract disputes.162
One of my surprises as a first-year law student at the University of Miami Law School law was its offering of a full semester course on the law of agency. Given what I had been taught in Cuba about the twentieth-century version of the Roman contract of mandate (which I assumed was the counterpart to the American law of agency and which was largely confined to the law of powers of attorney), I could not imagine what could possibly be covered in a full semester on the law of agency. Two of my most esteemed University of Miami School of Law teachers, Professors Stojan Bayitch and Richard Hausler, suggested that I read Dean Roscoe Pound’s comparison of the Common Law of agency and the civil law mandate in his Treatise on Jurisprudence.163 It was a very helpful suggestion.
Dean Pound pointed to a major difference in “the form of thinking” between the common law and contemporary versions of the classical Roman law on mandates. The thinking of the common law of agency was apparent in its “relational double titles” such as “Landlord and Tenant,” “Master and Servant,” “Principal and Agent” and others. These dichotomies reflected a pervasive trait.164 While the civil law lawyer thinks in terms of contractual rights and duties largely derived from a pre-characterized contractual intent or “will” as reflected in typified and non-typified contracts, the common law lawyer attributes the rights and duties of the parties to these dichotomies to the “incidents” associated with each dichotomous relation.165
I would add that when deciding on how to regulate these incidents, common law lawyers took into account what is customary in each relation.166 In the evolution of the common law of agency, then, custom played a major shaping role. On the other hand, as commerce gradually replaced agricultural subsistence as a form of earning a living among the former feudal tenants and servants, each former feudal relation had to be adjusted to contemporary market circumstances. In common law countries, this was largely the task of judges and lawyers and of the logic described in an earlier chapter as that which was reasonable under the transactional circumstances. That logic provided the openness needed to protect the third parties who dealt with the increasingly distant and unknown principals. It fell to courts and juries to establish what these third parties were customarily promised, what they had reasonably assumed had been promised, or what they relied on as third parties.
Upon reading Pound and thereafter the writings of Wolfram Müller-Freienfels, a professor at the University of Freiburg, a visiting scholar at the University of Michigan School of Law and one of the world’s experts on the comparative law of agency, it was clear that the Roman law-inspired contractual mandate of civil law countries was at odds with contemporary commercial realities. As incorporated into the contemporary law of powers of attorney, the Roman law of mandate was hampered by slowness, 175excessive formalities and costs inconsistent with the needs of the marketplace. In addition, it undermined the certainty of countless market transactions when claims by third parties became subject to excuses or defenses based upon the mandate or principal-agency relationships whose terms and conditions were unknown or should have been unknown to third parties.
Many of the features of the present day law of agency and mandate, “crystallized” in the Middle Ages, remain unchanged in some countries even after their commercialization. In other countries, commercialization began the significant evolution of these features. In order to provide a perspective on these divergent courses, the writings of Professor Müller-Frienfels,167 a revered master, and of Professor Omar Morales of the University of Guatemala, a graduate of the University of Arizona James E. Rogers College of Law LL.M. program and a promising young scholar, will be surveyed in this Appendix.
As described by the English Romanists, W. W. Buckland and Arnold D. McNair,168 in a Roman contract of mandatum:
If A asks B to render him some service and B undertakes to do it, then, subject to certain rights of revocation and renunciation in both parties, A has an action against B if he fails to carry out the service properly and, on the other hand, B has against A an action for reimbursement of expenses and indemnification.169
Thus, the mandatum was a gratuitous “typified” or “nominate” contract with little or no application in the profit making world of commercial transactions as it was “nothing more than a friendly service.”170
The mandatarius had the authority to act, but only within the limits of the powers expressly granted by his mandator; if the mandatarius acted outside those powers, his promises, albeit on behalf of the mandator, could not be enforced against the latter. The third party only had recourse against the mandatarius. In this respect, the classical Roman law of mandate did not differ much from the biblically-derived legal principle that an agent can only benefit from, but not harm his principal (as was discussed in the principal chapter).171 Thus, biblical and Roman law denied protection to third parties against a mandator despite having provided these third parties with every appearance that their shaliach or mandatarius was authorized to promise or incur the liability they did on behalf of their mandator or principal.172 Clearly this 176Roman and biblical mandate was very different from the law of agency, which binds principals for the promises or acts of agents whom they clothe with sufficient apparent authority and who consequently promises or acts in what reasonably appears to be a binding or truly “representative” fashion.
What is at stake when a modern marketplace is governed by the principles underlying the Roman and biblical mandates? Clearly much more is at stake than having to deal with a different nomenclature or even with a requirement of gratuitousness. When a mandator and his mandatarius become participants in a commercial transaction, it is not only to buy, sell, lend, borrow or exchange goods, services or money with each other but also with third parties, a category which involves most participants in the marketplace, except those who participated in the underlying or pre-existing agreements (in this case of mandate or of agency). Bearing this in mind, ponder the significance of the following example, to which I will refer occasionally in this Appendix.
Retail merchant “TP” heard about the highly discounted price of Pima cotton shirts being offered by “P’s” wholesale shirt business. He came to P’s business and told “A,” P’s sales manager that he wished to purchase 80 dozen Pima cotton shirts at the 50% discount he heard about. Unknown to A, P had already sent him an e-mail rescinding the 50% discount two hours prior to TP’s arrival at the wholesale business. In the e-mail, P noted a resurgent market demand for those shirts. However, when A dealt with TP, he had not checked his computer. TP paid cash for the shirts to A at the discounted price and immediately rented a truck at a premium freight charge because of his desire to place the shirts for quick sale in his retail business. Subsequently, when TP and the truck he rented arrived at P’s warehouse, TP was told by P that he had just fired A for not being a trustworthy sales manager and that the price instruction in effect when the sale took place was the one he had sent to A two hours prior to TP’s purchase. P was willing to sell the shirts to TP at the instruction, but not at the discounted price.
Can TP claim from P the delivery of the same shirts he bought from A at the price quoted by him? Can P validly rescind that sale by showing that he had rescinded the discounted price in a timely fashion? How much weight should a contemporary adjudicator of that dispute give to: 1) the instructions that P expressly sent to A; 2) the price quoted by a sales manager who was still employed by P when TP dealt with him? What weight should be given to TP’s reliance upon customarily accepted or apparent signs of authority conferred upon the sales manager to bind a principal as his agent? Should there be a requirement that such reliance be followed by acts that reflect the third party’s detrimental reliance such as by incurring the costs of hiring a carrier to pick up and deliver the goods?
Such are the issues and determinations peculiar to agency in today’s commerce. Depending upon the substantive and procedural approaches adopted in these determinations, commerce could move either in a very slow and costly manner or at a cost-effective and fair pace.173 There exists a record of a Mexican banking practice inspired by its law of mandate and powers of attorney as interpreted and applied in an 177unpublished Mexican Supreme Court decision.174 This decision held that the president of a beer company who contracted to purchase a needed ingredient for the making of beer was not expressly authorized to enter into such a contract by the company’s by-laws or powers of attorney; neither his signature in the contract or in the company’s check bound the company. It only bound the president in his personal (and insolvent) capacity. Aside from its encouragement, because of the uncertainty that results from bad faith practices, this, among other decisions, caused banks to require that their business clients provide them with their updated by-laws and powers of attorney so that before paying on checks or accepting drafts, the bankers could ascertain the authority of the signers. Can the reader visualize the additional operational costs of such examinations and verifications of signature? If you were a legal adviser to Mexico’s Congress or to its Supervisory Banking Commission, what measures would you suggest they adopt to eliminate the artificial costs of the mandate-power of attorney approach to commercial transactions?
As a result of the emergence of national and international markets for the sales and financing of commodities such as wool (discussed in the principal chapter), Europe’s medieval agricultural society became progressively commercialized. Commercialization bred intermediation and intermediation required manifold agencies. Unlike in Cato’s Rome, in some European countries, some of the new mandates were paid for. While the “civil” mandat was still gratuitous, its commercial counterpart relied on “auxiliaries” of merchants such as sales clerks, commission and “del credere” agents (at times also referred to as “factors”). Some earned regular wages, while others were compensated for what they sold, lent, exchanged, insured or shipped. Additionally, some had more discretion to bind their principal than others. Thus, the division of labor and complexity of intermediation practiced by these commercial agents or brokers caused the emergence of more flexible versions of the Roman mandate and of the English agency. As their flexibility increased, so did their similarities.
Interestingly, Canonic and English Church law helped in this rapprochement. For example, a 1298 Canonic Code known as Bonifatiana allowed a mandatarius-procurator to be designated by a party to a marriage contract to sign it on his behalf even though this contract was deemed highly personal by the secular law and thus not susceptible to being signed by a third party.175 In turn, the English law of agency was enriched by equity (aequitas) as a source of private law.176 Equity insisted on effectuating the parties’ true contractual intent (fides facta) especially in connection with the church doctrine of pacta sunt servanda. In addition, it applied the doctrine of “civil death” to transactions entered into by persons who, as monks, were not supposed to be participating in them. This doctrine required that those who benefitted from transactions entered into by persons considered civilly dead pay for the goods or services acquired by the latter as if they were their agents.177 Thus, during the reign of 178Edward I, an abbot was ordered to pay for goods purchased by a civilly dead monk whose monastery (as a tacit principal) benefited from that purchase.178
Finally, Hugo Grotius’ De Jure Belli ac Pacis,179 a writing that will be discussed in a later chapter and that strongly influenced late eighteenth- and early nineteenth-century civil law codes, especially in Prussia and France,180 justified the binding effects of a mandate upon the mandator because it reflected his true contractual will. Additionally, the Allgemeine Landrecht fiir die Preussischen of June 1, 1792 (hereinafter Landrecht), the first European enactment that could qualify as a civil code,181 opened the door to direct ties between the principal and third parties in response to the needs of commerce.182 Nonetheless, the Landrecht lacked a coherent regulation of the independent rights and duties that emerged from the transactions involving the mandatarius or procurator and third parties. Issues that remained unanswered were: When was the mandator liable for their promises or acts, especially when they had exceeded or disregarded his instructions or powers of attorney? Hence, even though the Landrecht influenced both the Code Civil and the Austrian General Civil Code,183 it did not separate or distinguish between the binding effects of a representation of the will of the mandator from the rights and duties that flowed between the parties to the original mandate. Such a development took place in nineteenth-century Germany and was essentially due to a doctrinal writing which Müller-Freienfels describes as “one of the major achievements of nineteenth century European legal science.”184
Müller-Freienfels attributes the modern doctrine of the law of agency in civil law countries to the writings of Professor Paul Laband and to a lesser extent to those of Rudolf von Ihering. Laband’s 1866 article “Representation in the Execution of Legal Transactions under the German Commercial Code” (“Die Stellvertretung bet dem Abschluss von Rechtsgeschaften nach dem Allgemetnen Deutschen Handelsgesetzbuch”) focused on the Prokura as a commonly used form of representation. The Prokura is a general power of attorney given to a merchant like “A” (the fired sales manager for the 179wholesaler of shirts we discussed earlier). It is so drafted as to enable the Prokurist or agent to engage in a broad range of commercial transactions on behalf of the principal-owner of the business. Prokuras were recorded in the Commercial Register and thereby gave third parties notice of their basic terms and conditions.185 From the German Prokura practice, Laband deduced the “abstract” or independent nature of the Prokurist’s representation. This means that if his powers as described in their public notice differed from those actually conferred upon him by his principal, third parties had the right to rely on what was public notice regardless of what went on in the pre-existing relationship between the principal and the Prokurist.186
Laband characterized this principle of separation between the contract of mandate (Auftrag) and authority (Vollmacht) as one between two independent autonomous relations. He suggested that the law of mandates had to cut the umbilical cord that tied the mandate and the authority and representations it conferred. Otherwise, these legal institutions could not keep up with modern commercial practices and needs.187 Further, third persons, an always-growing category of participants in a market economy, would be subject to defenses derived from the pre-existing contract of mandate between distant or unknown principals and their agents. Professor Hans Dolle, one of Germany’s most respected post-World War private law scholars, called Laband’s separation principle one of the most impressive examples of a “legal discovery.” Müller-Freienfels agreed with this appraisal and listed a large number of countries that adopted it. Among them, in chronological order, were the civil, commercial or codes of obligations of Germany, Switzerland, Turkey, Greece, Sweden, Denmark, Norway, Finland, Italy, Japan, Thailand, Ethiopia, the Soviet Union, Poland, Czechoslovakia and Hungary.188
The medieval law of master and servant is in all likelihood the earliest ancestor of the common law of agency, dating back “hundreds of years … and dealt with servants who performed physical labor over whom the master had broad control.”189 The term “ ‘servant’ referred to ‘wage labor,’ commonly manual labor.”190 As noted earlier, because of the commercialization that took place in the fourteenth and fifteenth centuries, a division of commercial labor sprung up that placed numerous intermediaries between producers and distributors or between distributors and consumers. Prominent among them were brokers, agents and factors of various types.191 The banking business’s reliance on branch banking contributed much to the proliferation of financial agents. These agents made it possible for banking headquarters to do business with an increasingly distant clientele, as was the case for 180the Florentine banks which, as was discussed in the principal chapter, lent to and purchased wool from English wool producers.192 Yet, common law masters and servants were not thought of as bound by contracts, but by a customary relation in which the status of each party was the determining factor.193 The master and servant relation led to the development of the concept of respondeat superior, which means “[l]et the master answer.”194 By virtue of this doctrine, the master answered for the servant’s acts because of his status as master as long as the acts were within the scope of his employment.195 In other words, because the master controlled the servant’s actions, the servant’s acts were ipso iure the master’s and there was no need for contracts to spell out the rights and duties of that relationship; customs sufficed. These customary relations also led to the development of key concepts of the modern law of agency such as “apparent authority” and “disclosed and undisclosed principals,” which could bind principals even though they had not expressly authorized, or may have even forbidden, certain acts or promises of their agents.
The Restatement (Third) of Agency, published by the American Law Institute in 2006 (hereinafter Restatement of Agency),196 defines agency as: “the fiduciary relationship that arises when one person (a “principal”) manifests assent to another person (an “agent”) that the agent shall act on the principal’s behalf and subject to the principal’s control, and the agent manifests assent or otherwise consents so to act.”197
As a fiduciary relationship, agency is based on trusting the agent to act on the principal’s behalf. Yet the agent is also an intermediary between the principal and a third party. Through its acts, the agent creates rights or obligations for the principal, thus affecting the principal’s legal relations with third parties.198 Finally, in principle, and especially where the principal-agent relationship is concerned, the agent is subject to the principal’s control.199 This is the most critical element of that relationship.200 However, while this element determines whether an agency relationship exists between the principal and the agent,201 it does not determine the principal’s liability to the third party or parties with whom the agent deals on his behalf, as we will now discuss.
The following are concepts and principles that have shaped many of the rules of United States agency law and as such have found their place in the Restatement of Agency. As illustrated by the sale of shirts by a sales manager at a price below that authorized by his principal, agents, not infrequently, knowingly or not, exceed their actual authority.202 Yet, such an agent can still bind the principal to the consequences of his acts if he acted with what the Restatement of Agency defines as apparent authority:203 “[T]he power held by an agent or other actor to affect a principal’s legal relations with third parties when a third party reasonably believes the actor has authority to act on behalf of the principal and that belief is traceable to the principal’s manifestations.”204
The two elements for a binding apparent authority, then, are first, the circumstances created by the principal that could reasonably result in a third party believing that the agent is authorized, and second, an “actual and reasonable reliance by the third party upon these circumstances.”205 In the example of the sale of shirts at a price lower than that authorized by the principal, one of the circumstances created by the principal that could induce the third party to believe in such an authorization was the naming of the agent to the position of “sales manager.” Furthermore, the third party’s reliance on such apparent authority was exemplified by that party’s rental of a truck to pick up the shirts.206
Apparent authority is distinguished from actual authority based upon the agent’s reasonable belief of the principal’s intent. As stated by the Restatement of Agency § 2.01: “[a]n agent acts with actual authority when, at the time of taking action that has legal consequences for the principal, the agent reasonably believes, in accordance with the principal’s manifestations to the agent, that the principal wishes the agent so to act.”207
As noted by Professor Morales, “[t]he third party’s belief of the extent of the agent’s authority is irrelevant … [because] the agent’s actual authority is established and determined when the principal [tells] the agent what he is to accomplish.”208 Another commentator stated: “[a]n agent has express actual authority when the principal specifically authorizes the conduct by the agent.”209 “Actual implied authority” comes about when it is reasonably regarded as necessary for the agent to 182fulfill the task appointed by the principal.210 Because the agent must act in such a way as to seek to complete the task instructed by the principal through actual implied authority, he can take actions that are incidental to fulfilling his express actual authority.211 Thus, even though the agent was not specifically authorized to take a certain action, he can reasonably infer that he has authority to do so in order to fulfill his task.212 Issues of actual authority and actual implied authority usually arise where the agent either seeks payment of his fees or reimbursement for his costs from his principal.
Finally, the Restatement of Agency establishes that “[a] principal is disclosed if, when an agent and a third party interact, the third party has notice that the agent is acting for a principal and has notice of the principal’s identity.”213 Further, “[a] disclosed principal is a principal whose identity is known to the third party when the third party transacts with the principal’s agent.”214 In contrast, the Restatement of Agency defines an undisclosed principal as follows: “[a] principal is undisclosed if, when an agent and a third party interact, the third party has no notice that the agent is acting for a principal.”215 In a transaction with an undisclosed principal, the third party is unaware of the principal’s existence and believes that the agent is acting on his own behalf.216 I suggest that before inferring an undisclosed principal’s exemption of liability, the reader should take a look at the Cargill decision summarized in a subsequent section.217
Even a superficial reading of the Restatement of Agency (which many United States judges and litigators treat as a “quasi-statutory” enactment) shows its judicially-casuistic218 origins. This form of drafting stands in sharp contrast with the synthesized, algebraic-like concepts of European codes such as the Code Civil or the BGB.219 Notice this contrast in the highly factual distinctions that the Restatement of Agency draws among apparent, actual, express and implied authority and their respective agencies. For example, consider the category of a “Partially Disclosed or Unidentified Principals” which the Restatement of Agency defines as: “[a] principal is 183unidentified if, when an agent and a third party interact, the third party has notice that the agent is acting for a principal but does not have notice of the principal’s identity.”220
Similarly, the Restatement of Agency selects the judicial rule it deems most consistent with its analysis of case law and recommends to the future adjudicator that: “A principal is partially disclosed if the third party knows that the agent is acting for a principal but is unaware of the principal’s identity.”221 In other words, treat the third party in accordance with the rules and exceptions (and perhaps exceptions to the exceptions) that govern the relations with an undisclosed principal.
Compare these provisions of the Restatement of Agency with the following code provisions in Civil Law countries:
§ 164 of the BGB of 1900:
A declaration of intent which a person makes in the name of a principal within the scope of his own power of agency in the name of a principal takes effect directly in favour of and against the principal….”222
Or compare with §§ 49 (1) and 50 of the German Commercial Code (Handels-gesetzbuch, 1861, hereinafter HGB):223
§ 49. Scope of the Prokura224
(1) The Prokura constitutes authority to enter into every kind of judicial and non-judicial business and legal transaction related to the operation of a commercial business.
§ 50. Limiting the Scope of the Prokura
(1) A limitation of the scope of the Prokura is ineffective as to third parties.
(2) This applies especially to a limitation whereby the Prokura may only be exercised for certain transactions or kinds of transactions, only under certain circumstances, for a limited period of time or at certain specific locations.
The European Council Directive 86/653 of 1986 on Commercial Agents states in relevant part:
‘commercial agent’ shall mean a self-employed intermediary who has continuing authority to negotiate the sale or the purchase of goods on behalf of another person, hereinafter called the ‘principal’, or to negotiate and conclude such transactions on behalf of and in the name of that principal.225
At noted by Professor Morales, the European Directive seems to give the same delegated authority to commercial agents that the Restatement of Agency gives to its agents.226 It states that the commercial agent may negotiate and conclude transactions “on behalf of and in the name of that principal.”227 He notes that the element of actual representation in commercial agency is relied upon by some European courts such as the French Cour de Cassation when determining whether commercial agency exists. For example, in Blanc Canet v. Europcar France SA,228 the court held that the status of a commercial agent is not necessarily derived from the intentions expressed by the parties in the contract or from the name that they give to their agreements. It must be found in the manner in which the agency is actually carried out. Thus, Canet could not claim that she was a commercial agent because she did not carry on her activities independently and did not have the power to negotiate or even contract for and on behalf of Europcar.
However, the same European Directive makes it clear that the commercial agent’s scope of delegated authority is limited to some transactions such as the sale or purchase of goods:229 “It does not include other commercial transactions, as even its name, ‘commercial agent’ suggests.”230 In addition, the European Directive refers to “continuing authority.” Do you agree with Professor Morales that an agent’s scope of delegated authority is much broader in the common law? If so, why? Does the Restatement of Agency limit the nature of the transactions in which an agent acts on behalf of the principal?
Having examined a decision by the European Court of Justice, Morales concludes that a European commercial agent must complete more than one transaction in order to be considered a commercial agent and thus be entitled to a commercial agency commission. Indeed, in Poseidon Chartering BV v. Marianne Zeeschip Vof,231 Poseidon claimed damages for failure to pay a commercial agent’s commission despite the fact that it negotiated a long-term charter party agreement for the defendant. According to the European Court of Justice, the fact that the intermediary maintained relations with the principal throughout the contractual period was insufficient to demonstrate continuing authority. Because Poseidon did not prove continuing authority, it was not a commercial agent for purposes of claiming such an agent’s commission; what it characterized as a single contract did not suffice.
Morales points out that this ruling contradicts one of the purposes of the European Directive, which is to protect “commercial agents vis-à-vis their principals,” including the former’s remunerations and commissions.232 “How ironic,” he argues, “that the very 185protection that is intended by the European Directive is denied to Poseidon by the European Court of Justice.”233
Guatemala’s Commercial Code is in some respects similar to the European Directive. It states that commercial agents act in the name and on behalf of one or many principals.234 It also states that the commercial agent acts “permanently,”235 which can be interpreted similarly to the European Directive’s “continuing.”236 Thus, a commercial agent in Guatemala may be required to complete more than one transaction in order to be able to collect his commission as a commercial agent, as required by the European Court’s interpretation of the European Directive. However, unlike the European Directive, the Guatemalan Commercial Code gives commercial agents a larger scope of action as commercial agents promote and conclude commercial contracts237 and not just the sale or the purchase of goods.238
As a legislator or judge trying to encourage wider participation of commercial intermediaries, especially in a common market setting where massive amounts of goods and services are being traded each day, do you agree with Professor Morales’s criticism of the European Court’s decision in Poseidon? What is so important about the proof that the commercial agent has been involved in more than one transaction when considering his or her entitlement to a proper remuneration? What if the commercial agent in question wishes to specialize in obtaining multi-year charter parties for a select number of principals? Does it mean that each of these principles can claim he should not be considered their commercial agent, until 1) he procures a charter party agreement with a different carrier than the one originally named in the multi-party agreement?; and 2) the first multi-year agreement is concluded and a new one is negotiated?
A stock company cannot defend itself against a creditor on the ground that the director, who borrowed money for the company, was not authorized to apply for such a loan, and that the creditor knew about this. The court stated:
The statutory rule, in denying any legal effect to any limitation on the authority of the directors, the procurists, or the partners in its various definite, unrestricted, and unconditional provisions, did not intend to draw distinctions either as to whether the third person negotiating with the board 186of directors had any knowledge of the latter’s limitation of authorization nonetheless existing. The third person knew only that a limitation was desired, which, however, the statutory rule declares invalid. Bad faith can not [sic] be held against a party to a contract if he disregards something that the statutory rule expressly declares to be not worthy of consideration.240
Insurance Company Germania, another Reichsoberhandelsgericht decision, held that a restriction on the authority of the board of directors (Vorstand) was registered in the Registry of Companies. Yet, the Court affirmed the principle (of the principal’s independent liability toward the third party) in broad terms, and added:
A third person never needs to permit a limitation of authority to apply against himself, even if that limitation was disclosed by an unlawful entry in the Commercial Register. Such a registered limitation is to be deemed as nonexistent, since the acts of the registrar cannot alter the statutory rule.241
Further in Sander v. Schwarzroc, Reichsoberhandelsgericht held that:
The mere knowledge of an infringement of the authority to dispose [of things] does not establish the dolus [malicious intent] of the third party. Therefore, the third party is not prevented from considering the partner’s legal act as one of the partnership itself. However, the third person is not protected with regard to those legal acts which the partner performed under the name of the partnership with the purpose of causing prejudice to the partnership and of which the third party had knowledge and to which he was an accomplice.242
On the other hand, the Guatemalan Commercial Code requires that the agent can only agree to contracts and other transactions on behalf of the principal if he is expressly authorized to do so.243 It also states that contractual offers received from the agent do not bind the principal until he replies that he accepts them.244 These provisions virtually eliminate the possibility that a commercial agent will bind his principal through apparent authority. However, quasi-contractually and through the transaction known as a negotiorum gestio, an agent can bind his principal. As provided for in Guatemala’s Civil Code, negotiorum gestio occurs when a person conducts negotiations on behalf of another person without an agreement between them and the beneficiary of the other person’s actions ratifies the negotiations.245 By virtue of ratification, those acts are binding to the beneficiary of the negotiations. Though negotiorum gestio would appear to be similar to apparent authority in agency, it differs from it in that ratification is still necessary for the transactions to be binding on the principal.
In A. Gay Jenson Farms Co. et al, v. Cargill, Inc.,246 86 individuals, partnerships or corporate farmers sued Cargill, Inc. (Cargill) and defendant Warren Grain & Seed Co. (Warren) to recover losses sustained when Warren defaulted on the contracts made with plaintiffs for the sale of grain. After a trial by jury, judgment was entered in favor of plaintiffs and Cargill appealed. The appellate court affirmed the judgment in an opinion written by Justice Peterson. The following is a summary of his opinion with only isolated citations:
This case arose out of the financial collapse of defendant Warren Seed & Grain Co., and its failure to satisfy its indebtedness to the plaintiffs…. Warren operated a grain elevator and … was involved in the purchase of … grain from local farmers…. In addition, it operated a seed business which involved buying seed grain from farmers, processing it and reselling it for seed to farmers and local elevators. Lloyd Hill [owner of Warren] decided in 1964 to apply for financing from Cargill…. Warren and Cargill thereafter entered into a security agreement which provided that Cargill would loan money for working capital to Warren on “open account” financing up to a stated limit, which was originally set as $175,000…. Proceeds from Warren’s sales would be deposited with Cargill and credited to its account. [Loans were secured by a second mortgage on Warren’s real estate and a first chattel mortgage on its inventories of grain and merchandise in the sum of $175,000 with 7% interest.] A new contract was negotiated in 1967, extending Warren’s credit line to $300,000…. Cargill was given the right of access to Warren’s books for inspection…. Consent by Cargill was required before Warren would be allowed to declare a dividend or sell and purchase stock…. Cargill’s regional office…. examined the annual statement and the accounts receivable, expenses, inventory, seed, machinery and other financial matters…. At approximately this time, a memo was given to the Cargill official in charge of the Warren account, Erhart Becker, which stated in part: “This organization (Warren) needs very strong paternal guidance.”
…
As Warren’s indebtedness continued to be in excess of its credit line, Cargill began to contact Warren daily regarding its financial affairs. Cargill headquarters informed its regional office in 1973 that, since Cargill money was being used, Warren should realize that Cargill had the right to make some critical decisions regarding the use of the funds…. In 1975, Cargill’s regional office began to keep a daily debit position on Warren…. In April 1977, an audit of Warren revealed that Warren was $4 million in debt…. After Warren ceased operations, it was found to be indebted to Cargill in the amount of $3.6 million. Warren was also determined to be indebted to plaintiffs in the amount of $2 million, and plaintiffs brought this action in 1977 to seek recovery of that sum. Plaintiffs alleged that Cargill was jointly liable for Warren’s indebtedness as it had acted as principal for the grain elevator.
…
The jury found that Cargill’s conduct between 1973 and 1977 had made it Warren’s principal. Warren was found to be the agent of Cargill with regard to contracts for:
1. The purchase and sale of grain for market.
2. The purchase and sale of seed grain.
3. The storage of grain.
The court determined that Cargill was the disclosed principal of Warren. It was concluded that Cargill was jointly liable with Warren for plaintiffs’ losses, and judgment was entered for plaintiffs. [At trial, plaintiffs sought to establish actual agency by Cargill’s course of dealing between 1973 and 1977 rather than “apparent” agency or agency by estoppel, so that the only issue in this case is one of actual agency.] Cargill seeks a reversal of the jury’s findings….
1. The major issue in this case is whether Cargill, by its course of dealing with Warren, became liable as a principal on contracts made by Warren with plaintiffs. Cargill contends that no agency relationship was established with Warren, notwithstanding its financing of Warren’s operation and its purchase of the majority of Warren’s grain. However, we conclude that Cargill, by its control and influence over Warren, became a principal with liability for the transactions entered into by its agent Warren.
Agency is the fiduciary relationship that results from the manifestation of consent by one person to another that the other shall act on his behalf and subject to his control, and consent by the other so to act. In order to create an agency there must be an agreement, but not necessarily a contract between the parties. An agreement may result in the creation of an agency relationship although the parties did not call it an agency and did not intend the legal consequences of the relation to follow. The existence of the agency may be proved by circumstantial evidence which shows a course of dealing between the two parties. When an agency relationship is to be proven by circumstantial evidence, the principal must be shown to have consented to the agency since one cannot be the agent of another except by consent of the latter.
A creditor who assumes control of his debtor’s business may become liable as principal for the acts of the debtor in connection with the business. It is noted in comment (a) to section 140 that:
A security holder who merely exercises a veto power over the business acts of his debtor by preventing purchases or sales above specified amounts does not thereby become a principal. However, if he takes over the management of the debtor’s business either in person or through an agent, and directs what contracts may or may not be made, he becomes a principal, liable as a principal for the obligations incurred thereafter in the normal course of business by the debtor who has now become his general agent….
A number of factors indicate Cargill’s control over Warren, including the following: (1) Cargill’s constant recommendations to Warren by telephone; (2) Cargill’s right of first refusal on grain; (3) Warren’s inability to enter into mortgages, to purchase stock or to pay dividends without Cargill’s approval; (4) Cargill’s right of entry onto Warren’s premises to carry on periodic checks and audits; (5) Cargill’s correspondence and 189criticism regarding Warren’s finances, officers salaries and inventory; (6) Cargill’s determination that Warren needed “strong paternal guidance” ….
…
We conclude that, on the facts of this case, there was sufficient evidence from which the jury could find that Cargill was the principal of Warren within the definitions of agency set forth in Restatement (Second) of Agency §§ 1 and 140.
…
The question of whether payment in good faith to an agent relieves a principal of liability to a third party has not previously been decided in Minnesota…. The modern view, which has been adopted by a minority of states, is expressed in Restatement (Second) of Agency § 208 (1958), which provides:
An undisclosed principal is not discharged from liability to the other party to a transaction conducted by an agent by payment to, or settlement of accounts with, the agent, unless he does so in reasonable reliance upon conduct of the other party which is not induced by the agent’s misrepresentations and which indicates that the agent has settled the account.
We now adopt the modern position set forth in the Restatement rule. We believe that this rule is the better principle to be followed since the undisclosed principal is aware that he will become liable under the original transaction, and he should not be able to escape his liability by payment to the agent.
Affirmed.
Following the Restatement (Second) of Agency, the court refers to agency as a “fiduciary relationship which results from the manifestation of consent by one person to another that the other shall act on his behalf and subject to his control, and consent by the other so to act….”247 What does the court mean when it says: “In order to create an agency there must be an agreement, but not necessarily a contract between the parties.” (Quoting Restatement (Second) of Agency § 1, comment b (1958)? Is this a distinction without a true difference? Would the court have been more accurate if it had said “but not necessarily a formal contract of agency”? After all, was it not trying to establish that the plaintiff and defendant acted as if they were a principal and an agent?
__________________________
1 See infra §§ 9:1 & 9:2.
2 See Kozolchyk, Grand and Small Scheme, at 137.
3 See generally Alfred W. Crosby, The Measure of Reality: Quantification and Western Society, 1250–1600 (1997) (discussing the influence of double-entry bookkeeping upon the commerce of Western societies).
4 Because of the importance of the notary public in commercial contracts in civil law countries, I have devoted Chapter 7 to the Latin notariat.
5 See infra § 5:3.
6 See infra § 18:1(B)(1)(a) (on Chinese conditional sales); infra § 14:4(A)(3)(c)(i) (on Latin American simulation); and § 15:4(D)(5) (on Soviet era simulations).
7 See supra § 3:3.
8 See supra § 2:2(A)(4).
9 See infra § 5:9(A).
10 Gorla I, at 44–45.
11 See infra § 22:4(D).
12 Gorla I, at 45.
13 Id. See also supra § 4:4(D)(3)(a).
14 Gorla I, at 45.
15 Id.
16 Id.
17 See infra § 20:4(B).
18 Gorla I, at 53–55.
19 See Glossary, “Foral Law.”
20 Gorla I, at 54; Fuero de Navarra, III, 19, 6.
21 Gorla I, at 54.
22 Id.
23 For a particularly enlightening view of feudal society and the role trade or the lack of it played in it, see Mark Bloch, I Feudal Society: The Growth of Ties of Dependence (1989); Mark II Feudal Society: Social Classes and Political Organization (1989).
24 Henri Pirenne, Economic and Social History of Medieval Europe 40 (I. E. Clegg trans., 1956).
25 Id. at 41.
26 Id. at 45.
27 Id.
28 Henri Pirenne, Medieval Cities: Their Origins and the Revival of Trade 116 (Frank D. Halsey trans., 1969).
29 John Beverley, “Lazarillo” and Primitive Accumulation: Spain, Capitalism and the Modern Novel, 15 The Bulletin of the Midwest Modern Language Assoc. 29, 38 (1982) (citing Pierre Vilar, Crecimiento y desarrollo: reflexiones sobre el caso español 441 (1964)).
30 Beverley, supra note 29, at 32.
31 Francisco de Quevedo, Two Spanish Picaresque Novels 76 (Michael Alpert trans., Penguin Classics 1995)).
32 Henri Lapeyre, Une Famille de Marchands: les Ruiz (1955).
33 Id. at 47.
34 Id. at 134–35.
35 See supra § 4:3(A) & (B).
36 Lapeyre, supra note 32, at 118.
37 Id.
38 Wyndham Beawes & Joseph Chitty, I Lex Mercatoria: or, A Complete Code of Commercial Law 24 (6th ed. 1813).
39 Kozolchyk, Reduction of Poverty, at 739–40.
40 Departamento De Estudios E Pesquisa, Banco Central Do Brasil, Juros E Spread Bancário no Brasil (1999).
41 Boris Kozolchyk, Law and the Credit Structure in Latin America (RAND Corporation RM—4918 RC, March 1966). See Boris Kozolchyk, Law and the Credit Structure in Latin America, 7 Va. J. Int’l L. 1, 24 tbl. 6 (1967), for a somewhat shortened version of the RAND study.
42 Id.
43 Id. at 20–21 (tbl. 4).
44 RAND Corporation, http://www.rand.org/.
45 See Kozolchyk, Roadmap, at 4; Kozolchyk, Fairness, at 257.
46 The first time I discussed the findings in my study, Kozolchyk, Toward a Theory of Law, with the late and lamented father of legal anthropology, E. Adamson Hoebel, he recalled an incident he witnessed that illustrates the predicament of the stranger in a tribal environment. Hoebel was watching a ritual snake dance that involved an actual snake in the hands of a Native American ritual dancer. This took place at a Native American reservation located near a U.S. national park in the western United States. At one point, the park ranger asked the tribal dancer to stop his dance so that he could have the visitors move back from one of the nearby cliffs lest the snake dart out and scare a visitor who could then easily fall off the cliff. Somewhat annoyed at the interruption, the dancer asked the ranger: “Why are you so concerned, are these your family, or are they your friends, do you even know these people?”
47 See Gordley, Contract in Pre-Commercial Societies, at 2–8 to 2–17 for an insightful discussion of the dense relationship.
48 Id. at 2–9.
49 Aristotle, at 701 ¶¶ 15–20. Id. at 116.
50 Id. at 1008–14.
51 Id.
52 Id. at 1141:
For money was intended to be used in exchange but not to increase at interest. And this term interest [tokos], which means the birth of money from money, is applied to the breeding of money because the offspring resembles the parent. Wherefore of all modes of getting wealth, this is the most unnatural.
53 See Glossary, “Scholastic Logic.”
54 See John Thomas Noonan, The Scholastic Analysis of Usury 11(1957). Noonan cites to the Hadriana collection of ecclesiastical canons and especially to the letter by Pope Leon the Great Nec Hoc Quoque as the one with the greatest influence on the doctrine of usury from the years 750–1050 which started the process of uniformity of application of this doctrine. Id. at 15.
55 Id. at 20.
56 Id. at 53–54 (citing Thomas Aquinas, II Summa Theologica 78(E) (c. 1265)).
57 De Roover, Business, Banking and Economic Thought, at 32.
58 Id. at 16 (citing Amintore Fanfani, Catholicism, Protestantism, and Capitalism 158–59 (1935)).
59 See Nelson, The Idea of Usury, at 73–108.
60 De Roover, Business, Banking and Economic Thought, at 16 (citing Henry Charles Lea, The Ecclesiastical Treatment of Usury, 2 Yale Rev. 384–85 (1894)).
61 Id. at 33.
62 S.T.S., May 16, 2000 (R.J. No. 2530) (Spain) (translation by this author).
63 See Letters of Traders, at 3. Professor S. D. Goitein states that:
Anyone looking at the title of this book will be tempted to ask: Why Jewish? Why should we single out one of the several communities active in the trade of the Islamic countries during the High Middle Ages? The answer is simple: From that world and that period, only the letters and other papers of Jewish overseas traders have thus far been found. The preservation was due to very special circumstances. All the letters translated in this volume were originally found in the so-called Cairo Geniza. Geniza (pronounced gueneeza) is a place where the discarded writings on which the name of God was or might have been written were deposited in order to save them from desecration.
Id. These documents were collected by several scholars and at the present time can be consulted in their original version at the British Museum.
64 See generally Goitein, Mediterranean Society (describing trade conditions, customary terms and practices). See also Agus I at 1–21 (describing northwestern European Jewish trade).
65 Letters of Traders, at 116.
66 Agus I, at 135.
67 Id. at 244.
68 Id. at 206–07.
69 Id. at 80–82.
70 See infra § 5:10 (discussing instances of reliance on the decisory oath in the Responsa); see also Agus I, at 158–59; Agus II, at 440 (comparative evaluation of the oath in the Jewish and Islamic traditions); Pedersen, Des Eid bei den Semiten in Seinem Verhaitnis zu Verwandien Erscheinungen sowie die Stellung des Eider im Islam 95–96 (1914).
71 See Agus I, at 158–59.
72 Horowitz, Jewish Law, at 486–87. But see Nelson, The Idea of Usury, at 3–29 (stating that on some occasions the Bible commands that strangers (Gerim) be treated as brothers).
73 Nelson, The Idea of Usury, at xx–xxv.
74 See infra § 5:12.
75 In England, the Statute of Usury of 1545 under Henry VIII (37 Stat. Henry VIII, c. 9, 1545) established the limit of 10% per annum, above which the loan was deemed usurious.
76 Horowitz, Jewish Law, at 492.
77 Id. at 493.
78 Id.
79 Id.
80 See infra § 12:3(D).
81 Berger, Encyclopedic Dictionary, at 350.
82 Horowitz, Jewish Law, at 517. According to Horowitz, the Shetar Hamokaz, or bearer note, was coined as such during the early medieval times by the Jewish communities in Spain. Id. at 515.
83 Id.
84 See Turnes, Maimonides. See also Joel L. Kraemer, Maimonides: The Life and World of One of Civilization’s Greatest Minds 293–315 (2008).
85 Turnes, Maimonides, at 20.
86 Id. at 23.
87 Teshuvot ha-Rambam, Responses in Arabic (Joshua Blau & Imre Desser trans., 1961) (compiled and translated into Hebrew by Joshua Blau; translated into English by Imre Desser, who taught Hebrew at the University of Arizona in 1975) (on file with author).
88 Id. at 30–31.
89 Id.
90 Id.
91 Id.
92 Id.
93 Id.
94 Id.
95 Id.
96 Id.
97 Id. at 128.
98 Id.
99 Id.
100 Id. at 147–49.
101 Id.
102 Id.
103 Id.
104 Id.
105 Edward O. Wilson, The Social Conquest of Earth 243 (2012).
106 Teshuvot ha-Rambam, supra note 87, at 149.
107 See generally Israel Herbert Levinthal, The Jewish Law of Agency, 13 Jewish Q. Rev. 117, 125 (1922).
108 Id. at 129 (Levinthal distinguishes between the gratuitous agent (Shaliah) and the paid agent or commission agent (Sarsor)).
109 Agency, Encyclopaedia Judaica (2008), available at http://www.jewishvirtuallibrary.org/jsource/judaica/ejud_0002_0001_0_00524.html.
110 See Levinthal, supra note 107, at 133.
111 Id. at 134.
112 Encyclopaedia Judaica, supra note 109.
113 See Levinthal, supra note 107, at 175.
114 Encyclopaedia Judaica, supra note 109.
115 Id. (citations omitted).
116 See generally Adrian R. Bell et al., The English Wool Market, c. 1230–1327 (2007). The authors refer to several seminal studies on the English wool trade. See Eileen Power, The Wool Trade in English Medieval History (1941); T. H. Lloyd, The English Wool Trade in the Middle Ages (1977). I owe to my good friend Professor James E. Byrne of the George Mason University School of Law awareness of and access to these studies. Theodore Plucknett also made a passing reference to these contracts. Theodore F. T. Plucknett, A Concise History of the Common Law 66 (5th ed. 1956) (citing M. M. Postan, Credit in Medieval Trade 1 Econ. Hist. Rev. 234–61 (1928) (“[f]or an interesting indenture of 12 September 1478, for the sale of wool to be delivered by 2 Feb. 1479 [with some advance payments].”).
117 Bell et al., supra note 116, at 1, 8. See also M. M. Postan, Medieval Trade and Finance 342 (1973). Postan is frequently quoted for the statement, “The barons of England, sitting in Parliament, asserted in 1297 that wool represented half of England’s wealth or, as they put it, ‘half the value of the whole land.’ ” Id.
118 Slade v. Morley, (1602) 76 Eng. Rep. 1074 [K.B. 1602]; see E. Allan Farnsworth’s, The Past of Promise: An Historical Introduction to Contract, 69 Col. Law. Rev. 576, 597–98 (1969) (insightful look at the importance of this case).
119 Farnsworth, supra note 118, at 597–98 (citations omitted).
120 Bell et al., supra note 116, at 7; Lloyd, supra note 116, at 10.
121 Bell et al., supra note 116, at 7 (citing Meir Kohn, Risk Instruments in the Medieval and Early Modern Economy (Dept. Econ., Dartmouth College, Working Paper No. 99–07, 1999)).
122 Id. at 7–8.
123 Id. at 14.
124 See supra § 5:7(B)(1), on bills of exchange.
125 Bell et al., supra note 116, at 21. The following record of a transaction exemplified such sales: James of Lissington, a royal clerk … and his wife, Agnes, contracted with the Augustinian priory of Newburgh … for some 123 sacks of wool to be delivered to him in parcels of 10 ¼ sacks at Trinity each year from 1283 to 1294…. James committed himself to payment of £49 a year only upon delivery of the prior’s bargain. Id.
126 Id. at 5 (citing J. Gilchrist, The Church and Economic Activity in the Middle Ages 107 (1969)). See infra chs. 20 & 22 (for a discussion of England as the most advanced commercial credit market in Europe from the seventeenth-to the twentieth-centuries).
127 Sir William Blackstone, II Commentaries on the Laws of England 802–03 (1922) (emphasis added).
128 See Selden Society infra note 134 and accompanying text.
129 Bell et al., supra note 116, at 11–12.
130 See Plucknett, supra note 116, at 147.
131 Id. at 148 (citation omitted).
132 Bell et al., supra note 116, at 12.
133 See XLVI The Publications of the Selden Society: Select Cases Concerning the Law Merchant A.D. 1239–1633, Vol. II Central Courts (Hubert Hall ed., London 1930) [hereinafter Selden Society].
134 Id. at xi (citations omitted).
135 Bell et al., supra note 116, at 15.
136 Id. at 25.
137 Weber, History, at 196. This writing was also his doctoral dissertation under the tutelage of Levin Goldschmidt. See also Weber, Law in Economy and Society.
138 See Weber, History, at 30–31 (Lutz Kaelber’s Introduction).
139 See Barak D. Richman, How Community Institutions Create Economic Advantage: Jewish Diamond Merchants in New York, 31 Law & Soc. Inquiry 383, 392–93 (2006). See also Ersoy Zirhlioglu, The Diamond Industry and the Industry’s Dispute Resolution Mechanisms 30 Ariz. J. Int’l & Comp. L. 477 (2013).
140 Levinthal, supra note 107, at 175.
141 See supra § 5:9(A).
142 Joseph Telushkin, Hillel: If Not Now, When? 203 (2010); see also Hillel, Encyclopædia Britannica, available at http://concise.britannica.com/ebc/article-9367103/Hillel. Hillel is described as a:
Jewish sage, foremost master of biblical commentary and interpreter of Jewish tradition in his time [first century B.C.—first century A.D.]. [B]orn in Babylonia … he went to Palestine in order to continue advanced studies under the … Pharisees…. As head of a school known as the House of Hillel, he succeeded in winning wide acceptance for his approach, which liberated texts and law from slavishly literal and strict interpretation [and sought to make obedience to the Law feasible for all Jews].
Id.
143 PBS, American Experience: America 1900, J.P. Morgan, available at http://www.pbs.org/wgbh/amex/1900/peopleevents/pande10.html. Provided is the following short biographical note of J. P. Morgan:
John Pierpont Morgan (1837–1913) began his career in 1857 as an accountant, and worked for several New York banking firms until he became a partner in Drexel, Morgan and Company in 1871, which was reorganized as J.P. Morgan and Company in 1895. Described as a coldly rational man, Morgan began reorganizing railroads in 1885, becoming a board member and gaining control of large amounts of stock of many of the rail companies he helped restructure. In 1896, Morgan embarked on consolidations in the electric, steel (creating U.S. Steel, the world’s first billion-dollar corporation, in 1901), and agricultural equipment manufacturing industries. By the early 1900s, Morgan was the main force behind the Trusts, controlling virtually all the basic American industries. He then looked to the financial and insurance industries, in which his banking firm also achieved a concentration of control. Morgan was also among the foremost collectors of art and books of his day; his book collection and the building that housed it in New York City are now The Pierpont Morgan Library.
Id.
144 See Agus I, at 80–82.
145 Meinhard v. Salmon, 249 N.Y. 458, 464 (1928).
146 See George Long, Jusjurandum, in A Dictionary of Greek and Roman Antiquities 659–63 (William Smith, ed., 1859) (a brief but nonetheless authoritative account on the jusjurandum procedure before the praetor and iudex), available at http://penelope.uchicago.edu/Thayer/E/Roman/Texts/secondary/SMIGRA*/Jusjurandum.html.
147 However, for an informal type of oath in this stipulation see § 4:4(D).
148 Long, supra note 146, at 663.
149 Id.
150 Id. (citing Justinian Digest 44.5.1, on “deferendo ei jusjurandum”).
151 Id. (“confessionis est nolle nec jurare nec jusjurandum referre”). “In the Edict ([Justinian] Dig[est] 12.2.34 § 6), the praetor says that he will compel the person from whom the oath is demanded to pay or to take the oath.” Id.
152 Id.
153 Id. (citing Justinian Digest 22.3, on “de probationibus et praesumptionibus”).
154 See Professor Pedro A. Malavet, Comparative Law: Class Notes Part 11 (April 2005) (on file with author).
155 Id.
156 C. Civ. (Fr.) arts. 1357–1358 (2008) (translation by author). Unless otherwise indicated, all the English translations of the Code Civil provisions belong to Legifrance (see Frequently Cited).
157 C.C. (Spain) arts. 1235–1236 (1889) (translation by author).
158 C.C. (Italy) art. 2736 (1942).
159 John Henry Merryman, The Civil Law Tradition: an introduction to the legal systems of Western Europe and Latin America 117 (2d ed. 1985).
160 Malavet, supra note 155, at 4 (citing Peter Herzog, Civil Procedure in France 359 (1967)).
161 See supra § 2:1(B)(4).
162 See National Law Center for Inter-American Free Trade (NLCIFT), http://natlaw.com/category/training/ (last accessed Aug. 20, 2013), for information on the international trainings provided in this area.
163 Roscoe Pound, I Jurisprudence 211–13 (The Lawbook Exchange, Ltd. 2000) (1959).
164 Id. at 211–12.
165 Id. at 212.
166 Id.
167 Wolfram Müller-Freienfels, Legal Relations in the Law of Agency: Power of Agency and Commercial Certainty, 13 Am. J. Comp. L. 193 (1964) (I; Historical Development) [hereinafter Müller-Freienfels, Historical Development]; Wolfram Müller-Freienfels, Legal Relations in the Law of Agency: Power of Agency and Commercial Certainty, 13 Am. J. Comp. L. 341 (1964) (IV, The Law Today) [hereinafter Müller-Freienfels, The Law Today].
168 Omar Abel Morales Lurssen, Comparative Study on Agency (2008) (unpublished LL.M. thesis, University of Arizona) (on file with author), available at http://natlaw.com/interam/gu/bk/sp/spgubk00003.pdf (last accessed Aug. 20, 2013)http://www.natlaw.com/interam/gu/bk/sp/spgubk00003.pdf.
169 See W. W. Buckland & Arnold D. McNair, Roman Law & Common Law: A Comparison in Outline 307–08 (rev. 2d ed. 2008).
170 Id. at 308.
171 See supra § 5:11.
172 Morales Lurssen, supra note 168, at 8–9.
173 See supra § 1:2(B).
174 Unpublished Mexican Supreme Court decision (on file with author).
175 Müller-Freienfels, Historical Development, supra note 167, at 194 (citing the Decretal titled “de procuratoribus” (c. 9, VI, 1, 19), of the Bonifatiana Canonic Code).
176 Id. at 195 n.7 and accompanying text (“This idea is stressed very strongly by Hans Würdinger….”).
177 Id. at 195.
178 Id.
179 Id.
180 See infra § 8:2.
181 See infra § 12:3(A).
182 Müller-Freienfels, Historical Development, supra note 167, at 196 (discussing Von Vollmachtsaufträgen (Powers of Mandate)).
183 Id. “As an illustration, the Code Civil (arts. 1984 et seq.) and the Austrian General Civil Code (Arts. 1002 et seq.) still combine power of agency (pouvoir, Vollmacht) and mandate (mandat, Mandat) and do not acknowledge the existence of “representation,” as an autonomous institution.” Id. (emphasis added).
184 Id. Müller-Freienfels notes that Paul Laband had borrowed the concept of abstraction from Karl Einert. Id. at 197 n.21. (He wrote: ‘Ein Handelspapier zu dem Gebrauche bestimmt, den man beim Wechsel beabsichtigt, ist um so vollkommner…. je abstracter es dasteht.’ ”) (Attributed the rights of a holder in due course commercial paper an abstraction or independence from the rights, defenses or equities between the original drafter or maker and the payee of the paper) (translation by author). Müller-Freienfel notes that until the seventeenth and eighteenth centuries the common law did not use the term “agent,” but used instead designations such as: “ ‘attornatus,’ ‘servus,’ ‘servant,’ ‘ballivius,’ ‘camerarius,’ ‘homo,’ ‘senscallus,’ ‘receptor,’ ‘apprenticius,’ ‘abroccarius,’ ” and “procurator.” Id. at 197. Further, “[a]gency did not emerge as a separate concept distinct from master and servant until after Blackstone’s time and not before Livermore and Paley wrote the first American and English books on agency in 1811 and 1812 respectively.” Id.
185 Id. at 197.
186 Id. at 197–98.
187 Id. at 198.
188 Wolfram Müller-Freienfels, Law of Agency, 6 Am. J. Comp. L. 165, 172–73 (1957).
189 See James A. Cohen, Lawyer Role, Agency Law, and the Characterization “Officer of the Court,” 48 Buff. L. Rev. 349, 391–92 (2000).
190 Id. at 392.
191 See Renaissance Florence: A Social History 183–84 (Roger J. Crum & John T. Paoletti eds., 2006) (discussing the role of intermediaries, especially brokers and factors).
192 See Ramon Casadesus-Masanell & Daniel F. Spulber, Trust and Incentives in Agency, 15 S. Cal. Interdisc. L. J. 45, 72 (2005).
193 Pound, supra note 163, at 211–13.
194 See John Edward Davidson, Reconciling the Tension between Employer Liability and Employee Privacy, 8 Geo. Mason U. C.R. L.J. 145, 175 (1998).
195 See Daniel S. Kleinberger, Respondeat Superior Run Amok, 59 Bench & Bar Minn. 16, 16–18 (Nov. 2002).
196 Restatement (Third) of Agency (2006).
197 Restatement (Third) of Agency § 1.01 (emphasis added).
198 See Deborah A. DeMott, Disloyal Agents 58 Ala. L. Rev. 1049, 1051 (2007).
199 Restatement (Third) of Agency § 1.01.
200 See Kenneth M. Lodge et al., A Lender’s Liability for Agent Misdeeds, 33 Santa Clara L. Rev. 811, 820 (1993).
201 Id. at 820–21.
202 See Thomas A. Simpson, A Comment on an Inherently Flawed Concept: Why the Restatement (Third) of Agency Should Not Include the Doctrine of Inherent Agency Power, 57 Ala. L. Rev. 1163, 1171 (2006).
203 See Luke Meier, Using Agency Law to Determine the Boundaries of the Free Speech and Establishment Clauses, 40 Ind. L. Rev. 519, 522–23 (2007).
204 Restatement (Third) of Agency § 2.03.
205 See Lodge et. al, supra note 200, at 825.
206 See Deborah A. DeMott, Breach of Fiduciary Duty: On Justifiable Expectations of Loyalty and their Consequences 48 Ariz. L. Rev. 925, 952 (2006) (“An agent acts with apparent authority when the third party with whom the agent interacts reasonably believes that the agent acts with actual authority on the basis of the manifestation of the principal, which may include placing the agent in a particular position or giving the agent a particular title.”).
207 Restatement (Third) of Agency § 2.01.
208 Morales Lurssen, supra note 168, at 59.
209 See Meier, supra note 203, at 522.
210 See Lodge et al., supra note 200, at 824.
211 See Meier, supra note 203, at 522.
212 See Eric Rasmussen, Agency Law and Contract Formation, 6 Am. L. & Econ. Rev. 369, 372 (2004).
213 Restatement (Third) of Agency § 1.04(2)(a).
214 Simpson, supra note 202, at 1165.
215 Restatement (Third) of Agency § 1.04(2)(b).
216 See Simpson, supra note 202, at 1165; Rasmussen, supra note 212, at 399.
217 See infra § 5:13(D)(1)(d).
218 By legal casuistry is generally meant a formulation of rules that relies heavily on the factual details of litigated cases. For a discussion on causitry in U.S. commercial legislation, see infra ch. 21.
219 For a discussion of the drafting methods of these European codes, see infra chs. 8–12.
220 Restatement (Third) of Agency 1.04(2)(c).
221 See Simpson, supra note 202, at 1165.
222 BGB § 164.
223 German Commercial Code 66 (Martin Peltzer & Elizabeth A. Voight trans., 2003).
224 These translators spell this term as Prokura while Müller-Freienfels spells it as “Procura.” Müller-Freienfels, Historical Development, supra note 167, at 197.
225 See Council Directive 86/653, art. 1, 1986 O.J. (L382) 17 (EC) [hereinafter “European Directive”], available at http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:1986:382:0017:0021:EN:PDF.
226 Morales Lurssen, supra note 168, at 20; see also Restatement (Third) of Agency § 1.01.
227 European Directive, supra note 225, art. 1(2).
228 See Cour de Cassation [Cass.] [supreme court for judicial matters] Dec. 10, 2003, [2005] ECC 34 (Fr.).
229 European Directive, supra note 225, art. 1(2).
230 Morales Lurssen, supra note 168, at 23.
231 See Case C-3/04, Poseidon Chartering BV v. Marianne Zeeschip VOF and Others, 2006 E.C.R. 2505.
232 European Directive, supra note 225, at 382/17. The recital reads:
Whereas the differences in national laws concerning commercial representation substantially affect the conditions of competition and the carrying-on of that activity within the Community and are detrimental both to the protection available to commercial agents vis-à-vis their principals and to the security of commercial transactions; whereas moreover those differences are such as to inhibit substantially the conclusion and operation of commerical representation contracts where principal and commercial agent are established in different Member States…. Id.
233 Morales Lurssen, supra note 168, at 25.
234 See Código de Comercio de Guatemala art. 280 (1970), available at http://guatemala.eregulations.org/media/codigo%20de%20comercio%20decreto%202–70.pdf [hereinafter C. Com. (Guat.)].
235 Id.
236 European Directive, supra note 225, art. 1(2).
237 See C. Com. (Guat.) art. 280.
238 Id. art. 281.
239 Müller-Freienfels, Historical Development, supra note 167, at 211.
240 Id. at 211.
241 Id. at 211–12.
242 Id. at 212.
243 See C. Com. (Guat.) art. 284.
244 Id. art. 286.
245 See Código Civil De Guatemala arts. 1605–1615 (2010), available at http://biblio3.url.edu.gt/Libros/2011/codigo.pdf.
246 A. Gay Jenson Farms Co. v. Cargill, Inc., 309 N.W. 2d 285 (Minn. 1981).
247 Restatement (Second) of Agency § 1(1) (1958).