I first visited Germany in 1958 while a graduate student at the Faculté International de Droit Comparé in Luxembourg. Nazi atrocities, particularly the extermination of my mother’s entire family, including my grandparents, aunts, and their infant children, were very much with me. I expected to find the ashes of a monolithic empire, one whose maniacal leader had promised it would last a thousand years. Instead, I found scattered among surprisingly resurging industrial, commercial and financial centers, many remnants of what had been the dismembered Germany of centuries past, a land described by the Encyclopedia Britannica as “dozens upon dozens of small political units…. gingerbread [-like] principalities….”1 Among what was being reborn, I also found a commercial-legal culture whose seeds had been planted by the ancestors of many of those whom the Nazis exterminated.
Scarcely a century earlier, the petty rulers of these principalities had “legislated at will, levied taxes, concluded alliances, and waged wars against each other….”2 despite being members of the “Holy Roman Empire.”3 Germany had indeed undergone a remarkable economic, political and military transformation between the early years of the Napoleonic empire, during which time it was still “drifting in the backwaters of European politics,”4 and its emergence as a major world power at the end of the nineteenth century.
The focus of this section is the socio-economic and political transformation that preceded the enactment of Germany’s Commercial Code or Handelsgesetzbuch (hereinafter HGB) in 1897 and its Civil Code or Bürgerliches Gesetzbuch (hereinafter BGB) in 1900. As with France’s Code Civil and Code de Commerce, the German civil 378and commercial codes, and especially the former, have enjoyed considerable influence among other civil law jurisdictions in Europe, Africa, Asia and Latin America. It is because of their universal appeal that the student-interpreter should be prepared to go beyond mere textual exegesis. As was hopefully made clear by the preceding chapters on the Code Civil and Code de Commerce,5 the importance of key code provisions can best be understood if one grasps their purpose and the circumstances that surrounded their enactment. Once familiar with their purposes and circumstances, it will be possible, as was also done with the French materials in the preceding chapters, to identify the archetypal and stereotypical contractual behavior encouraged and protected by German contract law.
While militarily and politically the German principalities, including their Holy Roman Emperor, had enjoyed military and administrative support for a considerable time from the Austrian Hapsburg monarchy, especially in keeping their French neighbors at bay, the French influence on Central European institutions was felt, especially following the French Revolution. The revolutionary promises of liberty, equality and fraternity, followed by Napoleon’s initial apparent support for a constitutional state, caused much excitement among German intellectuals, including one Ludwig van Beethoven and his Eroica Symphony.6
The ideological enthusiasm, however, was not shared by the princes of the Holy Roman Empire who regarded the French revolution as a dangerous insubordination of the lower classes. Numerous military encounters ensued between member states of the Holy Roman Empire and the French. They were won mostly by the latter and following one of the French victories in 1800, the Holy Roman Emperor Francis II signed the Treaty of Luneville, which ceded the Rhineland to France. Thereafter, the Holy Roman Empire was effectively dismantled and in 1806, Napoleon put in its place a set of French satellite states known as the “Confederation of the Rhine.”7
By encouraging the creation of satellite confederate states, Napoleon “unwittingly prepared the way for a program of centralization in Germany that helped to frustrate his own plans for the future aggrandizement of France…. [as] Germany for the first time felt the stirrings of liberalism and nationalism.”8 In addition, under Napoleonic rule, Germany had experienced efficient centralized government, greater equality before the law, and freedom of opportunity as local governments gradually removed religious disabilities, relaxed economic restrictions and eliminated feudal obligations. Prussia led the way. Between 1806 and 1813, “the statesmen in Berlin initiated a revolution from above in order to transform a rigid despotism into a popular monarchy 379supported by the loyalty of a free citizenry…. Among their most important achievements was the abolition of serfdom….”9
Czarist Russia’s defeat of Napoleon in 1812 encouraged Central European governments to line up against France; some of them became allies of the advancing Czarist armies, while others, such as Austria, remained on the sidelines hoping to join in once Napoleon seemed closer to defeat. Following Napoleon’s defeat in the battle of Leipzig in 1813, the former members of the Holy Roman Empire gathered in Vienna during the fall of 1814 (“Vienna Congress”) to restore peace to Central Europe and devise Germany’s new form of government.
The resulting form of government for Germany was a middle course between fragmentation and centralization. Accordingly, the Germany that emerged from the Vienna Congress included a confederation of thirty-nine states “ranging in size from the two great powers, Austria and Prussia, through the minor kingdoms Bavaria, Württemberg, Saxony, and Hanover; through smaller duchies such as Baden, Nassau, Oldenburg [and many others]….”10 It was a loose political association in which sovereignty, including executive branch decisions, remained with each member government.
Southern German states, imbued with liberal ideas, set up legislative assemblies comprised of propertied voters whose consent was necessary in order to enact legislation. Prussia and Austria, on the other hand, tried to preserve the legitimacy of their landed aristocracy as the ruling class. Yet, as the economy grew, so did the influence of liberals and moderates who advocated a larger measure of both unification and pluralism. They derived their support from a new bourgeoisie that, unlike its French counterpart, included not only owners of valuable real estate, but also industrialists, merchants, promoters, bankers, mine owners, civil servants and even university professors,11 an increasingly respected class of professionals.
Liberals and moderates favored a monarchical system of government whose power had to be shared, as in the southern states, with a parliament elected by the propertied classes. Unlike the French socialists, however, they “feared the [wild passions of] the proletariat…. [and admired] the juste-milieu between royal absolutism and mob rule, which had been established in England by the Reform Bill of 1832….”12 As a result of the growing economic power of this Central European bourgeoisie, the German confederation enacted a Customs Union (Zollverein) in 1834 that created a common external tariff and eliminated or substantially reduced the tariffs that encumbered the internal commerce of the member states. Most members of the German Confederation were included, except for Austria and the Northwest states. Its impact was significant:
[F]or some 25,000,000 Germans the Zollverein meant … commercial unification without the aid of political unification. The Prussian government, 380moreover, acquired a powerful new weapon in the struggle against Austria for the dominant position in central Germany.13
From an ideological standpoint, the creation of the Zollverein was one of the first affirmations in the European continent of the importance of free trade as a means to foster economic development, in sharp contrast with the reliance on the war booty that stretched back to at least the days of the original (not Holy) Roman Empire.14
It took major social upheavals, a substantial economic recovery, plus the political skills of Chancellor Otto Von Bismarck to accomplish Germany’s political unification. During the late 1840s, Central Europe underwent an economic depression and famine which considerably slowed industrial growth and prompted large unemployment. This led to hunger riots and eventually to uprisings in early 1848 in some of the Confederation states. At the same time, attempts were made at the legislative level to liberalize and unify the government.
The significant economic upturn came during the 1850s. In the course of a decade, the value of industrial production and foreign trade doubled in the Zollverein region. In addition, investment banks started providing risk capital for factories and railroads.15 The nature of Germany’s economy was being transformed from rural and pre-industrial to an industrial one. As wealth shifted from the countryside to the cities, from the landed aristocracy to a commercial and industrial bourgeoisie, “the pressure for a redistribution of political power also gained strength…. By the end of the decade a new struggle between the forces of liberalism and conservatism was in the making.”16
It was at that time that Austrian Emperor Franz Joseph began an experiment with a parliamentary form of government. He promulgated a constitution with a bicameral legislature and an electoral system that recognized the interests of the new bourgeoisie. Similar developments were taking place in Prussia, where King William I was contemplating abdication in favor of his son, who also held liberal views on the role of parliament. Instead of abdicating, he named Otto von Bismarck, the Prussian ambassador to Paris, to a new and all-powerful prime ministry.
Bismarck’s plan to attain German unity while preserving the influence of the crown and its nobility gained the support of the bourgeoisie by enabling it to obtain the economic benefits of political consolidation. Following Prussia’s victory over Austria in the “Seven Weeks War” (from June to August of 1866), Bismarck created a “North German Confederation” whose executive authority was vested in a presidency held in accordance with hereditary rights by the rulers of Prussia. However, this presidency was assisted by a chancellor responsible only to them. As chancellor, Bismarck encouraged a Franco-Prussian war. The southern states of Germany joined the north in this war and days prior to the French defeat on January 18, 1871, King William I was proclaimed emperor of a finally-united Germany.
From 1871 to 1879, the economic freedoms sought by the middle class were consolidated and enlarged as the National Liberal Party controlled the legislature. Freedom of enterprise was implemented by various types of business associations, some with and others without limited liability, and work was started on a commercial code intended for those who qualified as merchants and on a civil code designed to enshrine the principles of freedom of contract, ownership and possession of property. The emancipation of rural property from its feudal shackles was encouraged by the support for municipal autonomy. Thus, in 1873, towns were freed from control of the cantonal parliament (Landrat) and the way was clear for the development of local government in which Germany led the world. On the same liberal side of the ledger, Bismarck lent his support to advanced social security legislation such as a Sickness Pension Law (enacted in 1883), an Accident Pension Law (enacted in 1884) and an old age pension (enacted in 1889) scheme that accompanied these statutes.17
In his insightful history of Germany during the period from 1780 to 1918, Harvard’s history Professor David Blackbourn points to the period of 1849–1880 as an era of true social and economic transformation.18 As noted earlier, the value of industrial production and foreign trade doubled from 1850 to 1860 in the Zollverein area, and this was accompanied by major infusions of risk capital for factories and railroads.19 Very soon, commercial, industrial and financial activities began stimulating each other’s growth. As Germany’s rail system connected more cities, and as the demand for steel and coal increased, the coal fields of the Ruhr Valley raised their production and so did the nascent steel mills. As capital lending and investment for industrial development became more widely available, the chemical industry, followed eventually by the electrical industry, sprang into action.20
While this process of industrialization was going on at the top of the industrial and commercial pyramid, a similarly important one was taking place, although on a smaller scale, at the bottom of the commercial-industrial pyramid. As noted by Fernand Braudel and discussed in earlier chapters, the guild system was replaced by verlegers or commercial intermediaries who “put out” or commissioned work to individual or family workers. According to Blackbourn,21 while the number of verlegers and workers involved in the putting out system increased, the number of artisans who worked as guild members decreased:
The numbers [were] striking. Those engaged in putting-out [increased] from 1 to 1.5 million between 1800 and 1850, when they made up almost 40 per cent of the total manufacturing workforce. Some were rural outworkers, but other[s] included journeyman tailors and struggling small masters forced (like the seamstresses) into a despised piece work, and craftsmen in trades like furniture and bottle making who worked to contract under the direction of merchant capitalists…. A good half of all masters worked alone, more in overstocked branches like tailoring, carpentry and shoemaking. They lived on the margins of subsistence. In the 1840s, a meager 400 out of 2800 shoemakers in Berlin earned enough to pay any trade tax; in Elberfeld-Barmen only half of 1100 shoemakers were employed at a given time. The increase of more than a quarter of a million in the number of masters between 1800 and 1850 show[ed] that journeymen could and did set up on their own account, especially in trades that required little initial capital.22
In contrast with the low esteem accorded to merchants generally in Southern Europe, the Cambridge History characterizes merchants in seventeenth and eighteenth-century Italy, Germany and Holland as well-regarded and influential.23 Professor Blackbourn’s description of German cities after 1850 adds interesting features about the status of merchants as members of the emerging lower-middle class:
Its most important component consisted of those who ran small, independent concerns—master craftsmen, small businessmen … [and] shopkeepers. Together they accounted for perhaps 8 per cent of the gainfully employed in the early 1870s. The most important growth came among the shopkeepers, as itinerant traders and hawkers gave way to fixed retail outlets. Of course, there had long been shopkeepers in large mercantile centres, trading imported commodities like tobacco and coffee, but changing popular consumption now established the retailer as a familiar urban figure. Even as population rose, the ratio of customers to traders fell from 83:1 to 54:1 383between 1861 and 1882. By the latter date there were some 450,000 German shopkeepers.24
The growth among shopkeepers was largely the result of what Professor David Sorkin refers to as the “multifaceted transformation which German Jews underwent … (circa 1780–1870).”25 Sorkin further notes that, “Whereas for centuries the Jews had earned their livelihood primarily from usury, they now gradually shifted to commerce.”26
Of the 272 heads of Jewish households in Frankfurt in 1694, for example, 163 were engaged in retailing, especially textiles, while only 109 still lent money and dealt in old clothes. The last complaints about Jews engaged in usury were heard in the Duchy of Kleve in northwest Germany in 1737.27
Thus, the Jews, after being forced to earn a living by lending money at interest gradually found themselves engaged in retail and wholesale commerce. As was discussed in Chapter 5, money-lending was an activity prohibited to Christians based on a Biblical prohibition that was interpreted by Christian theologians as preventing Christians from charging interest to their Christian brethren. As Jews were allowed to participate in activities other than money lending, they increased their earnings considerably. If in 1750 nearly fifty percent of the German Jews were only marginally employed or were destitute beggars, in little over a century the tax records revealed that fully eighty percent of the Jewish community was engaged in commerce and sixty percent was in Germany’s “upper income brackets.”28
Meanwhile, commercial credit at approved interest rates was becoming available throughout Germany. An authoritative study on the history of interest rates found that that the so-called “five percent” or “triple” contracts in which the active partner promised his silent partner a five percent return on his investment in the partnership were common in sixteenth-century Germany and were unofficially approved in 1567 by Pope Pius V.29 The Reformation was more openly accepting of the charge of interest as long as it did not exceed a prescribed or marketplace rate:
Martin Luther, 1483–1536, declared that a Christian was under no obligation to observe dead Mosaic ordinances [forbidding the charge of interest to religious brethren]. At first, however, he opposed the census [a secured land loan] and the wealthy rentier class as even worse than manifest usurers…. [Subsequently] Luther’s position seemed to change. It was not, he said, complicity in sin to pay usury. The common man must obey the temporal authorities…. Reform must come from the princes and not from the people. The Christian man was free to lend his money. Considerations of public utility should regulate loans at interest. Those who take 5–6% should not be 384treated as extortioners. Even 8% was permissible as long as it was from redeemable security on land.30
Consequently, unlike the concern for usury that prevailed in pre-codification France and Spain, commercial and consumer credit did not evoke fear of prosecution in pre-codification Germany. Not surprisingly, toward the end of the eighteenth century it was neither illegal nor immoral in Germany and Italy to pay interest on periodic payments such as contracts of annuities that fluctuated between four and five percent per annum.31
Finally, the availability of credit to small merchants received a considerable boost from credit unions (also referred to as cooperatives) as sources of non-usurious commercial loans. While financial cooperatives date back to the beginning of the nineteenth century in England,32 by the middle of that century “Germany was the first home of credit unions as we know them today….”33 These unions were volunteer-based, with boards of directors elected by their members. Their founders in 1850 were Hermann Schulze-Delitzsch and Friedrich Raiffeisen. The first credit unions were known as “peoples’ banks” (Vorschussverein) and their main goal was to build “a credit society to help shopkeepers and urban workers find relief from loan sharks.”34 Accordingly, they would provide production and marketing credit not only to city merchants, but also to farmers who needed credit for their acquisitions of livestock, equipment and seeds, among other goods.35 Very quickly, cooperative credit became available to tradesmen throughout Germany.36 By 1859, there were 183 such credit unions with 18,000 members just in Posen and Saxony.37
The expansion of commercial and consumer credit in nineteenth-century Germany was supported by different types of loan agreements and collateral. The use of some of these agreements and new types of collateral was described by the Cambridge History as follows:
Merchants from the town or country regularly bought up agricultural produce from the farmers before it had been harvested against partial or complete cash payment; the rural population was paid cash for linen or cloth that was to be woven later during the winter months. Where the putting-out system occurred in the towns, similar practices were common. Thus farmers and 385workers received credit guaranteed by their future harvest[s] or future labour output: sometimes merchants supplied the materials and implements themselves….38
A popular form of commercial credit among eighteenth-century shopkeepers and their suppliers relied on the “book entry” method described by Professor Kessler in a previous chapter.39 In addition, established merchants assigned their accounts receivable to their lenders: “If A was in debt to B and was owed money by a third person C, A could ask C to pay the outstanding balance to creditor B for A’s account….”40
Please notice that in this assignment of an account or debt, B, A’s creditor, could be subject to the same objections or defenses to payment that C had against A, such as the poor quality of A’s goods or services. In other words, in the assignment of debts or accounts, if C could raise a valid defense against paying A, he could equally do so against B. This uncertainty had to be eliminated or significantly reduced if the assignment of debts were to be sold “commercially” to third-party financiers or investors, for they would be unwilling to become involved in the disputes between the suppliers of goods or services and their purchasers. In countries whose legal system and commercial culture were not haunted by the fear of prosecution for usury, promissory notes and bills of exchange properly used provided a helpful means of assurance to these third parties.
Promissory notes, almost since times immemorial, have been two party instruments.41 Their maker promises to pay to their payee or holder a sum of money at a specified time. In contrast, a bill of exchange is a three party instrument in which the drawer orders the drawee to accept his order of payment and either pay a third party payee or accept to pay at a future time to the same payee or to his endorsees. This payment can take place upon presentation of the bill (thus paying it “at sight”) or it can take place at a future time after the drawee has accepted to do so in the bill’s acceptor’s column. Both instruments are either assignable or negotiable.42
If they are assignable, only the person designated as assignee can collect on them, and such a person does not enjoy rights superior to those of their payee-assignor. If, for example, the payee-assignor owes money to the maker of the note, the latter can invoke this debt as a defense against claims by either the payee-assignor or his assignee. In contrast, if the promissory note was made out to the payee or to the order of the payee, the latter could endorse it to an “innocent” third party, i.e., a party who in good faith acquired the note for value and was unaware of the maker’s claims against the payee. 386Such an indorsee-holder will not be subject to the defenses that the maker had against the payee-assignor, including an offset by the maker’s claim against the payee-assignor. The same legal consequences of the transfer and negotiation apply to the bill of exchange.43
As noted in Chapter 5, a variant of the bill of exchange was used in the Middle East and Europe during the middle ages. The southern European and especially the Italian version known as the Lettera di Cambio was used to purchase foreign exchange at a place other than that of the payee-holder’s place of business. For example, if a merchant “M” in Genoa, Italy needed foreign exchange to purchase lace while in Bruges, Belgium, M would ask banker “B” located in Genoa to send a written instruction to his correspondent “C” in Bruges directing him to supply the local currency needed by M to pay for his purchases of lace.
Prior to B’s issuance of his bill of exchange to C, M would pay an amount of Genoese currency needed to buy the lace in Bruges plus an exchange commission or fee (not interest) to B. This payment would be referenced in the bills of exchange by their drawer as the “value clause” and its most common version was that of the “value received” from the buyer of the exchange. The reason why B would charge a fee or commission and not interest was to avoid the characterization of the ostensible purchase of foreign exchange transaction as a usurious loan.44
Accordingly, recall that the bill of exchange was quite commonly used to disguise a loan that the church could deem usurious. The disguise or simulation would have M (the actual borrower from B) appear as the buyer of C’s foreign exchange to be delivered to him in Bruges. M would then pretend to provide local funds to B which he would notify C were either deposited with him and credited to C’s account or he would ask C to debit B’s foreign exchange account with C. In fact, however, M’s deposit or delivery of local funds to B would not take place until the time when he repaid B’s loan and the added commission or exchange fee would in fact mask the payment of interest for B’s loan.
Henry Diedrich Jencken (1828–1881) was a London barrister who authored some of the nineteenth century’s clearest and most succinct comparative analyses on the differences between, on the one hand, the German and English laws and practices on bills of exchange and promissory notes, and, on the other, the laws and practices of France and France-inspired jurisdictions on the same instruments. His analysis also included important legal and economic consequences of these differences.45
The French system, which Jencken described as “all but universally adopted by the Latin races”,46 based the enforceability of the bill of exchange on the above-described contract of exchange (Contrat de Change). This contract was perfected by the delivery of the bill of exchange to its payee-holder in exchange for a certain amount of local currency in payment for the delivery of foreign currency at a designated place and time. Accordingly, Jean Marie Pardessus, a leading commentator of the French Code de Commerce of 1807, characterized the bill of exchange (Lettre de Change) simply as: “[A] contract, by virtue of which one of the parties … agrees to pay to the other at a given place a certain sum of money he has received at the former place.”47
Please notice the above characterizations of the bill of exchange as a contract, as contrasted with its present day characterization as a promise of payment which, when in the hands of a holder in due course or in good faith, is independent of the underlying transactions that prompted its issuance.48 In addition, unlike Robert Pothier’s “pollicitation” and the Code Civil’s contractual promise, this promise of payment is enforceable from the moment it is issued and does not require its acceptance by the promisee or payee to be binding on the promisor.49
Despite his characterization of the bill of exchange as a special contract of exchange, Pothier was aware of the widely used “pay to the order of” endorsement clauses that enabled the payee (one of the parties of the assumed contract) to endorse the bill to third parties who were not parties to the original contract of exchange. In fact, the “pay to the order of” clause which in principle enabled an unlimited number of endorsements was, according to Pothier, “one of the essential characteristics of the Bill of Exchange.”50 Still, Pothier’s view of the special contract of exchange characterized its execution as one in which: “A Bill of Exchange coupled with an endorsement, and perfected by delivery, constitutes the mode of fulfilment [sic] of the original contract between the parties.”51 In other words, once the bill of exchange was delivered to its payee, the contract of exchange was deemed executed and whatever rights were transferred to third parties were the result of an assignment of the rights that had been acquired by the original payee, but subject to the terms and conditions of the original underlying contract of exchange (Cession de Creance).
As also noted by Jencken, the above characterization of the bill of exchange did not differ from the medieval practice of purchasing and selling (Emptio Venditio) of foreign exchange by means of an instrument known as Lettera di Cambio or plain Cambiale.52 388The parties to the French contract of exchange were the same as those of the Italian medieval version of the Cambiale. Most importantly, the legal basis for the payee-holder or his assignee’s claim against the drawee was the assignment (not the negotiation) of the drawer’s monetary claim against the drawee for the deposited funds and this assignment was the above referred transfer of the debt or of the account (Cession de Creance).
Clearly, this characterization impeded the negotiability of the bill of exchange because its assignee (even if named an endorsee of the bill) had the same (and no better) rights to the funds deposited with the drawee as the drawer. If the drawer could not claim these funds because of underlying transaction causes, neither could the payee-endorsee. Indeed, it was precisely to insure the drawee’s ability to pay according to the instruction by the drawer that the Code de Commerce required the drawer to provide the drawee with payment funds in advance of the claim by the payee, his assignee or endorsee and to so signify it in the bill of exchange by means of the above-mentioned “value clause.”53
In addition, and as the reader will recall from the discussion of the “Red Ink” case in Chapter 9,54 the reason why the “courtesan” (as Napoleon referred to her) had inserted the distantia loci clause in her bill of exchange was to prevent its nullity as a face-to-face or inter praesentes usurious loan. Further, since its raison d’etre as a Contrat de Change was to make foreign exchange available to the payee-holder that was unavailable where the bill of exchange was issued, the bill had to refer to the presumably distant place where the exchange was available for payment (distantia loci) or to indicate that it had been forwarded for payment from one place to another (remise d’un lieu sur un autre).55
Similarly, because the original version of the Code de Commerce was vague on the consequences of endorsements and forbad blank endorsements in which the payee-endorser was only required to stamp his signature without mentioning the name of the endorsee, uncertainty prevailed with respect to the rights of these third parties.56
Yet, what if the parties to the bill of exchange did not really desire to purchase and sell foreign currency and even less to do it at a distance from each other? What if what they wanted was for one party to borrow money from the other and to have a third party drawee disburse the money either upon presentation of the bill of exchange or at a time after presentment? This was the situation with the promissory notes issued by several European governments since the eighteenth century in the form of bonds or debentures and whose purpose was to finance, among other endeavors, their increasingly costly wars. Yet, while it made sense for these governments and their bankers to strengthen their assurance of repayment by identifying the governmental revenues that would repay the bonds and promising to set them aside at a time prior to repayment, it made no economic sense to, in effect, prepay their bonds at the time of their issuance as was required by the value clauses of the Contrat de Change.
In addition, since the identity of the buyers of these bonds in the primary or secondary markets was frequently unknown at the time the bonds were issued, the bankers selected by the various governments as their intermediaries had to be able to endorse and negotiate the bonds to other entities in the primary market or to the individual holders in the secondary market. This could be accomplished by “nominative,” “pay to the order of” endorsement clauses; however, at times it was also necessary to enable the intermediary banks to endorse the bonds in blank to their purchasers or creditors or to make the bonds payable to “bearer.”
Before we discuss the negotiability of German promissory notes and bills of exchange, it is important to understand what makes their promises of payments certain and liquid or money-like. As I stated elsewhere,57 the promises of payment issued by private parties can differ sharply from paper money or official currency or they can approximate it. Where they approximate paper money, it is because their holder is able to convert these private promises of payment into paper money or official currency quickly and inexpensively.
The ability to monetize private promises requires that their holder be protected as much as possible against claims, defenses or equities raised by the parties to the transaction or transactions that prompted the issuance of the promise. Bear in mind the analogy with the “legal tender” of paper money or currency: The ability of paper money or currency to serve as final payment for private debts would be compromised if such a payment were conditioned upon underlying considerations such as whether their volume of issuance was excessive, or whether the issuing government had adhered to certain fiscal or credit policies.58 Further, in commercial practice, the objections to being paid with government money must be very few and confined to instances of clearly illegal conduct by the holder or his predecessors such as their forgery, alteration or their use despite an earlier withdrawal from circulation. These objections are incidentally echoed in the short list of “real” defenses that can be raised against negotiable instruments in the hands of holders in due course or in good faith.59
In sum, conditionality, whether imposed by statute or by contractual stipulation, introduces crippling uncertainty of payment. It is precisely for this reason that the promises of negotiable instruments are widely, if not universally, defined as unconditional promises to pay sums certain.60 As was just discussed, this was not the case with the promises that resulted from the assignment of the claims of the Code de Commerce of 1807.
The promises of payment that were first incorporated into promissory notes and bills of exchange in Germany during the seventeenth and eighteenth centuries were, as their French counterparts, conditioned upon stipulations in the contract of exchange and thus were only assignable and not truly negotiable: They conveyed no better rights to their holder than those of their assignor. Consequently, Jencken assessed the status of German negotiable instruments law during the first decades of the nineteenth century as:
Tardily introduced, reluctantly adopted, the important juridical questions involved in the creation of a negotiable instrument were not even thought at that time. It was not until the close of the 18th century that [German] jurists turned their attention to the important question of the true juridical character of negotiable instruments.61
In retrospect, the tardy introduction and reluctant adoption of bills of exchange and promissory notes as means of payment could well have been a blessing in disguise. For it was only in 1839 that Dr. Karl Einert, a law professor and commercial court judge, provided the proper direction for Germany’s (and many other nations’) negotiable instruments law in his monograph, “The Law of Bills of Exchange and the Everyday Needs of the Bill of Exchange Business in the Nineteenth Century.”62 In it, he attacked the theory of the Code de Commerce that bills of exchange were part of the contract of exchange. As summarized by Jencken, Einert’s main points were:
[A] Bill of Exchange … and a Promissory Note … partake of the same characteristics, and are, juridically speaking, identical…. [t]he only difference between the two instruments consists in this, that the maker or drawer of a Bill of Exchange guarantees not only the payment, but also the acceptance, whilst the maker of a Promissory Note guarantees only payment…. A Bill of Exchange … in its nature [is] only an acknowledgment of a debt, a promise to pay, rendered, however, negotiable by adding the word[s] [to the] “order” [of]…. [Thus the] Bill of Exchange to order partakes of the character of a Bill to Bearer…. The usage of bankers of in blanco drawings, that is, the issues of drafts [by the drawers] without funds in the drawee’s hands, points to the creation of paper money, analogous to bank-notes, only with … [the] difference that the acceptor is the surety who guarantees payment.63
The support for Dr. Einert’s viewpoint did not come from Roman law or from the German Pandektenrecht. It came from the usages of bankers and especially from those of Europe’s largest banks. As summarized by Jencken:
[I]n support of his theory, [Dr. Einert] point[ed] to the wide-spread custom of creating a circulating medium by drawings in blank, that is without having funds in the hands of the drawee; a custom resorted to by the great banking firms of Europe to an enormous extent.64
Einert’s theory was at first vehemently attacked by his Pandektist colleagues, but gradually it prevailed and was adopted by most delegates to the National Assembly of the Confederate States of Germany on May 1, 1849.65 His theory was thus responsible for the first European rejection of the Code de Commerce’s contract-of-exchange approach.66
By adopting Dr. Einert’s recommendations, Germany’s negotiable instruments law acquired the same “essential characteristics” as English law. Their similarities were summarized by Jencken as: Bills of Exchange in both countries functioned as negotiable and not merely assignable instruments.67 Bills of Exchange could be drafted in any manner consistent with their liquid or quasi-monetary nature, although they had to bear the label “Bill of Exchange” on their face.68 They could be endorsed in blank as well as in a nominative fashion (by naming the endorsee) or they could be endorsed “to the order of” any future endorsee.69 Drawers as well as previous endorsers were deemed co-principal debtors, but, I would add, only for the amount and terms stated in the instrument. The value clause required by the Code de Commerce did not have to be stated. And, importantly, the only defenses allowed against a holder in due course or in good faith were: fraud, forgery, alteration of the debt or “the sum payable after the drawing of a Bill….”70 The equities or “personal” defenses between the “immediate” parties such as the plaintiff and the defendant in the summary action on negotiable instruments were allowed. Yet, as just noted, neither these equities nor the personal defenses were allowed against third parties, holding in due course or in good faith.71
These common statutory and practice features made it possible for Germany, England and other similarly inclined governments to issue bonds for purposes as far apart as the financing of public works or the fighting of local and foreign wars. It also became possible for these governments to create primary and secondary regional and international financial markets governed by the same type of law. The changes in the law and practice of negotiable instruments inspired by Dr. Einert’s writings remains a dramatic illustration of how law making at the transactional or micro level can make possible major national, regional and international macro-economic developments.
Commercial credit and access to investment capital became major engines of Germany’s commercial and industrial growth during the middle of the nineteenth century. At the same time, following the German-French war, Germany emerged as an important financial center for what Braudel referred to as “high commerce” as well as for large industries and railroads.72 After a careful evaluation of the development of 392Germany’s financial markets in the second half of the nineteenth century, economic historians Julia Bersch and Graciela Kaminsky concluded that the “[F]loatation of domestic securities clearly dominated aggregate issuances, quantitatively and qualitatively, and was closely linked to German economic activity.”73 The rise of German economic activity following its creation of vibrant financial markets was apparent in these scholars’ comparison with that of Great Britain from 1880 to 1910. This is dramatically illustrated by statistics on the growth of the gross domestic product (GDP) of both countries during that period.
Economic Activity in Germany and the UK GDP Growth Rates74
These statistics attest to the enabling power of a cross-border uniform negotiable instruments law based upon sound legal and market sensitive business principles. The time had arrived when English, German and other European and North American private parties were issuing significant numbers of what economists nowadays refer to as quasi or near money, i.e., privately created assets including liquid promises of payment capable of being converted to cash quickly and inexpensively. These promises have become part of our daily lives and their significance increases (for good and bad) with each passing day as dramatically illustrated by the present world-wide financial crisis.
Prussia, among other German states, abolished serfdom in 1807.75 According to Professor Blackbourn:
[P]easant emancipation … provided the legal and institutional underpinning of rural production and social relations [for much of Germany]…. [While certain feudal rights remained], nowhere did reform “give” peasants the land they worked: it had to be paid for, or “redeemed.” The ways in which this was arranged varied by region….
The amount of land under … [the plow] grew at an unprecedented rate in the first half of the nineteenth century: by at least 50 per cent [sic] in Germany as a whole, as much as threefold in parts of eastern Prussia…. The big estates of the east were increasingly commercial concerns, run by estate managers.76
By the seventeenth century, certain standards of commercial-agricultural behavior were discernible in Germany’s agricultural and cattle markets. The Cambridge History describes the prevailing standard in cattle trading as follows:
The cattle market at Wedel, outside Hamburg, was an example of a rural trading-place which blossomed and flourished twice a year in conjunction 393with the cattle drives from north to south…. Over all loomed Roland, the emblem of the market court of justice, beneath which the court assembled for adjudication…. A bargain was concluded when buyer and seller had noted its outcome on their slates. If it concerned a small number of cattle, settlement was effected in cash. Settlement for large lots, on the other hand, would be made via a German factor, who would be reimbursed by the purchaser in ready cash or drafts…. Good faith was the rule in the transactions themselves.77
The commercialization of agricultural property was evident throughout Germany, and unlike in pre-revolutionary and Napoleonic France, no stigma was attached to it even though it resulted in winners and losers, and the losers (as sellers of land) were not protected by the Napoleonic remedy of lesion (laesio enormis). Consider the following description of the effects of commercial diversification of land production by Professor Blackbourn:
Commercialization … reinforced class stratification … and eventually led to severe social crisis. This was true to some degree right across Germany, [as] a result of the fact that land was now more obviously a commodity. It was not only that, of course. Agriculture was the axis on which village work and recreation turned…. Rising land prices (except for a downturn in the 1820s) encouraged a lively market in rural property…. The notary became a more frequent village visitor and rural taverns did well out of “sales-tippling” as the landowning peasantry now pursued its family marriage strategies with Balzacian relish.78
In fact, if the historians at the Polish mortgage bank, Bank Hipoteczny SA, are correct, Germany may well have led Europe, if not the world, in the marketing of mortgage bonds to rebuild agriculture in the Silesian region (Schlesische Landschaft) following the seventeenth-century Seven Year War, and then applied the same methods of financing to residential construction.79
Having in mind that for much of Europe’s commercial life, going back to its Roman law period, land was the most valuable family asset, what would be the likely consequences of Germany’s commercialization of land and agriculture for purposes of codification? Would such land transactions (including their yields) belong with the civil or the commercial code?
From the preceding description of the various transactions involving land and its produce in Germany, was there an archetypal figure in German land-contract law equivalent to the French bourgeois? If a family’s welfare during agricultural survival times depended on what the land produced, would it not have made sense for the law to make the transfer or conveyance of land very difficult, so as to preserve it within the family estate for as long as possible? What made the transformation of land for survival to land for commercial growth possible in Germany?
In an earlier chapter, I noted that to facilitate its marketability, the BGB did not deem the German territorial debt (Grundschuld) an accessory obligation to the principal loan. In other words, the territorial debt was enforceable regardless of whether the security interest attached before the loan was disbursed.80 This meant that the Grundschuld mortgage bonds could be sold despite the fact that their loans had not been dispersed when the mortgage bond was issued. In the Grundschuld transaction, then, the loan would occur when the purchaser of the bond paid for it, thereby becoming the issuer’s lender. Accordingly, Section 1195 of the BGB states:
A land charge [Grunschuld] may be constituted in such [a] manner that the certificate of the land charge is made out to the bearer. The provisions concerning payable to bearer [instruments] are applicable to such a certificate mutatis mutandis.81
A clear difference between the real estate mortgage documentation in the United States and Latin American jurisdictions is the execution by a United States borrower-mortgagor of a promissory note that accompanies, physically and legally, the mortgage deed as it is negotiated to a third party, such as a public or private discount or negotiation bank. In Latin American mortgage practice, there is no “merger” between the mortgage deed and the promissory note or other instrument signed by the mortgagor. In other words, in Latin America, the mortgage deed is not a “negotiable” document as it is in the United States. Yet, according to the Bank Hipoteczny SA study,82 mortgage bonds could be sold as negotiable documents in Germany going as far back as the seventeenth century. Moreover, the BGB enables the land charge to become a bearer instrument. What do you think engendered this difference? Could Pothier’s classification of the mortgage deed or contract as an “accessory” contract to the (principal) loan agreement, as reflected in the above quoted Article 2114 of the Code Civil, have anything to do with this inability to negotiate the mortgage?
With the widespread availability of credit and the growth of commerce and industry in every sector of Germany’s economy, it experienced a need for new professionals. This need resulted in an upward social mobility among what Professor Blackbourn referred to as “the new lower middle class of white-collar employees … [or support staff for merchants large and small]: clerks, cashiers, prokurists, book-keepers and overseers…. In the private sector alone, they numbered 400,000 by the beginning of the 1880’s, or 3.4 per cent of the labour force.”83
While the Anglo-American reader should be familiar with Professor Blackbourn’s enumeration of the above employees and staff members, he is not likely to be familiar with the Prokurist, whose legal nature and functions were explored in Chapter 5 and are summarized by Sections 48–5084 of the German HGB of 1897:
§ 48. (Conferring of signing power)
(1) Signing power (Prokura) may be granted only by the proprietor of the commercial establishment or by his legal representative and only by means of an express declaration.
§ 49. (Extent of signing power)
(1) The signing power authorizes juridical and extra-juridical acts and legal transactions, of all kinds, which are involved in the conduct of a commercial enterprise.
(2) An authorized signatory (Prokurist) is empowered to dispose of and encumber real property only if this authority is specially granted to him.
§ 50. (Limitation of signing power)
(1) A limitation in the scope of the signing power is ineffective as against third parties.
The protection that Section 50 so firmly grants to the third parties who deal with the Prokurist is one of the features that more sharply distinguishes agency in German and German-inspired codes from Code-Civil-influenced jurisdictions. This distinction became evident in the contrast between the laws of agency in the United States and in Latin America as discussed in Chapter 5.85 Unless a corporate agent—no matter how important his position in the operations of the corporation or other form of enterprise—is properly empowered to act in the name of the enterprise when entering into contracts, his signature will not bind the enterprise. Recall the Moctezuma Brewery case in which the president of the brewery successfully avoided the brewery’s liability in a large contract for the purchase of hops by proving that his power of attorney did not include the authority to purchase raw materials for the manufacture of beer—that power was conferred expressly only upon a lowly purchase manager.
Given the lack of trust suffered by agents with apparent authority to act on behalf of their principals in familistic legal cultures (to the point that only family members or close friends can be trusted by third parties as binding agents), the Prokura should be seriously considered by these developing nations as a helpful, trust-inducing institution. Consider, for example, the following provisions of the Commercial Code of Estonia (1996):86
§ 16. Definition of procuration [Prokura]
(1) Procuration is an authorisation which grants the representative of the undertaking (procurator) the right to represent the undertaking in all legal acts related to economic activities.
(2) The procurator may transfer or encumber an immovable of the undertaking only if the undertaking grants this right to him or her in the procuration, and this is noted in the commercial register.
(3) If the undertaking restricts a procuration, the restriction shall not apply with regard to third persons, except the restrictions provided for in this Act.
(4) The provisions concerning representation in the General Part of the Civil Code Act apply to procuration unless otherwise provided for in this Code.
When Fernand Braudel talked about “high commerce” in post-Renaissance Europe, he meant one that involved mostly wholesale transactions and was centered in warehouses or staples and commodity exchanges.87 This was a form of commerce that required specialized trading skills and international networking, but also risky negotiation such as on “futures” and other standardized contracts.
Braudel’s high commerce seemed to rely on standardized contracts whenever possible. Two standardized contracts during the sixteenth and seventeenth centuries involved the sale and financing of spices imported by Europe from Asia, the so called “Europe” and “Asia” contracts.88 Their supply depended upon a Portuguese import monopoly. Pursuant to a “Europe contract,” a firm or group of firms committed to “accept imports from the East for one or two years at an agreed price and to undertake the marketing of the goods on its own account.”89 The “Asia contract” was a “financing agreement binding the contractors to deliver eastern spices to the Casa da India in Lisbon at fixed prices and on their own account.”90 Control over the European pepper market was held for a while during the sixteenth century by the German brothers Philipp Edouard and Octavian Fugger, who became widely known as bankers to the Spanish kings:
The Spanish treasury, whose shortage of cash was chronic to the point of its frequently being on the verge of bankruptcy, insisted upon settling the sums due to the Fuggers under the Asia contract with an advance against a Europe contract, adding for good measure a threat to confiscate the Fuggers’ funds in Spain-Portugal.91
The above-described contracts illustrate the close connection between “high commerce” and international banking with governments as their principal clients. In their inevitable search for valuable and liquid collateral, international lenders such as the Fugger brothers had to rely on commodities such as pepper, or on metals such as the silver mined by Spain in the Americas. It is no surprise then that following the defeat of Phillip II’s “Invincible Navy” (La Armada Invencible), disenchanted Spaniards complained that the true beneficiaries of the colonization of the Americas were not the conquistadores, but the Fuggers.
In due course, the collateral relied upon by German private lenders of governments went beyond the governmental receipts from import monopolies and included an open variety of reliable governmental or quasi-governmental revenues. This was a significant part of the banking business pioneered during the late eighteenth century and early nineteenth century by the House of Rothschild, an 397institution that emerged from highly unlikely circumstances to become one of the most successful international commercial and banking businesses ever.
Those who practiced high-volume international commerce and banking in post-Renaissance Europe belonged to what Braudel and the Cambridge History characterize as a “commercial aristocracy.”92 The Cambridge History states that:
With the family as the principal unit of enterprise, family ties—especially when reinforced by religion—sometimes sufficed to sustain [this] trade over long distances. This was so, as Professor Kellenbenz has demonstrated on the basis of genealogical material, with the seafaring Jews between the Iberian peninsula and Hamburg, and between Spain and the Levant.93
The reader will recall an earlier discussion of the long distance trade referred to in the above quote by medieval Mediterranean Jewish and Muslim merchants.94 Yet, that trade was small in scale and was not accompanied by the financial services provided by international banks. The commercial and banking activities about to be described were not only of a very large scale, but also involved a form of collateral no longer confined to commercial goods or agricultural commodities—governmental revenues. Accordingly, governments acted as borrowers and issuers of promises to pay (as promissory notes or bonds), which promises were incorporated into the gradually standardized text of negotiable instruments.
In his rightly acclaimed biography, The House of Rothschild, Oxford’s and now Harvard’s Niall Ferguson described its business as follows:
At its zenith from the 1820s until the 1860s, this group had five distinct establishments. In addition to Nathan’s in London, there was the original firm of M.A. Rothschild & Söhne in Frankfurt … de Rothschild Freres in Paris … C.M. von Rothschild in Naples … and S.M. von Rothschild in Vienna…. they were, to all intents and purposes, the component parts of a multinational bank…. Unlike modern multinationals, however, this was always a family firm….
Perhaps the most important point to grasp about this multinational partnership is that, for most of the century between 1815 and 1914, it was easily the biggest bank in the world.95
The House was founded by Mayer Amschel Rotschild during the last two decades of the eighteenth century. Rothschild started out as a modest coin dealer doing business and living in Frankfurt’s Jewish streets or ghettos (Judengasse) where his ancestors had resided at least since the sixteenth century.
In an earlier section, I used the term “unlikely” when referring to the place of origin of this banking colossus. One need only glance at the pictures of the house and street where Mayer Amschel and his sons were born and read the documents that framed their status as ghetto residents to be amazed at how such a business could have emerged from such humiliating and oppressive circumstances.96 First was the “The Jews’ Sow” (Judensau), an obscene graffito that greeted eighteenth-century pedestrians approaching the Frankfurt ghetto. It depicted:
[A] group of Jews abasing themselves before—or rather beneath and behind—a fierce sow. While one of them suckled at her teats, another (in rabbinical garb) help up her tail for the third (also a rabbi) to drink her excrement…. If the traveller looked up, he could also see a second and still more repellent image: that of a dead baby, its outstretched body punctured by countless small knife wounds and beneath it nine daggers. “On Maundy Thursday in the year 1475,” read a caption, “the little child Simeon, aged 2, was killed by the Jews” ….97
Second was the city statute that governed the conduct of ghetto inhabitants, to be read each year as a reminder to members of the main ghetto synagogue. Among the terms that remained in force until the end of the eighteenth century were:
[T]he Jewish population was restricted to just 500 families; the number of weddings was rationed to just twelve a year…. No more than two Jews from the outside were allowed to settle in the ghetto each year. Jews were prohibited from farming, or from dealing in weapons, spices, wine and grain. They were forbidden to live outside the Judengasse and, until 1726, were obliged to wear distinctive insignia … at all times. They were confined to the ghetto every night, on Sundays and during Christian festivals; at other times, they were forbidden to walk in the town more than two abreast…. [and] barred from entering parks, inns, coffee houses and the promenades…. They were permitted to visit the town market, but only during set hours, and were forbidden to touch vegetables and fruit there.98
Third, and as a reminder of the need to abide by the above “protective measures,” were the recurring pogroms, during one of which (in the thirteenth century), the notorious Judenschlacht massacred more than three fourths of the Frankfurt Jews.99
Even in today’s global trade, Frankfurt (and especially its airport) enjoys one of Europe’s best locations as a hub for north-south and east-west transportation. The same is true for its financial institutions. During the eighteenth century, it was already an important commercial and banking center where two major annual international 399trade fairs were conducted and where large amounts and varieties of national and regional coins were needed by the traders.
Not surprisingly, Frankfurt’s was one of Germany’s most active markets for money changing and lending, including the buying or discounting of commercial and governmental bills of exchange and promissory notes, often issued or endorsed by the borrowing rulers of the region.
The revenues from their lands and subjects … and the expenditures of their courts … made these rulers the biggest customers of the pre-industrial German economy…. In particular, the fact that the majority spent more than they earned created lucrative if sometimes risky opportunities for German bankers.100
Mayer Amschel was the son, grandson and great grandson of small merchants. His great grandfather’s gravestone mentioned his “virtue, righteousness, and honesty.” In his teens, Mayer Amschel was allowed by the Frankfurt authorities to do a business apprenticeship outside the ghetto. Following his mandatory return to the ghetto, he started selling rare coins apparently as part of his father’s cloth business. In 1765, he acquired an important client in William, the Hereditary Prince of Hesse-Kassel, who was his age and who, as a collector of rare coins and medals, shared a common interest with Mayer Amschel. Four years later, Mayer Amschel obtained the Prince’s appointment as a court agent, an appointment that enabled him to do business regularly within the court, including the bidding for contracts of supply and finance.
Within the next decade, Mayer Amschel had become Frankfurt’s leading coin, medals and antiques dealer, whose “meticulous catalogues” circulated among a widening circle of aristocratic customers. This business provided him with start-up capital for widespread commercial and governmental lending. Meanwhile, he married a rabbi’s daughter and had with her nineteen children, of whom ten survived and five joined his commercial and banking business. As his business turned increasingly to banking, the family fortune grew exponentially. By 1797, he was already one of Frankfurt’s wealthiest merchant-bankers: His balance sheet showed loans and credits extended to or received from Jewish and non-Jewish merchant-bankers throughout Germany and Austria, as well as Amsterdam, Paris, and London.101
This was a time when the effects of the Napoleonic invasion were felt in the Judengasse. Napoleon had granted French Jewry its emancipation in 1791. This decree did not apply to Frankfurt Jews (although it was applied shortly thereafter to the Rhineland Jews). However, Napoleon’s bombardment of Frankfurt in 1796 destroyed a considerable portion of the Judengasse, and this forced the Frankfurt senate, for the first time in centuries, to allow Jews to live outside the ghetto, albeit only for short periods of time. Mayer Amschel was finally able to rent much larger and nicer premises outside the Judengasse.
His rented warehouse proved convenient for storing and distributing cloth that he, among other Jewish merchants, started importing from Britain. Because of the manufacturing advances of the British industrial revolution, English textiles of all types flooded the European markets. The volumes of imports were such that German 400wholesalers started locating purchasing agencies in Great Britain. Mayer Amschel was one of the first to send his son Nathan to England as a resident agent and as a partner of the Rothschild business firm. Nathan proved to be a good “chip off of the old block.” His correspondence with his father and other members of his family reveals in vivid detail his modus operandi. What follows are a few illustrative segments:
a) On buying from the right source:
As soon as I got to Manchester, I laid out all my money, things were so cheap…. I soon found out that there were three profits—the raw materials, the dyeing, and the manufacturing. I said to the manufacturer, “I will supply you with materials and dye, and you will supply me with manufactured goods.” So I got three profits instead of one, and I could sell the goods cheaper than anybody. In a short time I made my 20,000£ into 60,000£.102
b) On paying cash with borrowed money (Ferguson’s and Nathan Rothschild’s account):
Nathan tried as far as possible to pay up front “on present bill terms,” which meant “drawing on” (that is, borrowing from) his London bankers “at three months” ….
[In Nathan’s own words]: On Tuesdays and Thursdays the weavers who live in the country twenty miles round Manchester bring here their goods … which they sell to the merchants here at two, three and six months’ credit. But as there are generally some of them in want of money and willing to sacrifice some profit to procure it, a person who goes with ready money may sometimes buy 15 or 20 per cent cheaper.103
Not surprisingly, Ferguson’s research reveals that when the profit margins in the textile industry could be as high as twenty percent, Nathan’s charges were modest:
5 per cent on the cost price for purchases in cash from his warehouse, as little as 9 per cent for goods which had to be despatched [sic] to the continent. This was a deliberate ploy to attract customers and increase his market share….104
And that he did, and on terms that would have made the Wal-Marts of our day quite happy. Undoubtedly, Nathan was able to do what he did in 1802, probably not more than a year or two after he came to England, as a result of the significant amount of purchase money made available to him by Mayer Amschel and his brothers. Yet, in assessing his accomplishment, it should also be taken into account that he spoke no English when he arrived in Britain. On the other hand, Meyer Amschel was not happy with his son’s disorganization, failure to pay attention to detail and especially to his poorly-kept accounting books and records. In letter after letter, after addressing him as “my dear son” and pleading with him not to be angry with his fatherly advice, Mayer Amschel admonished him in terms that Enron and other large corporations of our day should have heeded:
Take on a clerk to manage the despatching [sic] of the consignments … be more organised…. keep a proper record when [your client] sends you remittances…. [and of what] you send us and all that we send you….
[I]f you have many bad debts, which God forbid, and enter them as if they are good, that is simply to pretend that you are rich….105
Governmental borrowing was very expensive because lenders feared, with good reason, that they would not be repaid, or at least not in time. These methods proved very costly to the crown and polity alike. Taxation was not a solution in part because of the need to obtain the support for its enactment from taxpayers in increasingly representative forms of governments. The British government seemed to have found a solution for its deficit-financing by developing “since the later seventeenth century … a relatively sophisticated system of public borrowing (the national debt) and monetary management (the Bank of England).”106 Yet, by the time the House of Rothschild came on the scene, the high yielding bonds of the British national debt were not being issued because of English fiscal retrenchment and monetary stabilization policies.
As with their coin, antique, and cloth businesses, the Rothschild’s banking business started with Mayer Amschel. His relationship with Prince William of Hesse-Kassel proved quite valuable. This principality had a close connection with British colonial policies, especially in North America. Prince William’s primary source of revenue for a while was the payment for the services of the Hessian army sold to King George III in his battle against the rebellious colonists. The terms of this sale were quite lucrative for William:
William received 76 gulden (around £7) per man, plus an additional charge of 25 gulden for each man wounded, and 76 for each man killed. The money was paid … in (non-interest-bearing) bills of exchange which were initially paid to William’s account at the London bank of Van Notten & Son. When he wanted to convert these into cash before they fell due, he sold them to brokers in Germany…. [Thereafter, he invested] his earnings so that they yielded the highest possible interest. And, as the majority of his fellow princes in Germany were frequently in want of money, he had no difficulty in doing so by lending to them.107
Mayer Amschel was aware of the profit potential involved in buying the English bills of exchange from William and reselling them to others who wanted them as safe investments or as holdings in pounds sterling in Great Britain. He tried to outbid other brokers by offering lower discount rates than theirs but was repeatedly unsuccessful. At least on one occasion he had to ask for special permission to leave the Judengasse on a Sunday (known as a “Sunday pass”) to be able to bid on the bills of exchange early on the following day.108
His success as a major bidder did not come until he joined with Karl Friedrich Buderus, a tutor to Prince William’s children, and evidently a better-connected courtier than he was. Eventually, Rothschild was permitted to join five established German firms in their successful bids, one of them amounted to 150,000 pounds. This transaction was followed by a “loss leader” bid on war chest bonds in which he lost money. By 1798, however, he was acting as a co-investor, lender and broker with Prince William, by then one of Europe’s wealthiest rulers and capitalists.
After Mayer Amschel’s silent partnership had developed with William, William no longer extended personal loans, but demanded bearer bonds from his borrowers. Mayer Amschel’s commission when buying bearer bonds for William was considerably low by the standard of the day (between 1.75 percent and 2.0 percent).109 Between 1801 and 1806, he was not only a major buyer of the English bills available for sale, but also participated with William in real estate investments and in extending loans to other governments, including Denmark, Hesse-Darmstadt, Baden and even the Order of St. John. All of this while “continuing to supply … [William] with his beloved medals.”110
Eventually, Mayer Amschel was appointed court agent to most of the nations or principalities, former members of the Holy Roman Empire, including his title of “Imperial Court Agent” awarded by a grateful Austrian Emperor. As summarized by Ferguson, if up until 1806, the Rothschilds had depended upon William and his ilk for their business and privileges, thereafter, it was William who began to depend upon Mayer Amschel and his sons.
William, the Elector of Hesse-Kassel, lent large sums of money to the Austrian and Prussian rulers. After Napoleon defeated their armies, he decided “to remove the House of Hesse-Kassel from rulership and strike it out of the list of powers.”111 Upon fleeing his estate and principality, William turned to Mayer Amschel and left him in charge of all his moveable assets. Meanwhile, a French general had issued a proclamation confiscating all these assets and threatening anyone who concealed their whereabouts with a military trial.
Ferguson transcribed the following account of the transfer of the Elector’s treasure to Mayer Amschel as it appeared in 1836 in an English newspaper:
The French army was actually entering Frankfurt at the moment when Rothschild succeeded in burying the prince’s treasures in a corner of his little garden. His own property, which in goods and money was worth about 40,000 thalers, he did not hide, well knowing that, if he did so, a strict search would be made and that not only his own but the prince’s hoard would be discovered and plundered. The Republicans who, like the Philistines of old, fell upon Rothschild, left him not one thaler’s value of his own money or property. In truth, he was, like all the other Jews and citizens, reduced to utter poverty but the prince’s treasure was safe …112
In England, Nathan and his partner-brothers in Frankfurt and other European cities refined and popularized the House of Rothschild’s own variety of governmental bearer negotiable bond. Consider, for example, the loan sought by Prussia after the so-called “War of the Twenty Five Years” in 1818. The Rothschilds had placed a smaller loan on behalf of Prussia with the Elector of Hesse-Kassel in 1817 and Prussia then requested from them a much larger sum to be raised in the London bond market. Nathan specified the terms and conditions of the issuance, which required, among others, a mortgage of Prussian governmental assets and the ratification of the terms of the loan by “an assembly of the estates (Stände) or the creation of an independent judiciary….”113 The Prussians objected and Nathan replied as follows:
[T]o induce British Capitalists to invest their money in a loan to a foreign government upon reasonable terms, it will be of the first importance that the plan of such a loan should as much as possible be assimilated to the established system of borrowing for the public service in England, and above all things that some security, beyond the mere good faith of the government … should be held out to the lenders…. [T]he late investments by British subjects in the French Funds have proceeded upon the general belief that in consequence of the representative system now established in that Country, the sanction of the Chamber to the national debt incurred by the Government affords a guarantee to the Public Creditor….114
Nathan’s terms and conditions were clearly influenced by innovations introduced by the Bank of England’s own method of commercial lending and purchasing or discounting commercial paper. It was the first bank at the top of a national credit pyramid to recognize the difference between traditional mortgage and commercial lending.115 Unlike the security afforded by the traditional real estate mortgage, the security in a commercial loan was assumed to be perishable in the short run. Thus, it required collateral that made the liquidation of the loan possible in a short period of time, and without the need for much judicial or governmental expense. This was the reason for Nathan’s insistence not only upon good mortgage security, but also upon a representative legislature’s approval of the loan, alternatively or in conjunction with, an independent judiciary willing and able to decree the necessary foreclosure or repossession. The reader will recall that earlier in this chapter we discussed how this type of commercial loan had become popular in some regions of eighteenth-century Germany among merchants and their customers.
The system of governmental financing developed by the House of Rothschild enabled British and other investors in Western Europe to purchase fixed interest bearer bonds secured by various types of governmental revenues. As described by Ferguson:
[T]his growing international bond market brought together Europe’s true “capitalists”: that elite of people wealthy enough to be able to tie up money in 404such assets, and shrewd enough to appreciate the advantages of such assets as compared with traditional forms of holding wealth (land, venal office, and so on). Bonds were liquid. They could be bought and sold five and a half days out of seven (excluding holidays) on the major bourses of Europe and traded informally at other times and in other places. And they were capable of accruing large capital gains. Their only disadvantage was, of course, that they were also capable of suffering large capital losses.116
It should be noted that in this process, the House of Rothschild not only influenced the wording of the bonds, but also acted as their principal “market maker,” i.e., it assumed responsibility for maintaining a firm “bid and asked” price in the bonds by standing ready, willing and able to buy or sell them at the publicly (bid and asked) quoted prices.
For the reader who has been following the slow evolution of executory or deferred performance promises across the centuries and legal systems, it should not be surprising that many of the promises issued by the House of Rothschild were of doubtful enforceability in many of the legal systems that governed their issuance or collection. Nonetheless, I could not find one instance in Ferguson’s or other historians’ research in which Mayer Amschel’s and his children’s offers to buy or sell commodities, bills of exchange, or bearer bonds at a future time, were ever defaulted. On the contrary, their promises were as good as their corporate motto: “Concordia, integritas, industria” (Harmony, integrity, industry).117
With this precedent, it was not surprising that the first European code (commercial or civil) to provide for the enforcement of executory promises was the German Commercial Code, Handelsgesetzbuch (HGB) of 1897. It decreed the enforceability of “firm” executory contractual promises (as distinguished from promises in negotiable instruments) once a firm date of payment or performance had been expressed by them.118 Similarly, it was the BGB in 1900 that set forth the enforceability of offers of rewards, acknowledgment, or acceptances of orders of payments and debts and bonds, including bearer bonds.119
While the issuance of securities to the public was eventually regulated, first by the United States Securities and Exchange Act of 1934, and thereafter in many other countries, (e.g., the 2003 version of the French Commercial Code reviewed in the 405previous chapter), much of the private law aspects of the Rothschild’s financial transactions remained unregulated by commercial codes or similar private law statutes. In fact, it was not until the enactment of Article 8 of the U.C.C. in 1977 that a major financial marketplace turned its attention to the creation, transfer, pledge, cancellation, clearing and setoffs involved with these investment securities.
The question that arises, then, is: What private law governed these transactions? The short answer is a mixture of trade usage and custom, “master” and standardized agreements among participants in trade association, exchanges, or those trade associations’ rules such as those of the International Swaps and Derivatives Association (ISDA) and others.
In the absence of codified, statutory or decisional rules, or even where some of these rules exist but are not clear or exhaustive enough on the rights and duties of the parties, how could an adjudicator profit from holding up these transactions to different standards of conduct, particularly to exemplary or archetypal conduct on the one hand, and to average or stereotypical conduct on the other? Please recall how the Roman jurist Ulpian held up the promise to sell a slave, subject to a condition that conferred a certain degree of discretion to the promisor, to the standard of a bonus vir. Contrast this standard with the good faith standard applied to an average exchange of promises to buy and sell cattle wholesale in one of the eighteenth-century German cattle fairs described by Professor Blackbourn. In your opinion, which of these two standards demanded greater knowledge, diligence and altruism from its practitioner?
Please recall that among Nathan Rothschild’s requested terms and conditions of the bonds issued by Prussia and to be sold in London were ratification of the terms of the loan by “an assembly of the estates (Stände) or the creation of an independent judiciary.”120 How could an adjudicator, a member of that independent judiciary, determine the meaning of good faith in an everyday type of dispute such as one prompted by the lack a written contract formality? If the standard is one of stereotypical behavior among regular participants in the transaction, the adjudicator must ask himself: “Who is such a person?” Once this person has been identified, he must inquire: “What would he or she regularly do and what would he or she be willing to accept as regular conduct from other participants regarding contract formalities?” Clearly, it would be helpful to an adjudicator attempting to visualize the behavior of such a person to be told more than: “Search for him in the genus of the ‘bonus paterfamilias’ ” or “Find him among ‘prudent reasonable men’ or among those who could qualify for membership in the French ‘councils of prudent men’ ” (conseils de prud’hommes). Would it be more helpful to tell the adjudicator to examine what is meant by “good faith practices” among respected traders in, say, cattle fairs, bourses, exchanges, etc.?
Let us suppose that the issue did not involve stereotypical but exceptional behavior, i.e., behavior associated with highly-trusted and perhaps also highly-remunerated fiduciaries. In order to establish what behavior would be expected from someone whose duties were not only those of ordinary good faith, but of the highest good faith (uberrima fides), the adjudicator would have to resort to archetypal behavior. He would have to ask himself: “What would an uberrima fides merchant, banker, or fiduciary have done under the circumstances?” It would have to be someone 406not only highly respected because of his or her transactional expertise, but someone who, because of his or her extraordinary integrity, and perhaps even piousness, had been entrusted with other’s property, work, or money and did not disappoint those who trusted him. As with the stereotypical behavior, it would be very helpful to the adjudicator of such a dispute, as it also is to the legislator, to be able to visualize real life examples of such behavior. And, as with stereotypical behavior, the place to start would be among the trades, vocations, or professions in question, and then ask: “Who is the most respected among them and why?”
It would be my contention that Mayer Amschel Rothschild and perhaps some of his children or descendants qualified for archetypal status among the nineteenth-century participants in high commerce and finance. He and some of his descendants were knowledgeable, skillful, careful and meticulous enough in their business transactions to merit the respect and admiration of their peers, including such well-known international bankers as the Barings. Any question about Mayer Amschel’s fiduciary integrity was put to rest by his return of the Elector’s treasure, even at the cost of losing his own. Moreover, both Prince William and his children’s tutor could have testified about his loyalty and cooperative spirit toward both his silent and active partners. As stated by his children’s partnership agreement entered into by his five children twenty years after his death:
We wish to offer a proof of our reverence for the holiest memory of our father, whose virtuous conduct in all of life’s relations is a noble example to us all. Through pious acceptance of the higher wishes of God, through faith in God’s help, through conscientious honesty and indefatigable industry, this noble and philanthropic man laid the foundation of our good fortune, and when, almost forty years ago, he took his sons into partnership … he told them that acting in unison would be a sure means of achieving success in their work, and always recommended fraternal concord to them as a source of divine blessing.121
A corollary of the “concordia” component of the House of Rothschild motto was the spirit of reciprocal trust instilled among the family partners. A corollary to the principle of unbreakable unity was that of implicit trust in the partners’ acting above all for their joint interest. As expressed by Salomon Rothschild to one of his brothers:
It is an established rule with us that no disapprobation shall be expressed by either of us at the conduct of the other, since as partners we act always for the joint interest and consequently neither of us has the right to blame the other when he has acted for the best.122
Ferguson’s thorough archival research reveals numerous instances of Mayer Amschel’s philanthropy. As an active member of his congregation, he contributed each year the prescribed ten percent of his income to charity, including Jewish and non-Jewish recipients.123 It would also be my contention that this archetype of “aristocratic” commerce and banking, who separated his charity from his business, and practiced both with equal earnestness, was more likely to shape a commercial law conducive to 407economic development for Germany and Europe than the one described by Judge Bedos of the eighteenth-century commercial court of Paris.
In sum, by the time Germany’s commercial and civil codes were drafted, they governed continental Europe’s widest variety of merchants, from small shopkeepers, verlegers, clerks, brokers and Prokurists, to high-volume bankers, industrial and transportation entrepreneurs. The codes could also rely for commercial decision-making on a growing number of commercial usages and customs as well as on examples of standard and archetypal behavior in high commerce and finance, unhindered by other-worldly visions of commerce and by the scholastic repression of lending at interest.
__________________________
1 History of Germany, VIII Encyclopedia Britannica Macropedia 98 (15th ed. 1974) [hereinafter Britannica]. The reader will find an excellent historical summary of the political development of Germany on pages 98–121. The principal text summarizes, for purposes of this chapter, the significant points of interest in this development as outlined by Britannica.
2 Id.
3 Dating back from Charlemagne in the ninth century to King Francis II, who abdicated in 1806 a number of Central European states and principalities, were members of a loose union known as the Holy Roman Empire. It included territories of present-day Austria, Belgium, Germany, Switzerland, Liechtenstein, Luxembourg, Netherlands, the Czech Republic, Slovenia, and parts of Poland, France, and Italy. From the fifteenth century onwards, this union, smaller in size, became known as the Holy Roman Empire of the German Nation. As had been done by its predecessor, it invoked as a source of legitimacy its descent from the Western Roman Empire which had ended with the abdication of Romulus Augustulus in 476. The same source of legitimacy was responsible for the wholesale reception of Roman law in a number of German states in 1495. See generally Jonathan W. Zophy, The Holy Roman Empire: A Dictionary Handbook (Jonathan W. Zophy ed., 1980) (discussing the Holy Roman Empire). See also Von Mehren & Gordley, The Civil Law System, at 12 (discussing the reception of Roman law in Germany).
4 Britannica, supra note 1, at 98.
5 See supra chs. 8–12.
6 Although some of his biographers are not fully convinced of the veracity of the story, Beethoven, an initial admirer of the French Revolution and Napoleon, is supposed to have erased the dedication of the Eroica Symphony to Napoleon upon hearing of his proclamation as Emperor. See John Robert Seeley, II Life and Times of Stein or Germany and Prussia in the Napoleonic Age (1878) (an interesting description of the French and Napoleonic influence on the political and legal institutions of Germany in its dismembered days).
7 Britannica, supra note 1, at 102.
8 Id. at 101–02.
9 Id. at 103.
10 Id. at 104.
11 Id. at 106.
12 Germany, History: The age of Metternich and the era of Unification: 1815–71, ancestry.com, http://freepages.genealogy.rootsweb.ancestry.com/~holmer/links/german-history.html.
13 Britannica, supra note 1, at 107.
14 See generally Kozolchyk, Grand and Small Scale (more variations on the same theme).
15 Britannica, supra note 1, at 109.
16 Id.
17 George Lewis Bolen, Getting a living: the problem of wealth and poverty—of profits, wages and trade unionism 583–84, n.2 (Macmillan Co., 1903) (discussing Germany’s old age pensions).
18 David Blackbourn, History of Germany 1780–1918: The Long Nineteenth Century 135–45 (2d ed. 2003) (1997).
19 Id. at 87. For example, according to Professor Blackbourn, railway construction alone accounted for almost a third of all net investments in the 1840’s. Id. at 88.
20 Id. at 86–87. Professor Blackbourn provides the following statistical indicators of industrial growth in Germany during the period in question:
[R]aw cotton consumption [for example] in the German Customs Union increased eightfold in the years 1830–50, Austrian output of iron doubled between the 1820s and 1840s, coal production within the borders of the later Germany more than doubled over a slightly shorter period, and so on. Beyond the raw cotton and the raw statistics, we can point to advances in mechanization and the use of new kinds of energy (steam, gas), the development of important industrial branches (engineering, chemicals and sugar, as well as textiles, coal and iron), the appearance on the scene of familiar entrepreneurial names (Krupp, Stumm, Borsig, Maffei, Siemens). Industrialization was more apparent from the 1830s, and in particular regions (the Rhineland and Westphalia, Silesia, Saxony, Bohemia) and subregions [of] (the Neckar valley within largely agricultural Württemberg). Yet the limited extent of industrial change should be recognized. Growth in scale and organization of production generally ran ahead of capital investment and technological innovation, most obviously in the textile sector. The number of weavers grew from 315,000 to 570,000 between 1800 and 1850, but over 90 per cent of looms were hand-operated. Within the overall economy, industry proper continued to be eclipsed by outworking [putting out] and craft production, and even more by agriculture.
Id.
21 Id. at 86.
22 Id. (citations omitted). Professor Blackbourn’s conclusions find support in the work of contemporary German historians. See, e.g., Marcel Boldorf, Institutions and Economic Development: The Cases of Lower Silesia and Northern Ireland (1750–1850) (Entwicklung und institutionelle Rahmenbedingungen: Die Beispiele Niederschlesien und Nordirland (1750–1850), 90 VSWG 399 (2003).
23 The Cambridge Economic History of Europe, V The Economic Organization of Early Modern Europe 287 (E.E. Rich & C.H. Wilson eds., Cambridge Univ. Press 1977) [hereinafter Cambridge History V].
24 Blackbourn, supra note 18, at 164 (citations omitted).
25 David Sorkin, The impact of emancipation on German Jewry: a reconsideration, in Jonathan Frankel & Steven J. Zipperstein, Assimilation and Community: The Jews in Nineteenth Century 179 (2004).
26 Id.
27 Id. (citations omitted).
28 Id. (citation omitted).
29 Sidney Homer & Richard Sylla, A History of Interest Rates 73 (4th ed. 2005), available at http://vnn1.online.fr/Cafeteria/Financial_Accounting_Banking/A.History.of.Interest.Rates.Wiley.Finance.Series.4th.Ed.eBook-YYePG.pdf.
30 Id. at 77.
31 Id. at 176.
32 See Missouri Credit Union Association, Credit Union Difference, http://www.branchnearyou.com/cu_difference.html [hereinafter Credit Union Difference] (a brief history of financial cooperatives) (on file with author).
33 Id.
34 Credit Union History, internetautoguide.com, http://www.internetautoguide.com/credit-center/credit-union-history.html#ixzz2aTPNskYq (on file with author).
35 Credit Union Difference, supra note 32.
36 Encyclopedia Britannica: XXX The New Volumes 748–49 (Hugh Chisholm ed., 12th ed. 1922).
37 Amy Nutt, More to Know about Credit Unions (May 27, 2009, 6:56 AM), http://credit-usbankinternetbanking.blogspot.com/2009/05/more-to-know-about-credit-unions-by-amy.htmlhttp://credit-usbankinternetbanking.blogspot.com/2009/05/more-to-know-about-credit-unions-by-amy.html (on file with author).
38 Cambridge History V, supra note 23, at 300.
39 See supra § 9:2(E)(3)(a).
40 Cambridge History V, supra note 23, at 301.
41 See Kozolchyk & Molloy, III United States Law, 22–3–22–5 (discussing promissory notes); see generally Benjamin Geva, The Autonomy of the Banker’s Obligation on Bank Drafts and Certified Cheques 73 Can. B. Rev. 21 (1994).
42 See Kozolchyk & Molloy, III United States Law, 22–6 (discussing the bill of exchange).
43 Id.
44 See supra chs. 5 & 9.
45 See Henry Diedrich Jencken, The Codification on the Law of Bills of Exchange and Negotiable Securities in Europe and the United States, Jurisprudence, 80–95, in Thomas Pitt Taswell-Langmead, et. al., 2 The Law Magazine and Review: A Quarterly Review of Jurisprudence (1877) [hereinafter Jencken, Codification]; see also Henry Diedrich Jencken, A Compendium of the Laws on Bills of Exchange, Promissory Notes, Checques, and other Commercial Negotiable Instruments of England, Germany and France (1880) [hereinafter Jencken, Compendium] (his classic monograph).
46 Jencken, Codification, supra note 45, at 85.
47 Id.
48 See Kozolchyk & Molloy, III United States Law, 22–1. The switch in the statutory characterization of a bill of exchange as a contract to a promise or as the formal act that incorporates such a promise probably took place first in the Prussian draft law of 1847 (S 6). Jencken, Codification, supra note 45, at 88; see also infra note 63 and accompanying text.
49 See supra § 8:9(C)(4).
50 Jencken, Codification, supra note 45, at 85.
51 Id.
52 See, e.g., Michele de Cesare, La questione delle lettere di cambio nel sec.XVII presso la Regia Dogana di Puglia, available at http://www.bibliotecaprovinciale.foggia.it/capitanata/1988_1993/1988_1993pdf/1988–1993_01_151–156_DeCesare.pdf (describing the seventeenth-century Italian Lettera de Cambio) (on file with author).
53 See Jencken, Codification, supra note 45, at 89 (referring to Articles 115–117 of the original Code de Commerce).
54 See supra § 9:2(E)(3)(c).
55 See Jencken, Codification, supra note 45, at 89 (referring to Article 110 of the original Code de Commerce).
56 Id. at 89–90 (discussing the efforts by the French courts to enable blank endorsements).
57 Kozolchyk & Molloy, III United States Law, at 22–14.
58 See, e.g., Juilliard v. Greenman, 110 U.S. 421 (1884) (on legal tender).
59 See, e.g., U.C.C. § 3–302. 60
60 See, e.g., Convention Providing a Uniform Law For Bills of Exchange and Promissory Notes (Geneva, 1930) [hereinafter Geneva Convention], available at http://www.jus.uio.no/lm/bills.of.exchange.and.promissory.notes.convention.1930/portrait.pdf. Article 1 defines a bill of exchange as an instrument that must contain: “1. The term ‘bill of exchange’ inserted in the body of the instrument and expressed in the language employed in drawing up the instrument; 2. An unconditional order to pay a determinate sum of money….” Id. This Convention has been widely adopted by civil law countries. Common law countries’ definition of a negotiable instrument is almost identical. See U.C.C. § 3–104(a) (“ ‘negotiable instrument’ means an unconditional promise or order to pay a fixed amount of money….”).
61 Jencken, Codification, supra note 45, at 86.
62 See Karl Einert, Das Wechselrecht nach dem Bedurfnis des Wechselgeschafts im neunzehnten Jahrhundert (Leipzig Vogel 1879).
63 Jencken, Codification, supra note 45, at 87–88.
64 Jencken, Compendium, supra note 45, at 18.
65 Jencken, Codification, supra note 45, at 81.
66 Jencken, Compendium, supra note 45, at 18–19.
67 Id. at 18.
68 Id.
69 Id.
70 Id.
71 Id. at 18–19.
72 Julia Bersch & Graciela L. Kaminsky, Financial globalization in the 19th Century: Germany as a financial center 2 (George Washington University, Ctr. for Econ. Research, Working Paper Sept. 2008), http://home.gwu.edu/~graciela/HOME-PAGE/RESEARCH-WORK/WORKING-PAPERS/Germany-center.pdf (on file with author).
73 Kaminsky & Bersch, supra note 72, at 3. The authors establish the linkage between railroad construction and trading in railroad equity as the “cornerstone for Berlin’s importance as a financial center.” Id. at 5.
74 Id. at 36.
75 See Seeley, supra note 6, at 186–88. According to Seeley, the Emancipation Edict had been issued by King Frederick William I of Prussia for Prussia only, and not for his other states until nearly three weeks later. Id. at 188. See Documents-Rural and Urban Economy and Labor, German History in Documents and Images, http://germanhistorydocs.ghi-dc.org/sub_document.cfm?document_id=3613 (an English translation of the text of The Prussian Reform Edict of October 9, 1807, issued by Prussia’s King Frederick William III) (on file with author).
76 Blackbourn, supra note 18, at 80–82.
77 Cambridge History V, supra note 23, at 267.
78 Blackbourn, supra note 18, at 82.
79 BRE Bank Hipoteczny SA, History of Mortgage Banks and Mortgage Bond [hereinafter BRE Bank Hipoteczny] (on file with author).
80 See C. Civ. (Fr.) art. 2114 (subjecting the existence of the mortgage to the discharge of a pre-existent obligation, i.e., a loan) and the analysis of its impact upon housing fianance in supra §.8:4(B)(6).
81 BGB (Goren, 1994) § 1195.
82 See BRE Bank Hipoteczny, supra note 79.
83 Blackbourn, supra note 18, at 164.
84 HGB (Goren, 1998) §§ 48–50 (emphasis added).
85 See supra § 5:13(A)–(B).
86 Com. Code (Est.) § 16 (2006) (on file with author).
87 See supra § 6:2(F)(5).
88 Cambridge History V, supra note 23, at 284.
89 Id. at 284.
90 Id.
91 Id. at 285.
92 Braudel I, at 519; see also Cambridge History V, supra note 23, at 286.
93 Cambridge History V, supra note 23, at 286–87.
94 See supra § 5:9.
95 Ferguson, at 3. Most of the materials discussed in this section have been summarized from this excellent source.
96 Id. at 38, for the description of the Ghetto during the last decades of the eighteenth century by one of its residents, as transcribed by the poet Luwig Börne.
97 Id. at 35–36 (the graffito appears on page 36).
98 Id. at 37.
99 Id. at 37–38.
100 Id. at 40.
101 Id. at 46.
102 Id. at 52.
103 Id. at 52–53.
104 Id. at 53.
105 Id. at 51 (emphasis added).
106 Ferguson, supra note 95, at 4.
107 Id. at 61.
108 Id. at 61.
109 Id. at 63.
110 Id. at 62.
111 Id. at 64.
112 Id. at 64–65.
113 Id. at 123 (citation omitted).
114 Id. (citation omitted).
115 See generally Kozolchyk & Furnish, A Comparative Analysis; see also Kozolchyk & Wilson, The New Model Inter-American Law.
116 Ferguson, supra note 95, at 5.
117 Id. at 13 (Harmony, integrity, industry).
118 HGB § 376 (Goren, 1998). Section 376 states in relevant part:
(1) Where it is stipulated that performance by one of parties should be effected at an exact time or within a specific period, the other party may rescind the contract if performance is not made at the exact time or within the period specified, or in the event the debtor [promisor] has defaulted, [on his promise] demand payment of damages for non-performance in lieu of performance of the contract. He may only demand performance if he indicates to the other party, immediately following the expiration of the time or the period, that he insists on performance.
Id.
See Peltzer & Voight, at 320.
119 See BGB §§ 657–661, 784, 793 (Goren, 1994).
120 See Ferguson, supra note 95, at 123; supra note 113 and accompanying text.
121 Ferguson, supra note 95, at 78.
122 Id. at 83.
123 Id. at 74–75.