Lex Mercatoria

The Medieval Law Merchant

In the 11th century, new trading opportunities opened between merchants in different parts of Europe. To exploit these opportunities, merchants required a common set of rules to govern their commercial relations and some means of resolving commercial disputes in light of these rules when disagreement occurred. Traders had difficulty relying on governments for this purpose. National laws, of course, differed from one nation to the next. Further, they were designed for domestic affairs, not international ones. State courts were often unwilling to adjudicate commercial disputes between parties who forged their contracts in foreign countries. Even when governments were willing to do so, traders were not keen to have their cases decided by foreign judges, applying foreign law, in a foreign language, according to foreign procedure. Additionally, state judges were unlikely to be experts in the area of commerce that the parties to a particular commercial dispute were engaged in. From the merchants’ perspective, this made judges less capable of rendering fair or reasonable decisions. State courts could also move slowly—too slowly for international traders who sought speedy resolutions that allowed them to quickly return to business.

Because of such difficulties, traders could not typically rely on government to oversee their commercial relations with foreign parties—to make sure international traders behaved honestly with one another, fulfilled their contractual promises, and so on. Merchants did not sit idly when confronted with this threat to international trade. Their interactions gave rise to a “spontaneously ordered” system of international commercial rules and dispute resolution—a private legal system—that supplied security, promoted honesty, and encouraged contractual fulfillment among traders instead. Because this legal system was created by and for merchants, it is appropriately called the law merchant.

The medieval law merchant consisted of business customs that merchants throughout Europe [Page 1070]shared and respected. Merchants enforced these customs in privately created merchant courts sometimes called “dusty feet courts” because they were held outdoors at commercial fairs where they were traversed by traders’ dusty feet. Merchant judges adjudicated disputes for other members of the merchant community in these courts, a feature that was much valued by traders because “one of their own”—a person familiar with their business customs and with expertise in the matters at hand—reconciled commercial conflicts.

Because merchant law was not government-made law and merchant courts were not government courts, merchant judges’ decisions were not formally binding. This does not mean merchant law went unenforced. Merchant law was well enforced through community boycott. If two merchants had a commercial dispute and took their disagreement before a merchant court which, say, found that party A owed party B money, and party A refused to pay, this fact was spread throughout the community of traders. Such punishment spelled commercial death for those who refused to abide by merchant court rulings because it destroyed their reputations and, with it, their ability to make money: No one wanted to trade with a merchant who was known as dishonest. Traders thus had strong incentives to comply with merchant court rulings even when doing so cut against their immediate financial interest.

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