None of the United States has a commercial code, as do the continental European states. The law formulated in these codes is, on the whole, the “mercantile law” of the Middle Ages and the Renaissance, which in England was beginning to be absorbed into the common law just at the time when the colonies were founded. This process was completed in the century. XVIII and the nascent colonial legal systems received the common law as it had been strengthened by mercantile law.
An essential part of this mercantile law was maritime law, ordinarily referred to in England and America as “Admiralty law” (Admiralty). This today plays a relatively small part in the formation of the legal consciousness of modern Americans, and the practice of maritime law is usually restricted to a few specialists. But in the early days, trade in the United States was largely maritime, and admiralty law made up a large part of the affairs handled by federal courts.
With the development of transport and trade, ordinary commercial law issues became increasingly important. But since merchant law was an integral part of common law, it was not possible to apply trade rules as if they only referred to a special group of people to whom the definition of “trader” could apply. The right of sale, for example, which in the countries of the European continent appears both in the civil code and in the commercial code, and with quite different rules, forms a single body of rules in the United States. The needs of commerce, of course, have actively contributed to creating a great many modern legal institutions, but, once created, these apply to ordinary civil contracts as well as to those between traders.
The most characteristic of all branches of commercial law is the Law of Negotiable Instruments. It is based primarily on the doctrine of negotiability, which allows valid credit to be transferred by one who on his behalf has no such credit or only imperfectly has it. In the United States, generally, the rights of the holder of a security or bill of exchange even against a “regular holder” (holder in due course, the acquirenee of good faith) are somewhat more protected than in European systems, because the falsity or discontinuity of the title are valid exceptions. But this measure somewhat diminishes the circulation of marketable securities and has created obstacles in international transactions.
The constancy of commercial relations between the various states has made the diversity of laws intolerable in matters such as that of debt securities. For this reason, an important movement for some kind of codification has been very successful. A commission to design “uniform laws” was set up by the American Bar Association and since 1895 it has drafted and proposed some uniform laws to various states. The first of them is that on debt securities, largely based on the English Bills of Exchange Act ; this Negotiable Instruments Act has been accepted by all American states, as well as by the Philippines and Puerto Rico: it is the only “uniform law” that has been so fully adopted.
The widespread use of negotiable securities sometimes comes to constitute an auxiliary circulation, and when banks issue too many, that use can actually produce all the symptoms of inflation. Note that bank-issued securities – bank checks or checks – have become by far the most important type of negotiable debt; and for them special rules have developed, which in part depend on the particular position of the banks in the economic system.
Issues relating to suretyship and guaranty arise in the United States today through the use of negotiable securities. In common law the suretyship was set up by an “obligation” (bond) that is a specialty sealed (v. Above: bonds) and the rules that governed it were based on notions of equity deduced from the fact that the guarantor (surety) was an unpaid friend who sought the advantage solely of the principal creditor. But the commercial guarantee was a different kind of shop. It was part of a complex of negotiations in which the interests of all parties were more or less insured in competition with each other and there was less reason to show special favor for the guarantor.
The fact is that the type of guarantee of which an example is the bail or surety necessary to obtain bail and in which the equal protection of the guarantor developed, is replaced by a guarantee assumed by stable and powerful companies, a form of guarantee which has much greater affinity with an insurance policy than with the friendly pact of the old type. The law in these cases has been the scene of a struggle between the traditional theory, that the guarantor can demand any indulgence in his favor, and the equally strong tradition, that in formal insurance contracts, interpretation must always favor the insured. It cannot be said that a solution to these difficulties has yet been found.
Business organization law has received a notable and special development in the United States. The common law has never been in favor of the doctrine of management and has sought to subsume this vital relationship for commerce under ideas derived from the relationship between master and servant or the feudal relationship between the lord and his bailiff. The need to clarify these ideas arose when commercial affairs developed on a much larger scale than in the small retail stores that were the rule in the early days in the United States. The extension of the representation doctrine (“implicit powers”,
In the simplest form of commercial organization, that of partnership, the common law doctrine of the full responsibility of each partner produced many difficulties. The law for a long time persistently refused to recognize the company as an entity distinct from the shareholders and still refuses full recognition to this doctrine. In this case law has found itself increasingly at odds with business practice, in which that entity has proved inevitable for accounting purposes. Nonetheless, the full responsibility of all shareholders was retained even in cases in which the solvency of the individual shareholder could not be trusted. And this also remains unchanged in the uniform law on general partnership (Uniform Partnership Act) now adopted by nineteen states. Some mitigation has been attempted with the ” limited partnership ” system, now also codified in a uniform law, which allows all shareholders except one to limit their liability to the contribution conferred.
Also due to these facts, the general partnership is in the United States in the process of disappearing as a form of commercial organization, and its place has been taken by the corporation, the English company in which the main difficulty of the collective company, i.e. impossibility of limiting liability is easily avoided.
The Antericana corporation is the result of a particular evolution. At the time of the revolution there were so few that the most authoritative legal works hardly mention them. Moreover, those that existed were almost all public corporations – in Italy they would be called moral entities – that is, cities, university colleges, hospitals and the like: whose public character largely determined the law that applied to them. A step towards the modern type of private company was taken by companies that built roads for tolls, or operated transport, which, however, were public at least in so far as they were dedicated to a public service. The legal essence of these “corporations” was that they were created with privilege (charter) and became moral persons, with properties, responsibilities and rights distinct from those of those who united to form them and owned shares in them. The economic function they perform consists in the fact that they make it possible to accumulate capital in a much higher measure than is possible for single individuals, and to distribute the losses widely, when they occur. It is through these corporations that so many of the corporations that have developed the great resources of the United States have been made possible. The need for this type of organization was so great that one of the first requests was a simplification of the way to create it. The English corporation of public law, which was the model upon which American companies were organized, was a privilege granted by the king in a formal act. In the United States, charters that created the corporations were originally legislative concessions, for each of which a bill was required.
In a dispute relating to Darmouth College in 1819, Chief Justice Marshall held that these foundation papers were non-revocable state contracts; the consequence was that each state inserted a special revocability clause in each subsequent charter. But the whole system was cumbersome and cumbersome, and general laws on corporations were passed, making it possible to create – or give this regime to commercial companies (to incorporate ; hence the abbreviation Inc. Following the name of many firms, means: incorporated, and is practically equivalent to “SA”) quickly and easily, by applying to a specific office and approving the name and purpose of the created corporation.
Another vital economic function performed by the corporation was to create a means of investing liquid savings. Evidently, as in England and France at the beginning of the century. XVIII, this investment possibility tends to turn into unbridled speculation and easily lends itself to abuse. The corporate structure created by American law facilitated these abuses. The executives (directors: correspond to the ” managing directors ” of our anonymous) of the corporations had almost unlimited powers (a comparison with public law would be curious, and with the powers of the president of the United States), and the method of election made it possible to those who had the majority of the share capital to elect the board). In addition, the formation of hoarding of company shares (holdings) in which the vote of this majority shareholding could have an even smaller group of shareholders had the opportunity to hold “pyramid” (pyramiding, to pyramide) – as they say with picturesque image – this dominance and allowed an exploitation, difficult to eliminate, of the ordinary shareholders.
Laws were enacted to protect the public of savers and shareholders: some, which form a special type of legislation officially called ” Corporate Security Acts ” and popularly ” Blue Sky Laws”.), had as their main object the supervision of the sale of the shares, entrusted to a special commission whose authorization was an absolute requirement. In this way, the sale of shares in companies without adequate economic bases was to be prevented. Many states have passed such laws, although in some cases the stated purpose is simply to prevent outright fraud. Among these laws, the most recent and most far-reaching is the one concerning the exchange of guaranteed securities (Security Echange Act ; securities are the “bonds” and the like), which was one of the reform acts of the Roosevelt government. The constitutionality of this law has not yet been definitively determined.
Other laws have aimed at controlling corporations. The holdings in some cases have been banned; in others steps have been taken to ensure representation of the minority on the boards of directors. A special liability has been provided for directors for negligence or maladministration (negligence and misfeasance). Laws have been passed prohibiting pure speculation on shares, that is, contracts that do not contemplate an actual purchase of shares.
It cannot be said that these laws have been effective in protecting the public from the fraudulent manipulations that the corporate system has made all too easy. They have undoubtedly mitigated the worst evils, but the repetition of uneven turmoil in the stock exchanges and the subsequent crashes (” crashes “) of the market have made it clear that the causes are deeper than those that could be achieved simply with the legislative work. Whether this type of speculation can fully undergo effective supervision within the American economic structure remains to be seen.
The much-discussed trust, an entirely Anglo-American institution, has received a special development. The “trust”, a creation of the English Chancery Court, was a means by which landed property could be administered on behalf of certain persons, without the limitations inherent in that property, which, at that time, was, in concept and character, clearly feudal. The trust was later developed as a means of providing for children and married women whose property rights were under common law exercised by the head of the family often without any responsibility. The essence of the trust was the separation of the legal title with certain disposition powers from the interest of the beneficiary. It resembled both the usufruct and the fidelity commission of Roman law; it was often created by will and then it resembled the second even more clearly. In fact, fideicommissum was the term used to designate it in Latin.
Both the testamentary trust and the trust established for family arrangements were widely adopted in the United States. But a new use was also found, using it for the purpose of associating separate commercial or industrial companies into united groups with a common purpose. Since the papers of these companies often assumed that they were in competition, the trust was able to form, in practice, within certain limited branches, monopolies. Thus the word trust became a symbol of monopoly or large industrial concentrations, arousing popular opposition that brought together efforts to destroy them. The Sherman Anti – trust Law of 1890 was tried there, prohibiting combinations restricting the freedom of trade “(combinations in reslraint of trade). Proceedings initiated in application of this law resulted in the dissolution of some of these trusts, 1 but failed to stop the development of combinations of industries, theoretically competing with each other.
Another use of the trust is that popularly called the “Massachusetts trust,” although it is also used in other states. Its purpose is not to make large industrial concentrations possible, but to ensure unity of management and responsibility in a corporation without incurring the unlimited liability inherent in partnerships. This type of trust is therefore an intermediate form of commercial organization and is thus considered by those legislations that have recognized it as valid.
Other types of organization, such as British joint – stock companies. species of corporations, they have never been frequent in the United States; but the corporation proper has developed more fully and variously than anywhere else. Entirely other than holdings and combinations, single corporations they have assumed very vast proportions. Wherever they become grandiose, there is an inevitable split between the management and management of the company and the interest of the shareholders. This separation is greater when, with new statutes, the creation of various categories of shareholders is allowed, with different votes in the shareholders’ meetings. In these circumstances, shareholders’ rights are only safeguarded by more frequently granting rights of inspection and control by the judicial authority.
The popular attack on corporations has turned against the power that can be exercised by them. Another attack was made against them as a means of evading the liabilities of the debtor; the corporations, whose capital is almost entirely in the hands of one or two people, are in fact legally considered as separate entities by shareholders and can not be pursued by creditors of these. Courts have sometimes found it necessary to overlook legal theory when it can be shown that the creation or use of the corporation serves a fraudulent purpose.
The economic development of Western states, especially after the civil war, made it necessary to resort to borrowed capital on a large scale. A phenomenon that already occurred at the beginning of the century is repeated. XIX, when the territory between the Appalachian Mountains and the Mississippi was put into value. In both cases, the residents of the new territories found themselves in situations that made it necessary to mitigate the too severe measures of the common law.
Debt imprisonment, “personal execution”, was common in England until the mid-century. XIX, and prevailed in the colonies and in the first decades after the revolution: there is resorted and after a process, both before (Arreste by mesne process“arrest during the procedure”; mesne process should be understood as the acts performed between the first judgment and the final one). The Jacksonian movement was largely an agitation of debtors and succeeded in having many cases of debt imprisonment abolished and often the prohibition of such imprisonment in state constitutions. It survives sporadically in cases of debt originating from fault – except negligence – but has ceased to have any importance as a means of compelling the debtor to pay.
Another means of alleviating the plight of debtors is the rapid development of “exemption” laws. They have ancient origins, and examples are the Roman benefitsum competentiae, and similar provisions in many medieval legislations. In the United States – particularly in the western states – these laws have spread widely. The most common form of exemption is the homestead, which prevents creditors from striking the home occupied by the debtor and his family, up to the value of $ 5,000. In other states, the exemption is for a certain amount of money or real estate. Almost always they are exempt livelihood (livelihood) and a percentage of the salary or wage.
The most complete form of debtor protection is provided by the United States Bankruptcy law (bankruptcy “bankruptcy”). The different bankruptcy laws passed in England in the 17th and 18th centuries were generally limited to Great Britain. But the problem of insolvent debtors was also felt in the colonies and in one way or another they had to be helped.
The obvious fact that creditors and debtors may or may not belong to different states led the authors of the constitution to grant Congress the power to “make uniform bankruptcy laws.” Congress made use of it in 1800, 1841, 1867, 1898; the first three laws did not last long, but the last one is still in force, although it has undergone substantial alterations. In the intervals, the laws of the individual states took effect, since these were not repealed with the enactment of the federal law (National Bankruptcy Act), but only suspended.
The problem of bankruptcy is addressed by the current legislation in two ways. First, steps are taken to prevent one of the creditors from being preferred to others and to ensure an equitable division among creditors of the debtor’s non-exempt assets. It can be said that this has been the main purpose of all bankruptcy legislation. The second purpose, and today equally important, is to ease the position of the debtor, if he has not been guilty of fraud and has given all his assets to the court in good faith.
The early bankruptcy laws were harshly criticized and were rather ineffective. With the existing law, the privilege of exemption has been used enormously. Even in normal times, the exemptions amount to approximately $ 700 million annually, which is undoubtedly a serious burden for solvent debtors, on whom these losses ultimately come to bear.
One of the major drawbacks of current law is that it tends to declare bankruptcy at inopportune moments. It is often more appropriate to grant debtors a simple moratorium than to declare bankruptcy. Recent amendments have tried to facilitate agreements, whereby people in temporary difficulty, but not quite insolvent, can benefit from a partial waiver or an extension of their commitments.