Lex Mercatoria

Abstract

Lex Mercatoria, or the Law Merchant, generally refers to the customary rules and procedures developed within merchant communities to support trade in medieval Europe, without the assistance of government, although this system has had many names through its evolution. This system began to develop sometime in the early Middle Ages, but became widely recognized as commerce expanded in the eleventh and twelfth centuries. Lex mercatoria lowered transactions costs, and provided incentives to live up to promises, thereby allowing for widespread use of contracting and credit as commerce expanded. The customary law system developed behavioral rules based on customs, practice and usage within the network of merchant communities, but processes to encourage recognition, provide adjudication and generate changes in the rules. The primary impetus for recognition of the law merchant within the commercial sector were the positive incentives associated with maintaining reputations and repeated dealings, along with the potential of reputation sanctions (e.g., spontaneous ostracism) for misbehavior. Arbitration was probably the primary dispute resolution process, although merchants used other courts (particularly fair courts sometimes referred to as piepowder courts, market courts, urban courts and ecclesiastical courts) when they were willing to base decisions on the law merchant. Change was generally initiated through bargaining and contracting, followed by emulation so that new rules spread. Various general principles of the law merchant became increasingly universal over time, although the system remained polycentric in many ways. One reason for polycentric characteristics is that authoritarian legal systems (e.g., royal law, urban law) strove to gain control over commerce and its regulation by imposing additional laws on merchants that often conflicted with the law merchant, forcing changes in merchant practice and usage. The success of such efforts varied over time and space.