The Background of Modern American Business Law

In a recent paper, published in The Journal Jurisprudence, I attempt to explain how common-law jurisdictions developed the distinctive notions of equity that are largely absent from civil law and to outline the major differences in business entity law in the US compared to civil codes. Oddly, the origins of equity lay in ‘uses’, that evolved into the trust that came from Saxon and Norman concepts, but later disappeared from civil law. The use originated as a tax planning device, designed to avoid the tax imposed by kings who required payment for ‘livery of seisin’, upon transfer of a deceased noble’s estate and title, by vesting title in perpetuity in trustees for the use and benefit of heirs. It also served as a device for caretaking of estates when owners went off to the crusades.

Because legal ownership left the hands of the grantor, so did the power to monitor and sanction deviations from the instructions in the indenture. Kings designated Chancellors to handle petitions for righting wrongs not covered by the common law forms, who evolved into the Court of Chancery, with its unique notions of duties, such as those of care and loyalty, and its unique and flexible remedies where damages were inadequate.

The jurisdiction of the Chancery Court, the origin of the recognition of trusts, gradually expanded into a more general jurisdiction over common law subjects, and, at some point, the concept of a ‘quasi trustee’ developed to regulate the behavior of directors and agents. As law and equity merged, the concepts were fully incorporated in Anglo-American law.

The final mystery is how concepts of use and the Saxon ‘Salman’, a concept related to the Roman trusts, failed to develop on the continent in the same way, and notions of fiduciary duties disappeared. My speculation at this time is that civil codes were thought to occupy the lawmaking field, in the absence of a tradition of judicial law-making in the common law courts.

A brief review of the basic difference between continental and American approaches to corporate flexibility is included, noting that the problems of prescriptive ‘one size fits all’ rules were solved by contracting for deviations that were tolerated by the courts. Other types of entities are described primarily for the purpose of illustrating how their origins and character differ from civilian counterparts with similar names.

The final section describes the basics of US securities regulation and will not offer much of interest to American scholars or lawyers.

William J. Carney is Charles Howard Candler Professor of Law Emeritus at Emory University.