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MEDIEVAL CHURCH NORMS AND FIDUCIARY
DUTIES IN PARTNERSHIP
Dennis J. Callahan*
TABLE OF CONTENTS
Introduction.......................................................................................................... 216
I. The Medieval Origins of the Western Legal Tradition................................. 220
A. The Predominance of the Roman Catholic Church in the Formative Period
......................................................................................................................... 221
B. The Normative Framework of the Canon Law......................................... 224
C. Summary ................................................................................................. 226
II. Medieval Church Norms and the Origins of Partnership Law .................... 226
A. Usury Law............................................................................................... 227
1. The Usury Prohibition Generally ......................................................... 227
2. Usury and Partnership .......................................................................... 229
3. Risk Sharing in Partnerships and Fiduciary Duties .............................. 231
B. The Law Merchant, Partnerships, and Church Values ............................ 233
1. The Local Law Merchant and Church Values...................................... 234
2. The International Law Merchant and Church Values .......................... 235
3. The Substantive Law Merchant and Church Values ............................ 237
a. The Robustness of the Canon Law ................................................... 238
b. Oral Contracts .................................................................................. 239
C. Summary ................................................................................................. 240
III. The Effects of the Reformation on England’s Legal Order........................ 241
A. Usury in Common Law Courts ............................................................... 243
B. The Ecclesiastical Conscience in Chancery Court Contract Cases.......... 245
C. Merchants’ Church Values Enter the Common Law............................... 248
1. Merchants Pleading Custom in Common Law Courts ......................... 249
2. Merchants in Chancery Courts............................................................. 250
3. Convergence of Chancery Courts into the Common Law.................... 251
D. The Action of Account–An Illustration of Communal Norms in
Partnerships...................................................................................................... 252
E. Summary.................................................................................................. 253
IV. Communal Norms and the RUPA Fiduciary Duty Debate ........................ 254
A. The Persistence of Church Norms Through the Centuries ...................... 255
* Law Clerk, Hon. D. Brooks Smith, United States Court of Appeals for the Third Circuit. I
thank Jayne Barnard, Richard Hynes, Amy McMaster, Michael Reisman, and Michael Ashley
Stein for their comments on various drafts of this Article, and Beckie Pasipanski for her help in
formatting the manuscript.
215
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B.
The Uniform Partnership Act of 1914 ..................................................... 260
1. The Backdrop of the Industrial Revolution.......................................... 260
2. Fiduciary Duties in the UPA ................................................................ 261
3. Why Partners Might Wish to Waive Fiduciary Duties: Three Examples
..................................................................................................................... 263
C. The RUPA Revolution ............................................................................ 265
1. Fiduciary Duties in RUPA ................................................................... 265
2. The Debate Over the Ought of Fiduciary Duty Rules in RUPA .......... 270
a. The Nature of Partnerships and the Role of Fiduciary Duties .......... 270
b. Economic Arguments....................................................................... 272
c. The Inevitability of Default Fiduciary Duties in Partnership Law: A
Trend Analysis ......................................................................................... 275
D. RUPA as “Norm Entrepreneurship”........................................................ 278
1. A Word about Norms ........................................................................... 278
2. Competing Claims on Meinhard v. Salmon ......................................... 279
3. RUPA Drafters as Norm Entrepreneurs ............................................... 282
a. Recognizing Inefficiency.................................................................. 282
b. Embracing Efficiency....................................................................... 284
E. Summary.................................................................................................. 286
Conclusion ........................................................................................................... 287
INTRODUCTION
The first salvo in the renewed debate over the nature of fiduciary
duties within partnerships was fired even before the National
Conference of Commissioners on Uniform State Laws (NCCUSL) had
completed its first thorough update of general partnership law in over
seventy-five years.1 In the view of Professor Donald J. Weidner, the
Revised Uniform Partnership Act (RUPA) reporter, a “basic policy
decision[]” was to have RUPA “reflect[] the supremacy of the
partnership agreement and minimize[] mandatory rules among
partners.”2 “[D]espite the substantial amount of ink that has been
spilled” over the issue in the decade since its promulgation,3 neither
partnership “contractarians,” who contend that fiduciary duties should
be essentially default rules that can be amended by contractual
1 Donald J. Weidner, Three Policy Decisions Animate Revision of Uniform Partnership Act,
46 BUS. LAW. 427 passim (1991). Begun in 1989, the RUPA drafting committee produced at
least fourteen working drafts before the Conference approved RUPA in August 1994. See Allan
W. Vestal, Choice of Law and the Fiduciary Duties of Partners Under the Revised Uniform
Partnership Act, 79 IOWA L. REV. 219, 223 n.16 (1994) (detailing RUPA’s drafting history).
Citations to specific RUPA sections will be to the 1994 version.
2 Weidner, supra note 1, at 428.
3 Larry E. Ribstein, Fiduciary Duty Contracts in Unincorporated Firms, 54 WASH. & LEE L.
REV. 537, 539 (1997); see e.g., Symposium, Unincorporated Business Entities, 26 J. CORP. L.
803 (2001).
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agreement,4 nor “paternalists,” who argue for mandatory fiduciary duty
rules,5 have discussed the ancient religious roots of the law of partner
relations and its potential to illuminate RUPA’s shift toward a regime of
customizable fiduciary duty defaults.6 The debate, which is largely
normative and speaks directly to the nature of partnerships, to its
detriment so far has ignored the fact that traditional fiduciary
obligations between partners stem from medieval religious noneconomic norms. Church officials in that period viewed emerging
4 The use of “contractarian” here to denote proponents of fiduciary duty default rules in the
partnership context should not be confused with the use of the term to identify scholars who
embrace a “nexus-of-contracts” theoretical model of business organizations. See Stephen M.
Bainbridge, Community and Statism: A Conservative Contractarian Critique of Progressive
Corporate Law Scholarship, 82 CORNELL L. REV. 856, 859 (1997) (reviewing PROGRESSIVE
CORPORATE LAW (Lawrence E. Mitchell, ed. (1995) and describing the contractarian “model of
the firm not as a single entity, but as an aggregate of various inputs acting together with the
common goal of producing goods or services”). Indeed, the RUPA drafting committee at once
rejected the aggregate theory of partnerships which predominated in the Uniform Partnership Act
of 1914 by adopting an entity approach, and granted partners unprecedented leeway to govern
their relationship through contractual agreement. See Donald J. Weidner & John W. Larson, The
Revised Uniform Partnership Act: The Reporters’ Overview, 49 BUS. LAW. 1, 3 (1993) (noting
that as the drafting committee addressed questions of partnership “formation, capitalization,
operation, and breakup . . . it became clear that the entity approach was adopted in virtually every
situation” and that this result reflected an “attempt to give partnerships greater stability”); id. at 2
(“Almost all of RUPA’s rules governing the relations among partners are merely default rules
rather than mandatory rules.”).
5 The term “paternalists” to identify scholars favoring mandatory over default fiduciary duty
rules in the partnership context seems to have been coined by Professor Weidner. See Donald J.
Weidner, RUPA and Fiduciary Duty: The Texture of Relationship, 58 LAW & CONTEMP. PROBS.
81, 86 (1995). This term may strike some as having a negative connotation, thus giving
contractarians an unjustified advantage in framing the terms of the debate. See Amos Tversky &
Daniel Kahneman, The Framing of Decisions and the Psychology of Choice, 211 SCIENCE 453,
453 (1981) (proposing that perceptions are partly controlled by the wording and formulation of an
issue). However, the only competing one-word locutions for scholars favoring mandatory
fiduciary duty rules appear to be “anticontractarians,” see Ribstein, supra note 3, passim, and
“fiduciarians,” see J. William Callison, Blind Men and Elephants: Fiduciary Duties Under the
Revised Uniform Partnership Act, Uniform Limited Liability Company Act, and Beyond, 1 J.
SMALL & EMERGING BUS. L. 109, passim (1997). Though the term “paternalists” leaves
something to be desired, it seems better than referring to these scholars merely in terms of the
competing camp, or with the awkward “fiduciarians.”
6 This Article acknowledges that a profound shift toward default fiduciary duty rules in fact
occurred, despite the occasional instances in which commentators question the clarity of RUPA
on the point. See Ribstein, supra note 3, at 593 (listing RUPA’s duty of loyalty provisions and
noting that some scholars “assert that these provisions prevent only complete elimination of
fiduciary duties,” but acknowledging that the Act’s language “is susceptible to broader
interpretations”); see generally Allan W. Vestal, The Disclosure Obligations of Partners Inter Se
Under the Revised Uniform Partnership Act of 1994: Is the Contractarian Revolution Failing?,
36 WM. & MARY L. REV. 1559, 1565 (arguing that RUPA’s “contractarian revolution” has “come
to an uncertain conclusion”). At a minimum, “RUPA . . . redefines the law of partnership
fiduciary duty obligations in an innovative and controversial way.” J. Dennis Hynes, Symposium
Forward, Fiduciary Duties and RUPA, 58 LAW & CONTEMP. PROBS. 1, 2 (1995). Given that the
relations between partners have been fiduciary in character for over 1,000 years, the shake-up
precipitated by RUPA will likely result in significant movement toward contractarianism.
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commerce as consisting of zero-sum transactions and enforced rigid
communal standards as a bulwark against the soul-corrupting
enticement to be a gainer in the marketplace.
This Article traces fiduciary duty norms to their origins in the
Roman Catholic Church-backed moral norms of the Middle Ages.
These moral norms were intended to check the nascent
commercialization of which the Church was suspicious, and were
therefore purposely counter-market in many respects. The mandatory
fiduciary duty rules of the common law and the original Uniform
Partnership Act of 1914 (UPA), and the lofty dicta of judicial decisions
such as Justice Cardozo’s in Meinhard v. Salmon,7 I will argue, are
vestiges of partnership law’s medieval religious origins, and are illsuited to the modern, secular business world. Understanding the origins
of partnership fiduciary duties undermines paternalists’ assertions that
mandatory fiduciary duty rules are founded on their inherent practical
value, and bolsters contractarians’ arguments that fiduciary duties
between partners should be default provisions amendable by partnership
agreements.
Part I discusses the medieval origins of the Western legal tradition
and the Roman Catholic Church’s central role in generating and
enforcing legal norms throughout Europe during this period of
burgeoning commerce.
Suspicious of the possibility that
commercialization and urbanization would taint men’s souls, the
Church pervasively regulated the emerging marketplace. The legal
regime the Church promulgated as the path to salvation was premised
on moral and communal norms, not economic ones. If the modern
remains of these norms are efficient in certain contexts, it is only by
happenstance; they were originally designed to slow the growth of
commerce. In today’s complex business world, these norms may be in
tension with economic efficiency, discouraging investment and stunting
wealth generation.
Part II explores the primacy of these non-economic norms in
establishing the legal standards governing partner relations. Describing
how the Roman Catholic Church formed and enforced its moral norms
both privately, through Church dogma, sermons, and the confessional,
and publicly, through canon law and ecclesiastical courts, this Part
demonstrates that the Church’s ubiquity and omnipotence in the Middle
Ages enabled it to embed communal norms in partnership law. This
Part focuses on the important role the usury prohibition played in
7 249 N.Y. 458, 464 (1928) (“Many forms of conduct permissible in a workaday world for
those acting at arm’s length, are forbidden by those bound by fiduciary duties. A trustee is held
to something stricter than the morals of the marketplace. Not honesty alone, but the punctilio of
an honor most sensitive, is then the standard of behavior.”).
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implanting and perpetuating communal norms within partnerships.
Part III discusses the survival of the Church’s communal
conception of partnerships through centuries of economic development,
the sweeping changes of the Reformation, and the conflation of
England’s polycentric legal order into the single common law. In short,
the common law absorbed the Church’s moral norms directly through
its reliance on ecclesiastical courts’ usury jurisprudence, and indirectly
through its later adoption of law merchant and chancery court
jurisprudence, both of which had broad jurisdiction over partnership
disputes and were heavily influenced by the Roman Catholic Church, its
institutions, and its law.
Part IV inserts the Church’s communal norms into the modern
debate over fiduciary duties in partnership law. This Part illustrates
how communal norms in partnerships survived centuries of upheaval in
the West to become embedded in the fiduciary duty regime of the UPA.
For most of the twentieth century, these morals-backed fiduciary duties
continued to be viewed as the essential core of the partnership form
itself, as reflected in the rhetoric of Justice Cardozo’s famous Meinhard
v. Salmon decision. This Part then locates the erosion of the moral
construction of partnership fiduciary duties within the law and
economics movement. It argues that applied economics drove the
adoption of default fiduciary duty regimes in the Limited Liability
Company (LLC) and Limited Liability Partnership (LLP) forms by
illustrating the value of enabling partners to self-define their obligations
to each other. The immediate popularity of these new forms and the
strength of the economist’s analytical tools to explain the workings of
the market, spurred the demand for such flexibility in traditional
partnerships, and thus signaled the end of mandatory fiduciary duty
rules in partnership law generally. This Part concludes by casting the
RUPA drafters as norm entrepreneurs who shifted the terms of the
debate and proposed that the benefits of a default fiduciary duty regime
be made available to all partners—even those in the smallest, least
sophisticated partnerships.
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I. THE MEDIEVAL ORIGINS OF THE WESTERN LEGAL TRADITION
F.W. Maitland famously described legal history as a “seamless
web,” continuing that wherever one chooses to begin a historical
analysis of law he must rend the historical web to some degree to reveal
its lessons.8 Beginning the study of the Western legal tradition in the
High Middle Ages is most advantageous because doing so reveals a
great deal about the origins of modern law,9 while sacrificing little that
came before.10 It was in this period that Europe emerged from manorial
society and developed commercial trading markets and organizations to
respond to the pressures of rapid urbanization and a world that now
stretched far beyond the local village.11 Into this commercialized world,
8 Frederic William Maitland, A Prologue to a History of English Law, in 1 SELECT ESSAYS
ANGLO-AMERICAN LEGAL HISTORY 7, 7-8 (1907) [hereinafter SELECT ESSAYS]. Maitland
extended the metaphor in suggesting that discovering the origins of a body of law holds valuable
lessons for the modern scholar. Id. (“The web must be rent; but, as we rend it, we may watch the
whence and whither of a few of the severed and raveling threads which have been making a
pattern too large for any man’s eye.”).
9 See Frederic William Maitland, Why the History of English Law is Not Written, in 1
COLLECTED PAPERS OF FREDERIC WILLIAM MAITLAND 488, 490 (A.L. Fisher ed., 1911) (“I
know just enough to say this with confidence, that there are great masses of medieval law very
comparable with our own.”).
The last decade has witnessed an enormous growth in scholarly interest in the development
and continuing influence of the medieval origins of the Western legal tradition. See, e.g.,
Symposium, Part I, The Development of Law in Classical and Early Medieval Europe, 70 CHI.KENT L. REV. 1465 (1996). Much of this interest is particularly focused on the Roman Catholic
Church, its canon law and ecclesiastical courts. See, e.g., Charles J. Reid, Jr. & John Witte, Jr.,
Review Essay, In the Steps of Gratian: Writing the History of Canon Law in the 1990s, 48
EMORY L.J. 647, 647 (1999) (reviewing four books on medieval canon law published in the mid1990s and observing that “[m]odern Western law owes a profound debt to the canon law of the
Middle Ages”). Many extant commercial and partnership law concepts, beyond the fiduciary
duties which will be developed in this Article, date to the medieval period and to the canon law.
For instance, the concepts that contracts are voidable for duress, mistake, or fraud all trace to
medieval canon law, James Gordley, Why Look Backward, 50 AM. J. COMP. L. 657, 663-64
(2002), as do the partnership rules that partners can bind the firm to contracts and that all partners
are jointly and severally liable for partnership debts, William Mitchell, Early Forms of
Partnership, in 3 SELECT ESSAYS, supra note 8, at 183, 190.
10 HAROLD J. BERMAN, LAW AND REVOLUTION: THE FORMATION OF THE WESTERN LEGAL
TRADITION 4 (1983) (noting the “radical discontinuity between the Europe of the period before
the years 1050-1150 and the Europe of the period after the years 1050-1150” and arguing that
“modern legal institutions and modern legal values . . . have their origin in the period 1050-1150
and not before”); see David J. Gerber, Prometheus Born: The High Middle Ages and the
Relationship Between Law and Economic Conduct, 38 ST. LOUIS L. J. 673, 676 (1994) (arguing
that the “rapid commercialization” and attendant developments in law “transformed medieval
society in the twelfth and thirteenth centuries, and the Western tradition of economic regulation
was forged in response to the revolution it brought about”).
11 Gerber, supra note 10, at 678-79; see also BERMAN, supra note 10, at 102 (noting that “the
emergence of cities and towns is perhaps the most striking socioeconomic change” in the 11th to
13th centuries and estimating that whereas there were perhaps two European settlements with as
many as 10,000 inhabitants in 1050, by 1250 the number had grown into the hundreds).
IN
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however, formerly isolated villagers brought an age-old sense of
community and a customary law rooted in their agricultural past.12
Where formerly survival through a poor harvest depended on one’s
belonging to a community, elevating the common good over that of the
individual, in the new urbanized and increasingly anonymous world, the
individual began to emerge as the central figure.13 Economic changes
outpaced individuals’ ability to adapt psychically, so “[d]espite the
development of newer forms of law from the twelfth century on, this
customary law only gradually lost its authority in many areas,”14 and in
fact, was largely incorporated into the emergent legal rules and
regimes.15
A.
The Predominance of the Roman Catholic Church in the
Formative Period
Throughout the Middle Ages, the Catholic Church “stood at the
apex of society as a centralized, hierarchical institution” which “took
upon itself the role of creating, applying and enforcing basic conduct
norms for society.”16 The Church wielded enormous influence over the
forming legal norms as it had several comparative advantages over
12
13
Gerber, supra note 10, at 681.
See J.H. BAKER, AN INTRODUCTION TO ENGLISH LEGAL HISTORY 9-11 (3d ed. 1990)
(discussing the target of justice as shifting “from communal to personal authority”); BERMAN,
supra note 10, at 102 (identifying the shift with the “merchant class, which in 1050 had consisted
of a relatively few itinerant peddlers, increased sharply in numbers and changed drastically in
character in the late eleventh and the twelfth centuries, first in the countryside and then in the
cities and towns”); see also SIR FREDERICK POLLOCK & FREDERIC WILLIAM MAITLAND, 1 THE
HISTORY OF ENGLISH LAW: BEFORE THE TIME OF EDWARD I 487 (1895) [hereinafter 1 POLLOCK
& MAITLAND] (“There is within the ecclesiastical sphere a well marked movement towards
individualism; it goes on from century to century.”).
14 Gerber, supra note 10, at 681.
15
THEODORE F. T. PLUCKNETT, A CONCISE HISTORY OF THE COMMON LAW 278-79 (2d ed.
1936) (examining how customary law spread through its application in mercantile courts at fairs
and eventually entered the common law); WILLIAM F. WALSH, OUTLINES OF THE HISTORY OF
AMERICAN AND ENGLISH LAW 81 (1924); (declaring that “customary law must be regarded as the
common law in the making, ready to be put in final form as a coordinated, rationalized system of
national law”); see William W. Bassett, Canon Law and the Common Law, 29 HASTINGS L. J.
1383, 1418 (1978) (“No matter what be our religious beliefs, since the canonists struck the spark
to push back the night of the dark ages, we have believed and continued to hold firm the
conviction, against waves of discouragement from almost overwhelming odds, that law is good
and that good laws and good lawyers can make people whole and set them free.”).
16 Gerber, supra note 10, at 683, 684; see also Bassett, supra note 15, at 1387 (“The medieval
canon law was an endeavor to enshrine the Christian ideal in law.”); William Stubbs, The History
of Canon Law in England, in 1 SELECT ESSAYS, supra note 8, at 248, 252 (referring to the
“coercive authority given to the churches in matters of morals becom[ing] . . . a branch of
jurisdiction”).
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secular legal systems.17
First, the Church offered the most highly developed body of law in
the period and had the means to apply it. Ecclesiastical judges readily
incorporated the robust body of Roman law—the sixth century Justinian
Code—into canon law.18 Roman law had been largely forgotten in the
West for four hundred years, but in the eleventh century its rediscovered
texts “began to be systematically and intensively studied as part of the
process of responding to commercialization and urbanization.”19 Given
canonists’ attachment to the heights of Roman civilization, the study of
Roman law was perfectly situated to inform a societal reordering along
commercial lines.20 Canon law provided the normative framework for
canonists and theologians,21 and together with the comprehensive
Roman law formed the foundation of the emergent autonomous
discipline of law.22 Moreover, the ecclesiastical court jurisdiction
claimed by canonists up to the Reformation was virtually limitless.23
17 ARTHUR R. HOGUE, ORIGINS OF THE COMMON LAW 34 (1966) (“[E]very ruler in medieval
Europe . . . confronted on all sides the claims of the Church of Rome, which asserted that spiritual
authority was superior to secular authority throughout Chirstendom.”). To be sure, there were
many competing courts in the “polycentric legal order” which developed. Todd J. Zywicki, The
Rise and Fall of Efficiency in the Common Law: A Supply Side Analysis, 97 NW. U. L. REV. 1551,
1581-83 (listing in addition to ecclesiastical courts, the King’s Bench (common law courts), local
county courts, borough courts, and the law merchant). Jurisdictional boundaries were fluid and
courts would vie for lucrative court business. Edward Jenks, Edward I, The English Justinian, in
1 SELECT ESSAYS, supra note 8, at 139, 151 (noting that the crown, the Church, feudal nobles,
merchant guilds, the shire and hundreds courts, among others, were “competitors for the
profitable business of judicature”); Zywicki, supra, at 1583-1585.
18 JAMES A. BRUNDAGE, MEDIEVAL CANON LAW 156 (1995); R. H. HELMHOLZ, ROMAN
CANON LAW IN REFORMATION ENGLAND 151-52 (1990); 1 POLLOCK & MAITLAND, supra note
13, at 93-96. The medieval canonists’ “study of the Roman law centered on the texts known as
the corpus juris civilis, which were compiled and edited under the Eastern Emperor Justinian in
the sixth century.” Gerber, supra note 10, at 691. Though there are fine distinctions between the
Justinian Code and Roman law, they are beyond the scope of this Article and the terms will be
used interchangeably.
19 Gerber, supra note 10, at 690-91.
20 Bassett, supra note 15, at 1406 (“[The canonists] borrowed very heavily from [the Roman
law], using for their own purposes its principles, terminology, and concepts, particularly in the
area of contracts and procedure.”); Gerber, supra note 10, at 691-92.
21 Bassett, supra note 15, at 1386 (“Medieval canon law served to diffuse the Judeo-Christian
heritage of values surrounding the dignity of man through countless practical ramifications in life
and social structures.”).
22 See id. at 1386 (“The canon law in its mature form was an international system of law
created in the early Middle Ages as the first completely rational and scientific system of law the
world has known.”); Gerber, supra note 10, at 693 (observing that “Roman law and canon law
developed symbiotically” and that the “basic principles of canon law were often indistinguishable
from their Roman law counterparts”); see also BERMAN, supra note 10, at 150 (“The European
jurists who revived the study of Roman law in the eleventh and twelfth centuries set out to
systematize and harmonize the huge network of Roman legal rules in terms both of general
principles and of general concepts” in much the same way theologians were doing with sacred
texts.).
23 PLUCKNETT, supra note 15, at 271 (“During the middle ages the Church was the one body
which exercised universal jurisdiction.”); 1 POLLOCK & MAITLAND, supra note 13, at 111 (noting
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The unique combination of the robustness of the canon law and the
familiarity of the Church’s teachings made the ecclesiastical courts the
courts of choice for the burgeoning merchant population.24
Second, the character of the Church was transnational.25 In a time
when national sovereigns were still struggling to wrest control from
autonomous cities and powerful local rulers, and to exert their influence
on a nationwide basis,26 the institution of the Church had no competitors
which approximated its reach.27 This allowed the Church to assert
jurisdiction over travelers28—a key component of economic
regulation—and to incorporate the best practices of far flung courts.29
The regulatory reach of the Church was no doubt facilitated by its sheer
pervasiveness: “With few exceptions, the entire population of Europe
that “from the middle of the thirteenth century onwards a very large mass of litigation, of
litigation too which in no very strict sense can be called ecclesiastical, was handed over to
tribunals which administered the canon law, tribunals which were often constituted by a papal
rescript, and from which there lay an appeal to the Roman curia”); Bassett, supra note 15, at 1408
(“The financial, legislative, and judicial claims of the church wove the temporal and spiritual
tightly together in the fabric of medieval life.”); Stubbs, supra note 16, at 270 (“[Canon law]
claimed jurisdiction over everything that had to do with the souls of men, and I think there is
scarcely a region of social obligation into which, so defined, it would not claim to enter.”).
24 Zywicki, supra, note 17, at 1591 & n.159 (noting that the “strong intellectual framework of
the canon law, especially when compared to the English common law,” made the ecclesiastical
courts attractive to traders); see BERMAN, supra note 10, at 339 (noting that merchants agreed
that “the salvation of their souls depended on the conformity of their practices to a system of law
based on the will of God as manifested in reason and conscience”); see also BAKER, supra note
13, at 148 (“The Canon law of the Western Church was taken to apply to all Christians in all
places, and nearly all people in England were (or were deemed to be) Christians.”).
25 BAKER, supra note 13, at 147 (noting that by “the end of the twelfth century . . . the Church
and its legal administrators had constructed a transnational hierarchy of tribunals, with the pope at
its apex”); Gerber, supra note 10, at 683 (referring to the Church as “the most powerful institution
in Europe, wielding extraordinary political and intellectual authority throughout all levels of
society”); Zywicki, supra note 17, at 1593 (“The universal reach of the church crossing national
boundaries also had the effect of universalizing law, creating a type of ‘law of nations’ that could
be applied nearly uniformly throughout Europe.”).
26 See HOGUE, supra note 17, at 32-34 (commenting on the difficulties the central
administration in medieval France faced in wresting control from powerful lords); WALSH, supra
note 15, at 73-77 (detailing the long process by which the King’s Court displaced manorial
courts); Gerber, supra note 10, at 681-83 (discussing how the “feudal dispersion of political
authority” throughout Europe enabled the Church to assert authority).
27 BERMAN, supra note 10, at 118 (observing that in the eleventh century, through “new types
of law” the Church needed “to implement in a deliberate and programmatic way its proclaimed
mission to reform the world”); PLUCKNETT, supra note 15, at 14-15 (calling the “universal
Church . . . the highest ideal of government which then existed”); Bassett, supra note 15, at 1393
(“No other European ruler of the thirteenth and fourteenth centuries had such a cosmopolitan
galaxy of legal talent, learning and practical experience at his disposal as the Pope.”).
28 BERMAN, supra note 10, at 222; Reid & Witte, supra note 9, at 650.
29 1 POLLOCK & MAITLAND, supra note 13, at 92-93; see BERMAN, supra note 10, at 162
(noting that canon law was taught “in the universities to law students gathered from all the
countries of Europe”); Peter D. Jason, The Courts Christian in Medieval England, 37 CATH.
LAW. 339, 339 (1997) (observing that “the ecclesiastical courts operated similarly throughout
Western Europe”).
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‘belonged’ to the church.”30
Third, the Church was able to spread canon law and its moral
conception of law and community through its dominance of European
universities.31 Concurrent with the rise of commercialization and
urbanization in twelfth century Europe, universities emerged as rivals to
monastery schools.32 However, in universities, too, “theology and
canon law were often core subjects; faculties were often dominated by
clergy; and the papacy often had ultimate control over major issues of
educational policy.”33 Other than books of Justinian Code, the texts
used in university legal education were overwhelmingly religious, and
included “the Bible, the writings of church fathers, the decrees of
church councils and popes, and other sacred texts.”34
B. The Normative Framework of the Canon Law
The Church greatly influenced the emerging legal order, directly
through canon law and ecclesiastical courts, and indirectly through
canon law’s impact on secular legal regimes and theologically-informed
legal teaching at Church-dominated universities.
The Church’s
influence would be of purely historical interest were it exclusively
procedural in character. Not surprisingly, however, the emerging law
had a powerful normative basis, a moral framework that in many
situations impeded the growth of commerce.
In the medieval period, to be European was nearly synonymous
with being a Christian.35 The Church “wielded a real authority over the
faithful,” and the pope, as the head of its hierarchy, was charged with no
less a duty than “to lead men to eternal life.”36 Throughout the period
“the canonists were constantly endeavoring to make their system
30
31
Gerber, supra note 10, at 683.
Bassett, supra note 15, at 1406; Gerber, supra note 10, at 687; Stubbs, supra note 16, at
266 (referring to the Church’s “educational machinery for training her lawyers”).
32 Gerber, supra note 10, at 687.
33 Id.
34 BERMAN, supra note 10, at 163. Even students interested only in secular legal systems
studied canon law and used its terminology and method of inquiry. Id. at 162; Reid & Witte,
supra note 9, at 661 (tracing the “Church’s precocious development of canon law from 1140 to
1375” to the University of Bologna, which “had become the center of an emerging academic legal
culture”).
35 Gerber, supra note 10, at 683 (“Europe during this period was a Christian civilization,
organized and dominated by Christian symbols, ideas and institutions.”). Ecclesiastical courts
even had jurisdiction over Jews in cases brought against Christians, or where the “secular
authorities did not offer adequate protection to them.” BERMAN, supra note 10, at 222.
36 William Searle Holdsworth, The Ecclesiastical Courts and Their Jurisdiction, in 2 SELECT
ESSAYS, supra note 8, at 255, 255-57; see Bassett, supra note 15, at 1408 (noting that “canon law
was an integral part of Christian society, an indivisible factor in a holistic world view”).
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correspond as closely as possible with the ideal of Christian conduct,
and to reduce to a minimum the divergence between law and morals.”37
Moral norms were reinforced both publicly, through canon law enforced
in ecclesiastical courts, and privately, in the confessional, creating a
mutually reinforcing system of norm standardization and enforcement.38
Grounded in community values, Church norms were often inimical
to commerce and wealth creation. Viewed as pitting believers against
each other, mercantile profit endangered the Church’s conception of
society as a communal endeavor, and was closely circumscribed.39 In
the canonists’ zero-sum view of the nascent marketplace, “commercial
activity [was] incompatible with religious salvation,” so the emerging
merchant class was seen as especially vulnerable to market
temptations.40
While profits taken from agricultural or textile
production were viewed positively, the Church “regarded as suspect
profits of speculation, banking, and finance.”41 Moreover, the Church
declared the principles of supply and demand unjust. Instead of
allowing market forces to drive wages and prices, the Church created a
regulatory regime which fixed standards of value.42
By linking commercial activity to temptation, and by framing
mercantile profit making and financing activity as contrary to
communal values, the Church was able to establish pervasive control
over economic matters.43 For instance, the Church adjudicated contract
37 PLUCKNETT, supra note 15, at 269; see Bassett, supra note 15, at 1387 (“The canon law
carried a detailed ideal of life and practical adjudication of life’s affairs, deliberately intended to
be an example to secular jurists, both to civilists of the Roman-law tradition and the common-law
practitioners, of how law should relate to justice from the ideal vantage point of a Christian
perspective.”).
38 By the twelfth century, the Church had long been circulating penitential texts to clergy, and
these became a sort of legislative guide for ecclesiastical courts. Bassett, supra note 15, at 1390;
id. at 1407 (noting that the Church “provided simple manuals of canon law for parish clergy and
confessors”); Reid & Witte, supra note 9, at 660; see Gerber, supra note 10, at 685 (interpreting
the “internal forum” of the confessional as mediating the relationship between an individual and
God and the “external forum” of ecclesiastical courts as “structuring the relationship between the
individual and the Christian community”).
39 JOHN T. NOONAN, JR., THE SCHOLASTIC ANALYSIS OF USURY 31-32 (1957) (observing
that though medieval religious scholars understood that merchants naturally expect some profit on
their contracts, profits from trading were capped at “a fair return for his labor and investment”).
40 Gerber, supra note 10, at 697; see id. at 696 (“The church’s dominant role in society meant
that its values would be the starting-point for responding to the market, and the church’s tradition
was filled with antipathy to commerce.”).
41 PLUCKNETT, supra note 15, at 270. Related and telling, it was in this period that certain
religious orders came to renounce wealth and practice self-induced poverty as a path to spiritual
salvation. Gerber, supra note 10, at 698.
42 PLUCKNETT, supra note 15, at 270.
43 BRUNDAGE, supra note 18, at 175 (“Canonical rules . . . reached . . . into virtually every
nook and cranny of human conduct, both public and private.”); Zywicki, supra note 17, at 1591
(“The assertion of authority over all ‘spiritual matters’ meant in practice that the church was able
to create a sort of ‘shadow claim’ for almost every claim recognized in other legal jurisdictions,
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disputes, exerting jurisdiction over oath-based promises, and in the
process shaped the long-established values of the Christian community
into a “good faith contracting” norm which displaced the formalism of
the Roman law.44 Similarly, the Church injected its notions of fairness
and justice into the marketplace by reawakening the “just price” theory
of the Justinian Code, thereby encouraging “the regulation of
prices . . . on the grounds that it protected the common welfare.”45
C.
Summary
This Part has shown that the Western legal tradition originated
concurrently with the rise in commercialization and urbanization in
eleventh to thirteenth century Europe, and that the Roman Catholic
Church was the predominant generator and enforcer of commercial law
and the moral norms on which the pervasive regulation of the
marketplace was based. The importance of this phenomenon in
informing the modern debate over the nature of fiduciary duties in
partnership law depends on two criteria: (1) the degree to which those
norms were embedded in the law of partnership as it formed; and (2) the
degree to which the norms were replicated as secular authority
displaced theocratic institutions and passed into the common law. Part
II addresses the first criterion and Part III the second.
II. MEDIEVAL CHURCH NORMS AND THE ORIGINS OF PARTNERSHIP LAW
The foregoing examination of the medieval origins of much of our
commercial law tradition, the centrality of the Church in regulating
economic conduct through norm generation and enforcement in the
formative period of the Middle Ages, and the content of a sample of
from contract, to debt, to criminal law, to testamentary succession.”); see S. F. C. MILSOM,
HISTORICAL FOUNDATIONS OF THE COMMON LAW 201-02 (2d ed. 1981) (noting that the Church
claimed jurisdiction over lay debts as actions for breach of faith).
44 PLUCKNETT, supra note 15, at 270; see 1 POLLOCK & MAITLAND, supra note 13, at 187-90
(detailing the process by which the Church claimed broad jurisdiction over contracts, whether or
not the parties had exchanged formal oaths, and noting that ecclesiastical courts viewed contracts
as “pledges of honour” by which man “has pawned his religion; very often, he has placed it in the
hand of the bishop”).
45 Gerber, supra note 10, at 699, 714-20; see BERMAN, supra note 10, at 21 (commenting that
the Church promoted a “realization of justice . . . proclaimed as a messianic ideal of the law
itself,” associated in the Middle Ages “with the Last Judgment and the Kingdom of God” and
later “with public spirit, fairness, and the traditions of the past”); Bassett, supra note 15, at 141718 (noting that ecclesiastic chancellors and canon lawyers developed the “notions of good faith,
fairness, [and] balancing of hardships”).
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those norms provides a context for studying substantive bodies of
commercial regulation which emerged in the period. As the cornerstone
of all business associations, partnerships present a rich commercial
subject to study in the medieval context, and there is strong evidence
that the Church was particularly able to embed its communal norms in
partnership law. First, through ecclesiastical court jurisdiction over
usury, the Church set and monitored the boundaries of acceptable
behavior between partners to determine whether a given association was
a licit partnership or an illegal usury-evading conceit. Second, the
canon law greatly influenced the law merchant, where much of the law
of partnership developed. The inflexibility of the Church’s moral norms
hindered some economically advantageous partnership arrangements,
placing market forces in opposition to the law. It is the clash of Churchgenerated communal values (akin to mandatory fiduciary duty rules)
and secular efficiency (amendable default rules) that echoes today in the
ongoing debate over the nature of fiduciary duties in RUPA.
A.
1.
Usury Law
The Usury Prohibition Generally
Usury refers to interest on loans, and the Book of Deuteronomy
condemns it as a sin.46 Therefore, it is not surprising that for the
Catholic Church in the Middle Ages the “prohibition of usury was the
single most important economic conduct norm during this period and
for centuries afterward.”47 Apart from the occasional itinerant trader,
Europe had been local, communal, and agricultural; significant
commercialization and urbanization were new phenomena. In a world
view limited to subsistence, one unit today—whether it be a measure of
wool, a pig, a bushel of grain, or a coin—would equal one unit
tomorrow. Money was considered “sterile;” it did not increase or
diminish over time.48 From this perspective, the usury prohibition was
46 Deuteronomy 23:19 (“Thou shalt not lend upon usury to thy brother; usury of money, usury
of victuals; usury of anything that is lent upon usury.”).
47 Gerber, supra note 10, at 703.
48 NOONAN, supra note 39, at 100; id. at 43 (linking early theologians’ absolute prohibition of
interest on loans to the “unnatural” idea of selling time, time being uniquely the realm of God).
Professor Noonan considers the study of usury as it relates to the time value of money to be “the
midwife of modern economics,” because “to classify economic activities [and] to determine the
nature of money and the factors affecting its price . . . are original scholastic achievements.” Id.
at 2; see BRUNDAGE, supra note 18, at 78 (“The anti-usury regulation of the medieval church
represented an early effort to formulate an economic theory that rested on the perception that
economic policy involves moral issues.”).
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absolute and included any profit on a loan.49
Reflecting the sterility of money theory, the canon law promoted
the belief that only charitable loans were acceptable.50 The linking of
charity to loans answered the Church’s communal “precept of helping
one’s neighbor in necessity” because the need for a loan would most
often arise when the borrower had suffered some misfortune,51 and
would therefore be in a weak bargaining position.52 “In such situations
the cohesiveness of the community required that others make the
needed loan without asking for the payment of interest.”53 Because a
lender could not receive title to repayment beyond the principal, any
interest-bearing loan was considered usurious.54
The nascent economy of the twelfth century demanded flexibility
in lending for profit, and placed the Church’s broad definition of usury
and its underlying communal values in opposition to the forces of
commercialization.55
Merchants attempted to evade the usury
prohibition through credit sales and contracts of sale and resale, but the
Church policed these devices vigorously,56 and ecclesiastical courts
continued to punish usury as a moral offense, just as they did
drunkenness, incest, and witchcraft.57
Significantly, usury was
49 NOONAN, supra note 39, at 32 (distinguishing between the medieval canonists’ view of
allowable profits on trading contracts and interest payments on loans, and concluding that “[i]t is
only profit on a loan that is condemned”); see id. at 31 (noting that early canonists made “no
attempt to analyze ‘profit’ as modern economics does, but the term is used in its common-sense
meaning of the gain that is normally sought by every businessman as the reward of his industry
and investment”).
50 Id. at 42-43.
51 Id. at 42.
52 Gerber, supra note 10, at 705.
53 Id.
54 NOONAN, supra note 39, at 100-01.
55 Gerber, supra note 10, at 706 (“Beginning about the middle of the twelfth century, the
church made usury the target of an intense campaign that lasted for centuries. Usury became the
symbolic focus of resistence to the threatened moral harms of commercialization, and the church
attacked it vigorously at all levels.”); see R. H. Tawney, Introduction to THOMAS WILSON, A
DISCOURSE UPON USURY 105 (2d ed. 1963 (1925)) (1572) (“If the divine was shocked at the
apparent incompatibility between the phenomena of early capitalism and Christian morality, the
plain man in the village and borough felt a vague uneasiness at the growth of a power which
seemed to menace his independence. . . .”).
56 NOONAN, supra note 39, at 90, 95; id. at 98 (allowing that “just price” analysis was slightly
more tolerant than usury analysis of merchants realizing small gains on resale contracts); see R.
H. HELMHOLZ, CANON LAW AND THE LAW OF ENGLAND 324 (1987) (“The medieval church
claimed exclusive jurisdiction to determine what conduct amounted to usury.”).
57 Holdsworth, supra note 36, at 295. One punishment for usury, excommunication (that is,
literal ejection from the community), was “a real and considerable penalty under medieval
conditions.” HELMHOLZ, supra note 56, at 324; see Holdsworth, supra note 36, at 271 (noting
that membership in the Church was a prerequisite for enjoying full rights from the state); Stubbs,
supra note 16, at 271 (terming the penalty of excommunication “the dread writ”). See generally
HELMHOLZ, supra note 56, ch. 6 (“Excommunication as a Legal Sanction: The Attitudes of the
Medieval Canonists”).
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classified as an offense against justice, which “entailed the obligation of
reparation of the damage or restitution of the loss, as a condition for
absolution; [whereas] a sin against charity required simply internal
sorrow for forgiveness.”58 Placing the usury prohibition in the category
of justice rather than charity made it a public offense akin to theft, and
made the doctrine applicable to a wide range of business transactions.59
This conceptualization of usury enabled it to become the theoretical font
of the Church’s overall effort of market regulation,60 which viewed
money as a measure, no different than a measure of length or weight,
and which remained stable over time.61 Thus, the Church required that
wages and prices be fixed.62 Slight deviations due to supply and
demand were tolerable as fortuitous circumstances, but unlike one’s
labor or purchased food, money was not consumed in its use, and so it
could not be “sold” for interest profit.63
From the twelfth to the fifteenth centuries the absolute prohibition
on usury slowly eroded as canonists added seemingly-narrow
exceptions which were widely practiced.64 However, the Church
erected obstacles to change, and guarded the parameters of usury—and
its prerogative to define it—vigorously.65 The most important exception
to the usury prohibition was the partnership, which became a “great and
universal form of licit investment throughout medieval Europe.”66
2.
Usury and Partnership
The earliest law of commercial partnerships is found in the
Babylonian code from 2300 B.C., and ancient Jewish and Chinese law
included partnership provisions.67 The partnership law that formed in
58
59
NOONAN, supra note 39, at 30.
Id.; see WYNDHAM ANSTIS BEWES, THE ROMANCE OF THE LAW MERCHANT 59 (F. B.
Rothman 1986) (noting that in the Middle Ages the prohibition of lending on interest was
universal).
60 Gerber, supra note 10, at 708; Tawney, supra note 55, at 107 (explaining that it was
“through the theory of usury that the most persistent attempt had been made to translate [the
Church’s] general ethical conceptions into a legal system applicable to the particular transactions
by which property is acquired and trade carried on”).
61 NOONAN, supra note 39, at 52.
62 PLUCKNETT, supra note 15, at 270.
63 NOONAN, supra note 39, at 52-53 (tracing the full development of this notion to the work
of St. Thomas Aquinas in the late thirteenth century).
64 Id. at 100. Early exceptions involved thinly-veiled conceits, such as the interest being a
voluntary “gift” to the creditor, id. at 104-05, or an allowable demand from an “enemy,” id. at
101-02, or “unjust possessor,” id. at 103.
65 Id. at 100-32.
66 Id. at 133.
67 SCOTT ROWLEY, 1 THE MODERN LAW OF PARTNERSHIP 1-6 (1916).
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medieval Europe was largely based in Roman law68 and developed out
of the practical necessity to cooperate, not as a means of evading the
usury prohibition. What did become prevalent, and linked the usury
prohibition to the forming partnership law, were profit-seeking
partnerships in which one party contributed money alone and the other
only labor.69 Such an arrangement, known as a societas, was very
similar in form to a loan because the “money partner” expected to turn a
profit from his investment. This posed conceptual difficulties for the
Church because to accept a societas, it would have to adjust its notions
of the sterility of money and the associated fixed standards of value.70
Theologians from the twelfth to the fifteenth centuries came to
distinguish the societas from interest-bearing loans through a two-step
process. First, “in partnerships money was tacitly identified with the
goods it [bought],” and therefore lost its non-consumable character.71
Second, whereas in a loan, the lender was viewed as ceding ownership
to the money, in a societas the money partner was considered to have
retained ownership of his money through his continuing interest in the
purchased goods.72 To be sure, the logic that led to placing interestbearing loans and for-profit partnerships in separate conceptual bins
seems faulty at first blush,73 but the leading modern scholar on usury
has offered a reasonable justification for the different approaches taken
by the Church:
In the partnership the rate of return was normally closely related to
what the capital earned. In a loan there was no assurance that a
lender’s profit bore a fair relation to the productive power of his
capital. No business would knowingly borrow at more than it could
earn; but, unlike a partnership, a borrowing business would be held
to pay the fixed interest it promised.74
The defining characteristic that separated allowable partnerships
68 NOONAN, supra note 39, at 133-34; Mitchell, supra note 9, at 187; Samuel Williston, The
History of the Law of Business Corporations Before 1800, in 3 SELECT ESSAYS, supra note 8, at
195, 196-98.
69 NOONAN, supra note 39, at 134; see BEWES, supra note 59, at 77 (arguing that the
forerunner of today’s limited partnership “was invented in part to avoid the prohibition on usury
and in part to protect the dormant partner”).
70 NOONAN, supra note 39, at 133-53. Apparently, the Church had good reasons to temper its
antipathy to commerce by allowing some room for partnerships. Merchant donations funded the
construction of churches and the “refined lifestyles” of monastic orders which did not adopt
poverty as a purifying path to salvation. Gerber, supra note 10, at 700.
71 NOONAN, supra note 39, at 152.
72 PATRICK CLEARY, THE CHURCH AND USURY: AN ESSAY ON SOME HISTORICAL AND
THEOLOGICAL ASPECTS OF MONEY LENDING 82 (1972); NOONAN, supra note 39, at 135.
73 See NOONAN, supra note 39, at 136-152 (evaluating the uneven and often theoretically
contradictory efforts of canonists to distinguish interest on loans from profits on money invested
in partnerships).
74 Id. at 152.
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from usurious “fictitious partnerships”75 was the element of risk; as long
as the money-provider, or “sleeping partner,” bore his share of the risk,
the relationship would be considered a licit partnership, not a loan for
profit.76 The ecclesiastical courts thus came to monitor the relationships
between partners very closely to determine whether each bore an
amount of risk proportionate to their investment.77 Usury suits were
commonly litigated in ecclesiastical courts, and the courts themselves,
as part of the Church’s overall regime of economic regulation in the
period, would bring criminal suits against suspected usurers, their
families, and even on “persons failing to report usurious activities to
church authorities.”78
3.
Risk Sharing in Partnerships and Fiduciary Duties
Under Roman law, a societas “create[d] a certain right of
fraternity” which was “destroyed if one partner secure[d] himself
against all loss.”79 This sense of fraternity within a partnership was
fortified by the canonists’ application of the Church’s communal values
which contradicted the competitive impulse of the marketplace. The
result was a jurisprudence wherein “any bargain from which one party
obviously gained more advantage than the other and pressed his
economic opportunity” was prohibited.80 The prohibition was absolute,
as even risk allocations between sophisticated merchants, if
75
76
Tawney, supra note 55, at 133.
Id. at 108; see NOONAN, supra note 39, at 135. Risk-sharing by the “money partner” in a
societas may have been allowable in a way that default risk by a for-profit money lender was not
because the “money partner’s” risk was tied to whether the enterprise succeeded. That is, if a
societas did poorly, the “money partner” would not have a claim on the “labor partner” for
whatever portion of the money invested was lost, much less could the “money partner” demand
profit that did not materialize. In a for-profit business loan, however, a lender retains a claim for
his investment and agreed-upon profit (interest) even if the underlying enterprise fails. See id. at
152.
77 CLEARY, supra note 72, at 120-21; Tawney, supra note 55, at 132; Gerber, supra note 10,
at 711-12; see Tawney, supra note 55, at 132-33 (noting that partnership-related methods
attempted by those wishing to disguise loans, including “payment for fictitious consideration
[and] loans in the shape of wares priced at double their market value,” were scrutinized for
usuriousness for hundreds of years). Tawney identifies several other types of contractual devices
for disguising usurious contracts from the ecclesiastics: ”time bargains,” “excessive security,
[and] the exaction of interest in kind or in personal labour.” Id. at 133; see also HELMHOLZ, supra
note 56, at 325, 330-32 (discussing other types of “subterfuge” or “‘cloaked’ usury”). These
efforts apparently met with varying degrees of success. See BEWES, supra note 59, at 39
(“[Usury] proved inconvenient to the Church as well as to merchants; so the ecclesiastical
lawyers, never at a loss in a good cause, found abundant ways of evading the plain injunctions of
the Church.”).
78 Gerber, supra note 10, at 711; see HELMHOLZ, supra note 56, at 326.
79 NOONAN, supra note 39, at 141.
80 Tawney, supra note 55, at 128.
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disproportionate to each party’s investment, were viewed as potentially
corrupting the community through the higher prices which might result
from such arrangements.81 The overriding principle was that the
“intrinsic nature of the [partnership] contract is violated, if risk is not
borne fraternally, in common.”82
The core value of the societas, that it was a fraternal endeavor,
largely determined the reach of partners’ fiduciary duties. First,
partnerships were to operate under a proportionality principle, which
dictated that a societas would be licit only if the partners “share[d] the
loss and gain in proportion to their contributions.”83 Second, partners
were liable in common for harm done in the conduct of partnership
business. The canonists adopted the Roman law view that “all partners
may be assessed on all their property for damages caused by a member
acting for the partnership.”84 Third, partners owed each other a duty of
forthcomingness, a principle most clearly illustrated in the division of
partnership profits: “[I]f a partner keeps back part of the partnership’s
profit and uses it for his own benefit before restoring it to the common
fund, he is held to pay his partner for the damages caused by this
delay.”85 Fourth, unlike the main partnership form of the Roman law
which limited the money partner’s liability to his capital investment (an
agency model), the prevailing partnership form of the canonists allowed
partners to bind each other to contracts (a fiduciary model).86
By establishing and enforcing these unalterable bonds and duties
between partners—proportionate risk-sharing, common liability,
forthcomingness in accounts, and the ability of partners to bind each
81 Id. at 117. The “just price” norm was nearly as robustly developed by the canonists as the
usury prohibition norm. The concepts are related, and just price theory was important in
supporting the Church’s regulation of price-fixing, sales on credit for a premium price, and credit
sales on speculative commodities. See generally NOONAN, supra note 39, at 82-99; Gerber,
supra note 10, at 714-20.
82 NOONAN, supra note 39, at 141.
83 Id. at 147.
84 Id. at 134; see Mitchell, supra note 9, at 183, 186 (“It became an essential feature of [the
societas] that the partners were all of them responsible individually for the debts of the firm.”).
85 NOONAN, supra note 39, at 106. Recall that in the societas, the money partner’s
investment was associated with the goods it purchased, and thus lost a measure of its “sterile”
character, legitimizing a risk-proportionate profit, or, in this case, giving rise to damages if one
partner withheld money from the partnership. See id. at 152. Disputes within partnerships were
adjudicated in actions of account. 1 POLLOCK & MAITLAND, supra note 13, at 219-20
(discussing the action of account among trading partners and within partnerships); see
PLUCKNETT, supra note 15, at 326-27 (tracing the action of account to 1232 and noting that
“quite early in its career the action of account could also be used between partners”).
86 See BERMAN, supra note 10, at 149 (arguing that the Justinian Code’s lack of a “general
concept of binding promises” prohibited it from recognizing the types of contracts that would
allow partners to bind each other within agreed-upon parameters); id. at 354 (linking the notion
that a “partner acting alone could bind the partnership” to the canonists’ development of the
“principle of the collective personalty of the members of the association”).
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other to contracts made in furtherance of the partnership’s business—
the Church adapted the communal values it had promoted in the wider
society to key economic relationships, and at the same time reconciled
its principles with emergent market realities. Just as lending with
interest was condemned as advantage-taking, so was breaching a duty
owed to one’s business partner by upsetting the equitable proportion of
risk assumed by each partner. Among the violations a partner could
perpetrate under the heading “usury” were disproportionate allocations
of risk or profit, agreements which limited a partner’s liability at the
expense of other partners, self-dealing in the distribution of partnership
profits, and binding partners to contracts outside the scope of the
partnership. In the process of adapting the usury prohibition to police
conduct between partners, the Church exported its notion of communal
values to the international trading community through the generalized
concepts of justice and fairness, a topic to which we now turn.87
B.
The Law Merchant, Partnerships, and Church Values
While the canon law and ecclesiastical courts implanted the
Church’s conception of communal values into partner relations through
its jurisdiction over usury suits, the greater measure of partnership law
was developed in mercantile and other secular courts under the rubric
“law merchant.”88 Though the law merchant “has been differently
understood by different writers and continues to be used in widely
divergent senses,”89 some generalizations can be made safely.
Procedurally, the law merchant consisted of both local courts, which
adjudicated disputes in towns and at the many trading fairs which
87 See BRUNDAGE, supra note 18, at 154 (observing that canonists were influenced by
“abstract philosophical speculations” of the time and that this was reflected in their “interest in
analysing the relationship between law, justice and equity”); id. at 155 (noting the great impact of
the canonist Gratian’s declaration that “equity, or fairness, was the mother of justice and hence of
every valid law”); Gerber, supra note 10, at 698-99 (citing the “symbolic significance” of
“justice” as a “repository of . . . communal values. . . . Concepts of justice were designed to
achieve fairness and protect the sense of community in the new environment, and because threats
to the community from this environment were primarily associated with commercialization,
issues of justice focused on economic conduct”).
88 ROWLEY, supra note 67, at 7 (noting that the merchant law was largely based on custom
and that “the greater part of partnership law is an outgrowth of mercantile law”); WALSH, supra
note 15, at 451 (“The law of partnership was, of course, part of the law merchant.”); id. at 452
(noting that the “basic principles [of partnership] go back . . . to the early Middle Ages and the
law of merchants”); Zywicki, supra note 17, at 1599 (“Modern conceptions of partnership and
other business forms originated in the law merchant.”).
89 J. H. BAKER, The Law Merchant and the Common Law Before 1700, in THE LEGAL
PROFESSION AND THE COMMON LAW: HISTORICAL ESSAYS 341, 341 (1986) [hereinafter
HISTORICAL ESSAYS].
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formed in the medieval period, and courts of a more international flavor,
which presided over the burgeoning Mediterranean Sea trade.90 The
main procedural virtue of both broad types of courts was speed of
adjudication.91 Substantively, mercantile courts applied a mix of
common law, Roman law, and a customary law of merchants, or lex
mercatoria.92 Though many details of the law merchant remain
obscure,93 both the procedure and the substance of the law merchant
strongly suggest that its prominence in the developing law of
partnership promoted the moral values of the Church and helped to
embed these non-economic principles in business relationships.94
1.
The Local Law Merchant and Church Values
It bears repeating that to be European in the Middle Ages was
nearly synonymous with being a member of the Roman Catholic
Church. Also, because the “middle ages thoroughly believed in the
public regulation of every sort of activity,”95 it stands to reason that “the
law which these local mercantile authorities administered” would be
imbued with the Church’s values and symbolism.96 Indeed, courts at
trading fairs in England reveal “numerous actions upon contracts of sale
which had been concluded by the typically mercantile form of payment
of earnest money or God’s penny.”97
90 William Searle Holdsworth, The Development of the Law Merchant and its Courts, in 1
SELECT ESSAYS, supra note 8, at 289, 294-304 (discussing several manifestations of the law
merchant–local courts under the heading “commercial courts,” and international courts under the
heading “admiralty courts”).
91 BAKER, supra note 89, at 347 (“The medieval law merchant was . . . an expeditious
procedure especially adapted for the needs of men who could not tarry for the common law.”);
Zywicki, supra note 17, at 1597-98 (noting that the speed of the adjudication process was partly
due to the fact that many courts barred lawyers).
92 Thomas Edward Scrutton, Roman Law Influence in Chancery, Church Courts, Admiralty,
and Law Merchant, in 1 SELECT ESSAYS, supra note 8, at 208, 208-220. The pervasiveness of
the Church ensured that the emphasis on custom was not antithetical to the embedding of
Catholic values into merchant practice.
93 BAKER, supra note 89, at 341.
94 See BERMAN, supra note 10, at 341 (suggesting that ecclesiastical courts influenced a
“movement away from mere custom in the sense of usage (patterns of behavior) to a more
carefully defined customary law (norms of behavior)”).
95 PLUCKNETT, supra note 15, at 594; see Gerber, supra note 10, at 696 (discussing the
overlapping “regulatory space” of the Church and secular institutions).
96 See BERMAN, supra note 10, at 346 (“The merchants were, of course, members of the
church and hence subject to canon law, but they were also members of the mercantile community
and hence subject to the law merchant.”).
97 PLUCKNETT, supra note 15, at 594; 1 POLLOCK & MAITLAND, supra note 13, at 207.
“God’s penny” is “money given as evidence of the completion of a bargain. This name is
probably derived from the fact that such money was given to the church or distributed as alms.”
BLACK’S LAW DICTIONARY 691 (6th ed. 1990).
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The local mercantile courts were “chiefly the courts of fairs, the
courts of the more important towns, and the courts of the Staple.”98
Fairs were important venues of internal and foreign trade, and the “right
to hold a fair meant the right to hold a court of pie powder for the
fair.”99 These commercial courts were participatory in character and
were “marked by speed and informality.”100 Fellow merchants, fellow
guild members, and sometimes the mayor of the town holding the fair
would adjudicate disputes.101 The quick, summary nature of local
commercial litigation was authorized by a “papal bull” in 1306 which
provided a stripped-down procedural outline for resolving disputes, the
benefit of which was reserved for merchants.102 This papal decree
reflected the Church’s view of the communal nature of commerce and
meant that the associated values and norms of behavior expected from
members of the Christian community should be enforced in local
mercantile courts.103 The melding of the spiritual (Church-authorized
communal adjudication) with the secular (quick, final dispute
resolution) in the local courts thus enabled norms of justice and fairness
to take root in the “mercantile class and . . . its law in the formative era
of the Western legal tradition.”104
2.
The International Law Merchant and Church Values
Businessmen trading abroad are naturally leery of having their
disputes adjudicated by foreign courts that may be biased in favor of the
local party. Consequently, in the twelfth and thirteenth centuries, “the
needs of sea-borne traffic led to [the] distinctive creation . . . . [of a]
cosmopolitan Law Merchant . . . . [which] reflected the ultimate move
away from local law towards a universal system of law, based upon
mercantile interests.”105 The Church was the lone transnational
98 Holdsworth, supra note 90, at 298. Staple marts dealt in the “more important articles of
commerce, such as wool, . . . leather, lead, and tin.” Id. at 302.
99 Id. at 298. The term “pie powder” implies the speed with which these fair courts were to
operate. The dispute was to be settled “while the merchants’ feet were still dusty.” BERMAN,
supra note 10, at 347.
100 BERMAN, supra note 10, at 346-47.
101 Id. at 346 (merchants and guild members); Holdsworth, supra note 90, at 298-99 (mayors).
102 BERMAN, supra note 10, at 347-48; LEON E. TRAKMAN, THE LAW MERCHANT: THE
EVOLUTION OF COMMERCIAL LAW 14 (1983) (quoting the papal bull as delegating jurisdiction
over classes of mercantile disputes to the fair courts and “order[ing] the procedure to be simple
and plain and without formal argument and solemn rules of the ordinary procedure”).
103 It should be recalled that all trading activity remained subject to “just price” and
usuriousness review. TRAKMAN, supra note 102, at 8-9.
104 BERMAN, supra note 10, at 348.
105 TRAKMAN, supra note 102, at 8; see BERMAN, supra note 10, at 342 (“In twelfth-century
Europe the transnational character of the law merchant was an important protection against the
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institution in the Middle Ages and offered a common, ready-made
“church law [which] set an example . . . for commercial law.”106 “The
mobility of the merchant carried with it a mobility of local custom from
region to region,”107 and likely led to the sharing of “best practices”
between remote courts.108 Merchants and judges in far-flung locales
were cabined in their decisionmaking by the religion they shared and
the moral principles it promoted, and thus the rules of decision they
compared were all of a type.109 Customs were not premised on laissez
faire principles and hard bargaining. Rather, because local mercantile
courts, with which international merchants must have been familiar,
were imbued with Church-backed norms, the developing law merchant
reflected the spirit that traders were an extended community of
believers. Partnerships operated within this fairness- and justnesspremised community, and therefore the duties partners owed each other
were especially circumscribed.110
Differences between the law merchant’s fraternal principles and
those of the common law courts of the time are illustrated in the two
systems’ treatment of accountings between partners. Whereas under the
law merchant partners owed each other a duty of forthcomingness in the
form of open ledgers, the contrary rule of the common law shows that
the royal courts allowed partners to limit their mutual duties. As stated
by Sir John Davies at the turn of the 17th century, referring to his day’s
disabilities of aliens under local law as well as against other vagaries of local laws and
customs.”); PLUCKNETT, supra note 15, at 588 (noting that the expansion of sea-borne trade
drove the “movement from local law towards a cosmopolitan law”).
106 BERMAN, supra note 10, at 338; id. (noting that the example set by Church law was used
by merchants to distinguish “[l]egitimate trade based on good faith . . . from illegitimate trade
based on avarice, and trade based on legitimate needs . . . from trade based on mere self-interest
or fraud,” and just from unjust prices.); see R. H. HELMHOLZ, CANON LAW AND ENGLISH
COMMON LAW 17 (1983)(“[T]he canon law was one of the influences which helped link the laws
of different parts of Europe.”); TRAKMAN, supra note 102, at 12.
107 TRAKMAN, supra note 102, at 8.
108 See PLUCKNETT, supra note 15, at 279 (referring to “the eagerness with which new
communities compared different bodies of custom in order to chose the one best suited to their
needs”); Zywicki, supra note 17, at 1594 (noting that “much of the fabric of sophisticated
contract law was rooted in the law merchant” and listing some of its innovations).
109 See BERMAN, supra note 10, at 339 (arguing that the pervasive “Christian social theory”
produced a “social and economic morality . . . [to] guide the souls of merchants toward salvation”
and that the Christian morality was embodied in mercantile law).
110 The partnership analogy to marriage had a special resonance in the formative period. As
the Roman Catholic Church was developing its body of corporate law in the eleventh to thirteenth
centuries, a partnership structured to conduct trade “constituted a corporation, without special
permission of a higher authority.” Id. at 219. Likewise, it was not until the sixteenth century that
the presence of a priest became a requirement to formalizing marriage. Id. at 227. Just as
marriages were based on consent and entailed mutual obligations, so did partners owe each other
fidelity, id. at 229, and it is out of the canon law of marriage that many modern business law
concepts, such as the contract doctrines of free will, duress, fraud, and mistake arose. Id. at 22728.
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inherited custom from the medieval period:
If two merchants be joint owners, or partners of merchandizes, which
they have acquired by a joint contract, the one shall have an action of
account against the other, Secundum Legem Mercatoriam, but by the
rule of the common law, if two men be jointly seized of other goods,
the one shall not call the other to account for the same.111
The level of fraternal duties partners owed each other was greater
in the Church-influenced law merchant than in common law courts. As
discussed in Part III.D, when the common law subsumed the law
merchant in the sixteenth century, the law merchant’s rule survived, and
the right of a partner to an accounting became the main mechanism for
policing partners’ fiduciary duties.
If, as Professor Trakman has argued, the “primary source of the
Law Merchant lay in mercantile values,”112 then at the very least, on the
international trading scene “the canon law offered an intellectual
framework to synthesize the law merchant.”113 Perhaps the merchant
law in fact “did little more than echo the existing sentiments of the
merchant community.”114 Given the pervasiveness of the Church and
its secondary jurisdiction to remedy injustices,115 though, that echo
likely sounded like a Gregorian chant. As the next section will show,
the concepts of fairness and justice, embedded at the core of business
relationships through Church-influenced mercantile adjudication,
facilitated merchants’ ability to transact business quickly.
3.
The Substantive Law Merchant and Church Values
As shown above, the Church’s communal values contributed
greatly to the developing law merchant, both in local staple, town, and
fair courts, and in mercantile courts adjudicating disputes involving
international trade. To this point, these values seem to have been
“pushed” onto the decision-making process by virtue of the
pervasiveness of the Church. Everyone belonged to the Church, the
Church aggressively asserted its conception of justice and fairness in the
realm of commercial regulation, and if the mercantile courts “failed” in
111 Francis Marion Burdick, Contributions of the Law Merchant to the Common Law, in 3
SELECT ESSAYS, supra note 8, at 14, 48 (quoting SIR JOHN DAVIES, ON IMPOSITIONS (written
circa 1600) (first ed. 1656)).
112 TRAKMAN, supra note 102, at 13.
113 Zywicki, supra note 17, at 1593.
114
TRAKMAN, supra note 102, at 9.
115 See BERMAN, supra note 10, at 223 (“[A]ccording to canon law any person could bring suit
in an ecclesiastical court, or could remove a case from a secular court to an ecclesiastical
court . . . on the ground of ‘default of secular justice.’”); TRAKMAN, supra note 102, at 8-9.
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the Church’s eyes, the ecclesiastical courts would exercise secondary
jurisdiction over the dispute.116 In addition to this “push-side”
influence, however, the Church’s values, though perhaps in tension with
the interests of some merchants in certain situations, were in many ways
attractive to partners and traders. This “pull-side” was most clearly
shown by merchants contracting to adjudicate disputes in ecclesiastical
courts applying canon law.117 The robustness of canon law, the canon
law’s recognition of oral contracts, and the canon law’s overarching
norms of justice and fairness were three key factors that led to much of
its incorporation into the law merchant.
a.
The Robustness of the Canon Law
The lex mercatoria drew heavily on the canon law, which had
selectively incorporated much of the Roman law.118 As a general
proposition, the canonists rejected the contract formalism of the
Justinian Code, recognizing, for instance, contracts without writings and
absent witnessed oaths.119 By adopting the beneficial aspects of the
Roman law and rejecting the burdensome ones, “the ecclesiastical law
provided a powerful complement to the universalizing nature of the law
merchant . . . . [and] offered a long and intellectually robust legal
tradition that could be grafted onto the law merchant.”120 Canon law
also possessed the unique benefit of transnationality, and thus
116 See BERMAN, supra note 10, at 339 (“From the church’s point of view. . .the lex
mercatoria[] was supposed to reflect, not contradict, the canon law.”).
117 See id. at 223 (describing the “prorogation” process in which contracting parties would
“renounc[e] in advance the jurisdiction of a secular court and provid[e] for recourse to an
ecclesiastical court”).
118 Zywicki, supra note 17, at 1593-94; see PLUCKNETT, supra note 15, at 589 (“The
Church . . . was exerting a growing influence upon mercantile practice.”); see also Scrutton,
supra note 92, at 220, 237-46 (discussing the Roman law’s influence on the law merchant).
119 PLUCKNETT, supra note 15, at 270; see BERMAN, supra note 10, at 245-50.
120 PLUCKNETT, supra note 15, at 589; see id. (noting that Roman law “provided a scientific
apparatus for the development of mercantile law, which, however, remained in substance deeply
tinged with canonist doctrine”); Zywicki, supra note 17, at 1593 (observing that canon law
provided a useful frame of reference for merchant courts “without creating an oppressive set of
procedural and substantive rules”).
One should not forget that canon law was “law” in the modern day sense; it was a scientific
discipline with professional practitioners who could be called upon in complex cases.
HELMHOLZ, supra note 106, at 16 (commenting on the experience of canon law in England and
viewing “canon law not as an elaborate forest of texts, but as a living legal system, one which had
impact on the lives of most Englishmen”); see BRUNDAGE, supra note 18, at 3 (“Men trained in
the law school of Bologna and other recognized centres of canonistic learning could and did
practice their craft virtually anywhere.”); HELMHOLZ, supra note 18, at viii (urging that
“ecclesiastical courts were courts of law. . . . [which] did not simply enforce the political or
religious preferences” of office holders).
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complemented the “best practices” aspect of merchants “sharing their
local law” in remote trading centers.121 Therefore, the canon law was
not only robust, it was familiar. International merchants naturally
seized on the canon law, the principles of which they lived with every
day in their home countries and which promised a degree of similarity
across many jurisdictions, for incorporation into their self-made body of
law.122
b.
Oral Contracts
The Church rejected the contract formalism of the Roman law,
opting instead to enforce oral promises grounded in the good faith of the
parties.123 This feature facilitated the spread and volume of trading
activity by greatly simplifying and speeding the deal-making process.124
The legal recognition of oral contracts was attractive to merchants who
valued speed in contracting and therefore was welcomed into the
growing body of mercantile law.125
The implications of enforceable oral contracts for partnerships,
which were after all a type of contract critical to merchants,126 were
121 BRUNDAGE, supra note 18, at 3 (“While most legal systems were confined to a particular
region or locality, canon law emerged as a working and often quite effective international law.”);
id. (noting that “[c]anonists were often highly mobile where both geographical and occupational
mobility were rare”).
122 See Bassett, supra note 15, at 1407:
[The canonists’] principles and theories existed not only in treatises and court records
but also in the ritual books, sermons, tracts, epistolary communications, laws and
charters of rulers, municipal statutes, chancery regulations, the annals and records of
kings, and numerous specula composed to instruct rulers in Christian virtue and the
ways of government. The canonists interpreted the Bible itself as a fundamentally
legal document, a charter of authority and Christian government. Thus, the canonists
of the classical age left a record of literally thousands of writings whose ultimate
influence upon civilization is impossible to circumscribe.
123 BEWES, supra note 59, at 9 (“Canon law, and not the Roman law proper, was the prevailing
authority and would tend, more than the latter, to favour simple good faith unhampered by
formalities, and thus would extend its influence to the law merchant . . . [which] rested on mutual
confidence and good faith to an extent unknown in civil life.”); see BERMAN, supra note 10, at
247, 250, 349. Good faith, generally defined in the negative as an absence of duress, fraud, etc.
remains a centerpiece of contracts made through arm’s-length negotiations.
124 PLUCKNETT, supra note 15, at 270 (observing that “the liberal and equitable view which
the canon lawyers took of contract considerably aided the development of commerce . . . for it did
not confine contract within the limits of the civil law of a remote age.”).
125 See BAKER, supra note 89, at 349-50 (discussing merchants’ rejection of the use of seals
and legally-binding writings in order to achieve flexibility); BEWES, supra note 59, at 89 (noting
that verbal contracts at trading fairs were generally recognized if completed within one year).
126 The debate over the nature of partnerships, and thus whether fiduciary duties should be
mandatory or amendable, has been said to be a contrast between “fiduciarian” and “contractarian”
perspectives. Callison, supra note 5, at 109. Even “fiduciarians,” however, though they reject
the argument that fiduciary duties should be broadly amendable by contractual agreement,
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especially profound in the Middle Ages, as many partnerships were
short-term, single venture relationships.127 The Church’s view that
good faith promises between believers formed the core of valid
contracts imbued the duties partners owed each other with Christian
values.128 Like a contractual partnership in marriage, a contract
between partners was formed under God as soon as each party freely
consented to enter the relationship.129 Once the partnership—or
marriage—was formed, the good faith owed to adversarial parties in
contract negotiations transformed into the fiduciary obligations owed to
those with whom one shared a relationship of trust and confidence.130
C.
Summary
In the medieval period of burgeoning mercantilism throughout
Europe, moral values were inextricably linked to economic activity, and
the canon law-influenced law merchant served as “a bridge between
mercantile activity and the salvation of the soul.”131 The confluence of
forces marked by a zeitgeist which favored pervasive economic
regulation, an era in which the Church was universal, omnipresent, and
unquestioned by merchants in matters of morals, and the exploding
commercialization of the Middle Ages, “generated a unique conception
of the relationship between law and economic conduct.”132 In
partnerships and other commercial relations, the procedural fairness
principles of the canon law were reflected in the ability of merchants to
recognize partnerships as having contractual elements. Id. at 123.
127 Mitchell, supra note 9, at 183; see BERMAN, supra note 10, at 353-54.
128 BERMAN, supra note 10, at 354 (noting the importance of partnerships to the growth of
commerce and observing that the success of partnerships, which could be formed by oral
agreement, depended on the partners’ confidence that their promises would be kept); see BEWES,
supra note 59, at 137 (recognizing that the necessities of the international marketplace ensured
that “the ideas of good faith and . . . loyalty” would “preside over commerce”).
129 See BERMAN, supra note 10, at 226-27 (noting that marriage was a partnership of consent
and did not require the mediation of a priest until the sixteenth century). Like a marriage
contract, a commercial contract was a promise before God which created mutual obligations, and
could only be nullified if it were unreasonable (that is, made under duress, fraud, or mistake) or
inequitable (violative of the just price norm). Id. at 247.
130 See id. at 353-54 (discussing the “special manifestation of [the good faith] principle” in
various forms of commercial partnerships of the formative era). Interestingly, marriage law has
followed a similar trajectory as partnership law, from norms to contract. JOHN WITTE, JR., FROM
SACRAMENT TO CONTRACT: MARRIAGE, RELIGION, AND THE LAW IN THE WESTERN TRADITION
12 (1997) (“[The] grand movement of Western marriage law in the course of the past
millennium. . . . [has been] from a sacramental model that prioritizes canonical norms and
ecclesiastical structures to a contractarian model that prioritizes private choice and contractual
strictures.”).
131 BERMAN, supra note 10, at 339.
132 Gerber, supra note 10, at 733.
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make binding oral contracts, confident that the prohibition against
advantage-taking would protect each against the “sharp practices” of the
other.133 Moreover, justness principles such as the just price norm, the
prohibition of usury, and the discountenancing of monopolies served as
a substantive line of defense against violations of Church values.134 As
originally conceived, these principles were timeless truths, unalterable
moral signposts to salvation. Part III illustrates how these principles
endured the upheavals of the Reformation’s cleaving of the Roman
Catholic Church from secular governance and the consequent removal
of religious institutions from economic regulation and adjudication, to
find a place in the common law and ultimately the American law of
partnership.
III. THE EFFECTS OF THE REFORMATION ON ENGLAND’S LEGAL ORDER
Much of the Western legal tradition can be traced to a time when
the Roman Catholic Church was not only the dominant religious
institution throughout England and the continent, but was also the
region’s dominant producer of legal norms, which it promoted as the
path to eternal salvation and enforced through its canon laws and
ecclesiastical courts. The Church-dominated legal terrain and its
attendant communal values had an especially significant impact on the
nascent law of partnerships, and notions of fraternal duties between
partners came to define business relationships. In particular, the
Church’s jurisdiction over usury actions and the canon law’s influence
on the law merchant fostered an expectation that the relationships
between business partners would be governed by non-economic values.
Thus matters stood, with some variations and incremental
development, until the Protestant Reformation of the sixteenth century.
The period from the sixteenth to the eighteenth centuries saw profound
societal changes throughout Europe, beginning with the Reformation,
and continuing through the development of commerce from
mercantilism to modern capitalism during the Industrial Revolution in
the eighteenth century. However, despite these changes, the noneconomic values governing relationships in the marketplace, embedded
in the law over the previous five centuries, remained largely intact.
Western society in the Middle Ages viewed the Church and state as
twinned institutions engaged in the common pursuit of leading the
133 BERMAN, supra note 10, at 344-45 (terming the concept “procedural reciprocity of rights in
contract formation”).
134 Id. at 345.
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faithful down the correct spiritual path.135 Englishmen belonged to the
same dominant Church as people living on the continent, all countries
shared the Roman Canon Law, and “civil authority was regarded as the
police department of the church.”136 The Reformation ruptured this
worldview, established the Anglican Church as the official state
religion, replaced the pope with the Crown at the top of the English
hierarchy, and changed the legal landscape markedly as a result.137 This
Part examines how the non-economic values of fairness and justness
fostered by the Roman Catholic Church and systematized in canon law,
Church courts, and the law merchant, were retained in the law of
partnerships in post-Reformation England despite the confluence of
these systems into a single common law. England rejected rule by the
Roman Catholic Church—the font of the marketplace’s moral values,
not the values themselves—and as the common law subsumed its
former competitors, it adopted their legal norms governing partners’
relations.
This Part traces four mechanisms by which pre-Reformation
partnership law, developed in the ecclesiastical courts and the law
merchant, entered the common law. First, when the ecclesiastical courts
were stripped of their usury jurisdiction in the sixteenth century, the
common law courts preserved usury’s communal norm underpinnings.
The common law courts’ usury rulings deviated little from the
jurisprudence that had developed in the Church courts. Second, as the
ecclesiastical courts lost secondary jurisdiction over claims of bad faith
contracting, the chancery courts developed a new jurisprudence based
on equity, and gained appellate jurisdiction over “unjust” outcomes
from the common law courts. In both usury and bad faith contracting
actions, the venue had shifted, but the non-economic norms applied to
135 PLUCKNETT, supra note 15, at 42 (referring to the medieval Church and state as “not two
different powers, but merely two aspects of the one divine mission of ruling the souls and bodies
of men by law”); FRANKLIN FERRISS RUSSELL, OUTLINE OF LEGAL HISTORY 43 (1930) (“The
church and the state were not regarded as distinct entities, but as a single community, governed
by God himself.”).
136 RUSSELL, supra note 135, at 43. Whereas most nations on the continent continued to obey
the pope and actively received Roman law into their codes, in England (and other Protestant
countries) the church became an organ of the state, and the common law system developed free of
papal influence. Id. at 42-45; see BRUNDAGE, supra note 18, at 182 (“In the aftermath of the
Protestant Reformation, canon law experienced renewed growth and importance in those parts of
Europe that retained their allegiance to the Roman church.”). It is for this reason that it has been
proper to consider economic regulations in England and on the continent as elements of a single
system, with little regard for distinguishing ecclesiastical and mercantile court decisions in
England from those on the continent. For legal development after the Reformation, however, this
Article will focus more exclusively on the English legal system which the American colonies
inherited in the seventeenth and eighteenth centuries.
137 See BRUNDAGE, supra note 18, at 182 (noting that critics of the Roman Church often
identified the canon law as the most distasteful element of the Church and observing that the
burning of canon law books was a common symbol of the Reformation).
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these business disputes remained the same. Third, though the law
merchant lost most of its jurisdiction in the seventeenth century, the
age-old Church values it had embedded in partnership relations were
perpetuated in the common law and chancery courts. The common law
courts allowed merchants to plead custom instead of law, and the
chancery courts began to recognize equity-based “shadow claims” to
remedy unjust results flowing from the rigidity of the common law.
Fourth, as the King’s Bench, the top common law court, displaced the
chancery courts in the late seventeenth and eighteenth centuries,
enveloping the last autonomous secular court into its single system, the
common law adopted many of chancery’s substantive rulings, just as it
had done with the ecclesiastical court’s usury jurisprudence and the law
merchants’ customary rulings. In each of these developments, the rules
of decision which defined the obligations between partners entered the
common law virtually unchanged. By way of illustration, this Part
concludes by tracing the survival path of one manifestation of the
Church’s communal norms. The availability of actions of account
between partners to police their adherence to mutual duties originated in
the law merchant, passed to chancery, was adopted in English common
law, and survives in American partnership law.
A.
Usury in Common Law Courts
By the time of the Reformation, the canon law’s absolute
prohibition on usury had been gutted by exceptions in order “to meet
the needs of an increasingly commercial civilisation.”138 By the turn of
the sixteenth century, certain rent schemes, credit transactions, and
commercial partnerships which “could reasonably be held not to
directly conflict” with the principle “that payment could not lawfully be
demanded merely for the use of money” were deemed allowable by
canonists.139 As a general matter, however, few questioned the
regulation of commercial conduct along moral lines.140
The preeminence of usury in the divine and ethical legal order of
the canon law throughout the Middle Ages led to the usury prohibition’s
“embodi[ment] in the policy of the State and of municipal authorities,
because in this matter the canon law set the precedents followed by
secular authorities.”141
One change necessary to effect usury
138
139
Tawney, supra note 55, at 108.
Id.; see BERMAN, supra note 10, at 249 (discussing such devices including various
partnership and joint venture structures).
140 Tawney, supra note 55, at 107.
141 Id.; see Gerber, supra note 10, at 712-13 (discussing the “usury norm in secular legal
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jurisdiction’s move to common law courts was that the terminology
articulating the theory underlying the usury prohibition in the sixteenth
century shifted from the religious to the secular. Usury was no longer
framed as a sin against a brother-believer, but became “merely a special
case of the general rule that economic transactions should be conducted
in accordance with rules of ‘good conscience.’”142
After nearly a century of tension over jurisdiction, a bill passed in
1571 conclusively removed the Church courts’ jurisdiction in usury
cases in favor of the King’s Bench.143 More significant still, the statute
eliminated the absolute prohibition on loaning money for profit, taking
the awkward first steps of voiding all contracts calling for ten percent or
more interest to accrue, and releasing the debtor from payments of
interest below ten percent.144 The latter provision essentially removed
the lender’s ability to legally enforce the collection of interest on loans,
but allowed him to recoup the principal.145 This early secular attempt at
regulating interest on loans strongly suggests that many of the usury
provisions of the canon law were adopted by the common law.146 To be
sure, the days of limning the boundaries of licit versus fictitious
partnerships through application of the usury prohibition were largely, if
not entirely, past. Legal but highly-regulated loans for interest emerged
early in the seventeenth century,147 but the Church-fostered communal
value that underlay the prohibition—that one should not take advantage
of another in time of need—is very much with us today.148
systems”).
142 Tawney, supra note 55, at 110; see NOONAN, supra note 39, at 407 (“An ideal of justice
underlies every statement of [usury analysis].”). The change in usury discourse mirrored that
which facilitated the establishment of a secondary jurisdiction in chancery courts over certain
contract and accounting suits formerly heard in ecclesiastical courts, but which were transferred
to common law courts when England broke from the Catholic Church. See infra note 159 and
accompanying text.
143 HELMHOLZ, supra note 18, at 53. Though the statute contained a “reserve clause” that
granted ecclesiastical court jurisdiction in certain cases, it was rarely invoked. Id.
144 Tawney, supra note 55, at 160-61.
145 Id. at 161.
146 See HELMHOLZ, supra note 18, at 54 (“The modern historian of the Roman canon law must
see these statutory changes as a happy event. They provide one of the best reasons for asking
English legal historians to look seriously at the substance of the law enforced in ecclesiastical
tribunals.”).
147 See Tawney, supra note 55, at 171.
148 Examples of the continuing vitality of the usury prohibition norm include ordinances
restricting fees which can be charged for ATM transactions, regulation of advances on tax
rebates, and condemnations of so-called “price gouging.” See Bank of Amer. v. City & Cty. of
S.F., 309 F. 3d 551, 555 (9th Cir. 2002) (outlining San Francisco ordinances outlawing ATM
fees); Anderson v. H&R Block, Inc., 287 F. 3d. 1038, 1040 n.1 (11th Cir. 2002) (describing tax
refund anticipation loans to determine whether the loans in question violated state usury law);
Price Gouging Includes Stars and Stripes Series: Aftershocks Notebook, ST. PETERSBURG TIMES,
Sept. 15, 2001 at 20A (reporting that Florida Governor Jeb Bush denounced price mark-ups on
American flags in the days following the 9/11 terrorist attacks).
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The Ecclesiastical Conscience in Chancery Court Contract Cases
In the medieval period ecclesiastical courts could assert
jurisdiction over litigation ordinarily reserved to royal courts if the
claim was based on a breach of faith, as in a contract or debt collection
case,149 or when a party claimed the royal court’s result was unjust.150
Following a “frontal attack” on this type of ecclesiastical jurisdiction by
the King’s Bench in 1480, these “indirect” jurisdictions were
eliminated.151 The rationale supporting ecclesiastical jurisdiction in
economic lawsuits had been a general belief in “divine justice”; if the
royal courts had failed in their duty to “do justice” by incorrectly
interpreting a pledge of faith, the ecclesiastical courts provided a
backstop.152 However, the King’s Bench, beset with cumbersome
procedures and numerous technical deficiencies, seems to have been
more effective in wresting jurisdiction from the ecclesiastical courts
than it was in handling cases.153 Due to the “gross injustice[s]” it often
produced, the King’s Bench was losing a great deal of business to the
competing courts of chancery.154
149 HELMHOLZ, supra note 18, at 25 (noting that by the middle of the fifteenth century, pledgebased contract litigation “had come to dominate the business of most ecclesiastical courts in
England”); PLUCKNETT, supra note 15, at 562-63.
150 MILSOM, supra note 43, at 89; Reid & Witte, supra note 9, at 651.
151 HELMHOLZ, supra note 18, at 26; see J. H. BAKER, English Law and the Renaissance, in
HISTORICAL ESSAYS, supra note 89, at 461, 463-64 (plotting the decline in contract cases of
offenses against conscience in ecclesiastical courts (fidei laesio) against the rise in promise-based
contract litigation in royal courts (assumpsit)); HELMHOLZ, supra note 56, at 288 (terming the
“transition from fidei laesio to assumpsit. . . . an instance of the secularisation in men’s attitudes
which occurred during the late fifteenth and sixteenth centuries. What had created a religious
obligation as late as 1500 gave rise to a secular cause of action by the time of the breach with
Rome.”).
152 MILSOM, supra note 43, at 88-89 (noting the prevailing idea of a single, “higher justice,”
that “was divine in origin, and its human manifestation was a matter of conscience”).
153 PLUCKNETT, supra note 15, at 616-17 (citing several procedural and substantive defects of
the common law system for the frequent defections to chancery); RUSSELL, supra note 135, at 4546; see Zywicki, supra note 17, at 1607 (calling the common law of the time a “relatively
inflexible, formalistic, and cumbersome regime”).
154 J. H. BAKER, The Common Lawyers and the Chancery, in HISTORICAL ESSAYS, supra note
89, at 205, passim (detailing the jurisdictional battles waged between the common law courts and
the chancery courts beginning in 1489 and coming to a head in 1616); RUSSELL, supra note 135,
at 45; Zywicki, supra note 17, at 1601-03; see PLUCKNETT, supra note 15, at 616 (recounting an
incident in which a “chancellor invited the judges to reform the common law by introducing into
it the element of discretion and conscience, [and] all the judges could do was to reply with a non
possumus”).
Professor Zywicki has interpreted the polycentric legal order which obtained prior to the
conflation of the multiple courts into the King’s Bench as a legal landscape offering beneficial
forum shopping to litigants. Zywicki, supra note 17, at 1582. In Zywicki’s reading, courts vied
for the lucrative business of adjudicating commercial disputes, and those courts which offered the
most efficient legal rules had a competitive advantage. Id. at 1607-13. This Article does not
contradict Zywicki’s reading, but argues that the pervasiveness of the Roman Catholic Church
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Though chancery jurisprudence is nearly synonymous with equity
today, for centuries “equity” was rarely mentioned by or in relation to
chancery courts.155 However, fifteenth century chancellors were often
members of the clergy who in the spirit of the canon law likely applied
canonical principles in their rulings.156 Though they were not
necessarily lawyers versed in canon law, “it must have been a perfectly
natural instinct . . . for a bishop, when faced by a conflict between law
and morals, to decide upon lines of morality rather than technical
law.”157 This combination of factors—an inept and cumbersome King’s
Bench viewed as dispensing injustice and a secular court that seemed to
rule based on the familiar moral values recently applied in Church
courts—presented a rich environment for chancery courts to explicitly
rule based on equity, and to thrive as a result.
The secularization of the venue in which morality trumped law
prompted changes in nomenclature, if not in the substance of rulings.158
Instead of appeals to God’s will, faith, and salvation, the focal point of
rulings shifted to the individual and the human conscience.159 This
sixteenth century transition “was an important stage in English legal
thought, not because it was new but because it linked the medieval
world and the modern.”160 Though the state, not the Church, would be
the final arbiter of disputes in the marketplace, the prevailing view was
that “the jurisdiction of Chancery was a moral necessity based upon the
and the predominance of its legal system before the Reformation cabined the rules of decision of
all secular courts. Every participant in every court was a member of the community of believers,
and the ecclesiastical courts stood ready to remedy “defaults of justice.” Therefore, the
judgments of every court stayed within the bounds of the Church’s communal norms. These
norms were especially relevant in the partnership context, and passed into the common law from
each of the various courts of the polycentric legal order.
155 PLUCKNETT, supra note 15, at 613; see MILSOM, supra note 43, at 82, 88 (finding the
origins of chancellors’ equitable jurisdiction “elusive,” estimating that it took shape in the
sixteenth century, and arguing that when chancellors took certain types of jurisdiction from
ecclesiastical courts, the sanctions shifted from spiritual to lay, but the rules of decision were
unchanged).
156 PLUCKNETT, supra note 15, at 613; see MILSOM, supra note 43, at 90 (concluding that it is
“not unlikely that some matters dealt with in later equity had their first home in . . . courts
[Christian]”).
157 PLUCKNETT, supra note 15, at 613.
158 See supra note 142 and accompanying text (noting a similar change in the law of usury).
159 MILSOM, supra note 43, at 89 (attributing the shift to St. Germaine’s Doctor and Student,
written in the 1530’s, in which St. Germaine argued that “higher justice was divine in origin, and
its human manifestation was a matter of conscience”); id. (“Justice was as single as truth, and
conscience was man’s knowledge of it.”); see PLUCKNETT, supra note 15, at 614 (arguing that
“the old canonist idea of good faith . . . easily became transformed into conscience”); id. at 58283 (describing the “philosophical idea of conscience . . . upon which Chancery took its stand”).
160 MILSOM, supra note 43, at 89; see PLUCKNETT, supra note 15, at 609-10 (observing that
“the characteristic of our classical equity is the idea of conscience” and noting that “[c]onscience
as a juristic theory is apparently a late fifteenth-century growth”) (parenthetical omitted).
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duty of government to give not merely law but justice to its subjects.”161
Given the procedural advantages of the chancery courts and the
familiar “moral justice” they dispensed,162 it should not be surprising
that they were able to lure a substantial percentage of lucrative contract
cases and came near to “displac[ing] the common law courts as the
dominant legal institutions of England.”163
Partnerships are at bottom contractual relationships based on
confidence and trust, and chancery courts often adjudicated disputes
within them.164 That partnership cases would be adjudicated in
chancery courts indicates that businessmen expected their relationships
to be governed by the same communal values once grounded in faith
and mutual duties between fellow believers and enforced by
ecclesiastical courts applying canon law, but which were now grounded
in the secular consciences of the parties and enforced by chancery
courts applying equitable principles.165
161 PLUCKNETT, supra note 15, at 616 (attributing the strength of this view to noted chancellor
Thomas More).
162 Id. at 616-17; Zywicki, supra note 17, at 1602.
163 Zywicki, supra note 17, at 42; see PLUCKNETT, supra note 15, at 617 (citing inadequate
damages in contract and tort suits as the defect chancery courts most often remedied).
Interestingly, the chancery courts’ jurisdiction in contract cases, like that of the ecclesiastical
courts, rested upon a conceit. See Zywicki, supra note 17, at 1604 (noting that the “flourishing
competition” between chancery courts and common law courts led “Chancery [to] develop[] a
number of fictions to evade the common law’s monopoly”). Whereas the Church courts had
claimed a faith-based jurisdiction to determine whether a promise made before God had been
broken, the chancery courts made a conscience-based claim to “make just” inequitable remedies.
See MILSOM, supra note 43, at 90-91. The chancellor would not upset the legal rule, but by
altering the remedy to a more just one, he would, in effect, make the litigant change his position,
thus salving the party’s conscience. See id. at 91; BAKER, supra note 154, at 208 (relating the
opinion of an early seventeenth century chancellor who considered suits in equity not to be
appeals of the common law courts’ legal decisions, “but a means of correcting the corrupt
conscience of a party who sought to avail himself of a judgment contrary to equity”).
164 See Marleen A. O’Connor, How Should We Talk About Fiduciary Duty? Directors’
Conflict-of-Interest Transactions and the ALI’s Principles of Corporate Governance, 61 GEO.
WASH. L. REV. 954, 965 (1993). As discussed in Part III.D., chancery courts developed a robust
jurisprudence relating to matters of accounting within partnerships.
165 See Zywicki, supra note 17, at 1601 (noting that “any undue hardship caused by the
common law’s rigor could be ameliorated by the equitable remedies available in Chancery”); see
also O’Connor, supra note 164, at 965. Professor O’Connor attributes the soaring rhetoric of
partnership fiduciary duty opinions such as Justice Cardozo’s in Meinhard to the influence of
religion in chancery courts:
To comprehend this evangelical inclination of fiduciary discourse, we can turn to
history. The development of fiduciary law began with the English Chancery Courts,
whose original judges were clerics appointed specifically to resolve moral issues.
These courts frequently relied upon Biblical sources when discussing fiduciary
obligation, setting a tone for the fiduciary standard by establishing a rhetorical tradition
of fervent moral and ethical language.
Id.
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Merchants’ Church Values Enter the Common Law
Much of the law of partner relations developed under the rubric
“law merchant.” The merchant courts and their commercial law were
international in flavor, and were heavily influenced by canon law and
the moral values instilled in individual merchants by the universal
Church. The law merchant was always a secular institution, however,
and England’s break with the Roman Church in the sixteenth century
did not immediately affect the law merchant there, although the
Reformation did seem to precipitate its decay. The evolution of the law
merchant in England and on the continent diverged somewhat once
England broke from the Catholic Church. Though in England the
King’s Bench gradually subsumed the law merchant’s jurisdiction,
while on the continent the mercantile courts remained largely
unchanged, “what happened in each case was the embodiment of Law
Merchant values within domestic legal systems that were in line with
state policy, national interests and domestic mores.”166
The jurisdiction of mercantile courts over internal trade was first to
erode, and by the end of the first quarter of the seventeenth century
England’s domestic law merchant had been completely absorbed by the
national courts.167 England’s international mercantile courts retained
their jurisdiction longer,168 but they too were under constant assault by
competing courts, and their jurisdiction was cabined severely.169
Despite this whittling away of the merchant courts’ jurisdiction in later
centuries, the moral values embedded in the rules of partner relations
during the medieval period were transmitted into the common law in
several ways. First, the common law courts allowed merchants, who
formerly would have had their disputes heard in mercantile courts, to
plead custom rather than law. Second, much of the former business of
the law merchant was taken over by chancery courts’ equitable
jurisdiction, not by the common law courts. Third and related, when the
166
167
TRAKMAN, supra note 102, at 23.
Id.; WALSH, supra note 15, at 444; Burdick, supra note 111, at 43-44; Holdsworth, supra
note 90, at 327. Among the reasons posited for this transition was the need for a national
commercial law to serve a more complex marketplace. TRAKMAN, supra note 102, at 20-21, 25.
More cynical explanations include a desire for the common law courts to take over the lucrative
business of commercial adjudication, and the personal ambition of Lord Coke, who acceded to
the King’s Bench in 1606. WALSH, supra note 15, at 444; Holdsworth, supra note 90, at 314-15.
168 Holdsworth, supra note 90, at 327. Much of this international law merchant activity was
conducted by the Court of Admiralty. PLUCKNETT, supra note 15, at 593; Holdsworth, supra
note 90, at 315. The Court of Admiralty was technically a royal court established in 1353, but its
flexible jurisprudence was greatly influenced by merchants, and its autonomy, which pitted it
against the common law courts, made it much like a mercantile court in practice. PLUCKNETT,
supra note 15, at 590-94.
169 PLUCKNETT, supra note 15, at 590-94; Holdsworth, supra note 90, at 318, 329.
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common law finally conquered chancery in the nineteenth century, the
consolidated court adopted much of its former rival’s jurisprudence.
1.
Merchants Pleading Custom in Common Law Courts
After the turn of the seventeenth century, commercial suits were
most often heard in common law courts, not merchant courts. However,
one who could show himself to be a merchant would be granted the
“benefit of law merchant” and was allowed to plead custom, not law, in
common law courts.170 The speed of the process and apparent fairness
of the rulings in comparison to that of the common law made pleading
“according to the use and customs of merchants” so popular that the
judge would first have to inquire into the merchant credentials of the
plaintiff to ensure that he was in fact a merchant and not just a
“gentleman.”171 This practice had two obvious defects as far as
embedding merchant custom—and Christian values—into the common
law of partnerships. First, because these pleadings were custom, not
law, they were factual matters decided by juries, not instructions from
the bench.172 Each case was therefore uniquely pleaded, and no
consistent rules of decision could be drawn from them to “embody[] and
giv[e] form to the existing customs of merchants.”173 Second and more
fundamental, the very existence of separate custom pleading meant that
merchant practice and its inherent value system, though given voice in
the common law courts, were not viewed as part of the common law
itself.
The law merchant, in the form of special pleading procedures,
stood astride of the common law for 150 years until Lord Mansfield
began his 30-year service as Chief Justice of the King’s Bench in 1756.
Mansfield was the first jurist to systematically record and categorize
merchant practice and to derive common law from the shared principles
of European merchants.174 Mansfield had studied civil law, which was
widely practiced in countries that retained separate mercantile courts
after the Reformation, and often dined with merchants to learn more
about their customs and shared understandings.175 This background
170 Thomas Edward Scrutton, General Survey of the History of the Law Merchant, in 3
SELECT ESSAYS, supra note 8, at 7, 12-13.
171 Id. at 13.
172 TRAKMAN, supra note 102, at 26-27; Scrutton, supra note 170, at 13.
173 Scrutton, supra note 170, at 13; see TRAKMAN, supra note 102, at 27 (“This piecemeal
approach, in effect, prevented business usage from acquiring a lasting content in law.”).
174 TRAKMAN, supra note 102, at 27-28; Burdick, supra note 111, at 44-47; Scrutton, supra
note 170, at 13-14.
175 Burdick, supra note 111, at 45-46; see TRAKMAN, supra note 102, at 28.
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research enabled him in a given case “to discover not only the
mercantile usage which was involved, but the legal principle underlying
it.”176 Due to Mansfield and his followers, there has been “an extensive
amalgamation of the rules of the law merchant with those of the
common law,” and the two no longer stand apart.177 “Each [was]
modified by the other and, to a great extent, [] lost its separate identity.
And yet it is not difficult to point out rule after rule, which has come
into English jurisprudence from the law merchant, and which retains the
characteristic features which it possessed . . . centuries ago.”178 One of
the “characteristic features” of the law merchant which had been
incorporated into the common law when this statement was written a
century ago was that partners owe each other fraternal duties.179
2.
Merchants in Chancery Courts
As happened with the former ecclesiastical “shadow claims” over
pledges in contract cases, much law merchant partnership adjudication
moved to chancery courts’ equitable jurisdiction, not to common law
courts. Due to the rigidity of the common law at the time of the
Reformation, the chancery courts’ early adoption of a “jurisdiction of
classical equity based on the idea of conscience” made it an attractive
forum in which merchants could settle their differences.180 This was
due in no small part to the fact that the law merchant itself could be
considered as “consist[ing] of certain principles of equity and
usages . . . [based on] a common sense of justice.”181
Due to their developing jurisprudence based on equity, at least
until the time of Mansfield, chancery courts were more disposed than
176
177
Burdick, supra note 111, at 46.
Id. at 47; see Holdsworth, supra note 90, at 331 (crediting Mansfield with the “complete
incorporation of the Law Merchant with the common law” and repeating Lord Hardwicke’s claim
that Mansfield was thus “the founder of the commercial law of this country”).
178 Burdick, supra note 111, at 47-48.
179 See WALSH, supra note 15, at 451-52; see also TRAKMAN, supra note 102, at 62-66
(explaining how the merchant values of “honor among businessmen” and “faith in the sanctity of
merchant agreements” passed from the law merchant into the common law). Its manifestation in
the law of accounting procedures between partners will serve as an example in Part III.D. below.
180 PLUCKNETT, supra note 15, at 614; Burdick, supra note 111, at 50 (quoting Gerard
Maylnes, Lex Mercatoria 303 (1622) (“[M]erchants’ causes are properly to be determined in the
chancery . . . for the customs of merchants are preserved chiefly by the said Court”));
Holdsworth, supra note 90, at 329.
181 TRAKMAN, supra note 102, at 11; id. at 62 (“Mercantile relations were to be based on the
mores devised by the merchants.”); see PLUCKNETT, supra note 15, at 614 (describing merchants’
preference for chancery courts over common law courts: “Now [mercantile] law was regarded at
this time as being “equitable” in the sense that neither forms of transactions nor technicalities of
law should prevent substantial justice being done according to conscience.”).
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common law courts to fully consider the embedded values of merchants
as determinative principles.182 Merchants responded by regularly
choosing to bring actions in chancery courts rather than common law
courts, and the pressure of their demands for equitable decisions
extended the chancery courts’ jurisdiction.183
Merchants and
chancellors thus created a positive feedback loop in which the
chancellors, desiring merchants’ adjudication business, gave the
merchants the substantive decisions, imbued with communal values,
which the merchants themselves had created in the law merchant.184
3.
Convergence of Chancery Courts into the Common Law
Over the two centuries following the Reformation, the chancery
and common law courts were locked in competition for commercial
litigation business, and this gradually led to a blurring of the lines
between law and equity by the nineteenth century.185 A series of
reorganizations in the chancery courts “encouraged talk of fusion
between law and equity,” and “sweeping reforms” were enacted in the
middle decades of the century in England.186 The result of these
changes has been the envelopment of the chancery courts’ equitable
jurisdiction by the common law. In the process, the common law
incorporated the existing body of equity rulings, so that “it is the
common lawyers who now do equity.”187
182 See Burdick, supra note 111, at 50 (“All of the traditions of [the chancery] court favored
the recognition of the law merchant.”).
183 Id.
184 Id. (“Naturally, therefore, many of the rules of the law merchant have come into the
English jurisprudence through the Court of Chancery. Not a few of them are looked upon as the
creatures of equity, when in fact they are the offspring of the law merchant, which chancery
deliberately adopted.”).
185 Zywicki, supra note 17, at 1603; see BAKER, supra note 13, at 131.
186 BAKER, supra note 13, at 131. The most significant of the changes included that: (1)
chancery courts were empowered to “decide questions of law, to try issues of fact by jury, and to
award damages,” all powers formerly reserved to common law courts; and (2) “courts of law
were empowered to compel discovery, to grant injunctions, and to a limited extent to allow
equitable defences to be pleaded.” Id.
187 Id. at 133; Zywicki, supra note 17, at 1610; see also George Spence, The History of the
Court of Chancery, in 2 SELECT ESSAYS, supra note 8, at 219, 224 n.1 (“After the Court of
Chancery had become established, and its jurisdiction in the correction and extension of the law
had become reduced to settled and well understood principles, many of its doctrines were adopted
by the Courts of Law, and now form part of the Common Law.”).
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The Action of Account–An Illustration of Communal Norms in
Partnerships
The communal norms traders embedded in the law merchant when
the Roman Catholic Church was the sole and omnipresent transnational
institution were passed into the common law directly through custom
pleading in common law courts, and indirectly through the merchant
and chancery courts’ extensive jurisdiction over commercial matters
and their later incorporation into the common law. Among the
manifestations of these norms was the ability of partners to demand an
accounting of partnership assets, which reflected the spirit of mutual
obligation between partners and was embodied in the action’s rules of
decision.
The action of account originated in the thirteenth century and
applied to the personal relationship assumed to exist between a lord and
a receiver of the lord’s property.188 The action allowed the owner to
appoint auditors to conduct the accounting, and if it proved
unsatisfactory, the receiver would be committed to prison without
trial.189 This procedure was obviously quite useful in policing the
obligations partners owe each other, and it was soon recognized in the
law merchant that the action of account would be available to partners
as a means of enforcing duties of loyalty.190
At the time of the Reformation, the chancery courts had “[e]quity
supervision over matters of account [which] by this time had grown to a
considerable mercantile jurisdiction, including . . . partnership.”191 That
actions of account between partners, which had been adjudicated in
mercantile courts, passed directly into courts of equity and not common
law, indicates that partnerships were viewed as special relationships
which should be defined by a mutual duty of forthcomingness, and that
justice should not be denied partners due to cumbersome common law
pleading requirements.192
188
189
190
PLUCKNETT, supra note 15, at 566-67.
Id. at 567.
Id. Illustrative of the closeness assumed to exist between partners, one could not contract
to be liable to an action on account, for instance, as part of a sales contract. The status of
“partner” triggered the action’s availability. Id. at 566-67.
191 Id. at 619.
192 See Holdsworth, supra note 90, at 329. “Merchants’ [account] causes are properly to be
determined by the Chancery, and ought to be done with great expedition.” Id. at 329 n.1 (quoting
GERARD MAYLNES, LEX MERCATORIA 319 (1622)). Many suits for an accounting involved
litigation between theater owners and their partners who financed a given play, a situation
seemingly fraught with the possibility that the owner could secrete a portion of the ticket sales
from the partnership. See PLUCKNETT, supra note 15, at 619 n.1. The notion that the availability
of the action of account indicates the closeness of the partner relation passed into American
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A substantive manifestation of the communal ethic in actions of
account was the doctrine of non-survivorship. Contrary to the
analogous common law rule, in chancery the death of a partner ended
the partnership and triggered an accounting, after which the heirs of the
dead partner could claim his share of the defunct partnership’s assets.193
That the doctrine of non-survivorship eventually became the common
law rule suggests the influence of the law merchant on partnership law
and indicates the closeness merchants associated with the partnership
relation and the mutual duties inherent in this form of business
association. Partners share an endeavor, the profits and losses derived
from it, and owe each other openness in their dealings. These
expectations of forthcomingness between partners echo in the modern
debate over the waivability of the fiduciary duty of loyalty.194
E.
Summary
The Roman Catholic Church’s communal norms, embedded in the
law of partnerships in the Middle Ages, proved incredibly resilient
against societal changes. These non-economic norms, premised on the
Church’s wariness of soul-damaging advantage-taking between
believers in the age of emerging commercialization, survived the
upheavals of the Reformation and the conflation of the polycentric legal
order into the common law, and claimed a central role in the modern
prescription of the mutual duties of partners. The American Colonies
adopted the developed communal conception of partnerships, first
through their own courts of chancery,195 then by adopting the English
partnership law. See William Draper Lewis, The Uniform Partnership Act, 24 YALE L. J. 617,
626 (1915) (explaining that the accounting section of the UPA indicates that partners’ obligations
to each other are in the nature of a trust, and that profits withheld from the partnership by a
partner does not give rise merely to an ordinary creditor/debtor claim).
193 See Burdick, supra note 111, at 47-48; see id. at 48 (discussing accounting rules which
were “characteristic features”of the law merchant “centuries ago [but were] unknown to common
law tribunals”). The common law rule for joint venturers was that the parties were joint tenants
of all venture property and the surviving venturer would take ownership of all. Id. Burdick also
catalogs the common law’s more pinched treatment of partners’ ability to obtain an accounting of
property held in common during the existence of a partnership. Id.
194 By the time chancery had assumed jurisdiction over actions of account from the law
merchant, and the common law had subsumed chancery, the traditional “remedy for breach of
fiduciary duty in the partnership [had become] the partner’s right to a formal accounting, at which
all of the rights and liabilities of the partners are determined in a single proceeding.” LARRY E.
RIBSTEIN, BUSINESS ASSOCIATIONS § 8.11 (1983).
195 See Solon Dyke Wilson, Courts of Chancery in the American Colonies, in 2 SELECT
ESSAYS, supra note 8, at 779, 779-83 (discussing the equity courts established in each of thirteen
colonies and the “extensive chancery jurisdiction” they claimed).
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common law.196 We now turn to the trajectory and intractability of
these often counter-market communal norms in the partnership law of
the United States.
IV. COMMUNAL NORMS AND THE RUPA FIDUCIARY DUTY DEBATE
The Roman Catholic Church was the dominant religious,
intellectual, educational, and legal institution through Europe in the
medieval period. Wary that the forces of commercialization and
urbanization might corrode the morals of the faithful, the Church
pervasively regulated the marketplace. The norms at the core of this
regulatory impulse were non-economic in nature and were based in the
belief that market exchanges necessarily benefited one party at the
expense of the other. Though the advantage-taking notion abated over
the centuries, it was firmly planted in the law of partnership, which
remained conceptually linked with norms governing relations between
Church members at large. Just as the community of believers was held
to a high standard of trust and confidence in their everyday
relationships, so were business partners expected to be each other’s
fiduciaries. These communal norms entered the common law of
partnership through many avenues, and now occupy center stage in the
debate over the nature of partner relations. While the mandatory
obligations due partners may have been effective to grow long distance
mercantilism, this Part questions whether, in today’s evolved capitalistic
marketplace, these duties may be more efficiently structured as alterable
default rules.
This Part begins by discussing the persistence of Church-fostered
communal norms, the thematic analog of the norms’ “mechanical”
perpetuation via common law courts’ adoption of the partnershiprelated jurisprudence of the courts whose jurisdiction they inherited or
usurped. This Part then discusses the fiduciary obligations of partners
in the United States, beginning with the UPA’s adoption of the common
law of partnership. Next, this Part outlines the modern debate and the
contrasting positions of the contractarians and paternalists over whether
fiduciary duties should be cast as mandatory or default provisions. This
Part concludes by analyzing RUPA as an example of “norm
entrepreneurship” by its drafters that is causing scholars to reconsider
ancient assumptions concerning the nature of the partnership relation.
196 See Simeon Eben Baldwin, History of the Law of Private Corporations in the Colonies and
States, in 3 SELECT ESSAYS, supra note 8, at 236, 243-48 (discussing several partnerships and
unincorporated companies in various colonies).
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The Persistence of Church Norms Through the Centuries
The Church’s moral norms did not wither and fade away in the
face of secular competition, nor were they eradicated from the law in
the Reformation, the conflation of the polycentric legal order into the
common law, or in other revolutionary upheavals.197 Perhaps the
strongest explanation for why the religiously-informed moral norms
embedded in medieval law have survived is that secular authorities have
had significant incentives to continue the economic regulatory regimes
begun by the Catholic Church. Whereas for the Church the regulations’
primary purpose was theological—to steer the faithful down the path of
salvation—for secular governments the regulations have been a means
of social and political control.198 Indeed, government-supported religion
197 Professor Berman counts six “transforming” revolutions in the course of the Western legal
tradition. BERMAN, supra note 10, at 18-19. Berman argues that much of our inherited legal
tradition stems from the Papal Revolution (1075-1122) and survived the Protestant Reformation
(1517-1555), the English (1640), American (1776), French (1789), and Russian (1917)
Revolutions. Id.
For illustrative purposes, three short examples of the staying power of the Church’s moral
norms, which in some cases may be counter-market, will suffice. “The usury, just price and
monopoly norms continue even today to operate in some form in most, perhaps all, Western legal
systems.” Gerber, supra note 10, at 735. First, in addition to laws regulating interest rates on the
books in all fifty states, see Elizabeth R. Schiltz, The Amazing, Elastic, and Ever-Expanding
Exportation Doctrine and its Effect on Predatory Lending Regulation, 88 MINN. L. REV. 518, 526
(2004), subtler usury regulations exist today in the condemnation and regulation of lending
practices some consider to be exploitative, such as payday loans. See Creola Johnson, Payday
Loans: Shrewd Business or Predatory Lending?, 87 MINN. L. REV. 1 (2002). The strong market
demand for payday loans at least calls into question whether high-interest short-term loans are
inefficient in all cases. Second, the just price norm is reflected in the contract doctrine of
unconscionability, and “affirms [the] message that concepts of justice are relevant to prices.”
Gerber, supra note 10, at 736. The unconscionability doctrine may inefficiently restrict freedom
of contract in some circumstances. See Richard A. Epstein, Unconscionability: A Critical
Reappraisal, 18 J. L. & ECON. 293 (1975). Third, government rate-setting of monopoly
industries, such as local phone service and cable television, continues long after substitute
services, such as cell phones and cable television, have emerged. Even in so-called “natural
monopolies” (i.e., industries in which one firm, rather than two or more, can meet the demands of
the entire market at the lowest cost), these regulations may not be economically justified. See
RICHARD A. POSNER, NATURAL MONOPOLY AND ITS REGULATION 52 (Cato Institute ed. 1999)
(1969) (“[I]f the management of a firm that enjoys a natural monopoly is reasonably competent,
one cannot assert with any confidence that performance is likely to fall greatly short of our
economic or social objectives.”).
198 See Michael W. McConnell, Establishment and Disestablishment at the Founding, Part I:
Establishment of Religion, 44 WM. & MARY L. REV. 2105, 2181 (2003) (stating that the “political
rationale” for governments to establish religions “is to shape public opinion and character in a
way favorable to the regime . . . [and] is based on . . . the utility of religion to the state”). In the
Protestant Reformation, for instance, the Church of England expropriated the structure and
property erected by the Catholic Church, replaced the pope with the king at the top of the
hierarchy, and Parliament legislated the scripture, dogma, and liturgy. Id. at 2112. In the New
World, nine of the thirteen American Colonies had established churches in 1776, and about half
the states maintained them after the adoption of the First Amendment. Id. at 2107.
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itself, which persists in England and much of Europe, has both
theological and political rationales, as Judge McConnell has
persuasively argued:
There is good reason to suspect . . . that in most places at most times,
the political rationale is generally more powerful, at least to those in
command of the government. Religion is a key determinant of the
values and virtues of a people, and the ability to shape values and
virtues is useful to anyone who wishes to rule. This is particularly
evident in the teachings of the Anglican Church, which emphasized
that loyalty to the crown and obedience to the government are
religious as well as civic obligations.199
Governments in different countries and eras have used their
influence over religion to stress different virtues as circumstances
dictate: patriotism and valor in wartime, loyalty to governmental
authority during civil strife, and thrift during recessions.200 Given the
wholesale economic changes of commercialization, urbanization, and
industrialization, market regulation has been a first-order priority for
Western governments for much of the modern era.201 The Roman
Catholic Church’s economic regulatory regime—including the
communal norms it implanted in partnership and other areas of the
law—helped the post-Reformation English government check the
uncertain potential of market forces, and was an inheritance that spread
to the American Colonies.202
The persistence of religiously-informed moral norms may also
have a substantive aspect. In the eleventh and twelfth centuries law was
first subjected to the scientific method, and through their testing, laws
could be continually evaluated for validation or rejection.203 Relatedly,
199
200
201
Id. at 2186.
See id. at 2183.
See Gary Lawson, Symposium, Changing Images of the State: The Rise and Rise of the
Administrative State, 107 HARV. L. REV. 1231, 1236 (1994) (“There is now virtually no
significant aspect of life that is not in some way regulated by the federal government.”).
202 See McConnell, supra note 198, at 2183 (“It should not be surprising that governments
would seek to control religious institutions in service of political ends.”); see also Lawrence E.
Mitchell, The Naked Emperor: A Corporate Lawyer Looks at RUPA’s Fiduciary Provisions, 54
WASH. & LEE L. REV. 465-66 (1997) (noting that “partnership law [] has a colonial antecedent in
fiduciary obligation”). Judge McConnell likens the establishment of religion in the colonies to
the licensing of the press: “Both enable the government to control the institutions for
dissemination of opinions and ideas . . . and to encourage ideas supportive of the regime.”
McConnell, supra note 198, at 2183. The medieval Catholic Church was leery of commerce’s
ability to tempt men’s souls and moved to regulate the marketplace. Likewise, governments of
the modern era have viewed unbridled commerce as a competing and entropic force, and as a
means of social and political control, continued to cabin prices, restrain interest rates, and limit
partners’ ability to self-define their relationships contractually.
203 BERMAN, supra note 10, at 163 (“[T]he Western universities raised the analysis of law to
the level of a science . . . by conceptualizing legal institutions and systematizing law as an
integrated body of knowledge, so that the validity of legal rules could be demonstrated by their
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universities created a science of law and began producing a professional
class of lawyers who spread their shared learning across Europe, and in
the process, continuously tested and improved the law under various
conditions.204 To the degree that the first generations of lawyers aligned
the law with immutable values, erecting a reasoned, theologicallyinformed support structure, the law they produced would have lasting
vitality. There are two main reasons to think early lawyers indeed were
able to achieve such alignment. First, the “legal science of the twelfthcentury jurists was . . . . [a] science[] in the modern . . . sense of the
word” and may be considered the “father of the modern Western
sciences.”205 The legal science of these early scholastics produced a
robust, reasoned system of law. Second, the law developed in the first
Western law programs did not simply seek to translate the rediscovered
Roman texts. The science melded its intellectual component with moral
values and sought “to reconcile strict law and equity, justice and mercy,
equality and freedom.”206
Insofar as the regulation of economic conduct is concerned, there is
reason to believe that the early law would be long lasting. While
commercialization and urbanization were driving the production of
marketplace regulation in the first centuries of legal science,207 these
forces were also shaping the new era of economic study at the same
universities so that “during this period economic knowledge was
constructed within normative categories.”208 The Church was thus able
consistency with the system as a whole.”); Stubbs, supra note 16, at 265 (“The study of the canon
law was a scientific and professional, not merely mechanical study.”).
204 BERMAN, supra note 10, at 163; see PLUCKNETT, supra note 15, at 193-97 (noting that in
England, an official court-run apprenticeship system predated the creation of crown-supported
legal education in the late twelfth century); Gerber, supra note 10, at 689 (conceptualizing the
universities as “‘networks’ to which virtually all members of the new class of secular and
ecclesiastical bureaucrats belonged”); Ried & Witte, supra note 9, at 684 (noting that the
medieval legal community was “relatively small and scholastic . . ., [and] dominated by law
professors . . . [who] knew one another’s work and referred to it constantly” (quoting R. M.
HELMHOLZ, THE SPIRIT OF THE CLASSICAL CANON LAW 23 (1996))).
205 Harold J. Berman, The Origins of Western Legal Science, 90 HARV. L. REV. 894, 931
(1977). Professor Berman agues that the legal science developed at the law school at Bologna
was the first discipline to meet all of the characteristic criteria of a modern science. Id.
206 Id. at 942-43. Berman continued:
Above all, the effort to combine these conflicting norms and values was seen in the
eleventh and twelfth centuries as part of an even more formidable reconciliation–the
reconciliation of God and man. It was a new vision of his ultimate destiny, more than
anything else, that first led Western man to put his faith in legal science.
207 Id. at 897 (noting that “the creation of modern legal systems” in the eleventh through
thirteenth centuries was “a response to social and economic changes ‘on the ground’”).
208 Gerber, supra note 10, at 702; see Bassett, supra note 15, at 1407 (noting that the canon
law manuals “touched on virtually all aspects of domestic, social, and economic life”); see also
Berman, supra note 205, at 940 (observing that legal studies in the Middle Ages fit within the
framework “the Church had long taught[,] that there was a divine law and a moral law by which
all human law was to be tested and judged”).
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to create a positive feedback loop in which, for example, a norm of a
fixed, “just price” would seem economically superior to floating prices
dictated by supply and demand.209
A “just price” norm, embedded in law by the Church as enforcing a
moral imperative, was buttressed by the emerging economic science,
and indeed may have made economic sense at the time it was
promulgated and for centuries thereafter. Though supply and demand
may have determined the immediate price of goods locally, the slow
speed with which information could be transmitted over long distances
was problematic. Suppose a “money partner” commended his “labor
partner” to sail from London to Genoa to sell English goods and to buy
Genoese goods with the proceeds. Neither party could know in advance
the relative prices English and Genoese goods would fetch in Genoa. In
such a situation, a centrally-determined “just price,” even one cast as an
allowable range, may have seemed economically sensible. The added
certainty of a “just price” could have made trade more attractive, and
lessened the temptation of the labor partner to commit fraud on his
partner. Though the sophistication and volume of trade increased
greatly with the aid of overseas trading companies and credit
arrangements, the mercantilism of the first half of the eighteenth century
would have looked familiar to a fifteenth century trader. For these
reasons, the Church’s “just price” norm was seen as efficient, and
consequently was reflected in partnership law.
The persistence of these moral norms may have been reinforced by
the sheer pervasiveness of the Church’s influence on the many
competing adjudicative bodies throughout Europe.210 That is, if
Church-generated moral norms were woven into the fabric of law that
developed in multiple fora over its first four hundred years of
commercial regulation, no single forum or body of law could replace it
209 The “just price” concept echoes in the modern debate over fiduciary duties in the corporate
context. See Lawrence E. Mitchell, Fairness and Trust in Corporate Law, 43 DUKE L. J. 425,
445 (1993) (arguing that in corporate law “every alleged fiduciary breach is measured by this
standard called fairness. . . . The fairness test consists of two components, fair price and fair
dealing. Fair price is concerned with the substantive terms of the transaction and is satisfied by
proof that the financial aspects of the transaction fall within a range that would be acceptable to
unrelated parties.”). The major difference now is that the “just price” is determined ex post by a
court considering supply and demand and calculating the “acceptable range” of prices unrelated
parties would reach, rather than the universal Church dictating absolute standards of value ex
ante.
210 Bassett, supra note 15, at 1407 (“By the middle of the fourteenth century the principles and
the theories of the canonists virtually permeated society.”). In the twelfth to sixteenth centuries,
the Catholic Church was so pervasive that on many legal matters, the Church and secular courts
held common opinions, a communis opinio. Reid & Witte, supra note 9, at 684. This view
contradicts the common misperception that the spiritual and temporal leaders of the Middle Ages
were locked in continuous battle. Id.; see Bassett, supra note 15, at 1409 (noting that cooperation
between ecclesiastical courts and common law courts “was more characteristic than conflict”).
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by fiat.211
The Church greatly influenced the jurisprudence of the secular
courts of many countries,212 clerics served in England’s chancery
courts,213 and venues such as the hundreds courts, borough courts, and
town courts, by their local nature, remained faithful to the communal
norms which were central to the Church’s conception of the path to
salvation.214 Compounding the Church’s influence was that systems of
precedence and stare decisis did not develop until hundreds of years
after these court systems were formed.215 Therefore, the omnipresence
of the Church and its teachings exerted a continuous pressure for secular
jurists to conform to the Church’s moral norms, unaware of the logic of
decisions a given court had issued previously.
The non-economic values which originated in the moral norms of
the medieval Catholic Church have inhered in Western legal systems,
and the “relationship between law and economic conduct that they
represent has been transformed into a tradition within Western thought
and practice.”216 However, today’s markets are unprecedented in their
211 See BERMAN, supra note 10, at 25 (observing that the “common bonds among the various
national legal systems” of Europe survived numerous revolutions beginning in the sixteenth
century and that legal institutions of every European nation have “retained [their] Western
character”). The pervasiveness of the Church may also help to explain how a general norm like
the usury prohibition could take many manifestations. Claire Moore Dickerson, Cycles and
Pendulums: Good Faith, Norms, and the Commons, 54 WASH. & LEE L. REV. 399, 414 (1997)
(explaining how “[a]n existing norm can expand into a new arena”).
212 Berman, supra note 205, at 939 (noting that the thousands of graduates who flocked to law
schools in twelfth century Europe “served as ecclesiastical or lay judges, practicing lawyers, legal
advisors to ecclesiastical, royal, and city authorities and to lords of manors, and as administrative
officials of various kinds in both church and state”); see id. at 931-32 (stating that the medieval
legal scholarship of the Italians, French, English, Germans, and others was conducted by
Romanists and canonists alike and addressed materials “promulgated by Church councils, popes,
and bishops, as well as by emperors, kings, dukes, city magistrates, and other secular rulers”).
213 Bassett, supra note 15, at 1417-18; Zywicki, supra note 17, at 1592 (noting that many
chancery court chancellors were “clerics who were trained in the canon law tradition and brought
principles of the canon law” with them to the bench); see Tamar Frankel, Fiduciary Law, 71 CAL.
L. REV. 795, 831 (1983) (offering as a “justification[] for the judicial incorporation of morality
into fiduciary law,” “the historical jurisdictional authority over fiduciaries in the ecclesiastical and
equity courts. . . . [which] imposed sanctions based on religion and morality, and not merely on
force”).
214 Gerber, supra note 10, at 701 (discussing the “basic set of values for the ordering of
economic life” promulgated by the Church and concluding that they “influenced virtually
everyone involved in shaping the normative response[s] to the market—whether judges, lawyers,
legislators or theologians”); see Zywicki, supra note 17, at 1591 (noting that local courts were the
first resort for most English subjects pursuing contract claims).
215 Zywicki, supra note 17, at 1573 (noting that “[i]t was not until 1673 that English courts
first distinguished between precedent and dictum, a necessary predicate for treating cases as
authoritative statements of the law”). These concepts, which we take for granted today, were
difficult if not impossible to visualize given the rudimentary state of printing and communication
technology then existing. See id. at 1574 (“[N]ot until . . . the mid-eighteenth century was there
anything approaching an official set of regular reports of judicial decisions of particular courts.”).
216 Gerber, supra note 10, at 736; see Bassett, supra note 15, at 1387 (noting that “the
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complexity, the sophistication of their actors, and the information
systems available to them. These non-economic values are being
profitably reexamined, and RUPA’s shift from mandatory fiduciary
duty rules to default rules amendable by contract may be one
manifestation of that effort.217
B.
1.
The Uniform Partnership Act of 1914
The Backdrop of the Industrial Revolution
The promulgation of the UPA in 1914 marks the beginning of the
modern era of partnership law in the United States. The UPA was
animated by longstanding principles of partnership law, and its reporter,
William Draper Lewis, intended the UPA to embody a timeless
quality.218 Lewis viewed the UPA as an element of the nascent
movement to promulgate uniform commercial acts, and noted that all of
them “would have worked as well in 1765 as in 1915 . . . ., and, with
comparatively slight modifications, could have been adapted to
conditions in classic Rome.”219 Lewis further remarked that he had a
“reasonable expectation” that the UPA would “meet conditions of one
hundred and fifty years hence . . . . in spite of recent great industrial
changes.”220
The Industrial Revolution prompted a modernization of economic
regulation, of which the UPA was part. To be sure, before the Industrial
Revolution international trade had greatly increased, but until the advent
of steam power in the eighteenth century, commerce retained the
mercantilist character it assumed in the Middle Ages. The Industrial
Revolution gave rise to demands for increasingly complex business
associations, so “it is to the eighteenth century . . . that we must look for
the rise of most of the law which is of a distinctly modern character,
[including the law of] . . . partnerships.”221
canonists created a system of law that first articulated many of the principles of modern law”).
217 As Professor Berman wrote concerning the normative religious origins of seemingly
inefficient legal rules:
Over the intervening centuries, these religious attitudes and assumptions have changed
fundamentally, and today their theological sources seem to be in the process of drying
up. Yet the legal institutions, concepts, and values that have derived from them still
survive, often unchanged. Western legal science is a secular theology, which often
makes no sense because its theological presuppositions are no longer accepted.
BERMAN, supra note 10, at 165.
218 See Lewis, supra note 192, at 618.
219 Id.
220 Id.
221 PLUCKNETT, supra note 15, at 67; see id. (noting that the Industrial Revolution caused the
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Reflecting the idea of immutable partnership principles and the
transferability of English law, the UPA adopted the form and much of
the substance of the English Partnership Act.222 Further, the UPA
explicitly left much of the common law intact,223 a decision repeatedly
emphasized by Lewis.224 The UPA also settled uncertain portions of the
common law225 and sought to introduce beneficial changes to it.226
While acknowledging the age-old norms embedded in the common law
of partnership, however, Lewis belied his earlier statements on the
timelessness of partnership principles by issuing a subtle caution
concerning the rapidly changing business landscape wrought by the
“recent great industrial changes,” and their potential impact on his day’s
received understanding regarding the nature of partnerships.227
2.
Fiduciary Duties in the UPA
The two main fiduciary duties, those of loyalty and care, are
traditionally analyzed separately.228 The UPA mentions neither “duty of
care” nor “duty of loyalty” explicitly, and “only the duty of loyalty is
undeniably a fiduciary duty” under the UPA.229 Section 21 of the UPA,
law to contemplate “all the complicated relationships which were being created through the
machinery of credit and joint enterprise”).
222 Lewis, supra note 192, at 621 (“As originally drafted, where it was desired to express in a
section the same idea as that expressed in the corresponding section of the English Partnership
Act, and the wording of the English Act was clear, its wording was followed without regard to
terseness or simplicity of expression.”).
223 U.P.A. § 4(3) (“The law of agency shall apply under this Act.”); U.P.A. § 5 (“In any case
not provided for in this Act the rules of law and equity, including the law merchant, shall
govern.”).
224 See Lewis, supra note 192, at 621 (noting that UPA “d[id] not abolish common law
partnerships”); id. at 622 (stating that UPA tacitly contemplates the formation of legal
partnerships absent formalities).
225 See U.P.A. § 4(1) (“The rule that statutes in derogation of the common law are to be
strictly construed shall have no application to this Act.”); Lewis, supra note 192, at 621-36.
226 See Lewis, supra note 192, at 621, 636-41.
227 Id. at 618 (noting that commercial regulation in the industrial age had “yet much to be
learned from practical experience” and that an act “practically possible today may be quite
different from an act on the same subject practically possible two or three decades hence”). It
may be that Professor Lewis, realizing that he was drafting the UPA in an era of unprecedented
commercial growth, crafted a document which “contained within it powerful seeds for change.”
Larry E. Ribstein, The Evolving Partnership, 26 IOWA J. CORP. L. 819, 820 (2001).
228 Claire Moore Dickerson, Is It Appropriate to Appropriate Corporate Concepts: Fiduciary
Duties and the Revised Uniform Partnership Act, 64 U. COLO. L. REV. 111, 117 (1993) (citing
trust law as an example); Weidner & Larson, supra note 4, at 16 (illustrating the distinction in
agency and corporations law).
229 Dickerson, supra note 228, at 118; see Weidner & Larson, supra note 4, at 16-17. The
NCCUSL has also recognized a duty of good faith in contract law, but given the robustness of the
duty of loyalty in the UPA, “it is unlikely that a separate fiduciary duty of contract law good faith
or heightened good faith exists” in partnerships. Dickerson, supra note 228, at 120 n.46.
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“Partner Accountable as a Fiduciary,” is essentially a proscription
against self-dealing and is the UPA’s central duty of loyalty
provision,230 though Sections 18-20 also contain statements related to
the duty of loyalty.231 Section 21’s duty of loyalty statement applies to
actions taken “without the consent of the other partners,” and
interpreting whether this clause allows partners to completely eliminate
the duty of loyalty through ex ante contracting became a major
battleground in the debate over the changes wrought by RUPA.232
Because the UPA duty of loyalty provisions were broadly worded,
judicial decisions continued to define the specific duties owed between
partners, only now with statutory backing.233 Adopting the common
law rules on partnership fiduciary duties while allowing prospective
partners a degree of latitude to define those duties in their partnership
agreements, then, the UPA was faithful to the age-old communal and
moral norms presented in this Article while addressing the need of
partners to construct a wide variety of associations to better fit the
modern marketplace.
As shown above, while there is a general consensus on the UPA
provisions pertaining to the duty of loyalty, opinion is divided as to
whether under the UPA fiduciary duties are default or mandatory
rules.234 The distinction is critical. If a UPA provision is a default rule,
230 U.P.A. § 21(1) (“Every partner must account to the partnership for any benefit, and hold as
trustee for it any profits derived by him without the consent of the other partners from any
transaction connected with the formation, conduct, or liquidation of the partnership or from any
use by him of its property.”). Section 21 also adopts the doctrine of non-survivorship upon the
death of a partner. U.P.A. § 21(2).
231 U.P.A. § 18 (“Rules Determining Rights and Duties of Partners” provides in subsection (e)
that “[a]ll partners have equal rights in the management and conduct of the partnership business,”
a right that suggests a duty to consult on major partnership decisions); U.P.A. § 19 (“Partnership
Books” section including minimal standards of bookkeeping and granting partners unfettered
access and inspection rights); U.P.A. § 20 (“Duty of Partners to Render Information”; a broad
duty of forthcomingness). Section 22 grants partners a “Right to an Account” if (a) a partner is
wrongfully excluded from the partnership, (b) the right exists under an agreement, (c) section 21
is violated, or (d) “Whenever other circumstances render [an accounting] just and reasonable.”
232 Compare Weidner, supra note 5, at 91-93 (interpreting post-UPA case law as imposing a
“mandatory minima” duty of loyalty) with Ribstein, supra note 3, at 571-92 (reviewing post-UPA
case law and refuting Professon Weidner’s interpretation).
233 See Callison, supra note 5, at 113-14 (observing that “the most significant cases deal with
conduct on the margins, where the courts have crafted more careful rules”); Weidner & Larson,
supra note 4, at 17 (“Despite the statutory rules, it is case law that has reigned supreme in the area
of fiduciary duties between partners.”). At the time of RUPA’s promulgation, every state except
for Louisiana had adopted substantially similar versions of the UPA. See Allan W. Vestal,
“Assume a Rather Large Boat”: The Mess We Have Made of Partnership Law, 54 WASH. & LEE
L. REV. 487, 518 (1997) (observing that pre-RUPA partnership law had been “remarkably
uniform”).
234 See Callison, supra note 5, at 114 (“Under the UPA, partnership fiduciary duties are broad
and somewhat nebulous and consequently, are subject to judicial expansion and contraction.”);
Weidner, supra note 1, at 453 (“It is not completely clear which [UPA fiduciary duty] rules are
default rules and which are mandatory rules.”).
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partners will be able to craft enforceable agreements that restrict or
eliminate the duty. Default rules contemplate a contract law regime
wherein partners are empowered to define the obligations they owe each
other. If a fiduciary duty is a mandatory rule, however, partners will be
unable to draft partnership agreements that alter the duty in any way.
Mandatory rules contemplate a fiduciary law regime wherein partners
are inextricably bound by their status, their mutual obligations
unalterable by contract. Given the ambiguity of the UPA and the
piecemeal approach it took in making the distinction,235 it is little
wonder that contractarians view the UPA as proposing few or no
mandatory rules in a sea of default rules,236 and that paternalists draw
the opposite conclusion.237
3.
Why Partners Might Wish to Waive Fiduciary Duties: Three
Examples
Before exploring RUPA’s changes to the system of fiduciary duties
within partnerships, it might be beneficial to discuss some situations in
which partners would want the flexibility to contract around a default
rule. In each of these examples, contractarians likely would consider
the flexibility a benefit on the view that the partners themselves know
best how to order their particular relationships in a diverse business
environment. Paternalists, on the other hand, likely would view the
flexibility as a net loss on the view that although the flexibility may be a
benefit to some sophisticated partners, default fiduciary duty regimes
needlessly expose the great majority of partners to opportunistic and
advantage-taking behavior by their partners, effectively destroying what
it means to be a partner.
First, suppose the mandatory duty of care rule was that partners
have to indemnify each other against simple negligence, but are not
allowed to contract indemnification against gross negligence or
235 Weidner, supra note 1, at 453 (“Some but not all of the UPA rules governing the relations
among partners state that they are ‘subject to’ a contrary agreement.”); see id. at 453-54
(discussing the alterability of several UPA provisions); see J. Dennis Hynes, Fiduciary Duties
and RUPA: An Inquiry into Freedom of Contract, 58 LAW & CONTEMP. PROBS. 29, 34 (1995)
(noting that the classification of fiduciary duty rules “had been left ambiguous by the Uniform
Partnership Act, . . . posing a problem for persons drafting partnership agreements”).
236 See, e.g., Ribstein, supra note 3, at 592 (finding that post-UPA “case law provides
overwhelming support for enforcement of fiduciary duty waivers”).
237 See, e.g., Allan W. Vestal, Fundamental Contractarian Error in the Revised Uniform
Partnership Act, 73 B.U. L. REV. 523, 523-24 (describing the fiduciary law view of partnerships
as one in which “partners advance their individual self-interest through a collective enterprise”
and arguing that “this world view forms the foundation of current law as expressed in both the
UPA and the common law of partnerships”).
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recklessness. Under this rule, partners will not be able to spread the
costs of their grossly negligent or reckless behavior to the entire
partnership. This seems like a sensible rule that few partners would
contract around in their partnership agreements. However, in some
situations—namely, when a partnership consists of a “labor partner”
and a “money partner” with diversified investments—it may be in the
partners’ interests to allow for more risky behavior. It is a basic tenet of
finance that one can lower his exposure to risk through diverse
investments which covary negatively.238 Relatively risky investments
traditionally offer greater aggregate returns due to the phenomenon of
“risk aversion.”239 The interplay between risk aversion and the duty of
care has been recognized in the context of corporate decision making,240
and is as applicable to the partnerships contemplated here. Under a
mandatory duty of care regime operating on a simple negligence
standard, a “labor partner” may be reluctant to take very risky actions
that both he and his diversified “money partner” would prefer he take
for fear that the “labor partner’s” action, when it flops, will be deemed
by a court to have been grossly negligent or reckless.
Second, a mandatory duty of loyalty regime requiring “abnegation
of self” may unduly restrict partners from fashioning efficient
compensation packages.241 For instance, a partnership may value new
clients over repeat customers even to the detriment of the firm’s
profits.242 In this situation, partners may want to contract around a duty
of loyalty provision in order to incentivize client prospecting over
customer retention, which might entail a misalignment of an individual
partner’s short-term incentives with that of the firm’s over the same
period.243 Of course, the partners may award bonuses from a common
238 RICHARD A. BREALEY & STEWART C. MYERS, PRINCIPLES OF CORPORATE FINANCE 16569 (6th ed. 2000).
239 See JEREMY J. SIEGEL, STOCKS FOR THE LONG RUN 38, tbl. 2-2 (3d ed. 2002) (illustrating
that risk tolerance is positively correlated to return within investment portfolios). An individual
is “risk averse” if he prefers his status quo to a 50-50 chance of a positive return on an
investment. Many economists believe that “most people are risk averse most of the time.”
RICHARD A. POSNER, ECONOMIC ANALYSIS OF LAW 13 (5th ed. 1998); id. at 12 (positing that
risk aversion is a corollary to diminishing marginal utility, that is, the more one has of something,
the less he will value the next unit).
240 Jay v. North, 692 F.2d. 880, 886 & n.6 (2d Cir. 1982) (“[B]ecause potential profit often
corresponds to the potential risk, it is very much in the interest of shareholders that the law not
create incentives for overly cautious corporate decisions. Some opportunities offer great profits
at the risk of very substantial losses, while the alternatives offer less risk of loss but also less
potential profit.”).
241 Ribstein, supra note 3, at 549.
242 This may be the case for a firm whose business model stresses a broad rather than deep
customer base, a model typical of firms whose exit strategy is to sell to a larger player in the
industry and of firms whose customer lists itself is a potential revenue source.
243 For instance, the payback might be more distant in the sell-out exit strategy, and partners
will have differing personal finance issues and payoff horizons; or new client prospecting might
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pool based on prospecting success, but that compensation system may
be more cumbersome and entail greater monitoring costs than a simple
contract solution which allows the partner to keep a portion of his new
business for himself. Precluding partners from crafting firm-specific
compensation packages by adhering to a mandatory fiduciary duty of
loyalty may be inefficient.
Third, partners may desire flexibility that allows self-dealing
between individual partners and the partnership as a way to realize
savings on information costs.244 For example, a partner who naturally
has inside information on the soundness of his partnership, may know
that the partnership is a better credit risk than the firm’s balance sheet
indicates. Rather than borrow from a commercial lender at a higher
interest rate or incur the information costs of proving the partnership’s
solid financial position to an outside lender, the partnership may prefer
to enter into arm’s-length negotiations with the partner, effectively
splitting the savings (the difference between the available commercial
terms and those negotiated with the partner-creditor) derived from the
partner’s knowledge of the partnership. As in the compensation
example, the parties may be able to conduct intra-firm deals within a
mandatory fiduciary duty of loyalty regime through a reallocation of the
firm’s residual, but such an approach will likely be more cumbersome
than contracting around a default rule.
C.
1.
The RUPA Revolution
Fiduciary Duties in RUPA
After little change in the fiduciary duty landscape of partnerships
in the seventy-five years after the UPA was completed,245 with the
promulgation of RUPA in the early 1990s, NCCUSL shifted the debate
from the descriptive (the “is”) to the normative (the “ought”). The
controversy surrounding fiduciary duties in the UPA stemmed from
ambiguity over whether they consist of mandatory or default rules.
RUPA was clearer in making these distinctions and thus focused
be more burdensome than retaining existing customers, making defection from the business
model attractive for individual partners.
244 Ribstein, supra note 3, at 548-49.
245 See Dickerson, supra note 228, at 123 (remarking on the continuity of fiduciary law in
partnerships during the period while noting great changes in the fiduciary law in the corporate
context); see Ribstein, supra note 227, at 820 (calling the period between the UPA and RUPA
“the stable era of partnership law”); Vestal, supra note 233, at 518 (“[F]rom the time of the First
World War until quite recently, the law of general partnerships in the United States was both
remarkably uniform and essentially static.”).
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scholars on the question of whether RUPA, in endorsing partners’
contractually defining some of the terms of their relationship in a
partnership agreement, went too far,246 not far enough,247 struck a
workable balance,248 or, as Professor Vestal has argued, went both too
far and not far enough, leaving partnership law’s treatment of fiduciary
duties confused and self-contradictory.249
RUPA exclusively states the fiduciary duties owed between
partners in section 404.250 These fiduciary duties are limited to the duty
of loyalty—the “key fiduciary duty”251—and a simple statement of the
duty of care,252 though RUPA includes several provisions many would
consider to be fiduciary in nature, including rights and duties related to
a partner’s access to information,253 and a good faith and fair dealing
246 See, e.g., Dickerson, supra note 228, at 156-157 (arguing that RUPA’s shift away from
mandatory fiduciary duty rules represents an unwise appropriation of the development of
fiduciary law in the corporate context).
247 See, e.g., Hynes, supra note 235, at 31 (“RUPA endorses too great an invasion of the
principle of freedom of contract among partners.”); Ribstein, supra note 3, at 592 (condemning
RUPA’s “significant limitations on fiduciary duty waivers” as contrary to the “overwhelming
support for enforcement of fiduciary duty waivers” in case law).
248 See, e.g., Weidner, supra note 5, at 82 (“RUPA represents a major and sufficient move
toward a contractarian statement of the law.”).
249 See, e.g., Vestal, supra note 233, at 512 (condemning RUPA as the “worst possible[]
outcome” resulting from the adoption of an “unworkable combination of provisions” of both the
contractarian and paternalist views); Vestal, supra note 6, at 1565 (“The Revised Act does not
return to a truly fiduciary view of the partnership relation; thematically, it remains largely
contractarian. But it does not clearly articulate and completely effectuate the contractarian vision.
The Revised Act is, as to the operational details, internally contradictory and confused.”). The
RUPA reporter acknowledges the tension in the document. See Weidner, supra note 5, at 86
(“The compromise perpetuates the language of fiduciary obligation but confines it within the
language of freedom of contract.”).
250 R.U.P.A. § 404(a) (“The only fiduciary duties a partner owes to the partnership and the
other partners are the duty of loyalty and the duty of care set forth in subsections (b) and (c).”).
251 Weidner, supra note 5, at 90. Section 404(b) states that a partner’s duty of loyalty is
limited to three classes of obligation:
A partner’s duty of loyalty to the partnership and the other partners is limited to the
following:
(1) to account to the partnership and hold as trustee for it any property, profit, or
benefit derived by the partner in the conduct and winding up of the partnership
business or derived from a use by the partner of partnership property, including the
appropriation of a partnership opportunity;
(2) to refrain from dealing with the partnership in the conduct or winding up of the
partnership business as or on behalf of a party having an interest adverse to the
partnership; and
(3) to refrain from competing with the partnership in the conduct of the partnership
business before the dissolution of the partnership.
R.U.P.A. § 404(b).
252 The duty of care indicates that partners must insure each other against simple negligence.
R.U.P.A. § 404(c) (“A partner’s duty of care to the partnership and the other partners . . . is
limited to refraining from engaging in grossly negligent or reckless conduct, intentional
misconduct, or a knowing violation of law.”).
253 R.U.P.A. § 403 (“Partner’s Rights and Duties with Respect to Information”).
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statement.254 Significantly, the duty of loyalty under RUPA is limited
to conduct while the partnership is in operation and in its winding up,
whereas the duty of loyalty also applied to the formation of a
partnership under the UPA.255 This distinction indicates that RUPA
views potential partners as self-interested negotiators before striking a
partnership, and as engaged in a special relationship afterwards.256 The
elevation of the partnership contract represents a departure from the
communal norms embedded in the common law of partnerships and
suggests that partnership agreements should be respected as including
freely bargained-for contract provisions as long as the agreement was
made without duress or fraud, and its terms are not unconscionable.257
Whether these obligations (fiduciary or otherwise) are default or
mandatory rules is addressed in RUPA section 103. Subsection (a)
grants partners broad latitude to define the duties amongst themselves
through a partnership agreement, but subject to the limitations of
subsection (b).258 Of the obligations listed above, only the partners’
rights and duties with respect to information is purely a default rule
which can be eliminated in a partnership agreement.259 The mandatory
minimum obligations prohibit partnership agreements from placing
254 R.U.P.A. § 404(d) (“A partner shall discharge the duties to the partnership and the other
partners under this [Act] or under the partnership agreement and exercise any rights consistently
with the obligation of good faith and fair dealing.”).
255 Compare R.U.P.A. § 404(b)(1)-(2) (duty applies to conduct and winding up) with U.P.A. §
21(1) (duty applies to the formation, conduct, or liquidation). See Vestal, supra note 233, at 519
(discussing this change in RUPA and pre-RUPA case law on the point).
256 See R.U.P.A. § 404 cmt. 2.
257 ”Unconscionable” is a contract term of the Uniform Commercial Code. U.C.C. § 2-203
(2003). Under the “unconscionable” standard, a contract provision will only be voided if a court
finds both a defect in the bargaining process and unfairness in the result. Id. One commentator
has advocated that all fiduciary duties in partnerships should be default rules, and that partnership
agreements which contract around the defaults should be adjudicated using the unconscionable
standard. Hynes, supra note 235, at 51-53 (arguing that the “manifestly unreasonable” standard
regarding the formation of partnership agreements in RUPA § 103(b)(3) (duty of loyalty) and §
103(b)(5) (duty of good faith and fair dealing) does not accord enough respect to partnership
agreements).
258 R.U.P.A. § 103(a) (“Except as otherwise provided in subsection (b), relations among the
partners . . . are governed by the partnership agreement.”). Section 103(a) also makes the obvious
but seemingly often-ignored point that partnership agreements only govern RUPA provisions
addressed in them. That is, in the absence of a partnership agreement, or when an agreement does
not address a given provision, the RUPA version will be determinative, whether it is a default or
mandatory rule. Therefore, only parties sophisticated enough to govern themselves through a
written agreement—and presumably able to fend for themselves in negotiating the partnership
agreement—will be affected by the RUPA default rules which paternalist commentators argue
should be mandatory obligations. See id. (“To the extent the partnership agreement does not
otherwise provide, this [Act] governs relations among the partners and between the partners and
the partnership.”).
259 Section 103 does not address section 403, so section 403 is a default rule. See Weidner,
supra note 5, at 86 n.21.
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“manifestly unreasonable” limitations on the duty of loyalty260 and on
the good faith and fair dealing requirement,261 and restrict duty of care
limitations to those that are “reasonable.”262
Section 404 also contains two important positive declarations of
partners’ power to dictate the terms of their relationship. First, section
404(e) states: “A partner does not violate a duty or obligation under this
[Act] or under the partnership agreement merely because the partner’s
conduct furthers the partner’s own interest.”263 Second, Section 404(f)
contains specific examples of a partner’s allowable self-interested
behavior: “A partner may lend money to and transact other business
with the partnership, and as to each loan or transaction, the rights and
obligations of the partner are the same as those of a person who is not a
partner, subject to other applicable law.”264 These two provisions
represent “RUPA’s fundamental change to the statement of the
fiduciary duty obligations among partners [which] is the elimination of
the duty to be selfless.”265 Sections 404(e) and 404(f) allow partners to
step out of their role of partner and conduct arm’s-length negotiations
with the partnership. The provisions settle inconsistent case law,266 and
dislodge the communal norm against advantage-taking between
partners. If a partner engages in adversarial negotiations with his
partnership, logic dictates that he will try to appropriate to himself the
260 R.U.P.A. § 103(b)(3) (“The partnership agreement may not eliminate the duty of loyalty
under Section 404(b) . . . but: (i) the partnership agreement may identify specific types or
categories of activities that do not violate the duty of loyalty, if not manifestly unreasonable.”).
Section 103 does allow the partnership agreement to specify the percentage of partners necessary
to ratify disloyal behavior after full disclosure of all material facts. R.U.P.A. § 103(b)(ii).
261 R.U.P.A. § 103(b)(5) (“The partnership agreement may not eliminate the obligation of
good faith and fair dealing under Section 404(d), but the partnership agreement may prescribe the
standards by which the performance of the obligation is to be measured, if the standards are not
manifestly unreasonable.”).
262 R.U.P.A. § 103(b)(4) (“The partnership agreement may not unreasonably reduce the duty
of care under Section 404(c).”).
263 R.U.P.A. § 404(e).
264 R.U.P.A. § 404(f).
265 Weidner, supra note 5, at 88; id. (emphasizing that section 404(e) “sets aside both
partnership case law and basic agency doctrine requiring abnegation of self”).
266 Id. at 88-89. Not surprisingly, these positive declarations have not been immune to
criticism. See Mitchell, supra note 202, at 474-75 (arguing that taken literally, section 404(e) is
internally inconsistent with section 404(b)(2)’s prohibition on partners having interests adverse to
the partnership and proposing that ambiguities be resolved using a “benefit/detriment” test);
Vestal, supra note 233, at 511 (observing that section 404(e) can be read as a narrow evidentiary
rule or as a “broad-form insulation from liability” based on contract standards and finding that the
commentary and history of RUPA lends “a slight edge to the broader reading”); but see Ribstein,
supra note 3, at 562 n.118 (rejecting arguments that section 404(e) is ambiguous and stating that
the provision “explicitly permits partners to act selfishly”); Wiedner & Larson, supra note 4, at
20 n.123 (noting that the provision “is designed to recognize and protect the legitimate pursuit of
self-interest among partners,” while acknowledging that “[t]here is a certain tension between
authorizing the pursuit of self-interest and continuing to use the term fiduciary”).
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greater measure of advantage from the exchange at the expense of his
partner’s benefit. This would seem to contradict the special nature
traditionally accorded the partnership relation as being immutably a
shared endeavor. However, this aspect of RUPA, like its recognition of
the bargain principle in pre-formation negotiations, responds to the
complexity, sophistication, and variability of purpose of modern
partnerships.267
Last, RUPA allows the partnership agreement to state the choice of
law applicable to the partnership,268 offering more flexibility than
available under the UPA.269 Given the significant amount of tailoring
states have undertaken in enacting RUPA, particularly with regard to
fiduciary duties, the contractual choice of law provision is likely to have
a profound impact on the fiduciary duties included in partnership
agreements.270
For example, “in Virginia, the restrictions on
amendment of the fiduciary duties of loyalty and care have been
eliminated altogether.”271 Therefore, if a partnership wishes to restrict
the fiduciary duties to a greater degree than the version of RUPA
enacted in the partnership’s home state, the partnership agreement can
specify that the law of a more lax state will apply. Whether one
believes this flexibility is desirable272 or harmful,273 it subjects fiduciary
duties to testing in the laboratory of competing state laws. If a
significant number of partnerships incur the search and contracting costs
to contract around fiduciary duties that are mandatory in their home
state, or if partnership agreements specify more restrictive RUPA
enactments to govern, we will know more about partners’ relative
preferences for contractarian and paternalist regimes.
267 Though Sections 404(e) and (f) are enabling provisions, not limitations, partnership
agreements could presumably prohibit partners from ever furthering their own interest within the
scope of the partnership business or from dealing at arm’s length with the partnership.
268 Section 106 adopts the default rule that “the law of the jurisdiction in which a partnership
has its chief executive office governs relations among the partners and between the partners and
the partnership.” R.U.P.A. § 106(a). Section 106 is not mentioned as a “nonwaivable provision”
in section 103. See R.U.P.A. § 103.
269 See Ribstein, supra note 227, at 825 (noting that choice of law clauses in partnership
agreements under the UPA were constrained by general choice of law rules); Vestal, supra note 1,
at 219-21.
270 See Vestal, supra note 233, at 518-19 (discussing the “substantial variations” of RUPA
enacted by states and using fiduciary duties as an example).
271 Id. at 520 (citing VA. CODE ANN. § 50-73.81.B (Michie 1996)).
272 See Ribstein, supra note 227, at 825-27 (arguing that the choice of law provision presents
partnerships with a desirable “horizontal choice”).
273 See Vestal, supra note 233, at 519-20 (arguing that the “problems of nonuniformity expand
geometrically when one considers the variations that enacting states have written into their
adoptions of RUPA” concerning the treatment of fiduciary duties).
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2.
a.
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The Debate Over the Ought of Fiduciary Duty Rules in RUPA
The Nature of Partnerships and the Role of Fiduciary Duties
The normative debate between contractarians and paternalists over
RUPA’s treatment of fiduciary duties takes place on many fronts. At
the risk of oversimplification, the contractarian view holds that: (1)
partnerships are fundamentally contractual relationships; (2) fiduciary
duties are best understood as default contract fillers; and (3) default
fiduciary duties amendable by partnership agreements will produce
efficient self-ordering. Contractarians condemn RUPA provisions that
mandate a baseline of fiduciary duty rules which infringe on the
contractual nature of partnerships. In contrast, the paternalist view
holds that (1) partnerships are special relationships founded on
members’ status as partners; (2) fiduciary law is founded on trust, not
contract terms, the core duties of which cannot be altered without
destroying the fiduciary relationship; and (3) mandatory fiduciary duty
rules are beneficial both to individuals and society. Paternalists claim
RUPA unwisely adopts the contractarians’ formulation, deserting
traditional partnership law’s fiduciary principles.
Whether fiduciary duties should be amendable by partnership
agreement depends on how one views the nature of partnerships. To
contractarians, partner relations are special only in the sense that their
attendant fiduciary duties serve as proxies for prohibitively expensive
contractual negotiations.274 Because the parties are not able to foresee
situations for which they would have contracted, or because their
promises are difficult to monitor, “the duty of loyalty replaces detailed
contractual terms, and courts flesh out . . . [what] the parties themselves
would have preferred if bargaining were cheap and all promises fully
enforced.”275 The contractarian vision of partnerships elevates partners’
ability to tailor the rules of their relationship to their particular
circumstances over uniform mandatory fiduciary duty rules. In the
contractarian view, when disputes arise that are not specifically covered
in their agreement, courts should refer to fiduciary duties as contractual
gap fillers, to reach the result to which the partners would have
contracted had they foreseen the situation giving rise to the litigation,
just as courts employ gap-filling rules in ordinary contract litigation.
The contractarian view has been most forcefully stated by Judge
274 Frank H. Easterbrook & Daniel R. Fischel, Contract and Fiduciary Duty, 36 J. L. & ECON.
425, 427 (1996); Hynes, supra note 235, at 38-39.
275 Easterbrook & Fischel, supra note 274, at 427; Hynes, supra note 235, at 38-39; Ribstein,
supra note 227, at 845.
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Easterbrook and Professor Fischel: “Fiduciary duties are not special
duties; they have no moral footing; they are the same sort of obligations,
derived and enforced in the same way, as other contractual
undertakings.”276 This statement may be accurate today, but for
centuries it was not. Originally a manifestation of the Catholic
Church’s communal norms, until recently fiduciary duties had a “moral
footing” and were enforced as special obligations by religious and
secular courts alike. As we have seen, several states maintained
established churches well into the nineteenth century, often with a
political rationale,277 and state legislatures codified the “moral footing”
of fiduciary duties in partnerships upon adopting the UPA. It should not
be surprising, then, that fiduciary duties, having had so long to solidify,
only slowly lost their “moral footing.” The furor over the treatment of
fiduciary duties in RUPA can be understood as a measure of the
resonance the age-old Church norms maintain in today’s secular
society.
Unlike contractarians, paternalists view fiduciary law as a separate
and distinct body of law, not merely as a subset of contract law.278
According to paternalists, the shared status of “partner” defines the
partnership relation as one in which “partners advance their individual
self-interest through a collective enterprise.”279 From the view that
fiduciaries are bound by their mutual relation, not contract, flows the
conclusion that partnership entails a core of mutual duties which parties
cannot waive prospectively while still retaining the status of
“partners.”280 According to Dean Weidner, these “mandatory minima”
obligations between partners “ought to reflect the texture of their
relationship, which is one of a powerful mutual agency, ill-defined
hierarchy, and joint and several liability.”281 These partnership bonds,
which paternalists maintain the contractarian formulation threatens to
destroy, are as old as cooperation itself.282 Paternalists argue that
276
277
278
Easterbrook & Fischel, supra note 274, at 427.
See supra notes 198-200 and accompanying text.
Callison, supra note 5, at 118-19; Vestal, supra note 233, at 500-01; see also Mitchell,
supra note 202, at 469 (calling “ridiculous” the “dominant conclusion that partnership is
contractual appears to be taken to exclude the fiduciary”).
279 Vestal, supra note 237, at 523-24; see Callison, supra note 5, at 118-19; Dickerson, supra
note 228, at 155.
280 Dickerson, supra note 228, at 117; Vestal, supra note 237, at 525-26; Weidner, supra note
5, at 82. Paternalists agree that partners can waive what would otherwise be breaches of fiduciary
duties on a case-by-case basis after full disclosure without abridging their status as partners.
281 Weidner, supra note 5, at 82.
282 Mitchell, supra note 202, at 467 (noting that partnership has its origin in “observed human
behavior” and is not a statutory “creature of contract” dating only to the UPA); see Vestal, supra
note 233, at 506 (rejecting the notion “that the relations of partners are entirely economic” and
cautioning that we should not “assume[] away the historical fiduciary obligations of partners”);
Vestal, supra note 237, at 537.
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RUPA dangerously transfuses the contractual metaphor developed to
describe intracorporate relations into partnership law, ignoring the
historical foundations of partnerships and unwisely displacing the
status-based model.283 However, what the paternalists have not done,
and what this Article suggests they do, is reconsider the religious and
moral grounding of the historical partnership bond and ask whether that
model of partnership retains normative power in today’s secular
business world.
b.
Economic Arguments
Both sides in the debate over how RUPA’s fiduciary duties should
be enacted by state legislatures and interpreted by courts employ
economic efficiency arguments. The contractarians’ “fiduciary duties
as gap fillers” argument is premised on the Coase Theorem284 and holds
that the partners themselves know how best to promote their joint
welfare, so courts should insert the missing contractual terms to which
the parties would have agreed at the time they formed the partnership.285
To contractarians, this view promotes efficiency in two related ways:
first by obviating the need for prospective partners to craft costly,
detailed partnership agreements,286 and second, by deferring to the
business judgments the parties would have made.287 Contractarians
283 Dickerson, supra note 228, passim; Mitchell, supra note 202, at 468-69; see Vestal, supra
note 237, at 543-44.
284 See Ronald Coase, The Problem of Social Cost, 3 J. L. & ECON. 1 (1960). The “fiduciary
duties as gap fillers” argument rests on Coase’s theory of transaction costs, which holds that in a
world without transactions costs, the initial allocation of property rights does not matter because
the parties will bargain to an efficient outcome. Id. at 7. Transactions costs infect every bargain,
however, so parties will deal only if the efficiency gains outweigh the transactions costs. Id. at
15-16. In crafting partnership agreements, the theorem predicts that partners will specify the
terms of the most important fiduciary obligations (those that present a net gain), but not those
terms presenting a net loss (because their present value is less than the costs to capture them).
Therefore, contractarians believe fiduciary duties should be viewed as supplying these missing
contractual terms (i.e., those which presented a net loss to the prospective partners at the time the
partnership agreement was crafted).
285 Easterbrook & Fischel, supra note 274, at 427; Hynes, supra note 235, at 38-41; Ribstein,
supra note 3, at 541-42.
286 Easterbrook & Fischel, supra note 274, at 427; Ribstein, supra note 3, at 541-42.
287 Easterbrook & Fischel, supra note 274, at 428-29; Hynes, supra note 233, at 39, 54;
Ribstein, supra note 3, at 548-50. Professor Ribstein also argues that RUPA injected
nonuniformity in partnership law across states (offering parties “horizontal choice”) and multiple
partnership forms (“vertical choice”), both of which add efficiency-producing competition to the
system. Ribstein, supra note 227, at 824-34. But see Vestal, supra note 233, at 517-29 (refuting
the efficiency-enhancing theory of nonuniformity and describing the advantages of uniformity
across state jurisdictions). Further, Ribstein notes that the contractarian vision of partnership also
promotes “strong noneconomic values such as humans’ need for autonomy.” Ribstein, supra
note 3, at 564.
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argue that the unwaivable fiduciary duties in RUPA constitute too great
an incursion into the freedom of contract regime developed in post-UPA
case law.288
Paternalists attack the assumptions underlying the contractarians’
efficiency arguments, while offering few efficiency-based arguments of
their own.289 Paternalists question contractarians’ assumption of
partners’ equality in bargaining power,290 and argue that because the
process of negotiating partnership agreements is fraught with potential
defects,291 RUPA’s “mandatory minima” of fiduciary obligations “are
most likely to be efficient.”292 The paternalists’ economic arguments
for mandatory fiduciary duty rules hold that even if in some unusual
cases such rules inhibit individual partners from ordering their
288 Hynes, supra note 235, at 31 (premising his argument that “RUPA endorses too great an
invasion of the principle of freedom of contract among partners” on the assumption that
contracting parties “ordinarily do not occupy positions of unequal bargaining power”); Ribstein,
supra note 3, at 592 (“[Post-UPA] case law provides overwhelming support for enforcement of
fiduciary waivers. Nevertheless, RUPA . . . include[s] significant limitations on fiduciary duty
waivers.”).
289 This does not represent a weakness of the paternalist position. Efficiency arguments are
the stock in trade of the contractarians. See Callison, supra note 5, at 125 (“The development of
this idealized contractarian perspective [of partnership law] has been interesting and reflects an
increasing devotion to law and economics principles in parts of academia.”). Indeed,
contractarians do not directly engage paternalists’ morality-based fiduciary law view of
partnerships, but instead reject the moral view in transactions costs terms, arguing that enforcing
morality legally imposes costs by reducing the number of bargains struck and causing expensive
compensatory evasions. See Easterbrook & Fischel, supra note 274, at 427:
Acting on moral belief that agents ought to be selfless will not make principals better
off; it will instead lead to fewer agents, or higher costs of hiring agents. With powers
hedged in by competition and the price system, judges must choose between promoting
the parties’ contracting (and thus increasing both private and social wealth) and
frustrating it (injuring the parties and society). That is not a hard choice. Providing, as
a public service, the rules the parties themselves would have chosen in a transactioncost-free world fosters instrumental and ethical objectives at the same time.
290 Dickerson, supra note 228, at 154; Mitchell, supra note 202, at 477-79 (demanding that
contractarians verify their factual assertions of equal bargaining power with empirical data);
Weidner, supra note 5, at 99-100. Paternalists also question contractarians’ supposed assumption
that economic and social goals are necessarily in conflict. See Vestal, supra note 233, at 534.
Highlighting the fierceness of the debate, Professor Mitchell goes so far as to question the
motives of the contractarians. See Mitchell, supra note 202, at 479 (“[B]y severely limiting
fiduciary obligation, RUPA benefits sophisticated lawyers and their clients, not only allowing
them to take advantage of the weaker parties, but providing them with winning arguments in the
case of ambiguous drafting. Efficiency, as used in this debate, is a label for the protection of the
wealthy and for the disadvantaging of the relatively weak.”).
291 Dickerson, supra note 228, at 135 (categorizing the economic arguments of the “anticontractarians” as “disput[ing] the basic assumptions of the contractarians, notably the adequacy
of the players’ information and the independence of their decision-making”); Weidner, supra note
5, at 100 (listing several behavioral and information asymmetries that may exist between partners
and taint their partnership agreement negotiations).
292 Weidner, supra note 5, at 100; id. (“RUPA’s [unwaivable fiduciary duties] reflect the
drafters’ best judgment about minima likely to be contracted for in bargaining that is untarnished
by fraud or by dramatic information or behavioral asymmetries.”).
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relationship to the height of efficiency, in the aggregate a minimum of
unalterable duties will be a net societal benefit.293 The direct benefits
that will derive from mandatory fiduciary duties, the paternalists urge,
include lower information and transactions costs in bargaining, and
improved allocation of resources.294 Indirect benefits include those
flowing from stability-promoting trust295 and forthcomingness in
partnerships,296 and are benefits the community realizes as well as the
partners themselves. Lastly, paternalists dispute contractarians’ claim
that post-UPA case law granted parties broad freedom to contract
around fiduciary duties,297 and argue that RUPA upsets settled law by
making fiduciary duties in partnerships too amendable.298
Fiduciary duties in partnership law have come full circle, but with
a twist. An outgrowth of the medieval Church’s wariness of the
potential of emerging commerce to corrupt men’s souls, fiduciary duties
in partnerships were an often counter-market means of injecting the
Church’s communal norms into the marketplace. One battlefront in the
modern debate over whether these obligations of partners should be
mandatory or amendable is fought in terms of market outcomes, though
now efficiency concerns, not the eternal fate of the participants, mark
the terrain. To the degree that the debate continues to take place on an
economic plane, the contractarians should have the greater measure of
influence regarding the amendability of RUPA’s fiduciary duties as
enacted and implemented by individual states. Trust may continue to be
the “rhetorical touchstone of fiduciary duty,”299 but the trajectory of
293 See Vestal, supra note 233, at 523 (“A common set of fiduciary duties may have value by
reaffirming behaviors that benefit the society, such as the value of telling the truth.”); Weidner,
supra note 5, at 103 (“Contracts that deprive people of all information, remedy, and dignity, and
laws that insulate the drafters of such contracts from judicial review are to be prohibited rather
than enabled. They offer only abstract benefit to a very limited class, and invite widespread
opportunistic behavior with all its individual and social costs.”).
294 Vestal, supra note 233, at 523-34.
295 Mitchell, supra note 202, at 480-81 (arguing that mandatory fiduciary duties serve a
“distinct economic function” in making trust rational by sanctioning untrustworthy behavior,
thereby making partnerships more stable when unforeseen circumstances arise). Professor
Mitchell continues that stability-enhancing fiduciary duties “[n]ot only . . . contribute[s] to the
welfare of the particular enterprise, but it also has the potential to reduce the dislocations that
occur when an operating business falls apart.” Id. at 481; see also Weidner, supra note 5, at 104
(“The cost of eliminating mandatory minima is the cost of authorizing lawlessness in business
relationships.”).
296 See Vestal, supra note 233, at 524 (arguing that due to the positive externalities of truthtelling, “society may determine that it wants participants in unincorporated firms to tell the truth
even when it is not demonstrably efficient for the participants in the short term to do so”).
297 See Weidner, supra note 5, at 96 (“To abandon the language of fiduciary
obligation . . . would be inefficient because it would impose unnecessary transaction costs
resulting from setting aside a century of well-established case law.”).
298 Vestal, supra note 237, at 535-36; see Mitchell, supra note 202, at 474-75 (comparing
RUPA’s fiduciary formulation to that under close corporation case law).
299 Roberta Romano, Comment on Easterbrook and Fischel, “Contract and Fiduciary Duty”,
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fiduciary duties in partnerships suggests that the contract gap-filling
model will grow as its substantive criterion. Even were most states to
enact RUPA without modification, its choice of law and choice of
forum provisions would enable prospective partners who wish to limit
their mutual fiduciary duties to do so. Further, economic theory
predicts that partners would respond to mandatory fiduciary duty
regimes by taking allowable compensating measures, such as
reallocating partners’ shares of partnership residuals, adjusting prices,
or operating as a joint venture, a form which traditionally entails less
onerous fiduciary duties.
c.
The Inevitability of Default Fiduciary Duties in Partnership Law:
A Trend Analysis
Despite assertions from paternalists that the “contractarian
revolution” in partnership law is failing,300 the fiduciary duties
embedded in partnership law over the course of a millennium will likely
continue to trend toward default rules. First, fiduciary duties have lost
much of their ordering force in other areas of the law,301 and new
partnership varieties, which all feature default fiduciary duty rules, are a
step toward erecting default regimes in the general partnership context.
LLCs and LLPs, for example, offer prospective partners “multiple
business forms[,] in facilitating moves from mandatory fiduciary duties
to enforcement of fiduciary duty waivers.”302 RUPA is primarily
intended to serve small partnerships which may have only a cursory
36 J. L. & ECON. 447, 447 (1993). The word “fiduciary” derives from the Latin “fiducia,”
meaning “trust” or “confidence.” WEBSTER’S NINTH NEW COLLEGIATE DICTIONARY 460
(1984).
300 See Vestal, supra note 6, at 1566 (“The first phase of the contractarian revolution in
partnership law has ended, apparently in failure.”); id. at 1627 (“[D]isillusionment with the hard
edge of contractarianism is not confined to the disclosure obligations of partners, or even to
partnership law in general. In many areas of the law, scholarship is emerging that convincingly
questions the value of the contractarian premise, scholarship that suggests the value of fiduciarybased analysis in its many and rich variations.”); see also Weidner, supra note 5, at 97 (arguing
that “[e]xtremist contractarians continue to press the notion that fiduciary duties are and should be
simply short-form contracts. . . . even though no statute has been so bold as to declare fiduciary
duties merely default rules”).
301 See Mitchell, supra note 202, at 472 (noting that modern trust law, corporate law, and even
marriage law “modifies classic fiduciary obligation”); see also Lawrence E. Mitchell, The Death
of Fiduciary Duty in Close Corporations, 138 U. PA. L. REV. 1675 (1990).
302 Ribstein, supra note 227, at 827; see Weidner, supra note 5, at 83 (noting that if
prospective partners “do not like RUPA’s minimalist mandatory rules, they may adopt a different
form of organization”); see also Wayne M. Gazur, The Limited Liability Company Experiment:
Unlimited Flexibility, Uncertain Role, 58 LAW & CONTEMP. PROBS. 135, 149-56 (1995)
(discussing the treatment given fiduciary duties in various LLC statutes).
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partnership agreement or none at all,303 and applies to persons who are
unaware they have even formed a legal partnership.304 To the degree
that RUPA includes mandatory fiduciary duties to protect
unsophisticated persons in pre-formation bargaining,305 it would seem to
be the natural last bastion for a mandatory fiduciary duty regime.
Second, the revolution in personal liability in partnerships is recent
precedent for upsetting ancient partnership law.306 The rapidity with
which states adopted the LLC and LLP forms was striking given the
ancient rule that partners were liable in common for partnership debts,
including tort claims premised on simple negligence.307 States which
have updated their general partnership law using RUPA as a template
have shown a similar willingness to upset their traditional fiduciary duty
rules by moving toward default regimes. Since the advent of RUPA,
Virginia has enacted a version of the Act that contains no limitations on
duty of loyalty and care waivers,308 Delaware has passed statutes that
“explicitly provide[] for enforcement of broad fiduciary duty
waivers,”309 and several other states have adopted RUPA with various
modifications to its fiduciary duty template.310 To be sure, LLPs’ and
LLCs’ combination of pass-through taxation and limited liability
present more easily demonstrable benefits than unrestricted waivability
of fiduciary duties. But if the rapid spread of LLPs and LLCs is any
guide, desirable partnership rules will be sought in state legislatures, or,
given RUPA’s choice of law provision, across state borders. RUPA’s
303
304
Weidner, supra note 5, at 84.
See R.U.P.A. § 202(a) (“[T]he association of two or more persons to carry on as co-owners
of a business for profit forms a partnership, whether or not the persons intended to form a
partnership.”).
305 See Hynes, supra note 235, at 44 (addressing partners’ inability “accurately to foresee what
abuses can be committed by an opportunistic partner”); Vestal, supra note 237, at 562 (arguing
that “the ability to opt out of fiduciary duties would foster exploitation and abuse. . . . of relatively
unsophisticated individuals in partnerships”); Weidner, supra note 5, at 99-100 (claiming that
unfettered availability of fiduciary waivers would make unsophisticated parties susceptible to
defects in the bargaining process).
306 See Hynes, supra note 6, at 3 (noting that “[f]or more than a thousand years, one of the
essential characteristics of partnership law has been the personal liability of each partner for the
obligations of the firm” and observing that the advent of the limited liability partnership over the
last several years destroys the ancient rule).
307 In 1988, the IRS classified an LLC in Wyoming as a partnership for tax purposes, and
seizing on this unprecedented change, just six years later all fifty-one jurisdictions had LLC
statutes. Ribstein, supra note 227, at 828-30. LLPs were invented in 1991 and “[v]irtually all
states had adopted LLP statutes by early 1998.” Larry E. Ribstein & Bruce H. Kobayashi, Choice
of Form and Network Externalities, 43 WM. & MARY L. REV. 79, 86-87 (2001). LLCs and LLPs
are alike in the two most important respects—limited liability and pass through taxation—and
both are close substitutes for the general partnership form and therefore illuminate the RUPA
fiduciary duty debate. Id.
308 See supra note 271 and accompanying text.
309 Ribstein, supra note 227, at 829.
310 See Vestal, supra note 233, at 519-20.
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main virtue may prove to be its triggering of a market-driven
reconsideration of the communal norms passed down through the
centuries. If most states adopt mandatory fiduciary duty regimes, the
communal norms will have shown their continued resonance; if
amendable fiduciary duties become the standard in general partnerships,
the RUPA will have been a welcome catalyst of change.311
Third, public choice theory predicts that partners desiring
amendable fiduciary duty rules will eventually win out.312
Unsophisticated partners operating under skeletal agreements or none at
all, and partnerships in which RUPA’s fiduciary duties are a good fit
(perhaps a great majority), will be unaffected by whether fiduciary
duties are default or mandatory provisions.313 These partners will not be
attracted to other forms of partnership on account of their amendable
fiduciary duty regimes, they will not insert choice of law clauses into
their governing agreements, and they will not lobby their state
legislatures to impose restrictions on the alterability of fiduciary duty
rules. Prospective partners who desire default fiduciary duty rules will
undertake all of these measures, and, meeting little or no resistance in
the state house, will eventually be successful. The predicted lack of
opposition to default proponents stems from two causes. First, those
desiring their partnerships to be governed by fiduciary duties will
simply not amend the duties in their agreements, and will be unaffected
by whether they are mandatory or default rules. Second, partners who
favor default rules will not meet concerted resistance in state houses by
those arguing for mandatory rules as a theoretical point. This second
cause reflects an erosion of the ancient communal norms in a
secularized world—the norms have lost the religious grounding and
nourishment necessary to mount sustained and concerted political
311 As of 2001, seventeen states and the District of Columbia had adopted statutes based on
RUPA. See ALAN R. BROMBERG & LARRY E. RIBSTEIN, BROMBERG & RIBSTEIN ON
PARTNERSHIP § 1.02(b) (suppl. 2002-2).
312 Public choice theory is an economic model of legislation whose basic postulate is that
interest groups pursuing their narrow economic advantage can profoundly shape legislation. This
is especially so when the costs of the targeted benefits are diffused across a wide population or
when opposition to the legislation is not well organized. See KAY LEHMAN SCHLOZMAN & JOHN
T. TIERNEY, ORGANIZED INTERESTS AND AMERICAN DEMOCRACY 396-98 (1986) (finding that
interest group influence is greatest when they are pursuing a low-visibility issue). It is safe to
assume that whether fiduciary duties in partnerships are cast as default or mandatory rules is a
low-visibility issue.
313 The argument that mandatory fiduciary duties protects unsophisticated partners from savvy
and opportunistic partners’ broad waivers, see Weidner, supra note 5, at 98-105, fails on two
accounts. First, that a prospective partner (P1) proposes amending the default fiduciary rules
during pre-formation negotiations should signal P2 to guard his interests. See Hynes, supra note
235, at 45. Second, if P1 can dupe P2 into signing an unwise, uncompensated, or one-sided
waiver, it calls into question why P1 would want to join P2 in a partnership. If duping P2 was
P1’s goal, surely P1 could devise a faster and simpler way to take advantage of P2.
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pressure for their perpetuation.
D.
RUPA as “Norm Entrepreneurship”
Although paternalists reject the contractarian premise that
“eliminating mandatory fiduciary duties will allow efficient agreements
with maximum certainty for most partnerships,”314 we have seen that
paternalists make efficiency arguments in support of mandatory
fiduciary duties. Given that the camps do not even agree which side has
the burden of persuasion in the economic dispute,315 the paternalists are
to be commended for engaging the efficiency debate. At least one
contractarian has returned the favor so far, meeting the paternalists on
their “home field” of moral norms.316 The historical trajectory of
fiduciary duties in partnerships from their origins in the communal
norms of the Roman Catholic Church to their present day treatment in
RUPA holds lessons for the debate over the continuing relevance of
moral norms in the partnership law. This section presents the normative
views of the two sides as reflected in their competing claims to the
chestnut case of Meinhard v. Salmon, and concludes that RUPA may be
viewed as “norm entrepreneurship” in which the drafters forced scholars
to revisit their received notions about the nature of partnerships.317 In
short, the RUPA drafters consciously moved toward a more
contractarian view of fiduciary duties, and thereby signaled state
legislatures, lawyers, and prospective partners that self-ordering partner
relations through pre-formation contracting is desirable and should be a
generally accepted business norm.
1.
A Word about Norms
The term “norm” is used in a variety of ways.
314
315
For present
Hynes, supra note 235, at 54.
Compare Ribstein, supra note 3, at 551 (“[A]nticontractarians must show that [defects in
reasoning or in the bargaining process] are so pronounced for fiduciary duty waivers as to
distinguish them from contracts that are normally enforced.”) with Vestal, supra note 235, at 536
(arguing that the erosion of fiduciary duties in the proposed RUPA represents a “radical
restructuring of partnership law” and that “the burden of persuasion rests with the proponents of
change” to justify it).
316 See Ribstein, supra note 3, at 559-64 (discussing the “‘noneconomic’ considerations” of
trust and norms for not enforcing fiduciary duty waivers propounded by paternalists); see also
supra note 289 (quoting the Easterbrook and Fischel transactions costs rejoinder to moral
fiduciary duty arguments).
317 “Norm entrepreneurs” are simply individuals interested in changing social norms. Cass R.
Sunstein, Social Norms and Social Roles, 96 COLUM. L. REV. 903, 909 (1996).
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purposes, norms can be thought of as rules distinguishing approved
from disapproved behavior, “specifying what ought to be done and what
ought not to be done.”318 Unlike laws which are enforced by the state,
norm violators are punished by private persons.319 Efficient norms are
those which achieve a material criterion, a given standard of
efficiency.320 Contractarians view default fiduciary duty regimes in
partnerships as embodying efficient norms on the belief that the
prospective partners themselves know best how to regulate their mutual
duties in order to maximize their well-being, financial or otherwise.321
As used here, moral norms “reflect nonefficiency and . . . nonconsequentialist values.”322
Moral norms regularly sounding in
fiduciary rhetoric include fidelity, honesty, loyalty, trust, honor, and
faith.
Paternalists value these themes for their own sake as
“fundamental tenets of society,”323 which “at once reveal[] and
reshape[] the attitudes and value choices of our community.”324
Paternalists believe that these moral norms should be reflected in the
law as a baseline of unwaivable fiduciary duties between partners,
largely for the benefits these values hold for the larger society.325
2.
Competing Claims on Meinhard v. Salmon
Meinhard v. Salmon is the classic statement of fiduciary duties
within partnerships and provides an apt frame for the fiduciary duty
norms debate. Justice Cardozo’s soaring rhetoric continues to animate
318
319
Sunstein, supra note 317, at 914.
Eric A. Posner, Law, Economics, and Inefficient Norms, 144 U. PA. L. REV. 1697, 1699
(1996). For example, the medieval Church fostered a communal norm and violators faced social
approbation. Usury laws developed from the communal norm and were enforced in ecclesiastical
courts, which wielded coercive state-like power.
320 Efficiency is usually measured in dollars, but can also be evaluated on any welfare
variable. Whether a norm is efficient depends on one’s benchmark. The most common economic
standard is Kaldor-Hicks efficiency or wealth-maximization, in which the side made better could
compensate the losing side; other standards include Pareto optimality (both sides made better off)
and Pareto superiority (one side made better off and no side made worse off). See POSNER, supra
note 239, at 12-17.
321 See Ribstein, supra note 3, at 548.
322 Posner, supra note 319, at 1720. A moral norm may be efficient in many, if not most,
situations. A moral norm of honesty, for example, can promote efficiency by allowing people to
rely on others’ promises and obviate the need to erect costly fraud defenses. Id. at 1705.
However, honesty, in the sense of a forthcomingness norm, may be inefficient if it stunts
investment in information. See id.
323 Tamar Frankel, Fiduciary Duties as Default Rules, 74 OR. L. REV. 1209, 1245 (1995).
324 O’Connor, supra note 164, at 963.
325 See Frankel, supra note 323, at 1267-71 (positing several societal benefits flowing from a
legal “model of fiduciary relationship representing trust and dependency”); O’Connor, supra note
164, at 965-66 (discussing the “socializing role of fiduciary rhetoric”).
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law review articles at an astonishing rate:326
Joint adventurers, like copartners, owe to one another, while the
enterprise continues, the duty of the finest loyalty. Many forms of
conduct permissible in a workaday world for those acting at arm’s
length, are forbidden to those bound by fiduciary ties. A trustee is
held to something stricter than the morals of the market place. Not
honesty alone, but the punctilio of an honor the most sensitive, is
then the standard of behavior. As to this there has developed a
tradition that is unbending and inveterate. Uncompromising rigidity
has been the attitude of courts of equity when petitioned to
undermine the rule of undivided loyalty by the “disintegrating
erosion” of particular exceptions. Only thus has the level of conduct
for fiduciaries been kept at a level higher than that trodden by the
crowd. It will not consciously be lowered by any judgment of this
court.327
Though even paternalists acknowledge that Justice Cardozo’s
dictum promises more than Meinhard’s holding delivers,328
understanding the competing claims of contractarians and paternalists to
the opinion helps define the normative debate over fiduciary duty norms
in RUPA.
For paternalists, Meinhard is the epitome of the “oft-revered
statements of the fiduciary law of partners.”329 They laud Justice
Cardozo’s opinion for its unashamed embrace of the moral aspects of
fiduciary law,330 mourn the moral erosion wrought by the law and
economics onslaught,331 and seek to regain morality’s footing in
326 According to a LEXIS search conducted in October 2004, Meinhard was cited in 175 law
review articles over the previous five years, an average of about three articles per month.
327 Meinhard v. Salmon, 249 N.Y. 458, 463-64 (1928).
328 Weidner, supra note 5, at 88; see Mitchell, supra note 202, at 472 (“Despite the sweeping
rhetoric of Judge Cardozo’s opinion in Meinhard and other expressions of fiduciary duty, and no
matter how much I and others may mourn its passing, the reality of modern fiduciary doctrine
nowhere near approaches its rhetoric.”). That Meinhard has become the leading statement of
fiduciary duties within partnerships is somewhat unfortunate. Meinhard and Salmon were joint
venturers, not partners, and, as such, arguably owed each other a lesser quantum of fiduciary
duty. See Meinhard, 249 N.Y. at 477-78 (Andrews, J., dissenting) (noting that fiduciary duties of
joint venturers are bounded by the scope of the venture and finding that the opportunity that
Salmon took for himself was beyond the scope of the venture).
329 Weidner, supra note 5, at 87-88. For pre-RUPA judicial imitators of Meinhard’s tone, see
e.g. Galardi v. State Bar, 43 Cal. 3d 683, 693 (1987) (“[E]very partner is bound to act in the
highest good faith to his copartner . . .) (citation omitted). See also Van Stee v. Ransford, 346
Mich. 116, 126 (1956) (demanding that the fiduciary’s “performance match in scruple and
sensitivity the confidence reposed in him”).
330 Dickerson, supra note 228, at 120 (“[A] corollary of Judge Cardozo’s language [in
Meinhard], and of a heightened duty generally, is the moral component of fiduciary duty. This
has been implicitly and explicitly recognized by scholars, but much debated recently.”); Frankel,
supra note 213, at 830 (citing Meinhard in support of the notion that “[the] moral theme is an
important part of fiduciary law”); O’Connor, supra note 164, at 966 (applauding Meinhard as a
“moral mandate”).
331 Vestal, supra note 237, at 579 (“The [RUPA] drafters are, in effect, telling us that the
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partnership law in the age of RUPA.332 Contractarians, on the other
hand, largely bypass Justice Cardozo’s dictum and instead focus on
Meinhard’s holding and remedy, and apply contractarian readings to
both.333 Contractarians view the question presented in hypothetical
bargaining terms,334 and applaud the outcome as a contract-forcing one:
“By allowing Meinhard to purchase an interest [in the opportunity
Salmon kept for himself], the court created the contract that it thought
would have [been] the outcome of bargaining without transactions
costs.”335
Who then, owns Meinhard v. Salmon? Is it they who believe its
dictum has “endured the test of time . . . . because it is difficult to find
better language with which to express the concept of fiduciary duty,”336
or is it they for whom Justice Cardozo’s rhetoric is merely the most
famous demonstration of the “many cases laden with moralizing
language?”337 In the age of RUPA, this is not merely an academic
question. With states enacting widely varying fiduciary duty regimes
applicable to general partnerships—from full waivability of loyalty and
care338 to regimes more restrictive than that proposed in RUPA339—and
world has changed in ways that make Justice Cardozo’s formulation of intra-partnership fiduciary
duty in Meinhard v. Salmon quaint, dated, and impractical.”); see O’Connor, supra note 164, at
983 (bemoaning the “contemporary corporate law scholarship that is dominated by the language
of economics”).
332 See Vestal, supra note 237, at 535-37, 579 (calling RUPA’s shift away from Justice
Cardozo’s statement of fiduciary duties “breathtaking,” and imploring scholars to “fully debate
and renounce the contractarian premise”); see also O’Connor, supra note 164, at 983
(condemning the “absence of strong ethical language” in the fiduciary duty section of ALI’s
Principles of Corporate Governance, and, quoting Meinhard, reminding scholars not to lose sight
of “the texture and complexity of the human condition and, thus, of fiduciary law”).
333 See, e.g., Ribstein, supra note 3, at 563-64.
334 Meinhard’s holding was not that Salmon wrongly failed to offer the leasing opportunity to
the joint venture, only that he breached his duty to reveal the opportunity to Meinhard which
would have enabled his co-venturer to compete for the lease. Meinhard, 249 N.Y. at 464-65.
Contractarians focus on this distinction. Easterbrook & Fischel, supra note 274, at 439-40
(noting that both the four-judge majority and three-judge dissent conjectured that the lessor,
Gerry, would have asked Meinhard (the silent partner) to bid on the new lease had Gerry known
of Meinhard’s existence); Ribstein, supra note 3, at 574-75 (“In contrast to Justice Cardozo’s
famous language suggesting an absolute duty [of unselfishness], the case actually turns on the
parties’ expectations.”).
335 Easterbrook & Fischel, supra note 274, at 440; see Ribstein, supra note 227, at 846
(rejecting a broad reading of Justice Cardozo’s statement and concluding that “close analysis of
partnership cases reveals that courts . . . attend to the nature of specific contracts in applying
fiduciary duties”).
336 O’Connor, supra note 164, at 966.
337 Easterbrook & Fischel, supra note 274, at 440.
338 See VA. CODE ANN. 50-73.81.B (Michie 2004). The Delaware Limited Partnership Act
makes all fiduciary duties in partnership waivable. DEL. CODE ANN. tit. 6, 17-1101(c) (2004) (“It
is the policy of this chapter to give maximum effect to the principle of freedom of contract and to
the enforceability of partnership agreements.”). Section 17-1101(d)(1) specifies that partners may
rely on fiduciary duty waivers contained in partnership agreements and Section 17-1101(d)(2)
enables partners to expand, restrict, or eliminate the state’s default fiduciary duty rules in their
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with courts beginning to interpret the new codes, partnership law is in a
period of profound change. RUPA cleared the fiduciary duty slate,
enabling a fresh reconsideration of whether states’ partnership law
should adopt a paternalist vision in which moral norms are granted legal
force or a more laissez faire view in which the efficiency-based “morals
of the market place” predominate.
3.
RUPA Drafters as Norm Entrepreneurs
All parties seem to agree that Justice Cardozo’s rhetoric in
Meinhard overstates partnership fiduciary law, and the competing
claims to his opinion by contractarians and paternalists highlight the
tension between arguments grounded in economic efficiency and
arguments which cast fiduciary duties in a moral light.340 Given the
chasm that developed between Meinhard’s famous dictum and courts’
enforcement of fiduciary duties in partnerships, the RUPA drafters may
be viewed most accurately as norm entrepreneurs seeking to temper the
aspirational aspects of fiduciary duty law to better align with its reality.
In doing so, they exhibited techniques familiar to the role in both
identifying the moral rhetoric as confusing and inefficient and in
signaling the desirability of self-ordering relations in partnerships
through pre-formation contracting.
a.
Recognizing Inefficiency
Fiduciary obligations had been eroding in many areas of business
association law in the years before the promulgation of RUPA,341
suggesting that leaders of small businesses were seeking greater
flexibility in ordering relations among themselves.
In effect,
businesspeople defecting from the general partnership form distanced
agreements.
339 See MONT. CODE ANN. 35-10-106(2)(c), 35-10-405(3) (2004) (restrictions on amending
duty of loyalty provisions); WYO. STAT. ANN. 17-21-103(b)(iii), 17-21-404(c) (2004) (same).
340 See O’Connor, supra note 164, at 967 (“Cardozo’s unforgettable language engenders an
understanding of fiduciary activities markedly different from the value-free analysis of economic
efficiency.”). This tension may never be fully resolved. Weidner & Larson, supra note 4, at 18
(“No amount of debate ever will close the gap between those who want powerful and immutable
fiduciary duties and those who want them confined statutorily and reduced to default rules.”).
Professor O’Connor suggests that the debate is irreconcilable as long as its terms remain static,
with each side adhering to its jargon: “The language of economics fails to encompass the reality
of moral values by talking as if they are commodities that can be exchanged.” O’Connor, supra
note 164, at 964.
341 See supra note 302 and accompanying text.
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themselves from Meinhard’s moralistic fiduciary duty rhetoric, thus
highlighting the gap between modern commercial wants and the norms
espoused in the leading partnership fiduciary duty case. For example, if
the rapid adoption of the LLC and LLP forms342 was due not only to its
limited liability and pass-through taxation provisions, but also to the
statutes’ greater use of default fiduciary duty rules,343 this would
suggest that mandatory fiduciary duty rules in general partnerships are
inefficient and undesirable to leaders of small businesses.344 When
businesspeople are drawn to partnership forms and/or states with default
fiduciary duty rules, or if partners contract around default rules to the
mandatory minima of their home state general partnership law, this will
show that the moral component of fiduciary duties has eroded relative to
efficiency concerns. If this was the case with the rapid expansion of
LLCs and LLPs, then it is likely that the mandatory fiduciary regime of
the common law and the UPA continued to enforce an arguably onceefficient set of morals-based fiduciary duty norms after they had
become inefficient.345 Such a result would not be surprising, as other
contexts have seen long lags between the time a norm becomes
inefficient and its replacement by a new, efficient norm.346 RUPA was
promulgated in part in response to the increased complexity of the
marketplace,347 and, indeed, “rapid economic or technological change
may suggest that unchanged norms have become inefficient.”348
342 Ribstein & Kobayashi, supra note 307, at 86-87 (noting that LLPs were invented in 1991
and that by 1998 almost every state had LLP statutes).
343 See Ribstein & Kobayashi, supra note 305, at 91 (noting that LLPs are “essentially general
partnerships that obtain limited liability through registration,” and entail attractive default
fiduciary duty rules); Vestal, supra note 233, at 532-33 (“The [Uniform Limited Liability
Partnership Act Amendments] adopts the RUPA fiduciary duty formulation without
modification.”); see also Frankel, supra note 323, at 1267 (suggesting that even though passthrough taxation is the “driving force” behind LLC statutes, they may also be attractive because
they allow the parties “to design the duties of their managers without regard to fiduciary law”).
344 See Posner, supra note 319, at 1726 (“[T]he existence of extensive bargaining around a
norm is evidence that the norm may be inefficient.”); see also Dickerson, supra note 211, at 423
(1997) (noting that norm entrepreneurs can more easily change a norm if it is near the “tipping
point. . . . ultimately creat[ing] an avalanche”).
345 Cf., Posner, supra note 319, at 1711 (illustrating how “the conditions under which a norm
that is efficient at time 0 might persist even after a change of conditions renders it inefficient at
time 1”).
346 See id. at 1712-13 (noting that one such lag lasted two hundred years, which is
approximately the amount of time between advent of the Industrial Revolution and RUPA).
347 Weidner, supra note 1, at 470 (“[RUPA] seeks to refine, clarify, and adapt the precepts of
partnership law to the demands of a society far more complex than that existing when the UPA
was adopted.”).
348 Posner, supra note 319, at 1727. An alternative but related explanation would posit that
the move to contractarianism in RUPA is a natural result of societal sophistication in our postEnlightenment age. If “religion is something we used to have,” David Kennedy, Images of
Religion in International Legal Theory, in RELIGION AND INTERNATIONAL LAW 145 (Mark W.
Janis & Carolyn Evans, eds. 1999), RUPA may be viewed as a rejection of a morals-based
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Embracing Efficiency
After identifying the pre-RUPA fiduciary duty regime as one ripe
for norm entrepreneurship, NCCUSL may have recognized that the
nature of small businesses indicated that unlike the development of LLC
and LLP statutes which came from within business interests,349 the
smallest partnerships would need the aid of an outside organization in
order to reap the efficiency gains of default fiduciary duty regimes.
Because the transaction costs of crafting partnership agreements do not
increase in proportion to the size of the enterprise, prospective partners
in small businesses needed the RUPA template to a greater degree than
larger, more sophisticated business associations.350 The drafters likely
understood the model statute’s ability to promote the replacement of
one norm (morals-based fiduciary duties) by another (efficiency-based,
contract-filling fiduciary duties),351 and in many ways played the role of
norm entrepreneur in effecting the shift.
First, the RUPA drafters can be seen as norm entrepreneurs serving
a role analogous to that of legislators passing a law which is largely
intended to shift societal norms.352 In recasting fiduciary duties more
explicitly as default rules, not only were the drafters attempting to
clarify the law, they were signaling potential partners that crafting
partnership agreements and seeking certain fiduciary waivers in the
preformation period is approved behavior. Contrary to the views of
some paternalists who saw value in the ability of Meinhard’s dictum to
stretch the effect of fiduciary duties to encompass non-legally
enforceable moral norms,353 the drafters took a more contractarian
fiduciary duty regime relative to one premised on economic self-ordering. In this light, RUPA’s
default fiduciary duty regime represents an elevation of competing values over moral ones. See
Ribstein, supra note 3, at 564 (stressing that mandatory fiduciary duty rules
“frustrat[e] . . . noneconomic values such as humans’ need for autonomy”). The result is the same
in either case—a move away from fiduciary law which enforces moral norms to one in which the
partners’ contract, presumedly tailored to be efficient, trumps.
349 That the LLC and LLP forms developed independently of NCCUSL supports the
conjecture that mandatory rules are inefficient and operate on a moral or other nonconsequentialist standard. Businesspeople recognized the benefits of LLC and LLP default
provisions and demanded their adoption by state legislatures. See Posner, supra note 319, at
1725-26 (explaining that even if a “welfare-maximizing” state wants to change inefficient norms,
the affected group will be more likely than the state to recognize them).
350 See BROMBERG & RIBSTEIN, supra note 311, at § 1.02(b).
351 See Dickerson, supra note 211, at 424 (“RUPA introduced a relatively contractarian flavor.
The push in favor of RUPA . . . reflects the norm entrepreneurs’ recognition of the importance of
law as a tool of norm formation.”).
352 See Cass R. Sunstein, On the Expressive Function of Law, 144 U. PA L. REV. 2021, 2031
(1996) (noting that “the least controversial use of the expressive function of law . . . reconstruct[s]
existing norms and . . . change[s] the social meaning of action through a legal expression or
statement about appropriate behavior”).
353 See O’Connor, supra note 164, at 968-69 (suggesting that “the vigor of fiduciary
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position by indicating that Justice Cardozo’s dictum represented at best
an aspiration, at worst a costly and confusing distraction, and in no case
a legally enforceable rule.354
Second and related, RUPA was intended to serve as a
“constitution” for a “dazzling array of relationships,” and particularly
small partnerships.355 Because these partnerships are diverse in their
function, investment, and risk and reward structures, the UPA regime of
mandatory rules was unnecessarily confining. Given the relatively few
resources at the disposal of partners in small enterprises, however, these
parties may have suffered a collective action problem wherein it would
be beneficial in the aggregate to change the mandatory regime, but not
worth the bother for individual partners. The RUPA drafters, by
alerting parties engaged in or contemplating small partnerships “of a
shared complaint and . . . suggest[ing] a collective solution” served a
signaling function common to many norm entrepreneurs.356 That is, not
only did the RUPA drafters’ form contract provide a relatively
inexpensive way for partners to define their fiduciary duties for
themselves, the drafters were norm entrepreneurs by removing the
stigma of defecting from the long-established morals-based mandatory
regime, making contracting around fiduciary duty defaults less
psychically costly.357
Third, by questioning the moral basis of absolute fiduciary duties
in partnerships, the UPA drafters rejected the notion that contracting
around fiduciary duties is shameful.358 Prior to RUPA, morals-based
fiduciary duties, “pontificate[d] in sanctimonious tones of zeal and
righteousness” by Justice Cardozo and countless imitators,359 were to be
valued in and of themselves, and would produce shame in those
proposing alternative partner relations. Therefore, prospective partners
would be leery of defecting from the morals-backed fiduciary duty
exhortations” influences fiduciaries “to act more honorably than they would in the absence of this
language”).
354 See Ribstein, supra note 3, at 563 (arguing that Meinhard was “the overstatement of a legal
rule in moralistic terms that promotes compliance” and offering reasons why norms should not be
legally enforced).
355 Weidner, supra note 5, at 83-84.
356 Sunstein, supra note 317, at 929; see id. (“[P]olitical actors, whether public or private, can
exploit widespread dissatisfaction with existing norms by [] signaling their own commitment to
change.”).
357 See Sunstein, supra note 352, at 2030-31 (explaining how norm entrepreneurs can upend
the social tax of shame by “chang[ing] the social meaning of action through a legal expression or
statement about appropriate behavior.”).
358 See Sunstein, supra note 317, at 943 (illustrating the shaming aspect of social norms by
discussing the psychological quirk in which a person is unwilling to part with an object for an
amount that person was unwilling to pay, i.e., entrenched norms, even if outdated, are difficult to
uproot).
359 O’Connor, supra note 164, at 965.
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regime not only due to the uncertainty of enforcement under the preRUPA regime, but partly on the view that fiduciary duties are a
common good that should be preserved for everyone’s benefit,360 and
“[are] not thought to be commensurable with [their] cash equivalent.”361
Further, partners may have been needlessly reluctant to defect from
Meinhard-influenced, seemingly mandatory fiduciary duties partly
because the potential loss of vigor suffered by fiduciary duties under a
default regime may have had unintended consequences and such
diminishment may have been thought to be irreversible.362 The
uncertainty wrought by the disconnect between Meinhard’s dictum and
its holding may have had a chilling effect on partners who otherwise
would have crafted partnership agreements. The RUPA drafters
encouraged ex ante contracting not only by proposing relatively more
certain enforcement of partnership agreements, but as norm
entrepreneurs indicated that contracting around default rules is nothing
to be ashamed of.
E.
Summary
This Part has brought the Roman Catholic Church’s communal
norms from the Reformation to the present debate over the structuring
of fiduciary duties in RUPA. Implanted in the morals-based and largely
mandatory fiduciary duty regime of the UPA, communal norms
animated partners’ relations in the United States through the 1980s.
The LLC and LLP forms rapidly adopted by nearly every state by the
early 1990s cast fiduciary duties as amendable default rules, not moral
mandates, setting a precedent for their similar construction in the
smallest of partnerships. The RUPA drafting committee, by recasting
fiduciary duties predominantly as default rules, blunted the soaring
rhetoric of Justice Cardozo’s Meinhard opinion and offered the
efficiency benefits of self-ordering. As norm entrepreneurs shifting the
basis of partnership fiduciary duties from morals to efficiency, the
drafters signaled state legislatures, lawyers, and prospective partners
that pre-formation partnership agreements which define partners’
relations are desirable and should be enforced.
360
361
362
Dickerson, supra note 211, at 434-37.
See Sunstein, supra note 317, at 943.
See id.
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CONCLUSION
The Western legal tradition is rooted in eleventh through fifteenth
century Europe, a time and place whose social, political, and legal
landscape was dominated by the Roman Catholic Church. Wary that
the emergent forces of commercialization and urbanization would tempt
men’s souls and subvert the Church’s prerogative over its community of
believers, the Church pervasively regulated the marketplace. The
communal norms the Church fostered and imposed on commerce were
manifest in its canon law and enforced in its ecclesiastical courts, often
in purposely counter-market ways. Through its jurisdiction over usury
suits, the Church came to police partner relations to ensure that
partnerships were legitimate and not fictions erected to evade the usury
prohibition. By gently rending the historical web in the medieval period
we reveal the Church’s efforts, and its influence on the law merchant,
where many antecedents to modern partnership law developed, as the
beginnings of partnership fiduciary duty regulation along moral lines.
The Church’s communal norms that defined the partnership
relation endured commercial and political revolutions, the secularization
of coercive authority, and the conflation of England’s polycentric legal
order into a single common law system. The conception of partners as
bound by moral obligations survived these upheavals and was implanted
in the United States’ common law of partnerships and its Uniform
Partnership Act of 1914, and was nourished by the lofty rhetoric of
judicial opinions espousing the sanctity of the partner relation and the
high fiduciary standards attending that ennobled status.
Mandatory fiduciary duties in partnerships, perpetuated for nearly
a millennium as moral imperatives, are in unprecedented danger today,
and thankfully so. Propelled by complex capitalism and the demand for
flexibility in an increasingly niche-oriented and information-driven
marketplace, the last forty years have witnessed a decided trend toward
self-ordering in business associations. In the partnership context, the
trend became a cascade with the advent and widespread adoption of the
LLC form in 1988 and the LLP form in 1991, both of which are close
substitutes for general partnerships and count default fiduciary duty
rules among their features. The Revised Uniform Partnership Act of
1994, too, proposes a largely default fiduciary duty regime, and its
drafters are to be hailed as norm entrepreneurs for facilitating the move
to self-definition of partner relations for all partnerships desiring such
flexibility.