Although the common law and civil law systems share roots in Roman law, the evolution of the common law system has taken a different path. Most scholars begin an analysis of the common law systems with the Norman conquest of England in 1066 and the subsequent work of the royal courts of justice. The general principles of the common law grow not out of codification, but rather out of the deciding of specific cases by individual judges over a long period of time.
Through the doctrine of stare decisis these decisions, properly read and categorized, eventually result in discernible, generally applicable principles on which future court decisions must be based. Stare decisis itself requires at least three assumptions: (1) that a court will render a principled and properly articulated decision —that is, that a court will give sound reasons for its decision; (2) that decisions will be published in some fashion so that other courts dealing withsimilar cases will know how earlier cases came out; and (3) that the judicial system will be set up as a hierarchy, with the lower courts required to abide by the decisions of the higher courts.
By definition, the common law system concentrates enormous power in the courts and gives primary influence within the system to lawyers (the system's legal specialists) because lawyers are the only professionals properly schooled in the methods of the common law. At the same time, decisions were not rendered blindly or without regard for history and tradition. The early common law judges searching for a reasoned basis for substantive legal rules often consulted Roman sources. For example, the sanctity of contract doctrine (pacta sunt servanda) that was developed to its highest degree in England is historically a principle of Roman law. English commercial law has other roots in the conventional practices of business people, just as in the civil law systems. In 1666, an English court noted: “the law of merchants is the law of the land, and the costume is good enough generally for any man, without naming him merchant.”12 This had the effect of recognizing judicially what had probably been the case for centuries — that the basis for the development of a comprehensive, judge-made body of commercial law lies largely in those common trade practices and usages known as lex mercatoria or the law merchant.
For those not familiar with the common law tradition, it is sometimes difficult to understand the immense influence of the courts on commercial practices in the common law countries. A short example may be helpful. In England prior to the mid-1800s it was not entirely certain whether lost profits could be awarded to a company that was injured by another company's breach of a contract. Unquestionably, the British Parliament could have passed a statute establishing some rule on point. However, because Parliament did not do so at that time — and at that point in history rarely legislated on commercial topics in any event — the development of an applicable principle of law was left to the British courts.
In the classic case in point, Hadley v. Baxendale,a crankshaft in a mill broke and the mill owners had to send off to the manufacturer for a new shaft. The owners contracted with a transportation company to carry the new shaft from the manufacturer to the mill. The shipment was delayed and as a result the mill did not operate for several days. The mill owners sued the transportation company not only for the price of the shipment (a sum of 2 pounds, four shillings) but also for the lost profits over those days when the mill did not operate, a far greater sum of money.
The case eventually made its way to the Exchequer Court. The court determined the issue, and announced its decision in the form of a written judicial opinion, only after litigation between the parties. The court concluded:
Where two parties have made a contract which one of them has broken [here the contract for the transportation of the mill shaft], the damages which the other party ought to receive … should be such as may fairly and reasonably be considered either arising naturally, i.e., according to the usual course of things, from such breach of contract itself, or such as may reasonably be supposed to have been made in the contemplation of both parties, at the time they made the contract.
The court went on to determine that the lost profits had not been contemplated by the parties, because there had been no discussion of profits — or of the consequences of a delay in the shaft's shipment—when the transportation contract was entered into. Consequently, profits were not “reasonable” damages and thus could not be recovered by the mill owners.
Once this decision was announced, the principle of stare decisis required that other courts follow the rule of Hadley v. Baxendale in all similar cases. The vast majority of British commercial law principles, even those applicable today, were constructed in this fashion. Eventually, over a long period of time, an entire body of commercial law was developed that is probably as good as any other in the world. The doctrines of impossibility of performance, good faith and the use of commercial custom and usage so easily spotted in the French and German civil codes are firmly established in British law by way of case decisions rather than statutes. So, for example, impossibility in British law is a nearly absolute concept, forgiving a party's performance of a contract only when matters become either physically impossible (e.g., when the entire supply of goods is destroyed in a fire) or legally impossible (a legislature makes it a crime to sell alcoholic beverages), not when matters become merely impracticable (such as a mere rise in price).
Even so, the common law method for creating commercial rules is viewed by many continental legal scholars as inefficient and somewhat haphazard since it depends on the decision of only those cases that parties chose to litigate. It is also exceptionally time-consuming. The length of the court's opinion in the Hadley case is as long as dozens of French or German code provisions put together. Moreover, readers of court opinion sometimes find it difficult to separate grain from chaff and even more difficult to determine whether a court might apply an earlier case in a new situation in which the facts are just slightly different. This means that most of the system is in the hands of lawyers. Laypersons cannot normally perform these feats of analysis on their own. In theory, but often not in practice, civil codes were promulgated to eliminate many of these difficulties.
At the end of the nineteenth century, the British parliament entered the arena of commercial law by enacting two detailed statutes, the Bills of Exchange Act (1882) and the Sales of Goods Act (1893). These two statutes began as reform movements but ended as attempts to merely reproduce in statutory form, the existing judge-made principles of commercial law.
Since then, Parliament has occasionally legislated in specific areas of commercial transactions such as import and export matters, but has left most of British commercial law in the hands of the courts. Fortunately, the case law is well parsed and most fundamental principles of contract are so well established that British merchants have virtually the same sense of stability and predictability as enjoyed by their counterparts in the code countries. Today, British contract and commercial law is highly developed and exceptionally sophisticated, as one might expect of one of the world's major trading nations.
