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Table of contents
I.Introduction…………………………………………………………….145
II.Archetype……………………………………………………………...147
III.The Merchant…………………………………………………………150
IV.Historical Background of the Mexican commercial code of 1889……………………………………………………………15
V.The Archetypal Merchant in Mexico Before the commercial code of 1889………………………………………………….158
1.The Archetypal Merchant in the Ordenanzas of Bilbao……158
2.Examples of Archetypical Merchants Used in Cases before the Enactment of the Commercial Code of 1889…………………163
VI.The Archetypal Merchant in the Mexican commercial code of 1889……………………………………………………………16
1.The Influence of French Doctrine…………………………..165
2.The Archetypal Merchant in the Mexican Commercial Code of 1889…………………………………………………………..168
1.Examples of the Archetypal Merchant in Case Law……….171
A.Successors of Bustamante J.A. v. Romano Pedro…………172
B.Murguía v. La Mexicana, Compañía Anónima Nacional de Seguros de Vida…………………………………………………………..174
C.Compañía del Ferrocarril Mexicano v. Luis Lack…………177
D.Compañía Ganadera, Sociedad Cooperativa Limitada v. Pliego Rafael…179
VII.Conclusion…………………………………………………..180
I.Introduction
This article is a study of the merchant archetype used in the Mexican Commercial Code of 1889,1 which is the Commercial Code (with many reforms)2 that currently governs commercial transactions in Mexico. The inclusion or exclusion of commercial archetypes, practices, and principles can affect the development of not only positive law, but also commerce within a country.
The work written by Dr. Boris Kozolchyk, Comparative Commercial Contracts, elaborates on this type of studies3 by examining the history and processes behind the enactment of important commercial texts, including the French Code de Commerce and the German civil and commercial codes. His study points to the possible effects of creating a positive law based on commercial principles, customs, and commercial archetypes on a country’s or a region’s economy.4
For example, as to the negative effects of an archetype based on a “bad man” or an “infamous witness”, Dr. Kozolchyk indicates that:
Imagine, for example, the cost incurred by the holders of checks about to be deposited with their banks if the bank’s presumption was that their check depositors were (a la Holmes) the “bad men of checks”. Such a presumption assumes that check depositors had acquired them in bad faith and that it was their burden to prove that they did not steal, embezzle or fraudulently procure and endorse them. Aside from the high cost of such a negative proof, check depositors could no longer count on receiving provisional credits for their de- posited checks as is normally received by check depositors under existing law and practice.5
Dr. Kozolchyk’s ideas on archetypes and his comparative study of the treatment given to commercial law in different jurisdictions, like France, Germany, the United States, and Mexico, will be used as basis of study for this article.
The different treatment given to merchants and commerce in general can be seen when comparing the French Code de Commerce and the German codes. As will be explained later,6 the French code reflects the negative view, shared by Napoleon, that French society had regarding merchants and commerce in general. This negative view was so widespread that merchants who found fortune tended to pay their way into nobility as a way to eliminate the stigma of being of merchant origin.7
In contrast to the French experience, the attitude in Germany regarding commerce was the opposite, as seen in its approach to charging interests in commercial transactions. As Dr. Kozolchyk explains, post-reformation Germany was not burdened with concerns about sinful usury,8 and this had a tremendous effect on the development of commercial law in Germany.
Dr. Kozolchyk explains the differences in the development of negotiable instruments as means of payment between Germany and countries such as France and Spain.9 While negotiable instruments developed as contracts of exchange in legislations based on the French Code de Commerce, these mechanisms followed a distinct evolution thanks to the efforts of commercial law doctrinaires who used commercial practices as the core of their writings.10
According to Dr. Kozolchyk, the dissimilarity in the development of negotiable instruments arises from the attitudes that legislators had regarding merchants and commercial law.11 Those commercial laws that are free from negative attitudes towards commerce and are based on commercial principles, customs, and practices will further development.12 Unfortunately, that was not the way the Mexican Commercial Code was designed.
As I will explain in this article, the Commercial Code was designed as a response to the conditions of its time.13 Mexican legislators attempted to bring order to a country that had experienced almost a century of internal fighting and even invasions,14 and so, based the Commercial Code on (among others, but especially) the French Code de Commerce.15 Unfortunately, Mexican legislators dismissed the prevailing legislations that had been used up to that time.
These de facto legislations included some drafted by merchants themselves, which were based on commercial archetypes and practices that reflected the manner in which merchants conducted their business. These archetypes should be brought back to the core of modern commercial legislations.
II.Archetype
Defining an appropriate archetype is important as it will be the basis of the whole system. Moreover, archetypes reflect the attitudes and values of a society or of the legislators.16 An archetype is defined by Black’s Law Dictionary as “the original form from which a copy is made”.17 While not usually given much importance when studying law,18 the truth is that archetypes have al- ways been present in law; it is possible to find them all the way back to ancient Roman times.
Dr. Kozolchyk describes the use of an archetype used by Roman jurists when discussing contractual clauses,19 the “bonus vir”, which is described as “an honorable man” who gives his opinion of a condition in a contract.20 For Dr. Kozolchyk, this was not the only archetype used in Roman law, as the Romans had an “archetypal pattern of transactional selfishness” that affected the development of commerce.21
Therefore, defining an archetype is important as it will define the treatment given to subjects of the law, such as merchants. An example that illustrates the creation of archetypes is the famous 1960 Frigaliment case,22 in which Judge Friendly wonders how a merchant would act when presented with an ambiguous contract term.
In Frigaliment, after wrestling with different ways to define the contractual term “chicken,” Judge Friendly indicates that the “[p]laintiff must have expected defendant to make some profit-certainly it could not have expected defendant deliberately to incur a loss”.23 By questioning this, Judge Friendly was not asking what a regular person would expect from this transaction; rather, he was asking what a reasonable merchant would understand by the word “chicken” in a commercial contract.24
Accordingly, Judge Friendly had in mind an archetypal merchant, which is evidenced by his reminder that “when one of the parties [of the contract] is not a member of the trade or other circle, his acceptance of the standard must be made to appear by providing either that he had actual knowledge of the usage or that the usage is generally known in the community”.25
Even though the Frigaliment case is a clear example of the use of archetypes, it is too general as it illustrates the minimal expectation of a regular merchant.26 For a more specific type of archetype, consider the cooperative banker that negotiates letters of credit.27 An analysis of this type of archetypical merchant goes beyond the scope of this article; nevertheless, a brief description would be that a banker negotiating letters of credit has to consider that, in later transactions, he may be in the opposite position and any conduct (either good or bad) can be reciprocated.28 These types of merchants should be considered archetypes and their practices incorporated into commercial legislation.
An example of these types of archetypes in the drafting of statutes is given in Article 8(2) of the United Nations Convention on Contracts for the International Sale of Goods.29 This article indicates that “statements made by and other conduct of a party are to be interpreted according to the understanding that a reasonable person of the same kind as the other party would have had in the same circumstances”.30 This wording refers to an archetype by pointing to a hypothetical third person, which in this case is a reasonable hypothetical person operating under the same circumstances as the other party.31 By archetypal behavior, as it relates to merchants, Prof. Kozolchyk denotes “the representative behavior of average merchants …as reflected in their standard practices as well as in the practices of highly respected and trusted [or fiduciary types of] merchants….”.32 The commercial behavior of these hypothetical persons should be taken into account when enacting legislation or when compiling widely used usages of trade, as for example the Uniform
Customs and Practices for Documentary Credits.33
It is important to determine the archetype legislators have in mind when enacting a statute, since the qualities ascribed to the archetype will establish the type and volume of regulation imposed on the activity. In other words, depending on the level of trust accorded to the regulated class (in this case, the merchant class), legislators will impose greater or lesser control (or supervision) over said class.34
III.The Merchant
An important distinction has to be made about the meaning of merchant. For a long time, there was a difference between people who took part in international trade and commerce in large quantities and those who sold their merchandise locally. As an example, Ruiz Guerra points out that not everybody could be a member of an officially recognized association of merchants such as Spain’s Universidad de Comerciantes;35 only those who “participated in ‘high commerce’” could be part of the Universidad, i.e., those who “transport and sell in large quantities, move merchandise between territories by sea and land, and do so on a consistent basis”.36
In explaining the privileges given to these merchants in Spanish legislation, Solórzano Pereyra says that:
[T]hose who from their homes and stores purchase and sell [merchandise] at the retail level, and who do not [therefore] expose themselves to shipping and other risks… should not nor do enjoy the above-mentioned privileges and protections, unlike those who transport and sell [merchandise] at a wholesale level and engage in trade between territories by land or sea…37
María del Refugio Gonzalez explains that the status of “mercader” was acquired only after being registered with the Consulates.38 This means that the treatment of merchants was based on the person’s commercially licensed status -i.e. registered status- and not necessarily on the “acts of commerce” performed by said person.
In an attempt to liberalize the practice of commerce, a scholarly and professional movement in Mexico proposed eliminating the subjective approach to commercial regulation and replacing it with an “objective” method based on the so-called “acts of commerce” performed by the individual and not on whether this individual was a member of a guild or a group.39 This evolving change in attitude is illustrated by the fact that the last code in Mexico that classified merchants subjectively was the 1854 “Lares” Code, which divided them into “major” and “minor” merchants.40 The Commercial Code of 1889 not only does not make this distinction, but also indicates that its provisions apply to persons who would not have been considered merchants under the old regime of commerce regulations.41
This differentiation is important as it seems that most of the resentment against merchants and their privileges was aimed at those who were members of the Consulates and not those who sold merchandise locally.42 It is important to bear in mind that the archetypes and regulatory ideas were sharply different in the two principal commercial enactments that have governed Mexican commerce. Furthermore, while these concepts, rules, and regulations were clearly designed for different types of merchants, they were nevertheless applied interchangeably to all of them.
IV.Historical background of the Mexican commercial code of 1889
An analysis of the history of the Commercial Code of 1889 reveals many of the changes needed to adjust the regulatory regime of a guild-based commerce law for it to become a governing mechanism for “acts of commerce”, regardless of who performed them (guild members or not), and as intended by the French Code de Commerce of 1807.43 This analysis also shows the alterations the archetypal merchant sustained in the eyes of legislators and legal scholars.
Regardless of the fact that commerce in pre-independence Mexico was clearly a monopoly of the Spanish Crown and Spaniards,44 the discussion below will focus on the regulation of commerce by the Consulates, which ruled commerce in New Spain until some years after the Mexican independence.45 Nevertheless, their influence was still felt in the regulation of commerce until the enactment of the 1884 and 1889 Commercial Codes.46
The Consulates were the jurisdictional branch of merchant guilds in Spain and the Spanish colonies.47 Acting as guilds that enacted their own rules, called Ordenanzas,48 the merchants themselves regulated their trade. Thus, during a long period of Mexican history, custom played an important role in the regulation of commerce through the use of these Ordenanzas.49
By creating Consulates, merchants wanted “to promote the creation of a court where all controversies and disputes between merchants of these provinces could be decided according to merchant rules and practices, thereby avoiding litigation and delays”.50 Consulates decided on all matters that affected merchants and the persons who dealt with them.51 Nevertheless, Consulates had no jurisdiction over disputes that were unrelated to shipped or stored merchandise.52
The Spanish Ordenanzas always played an important role in Mexico.53 The Ordenanzas of Seville and Burgos were the basis for the Ordenanzas of the Consulate of Mexico,54 and the Ordenanzas of Bilbao regulated commerce in Mexico until the enactment of the Commercial Code of 1884.55 Moreover, the manner in which Ordenanzas were enacted illustrates the influence that merchants had over the legal drafting process.
In contrast to the Ordenanzas of Burgos and Seville, the document that established the Consulate in Mexico had no provisions concerning the creation of its own Ordenanzas.56 Merchants in Mexico City requested that the mon- arch grant them the authority to write their own Ordenanzas.57 In 1594, King Felipe III authorized the Universidad to create Ordenanzas for Mexico and to use the Ordenanzas from Seville for two years while the Mexican ones were being drafted.58
Nonetheless, it seems that the Ordenanzas of Mexico were not as influential as those from Seville, Burgos and Bilbao.59 Barrera Graf indicates that the Ordenanzas from Burgos were applied as secondary law in the Americas while those from Seville “became Book IX of the Leyes de Indias, which were applied as the principal law” in the Americas.60 Nonetheless, the most influential ones were the Ordenanzas from Bilbao, which governed Mexican commercial transactions until the enactment of the Commercial Code of 1884.61
As with the Ordenanzas of Seville, Burgos, and Mexico, the Ordenanzas of Bilbao were the creation of the merchants themselves.62 In September 1735 the General Commerce Committee of Bilbao decided to name “six people among the merchants of the town, the smartest and most pragmatic, and with the best reputation”.63
Professor Gorordo64 explains that the merchants of Bilbao had always ruled commercial law in their geographical area.65 At first, they used the Ordenanzas from Seville, but decided to request permission to create their own due to “the changes of the times, and new cases”66 that required more precise and clearer orders.67 The Ordenanzas of Bilbao were enacted in 1737.68 Although enacted in Spain, due to the chaotic situation experienced by Mexico during the 19th century, merchants in Mexico relied on the Ordenanzas of Bilbao, among other laws, to regulate their affairs.69
After the war of Independence, Consulates were abolished by a decree order on October 16, 1824, and jurisdiction over commercial matters was given to city mayors and judges.70 Spanish law, including the Spanish Commercial Code of 1829, was applied as secondary law.71
On November 15, 1841, Mexican president General Antonio Lopez de Santa Anna issued a decree regarding the organization of commerce courts.72 Barrera Graf regards this as the first real Mexican Commercial Code.73 The decree mentioned merchants -both individuals and business associations- and required licensing in order to partake in commerce. However, it also included a list of “businesses” that were deemed commercial.74 In addition, the decree ordered that the Ordenanzas of Bilbao were to be used while a new Commercial Code was drafted.75
Mexico’s first Commercial Code was enacted in May 1854.76 This Code is also known as the “Lares Code”, in honor of one of Mexico’s most renowned commercial law scholars who drafted it.77 This code covered a large number of commercial contracts, promises and obligations;78 it was based on the French Code de Commerce of 1807 and the Spanish Commercial Code of 1829, while including a list of “businesses” that were regarded as commercial in nature.79 The applicability of this code was not clear, however, and as with many other laws and regulations of the time, its application depended on who wielded enough political and military power to enforce it.80
An 1855 decree granted jurisdiction to lay, or non-merchant, civil judges to adjudicate commercial cases.81 In April 1884, a Commercial Code was enacted82 to regulate “acts of commerce” (“actos de comercio”) as opposed to the previous “businesses”. It also oversaw business organizations and intellectual property.83
It should be mentioned that a Constitutional reform was required for the enactment of this code because the then in force Constitution of 1857 gave no power to the Mexican Congress to enact a Commercial Code.84 Article 72(X) of the Constitution of 1857 only indicated that, “Congress has the power… [t]o establish the general basis of commercial legislation”.85 In December 1883, the article was reformed in order to authorize Congress to enact “mandatory Codes for Mining and Commerce throughout the Republic…”.86
The fact of this Constitutional reform is not as important as the reasons given for it. The original version of Article 72(X) could be read as granting Congress the power of creating general rules that would be complemented with commerce customs, similar to the system in force with the Ordenanzas of Bilbao.87 Nonetheless, it seems that legislators interpreted said article differently.
In his study of the history of Mexican commercial law, Enrique Orozco88 transcribes a document from the commission charged with drafting a commercial code in 1870.89 In it, the commission explains that during the creation of the French Code de Commerce of 1807, Napoleon opposed the creation of generic commercial rules and instead proposed enacting “general principles”,90 allowing the possibility for them to be implemented later by passing specific rules. This proposal was later discarded as the idea of breaking up commercial law into several parts-rather than having a single Code-was seen as too difficult.91 The importance of the history of the French Code de Commerce will be apparent later.
Nonetheless, it is important to note that the commercial code drafters had reservations about the creation of a commercial code that established general principles that would later be complemented either by legislation (only federal or a combination of federal and state law) or by custom. As evidence of the issues arising from not having a comprehensive and detailed uniform commerce law, the drafters provided the following quote from Juan Antonio de la Fuente92 on the enactment of a law regulating commercial agents:
Treaties had established only the foundations [for a law regulating commercial agents] and some of their powers and prerogatives [or privileges]; whereas our laws… increasingly became an object of doubt and confusion. True, our customs and the authoritative judgments of our courts could have filled such a void; however, more than time, what we lacked was peace, in whose shadow our customary law would have been created and taken hold. Even what was written, limited as it was, has not been faithfully upheld, and only the revolutions that have shaken the country can explain how this essentially practical matter [customary law], which has been much discussed and so fruitful in obtaining far-reaching results, has been… abandoned to chance by an uncertain and unusual law.93
The 1870 drafting commission then continues with arguments against allowing states to regulate commerce.94 Orozco’s work illustrates some of the motivations driving the Commercial Code drafters.95 While prompted by a distrust of any form of independent creation of commerce laws, they were also strongly influenced by the French Code de Commerce and French legal doctrine.96
A brief clarification is needed here as to the reasons behind the enactment of two commercial codes in such brief period of time. Quoting other authors, Prof. Astudillo Ursua presents some reasons underlying the sudden reform as the difficulties that the 1884 code created for regulating banks and business organizations, particularly the Sociedad Anónima97. Even though there were attempts to save the 1884 code with the enactment of regulatory laws and possible reforms, a new code was passed instead.98
As will be seen later, the archetypal merchants in the Ordenanzas and in the Commercial Code of 1889 are completely different. This change can be explained, in part, as the result of legislators’ wariness in leaving the law governing commerce to be established by anyone other than the federal government (a situation that would include mistrust of the use of custom as a tool to create the law). The change can also be seen as a reaction against the guild system and the use of merchant courts promoted by the Ordenanzas of Bilbao.99
V.The archetypal Merchant in Mexico Before the commercial code of 1889
1.The Archetypal Merchant in the Ordenanzas of Bilbao
As indicated above, the Ordenanzas of Bilbao were the de facto commercial legislation in Mexico until the appearance of the Commercial Code of 1884.100
It will become clear that the archetypal merchant of the Ordenanzas was completely different from the archetypal merchant used in the current Commercial Code.
As a form of self-regulation, merchants are expected to craft an archetype on the basis of how a good merchant is expected to behave. One sound means of determining how legislators regarded the archetypal regulated individual is to see how much trust they put on them by determining how they demonstrated their “good faith”.101
The Ordenanzas mention the use of “good faith” to solve commercial disputes at least ten times.102 They start by indicating that Consulates have to resolve commercial matters in a brief and expeditious manner by relying, on the basis of merchant customs, on the truth that is brought to light and the good faith of the parties involved.103 The next article repeats this by indicating which disputes heard by the Consulates are to be decided in a brief and timely manner using the truth known and the good faith of the parties involved.104 Note the willingness of this provision to allow merchants to testify on their own behalf and according to their own rules, something that 19th century commercial procedure codes only allowed when subject to formal “confessional” procedures.105
The principle of good faith is again used when the Ordenanzas regulate the creation and operation of business organizations.106 The Ordenanzas direct merchants to act in good faith in their interaction with other members of any type of business organization.107 Good faith is required not only from merchants who are members of business associations, but also in the payment of bills of exchange.108 The article regarding bills of exchange indicates that “...it is in accordance with good faith in commerce that the payment of bills of exchange must be done efficiently and promptly”.109 This in itself is indicative of a different archetypal merchant: he did not seem to be suspected, as was his French counterpart, of the sin of usury by using a bill of exchange to hide or mask the payment of interest as a “commission for the sale of exchange” (cambium).110
The good faith and trustworthiness of the merchant are also considered in cases of bankruptcies, which are regulated in Chapter 17. This chapter begins by stating that not all merchants that fail to pay their debts should be treated in the same way, as some are delinquent due to force majeure and others due to malice.111 Therefore, the Ordenanzas divide bankrupt merchants into three categories:
The Ordenanzas state that merchants who are delinquent due to oversight will preserve their good credit, good name and reputation as long as they have enough assets to cover their debts.115 Those who have had to deal with incidents of force majeure like a shipwreck or a robbery while transporting their merchandise by land shall be considered bankrupt without fault as long as they have reached an agreement with their creditors to reduce their debt. However, they would not have a voice in the Consulate until they paid such debts.116
As we can see, the Ordenanzas showed leniency towards merchants’ inability to pay their debts. While Articles 2 and 3 deal with situations wherein merchants have acted without malice and their ability to pay their debts in a timely manner has been negatively impacted either by inadvertent over- sight or force majeure, Article 4 of Chapter 17 provides that merchants who act with fraudulent intent shall be “regarded as vile public thieves, robbers of the assets of others, and shall be persecuted until [Consulate officers] capture them…”.117 Once captured, the Ordenanzas stipulate that these fraudulent merchants shall be delivered to civil authorities so they may be tried in criminal court,118 as Consulates had exclusive jurisdiction over commercial matters, but not over criminal cases.119
Regarding the issue of jurisdiction and procedure, it is important to remember that merchants drafted their laws and regulated their courts (the Consulates).120 The Ordenanzas stipulate that judicial procedure has to be followed orally and without many formalities,121 while making clear that disputes should be resolved without the need for “lawyers’ writings.”122
Further, it is evident that the Ordenanzas took the exclusive jurisdiction of the Consulates seriously, as is apparent in a set of orders issued by the Spanish monarch prohibiting civil courts from hearing disputes that fall within the exclusive jurisdiction of the Consulates.123
Hence, it is apparent that the image of the merchant archetype in the Ordenanzas is that of a trustworthy merchant. The Ordenanzas rely on the good faith of the merchants and presume that they act in good faith, such as in bankruptcy cases. Although, this is expected from a “code” drafted by the same merchants whose actions it regulates.
2.Examples of Archetypical Merchants Used in Cases before the Enactment of the Commercial Code of 1889
The influence of the Ordenanzas of Bilbao and the principles expressed therein can be appreciated in the reports of some decisions handed down in Mexico even after the appearance of the Commercial Code of 1884.124 One example is the decision in the case of García Torrez v. Bocker & Co.,125 which was decided by the Cassation Chamber of the Superior Justice Court of the Federal District.126
The Public Ministry argued:127
It is the judgment of the undersigned that it cannot be said that the judicial decision presently being appealed is contrary to the letter or the spirit of [Article 830 of the Commercial Code of 1884], since the judge in his decision presents it as just one example of commerce law accepting the commercial custom of good faith as a basis for commercial transactions, indispensable for expediting transactions, while not undermining the advantages that this principle offers.128
The case of García Torres v. Bocker & Co. mentioned above referred to a bill of exchange that was given to Mr. García Torres by an endorser of the bill.129 The convoluted description of the facts explains that the bill was originally paid the same day that it was endorsed to Mr. García Torres.130 Mr. García Torres later attempted to collect payment for his bill of exchange, which was actually a duplicate.131 It seems that the confusion and the basis of the claim rests on the fact that the bill was paid to a dependent of Mr. García Torres, who had received payments in lieu of Mr. García Torres before and who appeared with the bill sealed and signed by Mr. García Torres.132 From the pleadings by the Public Ministry, it is possible to deduce that the dependent cashed the bill of exchange without notifying Mr. García Torres, after which the dependent disappeared with the money.133 The appealed decision found that the payment was valid and that Bocker & Co. was not liable.134
The Court of Cassation decided against the appellant.135 In reviewing the case, the court interprets the Commercial Code strictly, without mentioning anything about the application of good faith or commercial customs which the Public Ministry argued in favor of doing.
Another example of the use of good faith and the principles found in the Ordenanzas can be seen in the decision of In re Successors of Agustín Meeser, which was a review of a decision issued in a bankruptcy case.136 The trustee in bankruptcy brought the appeal before the court of Cassation.137 The issues in the case related to the trustee’s power to file an appeal and define the order in which creditors should be paid.138
Putting aside the main issues of the case, it is important for the purposes of this article to note that the Public Ministry argued the following:
Much has been said during the debates about how unheard of it is to suppress the privilege given to credits that appear in a simple deed; nonetheless, what is certain is that, given the nature of the business of commerce, which is based on good faith and pure equity rather than on formal requirements, there is nothing surprising regarding said suppression, which existed in ancient laws.139
The court issued its decision declaring that the cassation appeal was legally submitted and that the credit in dispute had to be paid pro rata.140 As with the previous decision, the court decided on the basis of a strict interpretation of the Commercial Code. The court did not discuss the issue of good faith the Public Ministry raised in its argument.
These cases provide a window through which to view commerce law during the transition from the use of the Ordenanzas, and their trustworthy archetypal merchant, to the use of the Commercial Code, which did not share such a view, as will be seen later. These cases show that the litigants still saw the use of good faith and customs as tools to resolve commercial disputes, while judges had begun to rely on a strict interpretation and application of the Commercial Code.141
IV.The archetypal Merchant in the Mexican commercial code of 1889
1.The Influence of French Doctrine
It would seem strange to start talking about French legal doctrine in a discussion that has centered on the Mexican Commercial Code and the Ordenanzas of Bilbao. Nonetheless, the fact is that French commercial law doctrine and the French Code de Commerce of 1807 heavily influenced the Commercial Code.142 The French Code de Commerce promoted an objective approach to commercial regulation143 which the Commercial Code of 1889 adopted.144
It is therefore important to have at least an idea of the archetypal merchant Napoleon used as a model in his code.145
The first issue found with the Code de Commerce is that Napoleon did not seem to have as much interest in its drafting as he had for the Code Civil.146 While a committee was created to draft a new commercial code in 1801, the result was apparently submitted to the wrong section of the Council of State and was left archived for years.147 The project was revived due to a case of fraudulent bankruptcy.148 Napoleon was moved more by the need to create a more stringent bankruptcy law than by the need for a commercial code.149 In addition to the emperor’s lack of interest, there was also the fact that Napoleon did not have a good image of merchants or commerce.150 Both Prof. Kozolchyk and “The Cambridge Modern History” describe Napoleon’s perception as one of “hatred of speculation and of the free transfer of land”,151 while indicating that Napoleon had two main concerns when reviewing the progress in the drafting of the Code, particularly in relation to the issue of jurisdiction over promissory notes and bankruptcies.152
The first point was Napoleon’s distrust of promissory notes. “The Cambridge History” mentions the concern Napoleon had regarding commercial courts resolving issues where one of the parties had declared the intention of being bound by the laws of commerce.153 “Napoleon argued strenuously that no one, save a merchant, should be liable to imprisonment for failing to meet an obligation contracted by a promissory note”.154 As a result of Napoleon’s arguments, “[u]ncommercial persons and uncommercial transactions were exempted from the severe penalties by which the commercial Courts were empowered to enforce the payment of negotiable instruments”.155
The second issue also reflects Napoleon’s disdain of the merchant class.
The original proposals for bankruptcy regulation were not severe enough for the emperor.156 “Bankruptcies… take away men’s fortunes without destroying their honour; and that is what it is important to destroy”.157 While the regulation of bankruptcy ended up not as severe as Napoleon wanted,158 this quote shows the real concerns the emperor had over the regulation of commerce.
An important distinction should be made here. While the Cambridge History quote mentions Napoleon’s disdain for promissory notes,159 it later reveals that Napoleon “was unwilling to see bills of exchange or other negotiable instruments used by those that were not in business”.160 Bills of exchange were particularly troublesome as these were the main instruments used to avoid the accusation of usury.161
Dr. Kozolchyk explains that the French Code de Commerce was not enacted as a way to bring certainty and fair and equitable adjudication in favor of merchants, but as a way to “protect non-merchants, and especially the bourgeois, from tricky consequences associated with commercial instruments”.162 This derogatory view of commerce was not exclusive to the emperor, as it was common throughout Europe at that time.163 These facts help understand why “Pardessus has complained that the [Napoleonic] Code of Commerce was more carelessly drafted than any of the other Codes…”.164
The archetypal merchant one encounters in the French Code de Commerce is, therefore, the opposite of the one found in the Ordenanzas. The merchant in the Code de Commerce is not someone to be trusted, but rather someone to be feared and heavily regulated. It is thus to be expected that those commercial codes based on the French Code de Commerce will have a similar treatment of merchants.
2.The Archetypal Merchant in the Mexican Commercial Code of 1889
The first article of the Commercial Code of 1889 indicates that it shall only apply to acts of commerce.165 The following article indicates that “[l] acking provisions in this code, acts of commerce shall be regulated by the provisions of ordinary law”.166 This is clearly different from the Ordenanzas of Bilbao, which allowed commercial disputes to be settled with “the truth known and good faith according to the customs of merchants”.167 In addition, the Ordenanzas required disputes to be resolved orally and without recourse to the “writings of lawyers”.168
The 1889 Commercial Code removes the possibility of using commercial customs or good faith as the basis for commercial decisions.169 This removal previously appeared in the Commercial Code of 1884 as seen in the case of In re Successors of Agustín Meeser.170 Article 2 of the Commercial Code still uses the Civil Code (in this case the Federal Civil Code) as a supplement when the Commercial Code lacks appropriate regulation on an issue.171 Commercial custom has reappeared in the Commercial Code, but with very limited applicability.172
As in the case of customs, in 1889 legislators removed the support given to the use of good faith that was characteristic of the Ordenanzas of Bilbao.173 While the Ordenanzas mentioned the use of good faith at least 10 times,174 the Commercial Code 1889 only included the use of “good faith” three times. Furthermore, the mention of good faith differed from that in the Ordenanzas as it was not used as a basis for issuing judicial decisions.
The first mention of “good faith” appears in Article 393 of the Commercial Code 1889 indicating that:
Art. 393. Any insurance contract shall be void:
Due to the proven bad faith of any of the parties at the time of entering into the agreement;
Due to the inaccurate declaration of the insured, even if made in good faith, as long as it affects the calculation of risk…175 [emphasis added]
As seen, good faith (and in this case bad faith) is only used as a method to void a contract. This is not the same type of good faith used in the Ordenanzas, which placed confidence in merchants’ actions. In the case of the second subsection, mistrust of good faith is evident, as even proving the existence of good faith will not prevent voiding the contract (as long as the mistake of the insured affected the cost of the insurance).
This shift in how merchants are regarded is evident when comparing the Ordenanzas of Bilbao treatment of bankruptcies with how they are dealt with in the Commercial Code. It bears remembering that the Ordenanzas divided bankrupt merchants into three categories, and that only the last category had the element of malice.176 The Ordenanzas were also very lenient with regard to bankrupt merchants.177 Merchants retained their rights (except perhaps for the right to have a voice in the Universidad) unless there was fraud with respect to the bankruptcy.178
It is also important to recall that the Commercial Code was heavily influenced by the French Code de Commerce of 1807, and that Napoleon did not have a very favorable opinion of merchants.179 It is therefore no surprise to find a poor image of merchants in the Commercial Code. The first issue is that any person declared bankrupt is forbidden from practicing commerce until they have been rehabilitated.180 Also, the classification of bankruptcies may look similar to that of the Ordenanzas, but the resemblance is only superficial.
The Commercial Code of 1889 also divides bankruptcies into three categories.181 Nevertheless, compared to the Ordenanzas, the Commercial Code is not as lenient with bankrupt merchants. The categories in the Commercial Code are “fortuitous [incidental],” “blameworthy”, and “fraudulent [malicious]”.182 One should be careful not to be confused by the nomenclature, as the “fortuitous” category is not the same as bankruptcy due to ship-wrecks mentioned above.183
Article 954 stipulates that a bankruptcy is regarded fortuitous when it does not fall under the other two categories.184 This is an issue, as the other categories include 11 and 21 circumstances, respectively,185 which along with the broad scope of some of them, make it difficult to be classified as fortuitous.
Moreover, as opposed to the Ordenanzas, which had a list of actions that may be considered malicious but also left the question open as to whether malice or fraud could be found,186 the Commercial Code has a list of 21 situations considered fraudulent regardless of whether the actions may be customary among merchants doing business at that place and time or whether the merchant had malicious intent.187
These examples indicate that the archetype that appears in the Commercial Code is not the trustworthy merchant implicit in the Ordenanzas. The archetypal merchant in the Commercial Code is closer to the view Napoleon had of merchants,188 that is, an untrustworthy individual who must be regulated in order to prevent them from abusing other individuals. This control is exerted by establishing clear rules for their actions in the Code while not allowing for the independent evolution of commercial law, which is usually achieved through the application of customary law.
3.Examples of the Archetypal Merchant in Case Law
The Commercial Code’s limitations on the use of customs or good faith as bases for issuing decisions also restricted the use of an archetypal merchant in case law. Instead, judges limited themselves to a strict application of the Commercial and Civil Codes.189
A.Successors of Bustamante J.A. v. Romano Pedro 190
Successors of Bustamante J.A. v. Romano Pedro is a very interesting case for several reasons. First, it illustrates how a Mexican appellate court applies the Spanish Commercial Code to a Mexican-Spanish continuing-type of transaction. Second, while it was a case between merchants and the court therefore did not have to take into account non-commercial behavior, it had to assume that the practice in question was lawful in both countries. Third, the case referred to the use of bills of exchange, which Napoleon viscerally distrusted as usurious and tricky.191 Finally, the facts of the case indicate the creation of customary practices between the parties. Of equal importance, is that the customary behavior involved in this case is the contracting parties’ “course of dealing” in previous transactions and not a statutorily or judicially approved custom or usage of trade. The resolution of this case is a good indicator of how Mexican courts dealt with customary practices back then.
The facts of the case were as follows: Romano sent bills of exchange in Pounds Sterling to Bustamante, who was in Santander, Spain, so that Bustamante could negotiate the bills in Spain.192 The agreement between Romano and Bustamante was that Bustamante would negotiate the bills as soon as he received them; however, they started to develop the custom of waiting a couple of days in hopes of a better trade price.193 The system worked until 1898, when Bustamante died.194
After Bustamante’s death, his successors decided to continue the commercial relationship with Romano,195 who accepted the succession and continued sending bills of exchange to be negotiated.196 The Bustamante’s successors continued the custom of holding the bills in hopes of better deals,197 even though the instructions given by Romano were still to sell as soon as they received the bills of exchange.198 The issue that brought the case before the Mexican court was that at some point between 1898 and 1899, after Romano sent bills to Bustamante’s successors, they held on to the bills for several months due to fluctuations in the exchange rate of pounds sterling.199
The Bustamante’s successors could not find an appropriate moment to sell the bills until they finally did so in 1900.200 The real issue in the case was that in the end, the Bustamante’s successors sought payment from Romano for their services.201 Bustamante’s successors claimed a debt of $24,600.90 pesetas, while Romano claimed that he only owed $2,545.08 pesetas.202 The difference in the amount of the debt stems from the issue of when the bills, which represented £1,400 pounds, should have been negotiated; that is, whether they should have been negotiated when the successors of Bustamante received them (resulting in the amount claimed by Romano) or when they were finally negotiated according to the usage created by the parties (resulting in the amount claimed by Bustamante’s successors).
The Second Chamber of the Superior Court of the Federal District was an appellate court. It applied the Spanish Commercial Code, but not before comparing it with the Mexican Commercial Code and deciding that the applicable rules were similar.203 The bases for the Second Chamber’s decision were Articles 68 of the (Mexican) Commercial Code and 57 of the Spanish Commercial Code that established “the legal principle that anything agreed and consented to by the parties is the supreme law of contracts, giving preference to the will of the parties, expressed in good faith and with full clarity, over requirements and formalities that do not affect the essential conditions of any convention”.204
The Second Chamber interpreted these articles in a strict manner, indicating that Romano had ordered Bustamante and his successors to negotiate the bills as soon as they received them.205 The Second Chamber did this even though it acknowledged that “Romano was satisfied and even grateful that [Bustamante’s successors] had delayed the sale in certain operations…”.206
This had no effect according to the reading that the Second Chamber made of the mentioned articles:
Regarding the fact that Romano sometimes tolerated and even approved of the delay in the negotiation of the Pounds Sterling, it must be noted that those declarations referred to operations that were already concluded and to his benefit. It is only natural to expect that he would be grateful for the interest and profit obtained. Nevertheless, this does not and cannot rescind the instructions previously communicated, which are, as we have just seen, the nature and essence of the contract of the commission.207
The Second Chamber did not believe that the course of dealing and usage established by the parties with the customary manner in which they engaged in their transactions had any weight. Moreover, the Second Chamber did not ask what a reasonable merchant in a similar situation would have done; in other words, what the custom was among merchants dealing in these types of transactions. The Second Chamber imposed a strict application of the Code, which resulted in a decision that benefited Romano.
The Second Chamber decided to grant payment to the successors of Bustamante for the sum of $6,429.71 pesetas, which although more than the amount claimed by Romano, was markedly lower than the $24,600.90 pesetas claimed by the successors of Bustamante.208
B.Murguía v. La Mexicana, Compañía Anónima Nacional de Seguros de Vida 209
The case of Murguía deals with a contractual relationship between a merchant and a non-merchant. In its ruling, the court creates an archetype of the model behavior expected from a non-merchant. The case is also interesting as it deals with an insurance contract, which is one of the few contracts that the Commercial Code stipulates should be performed and interpreted in good faith.210
Murguía was a case decided by the Second Civil Court, which was a trial court.211 The case involved a life insurance policy between Manuel Inorosa and “La Mexicana” insurance company.212 The company sent the insurance policy to a banker, instructing Inorosa to make the first payment and to collect the policy.213 Murguía, who was Inorosa’s spouse and later widow and estate trustee, paid by bank deposit, but failed to collect the policy, obtaining instead a receipt of payment.214
The Diario indicates that the main issue in the case was whether the person who brought the claim against the insurance company had standing.215 Nonetheless, since that person had power of attorney from Murguía and she was the beneficiary of the insurance policy as well as the estate trustee, the claim was declared to be correctly filed.216 However, the court spent considerable time determining whether the form of payment contemplated in the policy allowed the insurance to be enforced, which was part of the argument raised by the insurance company’s defense.217
While the court decided to grant Murguía the payment of the insurance premium,218 it is clear that the court treats the commercial and non-commercial parties differently. The court expressed the following about Murguía:
[The fact] that the banker himself retained the [insurance] policy [instead of delivering it to Murguía] did not give her a reason for distrust… as she had faith in the respectability of the insurance company, and believed it impossible that the retention of the policy and the delivery of a receipt in exchange for payment was a ploy against her naïveté as a woman, who had little knowledge about business matters…219
The court is also reluctant to find malice in Inorosa’s actions of, who died one day after the initial payment,220 even though Inorosa did not reveal he was seriously ill at the moment of signing his life insurance policy as 1) the bank did not explicitly request this information at that time;221 2) Inorosa honestly answered all the questions asked;222 and 3) Inorosa’s economic and family situation did not suggest he would cause his own death in order to collect the insurance money.223
Moreover, the court decided that neither the fact the complainant failed to collect the insurance policy nor the manner in which the payment was made invalidated the insurance contract.224 The court reached this decision based not on a strict application of the Commercial Code but on an interpretation of the documentary evidence presented.225 The court also supported its decision by referring to another decision issued by the Court of Cassation of Amiens, France.226
Murguía is a good illustration of the importance of judicial assumptions of archetypal commercial versus non-commercial behavior when applying the Commercial Code to commercial and non-commercial parties. As apparent in this court decision, the court assumes an attitude on behalf of the insurer that is purely selfish, non-altruistic and profit-seeking at any cost, while assuming honesty and trusting behavior of a non-merchant:
To try to give another reading to the records of the proceedings… would be to distort the often-referred to life insurance contract, doing away with its altruistic and beneficial tendencies while alienating the insured from the insurer, whose risks and losses (when dealing with corporations) are insignificant, and ignoring the purely commercial nature of said insurer, who pursues no other purpose than profit.227
Thus, this decision eloquently illustrates that while the court was willing to apply its interpretation of commercial law in a non-strict and equitable manner when dealing with non-merchant consumers, who were seen as naïve individuals who need to be protected from merchants, the opposite archetypal assumption prevailed with respect to merchants.228 It also presents yet more evidence of the French influence on the Commercial Code and the interpretation of commercial law in Mexico.
C.Compañía del Ferrocarril Mexicano v. Luis Lack 229
The Ferrocarril case involved a trade law dispute and exemplifies the usage that courts sometimes gave to Article 1276 of the Civil Code then in force.230 As seen above, the Commercial Code did not allow for the use of good faith or custom to resolve cases.231 Since the Civil Code was utilized to supplement the shortcomings of the Commercial Code,232 courts often used Article 1276 of the Civil Code, which indicated that contracts legally entered into compelled the parties to accept the consequences characterized by good faith, customs and law.233
There are a couple of issues with this approach. First, since the article used to supplement the Commercial Code came from the Civil Code, it was using a different archetype, i.e., the archetypal citizen found in the Civil Code. Second, while the application of this article could have encouraged the development of case law similar to that promoted by the Ordenanzas, the truth is that courts applied Article 1276 only with a very limited approach.
In Ferrocarril, a shipment was received by the customs office in Veracruz and sent by train to Mexico City.234 A Mr. Luis Lack received the shipment upon its arrival.235 The train company charged Lack an amount of money that covered, among other things, the tariffs applied to the shipment.236 It was later discovered that the train company had made amistake and that it had paid more to the customs office in Veracruz than what it had charged Lack.237 The train company sued Lack for the difference but he refused to pay.238
Ferrocarril was a decision of the Second Civil Court of the Federal District, which was a trial court, meaning this decision was not given at the appeal level.239 In deciding that Lack had to pay the difference to the train company, the court stated:
From all of this it follows, in a word, that Ferrocarril Mexicano charged Mr. Lack, before paying for him, less than what he actually had to pay. This situation was nothing more than a mistake that can be rectified in accordance with the express provision of the law and in accordance with the principles of good faith that must be observed in all contracts (Articles [1296] and [1276] of the Civil Code).240
The court could have asked what a reasonable merchant in that situation would have done.241 The court could also have inquired as to what the custom was among merchants in similar situations. Instead, the court applied Article 1276 to decide the case using a limited version of the commercial meaning of good faith.
D.Compañía Ganadera, Sociedad Cooperativa Limitada v. Pliego Rafael 242
The case of Compañía Ganadera also deals with the limited use that courts gave to article 1276 of the Civil Code. Compañía Ganadera referred to a contract for the sale of a butcher’s shop between the defendant, Rafael Pliego, and a cattle company, the plaintiff. Pliego refused to pay and argued, inter alia, that the plaintiff’s company did not exist and therefore lacked standing.243
The Second Chamber of the Superior Court of the Federal District decided this case, indicating that it was an appeal.244 The court found in favor of the cattle company and rejected all the arguments Pliego made.245 Regarding the alleged lack of standing the court found that:
Having acknowledged the existence of the company and its representatives when he agreed to the sale of the butcher’s shop and the purchase of the meat, Mr. Pliego cannot now deny its existence since in accordance with Article [1276] of the Civil Code, which amends the [Commercial Code]… it would be contrary to good faith for Mr. Pliego, after having enjoyed the benefits of entering into a contract with a company whose existence he had acknowledged, to then disclaim it in order to no longer meet the obligations he had acquired in compensation for the benefits obtained.246
The court uses the concept of good faith in this case as a means to invalidate Pliego’s hyper-technical, formalistic arguments. While similar to the application of good faith in the Ordenanzas,247 this situation is different in that it involves a negative application of the principle of good faith. In other words, the court determined that signing a contract and then denying the existence of one of the parties who entered into it would represent the opposite of good faith. In that sense, the court uses good faith only as a way to validate the contract and not as a vehicle of jurisprudence.
VII.Conclusion
In this article, I have presented the idea that the cautious approach taken by the Commercial Code legislators regarding the prospect of allowing any- one but the federal government to establish commercial law, coupled with the influence of French legal doctrine, gave Mexico a Commercial Code with a very different -and less commercial- archetype from that found in the Ordenanzas of Bilbao. While the Ordenanzas were based on the idea of a trustworthy merchant, the Commercial Code was drafted on the basis of an untrustworthy individual whose activities had to be regulated in order to protect others when dealing with them, especially ordinary non-merchant citizens.
Regarding a possible reform of Mexican commercial laws, a first step would be to remove the use of the Civil Code to fill the gaps in the commercial legislation. I have touched upon this issue previously in my paper “The Need to Remove the Civil Code from the Mexican Commercial Laws, The Case of Offers and Firm Promises”.248 The removal of the Civil Code to fill gaps in commercial law would open the possibility to employ commercial good faith and commercial customs and practices to advance commercial law. Moreover, this would also mean that commercial law would have its own doctrines, such as a general doctrine of contracts.249
As to the best form in which to create a new Commercial Code, I would suggest following the example given in instruments such as the “Uniform Customs and Practice for Documentary Credits (UCP)”, a quasi-legislative instrument used by practitioners of letters of credit around the world.250 This instrument was created by bankers and merchants who have been enacting and reforming these rules for the regulation of international documentary credit transactions for decades.251
Another instrument that can be used as basis for a commercial law based on commercial practice is the “TransLex” list.252 The TransLex list was compiled by Prof. Klaus Peter Berger, who has been working on collecting principles of transnational commercial law.253 The TransLex list has 143 principles, including the principles of good faith and reasonableness,254 as well as principles for issues such as contracts, or damages.255 Since every principle mentioned on the TransLex list is supported by legal doctrine, arbitral decisions, and examples of contract clauses,256 the list touches upon commercial practice (although, more input from merchants is, in my opinion, desirable).
The idea of an untrustworthy merchant needs to be eliminated from commercial laws in Mexico. Following historical and contemporary examples, it is necessary to include those involved in commercial activities, i.e. merchants, bankers, carriers, etc., in the creation and development of commercial laws. This is not a call for the legislature to relinquish power, as was feared by previous code drafters, but a call to base commercial laws on an archetype more in line with the experience and needs of Mexican merchants.
