This post was published at Concurring Opinions July 2011

So as I noted a few days ago, one of my annual rites of passage is returning to the University of Missouri each summer to teach Modern Payment Systems.  (Its always interesting to hear different people recall what the course was called when they were in law school — commercial paper, negotiable instruments, Commercial Payments, but I digress). This year, I decided to do something I have not ventured to do — teach the class through an article that I am writing on the role of payment intermediaries in consumer transactions.  (As an aside, I believe the material came across far more dynamic).

Each year, I introduce the course by starting with the central policies of liquidity and certainty as pillars of all payments systems.  Students that have had an economics background know certainty as the legal cornerstone to efficiency — but fewer students understand what liquidity is beyond the pale of converting something to cash; they don’t for example understand that liquidity can mean enabling something with cash-like qualities.  To explain liquidity (one of the central promises of negotiability) I turned the class into a mini-bazaar.  As a condition of staying in the class they must barter something to me in exchange for a cup full of M&M’s.  By exchanging goods, I tell them, we have established economic worth and created new wealth — I know my cup of M&M’s is worth a highlighter, bookmark, Lexis Flash Drive, or Starbucks card as the case may be. But, our economy has a problem — there is no certainty in the transaction.   A cup of M&M’s might be worth a highlighter to one, a flash drive or Starbucks Card to the next person.   The economy is far too personal to be effective as a predictive wealth creation tool.

So I suggest we create some established value — perhaps using M&M’s since everyone has some by now, there are several different types (colors) and people have differing amounts.  After we vote about which colors should have the most value (blue for some reason always wins and brown never wins — we still apparently value beauty over quantity since this year I made sure that every cup had more browns than blues — at least when evaluating has no real consequences), we decide that for convenience sake it would be better to have a central depository to hold our M&M’s and can issue statements of value.  After some prompting, we decide to forgo having to exchange the statements of value for M&M’s, and instead simply exchange the statements as having value in and of themselves — cut out the step of going to our M&M bank to collect our goods for later exchange.

So now, I ask the students in groups to consider the big question we have been building towards — if we are going to say that the paper is just as good as the things the paper represents, what kind of rules should be enforced to ensure that the paper (a) keeps its value; and (b) is accepted in the most places possible?  From this year’s class, here are some of their responses:

• Establish some guidelines in which people can know the paper is legitimate
• Have the government back the paper used in transactions
• Enhance the value of the paper exchanged for goods over paper that is merely cashed in
• Create co-ops of merchants that promise to the bank that they will  accept the paper regardless of who uses it for exchange
• Insulate the market against forgeries by adopting standards of acceptance

These responses (amongst others offered) showed the intuitive reasoning that students can offer.   For example, students deduced that paper would only maintain is value if it were easily discerned as legitimate — either through formalizing the medium or through an outside body guaranteeing their performance.  Similarly, the students recognized that the paper could have value that varied according to the risk of the transaction — a principle idea behind discounting notes.  Finally, the students recognized the impact that networks have in payments — an idea that I will flush out more later.

In my next post I will talk about the constructs of liquidity and certainty — namely longevity, efficiency, and confidence.

So the story goes, a Justice, a King and a Property Teacher Walk into a Bar and the Justice says how are we supposed to turn the other cheek on Corporations when they are given all of the privileges of people but all of the immunities of an immortal.” The King turns to the professor and says, “it helps to have two faces.”  (Rim Shot — and if you want to know why the punch line makes sense, read on….).

In the wake of Sonia Sotomayor’s first entre’ into Campaign Finance Reform on the court, she asked what many scholars have asked over time:  Why do corporations get to be treated as people for certain things. Sotomayor said: Judges “created corporations as persons, gave birth to corporations as persons,” she said. “There could be an argument made that that was the court’s error to start with…[imbuing] a creature of state law with human characteristics.”   Of course, the historical precedent is not what Sotomayor is taking issue with, its the correctness of that decision.  Indeed, Abraham Lincoln warned that “Corporations have been enthroned and an era of corruption in high places will follow, and the money power of the country will endeavor to prolong its reign by working upon the prejudices of the people until all wealth is aggregated in a few hands and the republic is destroyed.”  Clearly, American Corporation law draws its roots in the nineteenth century’s industrial revolution and the transformation of the American economy. And ever since Santa Clara County v. Southern Pacific, American law has recognized that corporations are entitled to assert the bill of rights much like an actual person.  But the concept of the corporation as a person, is far more nuanced and mystical, yea its a Dan Brown novel waiting to be written…

The first scholar to dive into the concept of origins of the Corporation was F.W. Maitland.  In two early twentiethcentury articles titled The Corporation Sole (1900),  The Crown Corporation (1901), Maitland dives into the question of corporations as artificial persons.  Maitland begins Corporation Sole by quoting Edward Coke:

Persons are either natural or artificial. The only natural corporations are either aggregate or sole. Persons are men. The only artificial persons are corporations.

Maitland then goes on to describe the creation of the concept of artificial persons as one directly attributable to property. Specifically, the first English Corporations were in the form of the Parson of the church, who as the “corporation sole” represented the body that held the lands on behalf of the church. In Coke’s day, there were three distinct corporation soles, Ecclesial or parsons, the Chamberlain (or Treasurer) of the City of London, and the King.  Its the King, however, that becomes the most prominent artificial person. Indeed, the King is said in the Case of Dutchy Lane at Sergent’s Inn, (Plowden’s Reports) to possess

a body natural adorned and invested with the estate and dignity royal, and he has not a body natural distinct and divided by itself from the
office and dignity royal, but a body natural and a body politic, together indivisible, and these two bodies are incorporated into one
person and make one body and not divers, that is the body corporate in the body natural et e contra the body natural in the body corporate.

But the body politic and the body natural, though joined in one “corporation” held distinctive natures. As stated in the same report:

His body natural… is a body mortal, subject to all of the infirmities
that come by nature or accident, to the imbecility of infancy or old
age, and to the like defects that happen to the natural bodies of other
people. But his body politic is a body that cannot be seen or handled,
consisting of policy and government and constituted for the direction of
the people and the management of the public weal, and his body is
utterly void of infancy, and old age, and other natural defects and
imbecilities which the body natural is subject to, and for this reason,
what the king does in his body politic cannot be invalidated or
frustrated by any disability in his natural body.

Thus, the concept of the body of the king recognized that in the capacity as King a number of conclusions were appropriate including that he was flawless and that time did not run against him (nullem tempit occurit regis). What’s perhaps the most interesting, is that these fictions begin at the property level. Property represented in the early days of the fiction the point in the material world where the mystical properties of corporations, kings, and governments interceded into normal human activity. It is, as Ernst Kantorowicz analogized, the metaphor of the Eucharist in one political person — the mystical joined with the tangible and therefore made known in an understandable form. In the early days, it was the property or the person that made the corporation a meaningful entity. And thus, the corporation did not speak or exist outside of the tangible form, but rather adopted the tangibility, cleansed it, and made it sacrosanct.

Perhaps that is why Sotomayor has a point. It seems that Sotomayor struggles with the idea of imbuing corporations with eternal qualities at the same time that we offer them human existence and privileges. In large measure this is a function of the intangible entity. Do we really want corporations that are not tied in some tangible way to human existence, whether by the actors that can be held accountable for their actions, or the property that can be taken away and therefore stripping the corporation of its existence in the real world, with the perpetual ability to speak. That seems to be a relevant point in a day in which Corporations so easily vanish without a trace of their existence except the path of destruction they left behind.

And if Dan Brown does write a novel about King’s and corporations, I expect my royalties.

Marc
Image of F.W. Maitland, taken from Wikipedia
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This post appeared on Commercial Law Prof Blog on July 31, 2009

Since 1987, the volume of transactions on FEDWIRE have consistently exceeded the volume of transactions on CHIPS. This is not necessarily unexpected. FEDWIRE handles, according to the Comptroller’s Handbook one-third of its volume as federal funds transactions and one-fourth of its activities as securities transactions. Another significant source of transfers are those between Federal Reserve Banks, which would naturally include certain mortgage funds. Naturally, the volume of these transactions probably should be higher. On the other hand, CHIPS primarily deals with foreign-exchange transactions (nearly 1/2 of the dollar value. Another 1/3 of the dollar value is Eurodollar placements.

See Chart showing Number of Transfers

This post appeared on Commercial Law Prof Blog on March 18, 2009

The AALS Contracts list-serve two months ago carried a stream of interesting comments around the question whether contracts should be taught in four or six hour blocks of time. These discussions have been brought by the need to inject other things into the first year curriculum, such as skills courses, constitutional law, etc… (which I am all for). However, I want to offer a different proposal than a mere reduction of hours — maybe we shouldn’t teach contracts to first year students at all. Instead perhaps we should teach students in the first semester Article 2 of sales. Here are my reasons, in no particular order of significance. By the way, you can disparage me in person if you are going to the Contracts Panel at SEALS this summer, as this will be the basics of my presentation…

1. Its a Legislative World and I’m a Legislative…. The same argument I consistently hear justifying common law contracts as a First Year Course is that it teaches students how to read cases. First, doesn’t Torts, Property, Criminal Law, and Civil Procedure do equally fine jobs of teaching students how to read cases? Second, and more importantly, where in the first year curriculum are we teaching students how to read statutes and Codes. We are not, and as a result, when students come to take a code based course, they repeat their first year growing pains again by by having to learn how to read and analyze statutes. Sales provides a great opportunity to fill the legislative gap and still …..

2. Introduce Students to the basic principles of contracting. Offer, assent, parole evidence, statute of frauds, battle of the forms (of course) impossibility, remedies… Its all there. The difference is two fold: one, the material is in a more concrete format in the form of a code; and two, the material becomes more understandable because students have a familiar and definite context for understanding specific rules like parole evidence, statute of frauds exceptions and the battle of the forms. As I tell my UCC students, we have all bought candy bars by the time we get to law school and we know the essence of the process –I give you money and you give me a Snickers. We now are putting definite terms to that process.

3. Is Common Law Contracts that relevant anymore? Sure the basic principles of offer, acceptance, etc…. in some form stretch the gambit of contracting. But our legal system has created so many different types of contracts that each vary in nuanced ways from each other. Employment contracts are different from sales contracts which are different than construction contracts, which are different from licenses and so on and so on. The idea that we are teaching general principles that stretch through the curriculum falls apart when students learn that each of these different contracts have their own unique language and terminology that renders the common law of contracts at best a quaint introduction to the sport of creating obligations. Add to that fact that much of contracting gets reduced to form-negotiations and contracting as an art becomes mostly irrelevant. If contracting were taught as an exercise in transacting, I believe it would be far more effective. One of the comments from the contracts list-serve discussion that I really appreciated came from Peter Linzer, in which he said:

At a less abstract, but much more practical level, I have for a long time been advocating a shift from Contracts as a course in busted deals to a course in what real contracts lawyers do, advising clients, helping them to plan, and getting the plan on paper through good drafting. I’m still trying to slip a bit of that into my four-credit course, but I can’t really change much. Some parts of Contracts must be taught from the cases (interpretation, the parol evidence rule, remedies, the click-wrap issues (which, of course, are also part of the transactional part of the process)). But the real task of preparing students to be transactional lawyers needs to be taught differently, and can’t be covered well in a four credit course. I can teach a class of 100 how to draft, but I can’t review their work to raise them beyond the very basics. That has to be covered in a more advanced course. But if we can sensitize students to what contract lawyers really do, and the important role of drafting and planning, we can greatly improve the abysmally low level of quality among most business lawyers, especially those dealing with small businesses. That, however, needs much more time than is available in a four hour course.

I concur.

4. Teaching common law contracts does not necessarily prepare students for the bar exam. First of all, students rarely retain what the parole evidence rule is versus the statute of frauds between the end of their contracts course and the beginning of their second year (or they may just deny any knowledge of those things in class). Moreover, we have pretty well ceded bar preparation to Bar-Bri, Mishmash, or what ever other cram course students are willing to fork out $2500 to cram long-forgotten doctrines in their minds. Have we all of a sudden become less confident in bar-review’s capacity to teach contract doctrine as well? It seems to me that most professors I talk to vehemently deny that they are teaching for the bar (which I do as well). So why would we teach a course on that basis.

5. For that matter, Sales does not prepare students for the bar exam either, but there is a trickle down effect. In the same way that contracts does not necessarily create a long-term knowledge of contracts doctrines, neither will Sales. Though, at least by teaching sales early, we open the door for other UCC courses to be more accessible to students. Students that take Article 9 or Article 3-4, are more likely to be prepared for courses like bankruptcy, debtor and creditor rights, taxation, and corporations. Getting students in the sales curriculum earlier rather than later aids that process.

6. Wouldn’t we all be happier teaching a perspectives-esque upper level course on the theory of contracts. Really isn’t that what we all really want to teach anyway. This to me is the best use of the contracts course and one that often gets pushed aside for lack of hours or because students are not quite ready to understand these nuances. This is the art of preparing lawyers: equipping them with the intellectual tools to make rational decisions regarding how contracting should be undertaken. Forcing students to struggle through Law and Economics views of contracting, moral theory of contracting, etc… before they truly understand the contracting process seems to me to be reversed. Students will learn more and professors will be happier with the result.

The only upside to the contracts course is it might make the classic movie, The Paper Chase irrelevant, though I think I can live with that — I think.

Marc (MLR)