The Common Law forms the basis of many countries’ legal systems. The Common Law is based on a precedent based legal system as opposed to statutory law and legislation. The Common Law is a strict, principle-based reasoning that uses the circumstances of a case to evaluate the laws that are applicable. In the U.S. courts, judges make law based on principle based reasoning and those decisions are followed as precedents.
Law merchant is part of the common law realm[i]. Law merchant is a body of principles and regulations applicable in commercial transactions. It deals with the negotiability of commercial papers. This part of law is derived from established customs and usages of merchants and traders[ii]. Law merchants were followed before enactment of any statute on the subject of commercial transaction. Law merchants were used to regulate commercial transactions of traders and to resolve their disputes. The law was brought to application through merchant’s courts along main trade routes. Law merchant is now used in dealings in trade and commerce which is not changed by statutory law.
Merchant’s law emerged because merchants had to solve their disputes rapidly, with minimum costs and maximum efficiency. Law merchant rendered proportionate judgments over the merchants’ disputes, in light of “fair price”, good commerce, and equity.
The Judiciary Act of 1789 created by the first Congress declared that federal court jurisdiction regarding admiralty and maritime jurisdiction is exclusive. However, the saving to suitors clause provides that there is a right of a common law remedy when there is an apt remedy in the common law.
In the U.S., the law merchant is codified in the Uniform Commercial Code (UCC), a body of law adopted by the states that governs mercantile transactions.
[i] Ferguson v. Selma, 43 Ala. 398 (Ala. 1869)
[ii] Carhartt Holding Co. v. Mitchell, 261 Ky. 297 (Ky. 1935)