Abstract

"The Rise of Form Contract: Standard Form Contracting in the First Corporations"

Gabriel Rauterberg, University of Michigan Law School (rauterb@umich.edu)

This article explores the contracting practices of the English world’s first business corporations, the joint stock trading companies. Long-distance trade in the early modern world required managing agents under conditions of extreme uncertainty and moral hazard. While earlier commercial ventures relied on reputation or kinship networks to manage agents abroad, England’s first business corporations could not do so because of the scale and exploratory character of their trade. I argue that in these circumstances, a contractual technology emerged to solve this organizational problem. In particular, the companies developed sophisticated standard form contracts to mitigate some of the central frictions of long-distance trade. Form contracting enabled the joint stock companies to apply an intricate formal set of incentives and sanctions to all employees, strengthened the clarity and enforcement of terms, and provided uniform, shared expectations in the absence of pre-existing social and cultural ties.

Using new archival research on the East India, Hudson’s Bay, and Levant Company, I explore these companies’ contracts and show that they developed standard form contracts that tailored fiduciary duties, structured self-dealing, and stipulated damages. The EIC aggressively litigated these contracts and revised their terms in response to developments in both the law and context of trade. While earlier work has often focused on private ordering as a substitute for weak state institutions, the joint stock companies developed their own contracts as complements to imperfect state law and enforcement.