• Video

Roman Partnerships and Obligations

Roman rules that governed partnership transactions formed the basis of the corporate regulations that still exist today. Professor Richard Epstein examines some of the types of partnerships, how they could be dissolved, and how resources could be allocated after such a dissolution. https://youtube.com/watch?v=qG9AaKn419E


The Romans understood and developed what later became the principle of corporate or partnership opportunity. And this is the situation. First of all, when you're dealing with a partnership, there are two types: there ones of those where there was a particular venture, and you only resources that were committed to the partnership, were those which were essentially especially endued with it, but there was another kind of partnership called omnium bonorum, which meant all of your goods went in. This may sound strange to you until you realize that if these two partners were brothers, everything that they had in their father was owned by him, omnium bonorum, and they're just keeping the thing going. And so what happens is: What about the division at the end of a partnership? In the ordinary case, when you divide the partners, you look at the kind of rules and whatever the division is, you make it in accordance with that particular plan so that liquidation exists. The Romans were very clear that you could always liquidate a promise voluntarily. And they also knew that if one side sued the other, that was treated as a sign that trust was gone. And so it was treated as a de facto separation of the partnership. We then have to allocate the asset. So the famous case that Gaius talks about is it turns out that there is a partner in one of these omnium bonorum relationship who understands that he is about to receive some large benefit from a third party, which means that he would have to divide the thing 50/50 with the other fella in accordance with this basic rule. So what he does is he calls unilaterally for a division of the partnership arrangement. Now that it's separate, he says, "This large sum is all mine. It's not yours." And the answer is we see the opportunity for strategic behavior. And so what the Romans did was to develop rules that are still used today, which I loosely call "heads I win, tails you lose" kinds of rule. And so what this means is that if in fact you see somebody engaging in that sort of specific behavior, strategic behavior, what you do is you say, "Sorry. This withdrawal doesn't work. And you have to give 50 dollars from the outside or 50% of the outside to me." So there's now no incentive to try to cheat to get this separate benefit, because you're gonna have to do it anyhow. On the other hand, if it turns out that you break the arrangement and now I get some unanticipated goody from a third party, I don't have to share that with you because you're the one who's wrong. And the whole point of this rule with the "heads I win, tails you lose" situation is you want to make it very, very clear that this form of strategic behavior is utterly unacceptable. And variations of this rule are still in effect today. Everywhere you look in the corporate opportunity situation, if it turns out that somebody promises a very nice deal to a corporation, one of its principal agents cannot say, "Hey, forget about this corporation. I got this separate business over here. Let's do this deal separately." You gotta turn the thing back to the corporation. So these rules essentially have tremendous durability.

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