Colonial courts and secured credit: early American commercial litigation and Shays' Rebellion.

• Author: Priest, Claire
• Position: Statistical Data Included

There is a peculiar inconsistency within current legal scholarship concerning the role of the courts in commercial relationships during the colonial period. Colonial legal scholars universally recognize that debt litigation ending in default judgments overwhelmed the caseload of colonial courts. At issue, however, is whether this high level of uncontested cases reflects a rationally organized effort of creditors and debtors to endow credit agreements with greater security, or whether these uncontested cases represent efforts to collect after real defaults and, thus, are evidence of widespread colonial insolvency.

Recent colonial law scholarship asserts that creditors and debtors used litigation as a means of endowing credit agreements with greater security.(1) Colonial legal scholars found that the percentage of cases ending in default judgments increased dramatically in the 1720s and 1730s and remained at very high levels throughout the eighteenth century.(2) When debtors did not default, they often confessed judgment against themselves, conceding responsibility for their debt.(3) The prevailing interpretation today among colonial scholars is that the rise in uncontested debt cases and confessions of judgment by debtors is evidence of creditors and debtors using the court system as a rational mechanism to record debts. Creditors brought suit against debtors because becoming judgment creditors secured their interest in debtors' property by allowing quick execution at their discretion. The high level of uncontested cases and confessions of judgment represent voluntary debtor participation in the system: Debtors acquiesced to the entry of judgments against them (by default) because they too benefited from the bureaucratization of credit. Thus, according to thc current interpretation, the increase in uncontested debt litigation indicates not an increase in underlying disputes or in economic distress, but rather the creation of a modernized mechanism for debt recording, similar in kind to today's perfection of security interests through Article 9 of the Uniform Commercial Code. This view will be termed here the "debt-recording interpretation" of colonial litigation.

Yet, while the debt-recording interpretation of colonial courts is the dominant explanation of default judgments in current colonial law scholarship, other evidence characterizes the operations of the colonial court system in a dramatically different way. In 1786 and 1787, shortly after the Revolution, Shays' Rebellion constituted a widespread attack on the structure of the colonial court system, culminating in the violent takeover and closing of many county courts in western Massachusetts and throughout New England. The Shaysites (who referred to themselves as "Regulators") raised an armed revolt against the colonial court system. They condemned its injurious costliness, its fee structure which, they claimed, enabled judges, witnesses, and sheriffs to profit at the expense of litigants, and its cooptation by lawyers.(4)

Defenders of the regime dismissed the Regulators as "men in distress involved in debt and discontented"(5) and desiring "equal distribution of property," and "the annihilation of debts."(6) Several of the Regulators' principal court reform proposals, however, were designed chiefly to reduce costs and administer justice more effectively. Indeed, although some Regulator proposals were clearly radical--such as to entirely abolish the courts of common pleas(7)--others were more moderate. One Regulator proposed adopting a system according to which creditors and debtors could inexpensively record and secure debts, for example, by substituting the common pleas courts with "courts of record" that would specifically provide a debt-securing and recording service.(8) Others proposed that the Massachusetts General Court enact legislation to provide for an inexpensive process to record debts within the common pleas system. The General Court responded by enacting the Confession Act of 1786,(9) which allowed debtors to avoid costly litigation in any debt case by "confessing" judgments against themselves to a justice of the peace for a small fee.

There is therefore a deep incompatibility between the debt-recording interpretation of colonial courts and the apparent motivations for Shays' Rebellion. The incompatibility is reflected not only in the Regulators' revolt against what they claimed to be a destructively inefficient court system, but also in the nature of the reforms enacted to quell the Regulators' demands. If colonial courts functioned in the eighteenth century as efficient modern-like debt-recording institutions, what motivated the Regulators to armed rebellion against their operation? Similarly, the General Court enacted the Confession Act to increase the efficiency of debt collection by permitting creditors to record debts cheaply in advance of execution.(10) Why would a principal reform of the 1780s advance the judicial system in the direction of a recording institution if, as colonial scholars suggest, that system had been made operational over fifty years before? Accounts of Shays' Rebellion cast doubt on the existence of an institutionalized recording system in Massachusetts during the colonial period and suggest, as a general matter, that colonial courts were far more costly and inefficient than colonial legal scholars have described.

These questions are central to understanding how the administration of colonial courts could provoke armed rebellion against the government as well as the role of colonial courts in enforcing commercial transactions. The principal ambition of institutions providing for debt securing and recording is to reduce the cost of credit: first, by generating information that will increase creditors' certainty about their chances of repayment and, second, by reducing the costs of executing on debtors' possessions upon default. Toward this end, a well-functioning debt-recording system should make available information about existing claims on debtors' property, enforce a priority-collection system--assuring creditors of their position in obtaining debtors' assets--and, by recording debts, generate evidence to substantiate claims of default to lower collection costs.(11) Greater security leads to credit at lower prices.(12)

Thus, it is central to our understanding of colonial law to determine whether, as a debt-collecting institution, colonial courts were well-functioning and modernized or inefficiently costly and operating to the benefit of judges, sheriffs, and lawyers at the expense of the citizenry. Moreover, debt cases dominated civil court dockets throughout the colonial period.(13) While it is accepted that, during the nineteenth century, courts affected the American economy through their articulation of the law of torts, contracts, and statute-based legal fields such as corporations, during the colonial period, in contrast, the judiciary affected economic development principally through its enforcement of credit relationships.(14)

It is not useful to evaluate judicial "efficiency" in the abstract. This Note presents an empirical examination of the nature of default judgments and confession of judgment cases in the colonial courts. It attempts to determine whether these cases represented creditors and debtors using litigation to record debts or, instead, actual defaults by debtors. Toward that end, it analyzes two empirical and legal dimensions of judicial operations that have not been adequately explored. First, there is a sharp difference between the characterization by colonial scholars of the courts as a modernized bureaucracy and by the Regulators as a costly and burdensome institution chiefly benefiting the legal officers who managed it. Neither account to date has carefully examined the fee structure of colonial courts and measured the magnitude of court fees imposed in each case against the magnitude of debt to be collected.

Second, according to the debt-recording interpretation, litigation occurred not when a debt was due, nor when a creditor wanted to execute on a debtor's possessions, but immediately after the creditor extended credit, in order to record the debt.(15) In contrast, the Regulators' complaints imply that debt litigation was real, not nominal, and represented the palpable prospect of paying high costs and losing property, suggesting that creditors litigated after other attempts to collect against debtors had failed. These contrasting characterizations suggest a substantial difference in timing from the date that credit was extended until the date of litigation. Again, neither account to date has carefully examined the timing of debt litigation.

This Note evaluates these different interpretations of the operation of the colonial courts, relying on an empirical study of over 5000 cases in the Plymouth, Massachusetts County Court of Common Pleas,(16) during the years 1724 to 1750 and 1781 to 1795.(17) It examines for sample years the relationship between judicial fees and the level of underlying debt. Second, the Note measures the time between the extension of credit and debt litigation for all 5048 cases. The data suggest the need to reassess colonial courts' role in debt collection.

First, the data show that Massachusetts's court fees were extremely high, comprising a substantial portion of the median debt even when a creditor simply obtained a default judgment. This finding alone casts doubt on the characterization of colonial courts as efficient and well-functioning. Moreover, following the English rule, civil litigation in the colonies operated on a strict loser-pays fee system. Thus, in default and confession of judgment cases, the entirety of the large fees associated with debt collection through the courts was paid by debtors. The English-rule fee system has been neglected in colonial historians' interpretations of debt litigation. It suggests skepticism, however...