Formal documents and other evidences of regularized trade practices were known in Egypt and Babylonia. In many parts of the ancient world foreign merchants, through treaty arrangements or other agreements, were allowed to regulate their affairs and adjudicate their own disputes without interference from local authorities. They tended to settle in special sections of commercial cities where they might follow their own religions, laws, and customs. Roman law incorporated features of the already developed commercial law, which, however, was no longer handled separately in special courts but was treated simply as part of the whole legal system.
The barbarian invasions of Europe caused such social disruption that it was not until late in the Middle Ages that long-range commerce again became possible in Europe and merchants were once more able to determine the rules and regulations under which they could safely operate. In the cities of N Italy and S France the merchant class frequently dominated the state and could enact the needed rules as legislation. In other parts of Europe associations of merchants bought protection from powerful lords or kings who granted them safe conduct and permitted them to conduct fairs and to establish regulations and methods of enforcement (see Hanseatic League). Both classes of merchants established special courts where summary judgment was granted with little regard for the technicalities of procedure and doctrine in the regular courts, and without the necessity for lawyers.
The term "law merchant" was applied to the substantive principles that eventually emerged from this quasi-judicial activity. The law merchant developed later in England than in continental Europe, and it was not fully established there until the mid-16th cent., when English trade with the New World began to assume importance. In England the law was administered by special courts having jurisdiction only over those engaged in trade; these were the courts of piepoudre [Fr., pied poudré = dusty foot, an allusion to the dusty shoes of merchant judges who perhaps had been trudging the roads].
The royal courts in early days refused to hear merchants' suits, but in the 17th cent. they reversed this position and obtained exclusive jurisdiction. At first, however, the litigants were required to present proof of the law merchant in each case. In the 18th cent. Lord Chief Justice Mansfield made the law merchant a part of the common law and abolished the requirement of special proof. The United States adopted the principles prevailing in England in the late 18th cent.