March 25, 2014
Gierke, Coase, and Hobby Lobby
Posted by Nate Oman

One of the things that is striking to me in the corporate scholars amici brief to the Court is how oblivious it seems to what I'd always taken to be the dominant contemporary theoretical approach to corporate law, namely that the idea of the corporation as a nexus of contracts and of corporate law as a series of default terms for what is in effect a relational contract between the constituents of the firm.

Brett has already noted the extreme formalism in claiming that the owners of a closely held corporation are in no way burdened when the state regulates their corporation.  More broadly the fixation on the normative significance of the legal personality of the firm strikes me as theoretically antedilluvian.  Saying that a firm is a distinct legal person doesn't represent some metaphysical judgment about its normative status.  It is just a practical device for dealing with pragmatic considerations like asset partitioning and the consolidation of contracting and dispute resolution.

To be sure, there was a time when the fictive personality of the firm was deemed to rest on something more substantial than convenience.  The so-called "real theory" of the corporation was imported into American legal discourse from Germany at the end of the 19th century.  Built on the work of figures like Otto Von Gierke it tried to argue that the legal personality of the firm actually rested on some real distinction between the firm and its shareholders.  As summarized by Ernst Freund in The Legal Nature of Corporations (1900), it held:

Above the existence of the individual there is the existence of the species, and the corporation is nothing but the legal expression of this fact, which appears as a reality in the physical person, so the higher will of the species is embodied in numerous and various forms of assocation, and as a result we find, beside the individual, entities of a higher order endowed with the volition and acting capaicty.  And where the law recognizes such embodied will as a person, we have a juristic person or a corporation.

Interest in the real theory of the corporation largely disappeared in the United States, however, with the publication of John Dewey, “The Historic Background of Corporate Legal Personality,” 35 Yale Law Journal 655 (1926).  A decade later, Ronald Coase published "The Nature of the Firm," 4 Economica 386 (1937) arguing that corporations were simply a response to high transaction costs, an alternative mechanism for pursuing essentially contractual goals.  Given the dominance of the nexus of contracts view of the firm, it seems bizarre to me that people in 2014 would argue that there is some kind of metaphysical mistake in suggesting that corporations are a means by which people engage in religious exercise.  If corporations aren't a means by which people act in the world, what on earth would they be?

Now the fact that a corporation has lots of constituents and consists of many different contracts might well be relevent to the question of how religious we should see its actions as being and the extent to which laws are burdening religious exercise.  To claim, however, that applying the ideas of religious conscience or exercise to a corporation is a category mistake or to suggest  -- as Marty does -- that no religion claims that corporations could have religious obligations strikes me an attempt to place corporations in some metaphysical category distinct from human activity.

I don't think metaphysics and legal personality really has anything to do with it.  A corporation is just a set of contracts, agreements between individuals to pursue some shared goal.  Regulating corporations is, as a normative matter, just another way in which we regulate collective and contractual activity.

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