Christopher Drahozal, ‘Usages and Implied Terms in the United States’

The Uniform Commercial Code (“UCC” or “Code”) incorporates commercial practices — course of performance, course of dealing, and usage of trade — into the parties’ agreement, with the aim of “reduc[ing] the gap between law and practice and … insur[ing] that decisions are practical and responsive to the needs…of the parties and the relevant business community.” This “incorporation strategy” is the centerpiece of U.S. law on usages and implied terms, and reflects the view of legal realists like Karl Llewellyn (the Chief Reporter of the UCC) that “contract doctrine should respond to commercial reality and not, as the classical theorists imagined, the other way around.” In recent years, however, the Code’s incorporation strategy has come under increasing criticism from commentators, most notably Lisa Bernstein, who argue for a more formalist approach to contract interpretation and gap-filling.

This paper provides an overview of usages and implied terms in the United States, focusing on the UCC’s incorporation strategy. It first discusses briefly the origins of the incorporation strategy in Karl Llewellyn’s legal realist views. It then describes how the UCC implements the incorporation strategy — through its definitions of agreement and course of performance, course of dealing, and usage of trade; through its provisions that set out the legal effects of those commercial practices; through the requirements of commercial reasonableness in the Code; and through the duty of good faith and fair dealing implied in every contract. Next, the paper examines the extent to which parties can contract out of the UCC’s incorporation strategy, and the influence of the incorporation strategy on the common law. Finally, although the focus of this paper is on the law governing usages in the U.S., it concludes with a brief overview of academic criticisms and defenses of the incorporation strategy, emphasizing the empirical evidence presented on both sides.

Drahozal, Christopher R., Usages and Implied Terms in the United States (September 3, 2012). TRADE USAGES AND IMPLIED TERMS IN THE AGE OF ARBITRATION, Fabien Gélinas ed., Oxford University Press, Forthcoming.

First posted 2012-09-05 06:48:11

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