• Selected
• Entire List

Abstract:
The cotton industry has almost entirely opted out of the public legal system, replacing it with one of the oldest and most complex systems of private commercial law. Most contracts for the purchase and sale of domestic cotton, between merchants or between merchants and mills, are neither consummated under the Uniform Commercial Code nor interpreted and enforced in court when disputes arise. Rather, most such contracts are concluded under one of several privately drafted sets of contract default rules and are subject to arbitration in one of several merchant tribunals. Similarly, most international sales of cotton are governed neither by state-supplied legal rules, nor by the Convention on the International Sale of Goods, but rather by the rules of the Liverpool Cotton Association.

This Article draws on a detailed case study of contractual relations in the cotton industry to examine the ways that the rules, norms and institutions that constitute the industry's private legal system ("PLS") create value for transactors. It begins by describing the formal operation of the PLS and discussing the ways that its substantive rules, adjudicative approaches and arbitral procedures improve on those provided by the Uniform Commercial Code and the public legal system. It then describes the many steps taken by cotton industry institutions to strengthen the social and informational infrastructures of trade and analyzes how these efforts combine to make reputation-based nonlegal sanctions a powerful force in the industry. The paper then draws on this discussion to suggest that the availability of such sanctions may enable transactors to create value-enhancing contract governance structures that might be either unavailable or prohibitively expensive if their transactions were governed by the public legal system. The paper also discusses in great detail how the industry's efforts to support the legal and extralegal aspects of contracting relationships, together with certain other features of cotton institutions, have succeeded in creating conditions that are conducive to the creation, maintenance and restoration of cooperative contracting relationships. It concludes by suggesting that understanding how the cotton industry's institutions create value for transactors may help identify other industries and other contexts in which private institutions can play a positive role in supporting trade.

Contracts, cooperation, commercial law

Abstract:
This Article provides a direct theoretical and empirical challenge to the Uniform Commercial Code's constant recourse to usage of trade in interpreting contracts and filling contractual gaps. Drawing on case studies of merchant industries that at certain points in their development were characterized by most of the preconditions generally thought to be conducive to the emergence of custom, it provides strong evidence that usages of trade that were generally known and geographically co-extensive with the scope of trade did not exist even within these close-knit communities. It also casts doubt on the existence of the types of well known industry-specific meanings of words that the Code so often relies on as a guide to contract interpretation. The paper then carefully discusses and dismisses the theoretical arguments generally put forth for the incorporation of trade usage, and attempts to provide an alterative conception of the types of customs and usages of trade that do exist and the role they play in commercial transactions. It suggests that distributions of aggregate practices in the market as a whole, which the Article refers to as weak form customs, can be understood as providing transactors with a pool of imperfect yet nonetheless workable common knowledge that in the early stages of their contracting relationship enables them to better asses whether the other transactor is a cooperator or defector, thereby facilitating the emergence and maintenance of repeat-dealing cooperative contracting relationships. On this view weak form customs provide transactors with a useful set of relationship creating norms, norms that initially add tremendous value to contracting relationships but that gradually diminish in importance as relationship-specific courses of dealing emerge. In sum, the Article suggests that usage of trade as that term is used by the Code is nothing more than a legal fiction and that any future defense of the incorporation strategy will have to take this empirical fact as its starting point.

Abstract:
This Essay adds to the existing literature on expectation damages. It suggests that this literature is implicitly based on the assumption that, in the event of breach, the breached-against party will readily reveal the information necessary to establish the magnitude of expectation damages. It explores the implications of the opposite assumption, namely that an aggrieved party might often prefer to keep the information necessary to establish the magnitude of expectation damages private. More specifically, it suggests that while the traditional literature on remedies has focused on the aggrieved party's interest in being made whole (her "compensatory interest"), there is another, potentially conflicting interest that needs to be taken into account, namely her desire to keep information private (her "secrecy interest"). When the secrecy interest is sufficiently strong, the cost of revealing the underlying private information may well exceed the aggrieved party's expected recovery at trial. As a consequence, the aggrieved party may not file suit and may therefore receive no compensation. If the existence of a promisee's secrecy interest is known to a promisor who is contemplating breach, the secrecy interest might undermine the credibility of the promisee's threat to sue. Thus, in the presence of a secrecy interest, both the remedial goal of full ex post compensation and the economic goal of efficient breach-or-perform incentives are unlikely to be achieved.

The Essay develops the concept of the secrecy interest in more detail and considers how taking it into account might contribute to the debate over the desirability of several of the Code's remedial provisions, the remedial structure of the new proposed Code, and aspects of existing adjudicative procedures. It demonstrates the secrecy violations involved in adjudication under current contract law doctrine. It argues that the Code and the rules of civil procedure should enable aggrieved parties to opt for damage measures and discovery procedures that do not involve information revelation, such as specific performance, liquidated damages and uncapped market difference damages.

Abstract:
In the spirit of the Code and Karl Llewellyn, this Article begins by looking at merchant practice. It presents a case study of the private legal system created by the National Grain and Feed Association to resolve contract disputes among its members. The study pays especially close attention to the willingness of NGFA's industry-expert adjudicators to take trade usage, course of dealing, and course of performance into account in deciding cases. It finds that despite their industry expertise, NGFA arbitrators are reluctant to look to these indicia of immanent business norms. The Article then challenges the idea that courts should seek to discover and apply immanent business norms in deciding cases. It demonstrates that while the drafters of the Code sought to incorporate these norms into the law in an effort to make commercial law more responsive to and reflective of commercial reality, they failed to recognize that this approach would fundamentally alter the very reality they sought to reflect, and would do so in ways that would have undesirable effects on commercial relationships and would undermine the Code's own stated goals of promoting flexibility in commercial transactions and "permit[ting] the continued expansion of commercial practices through custom, usage and agreement of the parties."