The Tentative Case Against Flexibility in Commercial Law
University of Chicago Law School
University of Chicago Law Review, 1999
Well-rooted in modern commercial law is the idea that the law should reflect the fact-patterns of common life. The Uniform Commercial Code champions this tradition by viewing the performance practices formed among the parties throughout their interaction as a primary source for interpreting and supplementing their explicit contracts. The generous recognition of waiver and modifications, as well as the binding force the Code accords to course of performance, course of dealings, and trade usages, effectively permit the unwritten commercial practices to vary and erode explicit contractual provisions. This approach, which allows the reality of the relationships to supplement and vary the original rigid manifestation of assent, has long been celebrated for its realist, non-formalist spirit.
This Article takes a closer look at the effectiveness immanent law. It compares two effects that the flexibility-promoting doctrines generate. On the one hand, the power of immanent practices to erode the explicit contractual provisions creates more flexibility in commercial life. This is the ?flexibility effect' that the drafters of the Code intended. On the other hand, the potential erosion encourages rightholders to take greater anti-erosion measures. Facing the risk that a non-conforming practice might modify their rights, parties will exhibit greater rigidity in enforcing strict adherence to the express provisions. This is the less emphasized ?rigidity effect.' The article demonstrates that the flexibility effect and the rigidity effect of the erosion doctrines will normally balance out. If the law is flexible, parties will be rigid, and vice versa. Prima facie, the formalism of contract law?whether or not it is willing to peek beyond the manifestation of assent and to search for immanent norms?makes no difference in shaping the de facto value of rights and duties.
This "irrelevance" result challenges the validity of traditional as well as more recent conjectures regarding the effect of the Code's search for immanent business norms. The Article then turns to examine various subtle reasons that could lead to the breakdown of the irrelevance claim, i.e., that could explain the way in which past practice doctrines make a difference. This exploration demonstrates that factors like imperfect information or the structure of enforcement mechanisms might influence the value of contractual rights and generate a societal preference for one regime over another. It concludes that if the Code's past practices rules have any relevance, then the type of flexibility that they promote makes contracting parties worse off.
Date posted: March 21, 1999