The Questionable Empirical Basis of Article 2's Incorporation Strategy: A Preliminary Study

University of Chicago Law School, John M. Olin Law and Economics Working Paper No. 74

92 Pages Posted: 4 May 1999

See all articles by Lisa Bernstein

Lisa Bernstein

University of Chicago - Law School; University of Oxford - Centre for Corporate Reputation

Date Written: May 1999

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.

Suggested Citation

Bernstein, Lisa E., The Questionable Empirical Basis of Article 2's Incorporation Strategy: A Preliminary Study (May 1999). University of Chicago Law School, John M. Olin Law and Economics Working Paper No. 74, Available at SSRN: https://ssrn.com/abstract=162976 or http://dx.doi.org/10.2139/ssrn.162976

Lisa E. Bernstein (Contact Author)

University of Chicago - Law School ( email )

1111 E. 60th St.
Chicago, IL 60637
United States

University of Oxford - Centre for Corporate Reputation

Park End Street
Oxford OX1 1HP
United Kingdom

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