The Tentative Case Against Flexibility in Commercial Law

Abstract

Well-rooted in modern commercial law is the idea that the law should reflect the performance practices formed among the parties throughout their interaction. The reality of the relationship can supplement and vary the original rigid obligations. The generous recognition of waiver and modifications as well as the binding force of course of performance are the highlights of this approach. This Article examines the effectiveness of this approach. 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 will normally balance out. Immanent practices doctrines appear to be irrelevant. Whether or not contract law is willing to peek beyond the express terms and to search for immanent norms makes no difference in determining contractual performance. The Article then turns to examine various subtle reasons that could lead to the breakdown of this 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.