Research Matters: Lisa Bernstein on "Merchant Law in a Modern Economy"

Research Matters is a biweekly feature in which a member of the faculty talks about some of his or her latest work and its impact and relevance to law and society.

Lisa Bernstein, Wilson-Dickinson Professor of Law, wrote “Merchant Law in a Modern Economy,” an essay, for a conference on the philosophical foundations of contract law at University College London in May. The piece will be a chapter in a book on that subject to be published by Oxford University Press in 2014. For now, the essay, which explores the shortcomings of Article 2 of the Uniform Commercial Code in a modern economy, can be found here.

Q. How did this research come to be?

A: This essay draws on empirical research I’ve been doing over the past two decades that attempts to explore the assumptions about merchant transactions that are at the heart of  Article 2 of the Uniform Commercial Code, which deals with sales. It suggests that three of the core assumptions on which sales law is built, namely that trade usages exist, that parties want them to be taken into account in interpreting their contracts, and that courts can find them with reasonable accuracy at a reasonable cost in the event of a dispute, have never been empirically documented to be true, and are not borne out by the best available – though by no means perfect – empirical evidence. American commercial law is built on a faulty foundation; the essay is an attempt to explore the consequences of these flaws for supporting exchange in our modern economy, in which large multi-agent firms deal with one another in the context of a highly outsourced economy.

Q. What are the implications of that?

A. We need to either reform Article 2 of the Uniform Commercial Code or replace part of it, namely, the part that deals with businesses. There’s recently been a series of articles written by myself, Robert Scott (Columbia Law School), and Alan Schwartz (Yale Law School) which argue that the interpretative approach embodied in the Uniform Commercial Code – which is very contextual, and looks to course of dealing, course of performance, usages of trade, and context to give meaning to an agreement – is not what large businesses want, it’s not what promotes efficient trade, it’s not what supports the creation greatest amount of contractual value. And we take the position that the approach to contract interpretation has to change as regards business entities. None of us take any position with regard to consumer transactions, but solely for large businesses, we think American commercial law is on the wrong track.

Q. How can your work lead to actual change?

A. If you have a law that’s based on the assumption that A, B, and C are true, and it turns out that A, B, and C are entirely false, that’s a pretty good reason to reexamine the law. This is a law that has not been changed significantly in a long time, but the group that promulgates this law, the American Law Institute, did go through a large and controversial revision process that ended a couple of years ago. Now the revised statute was not adopted, but the idea that revision is needed is out there. And my goal is to try to do the empirical work to help ensure that the same mistakes are not repeated by forcing reformers to draft a statute based on fact, not fiction. So from the perspective of lawmaking, I think this kind of research is important.