Trade Usage in the Courts: The Flawed Conceptual and Evidentiary Basis of Article 2’s Incorporation Strategy

Lisa Bernstein

This paper draws on an empirical study of every trade usage case decided under the Uniform Commercial Code from 1970 to 2007 to revisit the debate over the desirability of the incorporation strategy, the interpretive approach that directs courts to look to course of dealing, course of performance and usage of trade to interpret contracts and fill contractual gaps. Although the strategy is generally defended on the grounds that it will reduce specification costs without unduly increasing interpretive error costs, the data presented in the paper show that the assumptions on which this defense is based are empirically false. The paper then draws on the data about the way incorporation really works in practice to explore the reasons that the conceptual basis of the arguments for incorporating trade usage are also deeply flawed, particularly when applied to contracts between large multi-agent firms in the modern outsourced economy.