Custom in the Courts

This Article presents an empirical study of the trade usage cases decided under the Uniform Commercial Code from 1970 to 2007. It then draws on the study's findings to revisit the debate over the desirability of the trade usage component 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, as compared to a more formalistic adjudicative approach, it will reduce specification costs without unduly increasing interpretive error costs, the study reveals that the empirical assumptions on which this defense is based are highly questionable. More specifically, it shows that usages are not typically demonstrated through the introduction of the types of “objective evidence” that the strategy's defenders suggest will reduce the risk of interpretive error — such as expert witness testimony, industry trade codes, or statistical evidence that a particular practice is widely observed. Rather, usages are most commonly established solely through the testimony of the parties or their employees. Expert testimony is introduced in at most 31.5% of the cases, the introduction of trade codes is rare, and there were no cases in the study in which the regularity with which a practice was observed was demonstrated through statistical evidence rather than the mere assertion of a witness.After presenting the study's findings, the Article reexamines the core justifications for the strategy in light of them. It concludes that because the strategy is likely to increase both specification costs and interpretive error costs, and has particularly negative effects on contracts between large multi-agent firms as well as on the types of outsourcing contracts and contracts for innovation that are increasingly important parts of the modern economy, it should be abandoned in favor of a more formalist approach to contract interpretation, at least in contracts between businesses