The Creation and Interpretation of Commercial Law

Clayton P. Gillette

• Publisher: Routledge
• Year: 2022
• Edition: 1
• eBook ISBN:
  9781351759625
• Topic: Social Sciences
• Subtopic: Sociology
• Index: Social Sciences

This title was first published in 2003. This volume contains essays by prominent commentators on topics in commercial law. It addresses the increasing harmonization of international commercial law and the essays demonstrate different methodologies used in analysing commercial law, such as economic and jurisprudential approaches.

Part I Privately Created Commercial 'Law'

DOI: 10.4324/9781315193939-1

[1] MERCHANT LAW IN A MERCHANT COURT: RETHINKING THE CODE'S SEARCH FOR IMMANENT BUSINESS NORMS

DOI: 10.4324/9781315193939-2

LISA BERNSTEIN†

Table of Contents

INTRODUCTION

I. MERCHANT LAW AND COMMERCIAL LAW

A. The NGFA System

1. Usage of Trade

2. Course of Performance and Course of Dealing

B. The Code's Adjudicative Approach

C. Conclusion

II. THE THEORY OF LEGALLY UNENFORCEABLE AGREEMENTS

III. TRADE USAGE, COURSE OF PERFORMANCE, AND COURSE OF DEALING

A. Usage of Trade

1. Caveat

B. Course of Dealing and Course of Performance

1. Flexibility

2. Renegotiation

3. Cooperation

4. Caveat

5. Other Distortions

C. Expansion of Commercial Practices

IV. THE IMPORTANCE OF TRANSACTIONAL AND INSTITUTIONAL CONTEXT

A. Transactional Context

B. Institutional Context

CONCLUSION

† Professor of Law, Georgetown University Law Center. Special thanks are due to David Barrett and the members of the National Grain and Feed Association who talked to me about both the Association and the industry. Thanks are also due to Avery Katz, Steven Shavell, Louis Kaplow, Amy Howe, Marcel Kahan, Tamar Frankel, Stewart Macaulay, Richard Pildes, Eric Posner, Edward Bernstein, Richard Epstein, Bill Vukovich, Warren Schwartz, Jason Johnston, Paul Dubinsky, Mitchell Berman, Curtis Reitz, Deborah Healy, Maureen O’Rourke, Andrea Adelman, Richard Speidel, Gary Zeiss, William Mulherin, David Charny, David Dana, Daniel Klerman, and participants at the Georgetown University Law and Economics Workshop, the New York University Faculty Workshop, the Stanford Law and Economics Workshop, the University of California at Berkeley Law and Economics Workshop, the Harvard Law and Economics Workshop, the Yale Law, Economics Sc Organization Workshop, the Harvard Faculty Workshop, the Northwestern University Faculty Workshop, the American Bar Foundation Workshop, the 1996 American Law and Economics Association Annual Meeting’s Panel on Contracts, and the University of Pennsylvania Law Review Symposium on Law, Economics, 8c Norms. This research is part of a larger project on private commercial law supported by a grant from the National Science Foundation, SBR-9422795.

Introduction

This Article draws on a case study of merchant law in a merchant court to reexamine, and, ultimately, to challenge, the fundamental premise of the Uniform Commercial Code’s adjudicative philosophy, the idea that courts should seek to discover “immanent business norms” and use them to decide cases.¹ This philosophy finds expression in specific Code sections² and Official Comments,³ judicial opinions,⁴ academic commentary,⁵ and the writings of the Code’s principal drafter, Karl Llewellyn.⁶ Most importantly, it is the basis of the Code’s definition of agreement, which includes “the bargain of the parties in fact as found in their language or by implication from other circumstances including course of dealing or usage of trade or course of performance."⁷ The Article 2 Editorial Board recendy reaffirmed that “reducing the gap between law and practice ... in the relevant business community”⁸ remains a primary objective of the Code. It is currently considering amendments that would broaden the reach of the Code’s course of dealing, course of performance, and usage of trade provisions.⁹

¹ Although for simplicity of exposition this Article refers to the Uniform Commercial Code (“the Code"), its focus is exclusively on Article 2 as supplemented by the pertinent general and definitional sections of Article 1.

² See, e.g., U.C.C. § l-102(2)(b) (1991) (“Underlying purposes and policies of this Act are ... to permit the continued expansion of commercial practices through custom, usage and agreement of the parties . . . .”); id. § 1-103 (“Unless displaced by the particular provisions of this Act, the principles of law and equity, including the law merchant . . . shall supplement its provisions.”); id. § 2-314(2)(a) (“Goods to be merchantable must. . . pass without objection in the trade under the contract description ....”); id. § 2-314(3) (“[I]mplied warranties may arise from course of dealing or usage of trade.”); id. § 2-504(b) (requiring a seller to provide those shipping documents required by usage of trade); id. § 2-609(2) (“Between merchants the reasonableness of grounds for insecurity and the adequacy of any assurance offered shall be determined according to commercial standards.").

³ See, e.g., id. § 1-102 cmt. 1 (“This Act is drawn . . . [to] provide its own machinery for expansion of commercial practices.”); id. § 1-205 cmt. 1 (“[T]he meaning of the agreement of the parties is to be determined by the language used by them and by their action, read and interpreted in the light of commercial practices and other surrounding circumstances. The measure and background for interpretation are set by the commercial context, which may explain and supplement even the language of a formal or final writing."); id. § 2-202 cmt. 1(b) (explaining that language is to be given the “meaning which arises out of the commercial context in which it was used”); id. § 2-202 cmt. 2 (“[W]ritings are to be read on the assumption that the course of prior dealings between the parties and the usages of trade were taken for granted when the document was phrased.”); id. § 2-603 cmt. 1 (recognizing “the duty imposed upon the merchant buyer by good faith and commercial practice to follow any reasonable instructions of the seller as to reshipping, storing, delivery to a third party, reselling, or the like”).

Documents that are arguably part of the Code’s legislative history also discuss this idea. See, e.g., Walter D. Malcolm, The Proposed Commercial Code, 6 BUS. LAW. 113, 126 (1951) (“[T]he practices of businessmen and business houses are important factors in construing their contracts and actions and in determining their rights and liabilities .... [M]any of the changes effected by the Code are designed to adapt rules of law to the way that business is actually carried on." (quoting the Report of the Committee on the Proposed Commercial Code)).

⁴ See infra cases cited notes 66, 68, 74.

^s See, e.g., Alan Schwartz & Robert E. Scott, Commercial Transactions: PRINCIPLES and Policies 8-9 (2d ed. 1991) (“Article II of the Code can profitably be viewed as adapting the philosophy of ‘immanent law’ to a specific context. . . . [It] frequently speaks as though courts should discover the law merchant from a careful, disinterested examination of custom and fact situations.”); Richard Danzig, A Comment on the Jurisprudence of the Uniform Commercial Code, 27 STAN. L. REV. 621, 624, 635 (1975) (suggesting that to Llewellyn, “an ‘immanent law’ lay embedded in any situation and the task of the law authority was to discover it ... . [T]he animating theory of Article II is that the law is immanent. The law job is to search it out.... [It] is a document whose thrust is ... to coerce courts into looking for law in life.”); James Whitman, Note, Commercial Law and the American Volk: A Note on Llewellyn's Germanic Sources for the Uniform Commercial Code, 97 Yale L.J. 156, 159-66 (1987) (discussing the Germanic origin of Llewellyn's dedication to the search for “immanent business norms"). In addition, many scholars have suggested that the Code does not give enough weight to “immanent business norms.” See, e.g.. Jay M. Feinman, The Significance of Contract Theory, 58 U. ClN. L. REV. 1283, 1304 (1990) (“Relational contract theory suggests that solving the problem [of contract interpretation] begins with the definition of norms which are immanent in the context."); Ian R. Macneil, Contracts: Adjustments of Long-Term Economic Relations Under Classical, Neoclassical, and Relational Contract Law, 72 Nw. U. L. REV. 854, 898 (1978) (suggesting that the neoclassical approach to contract law be replaced by relational contract law in which “recognition is easily accorded to the creation of such [contractual] interests arising naturally from any behavior patterns within the relation”); Richard E. Speidel, Article 2 and Relational Sales Contracts, 26 LOY. L.A. L. REV. 789, 804-05 (1993) (suggesting that the Code’s definition of agreement “should be revised to clearly incorporate into the contract internal norms generated by the relationship”); RussellJ. Weintraub, A Survey of Contract Practice and Policy, 1992 WlS. L. REV. 1, 21 (“An important lesson that can be learned from relational contracts is the methods of accommodation parties of approximately equal bargaining power use when disputes arise. These methods should be reflected in legal rules to reinforce decent practice."). One scholar has argued that relational norms should be given additional weight in the franchise context. See Gillian K. Hadfield, Problematic Relations: Franchising and the Law of Incomplete Contracts, 42 STAN. L. Rev. 927, 991-92 (1990) (“The necessary incompleteness of the franchise contract prompts an examination of the norms and practices—the relational structure of franchising—to identify the complete content of the franchisor and franchisee’s exchange.”). Other scholars have suggested that these norms should be used to develop commercial law in formerly socialist countries, or to improve commercial law in common law countries. See Robert D. Cooter, Structural Adjudication and the New Law Merchant: A Model of Decentralized Law, 14 Int’L Rev. L. & ECON. 215,226 (1994) (“The role of the state in a decentralized legal system is to elevate appropriate social norms to the level of law[,] . . . lawmakers should identify the actual norms that have arisen in business communities^] . . . identify the incentive structures that produced the normsf,] . . . [and enforce t]hose business norms that arise from an efficient incentive struc...

Table of contents

• Cover
• Series
• Title
• Copyright
• Table of Contents
• Acknowledgements
• Series Preface
• Introduction
• PART I PRIVATELY CREATED COMMERCIAL ‘LAW’
• PART II SALE OF GOODS
• PART III NEGOTIABLE INSTRUMENTS
• PART IV SECURED TRANSACTIONS
• PART V INTERNATIONAL COMMERCIAL LAW
• Name Index