Trade Usage

Trade Usage

Any system, custom, or practice of doing business used so commonly in a vocation, field, or place that an expectation arises that it will be observed in a particular transaction.

The concept of trade usage recognizes that words and practices take on specialized meanings in different areas of business. Though these common understandings may not be set out explicitly in a written sales or service agreement, the courts will generally employ them when construing a commercial contract. In the United States, the Uniform Commercial Code (UCC), which has been adopted in some form in all fifty states, permits trade usage to be used in the interpretation of sales agreements.

Trade usage supplements, qualifies, and imparts particular meanings to the terms of an agreement for the purpose of the agreement's interpretation. Contractual language cannot be interpreted out of the context of the agreement of the parties.

The enforcement of contractual promises protects the justified expectations of the promisee, the person to whom the promises were made. Trade usage emphasizes such expectations. If a particular trade follows a practice so regularly that the promisee is justified in expecting that the promisor considered that practice when making the promise, the practice becomes a part of the agreement between the parties. Sometimes usage becomes so common in an industry that written trade codes are compiled to provide specific language on contract interpretation.

Section 1-2.05 of the UCC adopts the principle of trade usage. In a contractual dispute, the party who asserts a trade usage must prove the "existence and scope of such usage." If the trade usage is proved, a court may use it to "supplement or qualify terms of an agreement." The express terms of an agreement and trade usage must be construed "wherever reasonable as consistent with each other." If the construction is unreasonable, however, the court will ignore trade usage and apply the express terms of the agreement.

In the absence of evidence to the contrary, courts assume that when persons in business employ trade terms, they intend the terms to have their commercial significance. To counter this assumption, the parties must expressly state within the contract their intention to render the terms devoid of their trade significance and reduce them to their ordinary meaning. The failure to do so indicates the parties' intention to use the trade terms according to their commercial meaning.

The contract language does not have to be ambiguous before a court may consider trade usage. To protect against unfair surprise, however, evidence of trade usage is inadmissible unless sufficient notice has been provided to the other party.


Sales Law.

West's Encyclopedia of American Law, edition 2. Copyright 2008 The Gale Group, Inc. All rights reserved.
References in classic literature ?
When the mason attempted to return to his ordinary work he was informed that he had contravened trade usage, and that his former employers would have nothing more to say to him.
The AppsArabia research showed that 62 per cent of users in the Mena region find location-based advertising appealing, while 58 per cent are willing to trade usage data for free apps.
Referral or application of URDG as trade usage by some courts, even though the disputed guarantees were not even issued subject to URDG, lent credence and credibility to the rules and gained further acceptance for them by banks, principals and beneficiaries.
drafters gave new significance to the concepts of trade usage and course of dealing relative to contract interpretation--so much so that these concepts made their way into the Code's very definition of "agreement." (30)
(64) However, because "the intent of the parties governs," (65) federal courts may supplement fragmentary written evidence with extrinsic evidence of consent, such as evidence of course of performance, prior course of dealing, and trade usage. (66) For example, federal courts have enforced FSAs that were never finalized in writing, (67) that were never signed, (68) that were located on the back of order confirmations (69) and standardized order forms, (70) that were contained in small-print boilerplate on the back of an employment contract, (71) and that were included in purely oral contracts.
The Commercial Code allows a trade usage to explain or interpret a sales contract even though the written terms of the contract are not ambiguous or unclear.(1)
Most importantly, course of dealing, trade usage, and course of performance play important roles within Article 2.
The study pays especially close attention to the willingness of NGFA's industry-expert adjudicators to take trade usage,(12) course of dealing, and course of performance into account in deciding cases.
Examining international arbitration rules and awards reveals an approach to trade usage more like the approach taken by the drafters of the UCC and the CISG than the formalistic approach of the NGFA arbitrators.
These are international trade usages, commercial treaties, model contracts, model laws, regional trade laws and out-of-court dispute settlements.
Generally, the modern lex mercatoria is defined as "a transnational legal order founded on the trade usages of the international business community" (Schmitthoff 1987, p.