Usage of Trade: Impact on Agreement
Although there may be many agreements between parties which do not include a “course of performance” [Blog #5] or “course of dealing” [Blog #6], there will rarely be an agreement which does not have a “usage of trade”.
A “usage of trade” is any practice or method of dealing having such regularity of observance in a place, vocation or trade as to justify an expectation that it will be observed with respect to the transaction in question…. Section 1-303(c)
There are thus three vehicles through which a “usage of trade” can be established:
- Place
- Vocation
- Trade
As to each of these elements, there must be “a method of dealing having such regularity of observance…as to justify an expectation that it will be observed with respect to the transaction in question”. With that level of regularity, a “usage of trade” can literally change what otherwise appears to be the plain language of a contract.
An excellent illustration of the foregoing is found in the Illinois case of Ragus Co. v. City of Chicago 628 N.E. 2d 999 (Ill. App. Ct. 1993). In Ragus, the City of Chicago was seeking bids for a certain brand of rodent traps. The announcement which the City put out called for: 150 cases of 5½” x 11”; 24 per case; 75 cases of 11” x 11”; 12/case. Ragus submitted a bid that was accepted.
Ragus’ delivery to the City contained 150 cases containing 24 traps per case, and 75 cases with 12 per case. The delivery was refused by the City because the tender by Ragus did not contain pairs of the rodent traps which was the expectation of the City; rather, the delivery contained individual traps.
Upon addressing the question of what the bid actually called for, the court found that the usage of trade required that the traps be delivered in pairs, and that therefore, the tender by Ragus was defective.
In reaching its decision, the court implied that an ambiguity of the contract made the inclusion of trade usage proper; however, no ambiguity is necessary to include usage of trade in the interpretation of the meaning of a contract. Under Section 2-202(a), usage of trade may be used to supplement or explain the meaning of terms used in a contract regardless of whether or not there is an ambiguity.
One of the many interesting things about transactions governed by the Code is the fact that each industry brings its unique set of rules and customs into play, and in so doing can have a dramatic impact on what the terms of the contract are in fact. I recommend reviewing trade journals or other similar sources when dealing with Uniform Commercial Code transactions. Where time does not justify such a review, a simple search on Google will yield enough information quickly to create a framework from which to proceed.
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