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Trade Usage

terms agreement commercial parties

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.

CROSS-REFERENCES

Sales Law.

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