How is "trade usage" or custom and usage" used in interpreting contracts?
16/11/16 18:24 Filed in: Litigation
Courts may admit evidence of "trade usage" or "custom or usage" to interpret a seemingly clear contract, but only where the terms of the contract are susceptible to some doubt or uncertainty. See Bristow v. Drake St. Inc., 41 F.3d 345, 352 (7th Cir. 1994) (applying Illinois law); Gray v. Mundelein Coll., 296 Ill. App. 3d 795, 695 N.E.2d 1379 (Ill. 1998). Such extrinsic evidence is usually admissible because it is given by disinterested third parties, objectively verifiable, and less subject to fabrication by the parties; in contrast, "subjective" evidence of ambiguity is inadmissible because it is invariably the self-serving testimony of one of the parties to the contract, making it inherently difficult to verify. See Bristow, 41 F.3d at 352; Home Ins. Co. v. Chicago & N.W. Transp. Co., 56 F.3d 763, 768 (7th Cir. 1995); Bank v. Truck Ins. Exch., 51 F.3d 736, 737 (7th Cir. 1995).
The Seventh Circuit has spoken clearly on the issue of "trade usage." Specifically, in Dahly Tool Co. v. Vermont Tap and Die Co., 742 F.2d 311, 314 (7th Cir. 1984), the Seventh Circuit held that "to be binding . . . a trade custom or usage must be so well known, uniform, long-established, and generally acquiesced in so as to induce the belief that the parties contracted with reference to it, nothing in their contract to the contrary." Similarly, Allen Saltzman Assocs., Inc. v. Aileen, Inc., 633 F. Supp. 1161, 1163 (N.D. Ill. 1986), held that the proponent of a trade usage claim "must have several witnesses . . . able to show that the usage was generally known in the trade, and overall have such weight of the evidence on his side 'to warrant a presumption that all contracts in the line of business to which the custom applies are made with reference to it.'" (quoting Gord Indus. Plastics v. Aubrey Manuf. Inc., 127 Ill. App. 3d 589, 469 N.E.2d 389, 392 (Ill. App. Ct. 1984). The court further added that, where the plaintiff fails to show that all, or virtually all, similar contracts in the trade are made with reference to the asserted custom, summary judgment is appropriate to the defendant. 633 F. Supp. at 1164. Accordingly, the court granted summary judgment despite plaintiff's argument that the trade usage was a question of fact.
If you are a party relying on trade usage to interpret a contract in your favor, keep in mind you must “show that all, or nearly all, contracts in his trade are made with reference [to the asserted custom].” Aileen, 633 F.Supp. at 1163. For an industry custom or usage to be binding, it must be "so uniform, long-established and generally acquiesced in and so well-known as to induce the belief that the parties contracted with reference to it, nothing appearing in their contract to the contrary, and the existence of such a custom or usage cannot be considered established when the proof consists of a few isolated instances." National Diamond Syndicate, Inc. v. United Parcel Serv., Inc., 897 F.2d 253, 260 (7th Cir. 1990) (applying Illinois law); Pickus Constr. & Equip. v. American Overhead Door, 326 Ill. App. 3d 518, 761 N.E.2d 356, 361-62 (Ill. App. Ct. 2001); Clark v. General Foods Corp., 81 Ill. App. 3d 74, 400 N.E.2d 1027, 1031 (Ill. App. Ct. 1980). Evidence of an industry custom thus should be presented by "several witnesses so as to establish the general knowledge and acceptance of the purported custom or usage within a particular industry." National Diamond Syndicate, 897 F.2d at 260.
The best practice is to hire an attorney who can clearly state your expectations in the language of the contract. Court have held that if a party desires at that time of making the contract a more specific description of the quality contracted for it could have insisted on the insertion of such specifications in the contract and have refused to enter into the same if such specifications were not inserted. Sterling-Midland Coal Co. v. Great Lakes Coal & Coke Co., 334 Ill. 281, 289 (Ill. 1929). While it is the general rule that in construing a contract it is proper for the court to take into consideration the surrounding circumstances, this does not give to either party the right to establish by oral evidence a different contract from that expressed in the written agreement. All conversations and parol agreements between the parties prior to the making of their written agreement are merged in the writing and cannot be proved for the purpose of changing the contract or showing an intention different from that expressed. If a written contract purports on its face to be a complete expression of the whole agreement it is to be presumed that the parties introduced into it every material item and term, and parol evidence is not admissible to add another term to the agreement about which the contract is silent. Sterling-Midland Coal Co. v. Great Lakes Coal & Coke Co., 334 Ill. 281, 290 (Ill. 1929)