6 - In Defense of the Incorporation Strategy

Summary

Introduction

Contract law must provide rules for interpreting the meaning of express terms and default rules for filling contractual gaps. Article 2 of the Uniform Commercial Code provides the same response to both demands: It incorporates the norms of commercial practice. This “incorporation strategy” has recently come under attack. Although some question the incorporation strategy for gapfilling, recent scholarship criticizes the incorporation strategy for interpretation as well. Critics charge that the expected rate of interpretive error under an incorporationist interpretive regime is so excessive that almost any plain-meaning regime would be preferable.

The attack on the incorporation strategy for interpretation is fundamentally flawed. The best interpretive regime is one that, all else equal, minimizes the sum of interpretive error costs and the costs of specifying contract terms. Critics of the incorporation strategy have focused exclusively on the former and completely ignored the latter. Yet the chief virtue of the incorporation strategy for interpretation is its promise to yield specification costs well below that of plain-meaning regimes. Even if plain-meaning regimes have lower interpretive error costs, the incorporation strategy is superior if its lower specification costs outweigh its higher interpretive error costs. Moreover, most critics treat their objections to Article 2 as objections to the incorporation strategy generally. But Article 2 is just one possible institutional variant of the incorporation strategy. All of the sources of interpretive error critics identify can be substantially reduced, if not avoided, by making feasible alterations to Article 2 that nonetheless preserve its incorporationist character.