Trade Usage Law and Legal Definition

Trade usage is a term used in contract law to interpret ambiguous terms according to common business practices the parties should reasonably be able to rely upon. The Uniform Commercial Code (UCC), adopted in some form by nearly all states, provides for the interpretation of contracts for the sale of goods in light of the general practices of the business sector and of the previous practices between the parties to the contract. Such provisions relating to course of performance, course of dealing and usage of trade are intended to permit the law to adapt to commercial realities. To be binding upon a party, a trade usage must be sufficiently general so that the parties could be said to have contracted with reference to it.

The UCC defines usages of trade as "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." The UCC also contains an additional clause that regularity of observance justifies a party's reliance on a usage of trade, that functions as a safeguard to ensure that questionable or dishonest trade practices are not considered trade or industry standards.

For example, Mr. C., landlord, contracts with ABC painters, based upon a bid they submitted to paint a 100 unit apartment complex. A dispute arises as to whether ABC has agreed to paint the common areas or just the apartment interiors. Because the contract is unclear and doesn't specifically refer to common areas, a court may look to trade usage to determine whether it is standard practice in the painting business to include common areas in such bids. If the court determines that painters typically include common areas when quoting prices for apartment complex painting, they will hold ABC liable for painting the common areas because it was reasonable for Mr. C. to rely on this trade usage and expect the common areas to be included in the price.