4.5 Custom and Trade Usage

• Library: Contract Law in Virginia (Virginia CLE) (2019 Ed.)

4.5 CUSTOM AND TRADE USAGE

4.501 Common Law. Common-law rules regarding custom and trade usage have produced conflicting precedents for Virginia courts. For example, the Virginia Supreme Court has stated that evidence of trade usage presents questions of fact for the jury's deliberation. ²⁶¹ Hence, the parties

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must prove the prevailing custom and trade usage as they would any other material fact in dispute. ²⁶²

However, the court has also ruled that written contracts necessarily incorporate customs and trade usages unless the parties expressly exclude these elements from the scope of their agreement. ²⁶³ The Virginia Supreme Court also held in the context of a corporation-shareholder dispute that the parties can freely "vary commercial rules by contract." ²⁶⁴

4.502 Knowledge. Despite this inconsistency, the decision in Westmoreland-LG&E Partners v. Virginia Electric & Power Co. ²⁶⁵ provides a reasonable rule for attorneys to follow when incorporating custom or trade usage into their clients' contracts. "[K]nowledge of the existence of the custom must be brought home to the [parties], unless the evidence shows that it is so uniform and notorious at the place where the parties to be affected by it reside, as to raise a prima facie presumption that they knew of it." ²⁶⁶

Thus, in Davis v. Holsten, ²⁶⁷ the court rejected a homeowner's attempt to incorporate the rule of "substantial performance" into a contract. Although the contract called for construction work, it was not a "construction contract," such that knowledge or custom in the industry could be imported into the contract, which was an escrow agreement that did not contain a substantial performance provision. ²⁶⁸

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4.503 Common Trade. If both contracting parties work in the same field, Virginia courts will presume that each had knowledge of all lawful and reasonable trade usages associated with that occupation. ²⁶⁹

4.504 Effect on Contract Terms. Trade usage cannot impact the judicial construction or interpretation of an agreement unless contractual terms or provisions have acquired some special meaning. ²⁷⁰ Should contractual terms and trade usage conflict, the intentions of the parties as expressed in the contract will prevail. ²⁷¹

4.505 Ambiguity. Virginia courts will admit testimony regarding custom and trade usage to explain any ambiguities contained in the contract. ²⁷² Despite some disagreement, they will also admit such evidence to explain otherwise unambiguous terms or provisions, but only if these words have acquired some special meaning in the field. ²⁷³

4.506 UCC Implications. The Virginia Supreme Court concluded that a common law breach of contract claim cannot proceed when the underlying

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agreement is governed by Virginia's Uniform...