Should the law ignore commercial norms? A comment on the Bernstein conjecture and its relevance for contract law theory and reform

Professor Bernstein's study(1) of the interaction between private law and n orms in the cotton industry is the latest installment in her ongoing invest igation into the relationship between law and norms in trades ranging from the diamond market to grain and feed markets. Her incredibly detailed and t horough exploration of private lawmaking and commercial norms - and their i nteraction - stands as one of the most significant contributions to contrac t and commercial law scholarship made in the last half-century. The cotton industry study upon which I focus in this Comment not only reports fascinat ing findings about dispute resolution practices, but also presents a number of intriguing and complementary theoretical insights into those practices. Bernstein's empirical findings call into question some of the fundamental results in the economic analysis of contract law, such as the theory that e xpectation damages induce efficient breach of contract. Her central inducti on from her discoveries about cotton industry practices is that the best wa y for the law to encourage the development of extralegal norms of commercia l reasonableness and the enforcement of those norms via commercial reputati on may be, paradoxically, to make those norms irrelevant in formal dispute resolution. This hypothesis - which I dub the "Bernstein Conjecture" - sugg ests that the underlying methodological supposition in Article 2 of the Uni form Commercial Code - that the law should mirror or reflect actual commerc ial norms - may in fact be destructive of the very norms it seeks to incorp orate. This is no small implication. For this reason, after beginning with a few methodological quibbles, the bulk of this Comment focuses on the Bern stein Conjecture. I first develop an informal but quite general analysis of the role of the law in deterring commercial opportunism, and I then focus more precisely on identifying the social and market context in which the Be rnstein Conjecture is likely to hold.