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Excerpt from John O. Honnold, Uniform Law for International Sales under the 1980 United Nations Convention, 3rd ed. (1999), pages 124-131. Reproduced with permission of the publisher, Kluwer Law International, The Hague.

Article 9

Usages and Practices Applicable to Contract

A. The Role of Usages and Practices
B. Usages and Practices under the 1980 Convention
      (1) Usages to which the Parties Have Agreed
            (a) Standards of Agreement
            (b) Agreement on Trade Terms
      (2) Practices Established between Two Parties
      (3) Binding Trade Usages: Article 9(2)
            (a) Inapplicable Concept of Usage
            (b) Trade Term Definitions and Usage Standards
            (c) Trade Usage under the Convention
            (d) Usage of Trade in Domestic Law
            (e) Standard for Usage: Time and Place
      (4) Practices and Usages: Relationship to Contract Provisions
      (5) Practice and Usage and the Convention

§ 112 A. The Role of Usages and Practices

The world’s commerce embraces an almost infinite variety of goods and transactions; a law cannot embody the special patterns that now are current let alone those that will develop in the future.

Many of these patterns may be reflected in the contract but there are practical limitations on the ability of the parties to envisage and answer every possible question. Many transactions must be handled quickly and informally. Even when there is time to prepare detailed documents, an attempt to anticipate and solve all conceivable problems may generate disagreements and prevent the making of a contract; moreover, the most basic patterns may not be mentioned because, for experienced parties, they "go without saying." (In the course of collaborating with an exporter in writing out the understandings that underlay a standard export transactions we both were amazed at the number and scope of basic assumptions that were not mentioned in the detailed documents.)

For these reasons, one of the most important features of the Convention is the legal effect it gives to commercial usages and practices.[1]

§ 113 B. Usages and Practices under the 1980 Convention

Article 9 [2]

"(1) The parties are bound by any usage to which they have agreed and by any practices which they have established between themselves.

"(2) The parties are considered, unless otherwise agreed, to have impliedly made applicable to their contract or its formation a usage of [page 124] which the parties knew or ought to have known and which in international trade is widely known to, and regularly observed by, parties to contracts of the type involved in the particular trade concerned."

Article 9 deals with three situations: (1) Usages to which the parties have agreed (Article 9(1)); (2) Practices that the two parties have established between themselves (Art. 9(1)); and (3) Usages that become part of the contract based on the criteria stated in Article 9(2).

§ 114 (1) Usages to which the Parties have Agreed

(a) Standards of Agreement

ULIS (Art. 9(1)) provided that the parties "shall be bound by any usage they have expressly or impliedly made applicable to their contract." Article 9(1) of the Convention omitted the phrase "expressly or impliedly," and thereby avoided any inference that abnormal rules are applicable to the construction of the contract. A provision in the contract that trade terms (F.O.B., C.I.F., and the like) are governed by ICC’s "Incoterms" would be a clear and common illustration of an agreement expressly making a specified usage applicable to the contract. References that are less explicit might well invoke usages if the court concludes that such was the intent of the parties, in accordance with the Convention’s rules of interpretation in Article 8, supra at §109.[3]

(b) Agreement on Trade Terms

When a contract uses a technical term drawn from chemistry tribunals scarcely need statutory authorization to consult standard works that give the generally understood meaning of the term. The same approach is appropriate for the technical terms of commerce. The basic definition of a trade term in a standard work like Incoterms is a better guide to international understanding than language in a domestic judicial opinion. Giving weight to the basic provisions of widely-accepted commercial definitions could be supported simply as an intelligent approach to interpretation of the contract without invoking the rules on "usage" in Article 9.

However, some "definitions" of trade terms include details regarding the performance of the parties that may not be "widely known to, and [page 125] regularly observed by, parties to contracts of the type involved in the particular trade concerned." Art. 9(2). These details become binding under Art. 9(1) by express incorporation (e.g. "sale C.I.F. Buyersport, INCOTERMS 1990") or in trades where the parties regularly use and rely on this set of trade definitions (Art. 9(2)). On the other hand, proposals to give effect to trade definitions that did not meet the above standard set forth in Article 9(2) were rejected. See §118, infra.

§ 116 (2) Practices Established between Two Parties

Expectations that have the force of contract can be established by patterns of conduct established by the seller and the buyer. Under Article 9(1) the parties are bound by the "practices which they have established between themselves."

"Practices" are established by a course of conduct that creates an expectation that this conduct will be continued. Article 8(2) (§104 supra) provides that the "conduct of a party" (Party A) is to be "interpreted according to the understanding that a reasonable person of the same kind as the other party (Party B) would have had in the same circumstances." Under Article 9(1) a course of conduct by A in past transactions may create an expectation by B that will bind A in a future contract. Of course A will not be bound if he notifies B of a change before B enters into a new contract; further reliance by B may also become unreasonable when circumstances change. In short, the reference in Article 9(1) to practices established by the parties is one example of many situations in which binding expectations may be based on conduct. See Articles 19(2), 21(2), 35(2)(b), 47(2), 73(2).

(1) FR. CA Grenoble, 48992, 13 September 1995, R. Caiato v. S.F.F. Practices of parties created an obligation by S to follow labelling in B’s country. CLOUT 152, UNILEX D. 1995-24.  (2) ARB. ICC (Paris) 8611/HV/HK, 23 January 1997. Although CISG did not apply to contract of distributorship, after cancellation by S, usage of parties (Art. 9(1)) bound S to continue to supply spare parts. UNILEX D. 1997-3.  (3) AUSTRIA, CA Graz, 6 R 194/95, 9 November 1995. Seller (Italian) customarily sold Italian marble in Austria. S, in sale to B in Austria, was obliged to consider usage in B’s country. CLOUT 175.

§ 117 (3) Binding Trade Usages: Article 9(2)

(a) Inapplicable Concept of Usage

"Usage" and similar legal ideas have been used in settings that are fundamentally different from the [page 126] trade usages to which Article 9 refers. "Custom" or "customary law" has sometimes been invoked as a source of law without regard to the intent of the parties. In those settings, "custom" is strictly confined; to bind "a plurality of persons" the custom must be "long established," or even "ancient."[4]

Even more remote from our current problem is "custom" as a source of public international law that binds States. Governments have sometimes viewed such "custom" as inconsistent with their sovereignty and with principles on which their regimes were based. Echoes of these fears were heard in UNCITRAL in early discussions of trade usage but it became evident that construing sales contracts in the light of the expectations current in international trade does not impair the sovereignty of States.

§ 118 (b) Trade Term Definitions and Usage Standards

As has been mentioned (§115, supra), definitions of trade terms (e.g., INCOTERMS) may be (and often are) made binding by express agreement (Art. 9(1)). One of the issues that was discussed repeatedly in framing Article 9 was the applicability of such definitions as international trade usage. ULIS (1964) had provisions on practices and usage similar to CISG 9 but added the following (ULIS 9(3), ULF 13(2)):

"Where expressions, provisions or forms of contract commonly used in commercial practice are employed, they shall be interpreted according to the meaning usually give to them in the trade concerned."

Proposals were made in UNCITRAL and at the Diplomatic Conference to include a similar provision; these proposals were resisted on the ground that phrases like "meaning usually given" might subject parties in some areas to practices with which they were not familiar. Article 9(2) had responded to these concerns since usages bound only those "which the parties knew or ought to have known " in addition to the requirement that the usage be "widely known to, and regularly observed by, parties to contracts of the type involved in the particular trade concerned. " These cumulative requirements did not appear in the proposals for a third paragraph, based on ULIS 9(3), designed to give special effect to trade terms and contract forms. Opposition to these proposals included concern for the problems of parties in developing countries; details embodied in definitions of trade terms and in forms of contract accepted and appropriate in developed, industrialized regions might not be known or appropriate [page 127] in other parts of the world.[5]

In sum, definitions of trade terms can bind the parties even though they have not been incorporated into the agreement under Article 9(1), but only when their regularity of observance meets the standards of Article 9(2). World-wide legal effect from some details in definitions of trade terms and forms of contract must await the wider homogenization of international practice than has yet been achieved.

§ 119 (c) Trade Usage Under the Convention

As we have seen, Article 9(2) applies only to a trade usage "of which the parties knew or ought to have known" and which "in international trade is widely known to, and regularly observed by, parties to contracts of the type involved in the particular trade concerned." This language invokes a pattern of conduct only if it is so "widely known" and "regularly observed" that it can be assumed to be a part of the expectations of the parties.

§ 120 (d) Usage of Trade in Domestic Law

Similar principles of contract interpretation have been widely accepted in domestic law.[6] The approach of modern case law has been articulated in the (U.S.A.) Uniform Commercial Code (§1–205(2)), which defines "usage 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." Such usages (like established practices, supra at §116) "give particular meaning to and supplement or qualify" terms of the agreement. Tribunals construe general provisions of the contract in the light of applicable usage since words commonly used in commerce ("draft," "order," "bill," "average") carry a [page 128] heavy and complex burden of meaning based on the practices with which these words have been associated.[7] A contract provision (like a fish out of water) loses its life when it is removed from its setting.

§ 120.1 (e) Standards for Usage: Time and Place

As we have seen, the Convention gives effect to a usage only if, on an objective basis, it constitutes a part of the contractual expectations of the parties. This premise sheds light on several important questions.

We have discussed the inapplicability of the view that custom, invoked as regulatory law, must be "ancient" or of "long standing." Under Article 9(2), the usage must have been "regularly observed" for a period of time that would justify the conclusion that the parties "knew or ought to have known" of it.

Must the usage be "international"? This question can lead to confusion but the Convention clarifies the issue. Under Article 9(2) the usage must be one which "in international trade is widely known to, and regularly observed by, parties to "such transactions. A usage that is of local origin (the local practices for packing copra or jute, or the delivery dates imposed by arctic climate) may be applicable if it is "widely known to, and regularly observed by" parties to international transactions involving these situations.[8]

Requirement of Internationality (1) GER. OLG Frankfurt a M., 9 U 81/94, 05 July 1995; German usage (France contra) held that a letter of confirmation was binding if the recipient did not object. This usage could not be given effect since the usage was not international. UNILEX D. 1995-17.4. (2) Cf. AUSTRIA, OGH (Sup.Ct.), 10 Ob 518/95, 6 February 1996; usage in natural gas trade to quote approximate amounts—enforced. (3) AUSTRIA, OLG Graz, 6 R 194/95, 9 November 1995 (national or local usage applicable), CLOUT 175; UNILEX D. 1995-28.1.3. See: Schlechtriem, Com. (1998) 78–79.

Trade Usage Applied. NETH. GH Hertogenbosch, 456/95, 24 April 1996; standard terms of Assn of Yarn Traders binding although not included in contract; both the seller (German) and the buyer (Netherlands) were familiar with the above Association practices. UNILEX D. 1996-5.2.

See, supplementing early articles in footnotes: Audit, B., in Carbonneau, T., ed., Lex Mercatoria and Arbitration (T.J. 1990) at 139–160; [page 129]Bainbridge, S., 24 Va J. Int. L. 619–663 (1985). On standard forms and trade terms, see: Drobnig, U., Hague-Zagreb Essays (1983) 117–134 (German, Dutch & CISG); Farnsworth, E.A., 21 Cornell Int. L. J. 439–447 (1988).

§ 121 (4) Practices and Usages: Relationship to Contract Provisions

As we have seen, Article 9 gives effect to the fact that the parties’ established practices and usages of the trade constitute an important part of the parties’ expectations. The parties by contract can negate these expectations. See Art. 6 at §74, supra. However, when the parties do not clearly address and negate implicit expectations based on practices and trade usages the relationship between these implicit expectations and the terms of the contract present delicate problems of interpretation.

Answers to this question must be consistent with the rule of Article 8(3) that in interpreting statements of the parties (including contract provisions) due consideration is to be given to "all relevant circumstances of the case including...any practices which the parties have established between themselves, usages and any subsequent conduct of the parties". This provision reflects the fact that established practices and usages often create expectations that are so basic that they "go without saying" in making a contract—as is true of a buyer’s expectation that the goods will be free of unusual defects (Art. 35(2)(a)) and that he will own the goods (Art. 41). One may not readily conclude that contract provisions were understood to negate such basic expectations.[9]

Relation between Usage and Contract: GER. OLG Saarbrücken, 1 U 69/92, 13 January 1993; contract provision, specifying limited period for notification, prevailed over usage. UNILEX D. 1993-2.1.

§ 122 (5) Practice and Usage and the Convention

Suppose that a usage specifies a time or place for delivery or a time for the transfer of risk that differs from the rules of Articles 31, 33 or 67.[page 130] Which is applicable? Under Article 6 (supra at §74), "The parties may...derogate from or vary the effect" of the provisions of the Convention. An applicable practice or usage has the same effect as a contract. Under Article 9(1) practices established by the parties become part of the contract and under Article 9(2) the parties "are considered, unless otherwise agreed, to have impliedly made applicable to their contract " those usages that meet the specified criteria. There is one limitation: A practice or usage is invalid if a contract term to the same effect would be invalid under applicable domestic law. Article 4 states that the Convention "is not concerned with: (a) the validity of the contract or of any of its provisions or of any usage." (See the Commentary to Art. 4, supra at §61.) This provision, of course, does not give effect to domestic rules on the circumstances that make a usage applicable; this question is governed by Article 9 of the Convention.

Occasionally domestic legislation or case-law jurisprudence declares that a commercial usage is so firmly established that it has the force of law and is binding on the parties without proof that the usage meets the standards of Article 9(2). If such a rule is inconsistent with a provision of the Convention does it, like customs established in accordance with Article 9(2), prevail over the Convention?[10] The answer must be No. CISG 9(2) governs the circumstances in which a usage may be part of the contract and thereby prevail over provisions of the Convention; the crucial point is that factual compliance with these international standards must be established for each case. Many of the rules of domestic law may be thought to be supported by commercial usage;[11] giving effect to domestic law on this ground would be inconsistent with the standards established by Article 9(2) and would undermine the Convention’s central goal to establish uniform law for international trade. See, generally, Schlechtriem, Com. (1998) 75–80 (Junge).[page 131]

FOOTNOTES: Chapter on Article 9

1. Goldstajn, Usages of Trade, Dubrovnik Lectures 55; Id., Commercial Usages as the Source of the Law of International Trade, in Mélanges Fragistas (Thessaloniki 1967) 391, 400–402 (1967); Jokela, The Role of Usages in the Uniform Law on International Sales, 10 Scan. Studies 81; Farnsworth, Usage and Course of Dealing, Sauveplanne Festschrift 81; Thieffry in Ottawa Colloque 93–104 (in French; usages and arbitration); David Hume and tacit understandings or "conventions" see Atiyah, Freedom of Contract 56.

2. Art. 9 is the same as Art. 8 of the 1978 Draft Convention, except that at the diplomatic conference, for the sake of clarity, the phrase "or its formation" was added to paragraph (2): O.R. 265, Docy. Hist. 486. Cf. ULIS Art. 9, ULF Arts. 4(2), 5(3), 6(2), 8(1), 11, 13.

3. Bonell, The Relevance of Courses of Dealing, Usages and Customs in the Interpretation of International Commercial Contracts, New Directions 109 (decisions applying Incoterms cited at n. 72); Eisemann, Incoterms and the British Export Trade, 1965 J. Bus. L. 114; Honnold in Schmitthoff, Sources 70; Honnold, Uniform Law and Uniform Trade Terms in Transnational Law 161.

4. Allen, Law in the Making, Ch. II and 133 (7th ed. 1964) (discussion of whether custom must date from A.D. 1189); Note, 55 Colum. L. Rev. 1192, 1199, (1955); Honnold, The Influence of the Law of International Trade on Commercial Law, in Schmitthoff, Sources 70, 79.

5. Rejection of proposals to introduce provisions like ULIS 9(3) on trade terms and standard contracts—UNCITRAL: VIII YB 31, Docy. Hist. 324 (paras. 84–86); 1980 Conference: O.R. 267–269, 202–203; Docy. Hist. 488–490, 737–738. Concern for effect in certain regions: O.R. 263, 266, Docy. Hist. 484 (para. 73), 487 (para. 26).

See also: Bonell, B-B Commentary §1.42, 105–106; Schlechtriem, 1986 Commentary, 42–43 and note 130; Eörsi, Parker Colloq., §2.06, p. 2–21; Goldstajn, Dubrovnik Lectures, 55, 61; Jacubowski, 2 New Directions 549 (1977).

6. (U.K.) SGA (1893) §55 ( Graveson C. and G. 54: the comparable provisions of ULIS 9 were "in accordance with English law"); Swedish Sales Act (1905) Art. 1 ("customs of trade or other usages"); Houin, Sale of Goods in French Law, in Comparative Aspects of Sales (I.C.L.Q.) 16, 17–18 (1964); Ginsburgs, International Trade Custom, 5 Journ. Int. L. and Policy 325, 328–332 (1975) (reliance on trade usage by Foreign Trade Arbitration Commission of the U.S.S.R. Chamber of Commerce and Industry); Israeli Contracts Law §26; Israeli Sales Law §5.

7. Honnold, Letters of Credit, Custom, Missing Documents and the Dixon Case, 53 Colum. L. Rev. 504, 508 (1953).

8. Jokela, The Role of Usages in the Uniform Law on International Sales, 10 Scan. Studies 83, 93–94. But cf. Berman and Kaufman, The Law of International Commercial Transactions, 19 Harv. Int. L. J. 221 (1978) (doubt that Convention admits of local customs).

9. Goldstajn, Dubrovnik Lectures, 55, 79; Farnsworth, Sauveplanne Festschrift 81, 83–89; Honnold, 53 Colum. L. Rev. 504 (1953). But cf. Backus & Harfield, 52 Colum. L. Rev. 589 (1952).

Some practices and usages are so basic to the parties’ expectations that they can survive a standard "integration" clause stating that the writing executed by the parties comprises the entire agreement between them. See Farnsworth, Contracts 513.

10. See, for example, rules derived from usage that a party under specified circumstances who fails to respond to a commercial letter of confirmation will be bound by its contents. Esser, Commercial Letters of Confirmation in International Trade: Austrian, French, German and Swiss Law and Uniform Law under the 1980 Sales Convention, 18 Georgia J. Int. & Comp. L. 427 (1988); Schlechtriem, 1986 Commentary 42 and n. 129; Heiz, Validity under CISG and Swiss Contract Law, 20 Vanderbilt J. Tr. L. 639 (1987).

11. Many of the rules of (USA) Uniform Commercial Code are supported as consistent with commercial usage.

Pace Law School Institute of International Commercial Law - Last updated February 23, 2005
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