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Reproduced with the permission of 24 Journal of Law and Commerce (2005) 263-280

Trade Usages and the CISG: Defending the Appropriateness of
Incorporating Custom into International Commercial Contracts

Gregory C. Walker [*] [**]


  1. The Theoretical Debate
  2. Trade Usage and the CISG
  3. International Commercial Contracts and the Appropriateness of Incorporating Custom
  4. Conclusion


A considerable body of commercial law literature suggests that the traditional story of efficient incorporation of trade usage into commercial contracts is less compelling than initially believed. While critics of incorporation theory do not, indeed cannot, refute the relative reduction of transaction costs that trade usage in international sales affords, they point to the imprecision of defining and applying trade usages in dispute resolution, as rendering the efficiency associated with incorporation of trade usages obsolete. Such attacks are not without merit -- despite the lack of empirical evidence buttressing these arguments -- but they overlook the simple fact that relatively few commercial transactions ever actually end up in dispute resolution forums such as arbitration or litigation. [page 263]

The following comment defends the appropriateness of trade usage incorporation theory as applied to international commercial contracts and, particularly, the inclusion of a trade usage provision in the U.N. Convention on Contracts for the International Sale of Goods.[1] The first section briefly summarizes the academic debate over the optimal strategy for interpreting relational contracts by juxtaposing incorporation theory and the formalist approach. In the second section, I discuss Article 9 of the CISG and the requirements it sets forth for incorporating trade usages into contracts for transnational sales of goods. Included in this part is an examination of the ambiguities of the trade usage provision as well as the commentary and case law delineating the trade usage standard. The third section offers an analysis of the formalist scholars' salient criticisms and, in doing so, presents several justifications for the appropriateness of trade usage incorporation in the context of international business transactions. Finally, the comment concludes by summarizing the considerations of the previous section and arguing that, despite the increased costs incurred by parties at the dispute resolution stage by virtue of trade usage incorporation, Article 9(2) continues to be an important and appropriate provision of the CISG.


The academic debate over the transactional efficiency of the incorporation of trade usage and custom into commercial codes and contracts commences with a factual assertion with which all contract law scholars would agree. When the state endeavors to legally recognize and enforce disputed contracts, courts and arbitrators must employ as guideposts the various signals which contracting parties have included in their written agreements in order to interpret the parties' intentions and allocate contractual risk. Not only are these signals comprised of what the parties said during negotiations and what was expressly agreed upon in their written contract but also, and more often in the case of imperfectly drafted agreements, what the parties did not put into writing and what was left unsaid during pre-contractual discussions.[2] Needless to say, interpretation becomes necessary in these [page 264] situations and the choice of interpretation strategy or mode of interpretation is paramount to resolution of the dispute as well as determining the shape and content of contract law. It is against this backdrop that a contentious academic debate over the optimal strategy for interpreting relational contracts continues to be staged among contract law theorists.

The prevailing view that has developed over the last half century in the fields of contract law and law and economics is often referred to as the incorporation strategy.[3] This was most firmly cemented in the United States by the widespread adoption of the Uniform Commercial Code and, in the international arena, by the CISG. The principal argument underlying incorporation strategy is that parties benefit from the existence of gap-filling default rules because the costs parties would incur in fashioning their own trade usage terms would be exorbitant, and it is therefore normatively appropriate for the state to supplement contracts statutorily with default terms that the parties probably would have chosen had they possessed the time and resources to bargain for these terms when the contract was concluded.[4] In short, default terms greatly reduce the transaction costs associated with contract formation by automatically supplementing incomplete contracts with terms which the state or other law-making body considers to be what most parties would wish to include in their agreements.

While the same argument and reasoning are applied to trade usage and custom, the justification for incorporation of these concepts is even stronger "insofar as it provides rules more highly tailored to the requirements of a particular industry and, theoretically, is more susceptible to changes warranted by commercial need than is the process of legislative revision."[5] Unlike default terms provided by the state, which require legislative maintenance to keep pace with changing commercial norms, trade usages develop and evolve unaided as new industry practices emerge to supplant outdated and inferior ones.[6] Yet this observation cannot, standing alone, justify the assertion that [page 265] common usages in trade should assume legal status commensurate with state-supplied default rules. If for no other reason, their genesis lies in mimicry and common practice among private actors in a common trade which, despite being entrenched and widely used, nevertheless lacks the blessing of any legislative body. On the other hand, just because they have not been codified does not validate a blanket preclusion of their cognizable, potential legal significance.

The real question, however, is not whether these considerations legitimize elevation of trade usages to legal status. The incorporation of trade usages in the U.C.C. and CISG has already answered that question.[7] Rather, the current debate focuses on the prudence of the incorporation of trade usages by weighing their relative advantages and disadvantages through a transactions cost benefit analysis.

The primary benefit of trade usage incorporation continues to be the fact that parties need not expend the time, energy, and resources negotiating and specifying all usages and accepted courses of dealings in the respective industry.[8] Over time, standard expectations, for which a common understanding exists among parties engaged in the same trade, emerge as a collective customary wisdom that no single party could likely have generated in its drafting of the contract but that are mutually understood to be part of the agreement because the parties to the contract are participants in the same mercantile network.[9] In this way, incorporation of trade usages allows parties to avoid the risk of including novel or imprecise expressions of common terms that either do not express their agreement as intended or, when subsequently interpreted by courts or arbitral tribunal, are not interpreted as the parties understood them at the time of the contract.[10] And while it may be the case that judicial testing of various combinations and permutations of terms for errors of omission or ambiguity may fall disproportionately on the shoulders [page 266] of the industry's innovators, customs terms and common understandings will develop over time and reduce transaction costs among all present and future parties in the field.[11] In this sense, statutory rules that incorporate into the contract those commonly understood but unwritten terms between parties in a common trade serve to lower the costs, time, and error inherent in negotiating every possible contract term and reducing them to writing.[12] Thus, incorporation of trade usages aims to provide an efficient means of reducing parties' contracting costs.

Formalist theory, gaining popularity in some academic circles, advocates more formalistic methods of interpretation and posits that transparency and predictability in the interpretation of incomplete contracts can best be achieved by declining to fill gaps at all.[13] According to formalist theory, courts engaged in the interpretation of relational contracts should do so on a literalistic level, exercising greater legal modesty by eschewing any temptation or invitation to fill contractual gaps with default rules and giving legal effect only to those verifiable express terms included in the parties , written agreement.[14] Scholars advocating this much narrower optic for [page 267] interpreting contracts argue that by limiting legal enforcement to facially unambiguous terms, the resulting case law will, over time, provide parties entering into commercial contracts with a greater ability to predict how courts will interpret ambiguous terms in disputed contracts and, thus, equip them with a better understanding of how to properly and accurately reduce their agreements to formal, legal terms.

Formalist scholars endorsing this view believe that plain meaning interpretations of contracts avoid the high administrative costs associated with the use of customs and trade usages to interpret or supplement explicit contractual terms. They point to problems such as defining custom, determining the scope of its usage, misinterpreting its intended effect, and the transaction costs parties must incur to sufficiently prove the existence of customs and trade usages in adjudicatory settings. Because of these problems, they suggest that much of the certainty that custom allegedly offers is diminished.

Furthermore, one of the salient criticisms of trade usage incorporation is directed at the (in)ability of courts to define and apply custom in a manner consistent with commercial understanding and that of the parties involved.[15] Customs, by definition, derive their existence from particular actors in a particular context. However, determining how much of the context from which the custom arises to impute into its definition proves to be less than clear for many courts.[16] Some scholars note that this is also the case for the parties themselves.[17] Yet, as formalist theorists argue, these problems are only exacerbated by the increased variation of contextual details on an international scale. Unlike transactions involving domestic customs between parties operating in similar cultures and economic systems, customs with which the courts of that country are likely familiar, socio-economic variations are almost inevitable when dealing with parties from different countries. But whether domestic or international in scope, the problem is the same -- determining whether a custom exists between the parties and, if so, exactly what that custom entails.

Of course there is a great deal of imprecision inherent in such a determination that is inherent in defining such a concept as custom. Formalist [page 268] scholars, however, go further by suggesting that courts and arbitrators are likely to confuse imprecision with the absence of custom -- especially among generalists who lack experience in the commercial trade in question. While this is theoretically possible, one must distinguish the kind of custom being considered as well as the likelihood that international arbitrators will have some experience in the industry. It is true that generalist adjudicators may, for example, have trouble interpreting customary definitions of the acceptable level of impurities within a commodity of a specified quality, but they will no doubt be more capable of adequately and correctly interpreting customary risk of loss allocations such as risk of loss shifting to the buyer when the goods pass over the ship's rails. In this sense, the risk of error associated with interpreting the scope of a trade usage will depend to a large degree on the particular custom involved.

In the end, the formalist critique of incorporation strategy is premised primarily on the difficulties generalist arbiters face when asked to determine whether a custom exists, how it should be defined, and the scope of such a usage. They highlight not only the uncertainty that parties must endure in leaving such determinations to individuals who lack experience, much less expertise, in the relevant trade or industry but also the costs they must incur in attempting to prove the existence of such a trade usage through additional evidence and competing expert testimony. While the actual transaction costs of doing so will depend on the specific trade usage to be demonstrated and the particular context in which it arises, there can be little doubt that disputes over the presence of custom carries with it the idiosyncratic understandings of the individuals parties, the financial expense of verifying such trade usages to individuals outside of the trade, and the possibility that it will be misinterpreted or misdefined.


Despite the formalist critique of incorporation strategy as applied to trade usages, the CISG, a widely successful international treaty with more than 60 signatories,[18] not only recognizes trade usage as supplementing parties, contracts,[19] but also allows it to take precedence over conflicting positive provisions of the convention.[20] Specifically, the CISG binds parties under [page 269] Article 9(1) to any trade usages to which they have agreed as well as, under Article 9(2), to those trade usages widely known and observed internationally by parties in the same trade.[21] The following section focuses on the latter and discusses the standards established by Article 9(2) and the case law interpreting that provision.

Article 9(2) reads:

"The parties are considered, unless otherwise agreed, to have impliedly made applicable to their contract or its formation a 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?"[22]

Article 9(2) rather clearly provides that parties to an international sales contract may be bound by specific trade usages if the usages are widely known and followed in the respective industry or trade and, as such, should have been known by a party engaged in that trade. However, as the scholarly commentary and limited case law reveal, there is perhaps more ambiguity than clarity to be mined from Article 9(2)'s language.

First, it has been suggested that a party who is new to the trade or industry, and thus unaware of a particular international custom, is obligated to educate itself on the relevant, widely-known practices.[23] Yet at least one commentator has noted that Article 9(2) does not require that all individuals active in that trade must know of such usages.[24] Rather, parties are only bound to trade usages if the usages are known to them at the time of the conclusion of the contract [25] or if they ought to have known of the usages at that time. While it is true that a "widely known" usage will be known or deemed "ought to have been known" most of the time, as with any subjective requirement,[26] this may not always be the case. [page 270]

For example, it has been argued that Article 9(2)'s constructive knowledge requirement, as opposed to the actual "knowing" requirement, should bind parties to usages only if such individuals are engaged in the relevant industry and operate in the geographical areas where those usages are widely known.[27] This idea has been upheld twice in the Austrian Supreme Court. In both instances it was held that Article 9(2) trade usages are binding when the party either permanently operates in [28] or has an established place of business in the location where the usage is applicable.[29] These decisions not only delineate the requisite extent of parties' familiarity with a trade usage in order for them to be bound by such custom; at the same time, they touch on the spatial and geographical considerations of the provision.

Courts and commentators alike have noted the spatial subtleties in the language of Article 9(2). Specifically, they agree that it is not only international trade usages which can bind parties. While the provision mandates that usages be widely known in the international trade of the relevant industry, it requires neither that all parties know about the usage [30] nor that the usages be known worldwide.[31] In fact, parties may even be bound by a local usage if such custom is common to local commodity exchanges or fairs and trade exhibitions, provided international trade takes place at such venues [32] and the usages are regularly observed such that the constructive knowledge requirement is satisfied.[33] One court has articulated this view as follows:

"Art. 9(2) CISG does not mean that, in the future, purely national or local usages can find no application for the interpretation and supplementation of contracts without an explicit [page 271] reference by the parties. One can still presume an exception for usages which are in force at certain stock markets, trade fairs or deposit sites, as long as the usage is also regularly observed there in the trade with foreigners. Furthermore, the possibility does not seem to be excluded that a foreign tradesman, who is constantly active in another country and has already formed a number of transactions there, is bound by possible national usages."[34]

Thus, the case law reveals a judicial tendency to liberalize the trade usage provision of Article 9(2) so long as the party being bound was in the business of the trade in question, operating in the geographical location where the usage was widely observed such that the party reasonably ought to have known of the custom, and that some international trade was being conducted in that area or at that venue.

Of the remaining case law on Article 9(2), much of it involves either usages arising out of international mercantile associations or unwritten practices regarding commercial letters of confirmation. The majority of the former deal with the application and interpretation of INCOTERMS, rules developed by the International Commerce Commission ("ICC") to assist in interpreting trade terms governing risk of loss and parties' obligations such as providing for delivery, securing insurance, and arranging shipping. In cases where parties have included price delivery terms (such as f.o.b. or c.i.f.) in their contracts without otherwise providing for their meaning, courts have found them to be impliedly incorporated under Article 9(2).[35] Yet despite the widespread use of INCOTERMS in international business transactions and the publicity of the ICC's rules, several CISG commentators disagree with such holdings, arguing that various countries' abbreviations such as f.o.b. and c.i.f. do not share the identical meanings ascribed to them in the ICC's INCOTERMS.[36] [page 272]

A second class of cases addresses the issue of silence in response to a letter of confirmation and whether a party must object to the terms included therein in order to avoid the inclusion of those terms in the contract. While one court has rejected the notion that a party's silence in response to a letter of confirmation has any relevance under the CISG,[37] two other courts have found a trade usage to exist within the meaning of Article 9(2) if the law of both parties' states recognizes the contractual effect of silence in response to a letter of confirmation and the parties knew or should have known of the legal effects of such a communication.[38] Here again, one notes courts' affinity for finding trade usages applicable as long as both parties have their place of business in a locale where the usage exists (or regularly engage in business there) and where the usage is well known and regularly practiced.

In this respect, however, one case seems to stand out among the rest as extending the doctrine too far. In Geneva Pharmaceuticals Technology Corp. v. Barr Laboratories, Inc.,[39] the court held "implied, unwritten supply commitments" to constitute a trade usage for the purposes of contract formation under the CISG, stating, so much as even a cursory explication of Article 9(2)'s standard, that all "usages and practices of the parties or the industry are automatically incorporated into any agreement governed by the [CISG], unless expressly excluded by the parties."[40] While at first blush the court's interpretation of Article 9(2) reveals an inclination to abandon the requirements that the parties possess at least constructive knowledge of the usage and that it be widely known in the trade's international arena. Upon closer analysis, however, the court merely accepts the plaintiffs allegations of a trade usage as true and, in doing so, simply hides behind the summary judgment standard requiring it to draw all reasonable inferences against the moving party.[41]

With the exception of the Geneva Pharmaceuticals case, which should be considered an aberration by future courts and arbitral tribunals for its cursory, if not plainly incorrect, interpretation of trade usages under the CISG, the jurisprudence developing under Article 9(2) reflects, on the whole, a considerable degree of sensitivity and reluctance on the part of courts or [page 273] arbitrators to find international trade usages present where they do not reasonably comport with the express requirements of the provision. Whether this judicial restraint is the result of adjudicators' reticence to boldly declare certain practices as international trade usages or parties' unwillingness to spend the time and money attempting to prove the existence of such usages remains unclear. Nevertheless, the paucity of case law addressing trade usages under Article 9(2) of the CISG calls into question the significance of the ongoing debate about the advantages and disadvantages of incorporation strategy versus formalism, at least in regard to trade usages under Article 9(2) of the CISG.


If the formalist critics are correct, then it must be asked whether there is something seriously amiss in the field of international commercial law today -- especially in light of the overwhelming success of the CISG. Indeed, if these scholars are correct in their respective critiques of incorporation strategy, it begs the question why parties to international business transactions governed by the CISG are not regularly opting out of Article 9(2) [42] While there is no empirical data indicating that parties are not opting out of this provision with great frequency (although I personally believe that very few do), the practical reality of current international commercial law practice suggests that, despite all of its theoretical drawbacks, incorporation of trade usages has had little, if any, negative impact on international commercial contracts and parties' willingness to choose the CISG as the substantive law governing their contracts. For lack of any other solid empirical evidence, this can be seen most clearly in the growing body of CISG case law and, as noted above, the paucity of decisions interpreting Article 9(2). The following section highlights some of the reasons why incorporation of trade usages is appropriate in the area of international business transactions, as well as why transaction costs prove to be less of a concern than formalist scholars would have us believe. In the end, these considerations lead to the conclusion that the debate between formalists and "incorporationalists" lacks any real [page 274] standing in the practical reality of international commercial law practice and is better left to the theoretical world.

The first of these justifications is historical. Although the scope of this comment precludes a thorough discussion of the genesis of trade usages in international commercial law, the profound effect its tradition has had on the current state of the law warrants a brief summary. While the medieval origins of the law merchant system can be traced to the maritime cities of twelfth-century Italy,[43] it gained notoriety as an outgrowth of the fairs and markets of medieval England, France, and Germany.[44] As early as 1622, the system had gained such a foothold that one merchant characterized it as "a comprehensive body of authority which had been created not by kings or judges but by the custom of merchants, which was international rather than national in character, and which was distinct from the common law of England."[45] In this way, the law merchant system grew out of the usage and custom of the merchant class, under which disputes between merchants were settled by an international mercantile customary law and enforced by the mercantile courts. As one scholar notes, "in some situations the merchant's 'law' may have been little more than a decision out of hand by merchants who understood the transaction and the expectations of the parties."[46]

By the mid-seventeenth century, the law merchant system was beginning to be absorbed into English common law.[47] And just two centuries later, the desire to establish a more formalized commercial law prompted regional as [page 275] well as national codification movements. While commercial law codification occurred somewhat earlier in civil law countries than common law states, both England and the United States had some kind of code in place by the early twentieth century.[487] Codification did relatively little, however, to counter what international merchants considered to be continued judicial hostility towards international trade law based on commercial practices.[49] As such, merchants increasingly preferred arbitration to judicial resolution of disputes because international arbitrators proved more receptive to international commercial practices.[50] The combination of this perceived judicial hostility and the exponential growth of international trade during the first half of the twentieth century prompted calls for a uniform law of international sales similar to that of the law merchant system,[51] one that would provide much needed stability and predictability to international sales of goods.[52] ULIS [53] and ULF [54] were indeed noteworthy first attempts, but when they failed to achieve wide acceptance, the proponents of those conventions feared that if some truly international convention was not adopted soon, after so many years of negotiations, any and all future attempts at unification of international sale law would likewise be untenable to a large number of nations.[55] In the end, the failure of these conventions precipitated the United Nations' involvement [page 276] in 1966 through the creation of UNCITRAL and, less than fifteen years later, the approval of the final draft of the CISG in Vienna in 1980.[56]

While the history may largely explain why trade usages remain a part of international commercial law today, it falls short of satisfactorily justifying whether their inclusion in the CISG is appropriate. To answer this question one must look beyond the historical dimensions to the characteristics of international business transactions that distinguish them from domestic commercial contracts.

One important aspect of the transnational commercial arena is the greater latitude parties enjoy in negotiating choice of law and choice of forum clauses. Unlike domestic sales of goods, which are usually governed by a uniform statute and promulgated by a legislative body, parties to international sales contracts possess considerable leeway in determining what law should govern potential disputes as well as where resolution of such disputes should take place. For example, parties from Moldova and Sweden could agree that the CISG will govern interpretation of their contract and that any disputes between them will be resolved through arbitration in London according to the ICC's arbitration rules. If they choose not to be bound by Article 9(2), they may do so by opting out under Article 6 of the CISG;[57] however, they might decline to opt out because they believe that the particular forum chosen is well-suited to dealing with possible trade usage concerns. In this way, the parties can relatively easily decide for themselves whether to be bound by trade usages and pick a dispute resolution setting sensitive to the relevant trade. This stands in sharp contrast to commercial litigation under Article 2 of the UCC, whereby parties who wish to opt out of trade usages must do so explicitly and by specific reference since Article 2 provides no authorized legal avenues to exclude trade usages generally -- for which parties undoubtedly will expend considerable time and money.

In addition to substantive law considerations, one must note the possibility that the institutional proceedings in which parties to international business transactions often resolve disputes are generally less complicated and, thus, less costly. To be sure, formalist scholars would be quick to highlight the fact that myriad additional costs arise in the context of transnational litigation, namely transportation of witnesses, associating with local counsel familiar with the foreign law and forum, costs of securing [page 277] evidence through foreign intermediaries,[58] and so on. Yet one cannot overlook the high fixed costs of domestic litigation. Commercial litigation under the Article 2 of the U.C.C. is governed by U.S. civil procedures that allow for extensive pretrial discovery and the constitutional right to a jury, both of which increase litigation expenses by providing greater opportunity to develop and introduce evidence as well as possibly diminishing the chances that a dispute will be resolved on the pleadings or at summary judgment.

In contrast, the scope of discovery and investigation of contextual matters is often significantly circumscribed in international commercial litigation taking place outside of the United States.[59] Where factual determinations are committed to a judge or arbitrator -- individuals possessing extensive legal and, in the latter case, often relevant commercial experience -- parties enjoy some increase in the certainty of the outcome. Moreover, when there is no jury, there is no attendant need for all witnesses to be present in order for their credulity to be evaluated. Rather, judgment can often be made based on written submissions, affidavits, video depositions and the like, thereby eliminating the exorbitant costs of transporting witnesses and experts overseas. In the end, the absence of a jury, coupled with more limited discovery procedures and the increased authority of the judge or arbitrator to guide the presentation of evidence, likely results in lower procedural costs associated with evidence development and assessment.

Given their prevalence in the international sale of goods, one must also consider how the commercial letter of credit device serves, to some extent, as its own dispute resolution mechanism. Simply put, commercial letters of credit act as a separate and independent contract between the parties whereby a buyer of goods engages an issuing bank to pay the seller upon presentation of documents showing that the goods have been shipped. First and foremost, this financial agreement provides the means for payment of the goods somewhat distinct from the actual contract for the sale of goods. So long as the seller presents the necessary documents and otherwise complies with the requirements under the letter of credit, the issuing bank is obligated to pay the seller and to do so without regard to whether the seller is actually entitled to payment. In this sense, the issuing bank need not concern itself with whether the goods conform to the contract between the parties. Furthermore, so long as the seller receives payment upon satisfactorily meeting the documentary [page 278] conditions, it is unlikely that the seller will, at some later point, bring a lawsuit. Therefore, the letter of credit mechanism serves as an affordable means to extinguish potential lawsuits against buyers who refuse to pay for the goods.

Above and beyond these considerations remains the fact that relatively few international commercial contracts end up in dispute resolution. While the academic debate over the merits of incorporation and formalist theories derives greater applicability and importance in those situations where it is assumed that a dispute will take place, it should nevertheless be situated within the practical reality of current international commercial law practice. When one accounts for this relative paucity of international sales contracts ending up in litigation or arbitration, it becomes apparent that incorporation of trade usages is preferable to formalism. Without trade usage as a means to supplement contracts, parties would be forced to draft an inordinate number of additional provisions to derive the benefit of many practices that industry players likely take for granted, resulting in voluminous contracts and marathon rounds of negotiations. Although it may be true that over time the parties would be able to rely on previous contracts that already contain the necessary provisions, commercial contracts would require constant revision to keep pace with the evolving customs and trade usages in the industry. In the end, incorporation of such customs allows parties to avoid lengthy discussions about potential disputes which, if considered by the merchants entering into the deal, might possibly make them rethink the whole transaction, thereby curbing the overall growth of international trade. It saves them the time, energy, and costs associated with such meticulous drafting for possible, but unlikely, contingencies when they are assuredly hoping not to be among the relative few who do find themselves forced to pursue dispute resolution.


Formalist scholars are indeed correct when they posit that parties to international sales of goods who find themselves mired in protracted litigation or arbitration will incur additional expenses in proving the existence of trade usages. Indeed, it is also undeniable that there are considerable problems associated with interpreting trade usages and defining their scope. Yet these cases represent only a small minority of international commercial contracts concluded. In this way, the practical reality of current practice belies the notion that formalist judicial interpretation, which would require parties to draft customs and trade usages into each of their contracts, and would be less costly for the vast majority of international commercial merchants. [page 279]

For this reason, as well as those discussed above, the parameters of the formalist versus incorporation strategy debate need to be more clearly delineated. First, it should be made evident whether one is addressing the matter in the context of domestic commercial contracts or all such contracts. Second, the debate should be addressed within the separate and distinct dispute resolution forums of litigation and arbitration. Finally, scholars on both sides must take account of the very different contexts of reality and theory. As shown above, international commercial contracts offer parties a great deal of latitude to decide substantive and procedural matters such as choice of law, choice of forum, choice of procedural rules, prophylactic mechanisms such as letter of credit agreements, and, in the case of arbitration, the option to choose particular individuals with commercial expertise in the relevant trade. When taken together, and coupled with the improbability that parties will ever need to prove the existence of trade usages, these factors weigh heavily in favor of the appropriateness of incorporation of trade usages for international commercial contracts in instruments such as the CISG. [page 280]


* J.D. Candidate, University of Pittsburgh School of Law.

** The Journal of Law and Commerce adheres to The Bluebook Uniform System of Citation, but the Journal of Law and Commerce has created uniform citations for certain sources not addressed by The Bluebook. Moreover, with respect to foreign language sources for which the Journal of Law and Commerce was not provided an English translation, the editors have relied on the author for the veracity of the statement drawn from such sources.

1. United Nations Convention on Contracts for the International Sale of Goods, Apr. 11, 1980, U.N. Doc. A/CONF 97/18, reprinted in 19 I.L.M. 668 (1980) [hereinafter CISG].

2. To deal with this problem, the state's contract law and commercial transaction statutes often provide a set of gap-filling rules which allow for agreements to be supplemented by various default terms. Simply plugging in the gaps with these state-supplied default terms is not, however, free from error. When such default terms are incorporated, some tensions are bound to arise between the express terms that the parties included and the default terms supplied by the state. For an extensive discussion on this inherent tension, see generally Charles J. Goetz & Robert E. Scott, The Limits of Expanded Choice: An Analysis of the Interactions Between Express and Implied Contract Terms, 73 CAL. L. REV. 261 (1985).

3. See, e.g., Jody S. Kraus & Steven D. Walt, In Defense of the Incorporation Strategy, in THE JURISPRUDENTIAL FOUNDATIONS OF CORPORATE AND COMMERCIAL LAW (2000) [hereinafter JURISPRUDENTIAL FOUNDATIONS].

4. Robert E. Scott, Relational Contract Theory: Unanswered Questions: A Symposium in Honor of Ian R. Macneil: The Case for Formalism in Relational Contract, 94 NW.U. L. REV. 847, 850 (2000).

5. Clayton P. Gillette, Harmony and Stasis in Trade Usages for International Sales, 39 VA. J. INT'L L. 707, 708 (1999).

6. Id. See also Goetz & Scott, supra note 2, at 278.

7. See CISG, supra note 1, art. 9. See also U.C.C. 1-201(3) and (11), which define "agreement" and "contract" to include implications from "course of dealing or usage of trade or course of performance." These matters are considered so significant under the U.C.C. that terms implied by course of dealing, trade usage, and course of performance are always considered part of a sales contract "[u]nless carefully negated" in a writing intended as an integration. Official Comment to 2-202. Sections 2-305 to 2-311 provide additional gap-filling rules for more specific omissions in contracts.

8. See generally Jody S. Kraus, Legal Design and the Evolution of Commercial Norms, 26 J. LEGAL STUD. 377 (1997).

9. Id. at 392-408.

10. Perhaps the classic example of this situation is the case of Frigaliment Importing Co. v. B.N.S. Int'l Sales Corp., 190 F. Supp. 116 (S.D.N.Y. 1960) (holding "chicken" to mean stewing chicken, as the seller contended, rather than broiler or fryer chicken).

11. See Scott, supra note 4, at 855-56.

12. See Robert E. Scott, The Case for Market Damages: Revisiting the Lost Profits Puzzle, 57 U. CHI. L. REV. 1155, 1173 (1990). Transactions -- costs explanations of incomplete contracts form much of the basis of Law and Economics analysis of contract law. On the one hand, parties write incomplete contracts because the resource costs of writing complete contingent contracts to solve contracting problems would exceed the expected gains or would exceed the costs to the state of creating useful defaults. See Charles J. Goetz & Robert E. Scott, Liquidated Damages, Penalties and the Just Compensation Principle: Some Notes on an Enforcement Model and a Theory of Efficient Breach, 77 COLUM. L. REV. 554 (1977). On the other hand, parties are considered to write incomplete contracts because the parties are unable to identify and foresee uncertain future conditions or are incapable of characterizing complex adaptations accurately. For a thorough discussion of this notion, see Charles J. Goetz & Robert E. Scott, Principles of Relational Contracts, 67 VA. L. REV. 1089, 1092-1102 (1981); W. Bentley MacLeod, Decision, Contract, and Emotion: Some Economics for a Complex and Confusing World, 29 CAN. J. ECON. 788 (1996).

13. For a broad understanding of this position, see Alan Schwartz, Relational Contracts in the Courts: An Analysis of Incomplete Agreements and Judicial Strategies, 21 J. LEGAL STUD. 271 (1992); Lisa Bernstein, Merchant Law in a Merchant Court: Rethinking the Code's Search for Immanent Business Norms, 144 U. PA. L. REV. 1765 (1996); Lisa Bernstein, The Questionable Empirical Basis of Article 2's Incorporation Strategy: A Preliminary Study, 66 U. CHI. L. REV. 710 (1999); Alan Schwartz & Robert E. Scott, Contract Theory and the Limits of Contract Law, 113 YALE L.J. 541 (2003); Robert E. Scott, A Theory of Self-Enforcing Indefinite Agreements, l03 COLUM. L. REV. 1641 (2003); Scott, supra note 4; Gillette, supra note 5; Clayton P. Gillette, The Empirical and Theoretical Underpinnings of the Law Merchant: The Law Merchant in the Modern Age: Institutional Design and International Usages under the CISG, 5 CHI. J. INT'L L. 157 (2004); Richard A. Epstein, Confusion about Custom: Disentangling Informal Customs from Standard Contractual Provisions, 66 U. CHI. L. REV. 821 (1999); Robert E. Scott, The Uniformity Norm in Commercial Law: A Comparative Analysis of Common Law and Code Methodologies, in JURISPRUDENTIAL FOUNDATIONS, supra note 3, at 149.

14. See Scott, supra note 4, at 859.

15. Id. at 861.

16. For a similar argument about the capacity of courts to interpret trade usages, see Clayton P. Gillette, Cooperation and Convention in Contractual Defaults, 3 S. CAL. INTERDISC. L.J. 167, 183-84 (1993).


18. By the end of February 2005, there will be sixty-four Contracting States to the CISG. See the United Nations Commission on International Trade Law (UNCITRAL) website at <http://www.uncitral.org>.

19. See, e.g., CISG, supra note 1, art. 9.

20. Oberster Gerichtshof, Austria, 21 Mar. 2000, [OGH] [Supreme Court], 344/99g, available at <http://www.cisg.at/10_34499g.htm> (last visited Apr. 14, 2005); Case No.240, infra note 28. See also DAVID LEWIS, CONVENTION: A PHILOSOPHICAL STUDY 97-98 (1969).

21. See CISG, supra note 1, art. 9.

22. Id.

23. Gillette, supra note 5, citing Zivilgericht Kanton Basel-Stadt, Switzerland, 12 Dec. 1992, UNILEX, D. 1992-31.

24. Ulrich Magnus, Kommentar zum Bürgerlichen Gesetzbuch mit Einführungsgesetz und Nebengesetzen, WIENER UN-KAUFRECHT (CISG) 176 (13th rev. ed. 1999).

25. Martin Karollus, UN-KAUFRECHT 50 (1991).

26. See Stephen Bainbridge, Trade Usages in International Sales of Goods: An Analysis of the 1964 and 1980 Sales Conventions, 24 VA. J. INT'L L. 619, 653-55 (1984). While Brainbridge argues that the CISG adopted an objective standard under Art. 9(2), it can hardly be denied that a considerable degree of subjectivity remains in a provision requiring that a custom or trade usage be "widely known" such that a party "ought" to have known of the usage. Certainly, though, the requirements under Art. 9(2) are more objective than the "reasonableness" standard under the prior ULIS and ULF conventions.

27. See Wilhelm-Albrecht Achilles, KOMMENTARZUM UN-KAUFRECHTS ÜBEREINKOMMEN (CISG) 37-8 (2000); Magnus, supra note 24, at 176.

28. See Oberster Gerichtshof, Austria, 15 Oct. 1998, [SZ] [Supreme Court], 191/98x, Case No. 240, available at <http://cisgw3.law.pace.edu/cases/981015a3.html> (last visited Apr. 18, 2005).

29. See Oberster Gerichtshof, Austria, 21 March 2000, supra note 20.

30. Magnus, supra note 24, at 176.

31. See Achilles, supra note 27, at 37; Michael Joachim Bonell, Art. 9, in COMMENTARY ON THE INTERNATIONAL SALES LAW 104 (Cesare Massimo Bianca & Michael Joachim Bonell eds., 1987); W. Junge, Art. 9, in KOMMENTAR ZUM EINHEITLICHEN UN-KAUFRECHT (CISG) 151 (peter Schlechtriem ed., 3d ed. 2000); R. Herber & B. Czerwenka, INTERNATIONALES KAUFRECHT. Kommentar zu dem Übereinkommen der Vereinten Nationen vom 11 April 1980 fiber den Intemationalen Warenkauf 58-59 (1991).

32. Herber & Czerwenka, supra note 31, at 58-59; A. Lüderitz & A. Fenge, Art. 9, Bürgerliches Gesetzbuch mit Einführungsgesetz und Nebesgesetzen, 13 ÜBEREINKOMMEN DER VEREINTENNATIONEN ÜBER VERTRÄGE ÜBER DEN INTERNATIONALEN WARENKAUF (CISG) 31 (2000).

33. See Achilles, supra note 27, at 37; Bonell, supra note 31, at 109; Herber & Czerwenka, supra note 31, at 59. But see Harold I. Berman & Colin Kaufman, The Law of International Commercial Transactions (Lex Mercatoria), 19 HARV. INT'L L.J. 221 (1978).

34. Oberlandesgericht Graz, Austria, 9 Nov. 1995, English translation available at <http://cisgw3.law.pace.edu/cases/951109a3.html#cx>.

35. See, e.g., BP Oil Int'l, Ltd. v. Empresa Estata1 Petroleos de Ecuador, 332 F.3d 333 (5th Cir. 2003); St. Paul Guardian Ins. Co". v. Neuromed Medical Systems & Support, 2002 WL 465312 (S.D.N.Y. 2002); ICC Arbitration Case No.7645, March 1995, available at <http://cisgw3.law.pace.edu/cases/957645i1.html>; Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce & Industry, Russian Federation, 6 June 2000 (Case No. 406/1998), available at <http://www.cisg.law.pace.edu/cisg/wais/db/cases2/000606r1.html>.

36. See Bonell, supra note 31, at 113-14; Friedrich Enderlein et al., INTERNATIONALES KAUFRECHT 73 (1991); Herber & Czerwenka, supra note 31, at 61. The current version of Article 2 of the U.C.C. in effect in most states assigns meanings to such terms which do not fully align with the ICC's definitions. See, e.g., U.C.C. 2-319-2-324 (1987). The proposed revisions to Article 2 would replace the current definitions with instructions to courts to interpret such terms in light of applicable usage of trade and in conformity with the ICC's INCOTERMS. See Proposed U.C.C. 2-309 (Revision Draft of Feb. 1, 1999).

37. Landgericht Frankfurt, Germany, 6 July 1994, available at <http://www.unilex.info/case.cfm?pid=I&do=case&id=189&step=FullText>.

38. Oberlandesgericht Frankfurt, Germany, 5 July 1995, Case No.276; Switzerland, 21 Dec. 1992, Case No. 95.

39. Geneva Pharmaceuticals Technology Corp. v. Barr Laboratories, Inc., 201 F. Supp. 2d 236 (S.D.N.Y. 2002).

40. Id. at 281.

41. Id. at 282.

42. Following a long tradition in private international law of allowing parties significant autonomy to decide matters such as choice of applicable law and choice of forum, Article 6 of the CISG expressly provides: "The parties may exclude the application of this Convention or ... derogate from or vary the effect of any of its provisions."

43. Note, A Modern Lex Mercatoria: Political Rhetoric or Substantive Progress? , 3 BROOK. J. INT'L L. 210, 212 (1977).

44. Id. at 212-13. Berman and Kaufman note five characteristics that made the law merchant distinct from other forms of medieval law and independent or local or royal law: "1) it was transnational; 2) its principal source was mercantile customs; 3) it was administered not by professional judges but by merchants themselves; 4) its procedure was speedy and informal; and 5) it stressed equity, in the medieval sense of fairness, as an overriding principle." Berman & Kaufman, supra note 33, at 225.


46. John Honnold, The Influence of the Law of International Trade on the Development and Character of English and American Commercial Law, in THE SOURCES OF THE LAW OF INTERNATIONAL TRADE 71 (Clive Schmitthoff ed., 1964) [hereinafter Schmitthoff].

47. In Woodward v. Rowe, 84 Eng. Rep. 84 (K.B. 1666), the King's Bench held that the law of merchants was part of the law of the land. However, the common law system proved unable to adapt to the constantly changing commercial landscape. Whereas custom previously had to be proven to a jury of merchants familiar with the usages and expectations, under common law it had to be proved to a jury of laypersons. See id. at 72. By 1690, the situation was in such a bad state that Sir Josiah Child observed that "it is well if we can make our own [attorneys] understand one-half of our case, we being amongst them as in a foreign country, our language strange to them, and their as strange to us." FARNSWORTH & HONNOLD, supra note 45, at 4.

48. "Codification began in France with Colbert's Ordounance sur la Marine in 1681 and culminated with Napoleon's Code de Commerce in 1807." Bainbridge, supra note 26, at 627. In Germany, similar efforts took place in the form of the Allgemeine Deutsche Wechsel-Ordnung of 1848 and eventually resulting in the Bürgerliches Gesetzbuch of 1896. Id. at n.54, citing Caemmerer, The Influence of the Law of International Trade on the Development and Character of the Commercial Law in the Civil Law Countries, in Schmitthoff, supra note 46, at 88, 90. While England had the English Sale of Goods Act of 1893, the United States did not have a codified uniform law until NCCUSL promulgated the Uniform Sales Act of 1906. Id.

49. See Berman & Kaufman, supra note 33, at 275.

50. Id. at 276. See also Donald J. Hill, The Relevance of Courses of Dealing, Usages and Customs in the Interpretation of International Commercial Contracts, in 2 NEW DIRECTIONS IN INTERNATIONAL TRADE LAW 523-24 (1977).

51. See Note, supra note 43, at 215.

52. See Harold J. Berman, The Uniform Law on International Sales of Goods: A Constructive Critique, 30 LAW & CONTEMP. FROBS. 354, 355 (1965).

53. Convention Relating to a Uniform Law on the International Sale of Goods, July 1, 1964, with annex, Uniform Law on the International Sale of Goods, 834 U.N.T.S. 109, reprinted in 13 AM. J. COMP. L. 453 (1964) [hereinafter ULIS].

54. Convention Relating to a Uniform Law on the Formation of Contracts for the International Sale of Goods, July 1, 1964, with annex, the Uniform Law on the Formation of Contracts for the International Sale of Goods, 834 U.N.T.S. 123, reprinted in 13 AM. J. COMP. L. 472 (1964) [hereinafter ULF].

55. See Note, United Nations Commission on International Trade Law: Will a Uniform Law in International Sales Finally Emerge?, 9 CAL. W. INT'L L.J. 157, 164 (1979).

56. See CISG, supra note 1.

57. See CISG, supra note 1, art. 6.

58. See generally Convention on the Taking of Evidence Abroad in Civil or Commercial Matters, 847 U.N.T.S. 231, reprinted in 8 I.L.M. 37 (1969) [hereinafter Hague Evidence Convention].

59. See id.

Pace Law School Institute of International Commercial Law - Last updated January 31, 2006
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