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Reproduced with permission from 23 International Lawyer (1989) 443-483

excerpt from

Reconciliation of Legal Traditions in the U.N. Convention on Contracts for the International Sale of Goods

Alejandro M. Garro [*]

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Role of Trade Usages

The scope and application of trade usage in contract interpretation turned into an issue with political overtones that sharply divided the UNCITRAL delegates.[141] This controversy confronted the views of representatives from socialist and developing countries with those from Western, developed countries.[142] Aside from the need of planned economies for security and foreseeability in contractual relationships,[143] the main reason why many developing and socialist countries are suspicious of the impact of trade usages in the international sphere is based on the fact that those usages were settled primarily by industrialized nations and are likely to reflect the interest of such countries.[144] In contrast, developed countries like the United States and Great Britain place prime emphasis on regularly observed trade usages, which are said to increase mercantile flexibility, and, thereby, economic efficiency.[145] The Uniform Commercial Code's liberal approach to trade usage naturally prompted the U.S. delegation to press for wide acceptance of usage of trade in the interpretation of contracts for the international sale of goods.[146]

The articulated view of the socialist countries on matters of usage was that usages can only be applied if the parties explicitly agreed to them in the contract and they do not violate statutory provisions.[147] The Western view favored the application of usages even if the parties agreed to their application only impliedly, and if reasonable-thinking parties who are in the position of the contracting parties consider them as being applicable.[148] With these opposite views on the conference table, it was clear that the issue had to be settled through a compromise.

Article 9(1) incorporates explicit agreements on usages and the trade practices that the parties have established between themselves. Article 9(2) states when trade usages are deemed to have been implicitly incorporated into the agreement, that is, (a) when the parties have either subjective (the parties "knew" in fact) or objective (the parties "ought to have known") knowledge of the usage, and (b) when the usage is widely known to, and regularly observed by, those in the trade.[149] The Commentary to this provision permits a finding of objective knowledge upon the proof of regular observance in the particular trade.[150] The requirement that the usage be "widely known," however, seems to indicate that it should be accepted by socialist, developing, and developed market economy countries.[151]

Whereas most delegates agreed that usage explicitly incorporated into the contract binds the parties, the more difficult issues are raised by usage not explicitly mentioned in the contract. Article 9 makes clear that usages to which the parties have impliedly agreed are binding on them, thus adopting the Western view that usages may be used as gap-fillers even if the parties failed to agree on them in the contract.[152] Article 9, however, fails to specify whether usages supersede conflicting provisions of the Convention.[153] This omission is probably due to objections from delegates of socialist countries, who insisted that usages should not override statutory provisions to the contrary.[154] Thus, the final version of article 9 evolved as both a partial answer to the objections raised by the delegates from socialist countries and as a compromise with them.[155] However, the commentary to the Draft Convention and the principle of party autonomy embodied in article 6 indicates that a usage that has been expressly or impliedly accepted by the parties supersedes a conflicting provision of the Convention.[156]

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* Alejandro M. Garro, Lecturer in Law, Columbia University. This paper was submitted to the 81st Annual Meeting of the American Association of Law Libraries, June 26-29, 1988.

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141. See J. Honnold, Uniform Law, supra note 13, at 112-122; Eörsi, supra note 4, at 341; Note, Trade Usages, supra note 28, 636-37 (1984) (quoting Lebedev, a Soviet delegate to the Vienna Conference, who observed that the provision on trade usages was one of the most fiercely-debated issues during the preparatory discussions); see also Note, The 1980 United Nations Convention on Contracts for the International Sale of Goods: Will a Homeward Trend Emerge?, 21 Tex. Int'l L.J. 541 (1986) [hereinafter Note, Will a Homeward Trend Emerge?].

142. See Farnsworth, Developing International Trade Law, 9 Cal. W. Int'l L.J. 461, 465-66 (1979):

"Viewed in the context of the United Nations, [trade usage] become[s] political. Generally, developed nations like usages. Most usages seem to be made in London, whether in the grain or cocoa trade, for example. Developing countries, on the other hand, tend to regard usages as neo-colonialist. They cannot understand why the usages of, let us say, the cocoa trade should be made in London."

See also Rosett, supra note 25, at 285, who frames the controversy on deeper ideological grounds:

"Some legal regimes are quire content with the past and look to tradition as a fountain of accumulated wisdom. For most Americans, community practice as embodied in common law is a source of just expectations about the future behavior of others. In contrast, those regimes that perceive their society as shackled by the remnants of an unjust past which must be smashed by a revolutionary process of renovation are not likely to be sympathetic to perpetuating past behavior by enshrining it as binding rules."

143. Because the socialist view gives priority to the security of the contract and foreseeability, it is not surprising that prime reliance is placed on the express agreement of the parties and written rules over the more flexible and uncertain outcome provided by trade usages. See Farnsworth, supra note 142, at 465.

"[U]sages are looked on with perhaps even more suspicion by the Eastern European countries, because the Eastern Europeans, being even more bureaucratic in outlook than our multinationals, like to have everything in their files. There is nothing more distressing to a bureaucrat than the thought that some Englishman or Ghanian is going to appear and claim that there is a usage that he does not have in his files."

144. See Summary Records of the Meetings of the First Committee, (6th meeting), U.N. Doc. A/Conf.97/C.1/SR, reprinted in Official Records, supra note 24, at 263 (reporting the statements made by Mr. Kopac, delegate from Czechoslovakia: ". . . [B]uyers and sellers from some countries, particularly those from developing countries, had not participated in the establishment of usages and would yet be bound by them, even if those usages were contrary to the Convention"). Date-Bah, supra note 88, at 27: Note, Will a Homeward Trend Emerge?, supra note 141, at 553; Note, Trade Usages, supra note 29, at 641, quoting the Yugoslavian and Soviet delegates to the Vienna Conference, who respectively stated that trade usage has "been formed by a restricted group of countries . . . whose position did not express world wide opinion" and that "[u]sages [are] often devices established by monopolies and it would hence be wrong to recognize their priority over the law." See also Khan, Unification of the Law of International Sale of Goods -- Issues and Importance, in Law of International Trade Transactions 39, 50-53 (R. Khan ed. 1973). It is noteworthy that not all developing nations took a negative approach to trade usage. Noticeably, the Mexican perspective was similar to the United States' perspective. Note, Trade Usages, supra note 29, at 638 n. 188.

145. Usage as a tool to fill in the gaps and to interpret the terminology in the parties' agreement is essential in international commercial transactions, where the need for speed means that the parties are likely to bargain as little as possible and are [un]likely to address in detail every possible problem related to the contract. In this connection, Honnold observes:

"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 will 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 where 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; and the most basic patterns may not be mentioned because, for experienced parties, 'they go without saying.' "

J. Honnold, Uniform Law, supra note 13, 251; see also Note, Will a Homeward Trend Emerge?, supra note 141, at 550.

146. The drafters of the U.C.C. incorporated a vast array of trade usage and courses of dealing into every contract governed by the Code. See generally J. White & R. Summers, Handbook of the Law under the Uniform Commercial Code 98-104 (2d ed. 1980). Section 1-205(2) of the U.C.C. defines trade usage 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." Contracting parties are free to vary their contract terms from the standard trade usage and course of dealing, but they must do so expressly in the contract. Thus, U.C.C. 2-202, comment 2 states that "[u]nless carefully negated [trade usages] have become an element of the meaning of the words used." The parties do not have to be aware of the trade usage. Section 1-205(3) provides that "any usage of trade in the vocation or trade in which they are engaged or of which they are or should be aware [may] give particular meaning to and supplement or qualify terms of an agreement." (Emphasis added.) See Note, Trade Usages, supra note 29, at 639 ("[I]f the contract called for the seller to deliver chickens and trade usage defines "chickens" as "young chickens," the usage would be admitted into evidence [under the U.C.C.] if the seller delivered old chickens").

147. But see Maskow, supra note 79, at 58 ("Socialist law in general is rather reluctant in respect of usages, but in international trade they are accepted to a higher degree than in domestic matters.").

148. Eörsi, supra note 4, at 342.

149. The Convention, supra note 3, art. 9 refers to usages "in international trade . . . regularly observed by parties to contracts of the type involved in the particular trade concerned." Therefore, the particular usage must be confined to a certain product, region, or set of trading partners. See Dore & Franco, A Comparison of the Non-Substantive Provisions of the UNCITRAL Convention on the International Sale of Goods and the Uniform Commercial Code, 23 Harv. Int'l L.J. 49, 58 (1982). As to the degree of "internationality" of the usage, Professor Honnold comments:

"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." J. Honnold, Uniform Law, supra note 13, 121 (emphasis in original).

150. The trade usage provision appeared as art. 8 of the 1978 Draft Convention and later became art. 9 of the Convention. Comment 4 to art. 8 of the 1978 Draft Convention reads:

"The determining factor whether a particular usage is to be considered as having been impliedly made applicable to a given contract will often be whether it was 'widely known to, and regularly observed by, parties to contracts of the type involved in the particular trade concerned.' In such a case it may be held that the parties 'ought to have known' of the usage."

Text of Draft Convention on Contracts for the International Sale of Goods Approved by the United Nations Commission on International Trade Law Together with a Commentary Prepared by the Secretariat, U.N. Doc. A/Conf. 97/5/1979 [hereinafter Text of Draft Convention]. While the Commentary to the 1978 Draft Convention and the Convention does not enjoy the persuasive force of the official comments to the U.C.C., it still may serve as a useful tool for its interpretation. See Note, Trade Usages, supra note 29, at 636 n. 104.

151. See Maskow, supra note 79, at 58-59; Kasteley, Unification and Community, supra note 74, at 613 ("[A]rticle 9 should be interpreted to allow discussion of whether newcomers and others who lack experience or sophistication in international trade 'ought to have known' of its usages").

152. The U.S. Department of State noted with approval that both the U.C.C. and the Convention give effect to regularly observed trade usages, incorporate actual or implied knowledge of a usage, and allow recognition of usages in a particular trade. Legal Analysis of the United nations Covnention on Contracts for the International Sale of Goods (1980), in Message from the President of the United States Transmitting the Convention on Contracts for the International Sale of Goods, Treaty Doc. No.9, 98th Cong., 1st Sess. 4, 5 (1983).

153. Under art. 9(3) of ULIS, supra note 1, it was clear that usages derogate from the relevant provision of ULIS. Also in contrast with art. 9 of the Convention, supra note 3, art. 9(3) of ULIS made clear that a usage is admissible to interpret the meaning of terms used in the contract. See Text of Draft Convention, supra note 150, comment 6 to art. 8 (noting that the Draft Convention "does not provide any explicit rule for the interpretation of expressions, provisions or forms of contract which are widely used in international trade and for which the parties have given no interpretation"). It has been persuasively argued, however, that usages may be used to interpret contract terms pursuant to art. 8(3) of the Convention, supra note 3 which states that "[I]n determining the intent of a party . . . due consideration is to be given to . . . usages . . .". See Trade Usages, supra note 29, at 659.

154. See Eörsi, supra note 4, at 342. The delegate from Czechoslovakia proposed an amendment to art. 9(2) adding at the end of that paragraph the words "provided the usage is not contrary to this Convention." The amendment was supported by several socialist states. Nevertheless, the Mexican delegate argued successfully that:

"Any specific usage known to the parties should override the Convention because, if the parties decided to conform to a usage, it was because it responded to their needs with respect to a given contract. The problem was slightly more delicate when the usage was not known, but the solution should be the same because knowledge and consequently agreement by the parties with regard to that usage was presumed."

See Text of Draft Convention, supra note 150, at 263-64.

155. See Kasteley, Unification and Community, supra note 74, at 610.

156. See Text Draft of the Convention, supra note 150, comment 5 to art. 8:

"Since usages which become binding on the parties do so only because they have been explicitly or implicitly incorporated into the contract, they will be applied rather than conflicting provisions of this Convention on the principle of party autonomy. Therefore, the provision in ULIS art. 9, paragraph 2, that in the event of conflict between an applicable usage and the Uniform Law, the usages prevail unless otherwise agreed by the parties, a provision regarded to be in conflict with the constitutional principles of some States and against public policy in others, has been eliminated as unnecessary. (Footnote omitted)."

See also Trade Usages, supra note 29, at 661, stating that the rule that usages supersede contrary provisions of the Convention is implied by the text of art. 6 which permits the parties to contractually derogate from or vary the effect of any of the Convention's provisions.

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Pace Law School Institute of International Commercial Law - Last updated August 16, 1999

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