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Chicago Journal of International Law

Abstract

All participants seem to agree that this debate cannot be resolved on an all- or-nothing basis. Plain meaning will sometimes minimize total contracting costs, as will the incorporation strategy some of the time. It is less clear whether the cases in which one strategy dominates are so pervasive as to warrant its applicability to all cases, lest the costs of discovering exceptions prove too great. What is missing from the debate, however, is a taxonomy of the conditions under which trade usages would be sufficiently precise, observable, and verifiable as to warrant their incorporation. In this Article, I begin that process. In Section I, I describe the circumstances under which customs might materialize to demonstrate that there are cases in which customs would enhance the value of contract and thus should be granted legal recognition. In Section II, I indicate the conditions that would have to exist in order for a trade or industry to adopt a custom entitled to legal recognition. These largely replicate the conditions for the evolution of efficient norms. Section III then addresses administrative and error costs that might make legal incorporation of a custom inappropriate, even if the conditions for the evolution of a legally cognizable custom otherwise existed. In Section IV, I apply the conclusions from the prior sections to an area that doctrinal law counterintuitively implies is appropriate for the application of the incorporation strategy-international sales transactions. The United Nations Convention on Contracts for the International Sale of Goods ("CISG") explicitly incorporates trade usages into contracts that it governs, permits usages to trump conflicting CISG provisions, and authorizes courts to interpret and complete contracts by reference to usages. The complexity of international sales and diversity of transactors suggests that this is a peculiar arena for the incorporation strategy. Nevertheless, I conclude that the conditions for adoption of trade usages under the CISG are surprisingly ripe, and, as currently applied by courts, the incorporation strategy does not generate the substantial costs attributed to it. I suggest that this occurs, in large part, because adjudicators have tended to entertain claims of custom only where the alleged trade usage conditions on variables that are both observable and verifiable. This may leave a relatively small arena for the kinds of usages subject to incorporation. Nevertheless, it reveals that, consciously or not, institutions involved in the use of international trade usages, both to fill contractual gaps and to define ambiguous contractual terms, act within the limits of their competence, and avoid customs where reliance on the incorporation strategy would risk high adjudication and error costs.

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