Contract parties are bound by practices and usages in contract performance as they have established among themselves or that are widely known and generally accepted in the industry concerned:
Article 1.9 (Usages and practices)
(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 bound by a usage that is widely known to and regularly observed in international trade by parties in the particular trade concerned except where the application of such a usage would be unreasonable.
Practices between the parties. A practice established between the parties is automatically binding, except where the parties have expressly excluded its application. Whether a particular practice must be considered to be ‘established’ between the parties depends on the circumstances. Obviously, behaviour in the context of only one preceding transaction will not normally suffice.
Illustration 1 (usually permitted claim period in excess of the agreed term).
S, a supplier, has repeatedly accepted claims from C, a customer, for quantitative or qualitative defects in the goods as much as two weeks after their delivery. When C gives another notice of defects after a fortnight, S cannot object that it is too late since the two-weeks’ notice amounts to a practice established between S and C which will as such be binding on S.
Agreed usages. The parties may specify all the terms of their contract or for certain questions simply refer to other sources, including usages. In the ITC model contract for the international commercial sale of goods, this applies in particular where references are made to the Incoterms and to international trade usages as regards letters of credit (UCP600), standby practices (ISP98) or demand guarantees (URDG).
Other applicable usages in contract performance #
Concerning the applicability of other trade usages, it is important that the usage is “widely known to and regularly observed […] by parties in the particular trade concerned”. The additional qualification “in international trade” means that usages confined to domestic transactions should not also be invoked in transactions with foreigners. Only exceptionally should usages of a purely local or national origin be applied without any reference thereto by the parties. For example, usages existing on certain commodity exchanges or at ports should apply, provided that would regularly be the case with respect to foreigners. Another exception concerns businesses that have already completed a number of similar contracts and that might be deemed to have become aware of the usages within that country for such contracts.
Illustration 3 (usages in a port).
A, a terminal operator, invokes a particular usage of the port where it is located vis-à-vis B, a foreign carrier. B is bound by this local usage if the port is normally used by foreigners and the usage in question has been regularly observed with respect to all customers, irrespective of their place of business and of their nationality.
Illustration 4 (applicability of local discount usages).
A, a sales agent from Country X, receives a request from B, one of its customers in Country Y, for the customary 10 percent discount upon payment of the price in cash. A may not object to the application of such a usage on account of its being restricted to Country Y if A has been doing business in that country for a certain period of time.
Application would be unreasonable. A usage may be regularly observed in a particular trade sector, but its application in a given case may nevertheless be unreasonable. Particular conditions within which a party operates, or the atypical nature of a transaction, may lead to such a conclusion. In that case, the usage should not apply.
Illustration 5 (adjusted warranty claim right if quality inspection is unreasonably burdensome).
A usage exists in a commodity trade sector according to which the purchaser may not rely on defects in the goods if they are not duly certified by an internationally recognised inspection agency. When A, a buyer, takes over the goods at the port of destination, the only internationally recognised inspection agency operating in that port is on strike and to call another from the nearest port would be excessively costly. The application of the usage in this case would be unreasonable and A may rely on the defects it has discovered even though they have not been certified by an internationally recognised inspection agency.