The Law Merchant in the Modern Age: Institutional Design and International Usages Under the Cisg

Abstract

Recent scholarship in commercial law has considered whether ambiguities of contractual language and contractual gaps are best resolved through a "plain meaning" rule or a strategy that incorporates trade custom. The debate is difficult to resolve by asking which strategy minimizes total contracting costs, because different strategies reduce different elements of those costs. In this brief essay, written for a conference on The Empirical and Theoretical Underpinnings of the Law Merchant, I suggest a taxonomy of the conditions under which trade usages would be sufficiently precise, observable, and verifiable as to warrant their incorporation. I apply the conclusions from that analysis to an area that doctrinal law, counterintuitively, implies is appropriate for the application of the incorporation strategy - international sales transactions governed by the UN Convention on Contracts for the International Sale of Goods, or CISG. 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.

JEL Classification: F13, K12, K33