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CMA Foundation · Fundamentals of Business Laws and Business Communication · Sources of Law

Which of the following best describes the difference between a custom and a usage (trade usage) in relation to contracts?

A trade usage binds parties only when they contracted with it in mind, expressly or by implication, and an express term can exclude it. A valid custom, by contrast, has the force of law independent of the parties' intention. Usage is not enacted by legislatures or limited to foreign traders.

  1. AA usage binds parties only if they contracted with it in mind, expressly or impliedly, whereas a valid custom has the force of law independently of parties' intentionCorrect
  2. BA usage always overrides an express term of the contract, whereas a custom never can
  3. CA usage must be enacted by a State Legislature, whereas a custom need not be
  4. DA usage is binding only on foreign traders, whereas a custom binds Indian traders

Explanation

Custom, once established, has legal force of its own. A trade usage is a practice read into a contract on the assumption that parties dealt on its basis, so it can be excluded by contrary intention. An express contract term generally prevails over a usage, which makes the second option wrong.

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