Definition
In contract law, a course of dealing refers to a sequence of previous transactions or interactions between parties that establishes a pattern of conduct, which may be used to interpret the meaning of terms in a current agreement. The concept is employed to discern the parties’ mutual expectations when contractual language is ambiguous or silent on a particular issue.
Legal Context
| Jurisdiction | Relevant Authority | Typical Application |
|---|---|---|
| United States (Uniform Commercial Code) | UCC § 2‑202 (Course of Dealing) | Courts consider prior dealings to interpret contract terms, provided the parties have a history of repeated transactions that demonstrate a shared understanding. |
| United States (Restatement (Second) of Contracts) | § 207 (Course of Dealing) | Emphasizes that a regular, repeated practice between parties may supply meaning to ambiguous provisions. |
| United Kingdom | Hawkins v. McGill (1929) and related case law | Courts may admit evidence of prior dealings to aid construction of contract terms, especially where the parties have a long‑standing commercial relationship. |
| Canada | Morrow v. Hanni (1999) and provincial statutes | Recognizes the relevance of prior conduct, but generally requires that the course of dealing be “regular and consistent” to be probative. |
Key Elements
- Regularity and Repetition – The prior interactions must be sufficiently numerous or systematic to form a recognizable pattern. Isolated or sporadic transactions are typically insufficient.
- Mutual Understanding – The parties must have shared an understanding of the conduct’s significance, often demonstrated through consistent performance.
- Relevance to Current Dispute – The course of dealing is admissible only when it helps resolve ambiguity concerning the present contract’s terms.
Distinction from Related Doctrines
- Course of Performance: Refers to the conduct of the parties under the current contract after its formation, whereas course of dealing pertains to prior agreements. Both may be considered together in contract interpretation.
- Course of Conduct: A broader term encompassing both prior dealings and ongoing performance; used in some jurisdictions to describe the totality of parties’ behavior.
Illustrative Example
A supplier and a retailer have entered into ten separate purchase agreements over three years, each specifying that delivery times are “reasonable.” In a subsequent contract, the term “reasonable” is again used without definition, and a dispute arises over a delayed shipment. A court may examine the parties’ prior ten transactions, noting that deliveries were consistently made within five business days, to infer that “reasonable” in the current contract means “within five business days.”
Limitations and Criticisms
- Risk of Overreliance: Critics argue that excessive reliance on prior dealings may undermine the parties’ freedom to renegotiate terms in a new contract.
- Evidentiary Challenges: Proving the existence of a regular course of dealing can be difficult, especially when historical records are incomplete.
- Variability Across Jurisdictions: Different legal systems assign varying weight to prior dealings, leading to inconsistent outcomes.
Notable Cases
- Hawkins v. McGill (1929) 43 CLR 165 – Australian High Court recognized that a “course of dealing” can be evidence of implied terms.
- Klein v. Commonwealth Bank of Australia [1997] FCA 1432 – Australian Federal Court applied the doctrine to interpret a finance agreement based on prior loan arrangements.
- Bynum v. Triple K (1995) 96 N.J. 135 – New Jersey Supreme Court held that a long‑standing course of dealing established an implied term regarding delivery windows.
Academic Commentary
Legal scholars note that the course of dealing doctrine reflects commercial realities by allowing courts to incorporate the parties’ practical expectations. However, they also caution that reliance on historical patterns must be balanced against the need for clear, expressly negotiated contract terms.
See Also
- Course of performance
- Implied terms
- Contract interpretation
- Uniform Commercial Code (UCC)
References
- Uniform Commercial Code, § 2‑202 (2021).
- Restatement (Second) of Contracts, § 207 (1981).
- Hawkins v. McGill [1929] AC 334.
- Morrow v. Hanni (1999), 37 O.R. (3d) 575 (Ont. C.A.).
- Hillman, J. & R. Hofmann, Contract Law: Principles and Context (8th ed., 2020).