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Course of Dealing

A clearly recognizable pattern of previous conduct between parties to a business transaction.

The course of dealing between parties to an action is examined by a court in ascertaining what the parties intended when they entered into a contract. The supposition is that the parties drew up the contract in view of the customary manner in which business had been transacted prior to the signing of the contract.

In a breach-of-contract action, evidence of the course of dealing is admissible in order to interpret ambiguities in the contract, but not to effectuate an alteration or contradiction of the contract's provisions. A term that was seemingly unambiguous when the contract was entered into might subsequently prove to be problematic.

Course of dealing is distinguishable from both COURSE OF PERFORMANCE and TRADE USAGE. Course of performance refers to a pattern of conduct that occurs subsequent to approval of the contract terms. Trade usage entails behavior that is the standard of conformity for a majority of businesses engaged in a particular business or commercial venture.

Course of dealing safeguards the expectations of the parties and augments the certainty of their transactions, based upon their prior experiences with each other.

The concepts of course of dealing, course of performance, and trade usage in the context of contract law are derived largely from the work of LINTON CORBIN, who did not believe that courts should be bound by the so-called four corners of a contract or to the "plain meaning" to those terms. Corbin was instrumental in the drafting of the UNIFORM COMMERCIAL CODE (UCC), which governs commercial agreements and transactions in most states. The UCC defines course of dealing in its general provisions (U.C.C. § 1-205). The term applies, for example, to the laws governing contracts for the sale of goods, negotiable instruments, and SECURED TRANSACTIONS.

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