Course of Performance
Evidence of the conduct of parties concerning the execution of obligations under a contract requiring more than one performance that is used for the purpose of interpreting the contract's provisions.
Course of performance refers to the systematic and uniform conduct in which parties engage after they enter into a contract. The intent of the parties in regard to the meaning of the agreement is reliably ascertainable through the application of course of performance only when a contract requires a repetitive series of performances. There must be more than one performance, but no particular number is required. The fewer the performances, the more probable it is that such performances cannot constitute a course of performance.
If a party accepts a course of performance without objection, his or her ACQUIESCENCE is relevant to determining the meaning of the contract. The recipient of the performance need not expressly assent to the performance; the lack of an objection is sufficient. Unless there has been acceptance without objection, a party who performs cannot benefit from the application of course of performance.
Sometimes the acts of the parties may be inconsistent with the pertinent contractual language. A party may argue that the meaning of the agreement is unequivocal—that the course of performance is inconsistent with the contract provisions—and, therefore, that the express terms of the contract should predominate over the course of performance.
The prevailing view is that no contractual term is so clearly defined that a party cannot demonstrate the way in which the parties actually applied it. Pursuant to the admissibility of the course of performance, and assuming that this evidence is credible, the language selected by the parties has the meaning that they had ascribed to it, and, therefore, no inconsistency exists between the contract provisions and the course of performance.
A minority of jurisdictions hold that some words have a PLAIN MEANING and, consequently, that course of performance is inadmissible to show their meaning when they are not ambiguous. Other courts reason that it is relevant to show that there has been either a waiver, an intentional relinquishment of a known right, or a modification of the contract before the application of course of performance.
The concept of course of performance in the context of contract law, along with such concepts as course of dealing and TRADE USAGE, is derived largely from the work of ARTHUR LINTON CORBIN. One of the leading theorists in the field of contract law in the twentieth century, Corbin did not believe that courts should be bound by a formal reading of the "four corners" of the contract. Corbin was instrumental in the drafting of the UNIFORM COMMERCIAL CODE (UCC), which governs commercial agreements and transactions in most states. Under the UCC, courts may consider course of performance of the parties in order to determine, for example, whether the parties have formed a contract for the sale or lease of goods (U.C.C. §§ 2-208, 2A-207).