Commercial relationships often develop over time, with businesses working together through multiple transactions, purchase orders, invoices, renewals, and contract amendments. The parties’ history may establish patterns in how they performed their obligations or interpreted particular terms. When a later disagreement arises over ambiguous language, that history can become relevant to understanding the agreement.
The use of prior dealings evidence may arise when the written terms do not fully resolve a dispute about meaning. A court may consider the parties’ previous interactions when evaluating whether their established course of dealing provides context for interpreting a commercial agreement.
What Is a Course of Dealing?
A course of dealing generally refers to a sequence of prior transactions between the same parties that establishes a common basis for understanding their contractual relationship.
For example, two businesses may have repeatedly operated under agreements containing similar language. If they consistently interpreted a particular provision in the same manner across several transactions, that history may become relevant when a dispute later develops over the meaning of similar language.
The significance of prior dealings depends on the circumstances. A single prior transaction may carry different weight from a lengthy history involving repeated agreements and consistent performance.
When Written Terms Are Ambiguous
Prior conduct may become particularly relevant when a contractual provision is unclear or open to competing interpretations.
A business may argue that the parties’ previous transactions demonstrate how they understood a particular term. The opposing party may contend that the earlier conduct involved different circumstances or agreements and therefore does not establish a shared interpretation.
The court may examine the contractual language alongside the surrounding evidence to determine whether the parties’ history provides meaningful context.
Repeated Transactions Can Establish Patterns
Businesses that work together over an extended period may develop consistent practices that are not restated in every agreement.
For instance, a supplier may regularly provide invoices on a particular schedule, while the buyer consistently pays according to an established timing practice. If the parties later disagree about a new contract containing similar language, their previous transactions may become relevant to the interpretation of the disputed provision.
The strength of such evidence can depend on how consistent the prior conduct was and whether the transactions involved substantially similar terms and circumstances.
Prior Contracts May Differ From the Current Agreement
A history of business dealings does not necessarily mean that every prior agreement has the same legal significance as the current contract.
The parties may have changed their contractual language over time. An earlier agreement may have contained a provision that was later revised or removed. The differences between the documents may therefore become relevant when determining whether previous practices continue to inform the current relationship.
A party relying on earlier transactions may need to address differences between the prior agreements and the contract at issue.
Conduct Can Support More Than One Interpretation
Prior dealings may not always point clearly toward a single interpretation.
The parties may have acted consistently in some situations while handling similar circumstances differently in others. Their conduct may also have changed after a new agreement was signed.
When the historical record is inconsistent, the court may need to determine how much weight to give the prior conduct in relation to the language of the current agreement.
Course of Dealing and Course of Performance
Course of dealing and course of performance are related concepts but can involve different circumstances.
A course of dealing generally concerns the parties’ conduct across previous transactions before or outside the agreement currently being disputed. Course of performance focuses on how the parties performed under the agreement at issue.
For example, businesses that have completed several prior contracts may establish a course of dealing. Their conduct while performing a newly signed contract may instead provide evidence concerning course of performance.
The distinction can matter when evaluating what evidence is relevant to a contract interpretation dispute.
Industry Practices May Provide Additional Context
Commercial agreements often operate within established industries where certain practices are commonly understood.
A business may argue that a disputed term should be interpreted according to industry custom or usage. The opposing party may rely on the contract’s specific wording or argue that the industry practice does not apply to the particular transaction.
The legal significance of industry usage can depend on the circumstances and the applicable rules of contract interpretation.
The Parties’ Communications May Reveal Their Understanding
Emails, letters, meeting notes, and other communications can provide context concerning how businesses understood their contractual relationship.
For example, a party may have repeatedly described a particular obligation in the same manner across multiple transactions. Those communications may become relevant when the parties later disagree over the meaning of a similar provision.
The timing of the communications can also matter. Communications made before the current contract was executed may raise different issues from statements exchanged while the parties were performing under the agreement.
Silence and Failure to Object
A party’s failure to object to a particular practice may also become part of the factual record.
For example, if one business repeatedly received invoices calculated according to a particular method and paid them without objection, the other party may argue that this conduct demonstrates an established understanding.
The significance of silence depends on the circumstances. A lack of objection may have limited value when the party had no reason to recognize the disputed issue or when the transactions involved materially different circumstances.
Changes in Business Relationships
Long-term commercial relationships can evolve.
A business may change its management, accounting systems, operational procedures, or contractual policies. A practice that was accepted for years may later be challenged after a new agreement or business arrangement is introduced.
When this occurs, the parties may disagree about whether the historical relationship continues to provide meaningful context for interpreting the newer contract.
The court may consider the timing of the change and whether the parties expressly modified their contractual relationship.
Limits on Using Prior Dealings to Interpret Contracts
Prior conduct does not necessarily override clear contractual language.
A court may first examine the written agreement and then consider whether the surrounding circumstances provide relevant context. The admissibility and weight of evidence concerning prior transactions can depend on the legal issue being presented.
The analysis may also differ when a party seeks to use historical conduct to explain an ambiguous term versus attempting to contradict an express provision in a written agreement.
When Prior Dealings Become Relevant in Commercial Litigation
Disputes involving historical business practices may require examination of records extending across multiple transactions.
Relevant materials can include:
- Previous contracts
- Purchase orders
- Invoices
- Payment records
- Emails
- Internal communications
- Amendments
- Renewal agreements
- Meeting records
- Correspondence concerning disputed terms
Reviewing this history can help establish how the parties interacted before the current dispute arose and whether their conduct remained consistent over time.
At Jabaly Law, we help businesses navigate commercial contract disputes where the history of a business relationship may affect how an agreement is interpreted. Our commercial litigation attorneys review prior agreements, transaction records, communications, and performance patterns to assess the contractual issues at the center of the dispute.
When prior dealings evidence becomes relevant to a disagreement over contractual terms, we can assist with negotiations, dispute resolution, and commercial litigation. Contact our attorneys to discuss the circumstances surrounding the agreement and the business relationship involved.
Frequently Asked Questions
What is the difference between course of dealing and course of performance?
Course of dealing generally concerns conduct across previous transactions between the parties, while course of performance concerns how the parties have acted while carrying out the agreement currently at issue. The distinction can affect how historical conduct is evaluated in a contract dispute.
Can prior dealings be relevant if the current contract has different language?
Prior dealings may still provide context, but differences between earlier agreements and the current contract can affect the significance of the historical conduct. The specific language and circumstances surrounding each agreement may be relevant.
Does a company’s change in ownership affect prior dealings evidence?
A change in ownership or management may raise questions about whether a new party had knowledge of or participated in the historical practices. The legal significance can depend on the structure of the transaction and the relationship between the prior and current parties.
Can prior dealings establish a contractual obligation that is not written?
Historical conduct may be relevant to disputes concerning the parties’ understanding of their relationship, although it does not necessarily create a new contractual obligation. The analysis depends on the agreement, the parties’ conduct, and applicable contract law.
How long must businesses have a relationship for prior dealings to matter?
There is no universal number of transactions or length of time required for prior dealings to become relevant. The consistency, frequency, and similarity of the prior transactions may be more significant than the duration of the relationship alone.
Can prior dealings be used to interpret a merger clause?
A merger clause may affect the role of prior negotiations and agreements when interpreting a written contract. The impact of historical business conduct can depend on whether the evidence is being offered to explain an ambiguity, establish a separate agreement, or contradict the written terms.
Can a business revoke a prior course of dealing?
A business may change its practices or expressly establish different terms in a new agreement. Whether a prior course of dealing remains relevant after such a change can depend on the new contractual language and the parties’ subsequent conduct.
Does a course of dealing apply to affiliated companies?
Prior transactions involving related but legally distinct entities may raise separate questions about whether the historical conduct is attributable to the parties in the current contract. The identities of the contracting parties and the circumstances of their prior dealings can affect the analysis.
