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transaction. A course of performance exists only if (1) the parties’ agreement concerning the transaction contemplates repeated occasions for performance by at least one party, and (2) the other party knows of the performance’s nature and has a chance to object to it, but that other party accepts the performance or acquiesces to it without objection. A course of dealing is a sequence of conduct involving transactions between the parties that arose prior to the agreement being interpreted. The prior sequence of conduct must be fairly regarded as establishing a common basis for understanding to interpret the parties’ expressions and other acts. a. Relevance of Course of Performance and Course of Dealing in Interpreting a Contract A course of performance or course of dealing between the parties (1) is relevant to ascertain the meaning of their agreement, (2) may lend meaning to discrete terms in the agreement, and (3) may qualify or supplement the agreement’s terms. Course of performance is also relevant to show waiver or modification of a term inconsistent with the course of performance. 2. Usage of Trade A usage of trade is a practice or a method of dealing so regularly observed in a place, trade, or vocation that one could justifiably expect the parties to observe it in the transaction being interpreted. To factor into contract interpretation, the usage must be reasonable. Courts normally presume reasonableness if the usage is regularly observed, but even here, courts may apply the rules on unconscionability to disregard unscrupulous, dishonest, or illegal practices. a. Relevance of Usage of Trade in Interpreting a Contract Usage of trade is relevant to contract interpretation in the same way as course of performance and course of dealing. But to be considered at all, a usage of trade must be (1) one the parties know about or should know about, or (2) in some vocation or trade that the parties are engaged in. 3. Hierarchy of Interpretation: Express Terms, Course of Performance, Course of Dealing, and Usage of Trade As a general rule, the agreement’s express terms and any applicable course of performance, course of dealing, and usage of trade must be construed consistently with each other. But if this sort of construction is unreasonable:
express terms control course of performance, course of dealing, and usage of trade; course of performance controls course of dealing and usage of trade; and
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