of law.”132 This last point reflects the view that a court is more qualified than a jury to ascertain the meaning of a written document.

Trade usages and customs are objective elements. They exist as a matter of fact grounded in the general practices of firms or persons at the time when and place where the contract was concluded. Presumably, the parties intended to follow an applicable trade usage unless they departed from it by their agreement (interpreted in light of all elements and guides).133 Evidence of a trade usage is admissible whether the jurisdiction follows an objective or subjective theory for resolving ambiguities.

§ 5.2.8. Course of Dealing

The parties’ course of dealing, when there is one, also can be an important element of contract interpretation. The Restatement (Second) follows the UCC in its definition:

A course of dealing is a sequence of previous conduct between the parties to an agreement which is fairly to be regarded as establishing a common basis of understanding for interpreting their expressions and other conduct.134

One instance of dealing will not do because a “sequence” is required.135 When a course of dealing exists, it is integral to a commercial agreement and part of its context, like a trade usage or custom.136 It differs from a trade usage or custom, however, because it concerns what the parties to the contract in question have done in previous transactions, not what firms or persons generally do in similar circumstances. It differs from a practical construction (course of performance) because it does not concern what the parties have done under the contract in question, subsequent to its formation. When in conflict, a course of dealing weighs more heavily than a trade usage. A practical construction weighs more than a course of dealing.137 The express terms normally have the greatest weight;138 parties can, of course, change their course of dealing. Most courts hold

132Id.

133UCC § 303(e) (2001).

134RESTATEMENT (SECOND) OF CONTRACTS § 223(1) (1981); UCC § 1-303(b) (2001).

135Kern Oil & Refining Co. v. Tenneco Oil Co., 792 F.2d 1380, 1385 (9th Cir. 1985).

136UCC § 1-201(b)(3) (2001).

137Id. at § 1-303(e); RESTATEMENT (SECOND) OF CONTRACTS § 203(b) (1981).

138UCC § 1-303(e) (2001); RESTATEMENT (SECOND) OF CONTRACTS § 203(b) (1981).

that a course of dealing must reveal what the parties intended by the language they used, not an intention independent of the contract’s express terms.139 However, the Restatement (Second) would allow a course of dealing to “supplement or qualify” the agreement unless the parties otherwise agreed.

A striking use of a course of dealing will be found in American Federation of State, County, and Municipal Employees Local 2957 v. City of Benton.140

A union contract, concluded with an employer in 2002, provided:

The Employer [the City of Benton] shall continue to provide health, accidental death and dismemberment, disability, life and retirement insurance. Employee and employee dependent’s health insurance coverage is set forth in Appendix B.141

Appendix B provided that “[t]he City of Benton shall provide insurance coverage for each employee while employed with the City of Benton.”142 A dispute arose when the city terminated the health insurance it had been providing for retired employees. The union brought an action against the City for breach of contract, arguing that the quoted clause in Appendix B did not apply because health insurance was part of “retirement insurance.” The city relied on the clause from Appendix B.

The court decided that the contract was ambiguous and considered the parties’ course of dealing. The course of dealing revealed that the city had paid retiree health insurance for many years. The city changed this policy in 1989 by a resolution to withhold retiree health insurance. But it did not apply the change to union-represented retired employees. In part for this reason, the court held that the city’s reliance on Appendix B was misplaced. The retired, union-represented employees were entitled to health insurance as part of “retirement insurance.”143 The court’s holding is remarkable because Appendix B, by a clear, express term, limited the provision of health insurance to employees “while employed” with the City of Benton. The appendix was part of the contract, attached and incorporated by reference. The course of dealing prior to 2002 was more specific than and inconsistent with this express provision. The court, however,

139Intern. Ins. Co. v. RSR Corp., 426 F.3d 281, 295 (5th Cir. 2005); Hollis v. Garwall, 695 P.2d 836, 843 (Wash. 1999).

1402007 WL 496760 (E.D. Ark. 2007).

141Id. at *1.

142Id. at *3.

143Id.

for better or worse, gave greater weight to the course of dealing than to the express terms.

Recourse to a course of dealing, as normally defined, implements a subjective theory of contract interpretation. By requiring prior “conduct” by the parties, course of dealing relies on an objective factor. However, as the Restatement (Second) and the UCC define it, that conduct must be “fairly to be regarded as establishing a common basis of understanding for interpreting [the parties’] expressions and other conduct.”144 A “common basis of understanding” is subjective. In this respect, course of dealing is part of the law’s generally subjective approach to the resolution of ambiguities.

§ 5.2.9. Practical Construction (Course of Performance)

When resolving an ambiguity, evidence of the parties’ practical construction, also called a “course of performance,” is very strong evidence of their intention when making the contract.145 The Restatement (Second) explains a narrow view of a course of performance, as follows:

Where an agreement involves repeated occasions for performance by either party with knowledge of the nature of the performance and opportunity for objection to it by the other, any course of performance accepted or acquiesced in without objection is given great weight in the interpretation of the agreement.146

The UCC is to the same effect, except that a course of performance is only “relevant to interpretation,” though it has greater weight than a course of dealing or usage of trade.147 Unlike a course of dealing, which concerns the parties’ dealings before concluding the contract in question, or a trade usage, which concerns what similar firms or persons generally do in similar circumstances, a course of performance concerns what the parties to the contract in question repeatedly do after formation and in its performance. A broader view will be discussed in this section below.

To illustrate, in Robson v. United Pacific Insurance Co.,148 a construction subcontract called for a subcontractor to crush some dolomite rock.

144RESTATEMENT (SECOND) OF CONTRACTS § 223(1) (1981); U.C.C. § 1-303(b) (2001).

145RESTATEMENT (SECOND) OF CONTRACTS § 202, cmt. g (1981).

146Id. at § 202(4).

147U.C.C. § 1-303(a) & (d) (2001); U.C.C. § 2-208 (2001).

148391 S.W.2d 855 (Mo. 1965).

A dispute arose when the prime contractor’s surety refused to pay for crushed rock that the subcontractor had not crushed to the size specified in the prime contract. The subcontract was ambiguous as to who was responsible for meeting the specification. The court looked to the parties’ performances under the contract to resolve the ambiguity. The subcontractor had crushed much rock to a size greater than the specifications called for. The prime contractor’s agent had directed the crushing to those sizes, and he had accepted the rock as the subcontractor had crushed it. This pattern continued for some time, during which the prime contractor repeatedly visited the site, knew what was happening, and did not object. The court held:

There is a recognized rule to the effect that, where the parties to a contract have agreed upon the acts which will be accepted as full performance of a contract, the courts will generally follow that agreement.149

However, notwithstanding the Restatement (Second) and the UCC, some courts go beyond the parties’ conduct in performance of the contract in question to include other conduct under the rubric of practical construction. A party, for example, may act, prior to the interpretive dispute arising, inconsistently with the interpretive position it later advances. The courts will rely on such conduct as an indicator of what that party’s intention was when making the contract.

This broad view was employed in Coliseum Towers Associates v. County of Nassau.150 The issue centered on who had contracted to pay the real estate taxes on certain leased property. The lease was ambiguous on the point. After the contract was concluded, however, the lessee paid the taxes for seven years without protest. This conduct is consistent with the narrow view because it was in performance of the lessee’s contractual obligation. The court, however, did not stop there. It considered that the lessee had challenged the taxes assessed against the property and, in a separate proceeding, had challenged the property’s assessed valuation. This conduct shows that, before the dispute arose, the lessee believed that it was obligated to pay the taxes. But this conduct was not in performance of its contractual obligations. The court did not report that the lessor

149Id. at 862.

150769 N.Y.S.2d 293 (App.Div. 2003). See also Sawyer v. Farm Bureau Mut. Ins. Co., 619 N.W.2d 644, 649 (S.D. 2000); Klebe, 894 F.Supp. at 905–06.