A Pennsylvania court may interpret a written commercial contract by defining words based on “industry” meanings known as “trade usage.” Courts will go so far as to add an “invisible” term by inferring it into the contract.  For example, a Court may add terms not stated in the contract such as terms inferred from course of dealing and trade usage.

What are these “invisible terms?” A course of dealing is a sequence of previous conduct between the parties to a contract which establishes a meaning of a contract term. As an example, a buyer of widgets for three years paid a seller on the 15th day after the goods were delivered and neither side complained about that practice. The payment by the 15th day after delivery becomes part of the contract.

A “usage of trade” is based on industry practice and refers to a use having regularity of observance in the trade. As an example, company A agrees to sell 1,000 feet of “San Domingo mahogany” to company B. By usage of mahogany dealers, San Domingo mahogany means mahogany of a certain density and it does not have to come from San Domingo. Unless otherwise agreed between the 2 companies, a court would find that the meaning based on density applies.

Generally, a business attorney would do not advocate for a contract to be governed by these “invisible” terms. If a buyer believed in his mind that San Domingo mahogany must come from San Domingo and that type of product was very important to his business, the implied term that the mahogany did not have to come from San Domingo could have a disastrous impact on the business.

The rights and obligations in a written term are easier to understand than are the rights based on an unwritten course of dealing or industry-wide usage of a term.

Comment 2 to UCC § 2-202, provides that course of dealing and usage of trade will be assumed part of the contract, “unless carefully negated.” The language in the contract has to be strong to negate those terms. The following is an example of a strong term:

Evidence of trade usage or of course of dealing must not be used (a) to provide additional terms to this contract and/or (b) to interpret the terms of this contract.

That term is very easy to add to a contract and it can avoid the “invisible” terms but in practice it is difficult to find contracts that use that type of term.

W. Mark Mullineaux