Legal Memorandum: Contract Clause by Course of Dealing

Issue: Under Massachusetts law, may a clause become part of a contract through the course of dealing?

Mass. Gen. Laws Ann. ch. 106, § 1-205(1) (West 1990) defines course of dealing as "a sequence of previous conduct between the parties to a particular transaction which is fairly to be regarded as establishing a common basis of understanding for interpreting their expressions and other conduct."

In Winter Panel Corp. v. Reichhold Chems., Inc., 823 F. Supp. 963 (D. Mass. 1993), the defendant argued that even though the damage limitation clause was considered a material alteration, it should be considered part of the contract because it was a part of the parties’ contracts during a thirteen-month course of dealing involving eleven shipments of chemicals and acknowledgments sent with each shipment that contained the clause, thus eliminating the plaintiff’s argument that it was subject to unfair surprise.  823 F. Supp. at 971.  To support this argument, the defendant cited two cases in which the courts held that a course of dealing developed prior to the events of the dispute put the buyer on notice of the terms of the contract.  Id. (citing Schulze & Burch Biscuit Co. v. Tree Top, Inc., 831 F.2d 709, 714 (7th Cir. 1987); Mid-South Packers, Inc. v. Shoney’s, Inc., 761 F.2d 1117, 1123 (5th Cir. 1985)). 

The Winter Panel court distinguished these cases on their facts, noting that plaintiff Winter Panel had complained of defects in all of the eleven shipments sent to it so that there had been no "prior history of harmonious dealings" […]