An innkeeper and a farmer routinely transact produce. The invoices reflect a 5 percent discount for cash payments; industry custom provides 5 percent discount for cash payments and 5 percent for predelivery, while the contract says no predelivery discount. Extrinsic evidence indicates a 5 percent cash discount. What discount applies?

• A. 5% discount for cash payments applies due to course of dealing
• B. 0% because the contract prohibits predelivery discounts
• C. 10% discount because cash and predelivery combine
• D. 5% discount for predelivery payments applies

Answer: (A)

In commercial contracts, terms like discounts can be clarified or filled in by looking at how the parties have behaved in the past and how the industry normally operates. This is the idea of course of dealing and usage of trade. Here, invoices show a 5% discount for cash payments, and extrinsic evidence confirms that the parties have routinely granted a cash discount. Although industry custom would typically provide both a cash discount and a predelivery discount, the contract explicitly prohibits predelivery discounts.

Because the parties’ prior practice and the explicit cash-discount evidence align, the interpretation supported by course of dealing is that a 5% discount for cash payments applies. The predelivery discount cannot be added due to the contract’s prohibition, and you don’t combine discounts unless the contract and governing usage permit it. So the cash discount is the applicable term.