What is it?
This term functions as a contractual clause type governing scope and materiality. It controls whether an action qualifies as routine business activity for purposes like closing a deal or meeting payment terms.
ordinary course of business
UCC / CommercialLegal glossary term
Quick answer
What does ordinary course of business mean?
Ordinary course of business usually means customary actions a company performs within a specified timeframe. In contracts, it matters because it defines what counts as routine activity during a sale or dispute resolution. Before signing, check if the definition explicitly lists inclusions or exclusions.
Definitions
What is ordinary course of business?
Legal Definition
The ordinary course of business describes customary actions a company performs within a set timeframe. This standard defines what constitutes routine activity, which dictates obligations under agreements or during litigation proceedings. Practitioners often focus on whether the action is truly habitual or merely unusual for that specific enterprise.
Plain-English Translation
It’s like a hall pass; if you use it every day to go to the swings, using it once isn't unusual—it’s part of your ordinary course.
Term context
How ordinary course of business shows up in legal documents
Why does it matter?
Ignoring this standard can void a purchase agreement or prevent a defendant from claiming necessary defense, putting the risk squarely on the party asserting that the act was extraordinary.
When does it matter?
This term triggers when a contract requires an action 'in the ordinary course of business' or when determining if a financial transaction occurred within the normal operating cycle.
Where is it usually seen?
It appears frequently in merger and acquisitions contracts, loan covenants, and often underlies determinations made by courts reviewing breach claims under commercial practice.
Who is affected?
A seller gains protection if they claim an asset transfer was routine; conversely, a lender risks default if payments aren't made during the ordinary course of their borrower’s business.
How does it work?
First, one establishes what the business is. Next, one examines the specific action being questioned against that standard. Finally, a judge or arbitrator determines if the action aligns with typical operations for that entity.
Contract relevance
Why ordinary course of business matters in contracts
Ignoring this standard can void a purchase agreement or prevent a defendant from claiming necessary defense, putting the risk squarely on the party asserting that the act was extraordinary.
Document context
Where ordinary course of business appears in documents
| Document type | Section | Why it matters |
|---|---|---|
| Merger & Acquisition Agreements | Purchase Price Adjustment Clause | Determines when closing adjustments are calculated. |
| Service Contracts | Scope of Work Section | Defines activities that don't require an extra change order. |
| Litigation Discovery Filings | Motion Practice Documents | Proves routine actions occurred leading up to a claim or defense. |
| Loan/Financing Agreements | Covenant Definitions | Establishes what constitutes normal operational performance for the lender. |
| Asset Purchase Agreements | Closing Deliverables List | Specifies which ongoing operations are being transferred as part of the sale. |
Contract language
Common contract wording
| Contract wording | Plain-English meaning | What to check |
|---|---|---|
| Actions taken in the ordinary course of business | Routine, day-to-day activities customary for the entity | Ensure your core revenue generation activities qualify. |
| Standard operational procedures and customs | The usual way things get done within that industry/company | Verify if this language is broad or narrowly defined. |
| As is in the ordinary course of business | Whatever the company normally does, without special event consideration | Confirm what specific exceptions are carved out from this standard. |
Red flags
Red flags to watch for
Without further definition (e.g., 'and related activities')
This allows opposing counsel to argue very broadly or very narrowly about scope
What to check: Demand a clear list of inclusions/exclusions.
'Except for extraordinary events' without listing them
This vague exception invites argument over what qualifies as 'extraordinary'
What to check: Insist on defining the threshold for an event.
Only mentioning 'sales and distribution'
If the business is also heavy on R&D or manufacturing, this limits the scope too much
What to check: Make sure all core functions are covered by that phrase.
Using 'as customary' alone in a major contract
Customary means different things to different parties; it lacks objective measurement
What to check: Tie 'customary' to specific industry benchmarks if possible.
Wording examples
Clearer wording examples
Vague wording
Routine, day-to-day activities of the Seller
Clearer wording
Standard business functions performed without special project designation.
Vague wording
Within the normal operating cycle of this company's industry
Clearer wording
Activities that fall within established market expectations for this type of enterprise.
Vague wording
As defined in Exhibit A (See attached definition)
Clearer wording
Directing the reader to a concrete, agreed-upon list or metric.
Note: “clearer” means easier to read — not legally reviewed or guaranteed safe.
Pre-signature checklist
What to check before signing
1
Does the contract explicitly define 'ordinary course of business'?
2
Are there specific examples listed that are definitely IN scope?
3
Are there specific exceptions or exclusions clearly called out?
4
Is the timeframe for these activities specified (e.g., 'prior to closing')?
5
Does it apply only to one party, or both parties involved in the agreement?
6
If ambiguous, does the contract default to a reasonable industry standard?
Party impact
How ordinary course of business affects each party
| Party | What this party should check |
|---|---|
| Seller/Company | Must ensure their normal operations are covered so they aren't liable for things that happened outside routine actions. |
| Buyer | Needs assurance that the Seller hasn't secretly paused key functions just before closing, claiming it wasn't 'ordinary'. |
| Service Provider | Should verify if ongoing maintenance or support services fall under this standard scope. |
| Borrower | Must confirm that normal revenue generation activities qualify to meet debt covenants. |
Comparison
ordinary course of business vs similar terms
| Related term | Plain meaning | Main difference from ordinary course of business |
|---|---|---|
| Extraordinary Event | A significant, non-recurring occurrence (e.g., a massive lawsuit settlement) | Ordinary course actions are routine; extraordinary events are outliers. |
| Normal Course of Business | Essentially the same as ordinary course, but sometimes implies adherence to industry norms more strictly | The difference is subtle—one focuses on *what* you do, the other on *how* it aligns with peers. |
| Materiality Threshold | An action or change that crosses a specific dollar amount or operational significance level | Ordinary course actions are routine; materiality requires them to cross a pre-agreed importance line. |
Missing or vague
If ordinary course of business is missing or vague
If this term remains undefined, disputes often arise over whether an activity was simply unusual for the past quarter. For instance, did a sudden spike in international shipping count as 'ordinary'?
Another major conflict centers on what constitutes an exclusion; one party might argue that cleaning up old inventory is routine, while the other claims it's a special disposal project.
This vagueness forces courts to apply external industry standards or judge the actions based on the context of the entire agreement.
Document map
Document section map
| Contract section | What to inspect |
|---|---|
| Definitions Section | Look for a dedicated clause defining 'Ordinary Course of Business' (OCB). |
| Closing Conditions/Deliverables | Check here to see what specific items are transferred under OCB. |
| Indemnification Clauses | Review these to see if the indemnity obligation applies only for actions taken in OCB or all actions. |
| Change Order Process | Ensure the contract specifies that changes *outside* OCB require a formal amendment process. |
Visual model
Understand ordinary course of business fast
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01
A franchisor requires its franchisee to purchase supplies in the ordinary course of business, triggering a compliance check.
02
During litigation, a defendant’s routine payroll disbursement is deemed an ordinary course activity, preventing them from claiming it was a unique error.
03
When reviewing a merger agreement, the buyer confirms that asset sales occurred within the ordinary course of the target company's operations.
Questions & answers
Common questions about ordinary course of business
What does ordinary course of business mean?
Ordinary course of business usually means customary actions a company performs within a specified timeframe. In contracts, it matters because it defines what counts as routine activity during a sale or dispute resolution. Before signing, check if the definition explicitly lists inclusions or exclusions.
What is ordinary course of business in plain English?
It’s like a hall pass; if you use it every day to go to the swings, using it once isn't unusual—it’s part of your ordinary course.
Why does ordinary course of business matter in a contract?
Ignoring this standard can void a purchase agreement or prevent a defendant from claiming necessary defense, putting the risk squarely on the party asserting that the act was extraordinary.
When does ordinary course of business apply?
This term triggers when a contract requires an action 'in the ordinary course of business' or when determining if a financial transaction occurred within the normal operating cycle.
Where does ordinary course of business appear in documents?
It appears frequently in merger and acquisitions contracts, loan covenants, and often underlies determinations made by courts reviewing breach claims under commercial practice.
Who is affected by ordinary course of business?
A seller gains protection if they claim an asset transfer was routine; conversely, a lender risks default if payments aren't made during the ordinary course of their borrower’s business.
How does ordinary course of business work?
First, one establishes what the business is. Next, one examines the specific action being questioned against that standard. Finally, a judge or arbitrator determines if the action aligns with typical operations for that entity.
What happens if ordinary course of business is missing or vague?
If this term remains undefined, disputes often arise over whether an activity was simply unusual for the past quarter. For instance, did a sudden spike in international shipping count as 'ordinary'? Another major conflict centers on what constitutes an exclusion; one party might argue that cleaning up old inventory is routine, while the other claims it's a special disposal project. This vagueness forces courts to apply external industry standards or judge the actions based on the context of the entire agreement.
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Wikipedia
Ordinary course of business
In United States law, the ordinary course of business (OCB) covers the usual transactions, customs and practices of a certain business and of a certain firm. This term is used particularly to judge the validity of certain transactions. It is used in several...
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Where ordinary course of business connects to real contract work
This layer links the term to nearby glossary entries, document use cases, and contract-risk guides so readers can move from definition to context without dead ends.
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Glossaryordinary courseordinary course often shapes similar contract language wording, negotiation leverage, and the plain-English meaning of the clause a...Glossaryacquisitionacquisition often shapes similar contract language wording, negotiation leverage, and the plain-English meaning of the clause aroun...Glossaryagreementagreement often shapes similar contract language wording, negotiation leverage, and the plain-English meaning of the clause around...
BGRisk context hubGlossary meaning, document paths, and adjacent risk pages connected around this clause.
Use caseAnalyze Service AgreementBusiness & Commercial Contracts: Analyze a Service Agreement online and spot risky wording fast.Use caseAnalyze Partnership AgreementBusiness & Commercial Contracts: Analyze a Partnership Agreement online and spot risky wording fast.Use caseCheck Consulting AgreementBusiness & Commercial Contracts: Check a Consulting Agreement for common risks and hidden one-sided clauses.RiskLate payment clause in freelance contractsPlain-English risk guide for late payment clause in freelance contracts.RiskFinancial liability in contractsPlain-English risk guide for financial liability in contracts.RiskPayment terms contract risksPlain-English risk guide for payment terms contract risks.
Source & disclosure
This page is an AI-assisted plain-English explanation based on LexPredict Legal Dictionary context and contract-review patterns. It is not legal advice. Meaning may vary by jurisdiction, industry, and exact clause wording.
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