The ordinary course of business is anything that falls within the scope of activities that would be considered normal for a business. When the legality or legitimacy of transactions is challenged, one of the tests used to determine whether the challenge has merit is to examine the transaction to see if it was within the ordinary course of business. Legal codes pertaining to business matters usually define this terminology for the benefit of people involved in legal disputes, and there may be further definitions in the areas of the legal code that cover specific industries.
In order to be within the ordinary course of business, a transaction must adhere to the practices and customs that are considered normal for an industry. It would not be unusual for businesses in the same industry to engage in transactions similar to a transaction under examination. All parties also engaged in the transaction in good faith, with the understanding or belief that the other party was operating within the law and that the transaction was normal.
Thus, buying a sack of oranges at the grocery store is considered a transaction that is well within the ordinary course of business; grocery stores usually sell produce. Conversely, purchasing financial products from a hairdresser would not be, because this type of transaction is not normal for hairdressers and it does not fall within the standards and practices that one would expect to see in a salon. In the case of financial products, where there are regulations about who can sell such products and in what settings, the hairdresser may have been fraudulently representing him or herself in the transaction.
When a transaction is contested and it is not considered ordinary given the situation, the transaction may be invalidated, as will agreements associated with it. Conversely, a business defending itself from a charge that a transaction is not valid can provide evidence that it was, in fact, within normal parameters for the industry. If the court agrees, the transaction will be allowed to stand, as will an obligations associated with it.
Determining whether something is within the ordinary course of business or not can involve evaluating similar types of businesses and industries to see if they engage in similar types of transactions. Other tests can include questioning the parties to the transaction and checking regulations to see if they outline any practices for a given profession or industry.
