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Author: Christopher W. Carmichael
Article 2 of the Uniform Commercial Code (UCC) states the written terms of a contract can override the opposing party's differing understanding under the right circumstances.
Mark Twain said:
I have signed a lot of contracts in my time, and at sometime I probably knew what the contracts meant, but six months later everything had grown dim and I could be certain of only two things, to wit:
One, I didn't sign any contract.
Two, the contract means the opposite of what it says.
Article 2 of the Uniform Commercial Code & unwritten intent
Twain's second comment is true to real life even today. Invariably, when a deal goes sour, one party claims the contract means something other than what is says. This is usually followed by an attempt to submit extrinsic evidence to supplement or change the agreement. But, Article 2 of the Uniform Commercial Code, which applies to all contracts for the sale of goods, prohibits the use of extrinsic evidence where the parties provide for a fully integrated contract, as the Seventh Circuit recently explained.
Seventh Circuit enforces the contract as written
In Druckzentrum Harry Jung GmbH & Co. KG v. Motorola Mobility, LLC, 774 F.3d 410 (December 18, 2014) the Seventh Circuit, provided a reminder that, at least under Article 2 of the Uniform Commercial Code, a contract is the final written expression of the parties rights and responsibilities when the parties say it does. The contract in Druckzentrum contained a clause stating that the contract was the entire understanding of the parties and supersede everything else. Yet, Druckzentrum sought to use outside evidence to show that the parties intended there would be exclusivity, even though the contract contained no promise of exclusivity.
The Seventh Circuit, in applying Article 2, explained that § 2-202 precludes the use of outside evidence to explain or supplement the contract. To overcome the prohibition in § 2-202, Druckzentrum argued that the exception in § 2-202(b), which allows evidence of consistent additional terms, allowed Druckzentrum to submit outside evidence about the intent for exclusivity. The Seventh Circuit, however, noted that the exception in § 2-202(b) does not apply if the contract is fully integrated.
Druckzentrum, trying to fit within the exception, argued that the agreement could not be fully integrated because it incorporated other documents. But, as the Seventh Circuit explained, the fact that the contract specifically incorporated certain documents, necessarily excluded any others not mentioned. Thus, Druckzentrum could not overcome the integration clause. The contract was enforced as written and Druckzentrum lost on summary judgment.
Takeaway - Remember that application of Article 2 can lead to a different outcome than the common law
Although some of the phraseology in Article 2 may vary slightly from state to state, the critical provisions of the code are mostly uniform throughout the nation. Hence, the Seventh Circuit's ruling is helpful guidance for all contracts for the sale of goods, and a reminder of how the UCC can create different outcomes than the common law.
Christopher W. Carmichael
Holland & Knight
Christopher W. Carmichael is a partner in Holland & Knight's Chicago office, concentrating on commercial disputes and appeals.