Wednesday, April 10, 2019

When does "all" mean all? Parol Evidence and UCC 2-202

Courts sometimes struggle to properly apply the parol evidence rule, particularly when it comes to 2-202. In Qwinstar Corporation v. Anthonythe district court considered application of section 2-202 and its exceptions. Quinstar Corporation (“Quinstar”) contracted to purchase the “all of [the] right, title and interest in and to the” inventory of a competitor, Pro Logistics, LLC (“Pro Logistics”), for $50,000 and to employ its owner, Curtis Anthony (“Anthony”), for five years at $200,000 per year. During negotiations Pro Logistics provided Quinstar an inventory list dated January 2013 showing parts valued over $4.7 million, but the parties did not sign their contract until months later. In the interim, Pro Logistics continued to sell inventory. Quinstar did not make any independent assessment of the inventory.  When a dispute developed a year later over the amount of Pro Logistics parts remaining on hand, Quinstar terminated Anthony’s employment and brought suit for breach of contract, claiming that Pro Logistics breached by not transferring all the assets recorded on the January 2013 inventory list. The district court granted summary judgment to Anthony.  

The Eighth Circuit Court of appeals affirmed as to the inventory, using the parol evidence rule.   The court rejected Quinstar’s arguments that the January 2013 inventory list delineated what “all” inventory purchased meant and found the agreement to purchase “all” of the inventory was “unambiguous,” such that no parol evidence was admissible “to contradict, explain or supplement the terms.”  The court also noted that the contract contained a merger clause “superseding all oral and written proposals, representations, understandings and agreements . . . .”   The court concluded that “all” meant “all inventory he had at the time [the contract] was executed” and that the merger clause applied.  The court observed that “[h]ad the parties wished to define the ‘assets’ to include all parts described in Anthony’s inventory list, they could have incorporated that document into the [contract] by reference.”   

While appearing correct as to result, the court’s analysis of the merger clause doesn't address section 2-202(2)’s standard toward admissibility that permits extrinsic evidence “unless the court finds the writing to have been intended also as a complete and exclusive statement of the terms of the agreement.” The court’s analysis also does not take into account that, under comment 1, a finding that language is “ambiguous” is not even a “condition precedent to the admissibility of course of dealing, usage of trade and course of performance used to explain or supplement the agreement.  Ultimately, this mattered because without the parol evidence “Quinstar  . . .presented no evidence that Anthony failed to deliver the inventory he possessed at the time the [contract] was executed" and was "unable to prove that Anthony breached the contract.”  

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