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A. Kemp Fisheries, Inc. v. Castle & Cooke, Inc.

Court of Appeals for the Ninth Circuit
852 F.2d 493 (1988)
ELI5:

Rule of Law:

Under California law, the parol evidence rule bars the admission of extrinsic evidence to vary or add to the terms of a fully integrated written agreement. While a court may consider extrinsic evidence to determine if a contract is ambiguous, that evidence is only admissible to prove a meaning to which the contract's language is reasonably susceptible.


Facts:

  • A. Kemp Fisheries, Inc. (Kemp) and Bumble Bee Samoa, Inc. (Bumble Bee) negotiated for Kemp to charter a fishing vessel, the M/V CITY OF SAN DIEGO.
  • In February 1983, they signed a letter of intent, which incorporated telexes and was intended as a temporary agreement pending final documentation, for which Kemp paid a $50,000 nonrefundable deposit.
  • Kemp's president, Louis Kemp, understood from oral representations that Bumble Bee warranted the vessel's engines would be in good working order and its freezing system would meet Kemp's specific needs.
  • In late March, Bumble Bee sent the final Charter Agreement, which did not contain the warranties Kemp expected and instead included a clause disclaiming all express and implied warranties.
  • Despite recognizing these discrepancies, Louis Kemp signed the final agreement without voicing his concerns to Bumble Bee.
  • Kemp took possession of the vessel in April and proceeded to Alaska for fishing season.
  • During the season, two of the three auxiliary engines that powered the vessel's freezing system failed.
  • Later, although the engines were repaired, the freezing system malfunctioned, causing a salmon catch to freeze improperly, be rejected by Kemp's buyer, and result in a significant financial loss.

Procedural Posture:

  • A. Kemp Fisheries, Inc. sued Bumble Bee Samoa, Inc. and its parent company in a federal trial court, asserting claims for breach of contract, misrepresentation, estoppel, and rescission.
  • The trial judge found the written Charter Agreement ambiguous and admitted parol evidence of the parties' prior negotiations.
  • Based on this parol evidence, the trial judge found that Bumble Bee had made enforceable warranties regarding the vessel's engines and freezing system.
  • The trial court entered a judgment in favor of Kemp, holding Bumble Bee liable for all of Kemp's damages resulting from the breach of these warranties.
  • Bumble Bee, the defendant, appealed the trial court's judgment to the U.S. Court of Appeals for the Ninth Circuit.

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Issue:

Does the parol evidence rule bar admission of evidence of prior oral representations regarding warranties when the final written agreement appears fully integrated and expressly disclaims all warranties?


Opinions:

Majority - Wright, J.

Yes. The parol evidence rule bars the admission of evidence of prior oral representations when the final written agreement is fully integrated and contains terms that directly contradict those representations. The court determined that the Charter Agreement was a fully integrated contract because it was comprehensive, the parties were sophisticated commercial actors, and the preceding letter of intent explicitly referred to the Charter as the 'final documentation.' The alleged oral warranties regarding the engines and freezing system directly contradicted the agreement's express waiver of all warranties. While a court must provisionally consider extrinsic evidence to determine if a contract is ambiguous, that evidence is inadmissible if the contract's language is not 'reasonably susceptible' to the interpretation advanced. Here, the contract's language clearly disclaimed warranties and could not be reasonably interpreted to include them, making the trial court's admission of parol evidence an error.



Analysis:

This decision reaffirms the modern application of the parol evidence rule under California law, emphasizing that while courts may provisionally consider extrinsic evidence to assess ambiguity, this does not permit them to rewrite a clear and integrated contract. The ruling highlights the importance of an integration clause or other evidence of finality in commercial agreements. It serves as a strong precedent against allowing prior oral statements to contradict the express terms of a final written contract, especially in transactions between sophisticated parties who have the opportunity to review and negotiate the document. This reinforces the principle that parties must ensure all critical terms are included in the final writing.

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