C-Thru Container Corp. v. Midland Manufacturing Co.
533 N.W.2d 542, 1995 WL 374787 (1995)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
Under the Uniform Commercial Code's parol evidence rule (U.C.C. § 2-202), evidence of trade usage is admissible to supplement a final, written agreement for the sale of goods, even if the agreement is complete and unambiguous, provided the trade usage does not directly contradict an express term of the contract.
Facts:
- In March 1989, C-Thru Container Corporation entered into a contract with Midland Manufacturing Company.
- Under the contract, Midland agreed to purchase bottle-making equipment from C-Thru and manufacture commercially acceptable bottles for C-Thru.
- Midland was to pay for the equipment via a credit against C-Thru’s future bottle purchases, which C-Thru expected to be between 500,000 and 900,000 bottles in 1989.
- Midland retrieved the equipment and notified C-Thru that it was ready to begin production.
- C-Thru never ordered any bottles from Midland, instead purchasing them from another supplier at a lower price.
- C-Thru alleged that in phone conversations, Midland had indicated it was unable to produce commercially acceptable bottles.
- In 1992, Midland notified C-Thru it was rescinding the contract and later foreclosed on an artisan's lien, selling the equipment.
Procedural Posture:
- C-Thru Container Corporation filed a petition against Midland Manufacturing Company in an Iowa district court (trial court), alleging breach of contract.
- Midland filed a motion for summary judgment, arguing it had not breached because C-Thru never placed an order.
- The trial court granted Midland's motion for summary judgment, ruling that the parol evidence rule barred C-Thru's evidence of trade usage (the practice of providing sample bottles).
- C-Thru (as appellant) appealed the decision to the Iowa Court of Appeals.
- The Court of Appeals reversed the trial court's judgment, concluding the trade usage evidence should have been considered.
- Midland (as appellant) applied for and was granted further review by the Supreme Court of Iowa.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Does the parol evidence rule under U.C.C. § 2-202 permit the introduction of trade usage evidence to supplement a complete and unambiguous written contract with a new term that is not expressly contradicted by the contract?
Opinions:
Majority - Ternus, Justice
Yes, the parol evidence rule under U.C.C. § 2-202 permits the introduction of trade usage evidence to supplement a complete and unambiguous written contract. Unlike the common law, the U.C.C. explicitly allows a final written agreement to be 'explained or supplemented' by usage of trade. The court rejected Midland's argument that the contract must be ambiguous, citing official U.C.C. comments which state that the ambiguity requirement is 'definitely reject[ed].' The court reasoned that commercial contracts are presumed to be made with reference to the usages of trade. Because the statute uses the word 'supplement,' which means 'to add to,' trade usage evidence is admissible even if it adds a new term, as long as it does not directly contradict an express term of the written agreement. Here, the alleged trade usage of providing sample bottles before an order is placed does not contradict any term in the silent contract and is therefore admissible.
Analysis:
This decision clarifies that the U.C.C.'s version of the parol evidence rule is significantly more permissive than its common law counterpart. It establishes that trade usage is not merely an interpretive tool for ambiguous terms but can actively add substantive terms to a contract that is otherwise considered complete. This places a burden on contracting parties to explicitly negate any trade usages they do not wish to be bound by. The ruling reinforces the U.C.C.'s philosophy of interpreting contracts in their commercial context, assuming that industry customs form a background of shared understanding unless expressly disclaimed.
