Eskimo Pie Corp. v. Whitelawn Dairies, Inc.
284 F.Supp. 987 (1968)
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Rule of Law:
Under pre-UCC New York law, extrinsic or parol evidence is inadmissible to alter or contradict the terms of a complete, integrated written agreement unless a term is objectively ambiguous. A term is considered objectively ambiguous only if it is capable of more than one meaning when viewed by a reasonably intelligent person who is aware of the relevant trade usage, custom, and surrounding circumstances.
Facts:
- On or about December 30, 1960, Eskimo Pie Corporation ('Eskimo') entered into a series of written contracts, known as the 'Package Deal,' with Whitelawn Dairies, Inc. and Supermarket Advisory Sales, Inc. ('Whitelawn-SAS').
- All parties agreed that the 'Package Deal' was a final and complete integrated agreement.
- The contract granted Whitelawn-SAS a 'non-exclusive' right to manufacture and sell Eskimo-branded products in the New York City Metropolitan Area.
- Beginning in 1962, Eskimo began selling its products to other companies and authorized other companies to manufacture and sell its products in the same New York City area.
- Whitelawn-SAS contended that the term 'non-exclusive' had a special, privately agreed-upon meaning: Eskimo could not license any new 'independent' companies and could not compete with Whitelawn-SAS itself.
- Whitelawn-SAS sought to introduce evidence of prior negotiations, including drafts and conversations, to prove this special meaning, which they claim was deliberately omitted from the final writing due to Eskimo's antitrust concerns.
Procedural Posture:
- Eskimo Pie Corporation filed an action against Whitelawn-SAS in federal district court for breach of contract.
- Whitelawn-SAS filed a separate action against Eskimo and others for breach of contract and inducing breach, which was consolidated with Eskimo's action.
- Eskimo's prior motions to dismiss and for summary judgment were denied by other judges in the district court, who deferred evidentiary questions to the trial judge.
- The case is before the trial judge for a pretrial conference to obtain a preliminary ruling on the admissibility of parol evidence that Whitelawn-SAS intends to offer at trial.
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Issue:
Does the parol evidence rule bar the admission of extrinsic evidence of prior negotiations and the parties' subjective intent to show that an objectively unambiguous term in a fully integrated contract has a special meaning?
Opinions:
Majority - Mansfield, District Judge
Yes, the parol evidence rule bars the admission of such evidence. Under controlling pre-UCC New York law, the parol evidence rule is a substantive rule of law that prohibits the use of extrinsic evidence to vary or contradict the terms of a complete written agreement unless a term is objectively ambiguous. The test for ambiguity is objective: whether the language is capable of more than one meaning to a reasonably intelligent person acquainted with the relevant customs and circumstances, not whether the parties had a private or secret understanding. The term 'non-exclusive' has a well-established and unambiguous legal meaning that allows the licensor to grant other licenses and to compete. Admitting evidence of subjective intent would defeat the purpose of the parol evidence rule, which is to prevent fraud and ensure the reliability of written contracts. However, the court will afford Whitelawn-SAS a preliminary hearing to offer proof that the term is objectively ambiguous based on trade usage or custom, but not based on their private negotiations or subjective intent.
Analysis:
This decision strongly affirms the traditional, objective approach to contract interpretation, often called the 'four corners' rule. It prioritizes the plain meaning of the words in an integrated agreement over evidence of the parties' subjective intentions, thereby promoting stability and predictability in commercial transactions. By rejecting the more liberal view that would permit extrinsic evidence to demonstrate a latent ambiguity, the court reinforces the parol evidence rule as a significant barrier to altering written contracts through testimony about prior negotiations. This ruling solidifies the principle that a party cannot use parol evidence to create an ambiguity where one does not objectively exist on the face of the document.
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