Heggblade-Marguleas-Tenneco, Inc. v. Sunshine Biscuit, Inc.
19 U.C.C. Rep. Serv. (West) 1067, 59 Cal.App.3d 948, 131 Cal. Rptr. 183 (1976)
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Rule of Law:
Under the Uniform Commercial Code, evidence of an established trade usage is admissible to explain or supplement a term in a written contract, such as a quantity figure, unless the contract language expressly and carefully negates the application of that trade usage.
Facts:
- Heggblade-Marguleas-Tenneco (HMT), a company with no prior experience marketing processing potatoes, entered into discussions with Bell Brand Foods, Inc. (a subsidiary of Sunshine Biscuit), an experienced producer of potato-snack foods.
- In August 1970, through an exchange of letters, the parties agreed HMT would sell Bell Brand 100,000 sacks of potatoes for delivery between May and July 1971.
- A Bell Brand employee, Jean Smith, became concerned the quantity was too high and attempted to negotiate a reduction with HMT's executive, John Thomas.
- Thomas insisted that the letters already constituted a binding contract for the specified amount and refused to reduce the quantity.
- On October 1, 1970, before the formal contracts were signed, HMT hired Heinie Hoffman, an expert with over 20 years of experience in the processing potato industry.
- The formal contracts, signed on October 17, 1970, specified quantities totaling 100,000 sacks of potatoes.
- Due to a decline in market demand for its products, Bell Brand's need for potatoes was severely reduced.
- Bell Brand ultimately purchased only 60,105 sacks of potatoes from HMT.
Procedural Posture:
- Heggblade-Marguleas-Tenneco (HMT) filed a complaint for breach of contract against Sunshine Biscuit, Inc. in the trial court.
- At trial, Sunshine Biscuit presented evidence of a trade custom that quantity terms in such contracts are considered reasonable estimates.
- The jury returned a verdict in favor of the defendant, Sunshine Biscuit.
- HMT, as plaintiff, moved for a new trial on the ground that the evidence of trade custom was improperly admitted, but the motion was denied.
- HMT, as appellant, filed a timely notice of appeal from the judgment.
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Issue:
Does the parol evidence rule under California Uniform Commercial Code § 2-202 permit the introduction of evidence of trade usage to interpret a specific quantity term in a contract for the sale of goods as a reasonable estimate, rather than a fixed amount?
Opinions:
Majority - Franson, Acting P. J.
Yes. The parol evidence rule under California Uniform Commercial Code § 2-202 permits evidence of trade usage to explain or supplement the terms of a written agreement unless the agreement has carefully negated such usage. The court reasoned that under the UCC, writings are read on the assumption that usages of trade were taken for granted when the document was phrased. Since the contracts were silent on the applicability of the potato processing industry's custom—that quantity figures are estimates of the buyer's needs—evidence of that custom was admissible to explain the meaning of the quantity terms. The court rejected HMT's argument that its inexperience should preclude the custom's application, reasoning that HMT had hired an experienced agent (Hoffman) whose knowledge was imputed to the company. Furthermore, parties engaging in a trade are presumed to have constructive knowledge of its prominent customs.
Analysis:
This case solidifies the UCC's liberal approach to the parol evidence rule, prioritizing the parties' true understanding over a rigid, literal interpretation of the contract's text. It establishes that trade usage is an inherent part of a contract within that trade unless explicitly disclaimed, shifting the burden to the drafter to 'carefully negate' industry customs if they wish to avoid them. This significantly impacts contract interpretation by allowing courts to look beyond the 'four corners' of a document to industry norms, even when a term like quantity appears unambiguous. Future litigants and contract drafters must be aware that silence on trade usage will be interpreted as its inclusion.
