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19. Is the studio's evidence admissible?
At the trial of the studio's action against the artist for breach of contract, the studio introduced evidence of an established practice in the studio industry to price cup-and-saucer sets on a per-piece, not a per-set, basis.
The studio produced the cups and saucers and delivered them along with a bill for $20,000 (4,000 pieces at $5 per piece). The artist refused to pay more than $10,000 (2,000 sets at $5 per set).
A ceramics studio contracted with an artist to produce cups and saucers designed by the artist. The artist was an established designer of collectible ceramic dinnerware, and the studio did production work for many artists who created ceramic dinnerware. The price and quantity term of the contract read: «2,000 sets of the cups and saucers at $5 each, payable on delivery.» The contract contained a merger clause.
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Under § 2-202 of the Uniform Commercial Code (UCC), contract terms that are intended by the parties to be the final expression of their agreement can't be contradicted by evidence of any previous agreement or contemporaneous oral agreement but may be explained or supplemented by evidence of «consistent additional terms.» These consistent additional terms can be based on (i) course of performance (UCC §2-208 (1) and Rest. 2d., §202(4)), which refers to the way the parties have conducted themselves in performing the particular contract at hand; (ii) course of dealing (UCC §1-205(1) and Rest. 2d., §223), which is a pattern of performance between the parties to the contract with respect to past contracts; and (iii) trade usage (UCC §1-205(2) and Rest. 2d., §222), which is any practice regularly observed in a place, vocation or trade as to justify an expectation that it will be observed with respect to the transaction in question.
The UCC allows trade usage (i.e., industry standard) to inform the interpretation of a contract and will be admitted in court, even if there is a completely integrated contract unless they can't be reasonably reconciled with express terms of the contract.
D is correct. This answer choice addresses the UCC's allowance for trade usage to inform the interpretation of a written contract. Here, trade usage is used to explain the terms of a contract. There is a need to explain what «at $5 each» means — whether it means per piece or per set. Evidence of the established practice within the industry would help explain the terms of the contract. Because this does not contradict, but merely helps interpret the written contract term, it is admissible.
A is incorrect. When there is an ambiguous term in a final written agreement, outside evidence may be allowed to clarify terms in a contract. The parol evidence rule does not bar extrinsic evidence offered to aid in the interpretation of existing terms. Here, the term in the contract is ambiguous — whether «at $5 each» means per piece or per set. Extrinsic evidence of trade usage helps interpret and explain the term, not contradict it.
B is incorrect. As discussed above, even if the agreement is found to be completely integrated, outside evidence may be allowed to clarify terms in a contract when a term's meaning is ambiguous. The parol evidence rule does not bar extrinsic evidence offered to aid in the interpretation of existing terms. Here, even though the agreement has been integrated, the evidence proffered would not contradict or supplement the contract. It would be used to explain the terms and, so, the extrinsic evidence of trade usage is admissible.
C is incorrect. Evidence of trade usage is admissible to inform the interpretation of a contract and will be admitted in court, unless they can't be reasonably reconciled with express terms of the contract. As such, this answer is incorrect because there are cases where trade usage may be in direct conflict with the written terms of an integrated contract.