Negotiating a contract between two businesses can become a drawn-out process, and it is not uncommon for the parties to the agreement to have held multiple meetings in which proposed terms were discussed or written down, oral understandings were exchanged, or even a memorandum of understanding put together before multiple drafts of the agreement itself are passed back and forth. Sometimes even the last, signed version of the contract may still be subject to different interpretations, which has led to the question of what effect those prior negotiations and understandings may have if a dispute arises.
The legal term for the use of such external sources to help explain (or to contradict) what the two sides agreed to is “parol evidence”. How or whether such evidence can be introduced depends on factors including whether the agreement is governed by the Uniform Commercial Code (UCC) as it has been adopted under Ohio law, and whether the final agreement contains what is known as an “integration clause.”
If the agreement is commercial in nature, then there is a good chance that at least one of them will fall under the legal definition of a “merchant” and the Uniform Commercial Code will govern the law as it applies to their contract. The UCC generally restricts the use of parol evidence as long as the parties have expressed the intent to make the signed agreement the final expression of their understanding. This is usually done in the form of an “integration clause” in the document, which will contain a term stating that the parties mean for the contract to be a complete and exclusive statement of their agreement.
Even if an integration clause exists, there may still be some situations in which parol evidence — in the form of the parties course of dealing, course of performance, or specific trade usages — may be used to help explain or to supplement the contract terms.
Drafting a business contract can be a complicated affair, and what effect parol evidence may have, or whether and how to include an integration clause, is only part of the reason why it may be a sound practice to have a business law firm experienced with UCC law assist in preparing the agreement. This post is intended only as an introduction to the subject, and not as legal advice.