Opinion ID: 1824343
Heading Depth: 1
Heading Rank: 3

Heading: Should Usage-of-Trade Evidence Be Allowed?

Text: Under the common law of Iowa, parol evidence is admissible to shed light on the parties' intentions but it may not be used to modify or add to the contract terms. Anderson v. Aspelmeier, Fisch, Power, Warner & Engberg, 461 N.W.2d 598, 600 (Iowa 1990); Associated Grocers of Iowa Coop., Inc. v. West, 297 N.W.2d 103, 109 (Iowa 1980). Nevertheless, sale-of-goods contracts, such as the agreement here, are governed by Iowa Code chapter 554, the Iowa Uniform Commercial Code. Section 554.2202 contains the applicable U.C.C. parol evidence rule and it states: Terms with respect to which the confirmatory memoranda of the parties agree or which are otherwise set forth in a writing intended by the parties as a final expression of their agreement with respect to such terms as are included therein may not be contradicted by evidence of any prior agreement or of a contemporaneous oral agreement but may be explained or supplemented a. by course of dealing or usage of trade (section 554.1205) or by course of performance (section 554.2208); and b. by evidence of consistent additional terms unless the court finds the writing to have been intended also as a complete and exclusive statement of the terms of the agreement. Iowa Code § 554.2202 (1993) (emphasis added). Thus, unlike the common law, parol evidence may be used to supplement a fully integrated agreement governed by the U.C.C. if the evidence falls within the definition of usage of trade. The Iowa U.C.C. includes the following definition of usage of trade: 2. A usage of trade is any practice or method of dealing having such regularity of observance in a place, vocation or trade as to justify an expectation that it will be observed with respect to the transaction in question. The existence and scope of such a usage are to be proved as facts.... Id. § 554.1205(2). Section 554.1205 goes on to provide that any usage of trade of which the parties are or should be aware supplements their agreement. Id. § 554.1205(3). Midland does not dispute that a trier of fact could find that the alleged practice in the bottling industry of providing samples to a prospective purchaser is a usage of trade. However, Midland argues usage-of-trade evidence may not be used to add a new term to a contract that is complete and unambiguous. We first reject Midland's argument that evidence of trade usage is admissible only when the contract is ambiguous. There is no such requirement in section 554.2202. Moreover, the official comment to section 2-202 of the Uniform Commercial Code, which is identical to section 554.2202, states that this section definitely rejects a requirement that the language of the contract be ambiguous as a condition precedent to the admission of trade-usage evidence. U.C.C. § 2-202 cmt. I (1977); accord Amoco Prod. Co. v. Western Slope Gas Co., 754 F.2d 303, 308 (10th Cir.1985); American Mach. & Tool Co. v. Strite-Anderson Mfg. Co., 353 N.W.2d 592, 597 (Minn.Ct.App.1984). We also hold that even a complete contract may be explained or supplemented by parol evidence of trade usages. [1] Ralph's Distributing Co. v. AMF, Inc., 667 F.2d 670, 673 (8th Cir.1981) (applying Iowa law); James J. White & Robert S. Summers, Uniform Commercial Code § 2-10, at 85, 89; § 3-3, at 98 (2d ed. 1980) [hereinafter White & Summers]. As the official comment to section 2-202 states, commercial sales contracts are to be read on the assumption that the course of prior dealings between the parties and the usages of trade were taken for granted when the document was phrased. U.C.C. § 2-202 cmt. 2 (1977). Therefore, even a completely integrated contract may be supplemented by practices in the industry that do not contradict express terms of the contract. 2 William D. Hawkland, Uniform Commercial Code Series § 2-202:03, at 47 (1984). That brings us to the remaining argument made by Midlandthat C-Thru may not use parol evidence to add a new term to the agreement. Section 554.2202 says that when parol evidence shows a usage of trade that does not contradict a contract term [2] , the evidence is admissible to supplement the contract. We look to the common meaning of the word supplement. State v. Simmons, 500 N.W.2d 58, 59 (Iowa 1993) (we give words used in a statute their ordinary meaning, including reference to the dictionary definition). Supplement means to add ... to. Webster's Third New Int'l Dictionary 2297 (1993). Consequently, the trade-usage evidence upon which C-Thru relies is admissible even though it adds a new term to the contract. White & Summers, § 3-3 (usage of trade may itself constitute a contract term).