Parol Evidence and the CISG
October 16, 2024
In MCC-Marble Ceramic Center, Inc., v. Ceramica Nuova d’Agostino, S.p.A. (1998), the Eleventh Circuit held that the American parol evidence rule does not apply in cases governed by the U.N. Convention on Contracts for the International Sale of Goods (CISG). Article 8(3) of the Convention instructs courts, in determining the intent of the parties to a contract, to give “due consideration … to all relevant circumstances of the case including the negotiations.” This provision, the court reasoned, was inconsistent with domestic rules, like the parol evidence rule, that limit consideration of evidence from the parties’ negotiations.
I have taught MCC-Marble in Contracts for many years. Indeed, more than two decades ago, I suggested that professors interested in teaching the CISG in Contracts might add the case to their syllabi as an interesting contrast between the CISG rule on the one hand and the UCC and common law rules on the other. But in recent years, I have come to doubt whether MCC-Marble’s central holding is correct. This post explains why.
The CISG
The CISG is a treaty to which the United States and 96 other countries are parties. (For more TLB posts on the CISG, see here.) The convention sets forth rules for contract formation, interpretation, and remedies. It applies to contracts for the sale of goods between parties who have their places of business in different countries if both those countries have joined the treaty. The CISG governs an enormous volume of trade in goods. Of the United States’ largest trading partners, only India, Ireland, Taiwan, and the United Kingdom have not joined.
The CISG aims to make contract disputes more predictable by establishing uniform rules that will be applied the same way regardless of where suit is brought. When the CISG applies, it generally supersedes the choice of law analysis that domestic courts might otherwise perform to determine the governing law. Many of the CISG’s rules are compromises among different legal traditions, including those of the common law and the civil law.
Of course, the CISG does not achieve perfect uniformity. Under Article 6, parties are free to opt out of the CISG, or vary its provisions, by express provision in their contract. The convention does not cover all questions of contract law, leaving defenses, for example, largely to applicable domestic law. And the CISG does nothing to even out procedural differences among legal systems that may significantly affect how cases come out.
The Parol Evidence Rule
The parol evidence rule is an American rule of contract interpretation. (Despite its name, it is not a rule of evidence. If it were, courts in the United States could apply it freely in CISG cases, just as they apply other U.S. rules of procedure and evidence in CISG cases.) In general terms, the parol evidence rule limits the use of evidence from the parties’ negotiations to vary the terms of the written agreement.
If a written agreement is “completely integrated” (a final statement of all of the terms), evidence from the negotiations may be used to explain the writing but not to supplement or contradict it. If a written agreement is “partially integrated” (a final statement of some of the terms), evidence from the negotiations may be used to explain and supplement the writing but not to contradict it. There are also exceptions to the rule allowing the use of parol evidence for certain specific purposes, for example to establish a defense such as fraud.
Whether evidence is admissible under the parol evidence rule is a question of law for the judge. Thus, in the United States, the rule installs the judge as a gatekeeper who can keep the jury from hearing evidence from the negotiations that might be less reliable than the writing. A parol evidence rule is unnecessary in legal systems without civil juries; judges do not need such a rule to protect themselves. Most of the countries that wrote the CISG do not have civil juries—indeed, I believe the United States is the only one—which may explain why the CISG does not contain a parol evidence rule.
MCC-Marble
MCC-Marble involved a contract for ceramic tile between an Italian seller and a Florida buyer. When a dispute arose, the Italian seller relied on boilerplate terms, written in Italian on the back of the contract. The Florida buyer argued that it had not intended to be bound by those terms and—crucially—that the Italian seller knew of its subjective intent. This assertion was buttressed by affidavits from the seller’s former commercial director who negotiated the contract and from the translator. The district court excluded the evidence under the parol evidence rule, but the Eleventh Circuit reversed.
Article 8(1) of the CISG says that a party’s words and conduct should be interpreted according to his subjective intent when “the other party knew or could not have been unaware what that intent was.” Under Article 8(2), words and conduct are to be interpreted objectively, “according to the understanding that a reasonable person … would have had,” in all other cases. Although it may look different, this is really the same modified objective theory of contract interpretation that courts in the United States use.
Article 8(3) goes on to say: “In determining the intent of a party or the understanding a reasonable person would have had, due consideration is to be given to all relevant circumstances of the case including the negotiations, any practices which the parties have established between themselves, usages and any subsequent conduct of the parties.” Relying on “the great weight of academic commentary,” the Eleventh Circuit held that Article 8(3) precluded application of a parol evidence rule. It also reasoned that allowing the rule to be applied in U.S. courts would undermine the CISG’s goal of uniformity because other countries deciding the same dispute would not apply such a rule.
The court noted that only one commentator had attempted to square the parol evidence rule with the CISG. That was a note written by my friend David Moore—then a BYU law student; now the law school’s dean. Dave argued that Article 8(3) did not expressly reject the parol evidence rule, that the rule might be used as a way to determine what consideration was “due” under Article 8(3), and that the rule did not in fact undermine uniformity. I have come to think that perhaps Dave was right.
The key, I think, lies in recognizing that the parol evidence rule plays a unique role in systems with a civil jury, such as the United States. It allows a judge to keep evidence about the negotiations from the jury if she decides that the agreement is completely integrated and no exception applies. As Dave pointed out (p. 1363), in making that determination, the judge does consider all relevant evidence, including the negotiations, just as Article 8(3) instructs. Limits on the consideration of parol evidence apply only to the jury, depending on what the judge decides, a step that is never reached in systems without a civil jury.
Put another way, the parol evidence rule serves a procedural purpose in the United States despite its status as a rule of substantive contact law. It responds to an aspect of the U.S. legal system that most other parties to the CISG do not share. The “due consideration” for which CISG Article 8(3) calls could certainly include accounting for procedural differences that affect the way evidence from the negotiations is considered. Nor is it clear that applying the parol evidence rule would compromise uniformity, since it may be necessary to compensate for differences in how courts are structured in various CISG countries.
Opting Into the CISG?
There is another part of the MCC-Marble opinion that troubles me. Near the end of the opinion, the Eleventh Circuit briefly suggests that parties may contract around the CISG’s lack of a parol evidence rule simply “by including a merger clause in their agreement.” This seems wrong.
A merger clause is a contractual provision stating that a writing constitutes the “entire agreement” of the parties. Although a merger clause is not necessarily conclusive, it is strong evidence that an agreement is completely integrated, which bars some uses of parol evidence. In American law, a merger clause works because there is a parol evidence rule that turns on an agreement’s level of integration. But if, as MCC-Marbleheld, the CISG has no parol evidence rule, including a merger clause should make no difference. Article 8(3) makes no exception from its “due consideration” rule for completely integrated agreements.
Of course, Article 6 of the CISG allows parties to opt out of the CISG entirely or to vary any of its provisions. But a contractual provision that aimed to add a parol evidence rule would at least have to say something about limiting the use of evidence from the negotiations. A provision that simply says that the writing is the entire agreement of the parties seems insufficient to accomplish this goal.
Finally, even if the parties in MCC-Marble had included a merger clause in their contract—indeed, even if they had included a clause expressly incorporating the parol evidence rule—it would not have changed the result in that case. Such a clause would simply be one more piece of boilerplate in the contract, which the buyer claimed was not binding based on its subjective intent and the seller’s knowledge thereof. To decide whether such a clause was part of the contract in the first place, a court would have had to apply the CISG’s regular rules.
Conclusion
I will not stop teaching MCC-Marble just because I disagree with its reasoning. It is, in fact, a great case for thinking through the relationships among the CISG’s approach to interpretation, domestic rules of interpretation, and institutions such as the civil jury. When it comes to contract interpretation, the pieces of the puzzle fit together differently in different countries. To advance the CISG’s goals of predictability and uniformity, we need to give such differences due consideration.