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In re Carter's Claim | 134 A.2d 908 (1957)
There’s a big difference between unintegrated and integrated contracts. A contract is unintegrated if parties haven’t agreed that the writing is the final expression of the parties’ intent. A contract is integrated if the parties have so agreed. In In re Carter, we explore how much a court must look beyond the four corners of an integrated contract.
Lester L. Kardon entered into a written agreement to buy the Edwin J. Schoettle Company from John Carter and others for over two million dollars. The agreement specified that a portion of the purchase amount would be placed in escrow to indemnify Kardon against company liabilities discovered post-closing. The agreement also specified that disputes about escrow claims would be arbitrated. The escrow was established, and the deal closed. Kardon then made a claim of around seventy thousand dollars against the escrow. The company balked, and the parties arbitrated.
In arbitration, Kardon argued that the company’s valuation had decreased before closing, so Kardon was entitled to the difference in value. Kardon’s argument relied on a number of paragraphs in the agreement. Paragraph five, titled Representations and Warranties, stated that the company represented and warranted that there were no out-of-the-ordinary, materially adverse changes in the company’s financial condition. Paragraph nine, titled Conditions Precedent, explicitly identified a set of conditions. One condition was that the company’s value couldn’t decrease in the period up to closing. Kardon argued that paragraph nine was intended to contain warranties and that extrinsic evidence, such as negotiation-related documents, supported that interpretation. The arbitrator disagreed, rejected Kardon’s evidence, and awarded Kardon three thousand dollars. A Philadelphia trial court formalized the arbitrator’s recommendation, and Kardon appealed to the Pennsylvania Supreme Court.
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