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ARB, Inc. v. E-Systems, Inc., 663 F.2d 189 (1980)
Under the Uniform Commercial Code, or UCC, if the parties reduced their agreement to a writing, the parol evidence rule generally prohibits the introduction of any evidence outside of that writing that would alter or contradict the terms of the written contract. The District of Columbia Circuit considered one of the many disputes concerning the parol-evidence rule in ARB versus E-Systems.
ARB, or American Research Bureau, negotiated to purchase an electronic monitoring system from E-Systems. American sent E-Systems a draft contract that included a provision for cover damages. Under this provision, if E-Systems breached the contract and American had to pay extra to buy substitute items, then E-Systems would be responsible for the price difference.
E-Systems negotiated to remove the cover-damages provision from the contract, and American agreed. The final contract didn’t mention cover damages but explicitly preserved all other remedies provided in law or in equity. The contract also included an integration clause that identified the written contract as a complete and exclusive statement of the agreement’s terms.
After E-Systems’s equipment failed, American sued E-Systems. American sought damages for breach of contract, including cover damages. E-Systems asserted that American had bargained away its right to cover damages. American replied that the parol-evidence rule barred any evidence of the parties’ negotiations.
The district court concluded that E-Systems breached the contract but denied cover damages. Both parties appealed to the District of Columbia Circuit.
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