Page 3 - John Hundley 2015

Focus on Contract Law

Sharp Thinking

No. 126 Perspectives on Developments in the Law from Sharp-Hundley, P.C. January 2015

Court Issues Key Decision On “Merger” Clauses

By John T. Hundley, 618-242-0200, jhundley@lotsharp.com

Contractual ambiguity may allow consideration of extrinsic evidence to clarify those portions of
“integrated” contracts that are unclear, but it does not open the flood gates for consideration of parol
evidence on other points or to establish entirely new terms.
Those are among the teachings of a seminal new decision from the Seventh Circuit U.S. Court of
Appeals. Ruling in Druckzentrum Harry Jung GmbH & Co. v. Motorola Mobility LLC, __ F.3d __, 2014 WL
7181473 (7th Cir. 2014), the court also:
► Said that “[w]hen a contract expressly incorporates specific extrinsic materials by reference, the
proper inference is that other, unmentioned extrinsic agreements are not part of the contract” (court’s
emphasis);

► Enforced the principle that if alleged additional terms are such that, if
agreed upon, they certainly would have been included in the document in the view
of the court, evidence of their making should be kept from the trier of fact;
► Said that a party’s promise to make a good-faith effort to meet a
purchasing target did not require it to adhere to a business model that protected
the other’s interests even in the face of a significant business downturn, at least
where the contract identified such a downturn as a factor which might cause it not
to meet the goal;
► Construed as Illinois law Appellate Court decisions that a party who made a statement which at
that time was true, but who subsequently acquires new information which makes the former statement
untrue or misleading, must disclose such information to anyone whom he knows to be acting on the basis
of the original statement.
In Druckzentrum, Motorola had a plant in Germany where it assembled
Chinese-manufactured phones with locally-printed manuals for shipment to
Europe, the Middle East and Asia. It signed a contract in which it promised to
make a good-faith effort to purchase 2% of its global printing needs from
Druckzentrum, a local printer. After suffering a dramatic downturn in cell phone
sales, Motorola cancelled the contract and consolidated its assembly operations in
China. Druckzentrum alleged Motorola had breached the contract and had committed fraud in the
inducement.
Much of Druckzentrum’s case turned on the contention it had been promised an
exclusive right to Motorola’s printing business for Europe, the Middle East and Asia.
However, the contract contained no such promise, and it contained an “integration” or
“merger” clause providing that “[t]his Agreement is the entire understanding between

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Sharp Thinking is an occasional newsletter of Sharp-Hundley, P.C. addressing developments in the law which may be of interest. Nothing contained in Sharp Thinking
shall be construed to create an attorney-client relation where none previously has existed, nor with respect to any particular matter. The perspectives herein constitute
educational material on general legal topics and are not legal advice applicable to any particular situation. To establish an attorney-client relation or to obtain legal advice on
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