AM Int'l v. Graphic Mgmt. Assocs. - 44 F.3d 572 (7th Cir. 1995)

Rule:

Objective evidence, which is evidence of ambiguity that can be supplied by disinterested third parties, is admissible to demonstrate that apparently clear contract language means something different from what it seems to mean. Subjective evidence, which is the testimony of the parties themselves as to what they believe the contract means, is inadmissible for this purpose. 

Facts:

Both parties are manufacturers of printing machines used in the newspaper business. One of these machines is called a "newspaper inserting machine," and it comes equipped with what is called a Missed Insert Repair System (MIRS). These are complicated and expensive machines, which must be customized to the purchaser's specifications. AM International ("AM") brought a suit against Graphic Management Associates (GMA), charging that GMA's newspaper inserting machines with MIRS infringed a patent of AM's. AM alleged that GMA breached a license agreement between them requiring GMA to pay royalties to AM as a result of GMA’s infringement of AM's patent on a newspaper inserting machine. AM alleged that the contract did not mean what it said, and attempted to introduce parol evidence of the parties' intentions. The district court refused to allow the evidence, finding that the contract was clear, and AM appealed. 

Issue:

Did the district court err in refusing to allow AM to introduce parol evidence of the parties' intentions?

Answer:

No.

Conclusion:

The court held that AM presented no objective evidence that the contract meant something different than what it said, that there was no indication of a latent ambiguity, and that interpreting the contract in accordance with its actual language did not produce absurd results. Therefore, interpretation of the contract presented a question of law for the district court to decide, and judgment on the pleadings was proper. The court further held that it was not an abuse of discretion to deny AM’s motion to amend its complaint, where the amendment would not cure the problem that caused dismissal.