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Parol Evidence Rule

Parol evidence specifically refers to oral testimony given in court, though the term is most commonly used in the context of contract law , where it refers to extraneous or superfluous evidence, such as an oral or written agreement that was not part of the original contract. The parol evidence rule states that once a written agreement has been signed by all of the parties, it cannot be changed by an oral agreement, except when fraud or a serious mistake is involved. To explore this concept, consider the following parol evidence rule definition.

Definition of Parol

• Something stated or declared by mouth
• Given by word of mouth, not contained in documents

1470-1480 Anglo-French parole (speech)

What is the Parol Evidence Rule

The parol evidence rule exists in common law for contract cases. It bars a party to a written contract from bringing up outside evidence that illustrates an ambiguity, seeks to clarify, or adds to the written terms of the agreement. The purpose behind this rule is that, as the parties went to the trouble to put their agreement in a single, written contract, evidence of past agreements or terms that are not in the written contract should not be considered in interpreting that contract. A common misbelief is that the parol evidence rule is a rule of evidence, but it is, in fact, a rule of contracts.

The actual text of the parol evidence rule states:

“Once the parties have reduced their agreement to a writing that they intend to contain the final and complete statement of their agreement, then evidence of terms that would supplement or contradict it are not admissible.”

This rule is not found in either federal or state statutes, as it exists in common law. That means that the parol evidence rule is based on prior decisions made by a higher court.

Essential Elements of a Contract

A contract is a legally binding document. If there is a disagreement, the court will interpret the contract solely by the written provisions it contains. The parol evidence rule does not allow the court to consider oral testimony of prior agreements, or alleged oral declarations made separately, and not included in the written contract. Because of this, it is important to ensure certain essential elements of a contract are included, and that the document contains every provision of the parties’ agreement.

The three essential elements of a contract include:

• Offer – one party makes an offer, promising the other party something of value in exchange for something (goods, services, or promise to do something)
• Acceptance – the second party accepts the terms offered by the first party
• Consideration – there must be something of value for each party to the contract. This may be money, goods, services, or other thing valued by the parties

Exceptions to the Parol Evidence Rule

The parol evidence rule is intended to prevent a party to a contract from claiming there were verbal terms to the parties’ agreement that somehow never made it into the written contract. There are certain circumstances in which the court may allow parol evidence to be submitted in a case. Exceptions to the parol evidence rule include:

• Errors or defects in the written contract due to mistake, fraud, duress , or illegality
• The contract is ambiguous as to the parties’ intent
• There is some problem with the consideration
• There was a prior, valid agreement that was not described or referred to correctly in the written contract
• There is a related agreement that does not contradict or modify the main contract in question
• There was a condition that had to occur before the contract performance was due
• There was a subsequent modification to the terms of the contract

Example of incomplete contract:

Bob agreed to purchase a 2-acre lot from Sam for the amount of $200,000. The real estate purchase contract was completed and signed by both parties two months ago. When Bob attempts to obtain building permits, he discovers that the property is not zoned for commercial use, which upsets him because Sam expressly stated that the property had commercial zoning.

Bob files a civil lawsuit to have the contract voided because his sole purpose in purchasing the property was to build a strip mall. In court, Sam’s attorney argues that the transaction was complete, and the contract cannot be voided simply because Bob failed to make the proper checks into the property’s zoning before the purchase was complete. When Bob’s attorney argues that Sam had verbally represented the property as being commercially zoned, the parol evidence rule is brought up by the other party.

It becomes clear to the judge that the issue of zoning was discussed, but that it wasn’t specifically stated in the real estate purchase contract. In such a case, the judge may decide to allow evidence and testimony as to the parties’ understanding of the nature of the property, even though that fact is not included in the written contract.

Example Parol Evidence Rule Exception

Diane hires Superior Swimming Pools to install an in-ground pool in her backyard. After discussing what type of pool Diane wanted, the contractor prepared a contract, and the parties signed it. A few days later, while the hole was being dug, Diane decided she wanted more attractive glass border tiles, and she discussed the change with the contractor, who agreed.

When the pool was finished, Diane was disappointed to see that the glass border tiles had not been installed. She asked the contractor to remove the plain tiles and replace them with the glass tiles they had agreed would be installed. When he refused to do the extra work, Diane filed a lawsuit. At trial , the conversation about the glass tiles is brought up, and there is some question about whether the parol evidence rule bars any agreement made after the written agreement had been signed. In this example of parol evidence rule, the court is likely to allow evidence of the subsequent verbal agreement, as this is a common exception to the rule.

If, in the above situation, the discussion of the glass tiles had taken place before the written contract had been signed, but left out of the contract, Diane would be out of luck. It is assumed that any provisions discussed and agreed to prior to putting the agreement in writing would be included in the writing. The only exception to the rule is if an agreement was reached after the contract was signed.

Frequently Disputed Contracts Subject to the Parol Evidence Rule

In modern society, there exist certain contracts in which one party has all of the bargaining power, and the other party must either sign or walk away. These are referred to as “adhesion contracts.” Adhesion contracts are commonly used in businesses such as cable TV service, cell phone service, auto insurance contracts, and apartment lease contracts. The following are examples of frequently disputed contracts subject to the parol evidence rule:

• Cell Phone Contract – the customer service representative who is enrolling new customers to the company’s service tells the customer that he will be charged half of what his old company is charging him. When the bill comes, the customer realizes that he is only getting half off of his connectivity charge, which is a very small portion of his overall bill. The representatives statements are parol evidence.
• Health Club Contract – when a potential new customer expresses concern over the cost of membership vs. any benefit he may receive, the salesperson tells the customer that he can try it out, and cancel if he doesn’t like it. When the customer tries to cancel a couple of weeks later, he is told the contract is non-cancellable, and that any verbal representation that may have been made by the salesperson is not enforceable. (If the salesperson intentionally misled the customer regarding the terms of the contract, however, the customer may be able to have the contract rescinded.)
• Auto Sales Contract – although the car salesperson says the car is in better-than-new shape, the written contract states it is an “as-is” sale. Even if the salesperson made the car sound as though it had no mechanical problems, any discussion before signing the contract would not be admissible, unless it contained fraudulent statements.

Parol Evidence Rule in Sales Contracts

In certain types of sales contracts, between parties who regularly deal in sales transactions with one another, the court may consider parol evidence. When parties have a history of working together, doing business on a regular basis, or within an industry in which similar transactions and contracts are the norm, the court may consider other agreements between the parties that were made prior to, or at the same time as, the contract at hand. Such parol evidence may only be considered if it does not contradict the contract, but supplements it, or explains it.

The court may also consider evidence of the parties’ normal course of dealing with one another, and with similar customers, the industry standard course of conduct, or evidence of prior consistent additional terms that are not normally included in the written agreement. When the parties to a disputed contract have a history of dealing with one another, the court may consider that history to determine the intent or meaning of the contract.

The Parol Evidence Rule in Family Property Contract

In 1968, Dallas and Rebecca Masterson, who owned their family’s ranch, deeded the property to Dallas’ sister and her husband, reserving the right to buy the property back within 10 years. Before the 10-year time limit, Dallas filed bankruptcy , and the bankruptcy trustee brought an action to exercise the couple’s option to repurchase the property, for use in repaying their debts.

Dallas’ sister objected to the idea that the bankruptcy court could order the deed transferred to the trustee, and the property sold, as it was always the parties’ intent that the ranch remain in the possession of a Masterson family member. The couple argued that the option to repurchase the property was personal to the Mastersons, and could not be exercised by the bankruptcy trustee. The court disagreed, ordering that the trustee exercise the option to reacquire the property, citing ambiguity in the option provision, and denying the admission of parol evidence as to the parties’ intent.

Dallas’ sister appealed the court’s decision, leaving two questions for the appellate court to address:

• In what circumstances should evidence of oral agreements be excluded; and
• How the court should decide whether such an agreement is of a type that might naturally be made separately.

The appellate court ruled that the lower court should only exclude evidence of oral agreements made before, or at the time of, the agreement at hand if it is likely to mislead the court. It also ruled that, in making such a determination about a collateral oral agreement, the court should consider the actual relationship experience and dealings between the parties, and how they likely view the collateral agreement.

The appellate court ruled that the trial court should not have excluded parol evidence that the option to repurchase the property was personal to the Masterson family, and could not be assigned to another party. In this case, the agreement was a partial agreement, in that the family did not see a need to state in the deed that the property was to remain in the family, as that was always the family’s intent. The appellate court reversed the trial court’s decision, agreeing that the option on the property could not be assigned to the bankruptcy trustee.

Related Legal Terms and Issues

• Civil Lawsuit – A lawsuit brought about in court when one person claims to have suffered a loss due to the actions of another person.
• Common Law – Law that is developed through decisions of higher courts, rather than statutes and regulations.
• Consideration – A benefit bargained for between parties to a contract; Recompense or payment.
• Contract – An agreement between two or more parties in which a promise is made to do or provide something in return for a valuable benefit.
• Duress – Threats, intimidation, or bullying intended to force someone to do something.
• Fraud – A false representation of fact, whether by words, conduct, or concealment, intended to deceive another.

parol evidence rule

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In  contract  disputes, parol evidence is any agreement that is not contained within the written contract. Under the parol evidence rule, these agreements made outside of the contract are inadmissible in court u nless there is  evidence  of  fraud ,  duress , or a  mutual mistake . The rationale behind the rule is to deter untruthful attacks on contracts. 

The parol evidence rule bars extrinsic evidence , including prior or contemporaneous oral agreements and prior or contemporaneous written agreements, that contradict or create a variation of a term in writing that the parties intended to be completely integrated . In other words, any information leading up to or during a contract that is not included in writing is considered inadmissible evidence and is excluded from the jury . The jury will therefore only look at the writing within the document itself to decide a contract dispute.

The parol evidence rule is codified in U.C.C. § 2-202 , which states that terms in a writing intended by the parties as a final expression of their agreement may not be contradicted by evidence of any prior agreement or of a contemporaneous oral agreement but may be explained or supplemented by course of dealing , usage of trade , or by course of performance ; and by evidence of consistent additional terms unless the court finds the writing to have been intended also as a complete and exclusive statement of the terms of the agreement.

One factor the court will look at to determine whether or not to admit extrinsic evidence is whether the written contract reasonably appears to be completely or partially integrated . If the written contract reasonably appears to be, in view of its completeness and specificity, a complete statement of the terms related to the deal, the court will view the written contract as completely integrated. As such, the court will not allow anything outside the writing itself, let alone anything that contradicts the writing. If the contract does not reasonably appear to be, in view of its completeness and specificity, a complete statement of the terms related to the deal, the court can allow consistent, additional terms to supplement the written contract unless those terms contradict the written contract.

There are two exceptions to the parol evidence rule: the collateral contract exception and the ambiguity exception.

Collateral Contract Exception

For the collateral contract exception, the court will look at preliminary evidence to determine if the contract was partially integrated. There are three conditions that must be met in order for the collateral contract exception to apply. 

• This means that the extrinsic agreement must not be distinct and independent from the original written agreement. For instance, the extrinsic agreement could be a side agreement to the original agreement that was made contemporaneously with or during negotiations. And, the same consideration for the original agreement must apply to the extrinsic agreement.
• The court gives primacy to writing and does not look at contradictory information. In Baker v. Bailey, 782 P.2d 1286 (Mont. 1989) , the court refused to admit the parol evidence and enforce the extrinsic agreement because the court found that the original written contract was clear and definite and the extrinsic agreement contradicted the original written contract.
• The extrinsic agreement must be one that the parties would not ordinarily be expected to embody in the writing.

The court will apply the “ordinary or natural test,” which asks whether the extrinsic agreement is the sort of promise that one might reasonably expect to be in the original written contract. In Mitchill v. Lath, 247 N.Y. 377, 160 N.E. 646 (1928) , the plaintiff purchased land from the defendant because, according to an extrinsic agreement, the defendant had allegedly promised to remove the ice house. The defendant did not remove the ice house before nor after the plaintiff’s purchase. The court enforced the rule of parol evidence and barred the extrinsic agreement because the court found that the removal of the ice house could be reasonably expected to be included in the original written contract.

Ambiguity Exception

If the language in the original written contract is reasonably susceptible to more than one meaning, the court will permit the admissibility of parol evidence to determine the meaning of the contract language under the ambiguity exception. The court may look towards the rules of statutory construction to determine whether the language is ambiguous .

The rationale for the ambiguity exception is that a judge should look at all credible evidence to determine the parties’ true intentions. If the parties’ intentions are found in a side agreement, generally this supersedes explicit written agreements.

[Last updated in April of 2022 by the Wex Definitions Team ]

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Article Contents

• 1. BACKGROUND
• 2. INCONSISTENT UNDERSTANDING OF THE PAROL EVIDENCE RULE
• 3. THE PAROL EVIDENCE RULE AS A SUBSTANTIVE RULE OF CONTRACT LAW
• 4. PRACTICAL APPLICATION OF THE PAROL EVIDENCE RULE
• 5. CONCLUSION

Proper characterisation of the parol evidence rule and its applicability in international arbitration

Darius Chan, Associate Professor of Law (Practice), Yong Pung How School of Law, Singapore Management University, Singapore; Arbitrator and Advocate, Fountain Court Chambers, Singapore. Email: [email protected] . The author acknowledges and is grateful for the support of the Singapore International Dispute Resolution Academy.

Louis Lau Yi Hang, LLB ( summa cum laude ), Yong Pung How School of Law, Singapore Management University, Singapore. Email: [email protected]

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Darius Chan, Louis Lau Yi Hang, Proper characterisation of the parol evidence rule and its applicability in international arbitration, Arbitration International , Volume 37, Issue 4, December 2021, Pages 805–833, https://doi.org/10.1093/arbint/aiab029

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Most arbitral statutes and institutional rules give great latitude to tribunals on the admissibility of evidence, and do not mandate application of domestic rules of evidence. In common law jurisdictions where the parol evidence rule applies, the issue that arises is whether the parol evidence rule is necessarily a procedural rule of evidence which tribunals are not bound to apply, especially in jurisdictions which have codified the rule under domestic evidence legislation. Notwithstanding any codification, this article argues that the parol evidence rule at common law is a substantive rule of contractual interpretation that should be applied as part of the lex contractus in international arbitration proceedings. Faithful application of the parol evidence rule as a substantive rule of contractual interpretation ensures that adjudicators arrive at the same interpretation on the same set of facts, thereby promoting uniformity, predictability, and consistency, regardless of the mode of dispute resolution.

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13.3: The Parol Evidence Rule

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Learning Objectives

• Understand the purpose and operation of the parol evidence rule, including when it applies and when it does not.
• Know how the Uniform Commercial Code (UCC) deals with evidence to show a contract’s meaning.

The Purpose of the Rule

Unlike Minerva sprung forth whole from the brow of Zeus in Greek mythology, contracts do not appear at a stroke memorialized on paper. Almost invariably, negotiations of some sort precede the concluding of a deal. People write letters, talk by telephone, meet face-to-face, send e-mails, and exchange thoughts and views about what they want and how they will reciprocate. They may even lie and cajole in duplicitous ways, making promises they know they cannot or will not keep in order not to kill the contract talks. In the course of these discussions, they may reach tentative agreements, some of which will ultimately be reflected in the final contract, some of which will be discarded along the way, and some of which perhaps will not be included in the final agreement but will nevertheless not be contradicted by it. Whether any weight should be given to these prior agreements is a problem that frequently arises.

Parol Evidence at Common-Law

The rule at common law is this: a written contract intended to be the parties’ complete understanding discharges all prior or contemporaneous promises, statements, or agreements that add to, vary, or conflict with it.

The parol evidence rule ( parol means oral; it is related to parliament and parly —talking) is a substantive rule of law that operates to bar the introduction of evidence intended to show that the parties had agreed to something different from what they finally arrived at and wrote down. It applies to prior written as well as oral discussions that don’t make it into the final written agreement. Though its many apparent exceptions make the rule seem difficult to apply, its purposes are simple: to give freedom to the parties to negotiate without fear of being held to the consequences of asserting preliminary positions, and to give finality to the contract.

The rule applies to all written contracts, whether or not the Statute of Frauds requires them to be in writing. The Statute of Frauds gets to whether there was a contract at all; the parol evidence rule says, granted there was a written contract, does it express the parties’ understanding? But the rule is concerned only with events that transpired before the contract in dispute was signed. It has no bearing on agreements reached subsequently that may alter the terms of an existing contract.

The Exemptions and Exceptions

Despite its apparent stringency, the parol evidence rule does not negate all prior agreements or statements, nor preclude their use as evidence. A number of situations fall outside the scope of the rule and hence are not technically exceptions to it, so they are better phrased as exemptions (something not within the scope of a rule).

Not an Integrated Contract

If the parties never intended the written contract to be their full understanding—if they intended it to be partly oral—then the rule does not apply. If the document is fully integrated, no extrinsic evidence will be permitted to modify the terms of the agreement, even if the modification is in addition to the existing terms, rather than a contradiction of them. If the contract is partially integrated, prior consistent additional terms may be shown. It is the duty of the party who wants to exclude the parol evidence to show the contract was intended to be integrated. That is not always an easy task. To prevent a party later from introducing extrinsic evidence to show that there were prior agreements, the contract itself can recite that there were none. Here, for example, is the final clause in the National Basketball Association Uniform Player Contract: “This agreement contains the entire agreement between the parties and there are no oral or written inducements, promises or agreements except as contained herein.” Such a clause is known as a merger clause .

Void or Voidable Contracts

Parol evidence is admissible to show the existence of grounds that would cause the contract to be void. Such grounds include illegality, fraud, duress, mistake, and lack of consideration. And parol evidence is allowed to show evidence of lack of contractual capacity. Evidence of infancy, incompetency, and so on would not change the terms of the contract at all but would show it was voidable or void.

Contracts Subject to a Condition Precedent

When the parties orally agree that a written contract is contingent on the occurrence of an event or some other condition (a condition precedent ), the contract is not integrated and the oral agreement may be introduced. The classic case is that of an inventor who sells in a written contract an interest in his invention. Orally, the inventor and the buyer agree that the contract is to take effect only if the buyer’s engineer approves the invention. (The contract was signed in advance of approval so that the parties would not need to meet again.) The engineer did not approve it, and in a suit for performance, the court permitted the evidence of the oral agreement because it showed “that in fact there never was any agreement at all.” Pym v. Campbell , 119 Eng. Rep. 903 (Q.B. 1856). Note that the oral condition does not contradict a term of the written contract; it negates it. The parol evidence rule will not permit evidence of an oral agreement that is inconsistent with a written term, for as to that term the contract is integrated.

Untrue Recital or Errors

The parol evidence rule does not prevent a showing that a fact stated in a contract is untrue. The rule deals with prior agreements; it cannot serve to choke off inquiry into the facts. Thus the parol evidence rule will not bar a showing that one of the parties is a minor, even if the contract recites that each party is over eighteen. Nor will it prevent a showing that a figure in the contract had a typographical error—for example, a recital that the rate charged will be the plumber’s “usual rate of $3 per hour” when both parties understood that the usual rate was in fact $30 per hour. A court would allow reformation (correction) of such errors.

To enforce a contract, its terms must be understood, so parol evidence would be allowed, but a claim of ambiguity cannot be used to alter, vary, or change the contract’s meaning.

Postcontract Modification

Ordinarily, an additional consistent oral term may be shown only if the contract was partially integrated. The parol evidence rule bars evidence of such a term if the contract was fully integrated. However, when there is additional consideration for the term orally agreed, it lies outside the scope of the integrated contract and may be introduced. In effect, the law treats each separate consideration as creating a new contract; the integrated written document does not undercut the separate oral agreement, as long as they are consistent. Buyer purchases Seller’s business on a contract; as part of the agreement, Seller agrees to stay on for three weeks to help Buyer “learn the ropes.” Buyer realizes she is not yet prepared to go on her own. She and Seller then agree that Seller will stay on as a salaried employee for five more weeks. Buyer cannot use the parol evidence rule to preclude evidence of the new agreement: it is a postcontract modification supported by new consideration. Similarly, parties could choose to rescind a previously made contract, and the parol evidence rule would not bar evidence of that.

The UCC Approach

Under Section 2-202 of the UCC, a course of dealing, a usage of trade, or a course of performance can be introduced as evidence to explain or supplement any written contract for the sale of goods. A course of dealing is defined as “a sequence of previous conduct between the parties to a particular transaction which is fairly to be regarded as establishing a common basis of understanding for interpreting their expressions and other conduct.” A usage of trade is “any practice or method of dealing having such regularity of observance in a place, vocation or trade as to justify an expectation that it will be observed with respect to the transaction in question.” A course of performance is the conduct of a party in response to a contract that calls for repeated action (e.g., a purchase agreement for a factory’s monthly output, or an undertaking to wash a neighbor’s car weekly).

Key Takeaway

The parol evidence rule is intended to preserve “the four corners” of the contract: it generally prohibits the introduction of contemporaneous oral or written elements of negotiation that did not get included in the written contract, subject to a number of exemptions.

The UCC allows evidence of course of dealing, course of performance, or usage of trade to give meaning to the contract.

• What is the purpose of the parol evidence rule?
• How does it operate to crystallize the intention of the contracting parties?
• To what kinds of contract issues does the rule not apply?
• What “help” does the UCC give to fleshing out the parties’ contractual understanding?

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Interpretation of contracts and the parol evidence rule

The judgment of Wallis JA in the Endumeni case has been highly influential in setting out what is today the ‘proper approach’ to the interpretation of legal documents, including contracts. It marks a shift from an overly literal approach to interpretation, focused primarily on the language of the text, with recourse to extrinsic evidence permitted only in limited circumstances where there is ambiguity, to a more expansive, ‘unitary’ approach in terms of which, from the very outset, the court is required to have regard to the text, the context and the purpose of the provision, even if the words appear clear and unambiguous. This new approach, which leaves a considerably diminished role for the parol evidence rule, has been consistently approved and applied in subsequent cases, including by the Constitutional Court.

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Dale Hutchison is head of the Internal Research Unit at ENSafrica, and Emeritus Professor of UCT’s department of Private Law. After doctoral studies at Trinity Hall, Cambridge, he returned to UCT as a senior lecturer in Roman Dutch & Private Law. He received a Distinguished Teacher Award in 1982, and in 1983 was appointed to the Chair of Roman Dutch & Private Law. He has also served the Faculty as Deputy Dean; sat as a Commissioner of the Small Claims Court in Wynberg. His main teaching subjects are the Law of Contract and the Law of Cession, but he has also taught many other courses including: the Law of Delict; Succession; Trusts; Estoppel; and Criminal Law. A particular research interest of his has been the problem of economic loss on the border between contract and delict. He has published extensively and was General Editor of Wille's Principles of South African Law . He has practised as an advocate of the High Court.

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• Parol Evidence Rule

Dive into the intriguing domain of legal principles , commencing with an in-depth exploration of the Parol Evidence Rule. Unravel its significance in contract law and how it shapes legal arguments, with emphasis on applicable cases according to British law . Further insights on the exceptions to this rule and relevant case studies provide a comprehensive understanding. Bringing it all together, a succinct summary elucidates the importance and key points to always recall about the Parol Evidence Rule. Brace yourself for a compelling journey through the corridors of contract law.

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Understanding the Parol Evidence Rule

The realm of law is vast, and for you as a student, comprehending every legal concept is crucial to your academic success. One such concept, often discussed in Contract Law , is the Parol Evidence Rule.

Definition: What is the Parol Evidence Rule?

The Parol Evidence Rule, in the simplest terms, is a principle that prevents parties from presenting new evidence outside of the written contract , also known as "parol" evidence, to alter, contradict, or add to the terms of an existing agreement.

It's interesting to note that the term "parol" does not refer to verbal agreements only as it might seem due to its phonetic resemblance to 'oral'. Instead, the term originates from the French word ' parole ' meaning 'speech'. In a legal context, it's used to signify anything not included in the final written contract, whether it was verbal or written communication during negotiation phases.

Application of the Parol Evidence Rule in Contract Law

The Parol Evidence Rule plays a key role in Contract Law. Primarily, it encourages both parties to put their complete intentions into the final written agreement, ensuring the contract's integrity and stability. Its application can be intricate in some instances, though.

In Contract Law, you’ll see exceptions to the Parol Evidence Rule, where parol evidence can be admitted, such as:

• Clarification of ambiguous terms
• To rectify mistakes in the agreement
• Proof of fraud , duress , or illegality

It’s essential to learn how to determine when these exceptions can be invoked, which is often a matter of keen judgement and expert knowledge of the law.

Parol Evidence Rule Example in British Law

Let’s illustrate this using a hypothetical scenario. Let's say Party A and Party B have entered into a written contract for the sale of a piece of land. The contract explicitly states that Party A will sell a parcel of land to Party B for an agreed price, with no mention of any buildings on the land. After the contract signing, Party B insists that during pre-contract conversations, Party A had verbally promised to build a house on the land before the sale. Party B now wants to present this alleged conversation as parol evidence to alter the contract terms . Under the Parol Evidence Rule, British courts will likely disregard this conversation as it contradicts the explicit terms of the already concluded written agreement.

Unpacking the Parol Evidence Rule Further

Digging deeper into the Parol Evidence Rule, you'll discover that its core is underpinned by certain fundamental legal principles . It significantly shapes legal arguments and court decisions. Let's explore these aspects for a comprehensive understanding of the rule.

The Legal Principles Underpinning the Parol Evidence Rule

The Parol Evidence Rule operates on a foundation of key legal principles which inform its implementation and interpretation. These principles are crucial to understanding the rule’s functions in maintaining the integrity and stability of contracts.

The first principle is the "Four Corners rule" . It postulates that a contract should be understood within its literal "four corners", considering only what is within the text itself and disregarding external elements. This reinforces the concept that the contract is the complete and final agreement between parties.

Another important principle is the "Merged Parol Evidence rule" , which entails that all prior or simultaneous parol agreements are typically considered merged into the final written contract. Hence, the written contract is seen as the single embodiment of the parties' agreement.

With these guiding principles, the Parol Evidence Rule regulates what external information can influence a contract's interpretation, promoting truthfulness, and enforcement of only genuinely agreed-upon terms.

These principles, particularly the Four Corners rule, have faced criticism from some legal scholars. They argue that it disregards the reality of negotiations and may lead to rigid interpretations of contracts, sometimes causing unjust outcomes. This critique is one of the reasons for the Parol Evidence Rule exceptions we mentioned earlier.

How the Parol Evidence Rule Influences Legal Arguments

In legal disputes, the Parol Evidence Rule heavily informs the arguments made by both parties. Understanding these implications, you'll find a new appreciation for the rule in contract litigation.

Generally, legal arguments moulded by the Parol Evidence Rule fall into two categories:

• Arguments in favour of admitting parol evidence
• Arguments against admitting parol evidence

To either admit or exclude parol evidence, legal actors argue based on the rule's foundations and exceptions. For instance, if a party claims a contract term is ambiguous and needs additional evidence for clarification, they'll argue based on the "ambiguity exception" to the Parol Evidence Rule.

Meanwhile, a party wishing to exclude parol evidence will argue that the contract is complete and unambiguous on its face. They'll restate the Four Corners rule and stress that the rule's objective is to uphold the sanctity of written agreements.

Consider this situation - two companies sign a contract for software development. After signing, Company A claims verbal conversations took place about the inclusion of an additional feature not mentioned in the contract. Company B denies this. Now, Company A urges the court to consider these conversations, arguing the contract is not a complete representation of their agreement. In response, Company B argues that the contract is clear and comprehensive, without ambiguity, to exclude parol evidence as per the Parol Evidence Rule.

From this example, you can see how the Parol Evidence rule shapes the strategical play within legal arguments, affecting the possible outcome of litigation. In sum, the rule has a definitive influence on Contract Law, and understanding it is critical to mastering this branch of legal studies.

Exceptions to the Parol Evidence Rule

While the Parol Evidence Rule provides a strong shield around the sanctity of written contracts, this shield is not wholly impervious. Acknowledging that there may be situations where excluding all external evidence could lead to unjust outcomes, the law recognizes certain exceptions to the rule. Let's delve into these exceptions and understand when they might come into play.

Understanding the Parol Evidence Rule Exceptions

The Parol Evidence Rule is not absolutely rigid. It allows for flexibility in certain situations. It's necessary to understand each of these exceptions carefully, as they can determine the interpretation and enforcement of a contract. Some of the universal exceptions include:

1. Ambiguity or Uncertainty: If the terms of the contract are ambiguous or uncertain, parol evidence can be introduced to clarify the meaning and resolve the uncertainty.

2. Incomplete Agreement: When the written contract seems incomplete or partially integrated, the court might allow parol evidence to complete the understanding of the agreement.

3. Correction of Error : Parol evidence may be admitted to correct a mistake in the contract, especially when the error is mutual or obvious.

4. Fraud , Misrepresentation , Duress , or Illegality: If it is claimed that the contract is a product of fraud, misrepresentation , duress, or illegality, parol evidence can be presented to support such a claim.

5. Prior Existence of Condition Precedent: Parol evidence is admitted if there was a condition precedent that was not fulfilled, rendering the contract void.

6. Subsequent Modification: If the parties agree to modify the contract after the formation, parol evidence of this subsequent modification is also admissible.

It's interesting to consider how these exceptions cater to fairness and justice . While the Parol Evidence Rule generally protects the integrity of a written contract from inconsistent external evidence, these exceptions ensure the rule does not become a tool for deceit or misrepresentation, respecting the dynamic nature of contractual relationships in real-world scenarios.

Case Studies: When the Parol Evidence Rule Exceptions Apply

Briefly touched upon previously, the application of these exceptions is often intricate, depending highly on the precise situation at hand. Let's review some case studies to examine how these exceptions apply in real-world scenarios.

Case 1: Ambiguity - John and Smith have a written contract requiring John to deliver 100 "units" to Smith. However, what the "unit" refers to is not specified. In this case, parol evidence can be used to clarify the ambiguous term "unit".

Case 2: Incomplete Agreement - Imagine a contract selling a car but with no mention of the price or payment terms. In this case, a court might consider parol evidence to reveal the complete agreement and fill in the missing details, seeing the contract as incomplete.

Case 3: Correction of Error - Suppose a written contract has an obvious typographical error, such as stating the sale of a house for £100 instead of £100,000. Here, parol evidence could help correct this obvious error.

These cases illuminate how the Parol Evidence Rule is not an absolute principle but is applied keeping in mind the containment of genuine and good faith agreements while allowing space for flexibility in special circumstances.

Parol Evidence Rule: An Insightful Recap

At this point, you have ventured through an extensive exploration of the Parol Evidence Rule. Now it's time to revisit the key components, re-emphasising their importance and summarizing their interconnections. This consolidation is vital in enhancing your comprehension and retention of such a pivotal legal concept.

Summarising the Importance of the Parol Evidence Rule

The Parol Evidence Rule is a cornerstone of Contract Law, maintaining the integrity and stability of written contracts. Its significance lies not only in its ability to prevent contradictions from extrinsic evidence but also in encouraging parties to structure comprehensive, unambiguous, and explicit agreements.

This rule is founded on some key legal principles, notably the Four Corners rule and the Merged Parol Evidence rule. These principles steer the interpretation of contracts towards the content within its 'four corners'. They consider a written contract as the ultimate manifestation of the parties' intent , disregarding verbal or written discussions predating or coinciding with the agreement. Remember, these principles embody the rationale behind the Parol Evidence Rule and inform its application in legal proceedings.

However, acknowledging that law is not one-size-fits-all, the rule allows certain exceptions. These exceptions cater to special circumstances where enforcing the rule rigidly might engender unfair or wrong outcomes. Such scenarios include the presence of ambiguity, incomplete agreements, correction of errors, or claims of fraud, misrepresentation, duress, illegality.

All these facets constitute the skeleton of the Parol Evidence Rule. The rule serves as a guiding light in the interpretation and enforcement of contracts, balancing the sanctity of written agreements with the flexibility to address special circumstances.

Key Points to Remember About Parol Evidence Rule in Contract Law

To strategically navigate your legal studies and beyond, here is a recapitulation of important points about the Parol Evidence Rule in Contract Law:

• Role of the Rule: The Parol Evidence Rule works to uphold the sanctity of written contracts, discouraging alterations or contradictions via extrinsic evidence.
• Foundation Principles: The principles of Four Corners and Merged Parol Evidence rule represent the bedrock of the Parol Evidence Rule. They guide the interpretation of contracts towards the explicit content of the written agreement.
• Exceptions : Exceptions to the rule allow for flexibility in special situations like ambiguity, incomplete agreements, mistake correction, claims of fraud, misrepresentation, duress, or illegality.

In legal arguments, parties strategically use the rule and its exceptions to either admit or exclude parol evidence. Therefore, understanding and mastering the implications are crucial for law students and future practitioners alike.

Across contracts of diverse nature and magnitude, the Parol Evidence Rule stands tall, stabilising contractual relationships and ensuring just enforcement of the genuine agreement between parties. Essentially, it's a lighthouse guiding the vast sea of Contract Law.

Parol Evidence Rule - Key takeaways

• The Parol Evidence Rule is a principle in contract law that prevents parties from presenting new or extrinsic evidence, known as "parol" evidence, to alter, contradict, or add to the terms of an already existing agreement.
• The term "parol" originates from the French word ' parole ' meaning 'speech' and signifies anything not included in the final written contract, whether it was verbal or written communication during negotiation phases.
• Exceptions to the Parol Evidence Rule, where parol evidence can be admitted, include: clarification of ambiguous terms, correction of mistakes in the agreement, and the proof of fraud, duress, or illegality.
• The Parol Evidence Rule operates on key legal principles like the "Four Corners rule" and the "Merged Parol Evidence rule". The "Four Corners rule" mandates that a contract should be understood within its literal "four corners", considering only what is within the text itself. The "Merged Parol Evidence rule" suggests all prior or simultaneous parol agreements are typically considered merged into the final written contract.
• In legal disputes, arguments moulded by the Parol Evidence Rule focus on either admitting or excluding the parol evidence where legal actors argue based on the rule's foundations and exceptions.

Flashcards inParol Evidence Rule 12

What is the Parol Evidence Rule in Contract Law?

The Parol Evidence Rule is a principle in Contract Law that prevents parties from using new evidence, known as "parol" evidence, to alter, contradict, or add to the terms of an existing written agreement.

What are the exceptions where parol evidence can be admitted in Contract Law?

Parol evidence can be admitted for clarification of ambiguous terms, to rectify mistakes in the agreement, or show proofs of fraud, duress, or illegality.

What does the term "parol" in Parol Evidence Rule signify?

In a legal context, "parol" represents anything not included in the final written contract, including verbal and written communication during negotiation phases.

What is the "Four Corners rule" in the context of the Parol Evidence Rule?

The "Four Corners rule" posits that a contract should be understood solely within its own text, ignoring external elements. It reinforces the concept that the contract is the final and complete agreement between parties.

What is the "Merged Parol Evidence rule"?

The "Merged Parol Evidence rule" suggests that all preceding or concurrent parol agreements are typically viewed as merged into the final written contract, making the written contract the sole embodiment of the agreement.

How does the Parol Evidence Rule influence legal arguments?

The Parol Evidence Rule significantly influences legal arguments by guiding whether to admit or exclude parol evidence. These arguments typically rely on the rule's foundations and exceptions, like the "ambiguity exception". Generally, the arguments fall into two categories: arguments in favour of admitting parol evidence and arguments against it.

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Important Recent Tennessee Case on Contract Interpretation and the Parol Evidence Rule

In early 2019, the Supreme Court of Tennessee issued an opinion that, without exaggeration, can be said to be one of the most important Tennessee cases, if not the most important Tennessee case, to contemporary commercial litigation lawyers on the subjects of contract interpretation and the parol evidence rule. The opinion was in the case of Individual Healthcare Specialists, Inc. v. BlueCross BlueShield of Tennessee, Inc.

In the case, the Court undertook the arduous task of analyzing, discussing and reconciling over a hundred years of Tennessee case law on the subjects at issue, much of which case law is inconsistent on critical points.  While the opinion, to a large extent, struck a middle ground which still leaves open the ability of parties with contravening positions to pull something from it which supports the position of each, it provides much more clarity than the case law that came before it.  It also anchored Tennessee law in a place that is closer to the middle, and not at the extreme, of the two theories of contract interpretation with which it dealt — the contextual approach and the textual approach.

As explained in the Individual Healthcare Specialists case, under the contextual approach to contract interpretation, a court may look beyond the four corners of the written contract to determine the parties’ intent, even when the language in the parties’ contract is unambiguous . The Court juxtaposed that approach to contract interpretation applying the textual approach which prohibits a court from considering evidence other than the parties’ written agreement in many circumstances and certainly in a circumstance where the parties’ writing is unambiguous.

All of the facts and rulings related to the subjects of this post, contract interpretation and the parol evidence rule, do not have to be discussed to understand the outcome and implications of the Individual Healthcare Specialists case. In the case, the plaintiff, an insurance agency which sold BlueCross BlueShield (“BCBS”) policies for a commission, sued BCBS alleging that it had been underpaid. The language of the main agreement between the Plaintiff and BCBS, which was entered into in 1999, unambiguously permitted BCBS the right to change, unilaterally, the commission rates to be paid to the Plaintiff.

After the execution of the main agreement, BCBS, over time, issued new commission schedules which provided that, if BCBS changed the commission rate, still, the commission rate in effect at the time a policy was sold by Plaintiff would continue to govern. In May of 2011, BCBS issued a commission schedule which substantially reduced commission rates and did not contain the language providing that the commission rates in effect at the time a policy was sold would govern.

The Plaintiff submitted the testimony of three former BCBS employees who had been involved with the making of the contracts between Plaintiff and BCBS. They testified that the main agreement, which was signed in 1999, was understood by the parties to prohibit BCBS from decreasing commission rates on policies that were already sold. The trial court allowed the testimony of the three former BCBS employees, relying on a California case where the California Supreme Court, following the contextual approach, allowed extrinsic evidence to aid in the interpretation of an unambiguous written contract.  BCBS appealed, arguing that the terms of the parties’ written agreement, which permitted it to change the commission rates, were unambiguous and that the trial court should not have considered the testimony of the three former BCBS employees. The Court of Appeals of Tennessee affirmed the decision of the trial court that those former employees’ testimony could be considered. The Supreme Court of Tennessee reversed this holding.

The Court observed that Tennessee case law on the subject of contract interpretation contained cases where Tennessee courts, to one degree or another, had followed either, or both, a contextual approach and/or a textual approach. The Court held that Tennessee, henceforth, will not follow a strictly textual or contextual approach, but a flexible approach which permits a court to consider both the written words of the contract and the context of the parties’ contract.  Importantly, the Court also directed that the written words of the contract “remain as the lodestar of contract interpretation.”

The Individual Healthcare Specialists opinion leaves no doubt that Tennessee lawyers can request a court to consider contextual facts other than the written words in the parties’ agreement.  If a Tennessee court finds the terms of the parties’ written agreement to express clearly their intent, the opinion also allows the court not to consider contextual facts, but to rely solely on the text of the parties’ agreement.

The Court’s explanation of the parol evidence rule and its ruling on the parol evidence rule left more of a bright line for Tennessee lawyers. The Court held that, under the circumstances, where the agreement between BCBS and the Plaintiff unambiguously provided that BCBS had the right to modify the commission rate without the consent of the Plaintiff, the testimony of the three former BCBS employees could not be considered under the parol evidence rule.  The reason that it could not be considered was because it directly contradicted the terms of the written agreement between BCBS and the Plaintiff.

The Individual Healthcare Specialists will be cited and discussed in many cases, for many years to come, by many Tennessee commercial litigation lawyers.

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Contracts are fundamental in the nature of business. In a commercial sense, it regulates and defines the boundaries of the manner in which parties interact toward each other. Contracts are entered into with the view of profiting or benefitting by this agreement. Contracts can either be entered into by a written, oral or tacit agreement. Contracts are agreements that set out each party’s rights and obligations. It is a meeting of the minds – the parties mutually agree to the following terms and conditions.

Contracts are not entered into with the view of breaching the agreement or ending it. It is entered into with the intention of having some benefit. However, when parties breach the contract or when the contract is terminated and loss is suffered, parties may take a better look at the terms and conditions of their signed agreement. It is at that time that parties may say that their intention prior to the signing of the agreement is not correctly represented in the agreement, and as such, parties wish to state that the contract does not truly reflect their intention. If the contract is not a meeting of the minds then the terms and conditions do not correctly reflect their intention. As a general term of written contracts, terms and conditions may not be amended unless parties agree in writing. The question is whether a party can alter the terms and conditions of a written contract by adducing extrinsic evidence that contradicts said agreement. 

The parol evidence rule applies to all written contracts whether it was stated in the contract or not. Parol evidence is evidence outside of the written contract – it is evidence comprising of what parties did or said before, during or even after the conclusion of the contract. The parol evidence rule has two components: the integration rule and the interpretation rule.

In terms of the integration rule, the written agreement is the “exclusive memorial” of the agreement between the parties. 1 The written agreement contains all the express terms of the contract and as such “the contents of the document [may not be] contradicted, altered, added to or varied by parol evidence”. 2 It was recently held in the Supreme Court of Appeal (SCA) that “a court may not admit evidence as to what the parties intended it to mean if that has the effect of changing the terms of which they clearly agreed [in writing]”. 3

There are many exceptions to the integration rule. Some of these exceptions follow:

• A party may bring evidence if it goes to the validity of the contract – that is to say that the contract itself it not valid or is voidable; it does not go to the terms of the contract.
• One can show that the contract was subject to a suspensive condition – that is to say that the contract would only be operational on the outcome of a certain future event; if the first agreement did not yield a favourable result to enforce the second contract then parties may adduce evidence to show that fact.

In terms of the interpretation rule, the court looks to ascertain the meaning of the terms. “Interpretation is a matter of law and not a matter of fact and, accordingly, interpretation is a matter for the court and not for witnesses”. 4 If the contract is able to clearly and unambiguously define the terms of the contract, the court will interpret those terms according to the contract. Where the contract does not give a clear meaning to the terms of the contract then the court may engage in the surrounding circumstances of the case to ascertain the meaning of those terms – however, this approach must be used as conservatively as possible. 5

To conclude, as a general rule, the parol evidence rule does not allow a party to a written contract to adduce extrinsic evidence that alters, contradicts, varies or adds to the contract.

Written and prepared by: Kirith P. Haria Bouwer Kobeli Morabe Attorneys

Notes: 1 Union Government v Vianini Pipes 1941 AD 43 at 47. 2 Ibid. 3 ABSA Technology v Michael’s Bid a House (212/2012) [2013] ZASCA 10 (26 February 2013) at para 20. 4 KPMG Chartered Accountants v Securefin Ltd 2009 (4) SA 399 (SCA) at para 39. 5 Delmas Milling Co Ltd v Du Plessis 1955 (3) SA 447 (A) at 455.

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