case study for parol evidence rule

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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.

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Thirty-Eight The Parol Evidence Rule

• Published: October 2018
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Assume that A and B make a contract. Call this the first contract or the parol agreement. Later, A and B make a second contract, in writing, which does not contradict, but relates to the same subject matter, as the first contract. Later still, A sues B for breach of the first contract and B defends on the ground that the second written agreement superseded or discharged the first contract, although it did not explicitly so provide. Under the parol evidence rule B will prevail unless an exception to the rule applies. Chapter 38 examines that rule.

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• The Parol Evidence Rule

What is the Parol Evidence Rule?

In general, the parol evidence rule prevents the introduction of evidence of prior or contemporaneous negotiations and agreements that contradict, modify, or vary the contractual terms of a written contract when the written contract is intended to be a complete and final expression of the parties’ agreement. A merger clause strengthens the presumption that the written document is complete and final by expressly stating that the written document is the final and full expression of the parties’ agreement. Thus, even if the parties later agree that they had a conversation creating, for example, a “side agreement” that was not included in the original written contract, and the side agreement contradicts the written contract (e.g., by changing the delivery date or price of a purchase), the additional or different terms included in the side agreement may not be enforced by the court when there is a merger clause in the written contract.

There are some exceptions to the parol evidence rule. Evidence of the following is admissible:

1. Defects in the formation of the contract (such as fraud, duress, mistake or illegality). 2. The parties’ intent regarding ambiguous terms in the contract. 3. Problems with the consideration (e.g., the consideration was never paid). 4. A prior valid agreement that is incorrectly reflected in the written instrument in question. 5. A related agreement, if it does not contradict or change the main contract. 6. A condition that had to occur before contract performance was due. 7. Subsequent modification of the contract.

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When interpretation of a written contract is in dispute, Indiana courts apply the “four corners rule,” also known as the “parol evidence rule,” to determine the intent of the parties in entering into the contract. If the language of a contract is clear and unambiguous, the parol evidence rule prevents the introduction of evidence of prior or contemporaneous negotiations and agreements that contradict, modify or otherwise vary the terms of the contract, and a court will enforce the contract as written. However, there are some exceptions to the parol evidence rule that permit a court to look beyond the four corners of the contract to determine the intent of the parties. Two recent decisions by the Indiana Court of Appeals analyzed the effects of the parol evidence rule in interpreting the intent of contracting parties, and whether exceptions to the rule were appropriate given the precise language of the written agreements.

Barker v. Price , - N.E.3d - , 2015 WL 9478049 (Ind. Ct. App. Dec. 29, 2015), involved an agreement for the sale and purchase of a vehicle. Price, the seller of vehicle, had advertised the vehicle on Craigslist as a 1994 Ford E-350 van. Interested in possibly purchasing the van, Barker met with Price and inspected the van, after which he orally agreed to purchase the van from Price for $15,000. Barker and Price then signed a deposit agreement under which Barker was required to immediately pay Price $2,000 to be applied as a deposit for the van, and Price was to provide Barker “title [to the van] by 4/14/14 or deposit will be refunded in full.” The agreement did not specify the model year of the van, but rather referred to the van as a “Ford E-350 Van.” The certificate of title Price later provided to Barker indicated that the van was actually a 1993 model rather than a 1994 model. Barker refused to accept the certificate of title and demanded a refund of the deposit, which Price refused to return. Following the filing of summary judgment motions by both of the parties regarding the interpretation of the deposit agreement and whether Barker was entitled to a return of his deposit, the trial court entered summary judgment for Price.

The central issue reviewed by the appellate court was whether the trial court erred in the way in which it interpreted the contract to conclude that the parties did not intend for the model year of the van to be a material term of the deposit agreement. In reviewing the deposit agreement and considering the parol evidence rule, the Court of Appeals determined that the deposit agreement could not be the entire agreement between the parties in that it omitted at least one essential term, the sale price for the van, making it apparent that the deposit agreement was only part of a larger agreement that was not fully reduced to writing.

Therefore, the Court of Appeals held that there was a question of material fact that would preclude summary judgment as to whether the model year of the van was a material term to the parties’ agreement, which could only be determined by considering parol evidence outside of the deposit agreement, including such evidence as the Craigslist ad which explicitly stated that the van was a 1994 model. The Court of Appeals reversed the trial court’s entry of summary judgment for Price and remanded the case with instructions to the trial court to consider not only the deposit agreement, but also extrinsic evidence outside of the four corners of that writing to determine whether the model year of the van was a material term to the agreement.

Yellow Book Sales and Distribution Co., Inc. v. JB McCoy Masonry, Inc ., - N.E.3d. - , 2015 WL 8479321 (Ind. Ct. App. Dec. 10, 2015) involved a contract in which Yellow Book agreed to provide JB McCoy Masonry with a year’s worth of advertising in exchange for a monthly advertising fee. The written contract was a one-sheet, fill-in-the-blanks form contract. Robin Brooks, the owner of JB McCoy Masonry and a defendant in the litigation, had signed the contract as “Owner” of JB McCoy Masonry. Under her signature line, the contract read “ Authorized Signature Individually and for the Customer .” Following that language, in a parenthetical, the contract stated “Read paragraph 15F on the reverse hereof.” The first page of the contract also included language that stated …”THE TERMS AND CONDITIONS SET FORTH HEREIN AND ON THE REVERSE HEREOF ARE AGREED TO BY CUSTOMER AND SIGNER.” Section 15F of the terms and conditions on the reverse side of the contract read “The signer agrees that he/she has the authority and is signing this agreement (1) in his/her individual capacity….By his/her execution of this agreement, the signer personally and individually undertakes and assumes, jointly and severally with the Customer, the full performance of this agreement, including payment of amounts due hereunder.”

After JB McCoy Masonry failed to pay the monthly advertising fee, Yellow Book sued the company and Brooks for the balance due on the contract. During the bench trial, Brooks testified that while she is the owner of the company, she believe the word “Owner” in the contract conveyed that she was merely acting as a representative of the company, i.e. was only signing on behalf of the company, and did not think that she was making herself personally liable for the performance of the agreement by signing the contract. Brooks also testified that she did not read the reverse side of the contract. The trial court entered a judgment in favor of Brooks, finding that the contract was ambiguous and that testimony that Brooks did not intend to be personally bound was admissible.

On appeal, Yellow Book contended that the trial court erred in holding that parol evidence, including Brooks’ testimony that she did not intend to be personally liable for the performance of the contract and/or any amounts due thereunder, was admissible to determine the intent of the parties in entering into the contract. Unlike in Barker v. Price, the Court of Appeals determined in this case that the contract was not ambiguous in its intent, which was to make Brooks, as the signer, personally and individually as well as jointly and severally responsible to pay Yellow Book the amounts due under the contract, as set forth in the separate aforementioned sections of the contract. The Court of Appeals reversed the trial court’s decision and remanded the case for a determination of damages.

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Parol Evidence Rule

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  What is the Parol Evidence Rule?

“Parol evidence” is evidence of any agreement between two or more parties that is not contained within their written contract.

There are instances where one of the parties to a written contract may feel that not all of the agreements they wanted were added. They want to alter the contract to include the terms they think are missing in the final written document. To do so, they may try to introduce evidence of prior oral agreements with the other party before the terms of the existing contract were ever written. The parol evidence rule prevents this from happening. Perhaps the contract does not have any clause about how the parties can cancel the contract, and one of the parties believes they had agreed to those terms; they just didn’t include them in the written agreement.

To get those terms included, they may try to introduce evidence of a prior oral agreement with the other party before the terms of the existing contract were written. The parol evidence rule prevents this from happening.

The parol evidence rule 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. Once all parties have signed a written agreement, it cannot be changed by an oral agreement, except when fraud, duress, or mutual mistake is involved.

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 when interpreting that contract. This includes prior or contemporaneous oral agreements and prior or contemporaneous written agreements that contradict or create a term variation in the contract. In other words, the judge or jury will only look at the writing within the document itself to decide a contract dispute.

What is the Rationale for the Parol Evidence Rule?

How flexible is the parol evidence rule, exceptions to the parol evidence rule, do i need a lawyer to help me with the parol evidence rule.

The parol evidence rule treats the parties’ formal written documents as reflections of their true contractual intentions . In other words, if something was discussed before the official written contract and was subsequently left out of its terms, then those terms must have been intentionally left out of the document for one reason or another. The parol evidence rule assumes that any original discussions regarding the parties’ duties or restrictions would have appeared in the written contract, and because they do not, the parties never wanted those terms to survive past the initial bargaining stages.

Some examples of what the parol evidence rule is useful for include:

• Helping to increase the predictability and finality of commercial transactions by encouraging the parties to draft clearer, more thorough, and less ambiguous contracts
• Reducing litigation or conflicts between the parties over the meaning of the terms in the final contract
• Assisting with determining the parties’ true intentions at the time the contract was signed.

Classic Approach

When the parol evidence rule was first created, it was applied rigorously to contract cases. The classic approach was to analyze the language of the formal document the parties created and signed to determine their true intentions. The courts would look at the portion the parties were arguing over and glean their interpretation from the actual words on the paper, not from any implied meanings not written down.

For instance, in a key case from New York, the plaintiff purchased land from the defendant. The plaintiff alleged that the defendant had promised to remove an ice house that was sitting on the property, but the contract said nothing about that. 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 it found that if the parties had reached an agreement on removing the ice house, it would have been written into the contract.

Modern Approach

However, the trend in recent times seems to be shifting towards the courts becoming increasingly willing to admit parties’ parol evidence. This modern approach asks the court to interpret the language of the official contract in light of all relevant circumstances. These include considering prior dealings between the parties and customary usages of specific terms within a trade.

For example, in contracts between parties who regularly deal in sales with each other, the court may consider certain parol evidence when interpreting their contract. The court may consider evidence of the parties’ normal way of dealing with one another and similar customers. The court may also consider other agreements made before, or at the same time as, the contract under consideration and may consider the industry standard course of conduct.

In short, 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.

However, parol evidence may only be considered if it does not contradict the contract but supplements or clarifies it.

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.

Exceptions to the parol evidence rule include:

• Errors or defects in the written contract due to mutual mistake, fraud (a lie about an important contract term), duress (threats), or illegality (the subject matter of the contract violates the law)
• 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 is some problem with the consideration (something of value that is exchanged in return for the promise of performance by the other party.)
• There was a condition that had to occur before the contract performance was due
• One or more of the terms is ambiguous. 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 best way to avoid a dispute involving the parol evidence rule is to make sure that any contract you decide to form with another party includes all of the terms you want and that they are clearly defined.

An experienced contract lawyer in your area can help you to draft a contract that includes all of the above aspects, plus one that is valid and legally enforceable.

Additionally, if you are already involved in a situation requiring overcoming the parol evidence rule, a lawyer can assist you with this process.

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Parol Evidence Rule: Everything You Need to Know

The parol evidence rule regulates how opposing sides in a court case can bring in evidence regarding a contract or agreement related to the agreement being challenged in the case. 3 min read updated on January 01, 2024

The parol evidence rule regulates how opposing sides in a court case can bring in evidence regarding a contract or agreement related to the agreement being challenged in the case. This outside evidence can in some cases be used to expound upon, change, or add to the contract on trial. 

What Is Parol Evidence?

Parol evidence is not admissible under the parol evidence rule. When two parties enter into a contract that is fully integrated, neither side is allowed to use any extemporaneous discussions, previous contracts or oral agreements, or anything else outside of the final written contract . These pieces of evidence, separate from the signed contract, are called parol evidence. 

Sometimes the words parol and parole are confused. Parole is a time period after a person's prison sentence, once they are released on the grounds of good behavior. 

The parol evidence rule is sometimes called the four corners rule. This refers to the fours corners of a piece of paper representing the constraints of a written contract. According to the parol evidence or four corners rule, the only evidence admissible in court is what is found between the four corners of the paper document or what is specifically written in the contract, and nothing else. 

• Merger Clause

If two parties enter into a final agreement , they cannot try to add to or change the agreement based on information not included in the written document that they each signed. Merger clauses are a good way to ensure that a contract is indeed final and complete. It clearly states that both parties agree on everything written in the contract and the agreement is fully expressed.

By including a merger clause  in the contract, both parties agree that even if they form a side agreement later that changes an aspect of the written contract, the written contract will hold up in court over the side agreement. If a signed contract states that one party will deliver goods to another on September 1, but the two parties later have a discussion and decide that the goods do not need to be delivered until September 5, that later date will not be considered valid in court, especially if the original contract contained a merger clause. 

Parol Evidence Rule Example

Two individuals sign a written contract regarding the sale of a motorcycle. The written contract says that Andrew will pay individual Bob $5,000 for the motorcycle by February 1. Bob allows Andrew to ride off with the motorcycle on January 23 in good faith that Andrew will hold up his side of the contract.

February 1 comes and goes and Andrew has not contacted Bob or sent any form of payment to him. Weeks later, and still no sign of Andrew, Bob decides to sue Andrew for a breach of contract. 

During the trial, Andrew argues that he sent Bob a message on February 1 saying that he wouldn't be able to pay him until April, and Bob responded in agreement. Because of the parol evidence rule, Andrew's argument holds no weight. Bob will likely win the lawsuit and Andrew will be forced to pay Bob what he owns him and possibly more. 

The parol evidence rule holds all parties to the terms of the contract regardless of separate conversations or agreements. This encourages people and companies to take contract agreements seriously and carefully write them . It also prevents companies and individuals from trying to work around agreements or ignoring contract requirements . 

Admissible Evidence

There are some exceptions to the parol evidence rule. Many believe that if anything is in writing it holds value in court, but this isn't the case. If in the example given Andrew sent Bob an email about the change of date for payment, the email would still fall under the category of parol evidence. However, if that email was written as a contract and Andrew could show proof that he and Bob formed a new contract with the later date, the email would be allowed as evidence. 

A few situations that do allow for the use of parol evidence in a case are:

• A need for clarification or explanation for people in the court due to an ambiguous contract
• To demonstrate the invalidity of the contract or reveal a mistake
• To demonstrate illegal practice surrounding the contract, like coercion

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13.2: 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?

Parol Evidence Rule

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Potchefstroom Electronic Law Journal // Potchefstroomse Elektroniese Regsblad

The consumer protection act 68 of 2008 and parol evidence [2021] per 15.

parol evidence

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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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