Parol evidence rule
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The parol evidence rule enacts a principle of the common law of contracts that presumes that a written contract embodies the complete agreement between the parties involved. The rule therefore generally forbids the introduction of extrinsic evidence (i.e., evidence of communications between the parties which is not contained in the language of the contract itself) which would change the terms of a later written contract.
In order for the rule to be effective, the contract in question must be an integrated writing; it must, in the judgment of the court, be the final agreement between the parties (as opposed to a mere draft for example). One way to ensure that the contract will be found an integration is through the inclusion of a merger clause, which recites that the contract is, in fact, the whole agreement between the parties. Although, many modern cases have found merger clauses to only be a rebuttable presumption.
An integrated agreement is either a partial or complete integration. If it contains some, but not all, of the terms as to which the parties have agreed then it is a partial integration. This means that the court found the writing to be a final agreement between the parties (and not mere preliminary negotiations), but also went on to find that some of the terms that the parties agreed upon were left out. On the other hand, if the writing were to contain all of the terms as to which the parties agreed, then it would be a complete integration. The importance of this distinction is relevant to what evidence is excluded under the parol evidence rule. For both complete and partial integrations, any evidence contradicting the writing is excluded under the parol evidence rule. However, for a partial integration, terms that do not contradict the writing but merely add to it are not excluded.
The parol evidence rule only applies to determining the meaning of a term of a contract; it does not apply when determining whether a right constitutes a term of the contract. Also, despite this rule, the court will examine the factual context surrounding the contract and its formation.
There are a number of exceptions to the parol evidence rule. Extrinsic evidence can always be admitted for the following purposes:
- To work out the subject matter of the contract.
- To resolve an ambiguity in the contract.
- To show that an unambiguous term in the contract is in fact a mistaken transcription of a prior valid agreement. Such a claim must be established by clear and convincing evidence, and not merely by the preponderance of the evidence.
- To show fraud, duress, mistake, or illegal purpose on the part of one or both parties.
- To show that consideration has not actually been paid. For example, if the contract states that A has paid B $1,000 in exchange for a painting, B can introduce evidence that A had never actually conveyed the $1,000.
- To identify the parties, especially if the parties have changed names.
- To imply or incorporate a term of the contract.
Addition information on the parol evidence rule may be found in Restatement 2d of Contracts ยง 213.
See also
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