The parol evidence rule is a substantive common law rule in contract cases that prevents a party to a written contract from presenting extrinsic evidence that contradicts or adds to the written terms of the contract that appears to be whole. The supporting rationale is that since the contracting parties have reduced their agreement to a single and final writing, the extrinsic evidence of past agreements or terms should not be considered when interpreting that writing, as the parties had decided to ultimately leave them out of the contract.
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The rule applies to parol (oral) evidence, as well as other extrinsic evidence (such as written correspondence that does not form a separate contract) regarding a contract. If a contract is in writing and final to at least one term (integrated), parol or extrinsic evidence will generally be excluded. However, there are numerous exceptions to this general rule, including for partially-integrated contracts, agreements with separate consideration, to resolve ambiguities, or to establish contract defenses.
To take an example, Carl agrees in writing to sell Betty a car for $1,000. Betty argues that Carl told her that she would only need to pay Carl $800. The parol evidence rule would generally prevent Betty from testifying to this conversation because the testimony ($800) would directly contradict the written contract's terms ($1,000).
In order for the rule to be effective, the contract in question must first be a final 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).
A final 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 writing was a final agreement between the parties (and not mere preliminary negotiations) as to some terms, but not as to others. 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. One way to ensure that the contract will be found to be a final and complete integration is through the inclusion of a merger clause, which recites that the contract is, in fact, the whole agreement between the parties. However, many modern cases have found merger clauses to be only a rebuttable presumption.
The importance of the distinction between partial and complete integrations is relevant to what evidence is excluded under the parol evidence rule. For both complete and partial integrations, evidence contradicting the writing is excluded under the parol evidence rule. However, for a partial integration, terms that supplement the writing are admissible. To put it mildly, this can be an extremely subtle (and subjective) distinction.
There are a number of exceptions to the parol evidence rule. Extrinsic evidence can always be admitted for the following purposes:
In order for evidence to fall within this rule, it must involve either (1) a written or oral communication made prior to execution of the written contract; or (2) an oral communication made contemporaneous with execution of the written contract. Evidence of a later communication will not be barred by this rule, as it is admissible to show a later modification of the contract (although it might be inadmissible for some other reason, such as the Statute of Frauds). Similarly, evidence of a collateral agreement - one that would naturally and normally be included in a separate writing - will not be barred. For example, if A contracts with B to paint B's house for $1,000, B can introduce extrinsic evidence to show that A also contracted to paint B's storage shed for $100. The agreement to paint the shed would logically be in a separate document from the agreement to paint the house.
Though its name suggests that it is a procedural evidence rule, the consensus of courts and commentators is that the parol evidence rule constitutes substantive contract law.
Additional information on the parol evidence rule may be found in Restatement 2d of Contracts § 213.
The parol evidence rule is a common trap for consumers. For example: