Contract Law: Parol Evidence Rule

What is Parol Evidence?

Parol Evidence refers to oral testimony of a witness as opposed to written evidence. The Parol Evidence rule presupposes that whatever the parties intended to contract for they put into a written document. The written document, however, must be the full and final agreement between the parties; mere drafts are not sufficient. Whether or not a document serves as the parties’ final agreement is within the discretion of the Court. Persons in the past have tried to use a Merger Clause as a way of explicitly stating that the Agreement is the full and final agreement between the parties. However, the merger clause is not necessarily conclusive evidence of the full and final Agreement between the parties. The party who is contesting that the Agreement is the full and final agreement may still rebut the Merger Clause with evidence that the document was not supposed to serve as a Final Draft (evidence of other terms makes whether the document is final questionable). In addition, the parol evidence rule only applies to oral or written communications that were made before or during the time that the Final Agreement was drafted; this means that communications made after the Final Agreement are not barred by the parol evidence rule (puts into dispute whether or not the Final Agreement was in fact final).

What exactly is the Parol Evidence Rule?

It is a doctrine in law that presupposes that any extrinsic evidence of prior or contemporaneous understandings and/or agreements of the parties are inadmissible if offer to contradict or modify the terms of the written agreement. As previously stated subsequent terms of the contract are not affected by the rule. Collateral contracts are also not affected by the rule.

What is a no oral modification clause?

For example, a “no oral modification” clause for goods may be governed by the UCC 2-209(2) and may be subject to the statute of frauds. The no oral modifications clause is normally effective and makes it so that the agreement cannot be orally modified. However, if the parties do want to orally modify the agreement and at some point and in fact do so, the modification of contract will probably come in because it may be presumed that the parties have waived their rights in regards to the no oral modification clause. So in short under the for goods and under the UCC the clause may be enforceable as long as there has been no detrimental reliance. The rule regarding no oral modifications is not necessarily the same under the common law.

Fully v. Partially Integrated Agreements:

In very simple terms, fully integrated agreements contain all of the terms of the agreement, while partially integrated agreements contain only some of the terms of the agreement and parol evidence may be admissible for partially integrated contracts.

Why is this important?

In the case of additional, contradictory terms, it does not matter since Parol Evidence (Oral Evidence) is inadmissible. Interestingly enough though, if the agreement is partially integrated, then additional, non-contradictory terms may come in to explain the agreement even if they add to the agreement.

Now that you understand the general rule, there are some exceptions: If terms help the finder of fact to interpret the terms of the agreement that are in writing, then they can come in. Second, and very closely related to the first exception, terms that shed light on any ambiguities may also come in. The third exception basically allows in terms to prove that there was a clerical error in the agreement and the parties really agreed to something different. Fourth, as in most cases, there is an exception if fraud, duress, mistake, or an illegal purpose was one or both of the parties’ motives in entering into the contract. There is a fifth exception that allows terms in if they will assist the fact finder in determining that one of the parties did not tender consideration. In addition, there are exceptions are that terms may be used to identify the parties or to imply a term to the original agreement.

NOTE: The Statute of Frauds can still exclude oral testimony that is not kept out by the parol evidence rule. Also, as previously stated collateral agreements are not barred by the rule.

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