Parol evidence rule
Barron's Insurance Dictionary:
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Parol Evidence Rule
Rule that prohibits the introduction into a court of law of any oral or written agreement that contradicts the final written agreement. For example, an insurance contract containing clauses and provisions is in writing, and as such this contract cannot be contradicted or modified by any oral statements or agreements that are inadmissible in a court of law.
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Parol evidence rule
Barron's Real Estate Dictionary:
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Parol evidence rule
Oral evidence, rather than that contained in documents.
The parol evidence rule states that when parties put their agreement in writing, all previous oral agreements merge into the written agreement. The written agreement cannot be contradicted by oral testimony, unless there was a mistake or fraud.
Example: Carter agrees to buy a house from Dooley, and both sign a written agreement. Carter later argues that Dooley said he’d pay all the loan discount points. Under the parol evidence rule, courts will interpret the contract as it is written.
The parol evidence rule states that when parties put their agreement in writing, all previous oral agreements merge into the written agreement. The written agreement cannot be contradicted by oral testimony, unless there was a mistake or fraud.
Example: Carter agrees to buy a house from Dooley, and both sign a written agreement. Carter later argues that Dooley said he’d pay all the loan discount points. Under the parol evidence rule, courts will interpret the contract as it is written.
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West's Encyclopedia of American Law:
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Parol Evidence
This entry contains information applicable to United States law only.
Parol refers to verbal expressions or words. Verbal evidence, such as the testimony of a witness at trial.
In the context of contracts, deeds, wills, or other writings, parol evidence refers to extraneous evidence such as an oral agreement (a parol contract), or even a written agreement, that is not included in the relevant written document. The parol evidence rule is a principle that preserves the integrity of written documents or agreements by prohibiting the parties from attempting to alter the meaning of the written document through the use of prior and contemporaneous oral or written declarations that are not referenced in the document.
Terms of a contract are commonly proposed, discussed, and negotiated before they are included in the final contract. When the parties to the negotiations do put their agreement in writing and acknowledge that the statement is the complete and exclusive declaration of their agreement, they have integrated the contract. The parol evidence rule applies to integrated contracts and provides that when parties put their agreement in writing, all prior and contemporaneous oral or written agreements merge in the writing. Courts do not permit integrated contracts to be modified, altered, amended, or changed in any way by prior or contemporaneous agreements that contradict the terms of the written agreement.
The parol evidence rule applies to written contracts to safeguard the terms of the contract. The courts assume by the parol evidence rule that contracts contain the terms and provisions that the parties specifically intended and lack those provisions that the parties did not want.
The parol evidence rule does not apply to written integrated contracts in some instances. For example, clerical or typographical errors found in the written agreement may be changed because the incorrect term does not represent the true agreement between the parties. Courts will also not apply the parol evidence rule to prohibit contradictory evidence that shows that the contract was entered into under duress, mistake, fraud, or undue influence. Finally, the parol evidence rule will not prevent evidence that shows the existence of a separate agreement between the parties.
The law of sales also involves numerous written and oral contracts to which the parol evidence rule may be applied. However, in sales the court may look to contemporaneous or prior agreements not to contradict a written agreement but to explain or supplement it. The court may examine such evidence based on the parties' course of dealing, usage of trade, course of conduct, or evidence of consistent additional terms. Parties' course of dealing refers to a situation where two parties have a history of working together and entering into numerous contracts with each other, and the court can look to that history to clarify or interpret their written expressions. Usage of trade refers to circumstances in which the parties are participants in a particular trade or industry that has established ways of doing business. The courts can examine those established and accepted methods within the industry to help explain a written agreement. Parties' course of conduct refers to the actions of the parties in carrying out the particular contract, such as if a party accepts without objection the continued performance of the other party. It is also permissible for a court to consider supplemental consistent evidence that would generally not be included in the written agreement as long as it does not contradict the terms of the original agreement.
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Parol evidence rule
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. A common misconception is that it is a rule of evidence (like the Federal Rules of Evidence), but that is not the case. Basically, you can't use oral testimony to contradict the terms of a signed contract.
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Overview
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| Contract formation |
| Defenses against formation |
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| Breach of contract |
| Remedies |
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| Related areas of law |
| Other common law areas |
The rule applies to parol (oral) evidece, 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:
- To aid in the interpretation of existing terms.
- In a minority of jurisdictions (Florida, Colorado, and Wisconsin) extrinsic evidence is barred from being used to interpret a contract
- To show that in light of all the circumstances surrounding the making of the contract, the contract is actually ambiguous, thus necessitating the use of extrinsic evidence to determine its actual meaning (California law).[1]
- To resolve an ambiguity in the contract.
- To disprove the validity of 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 correct mistakes.
- To show wrongful conduct such as misrepresentation, fraud, duress, unconscionability (276 N.E.2d 144, 147), or illegal purpose on the part of one or both parties.[2]
- 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.
- To make changes in the contract after the original final contract has been agreed to. That is, oral statements can be admitted unless they are barred by a clause in the written contract.[2]
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 (Second) of Contracts § 213.
Examples
The parol evidence rule is a common trap for consumers. For example:
- Health club contracts. You enroll in a health club, and the salesperson tells you that the contract can be cancelled. You later decide you would like to cancel, but the written contract provides that it is non-cancellable. The oral promises of the salesperson are generally non-enforceable. However, the salesperson in misleading you into the terms of the contract constitutes a misrepresentation and you may seek to rescind the contract.
- Auto sales agreements. You purchase a used car, and the salesperson tells you it is "good as new". But the contract provides that the sale is as is. Again, in most circumstances the written contract controls. However, this may constitute misrepresentation if it exceeds reasonably accepted "puffing" or "dealers' talk."[3]
- Timeshares. While in certain jurisdictions, and in certain circumstances, a consumer may have a right of rescission, some people attend real estate sales presentations at which they may feel pressured into immediately signing binding contracts. Evidence that the contract was entered into under duress will not be precluded by the parol evidence rule.
See also
Notes
- ^ Pacific Gas & Elec. Co. v. G. W. Thomas Drayage Co., 69 Cal. 2d 33 (1968). Pacific Gas & Electric is one of Roger Traynor's most famous (and controversial) opinions, which has been criticized by a number of prominent jurists, including Judge Alex Kozinski of the U.S. Court of Appeals for the Ninth Circuit. See Trident Center v. Connecticut Gen. Life Ins. Co., 847 F.2d 564 (9th Cir. 1988) and Jeffrey W. Stempel, Stempel on Insurance Contracts, 3rd ed., § 4.02, 4-9, n.16 (2006).
- ^ a b Wollner KS. (1999). How to Draft and Interpret Insurance Policies, p 10. Casualty Risk Publishing LLC.
- ^ Hand, Learned. "Vulcan Metals Co. v Simmons Mfg. Co.", 248 F. 853, 856 (2d Cir. 1918).
References
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Barron's Insurance Dictionary
Dictionary of Insurance Terms. Copyright © 2008 by Barron's Educational Series, Inc. All rights reserved.
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Barron's Real Estate Dictionary
Dictionary of Real Estate Terms. Copyright © 2008 by Barron's Educational Series, Inc. All rights reserved.
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West's Encyclopedia of American Law
West's Encyclopedia of American Law. Copyright © 1998 by The Gale Group, Inc. All rights reserved.
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