Legal Definitions - parol evidence

Parol evidence refers to any agreement, discussion, or understanding between parties that is not included within the final written contract. This can encompass things said orally, emails, preliminary drafts, or other written notes exchanged before or at the same time the main contract was signed.

The Parol Evidence Rule is a fundamental principle in contract law that generally prevents parties from using such "extrinsic" (outside the written document) evidence in court. Its purpose is to stop parties from introducing evidence of prior or contemporaneous agreements to contradict, change, or add to the terms of a written contract that they intended to be the complete and final agreement.

The core idea behind this rule is to uphold the integrity and reliability of written contracts. When parties take the time to put their agreement in writing, especially if they intend that writing to be the full and final expression of their deal, the law presumes that everything important is contained within that document. Allowing outside evidence to alter or contradict it would undermine the certainty and finality of written agreements, making them less dependable.

However, the rule is not absolute. It primarily applies when a contract is considered "completely integrated," meaning the parties intended the written document to be the entire and exclusive record of their agreement. If a contract is only "partially integrated" (meaning it's final for the terms it covers, but not necessarily for all aspects of the deal), then consistent additional terms that don't contradict the written part might be allowed.

Key Exceptions to the Parol Evidence Rule:

Even when a contract appears complete, there are specific situations where outside evidence might be considered:

• To Clarify Ambiguity: If the language in the written contract is unclear, vague, or can reasonably be interpreted in more than one way, outside evidence might be admitted to help a court understand what the parties truly intended the ambiguous terms to mean.
• To Prove Fraud, Duress, or Mistake: If one party claims the contract was entered into because of fraud, coercion (duress), or a significant mutual mistake, parol evidence might be allowed to prove these circumstances, as they challenge the very validity of the contract itself.
• To Show a Separate, "Collateral" Agreement: Evidence of a separate, distinct agreement might be allowed if it meets specific criteria:
  1. It is truly a separate agreement, not just a part of the main contract that was left out.
  2. It does not contradict any terms in the main written contract.
  3. It is the kind of agreement that parties would not ordinarily be expected to include in the main written document.

Examples:

• Barring Contradictory Oral Promises: Imagine a small business owner, Sarah, signs a detailed written contract to purchase a new commercial oven from a supplier. The contract specifies the oven model, price, delivery date, and a one-year warranty. During negotiations, the salesperson orally promised Sarah that the oven would also come with a special five-year extended service plan, but this promise was never written into the final contract. When the oven breaks down after two years, Sarah tries to claim the five-year service plan. The supplier points to the written contract's one-year warranty. Under the parol evidence rule, Sarah would likely be prevented from introducing the salesperson's oral promise in court because the written contract was clearly intended to be the complete agreement regarding the oven's warranty and terms, and the oral promise directly contradicts the written one-year warranty.

• Clarifying Ambiguous Terms: Consider a contract between a construction company and a client for building a custom home. One clause in the contract states, "The builder will use 'standard grade' lumber for all framing." After construction begins, the client expresses concern that the builder is using a lower quality of wood than they expected. The term "standard grade" can be interpreted in various ways depending on regional building codes or industry practices. Because the term is ambiguous, a court might allow both parties to introduce parol evidence—such as emails discussing specific lumber qualities during negotiations, or industry standards prevalent in that area—to clarify what "standard grade" truly meant to them when they signed the contract, without contradicting the fact that some standard grade was to be used.

• Admitting a Separate Collateral Agreement: Suppose a tenant, Mark, signs a one-year lease agreement for an apartment. The written lease covers rent, duration, pet policy, and maintenance responsibilities. Separately, during the lease signing, the landlord orally promises Mark that if he maintains the garden beautifully throughout the year, the landlord will give him a $500 discount on his last month's rent. This promise is not in the written lease. If Mark maintains the garden perfectly but doesn't receive the discount, he might be able to introduce evidence of this oral agreement. This is because the garden discount is a separate, "collateral" agreement that doesn't contradict any terms of the main lease (which focuses on the apartment itself), and it's the kind of side incentive that parties might not typically include in a formal lease document, making it a plausible separate understanding.