The Parol Evidence Rule & How It Affects Your Contract

One of the purposes behind memorializing an agreement in a written document is to ensure that the parties to the contract do not recant what they originally agreed upon.  Often, parties may dispute contractual terms if contracts are not working out in their favor or are resulting in negative or unanticipated consequences.

When a document is drafted by an attorney, parties usually feel more confident and secure about the transaction. A legal document will help prevent any future deviations from its original intent because all aspects of the matter have been stipulated in the final written document.

If there is any disagreement regarding the written contract, the court’s consideration of evidence is limited.  For example, the courts may look into the prior deals between the parties and check out industry practices as a means of comparison.  However, it is typically prohibited to admit evidence of prior agreements or negotiations of the parties on the same contractual matter at issue.

The court may also inquire as to whether the agreement is partially or completely integrated. A fully integrated document is one intended by the parties to represent all of the terms to the exclusion of any prior writings or oral agreements.  If the agreement is fully integrated, then all other information will likely be excluded. On the other hand, if the document is only partially integrated, the court may take note of circumstantial evidence if such evidence does not contradict the agreement.

“Parol evidence” is generally oral evidence.  It is beneficial and may be admitted under certain circumstances after the parties agree to a final written agreement.  For example, if the parties to the contract made a mistake, such as omitting or mistakenly listing a term, parol evidence may be considered.  In that case, the option of bringing in subsequent agreements in limited circumstances may be available.

Parol evidence also comes into play when the writing of the document is unclear or if there is a dispute as to the meaning of certain terms within the contract.  Finally, new evidence is admissible if there is illegality or fraud relating to the contract.  Conferring with a contract attorney will help to clarify how parol evidence rule may affect current and future dealings.