Contract Law: The Parol Evidence Rule

The Parol Evidence Rule

The parol evidence rule is a contract-law rule, not a criminal-law rule. It generally prevents parties from using evidence outside a written contract to contradict, modify, or vary its terms when the contract is intended to be their final and complete agreement. Such evidence may include earlier oral discussions, written promises, or separate documents.

When the Rule Applies

• The written contract must be integrated, meaning it was intended as a final agreement.
• A fully integrated contract is intended to contain the parties’ complete and exclusive agreement on the subject.
• Courts assess integration by considering the contract’s terms and the surrounding circumstances. For example, an employment agreement containing the terms normally expected in that kind of contract may appear complete.
• A contract may expressly state that it is the parties’ final and complete agreement, strongly indicating full integration.

Exceptions Described in the Video

Extrinsic evidence may sometimes be admitted for purposes other than changing the contract’s terms.

1. Clarifying an ambiguous or undefined term

   • Evidence may help establish what the parties meant by a word or phrase in the contract.
   • In Curl v. Smith, the court allowed evidence of an earlier agreement to explain the parties’ intended meaning of “timber” in a later contract.

2. Proving a separate collateral agreement

   • Evidence may establish an independent side agreement alongside the written contract, provided the side agreement:
     • Does not contradict the written agreement; and
     • Concerns a matter that would not normally be included in that type of contract.
   • In Green v. Booth, the court allowed evidence of a seller’s separate promise to pay a commission if the option holder did not purchase the property but the seller sold it to someone else.

3. Showing fraudulent inducement

   • Evidence may be admitted to show that fraud induced a party to enter the written contract, even if the alleged statements conflict with its terms.
   • In River Island Cold Storage Inc. v. Fresno Madera Production Credit Association, borrowers alleged that a credit association promised a two-year loan extension before they signed an agreement providing only a three-month delay in enforcement. The court allowed evidence of the alleged promise under the fraud exception.

Key Takeaway

Once a contract is integrated and final, it is generally difficult to introduce outside evidence of other promises or agreements. However, evidence may still be allowed to clarify ambiguous terms, prove a qualifying collateral agreement, or establish fraudulent inducement.

Speakers and Sources Featured

• Speaker: Unidentified narrator.
• Cases discussed: Curl v. Smith; Green v. Booth; River Island Cold Storage Inc. v. Fresno Madera Production Credit Association.