When two parties agree to form a contract together, their primary goal is to try to write down the terms of their agreement in a very detailed way. The reason for this is so that when they formally draft their official contract, it will include enough details that will hopefully help them to avoid a contract dispute from occurring in the future.
There are some cases, however, where later on one of the parties may feel that not all of their terms were added into the agreement. That same party might want to incorporate the terms they think are missing into the final written document. To do so, they may try to introduce evidence of prior oral agreements they had with the other party before the terms of the existing contract were ever put into writing.
This is the point where the parol evidence rule comes into play. The purpose of the parol evidence rule is to prevent a party from introducing the evidence of the prior oral agreements that occurred either before or while the agreement was being reduced to its final form.
The party who wants to include what they believe are the missing terms and will alter the existing contract will attempt to do this by saying parts of the oral agreement were left out. The parol evidence rule prevents this scenario from happening.
What is the Rationale for the Parol Evidence Rule?
The parol evidence rule treats the parties’ formal written documents as if they are the reflections of their true intentions. In other words, if something was discussed prior to the official written contract and was subsequently left out of its terms, then those terms were intentionally not included in the document for one reason or another.
By leaving those terms out of the final document, the parol evidence rule assumes that any original discussions regarding the parties’ duties or restrictions would have appeared in the written contract and because they do not, the parties never wanted those terms to survive past the initial bargaining stages.
Why is the Parol Evidence Rule Necessary?
While the parol evidence rule is certainly a tricky concept, it is necessary to have such a rule in place. Some examples of what the parol evidence rule is useful for include:
- Helping to increase the predictability and finality of commercial transactions by encouraging the parties to draft clearer and finer contracts;
- Reducing litigation or conflicts between the parties over the meaning of the terms in the final contract; and
- Assisting with determining the true intentions of the parties at the time of contract formation.
How Flexible is the Parol Evidence Rule?
When the parol evidence rule was first created, the courts strictly applied it to relevant contract cases. This classic approach was in favor of analyzing the language of the formal document created by the parties, in order to determine their true intentions.
For instance, the courts would look at the portion the parties were arguing over and would glean their interpretation from the actual words on the paper, not from any implied meanings that were not already written down.
The trend for more recent times, however, seems to be shifting towards the courts becoming increasingly willing to admit parties’ parol evidence to alter the terms or meaning of the formal written agreement.
This modern approach asks the court to interpret the language of the official contract in light of all relevant circumstances. These include considering prior dealings between the parties, as well as customary usages of specific terms within a trade.
How Can I Bypass the Parol Evidence Rule?
How strictly the parol evidence rule will be enforced depends on which approach a particular state applies (e.g., does the state use the classic or modern approach of the parol evidence rule).
There are a couple of questions that a court can ask to help them to determine whether the parties’ outside evidence overcomes the parol evidence rule, such as:
- Is the parties’ agreement integrated?: In general, any agreement that has been written down as part of the formal document will be found to be integrated.
- If so, is the written agreement completely or only partially integrated?: In other words, was the whole thing or were only portions of it combined into the final document. More specifically:
- Complete Integration: A written agreement that is “completely integrated” is one in which all relevant terms of the agreement are included in the contract. If there is any outside evidence that is “within the scope” (i.e., relevant to the contract), it will be excluded because it should have been included at the time of contract formation.
- Partial Integration: In contrast, a written agreement that is “partially integrated” is one where not all of the relevant terms have been included in the contract. If there is any outside evidence that is “consistent” (i.e., relevant to the agreement), then it will be presented before a jury to determine whether or not the evidence should be allowed to modify the existing terms of a contract.
Do I Need a Lawyer to Help Me Circumvent the Parol Evidence Rule?
The best way to avoid a dispute that involves the parol evidence rule is to make sure that any contract you decide to form with another party includes the terms that you want and that they are clearly defined.
An experienced business lawyer can help you to draft a contract that includes all of the above aspects, plus one that is valid and legally enforceable.
Additionally, if you are already involved in a situation that requires overcoming the parol evidence rule, a lawyer can also assist you with this process as well.