Contract Integration Final Expression Extrinsic Evidence Condition Precedent Reformation

The parol evidence rule is a legal conundrum that confounds law students and legal practitioners alike.  Yet, it sounds more complicated than it actually is.  A simple explanation reveals its apparent mysteries, and as this title suggests, word of mouth may not be enough – the best thing to do is always to get it in writing!

After a written contract is formed, questions often arise as to whether the written document is a full embodiment of the contracting parties’ intentions.  This is where the parol evidence rule comes into play.

– What is the parol evidence rule? –

Where the parties to a contract express their agreement in a writing with the intent that it embody the full and final expression of their bargain, any extrinsic evidence of written or oral statements made before, or oral statements made at the time of, the written contract are inadmissible to vary the terms of the writing.  This is known as the parol evidence rule.

The parol evidence rule only comes into play only when dealing with written contracts.  It is designed to carry out the parties’ intent.  Essentially, it is used as a defense to letting in extrinsic evidence, or evidence not contained within the written contract.  So, if the contracting parties made it clear in the contract that that specific writing was meant to embody every single term of their agreement, then a court will view the written document as the total, complete contract.  That means that Party A cannot say, “Well, judge, when we made this contract, Party B said that he would let me off the hook if I was unable to pay my bill by December,” when the contract explicitly states that Party A must pay unconditionally.  One caveat to this is that the contract must have been the complete and final integration by the parties.

– How do I know if the contract is an integration? –

The first consideration in answering this question is whether the contract was intended as a “final expression” by the parties.  Writings that evidence a supposed contract are not necessarily the “final” expression of that contract.  For example, the parties might only have intended the writings to be preliminary to a final draft.  If so, the parol evidence rule will not bar introduction of further evidence of the completed, final contract.  The more complete the agreement appears to be on its face, the more likely it is that it was intended as an integration – the final and complete contract.

The next consideration is whether the contract is a complete or partial integration.  If it is established that the writing was “final,” then the integration was “complete,” and it may not be contradicted or supplemented. Where the agreement contains a merger clause saying that the agreement is complete on its face, this clause strengthens the presumption that all negotiations were merged into the written contract and it is a complete integration.

But, if it was “partial,” it cannot be contradicted, but it may be supplemented by proving up consistent additional terms, such as oral collateral agreements, like what Party A said up above. 

Whether an agreement is an integration is a question of fact decided by judge.  This is a fact specific inquiry.  If the judge decides that the writing was not an integration, he or she may admit the offered extrinsic evidence and then let the jury decide whether it was part of the agreement.

– Exceptions to the Parol Evidence Rule –

If extrinsic evidence does not vary, contradict, or add to an “integration,” then it will fall outside of rule.  Another option is to attack the validity of the contract by asserting various formation defects, such as fraud, duress, mistake, or illegality. 

Alternatively, a party could assert that a condition precedent exists that has not yet come into effect.  For instance, a party may assert that there was an oral agreement that the written contract would not become effective until a condition occurred.  In that case, all evidence of the understanding may be offered and received.

Parol evidence may also be permitted for interpretation purposes.  If there is any uncertainty or ambiguity in the written agreement’s terms, or if there is a dispute as to the meaning of those terms, parol evidence is admissible.

Another instance where parol evidence is admissible is for reformation.  Where a party to a written agreement alleges facts entitling him to reformation of the agreement, the parol evidence rule is inapplicable because the plaintiff is asserting as a cause of action that despite the apparently unambiguous terms of the written agreement, those terms do not in fact constitute the agreement between the parties.  For the plaintiff to obtain reformation, he must show that there was an antecedent valid agreement that is incorrectly reflected in the writing, such as by mistake.  This must be established by clear and convincing evidence. 

Lastly, an additional way to get in parol evidence is in the case of a collateral, or additional, agreement.  In this case, the collateral agreement must be an agreement that the parties to the contract would naturally and normally not include in the apparently integrated writing.

– Still unsure? –

Just remember that word of mouth is often not enough.  Safeguard yourself and “get it in writing.”