The parol evidence rule
enacts a principle of the common law of contracts
that presumes that a written contract embodies
the complete agreement between the parties
thereto. The rule therefore generally forbids the
introduction of evidence before a judge or jury
of extrinsic evidence - evidence of
communications between the parties not contained
in the language of the contract itself - claimed
to change the terms of a later written contract.
In order for the rule to be effective, the
contract in question must be a complete, or
integrated writing; it must, in the judgment of
the court, contain all terms that the parties
would logically expect to have within such an
agreement. One way to ensure that the contract
will be found to be a complete agreement for this
purpose is through the inclusion of a merger
clause, which recites that the contract of which
it is part is, in fact, the complete agreement of
the parties.
The parol evidence rule only applies to
determining the meaning of a term of a contract;
it does not apply when determining whether a
right constitutes a term of the contract. Also,
despite this rule, the court will examine the
factual matrix surrounding the contract.
There are a number of exceptions to the parol
evidence rule. Extrinsic evidence can always be
admitted for the following purposes:
* To work out the subject matter of the contract.
* To resolve an ambiguity in the contract.
* To show that an unambiguous term in the
contract is in fact a mistaken transcription of a
prior valid agreement. Such a claim must be
established by clear and convincing evidence, and
not merely by the preponderance of the evidence.
* To show fraud, duress, mistake, or illegal
purpose on the part of one or both parties.
* To show that consideration has not actually
been paid. For example, if the contract states
that A has paid B $1,000 in exchange for a
painting, B can introduce evidence that A had
never actually conveyed the $1,000.
* To identify the parties, especially if the
parties have changed names.
* To imply or incorporate a term of the contract.
In order for evidence to fall under this rule, it
must involve a communication made prior to the
execution of the written contract, and must be
evidence as to the terms of the agreement itself.
Evidence of a later communications will not be
barred by this rule, as it is admissible to show
a later modification of the contract. Similarly,
evidence of a collateral agreement - one that
would naturally and normally be included in a
separate writing - will not be barred. For
example, if A contracts with B to paint B's house
for $1,000, B can introduce extrinsic evidence to
show that A also contracted to paint B's car for
$100. The agreement to paint the car would
logically be in a separate document from the
agreement to paint the house.
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