Contracts Lecture Twelve: The Parol Evidence Rule

These sources collectively illuminate the Parol Evidence Rule, a fundamental principle in contract law that generally restricts the use of extrinsic evidence—such as prior oral agreements or discussions—to contradict or modify the terms of a final written contract. They explain that the rule aims to promote finality, certainty, and reliability in agreements, emphasizing the importance of integration, which refers to whether the written contract is considered the complete and exclusive expression of the parties' intent. While highlighting the rule's common law origins and its more liberal application under the Uniform Commercial Code (UCC) for goods, the texts also detail crucial exceptions allowing extrinsic evidence for purposes like proving contract defenses, clarifying ambiguities, establishing conditions precedent, or demonstrating subsequent modifications or collateral agreements. Ultimately, understanding this rule is crucial for drafting, interpreting, and litigating contracts, as it dictates what external information a court will consider when determining contractual obligations.

The primary purpose of the Parol Evidence Rule is to ensure finality, certainty, and reliability in written contracts. It limits the admissibility of extrinsic evidence (oral or written statements made prior to or contemporaneous with the contract) that would contradict or modify the terms of a written agreement intended by the parties as a final expression.

"Parol evidence" refers to oral or written statements made before or at the time the written contract is executed. "Subsequent modifications," however, are agreements made after the written contract is executed, and the Parol Evidence Rule does not bar their admission.

A "partially integrated" agreement is one where the writing is final as to some terms but not the entire agreement. A "completely integrated" agreement, conversely, is intended as the exclusive and complete expression of all terms, meaning it is the sole source of the contract's terms.

A merger clause is a provision stating the contract is the complete and exclusive agreement. It serves as strong evidence of complete integration, often dispositive under the "four corners" approach, but in modern "contextual" jurisdictions, it may only create a rebuttable presumption and is not always conclusive.

Under the "four corners rule," courts determine if a contract is integrated by examining only the language within the written document itself. They do not look to any external evidence to ascertain the parties' intent regarding the writing's finality or completeness.

Under the UCC, for contracts involving the sale of goods, terms can be explained or supplemented by evidence of "trade usage" or "course of dealing," even if the writing is unambiguous and fully integrated. This approach is more liberal than common law, recognizing the importance of commercial context.

Parol evidence would be admissible to prove a condition precedent if, for example, parties orally agreed that a written contract for a property sale would only become binding if a specific zoning permit was approved, even if this condition wasn't in the written contract. This evidence shows the contract's effectiveness was conditional.

Evidence of fraud is an exception to the Parol Evidence Rule because the rule is intended to uphold valid contracts, not to shield fraudulent behavior. Allowing evidence of fraud permits courts to determine if the agreement itself is void or voidable due to fundamental impropriety.

If a contract is "partially integrated," extrinsic evidence that contradicts the written terms is generally prohibited. However, evidence of consistent additional terms—those that supplement or add to the written terms without negating them—is typically allowed.

For parties, the Parol Evidence Rule emphasizes the critical importance of careful drafting to ensure all essential terms are included in the written document. It also highlights the need for clear integra