The Goal Of The Parol Evidence Rule Is To Make Contracts Final

The parol evidence rule provides that a written contract intended by the parties to be a final agreement cannot be modified by evidence of earlier or contemporaneous oral agreements which vary or contradict the terms of the written contract unless the written contract is ambiguous.  The rule is both evidentiary in nature and a fundamental rule of substantive law.  This article shall provide an overview of the parol evidence rule along with guidance concerning the application of this important legal doctrine.

The fundamental principle of contract interpretation is that when interpreting a contract, a court must first examine the plain language of the contract for evidence of the parties’ intent.  In construing the language of a contract, courts must be mindful that the goal is to arrive at a reasonable interpretation of the entire agreement in order to accomplish its stated meaning and purpose.  When interpreting a written contract, the key issue is the intent of the parties.  Where the language used is clear and unambiguous, the parties’ intent must be determined from that language and not from parol evidence.  

Words and phrases in a contract are to be given their common and ordinary meanings absent specific contractual definitions.  If a contract is reasonably susceptible of more than one meaning, then it is ambiguous and parol evidence of reasonableness or intent can be used.  Accordingly, parol evidence must not be admitted until it is first determined that the terms of a contract are ambiguous.  Once ambiguity is found to exist, parol evidence may be considered to determine the intent of the parties or to explain or clarify ambiguous terms. 

A merger or integration clause is a contractual provision which states that the contract represents the parties’ complete and final agreement and overrides all informal understandings and oral agreements relating to the subject of the contract.  Although the existence of a merger clause does not conclusively establish that the integration of  the agreement is total, it is a highly persuasive statement that  the parties intended the agreement to be totally integrated and generally works to prevent a party from introducing parol evidence.  Thus, if the language of the contract is clear and complete, a merger clause will prevent the consideration of parol evidence. 

However, if it alleged that the language of the contract did not reflect the actual intent of the parties, that a party entered into the contract by mistake, or that a party secured the entering into the contract by fraud or misrepresentation, then parol evidence may be considered in determining the scope and meaning of the contract.  In addition, the parol evidence rule only applies to verbal agreements between the parties to a written contract which agreements are made before or at the time of entering into the contract.  The parol evidence rule does not apply to the admission of subsequent oral agreements that  alter, modify, or change the former existing agreement between the parties.  Finally, the parol evidence rule only applies to the parties to the contract and to those claiming under them and does not apply between a party and a stranger. 

To conclude, the parol evidence rule provides that a written contract intended by the parties to be a final agreement cannot be modified by evidence of earlier or contemporaneous oral agreements which vary or contradict the terms of the written contract unless the written contract is ambiguous.  For the parol evidence rule to apply, the contract must be clear, unambiguous, and fully integrated.  Accordingly, in order to prevent future admission of parol evidence, the language of the contract must be clear and complete and the writer must conclude the contract with a merger clause stating that  the contract represents the parties’ complete and final agreement and overrides all informal understandings and oral agreements relating to the subject matter of the contract.  Such care in drafting a contract will ensure that the goal of finality of contracts is accomplished.