Parol evidence rule

The parol evidence rule is a substantive common law rule in contract cases that prevents a party to a written contract from presenting extrinsic evidence that discloses an ambiguity and clarifies it or adds to the written terms of the contract that appears to be whole. The term of art parol literally means "word" and comes from Anglo-French, Anglo-Norman, or Legal French, which in turn is derived from ecclesiastical Latin parabola, which means "speech". It does not directly translate as "oral", which has a different origin in modern English, coming from the Latin oralis, which meant "mouth".

The supporting rationale for this rule is that since the contracting parties have reduced their agreement to a single and final writing, extrinsic evidence of past agreements or terms should not be considered when interpreting that writing, as the parties had decided to ultimately leave them out of the contract. In other words, one may not use evidence made prior to the written contract to contradict the writing. A common misconception is that it is a rule of evidence (like the Federal Rules of Evidence), but that is not the case.

The rule applies to parol evidence, as well as other extrinsic evidence (such as written correspondence that does not form a separate contract) regarding a contract. If a contract is in writing and final to at least one term (integrated), parol or extrinsic evidence will generally be excluded. However, there are a number of exceptions to this general rule, including for partially integrated contracts, agreements with separate consideration, to resolve ambiguities, or to establish contract defenses.

To take an example, Carl agrees in writing to sell Betty a car for $1,000, but later, Betty argues that Carl earlier told her that she would only need to pay Carl $800. The parol evidence rule would generally prevent Betty from testifying to this alleged conversation because the testimony ($800) would directly contradict the written contract's terms ($1,000).

In order for the rule to be effective, the contract in question must first be a final integrated writing; it must, in the judgment of the court, be the final agreement between the parties (as opposed to a mere draft, for example).

A final agreement is either a partial or complete integration, provided that it has an agreement on its face indicating its finality. If it contains some, but not all, of the terms as to which the parties have agreed then it is a partial integration. This means that the writing was a final agreement between the parties (and not mere preliminary negotiations) as to some terms, but not as to others. On the other hand, if the writing were to contain all of the terms as to which the parties agreed, then it would be a complete integration. One way to ensure that the contract will be found to be a final and complete integration is through the inclusion of a merger clause, which recites that the contract is, in fact, the whole agreement between the parties. However, many modern cases have found merger clauses to be only a rebuttable presumption.

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