In a perfect world, when two parties come to a meeting of the minds, the complete and final agreement is memorialized in the written document. Legally speaking, contracts do not have to be written (although for many reasons, written agreements are preferred), but when they are, the written contract should fully represent the parties’ agreement. After all, a written contract is legally enforceable. If one party fails to fulfill the terms of the contract, the other party may sue for compliance, or performance. This type of lawsuit is called a breach of contract.
When considering a breach of contract case, a court will first look to the written contract. Absent certain exceptions, the written contract is the only evidence the court has to determine whether or not the parties complied with the terms of the agreement. Occasionally, however, one party decides down the road that all the terms of the agreement were not included in the written document and wishes to introduce evidence of prior oral or written agreements to alter the terms of the existing contract. Here is where the “parol evidence” rule comes into effect.
Parol Evidence Rule
The parol evidence rule is a legal rule that applies to written contracts. Parol evidence is evidence pertaining to the agreement that isn’t included in a written contract. Courts generally don’t allow this extra evidence, because the written contract is considered to be the best description of the parties’ intentions. The purpose of the parol evidence rule is to prevent a party from introducing evidence of prior oral or written agreements that occurred before or while the agreement was being reduced to its final form in order to alter the terms of the existing contract.
The rationale behind the parol evidence rule is the assumption that duties and restrictions that do not appear in the written document, even though apparently accepted at an earlier stage, are not intended by the parties to survive. The goal is to encourage well-thought out and fully drafted contracts.
Modern Parol Evidence Rule
At the time it was created, the courts strictly applied the parol evidence rule. Perhaps not surprisingly, times are changing. While the classic approach favored analyzing the language of the formal document created by the parties to determine their true intentions, in recent years, courts have been increasingly willing to admit parol evidence to vary, explain or modify the terms of a written agreement.
As this modern development indicates, it is more important than ever to think before you speak or type (an email or text message) to a party that you are drafting a contract with. Your words, even those said in passing, could find you in legal hot water down the road.
If you are dealing with a breach of contract and would like the counsel of a skilled business lawyer, contact RPNA managing partner Drew E. Pomerance today.
