Contract negotiations often involve emails, conversations, drafts, assurances, and preliminary understandings before the parties sign a final writing. The parol evidence rule addresses when those earlier or contemporaneous communications may be used to alter the meaning or legal effect of the final agreement.
The Importance of Integration
The analysis begins with integration. An integrated agreement is a writing intended as a final expression of one or more terms of the parties’ agreement. A completely integrated agreement is intended as the complete and exclusive statement of the terms, while a partially integrated agreement is final as to some terms but not necessarily complete as to all of them.
What the Rule Excludes
When the parties adopt an integrated writing, prior or contemporaneous agreements that contradict the integrated terms generally cannot be used to vary those terms. If the agreement is completely integrated, additional consistent terms may also be excluded. The rule promotes certainty by giving legal significance to the parties’ final written expression.
What the Rule Does Not Exclude
The parol evidence rule is not a rule that all outside evidence disappears. Extrinsic evidence may be relevant to determine whether the writing was integrated, explain ambiguity, establish fraud, duress, mistake, illegality, lack of consideration, or another basis for invalidity, or support certain remedies such as reformation. Evidence may also be relevant to issues occurring after contract formation.
Merger Clauses
Contracts often contain merger or integration clauses stating that the writing represents the entire agreement. Such clauses are strong evidence of integration, although their effect can depend on the governing law and the nature of the dispute.
A Practical Method
- Identify the final writing.
- Determine whether it is integrated and, if so, whether integration is complete or partial.
- Identify the outside statement being offered.
- Ask whether the statement contradicts or merely supplements the writing.
- Determine whether an exception or separate issue makes the evidence admissible.
The parol evidence rule is therefore best understood as a rule about the legal priority of a final written agreement, not a blanket prohibition on discussing the history of the parties’ negotiations.