Commercial Litigation Fundamentals – Parol Evidence Rule and Breach of Contract Actions?

Parole evidence is a rule of evidence that bestows a preferred status on final written agreements. The rule is designed to provide stability in business transactions. The rule protects the agreement from the risk of perjured testimony and the risk of uncertain testimony of a party with a “slippery” and “self-serving” memory. At trial, the rule excludes earlier oral agreements or any contemporaneous oral agreements. The basis of the rule is that these earlier agreements were not intended to survive, but to be merged into the final agreement.

The Parole Evidence Rule holds that where an agreement has been reduced to writing and is intended to be the final and complete expression of the agreement between the parties, any evidence of earlier oral or written agreements or any contemporaneous oral agreements are not admissible in a court of law to vary, add to, or contradict the terms of the written agreement.

Exceptions to the rule do exist which would allow the court to hear testimony of contract terms that are not reflected in the written agreement. These include:

  1. To resolve ambiguities in the contract or to otherwise assist in interpreting a term of the contract;


  1. To show that a term in the contract is a mistake;


  1. To show that fraud, duress, unconscionable behavior, or tortious interference with contract occurred;


  1. To show that consideration was never paid;


  1. To identify the parties or subject matter of the contract;


  1. To modify the contract after its has been signed by all parties, if the contract explicitly allows for that;


  1. To show a condition that had to occur before contract performance was due;


  1. To show that an implied term of custom or trade usage or past dealings is part of a contract even if not in a written agreement;
  2. If the evidence is incorporated into the contract by reference to the evidence in the contract itself.