The basic premise of any contract is that it is binding on the parties once they have entered into it. The parol evidence rule is a common law rule that aims to uphold this premise and preserve the integrity of written contracts by excluding extrinsic evidence. Where parties have agreed contractual terms in a written document, it is rational that matters which have not been explicitly included should not be interpreted as varying the terms of that contract. To understand the scope of this rule it is necessary to be aware of those matters that are excluded by it. It is worth noting that there are also exceptions to it.
Excluded Extrinsic Evidence
Generally it is accepted that a written contract cannot be added to, subtracted from or contradicted by oral evidence. However, oral evidence is not the only evidence that is prevented from varying a written contract. The exclusion also applies to drafts, preliminary agreements and letters of negotiation. By excluding such sources of variation, a written contract is less likely to be subject to litigation and uncertainty.
Exceptions to the Rule
As with most rules there are exceptions. In this sense the parol evidence rule can be considered a rebuttable presumption. In other words, it operates unless there is a reason it should not. There are two potential routes by which extrinsic evidence might not be excluded from a contract. Firstly, those matters outside the document that upon consideration should be included, expressly or by reference, in the contract. Secondly, those matters that require inclusion to explain or interpret the words that are already in the contract. Exceptions include the following examples:
- Where it is shown that the parties did not intend the contract to mean the entire agreement between the parties.
- Where the parties intended the agreement to be partly in writing and partly oral.
- Where the contract is conditional on some event.
- Where the contract has been varied.
- Where mistake exists in the contract.
- Where external wording is necessary to aid the interpretation of the contract.
- To remove ambiguity in a contract.
- Where fraud or duress exists.
Generally parties enter in to a written contract in the first instance to give certainty to an agreement between them and the law supports this underlying assumption. As can be seen though, there are a variety of circumstances where exceptions may be made to the parol evidence rule in order to give efficacy to the terms of an agreement.
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