Parol evidence

     Most agreements are enforceable under contract law even if only oral.  The Statute of Frauds, which we study elsewhere, identifies the few types of oral agreements that are not enforceable absent a writing (or electronic record) sufficient to indicate that a contract has been made.  But of course the parties may choose to record and sign their agreement, or any portion of their agreement, either on paper or in electronic form, whether or not the law requires a record.  If the parties record their agreement, one party may later claim that something not put in the record, something spoken or written at or shortly before the record was signed, for example, is also part of the agreement.  The parol evidence rule is a rule of contract law that tells us whether such claims will be heard.  Actually, the "parol evidence rule" is a somewhat complicated set of rules, with several subsets of rules, so please indulge the editorial license in my unconventional reference to "the parol evidence rules."   

     Consider an example adapted from Problem.Dispute.Soccer trainer.  The written agreement in that problem was prepared and signed at the request of the Los Robles Soccer Association.  (The agreement would have been enforceable even if not in writing because the Statute of Frauds does not require such an agreement to be evidenced by a writing as a prerequisite to its enforceability, but that is beside the point here.)  The written agreement contained all of the terms to which Ralph and Paula had previously agreed.  But suppose that the written agreement had not included a term stating the number of games that Paula would coach, even though it did include a term stating that the Cheetahs would pay Paula $50 for each game coached.  Suppose also that Paula was showing up to coach every game as the season progressed, causing Ralph some concern about the total amount of money that parents would have to contribute toward training fees.  In all likelihood this issue would be resolved amicably between Ralph and Paula, but, in the event that litigation became necessary, would Ralph be permitted to claim (by testifying before the trier of fact) that the two had orally agreed that Paula would coach only about 50% of the team's games prior to the state, regional and national championship games?  Alternatively, if Paula and Ralph had written "coach 50% of games" on a napkin during their initial meeting while sipping latte at Starbucks, would Ralph be permitted to introduce the napkin as evidence?  Either the claimed oral agreement between Ralph and Paula or the napkin would be parol evidence.  Application of the parol evidence rules determines whether or not the trier of fact may hear such evidence.  If those rules would permit the trier of fact to hear the evidence, and if the trier of fact were to believe the evidence, then the trier of fact would have to conclude that Paula was hired to coach only 50% of the games.   On the other hand, if those rules would not permit the trier of fact to hear the evidence, or if the trier of fact were permitted to hear the evidence but did not believe the evidence, the trier of fact would then have to determine the number of games that Paula was to coach by some other means (e.g. by determining the customary number of games that such a trainer coaches.)   

     Here is some important vocabulary to help you begin your study of the parol evidence rules.  A "record" is "information that is inscribed on a tangible medium or which is stored in an electronic or other medium and is retrievable in perceivable form" (borrowed from U.C.C. 9-102(a)(69)).  Thus, for example, the written agreement between the Cheetahs soccer team and Paula is a record.   "Parol evidence" is evidence (e.g. testimony) of the parties' oral agreement, prior to or contemporaneous with execution of a record, to a term or terms that are not included in the record, and evidence (e.g. a document) of the parties' written agreement, prior to execution of a record, to a term or terms that are not included in the record.  A final record (in contrast to a draft) is "a partially integrated agreement."  If one concludes in addition that the record contains all of the terms to which the parties agreed, it is an integrated agreement (sometimes referred to as an "integration" or a "complete integration").  Note in this context that "final" is not synonymous with "complete."  A record may be final but not complete when the parties have put in the record some but not all of the terms as to which they have finally agreed.  

     A "merger clause" (sometimes referred to as an "integration clause") is a term in a record by which the parties purport to express their intention regarding the finality or completeness, or both, of the record.   Here is an example of a merger clause:

This record expresses the final and complete agreement of the parties with respect to the subject matter of this record, to the exclusion of any and all oral statements, representations, promises, or agreements and to the exclusion of any and all recorded statements, representations, promises, or agreements except for those executed contemporaneously with the execution of this record.

     The parol evidence rules tell us that a trier of fact may not hear parol evidence that adds to or contradicts a complete integration and may not hear parol evidence that contradicts a partial integration.  But this seemingly simple statement of the core of the parol evidence rules obscures two difficult questions.  First, does the parol evidence in question add to or contradict the integration?   Second, how does a court decide whether a record is a partial or a complete integration?  Masterson v. Sine (involving the attempt by a trustee in bankruptcy to exercise an option to purchase real estate for the benefit of creditors of the debtor) and Federal Deposit Insurance Corporation v. Hadid (a guarantor of payment of promissory notes attempts to escape paying on the guarantee) explore these more difficult questions and identify the underlying policies that motivate the parol evidence rules.   

     Cal. Code Civ. Proc. 1856 is a 1978 California codification of the core parol evidence rules, comparable to U.C.C. 2-202.  Cal. Code Civ. Proc. 1856 was drafted and proposed by the California Law Revision Commission, a commission created by the California legislature to study and recommend appropriate changes in California statutory and decisional law.  Like the Official Comments to the Uniform Commercial Code, the Official Comments of the Commission can provide help in understanding and interpreting the statute.  See, e.g., the Official Comment accompanying Cal. Code Civ. Proc. 1856, followed by the Commission's introductory recommendation for adoption of the statute.  I recommend that you study that comment and recommendation carefully to help you understand the parol evidence rules.   

     Two more introductory notes.  First, judges, lawyers, and others legal writers sometimes refer to parol evidence as "extrinsic evidence" because the evidence is "extrinsic to" (i.e. outside of) the record.  But note that there are other kinds of evidence, most notably evidence of the circumstances under which the contract was made, custom in the industry, prior course of dealing between the parties, or course of performance of the agreement in question, that is extrinsic to the record but that is not subject to exclusion by the parol evidence rule. 

     Second, in the example above involving the soccer trainer, Ralph would be interested in seeking to introduce parol evidence to prove the existence of an agreed term that was not included in the record.  Parol evidence may also be advanced for another purpose:  to prove the meaning of a term that is included in the record.  We look at the use of parol evidence for this entirely different purpose of proving meaning in Tahoe National Bank v. Phillips (widow Beulah Phillips defeats a bank's attempt to foreclose on her residence) and Trident Center v. Connecticut General Life Insurance Company (two law firms seek to prepay and refinance a $56 million bank loan when interest rates decline precipitously) .   

     We consider the version of the parol evidence rule adopted by Article 2 of the Commercial Code for transactions in goods (U.C.C. 2-202) in Part B of Problem.Dispute.Laptop computer.  

     Note that the parol evidence rules do not exclude evidence offered by a party to demonstrate that a contract was the product of mistake, misrepresentation, duress, or undue influence (See Commentary.Mistake, Misrepresentation, Duress, and Undue Influence) .

     Supplementary reading:  Farnsworth 7.2-7.5; White & Summers 2-9 - 2-12.