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What is the Parol Evidence Rule?

If your San Diego business has signed a contract for, say, exploration and development of natural gas and oil on certain lands, but a dispute arises over the contract, then you will likely end up in court. The parol evidence rule is a legal doctrine that the court will use in deciding what your contract means. If your contract is plain and subject to only one reasonable interpretation — that is, if the contract is unambiguous — then the parol evidence rule will prevent either party from offering any evidence that might vary or modify the terms of the contract as written.

Hypothetical Example of Parol Evidence Rule

As an example, assume you sign a contract to buy a certain and particular 2015 pre-owned red mustang automobile for $10,000 “on Thursday.” The contract identified the VIN and other details about the car. Assume further that leading up to signing the contract, there were heated arguments about the price and a new paint job. The buyer wanted to pay only $8,000 and really wanted the car repainted before taking possession. The seller refused and the buyer eventually signed the written contract for $10,000 without a new paint job.

A dispute arises in our hypothetical, and the buyer wants to tell the judge about the price and about the paint job. But the court says “no.” The court says that the contract is plain and easy to understand, that the contract is not ambiguous and, as such, the parol evidence rule prevents the buyer from offering evidence that is intended to vary or modify terms of the contract.

However, the judge continues talking and says: “Now, there IS one ambiguity in the contract. What is the meaning of “on Thursday?” There is no date written.” An ambiguous term in a contract is a term that can be subject to more than one reasonable interpretation. A contract term that says “on Thursday” could reasonably mean any one of 52 “Thursdays.” Here, the judge will allow testimony about what the parties meant by “on Thursday.” See WYDA Associates v. Merner, 42 .App.4th 1702 (1996) (parol evidence is allowed when two equally plausible interpretations of the language of a contract may be made).

California Law for Parol Evidence

According to the California Supreme Court, “The parol evidence rule protects the integrity of written contracts by making their terms the exclusive evidence of the parties’ agreement.” See Riverisland Cold Storage, Inc. v. Fresno-Madera Production Credit Assn., 291 P. 3d 316 (Cal. Supreme Court 2013).

The California parol evidence rule is also codified in two places. Cal. Civ. Proc. Code § 1856(a) states: “Terms set forth in a writing intended by the parties as a final expression of their agreement with respect to such terms as are included therein may not be contradicted by evidence of any prior agreement or of a contemporaneous oral agreement.” Similarly, Cal. Civ. Code § 1625 states: “The execution of a contract in writing, whether the law requires it to be written or not, supersedes all the negotiations or stipulations concerning its matter which preceded or accompanied the execution of the instrument.”

Exceptions to the Parol Evidence Rule

There are a couple of exceptions to the parol evidence rule. One is where it is argued that fraud was used to induce the formation of the contract. Fraud in the inducement argues that the whole contract itself is invalid because of the fraud. See Riverisland Cold Storage, above. In Riverisland, the court held that the fraud exception to the parol evidence rule allows evidence of fraudulent statements and promises even if those are in direct conflict with the terms of the written agreement at issue.

Courts in other jurisdictions will make an exception to the parol evidence rule where the testimony and evidence is used to INFORM the court about the meaning of contract terms. That is, the extra evidence is not being used to VARY or MODIFY the contract terms, but to EXPLAIN the terms. See In Carrizo Oil & Gas, Inc. v. Barrow-Shaver Resources Company, 516 S.W.3d 89 (Texas App. Tyler 2017) (on issue of whether one party’s consent could be “unreasonably withheld,” four prior drafts of contract were admissible to show parties argued about and excluded language saying “consent shall not be unreasonably withheld”).

Another exception is where one party or another is arguing there was a mistake. Where mistake is claimed, a court will hear other evidence because the court must determine the true intentions of the contracting parties and determine whether the written agreement fails to express those true intentions. See Hess v. Ford Motor Co., 27 Cal.App.4th 516 (2002)

Legal Lessons in Parol Evidence

As can be seen, contracts should be carefully drafted so that, if a dispute arises, the courts will interpret the contract as written. A good San Diego business law attorney will know the law and know how to draft a contract that will be unambiguous.

Contact San Diego Corporate Law

For further information, please contact Michael Leonard, Esq. of San Diego Corporate Law. Mr. Leonard has the experience to draft your contracts properly, to ensure the proper execution, and can assist with any other business-related legal matter. Contact Mr. Leonard by email or by calling (858) 483-9200. San Diego Corporate Law provides legal services in San Diego and surrounding communities like La Jolla, La Mesa, El Cajon, Chula Vista, Coronado and National City.

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