Next Article: Patent and Latent Ambiguities in a Contract
Back to: CONTRACT LAW
When does the parol evidence rule not bar the consideration of extrinsic evidence to a contract?
Extrinsic evidence or information prior to or contemporaneous with the formation of the contract cannot be introduced to contradict the contract. Nonetheless, it may be necessary to employ extrinsic evidence or information from outside of the contract for the following reasons:
- to aid in the interpretation of existing terms (for example, when an ambiguity exists),
- to show that a writing is or is not an integration,
- to establish that an integration is complete or partial,
- to establish subsequent agreements or modifications between the parties (i.e., those arising after the contract is completed), or
- to show that the terms of the contract were the product of illegality, fraud, duress, mistake, lack of consideration or other invalidating cause.
These exceptions exist to reduce misunderstanding and fraud between the parties and to promote judicial efficiency in the interpretation of agreements.
Discussion: Do you agree with these rules for allowing prior communications in the interpretation of a contract? Why or why not?
Practice Question: Alice enters into a contract with Hannah. They end up in court pursuant to an argument over the terms of the agreement. The contract contains and integration clause, so the court will not consider prior communications that contradict or add to the written agreement. Alice and Hannah are arguing over the type of goods described under the contract. Hannah argues that the description of the goods is ambiguous. Under what conditions will the court review prior communications between Alice and Hannah?
- There are two instances in which a court will review prior communications to explain an fully-integrated contract. The first scenario is when there is a patent ambiguity. This means that the court, after reading the contract, determines that a word’s meaning is an obvious ambiguity in the contract and that additional information is necessary to uncover the meaning of the parties. The next instance is when an ambiguity is not obvious, but one party can demonstrate that an ambiguity exists. The court may allow the party to demonstrate an ambiguity. If the showing is successful, the court may be open to considering additional prior communications to explain the identified ambiguity.