Monday, April 7, 2014

Parol Evidence

“Parol Evidence” is evidence that exists outside the four corners of the contract. It can be things like discussions, messages, prior communications, quotes, and drafts that existed prior to the
execution of the contract.

The question is whether such parol evidence can be part of, or be considered, in interpreting the contract. In the U.S. the Uniform Commercial Code (UCC) does not make a presumption that the mere signing of the agreement presumes the intent of the parties for it to be the final and complete expression of the parties intent. The code and its notes also make it clear that both parties must evidence the intent for it to be the final and complete expression of both parties.

If the agreement was silent on that intent, the UCC would allow parol evidence to be used. However, most contracts have what is called a merger language included in the contract. An example of merger language would be:

“This Agreement replaces any prior oral or written agreements or other communication between the parties with respect to the subject matter of this Agreement.

If your contract includes similar language, all parol evidence will be excluded in interpreting the contract. The merger language meets the requirements of the UCC to exclude parol evidence by making clear the parties intend the agreement to be the final and complete expression of the parties.

If there is important parol evidence such as conditions a seller included in a quote or prior document generated by the buyer, you need to ensure that those are either included in the agreement itself or incorporated by reference into the agreement. If you don’t, the merger provision will exclude it.

Most language in a contract is there for a specific reason. Merger language is included to meet the requirements of the UCC needed to exclude the use of parol evidence.