What is the Parol Evidence Rule?

Home / Blog / Contract Disputes / What is the Parol Evidence Rule?
What is the Parol Evidence Rule?

In a breach of contract lawsuit, the parol evidence rule excludes the admission of evidence that varies from or contradicts the written terms of the contract. This external evidence is often a verbal exchange (e.g., emails or an oral discussion) regarding the contract terms that vary from the terms of the final contract.

For example, suppose you negotiate to become a consultant for a high-tech startup. During negotiations, you and the company orally agree that you will be paid hourly plus you will get equity points if the company hits certain benchmarks. The written agreement, however, mentions only the monetary compensation but not the equity. If the company hits the benchmarks but then refuses to give you the promised equity, you might sue for breach of contract, but the parol evidence may preclude any evidence of the oral agreement regarding the equity points.

The parol evidence rule is based on the notion that a written contract is the best evidence of the parties’ intentions. It encourages the parties to put the important terms in writing. The idea is to avoid litigation because he said/she said claims are easy to make but difficult to adjudicate.

Arizona has a more permissive approach to the parol evidence rule, as outlined in Taylor v. State Farm Mutual Automobile Insurance Co. In that 1993 case, the Arizona Supreme Court ruled that, because the main purpose of contract interpretation is to enforce the intent of the parties, the courts can admit external evidence without any preliminary finding that the written terms are ambiguous.

The Court articulated a two-step process for admitting or excluding parol evidence:

  1. The court will examine the proffered evidence to determine its relevance to the parties’ intent. If the evidence contradicts or changes the language of the contract, it is not admissible. If the language of the contract is “reasonably susceptible” to the parties’ interpretations, the evidence would be admissible to ascertain their intent.
  2. The court finalizes its understanding of the contract language and may preclude admission of the parol evidence if it contradicts or varies the meaning of the written contract.

If you have a contract dispute that may involve parol evidence, you should consult with an attorney who is experienced in contract disputes. Williams Commercial Law Group, L.L.P., is a law firm focusing on contract law, and business divorce. Contact us at (602) 256-9400 and schedule a time to meet with us today.

The information you obtain at this site is not, nor is it intended to be, legal advice. You should consult an attorney for advice regarding your individual situation. We invite you to contact us, though doing so does not create an attorney-client relationship. Please do not send any confidential information to us until such time as an attorney-client relationship has been established. Our description of what we believe to be superior technology and how we win cases reflects our typical approach to litigation, which we believe:  (i) gives us a competitive advantage, and (ii) is responsible for any success we have had. But we do not win every case. Other lawyers may have technology or approaches that they believe gives them an advantage. Also, the results that we have obtained in other cases or that are described in our clients’ testimonials do not guarantee, promise, or predict the outcome of your case, which depends on the law, facts, and evidence specific to it.