In any situation where either you are contemplating a breach of contract action, or someone is threatening a breach of contract action against you, your first frame of reference is to look at what was actually in the contract. Whether you personally scrutinized every word at the time you signed it, another person looked at it on your behalf, or you scanned over it assuming that nothing in there would cause you a problem one day, that contract is certainly going to be a court’s primary focus in determining whether either party breached its obligations. But what about statements that either you or the other party made concerning the agreement which either were not in the contract or contradict the contract? For example, you might have assured another party that you would deliver goods by a certain day but did not put it in the contract. Or the other party might have told you not to worry about the waiver section because it was just “boilerplate” and would not affect your rights. Such cases invoke the so-called parol evidence rule in California and may or may not have legal effect based on the circumstances under which they were made.
The Purpose of the Parol Evidence Rule in California
The whole point of having a written contract is for all parties to the contract to have a central, shared document which explains what both parties have mutually agreed upon. While oral contracts are enforceable as well, assuming they do not run afoul of California’s statute of frauds, written contracts make for a much more tidy process of keeping track of what was agreed upon which can then be submitted at trial for the court to enforce.
Thus, the purpose of the parol evidence rule is to exclude other statements which were not included in the contract so that parties can indeed rely upon those statements within the four corners of the documents. But a number of non-contract statements can indeed be admitted into court in a breach of contract case, as explained below via the following questions to be examined in addressing a non-contract statement’s admissibility.
Was the Contract a Complete and Exclusive Statement of the Agreement?
The parol evidence rule only prevents non-contractual statements from being admissible when the contract was at issue was a “complete and exclusive statement of the terms of the agreement.” As the phrase suggests, this means that, if the contract was intended to be the be-all, end-all of the parties’ agreement, then other statements should not be allowed in.
In determining whether the contract did fit this description – or in other words, was a completely integrated agreement – the court will look for such a statement (called an integration clause) in the contract itself or elsewhere.
When Was the Non-contract Statement Made?
A critical component of admissibility is when the non-contract statement was made. If it was made before the contract was signed or at the time it was signed, then it may be excluded via the parol evidence rule (assuming, again, it was a completely integrated agreement).
But when statements were made after the contract was signed, for example a renegotiation of terms or relief of an obligation (e.g. I’ll accept $75,000 rather $90,000 as per the contract), the court can admit such statements.
What Does the Non-contract Statement Have to Do With the Contract?
The parol evidence rule works to exclude statements which would supplement the contract with additional terms (e.g. a specific date of delivery) or contradict the terms in the contract (e.g. “you don’t have to worry about the waiver in here”). But statements which work to explain ambiguous terms in the contract (e.g. specifying a particular product among a large inventory that was intended) will be admissible.
Was the Statement Made Fraudulently?
Finally, statements made outside of the contract which to induce fraud can be admissible in California, even if they would have otherwise have been excluded by the parol evidence rule. Thus, statements that a person made which he knew to be false with the intention of getting the other party to sign the agreement can be admissible. This exception can get quite complicated, as it threatens to swallow the rule in its entirety, but California courts have provided guidance on when such statements can be admissible.
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