It’s hard to imagine that anyone left something out. With contracts reaching extraordinary length, what could possibly be forgotten? But as we continue our back-to-basics discussion of contracts, we want to focus on the possibility of an inadvertent omission. For that we’ll need to review the Parol Evidence Rule.
And no, we’re not talking about rules for an early prison release. In 17th century England, the French word “parol” translated to “word” or “speech.” The Parol Evidence Rule is applied by judges when words are left out of contracts.
The rule is straightforward. As our English forefathers began to put promises in writing, medieval judges were asked to interpret them. And often a contracting party disappointed with his bargain would offer his recollection of what the contract “really meant.” He would recall promises that were made in negotiations but not written into the agreement. Judges were skeptical. They realized that admitting evidence of oral recollections that supplemented — or modified or contradicted — the written word would open the door to endless new factual allegations and disputes. So, they created and enforced the rule. Recollections that weren’t written down in the final contract were inadmissible.
We think it’s a practical rule, but it can work for a party or against. It came up in a case that arose as the internet was ramping up. An electrical subcontractor agreed to install miles of optical fiber in the then-abandoned freight tunnels below Chicago, Illinois’ loop. The freight tunnels themselves are a remarkable story, as they were built 40 feet below street level for a small narrow-gauge electric railway to bring freight into downtown buildings, and to haul trash out. The telephone company strung cabling along the tunnels’ low roofs. The tunnels themselves make a good story, but I’ll let you explore that elsewhere. (You might start with the University of Chicago online library.) In the late 1980s, someone got the idea that those 80-year-old abandoned tunnels would support fiber optic connections for buildings in the loop.
As the client priced the installation subcontract, they sensibly asked about access to the tunnels. By then they had learned that most of the building entrances to the tunnels had been closed up. They were told that they would have abundant access. That access would limit the time spent walking in the tunnels to the workplace and maximize the amount of workday spent with their tools.
| Your local Gomaco dealer |
|---|
| Closner Equipment Co Inc |
| Closner Equipment Co Inc |
But that promise never made it into the contract. The written document contained no mention of access, let alone listing the number or location of access points. When work started, the contractor found that there were only a handful of access points available, and its workers sometimes spent up to 45 minutes walking to their workface. It was a difficult walk in the unlit tunnels and along the old rail tracks. The work was far more expensive than bid.
The electrical contractor arbitrated the case but had a disappointing result. The arbitrators ruled that the access promises were barred by the Parol Evidence Rule.
The rule applies to communications prior to the final written agreement. The parties remain free to discuss the work and to alter the written terms, which hopefully themselves will become written, signed, and complete change orders.
Courts deciding whether to apply the Parol Evidence Rule (and whether to block oral testimony about a contract’s meaning) may begin by determining whether the contract was intended to be complete. This is almost always the case in today’s construction contracts. Pull out a contract for any project in your current backlog, and you’ll find an integration or “merger” or “entire agreement” clause.
| Your local Yanmar dealer |
|---|
| CLM Equipment Co |
| WPI |
| CLM Equipment Co |
| WPI |
It will likely follow the pattern offered by a clause from an Avis Rent a Car agreement that found its way to the Texas Supreme Court. The clause says that the “agreement supersedes all prior agreements whether written or oral between the parties hereto [and] no representations, inducements, promises, or agreements, oral or otherwise, between the parties not embodied herein shall be of any force or effect.”
When a contract contains such language, courts or arbitrator(s) are likely to find that the parties intended to have one agreement, and its interpretation is limited to the “four corners” of the document. And in the unlikely case that the drafters omitted a merger clause, the judge or arbitrator(s) will determine whether the parties intended the document to be a final, complete, and specific agreement. You should assume that the presumption is in favor of the contract being an “integrated” agreement, that is that all agreed-upon terms are contained within the writing.
The result in either case is that the factfinders will interpret the intent of the parties based on their written word. They can and may consider documents incorporated into the contract, such as the Texas Department of Transportation’s Standard Specifications, ASTM requirements, or other industry standards or references. But it will be hard for a party to introduce testimony regarding their recall of other non-written terms.
The Parol Evidence Rule is not about fairness so much as finality. It’s applied to avoid turning every contract dispute into a credibility contest over who remembers what was said months or years earlier. That’s why the parties shouldn’t treat the written contract as a snapshot of ongoing discussions. It should compile all previously agreed-upon terms.
| Your local Gradall Industries dealer |
|---|
| WPI |
| ASCO Equipment |
| Kirby-Smith Machinery |
| WPI |
| ASCO Equipment |
| Kirby-Smith Machinery |
One exception to this rule comes in interpreting contracts that aren’t clear. We’ll save the rules of ambiguous contracts for next month’s column, but some of those rules would allow — or even require — testimony about the meaning of contract terms. Just to whet your appetite, consider an ambiguous contract provision. Certain ambiguities might require testimony about the parties’ intent.
So, what does all of this mean for contractors in the real world? It means that pre-bid conversations, job walks, emails, and “we’ll take care of you” assurances can be useful for understanding a project, but they are legally fragile. If a promise matters to your price, your schedule, or your risk, it needs to find its way into the written agreement or an incorporated exhibit. Courts are not unsympathetic to hard facts, but they are bound by hard rules, and the Parol Evidence Rule is one of the hardest.
Practically speaking, contractors can protect themselves with a few good New Year’s resolutions. First, flag assumptions during bid review meetings and ask whether they are covered by the contract documents. Second, follow up important oral discussions with written correspondence, even if it’s just an email asking for confirmation, and push to have critical points reflected in the final contract or scope exhibit. Third, when something sounds too important to rely on memory, treat it as a change waiting to happen and insist that it be documented in the contract before work begins.
If you have a public works contract that won’t be negotiated, ask your questions at the pre-bid conference or in a formal request for information. Request that the answer be included in a pre-bid addendum, so that it becomes a part of the bid package and the contract.
| Your local Stewart-Amos dealer |
|---|
| Closner Equipment Co Inc |
| Closner Equipment Co Inc |
None of this slows a good project down, and all of it can save a bad project from getting worse.
In short, the Parol Evidence Rule rewards what is written and punishes what is merely remembered. If you’re ever tempted to assume that “everyone knows” how something will work, take that as a warning sign. In contracts, as on the job site, what isn’t tied down can come loose later. If in doubt, don’t leave it out.
