Brian Brislen is in trial this week, and Kara Jermain of the Lamson, Dugan and Murray Litigation Department authored this week’s Thursday blog. 

While the “parol evidence rule” may sound like legal mumbo jumbo that could not possibly affect you or your business in any way, the rule has serious consequences for anyone entering into a contract.  The rule typically deals with a situation where parties begin negotiating verbally or even informally in writing, but later create a separate “final” written agreement. What happens, though, when the terms you previously discussed don’t make it into the “final” written contract, your deal goes south, and you head to court to prove the contract terms you had verbally negotiated?  Surely the court will have to consider all the verbal or informal written negotiations you discussed with the other party before you signed your final contract, right?  Wrong.

That’s where the parol evidence rule comes into play.  The rule prevents a party from submitting evidence intended to prove a term not in the “final” written agreement.  It prevents prior or contemporaneous “extrinsic evidence” (i.e., evidence that terms not in the final writing should be; like those verbal or informal written negotiations made before the contract was signed) when that evidence would alter, vary, or contradict the terms of the written agreement. Thrower v. Anson, 276 Neb. 102, 752 N.W.2d 555 (2008).  In other words, if you show up in court with informal notes of negotiations indicating that “term x” was supposed to be in the final contract and “term x” changes or contradicts the meaning of the final contract, the court will not permit you to enter those informal notes into evidence to help your case.

The purpose of the parol evidence rule is a good one; to preserve the integrity and finality of written documents against disagreements that may occur after parties’ memories have faded, and to prevent parties’ from manipulating a final contract by suddenly “remembering” other negotiated terms. Traudt v. Nebraska Public Power Dist., 197 Neb. 765, 251 N.W.2d 148 (1977).  However, the rule can also have a harsh consequence for parties that fail to be complete when contracting.  When it comes to the parol evidence rule, completeness is key – so make sure all the negotiated terms you wanted clearly end up in the final agreement.

As you might suspect, there are exceptions to the rule.  Next week, Part 2 of this topic will discuss the potential exceptions to the parol evidence rule.