When a typical business contract is formed and agreed to by parties, it is likely the product of a lot of negotiation that occurred before the contract was entered into. And hopefully, the contract reflects everything the parties did, said, and agreed to, before the contract was formed.
But sometimes, it doesn't.
And when it doesn't, it can lead to parties complaining that the contract was supposed to say X, Y, and Z because that's what was discussed and agreed to pre-contract. Parties may feel deceived, or feel like they have a right to get out of the contract, as it is not a true reflection of what was actually agreed to.
Our Chicago business litigation lawyer at Ellis Legal explains more below.
No Omitted Pre-Contractual Terms Allowed
The problem with this argument is that the law doesn't allow you to let in evidence of what was discussed pre-contract in order to prove the terms of the contract itself—that is, you can't say, "We agreed to X, but the contract doesn't say that."
Rather, the law assumes that whatever is in the contract is there because the parties wanted it there, and whatever is not there was omitted because the parties wanted it omitted—even if, in reality, that's not what happened.
The Parole Evidence Rule
The parole evidence rule does allow those pre-contractual discussions and agreements to be admitted in court and used to prove the terms of a contract, but only under certain, specified conditions.
If the contract contains some kind of term that is not defined, or which is capable of two differing interpretations, the parole evidence can be used to show what the term or provision of the contract means. This also includes situations where the contract contradicts itself—that is where two different parties of the contract conflict or cannot be read harmoniously.
As you can see, parole evidence can be used to clarify the contract, or help the parties better understand their rights or obligations, or determine what a contract means—but it cannot be used just to "add something that should have been put in there."
Completing Incomplete Contracts
There is another time when parole evidence can be used—to clarify or fill in parts of the contract that may be incomplete. When a contract is incomplete—that is, it doesn't include all the material terms or conditions—parties may try to say that there is no enforceable contract at all, as the parties never had a mutual understanding of the contract's essential terms.
But parole evidence can be used to provide and supply terms that are necessary to make an otherwise incomplete contract into a complete one, to show that all the material terms of the contract were, in fact, agreed to even if those terms were never written into the agreement. This can turn an otherwise unenforceable contract into an enforceable contract.
Avoid problems, and make sure your business contracts are done right the first time. Speak with a Chicago business litigation attorney at Ellis Legal at (312) 967-7629 today.