Parol Evidence in Contracts

When structuring a contract, it is axiomatic that the parties to the contract must say what they mean and mean what they say. Problems arise when people engage in “do it yourself contracts”, using online forms, which are inapplicable to Texas law or the transaction, or, my favorite – write out the deal on your computer over a glass of wine.

A contract dispute, for goods or services, becomes exponentially more complex when the parties to the dispute are forced to resort to parol evidence (not parole – as in get out of jail) to prove what they meant in the contract.

Parol evidence is essentially evidence outside of the four corners of a contract, which may be used to explain a provision in the contract that has not been clearly addressed in the agreement. If an attorney must rely on parol evidence to explain a material term of the contract, he or she may typically look at the course of dealings, verbal testimony, and other outside evidence. For obvious reasons, this is not the preferred method to decipher the true agreement of the parties. It always boils down to a “he said – she said” scenario.

A Houston contract lawyer will typically draft a contract to ensure that all material terms agreed to by the parties are contained in the contract, and limit the likelihood that parol evidence will be introduced to decide the matter.

The problem that business lawyers face if the contract does not contain all the material terms of the deal is that they must construe the intent and agreements of the parties by relying on extrinsic evidence. The end result, especially if the dispute winds up in court may yield a result neither party wanted.

Charles M.R. Vethan
Managing Partner