Lamson, Dugan and Murray, LLP, Attorneys at Law

The Parol Evidence Rule: Don’t Forget the Exceptions! Part 2

Posted in In-House Counsel, Trial

My trial from last week is concluded but today’s post is part 2 of Kara Jermain’s article discussing the parol evidence rule.  My thanks to Kara for her work on this project while I was busy with trial.

Last week’s article discussed the parol evidence rule.  The parol evidence rule excludes outside evidence of a prior or simultaneous agreement if it is not contained in contracting parties’ final written agreement.  The rule can have profound effects on anyone who enters into a contract.  This week we set forth some of the common exceptions to this rule.  If one of these exceptions applies a court may consider evidence outside the final written contract.

The exceptions include:

1.         Fraud, mistake, or ambiguity of the final written contract;

2.         Evidence that there is no “final agreement;”

3.         Evidence that several writings were part of a single agreement;

4.         Evidence of agreements or modifications made after the final writing.

For the first exception Nebraska Courts have specifically found that a court may look to extrinsic evidence in cases of fraud, mistake, or ambiguity of the final written contract.  Rowe v. Allely, 244 Neb. 484, 507 N.W.2d 293 (1993); Five Points Bank v. White, 231 Neb. 568, 437 N.W.2d 460 (1989).  In these situations, the outside evidence (the parol evidence) is not introduced to contradict or vary the written contract’s language.  Rather, it is offered to destroy the written contract’s legal and binding effect altogether.  See LaPuzza v. Prom Town House Motor Inn, Inc., 191 Neb. 687, 692, 217 N.W.2d 472, 476 (1974).

Under the second exception, parties may introduce parol evidence to show that no contract was made at all.  The reasoning behind this exception is that if no contract exists the parties do not actually have a “final agreement.”  See Elgin Mills, Inc. v. Melcher, 181 Neb. 17, 19, 146 N.W.2d 573, 575 (1966).  Nebraska courts have found outside evidence admissible when it is used to show that the contract was not intended to be a “final agreement” or (for the third exception) to show that several written contracts were all part of a single transaction or agreement.  See Anderzhon/Architects, Inc. v. 57 Oxbow II Partnership, Michael Krill, 250 Neb. 768, 774-75, 553 N.W.2d 157, 161 (1996); Troia Family Ltd. Partnership v. Kool, 2010 WL 481039 (Neb. Ct. App. February 9, 2010).

Finally, the last exception really deals with evidence that has nothing to do with the actual written contract.  It addresses evidence of agreements made after the original written contract.  So, the parol evidence rule does not prohibit evidence of agreements or modifications that were made by contracting parties after the final written contract was made.  Pearce v. Elic Corporation, 213 Neb. 193, 202, 329 N.W.2d 74, 79 (1990).

While the parol evidence rule won’t apply to exclude evidence of contract terms in every case, particularly those noted above, it is important to keep the rule in mind when you or your business enter into contracts.  The best rule of thumb is to carefully read the written contract before you sign it.  Make sure it includes all the terms you have previously negotiated and discussed.

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