In forming a contract, parties to the agreement usually negotiate before a final contract is signed. Once the final contract has been formed, evidence of negotiations should not be used to interpret the contract. If this type of evidence is offered in court to prove the terms of the contract, it will not be allowed.
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Parol Evidence Rule
The parol evidence rule requires that parties to a contract incorporate all of the agreed upon terms and conditions into the contract. If the parties intend for language in the contract to represent the agreement's final terms and conditions, the writing cannot be subsequently contradicted by extrinsic evidence of previous or contemporaneous agreements that supplement or contradict the contract's terms.
There are a few exceptions to the parol evidence rule. Evidence that would be otherwise admissible to show that the writing was not intended to be final is considered valid as well as additional consistent terms that supplement the parties' written agreement if the agreement is final but incomplete.
Although the parol evidence rule excludes extrinsic, contradictory evidence from the interpretation of a contract, the rule does not exclude the following types of evidence: evidence showing what the parties understood to be the meaning of an ambiguous contractual term; evidence of inadequate consideration or a failure of consideration; evidence of the existence of separate agreements that were made after contract formation; evidence regarding a condition precedent to the parties' integrated written contract; evidence that the contract was voidable; evidence that the contract was not enforceable; or evidence that there was fraud, duress or a mistake in forming the contract. Essentially, the parol evidence rule applies if a party to a contract adds new or contradictory substantive terms to a written contract.
A meat seller goes to a restaurant and offers his services to the restaurant owner. The owner says that he will consider the offer and takes the seller's information. They communicate through electronic mail. The seller writes up an agreement and sends it to the restaurant owner. He offers to sell 45.4kg. of beef to the restaurant owner for £65. The owner turns down the offer because he gets a better price for beef from the competition. The seller then offers to sell 45.4kg. of beef for $36.3 and 45.4kg. of chicken for £32. The restaurant owner thinks that is a great deal because the seller severely undercut the price of his current chicken vendor.
The parties come to a final agreement of £52 for 45.4kg. of beef and £32 for 45.4kg. of chicken. The seller ships 227kg. of beef and 227kg. of chicken to the seller. The seller then sends a bill for the total amount: £487. The restaurant owner refuses to pay this price. The seller sues the restaurant owner for receiving the goods but not making full payment. He introduces the agreement he had written up, selling beef for £65 per 45.4kg. The court refuses to consider this evidence as it was a negotiation of the price and not an agreed upon price.
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