Contracts-Parole Evidence
Terms within the contract that are not expressly defined are typically given their dictionary definition by any court that may be called upon to interpret the contract. A rule of evidence that is important in regard to contract interpretation is the parol evidence rule. It declares that statements made by the parties prior to the signing of the contract will not be considered by a court in a contract dispute. The rule is well recognized and may be further strengthened by language within the contract itself that expressly says that the parties are only bound by the terms of the contract as set forth in the four corners of the document. The logic behind the parol evidence rule is that parties should not rely on precontract statements to define the intent of their agreement when, in fact, they have gone to the pains of putting their agreement in writing with the understanding that the writing constitutes the entire agreement.
The parol evidence rule may seem to be somewhat inconsistent with the example of how a party was fraudulently induced to enter into a contract for the sale of a home. The parol evidence rule, however, should not be confused with that instance of fraud. Fraudulent statements that are made to induce a party to enter into a contract are not deemed to be governed by the parol evidence rule. Fraudulent statements may be a basis for setting aside the contract because those fraudulent statements undermine the integrity and fairness of the agreement.
The meaning of a contract may also be garnered from looking at the prior course of dealing between the parties to this contract. That is, their prior course of dealing may give some clue as to what they intended the contract to mean.
