Parol Contract

Home » Agreement Articles » Parol Contract

Parol Contract

A Brief Introduction About the Parol Contract

If we look at the parol contract definition, we find that it is a contract that is oral. The terms and conditions are decided orally. It could be an original contract or modification of an existing contract. The meaning of parole is something expressed orally, which is where the contract gets its name from. 

The parole evidence rules state that a written agreement between the two parties to a contract is final and binding. Any verbal discussion between the parties to the agreement that is in contradiction to the terms of a written agreement would be an example of parole evidence rule. There are exceptions to this rule in the following cases, such as if the original contract was defective and involved fraud or illegal clauses or issues with consideration.

Parol evidence rule contracts ensure that oral discussions before or during the drafting of a written contract and contradict it are not admissible as evidence in a court of law.

Who Takes the Parol Contract? – People Involved

A parol contract is an oral contract between two parties. It could be a new contract or modification of an existing one. This contract is valid if there is an existing written contract between the parties, and this oral contract does not contradict the terms of the written contract. Oral contracts are also possible if the written one has defects. 

Purpose of the Parol Contract – Why Do You Need It?

When you agree with another person, it is always advisable to have a written agreement as it is considered as valid evidence by the courts. The agreement contains all the relevant details and, more importantly, is signed by both the parties in acceptance of the terms and conditions given in the agreement. Oral contracts are not enforceable in a court of law, and this is why written contracts are preferred.

However, there are certain situations in which the written contract can be overruled by an oral contract: 

  • The formation of the contract was defective. The terms and conditions could be fraudulent or errors in drafting the contract
  • There is ambiguity concerning certain terms in the agreement
  • Concerns regarding consideration with non-payment of consideration
  • The present written agreement could be contradicting a previous original valid written agreement
  • An agreement which is related to this agreement which is not in contradiction or modifies the original contract
  • A condition which was necessary to occur before the written contract was to be signed
  • Any changes made later to the contract

It is because of the reasons mentioned above that an oral contract is required. If there are defects found in the written contract such as fraud or mistakes, then an oral contract will be permissible as evidence, and the written contract declared null and void. 

Contents of the Parol Contract – Inclusions

Even though parol Contract is an oral contract, the important thing to remember is that it should protect the interest of both parties. 

When it comes to parole contracts in real estate, it is admissible if there is any ambiguity about the description of the property. This is when the oral agreement gives greater clarity regarding the property.

Like any other contract, there have to be two parties to the contract where one party wants to offer a product or service, and the other party has agreed to compensate for it. The contract cannot contradict an existing written contract which the two parties have entered into.

The oral contract must prove that the written contract had defects, and there was fraud involved when the agreement was formed. When proved, the oral contract will be valid, and the terms and conditions laid down have to be followed.

In a partially integrated contract, the information provided in the written agreement is not comprehensive and would have to be supplemented with evidence from an oral contract. This has to be decided by the parole evidence rule; the parties to the contract cannot decide it. There could be references to the discussion between the two parties to the contract in the written contract itself. Discussions held before the agreement was drafted will be considered. 

There is no integration clause in these contracts, so evidence outside the contract is admissible in a court of law. However, outside evidence is allowed only if it does not contradict the clauses in the agreement. 

How to Draft the Parol Contract?

While drafting Parol Contract, care needs to be taken that it is not contradicting a written argument which is drawn between the two parties to the contract. 

Which of the following is false regarding the parole evidence rule?

  1. A parole evidence rule rejects any verbal evidence when it comes to written contracts
  2. A parole evidence rule accepts verbal evidence if there is a defect in the written contract

Option 2 is correct. There has to be a defect in the written contract for the oral contract to be admissible as evidence. When a contract is partially integrated, that is, it does not contain the complete information to make the agreement conclusive; then, an oral contract is permissible. However, the oral contract does not contradict the written one. 

The following points need to be kept in mind while drafting this contract: 

  • Is there an agreement between the two parties which is partially integrated or which requires more information to be complete? This is important as an oral agreement cannot stand by itself. It needs to supplement the written contract
  • Frauds or inaccuracies in the written contract will result in it becoming null and void. Oral contracts will be accepted by courts in this case
  • Has there been a payment default in a written agreement: Problems with payment allow an oral contract to be considered valid in comparison to a written contract?

Negotiation Strategy

When it comes to a Parol Contract, the terms and conditions have to be discussed by both parties to the contract before they come to a decision. 

Even though the contract is oral, the two parties need to negotiate the services as well as the fee before the contract. This will ensure that both parties gain from the agreement.

Benefits & Drawbacks of the Parol Contract

Here are the benefits of a Parol Contract

  • Protection of interest of both parties: Even though it is an oral contract when it comes to the protection of interests of the parties, it has equal standing as a written contract.
  • Contracts that are not fully integrated: Fully integrated contracts contain all information relating to the transactions between the two parties. However, contracts that are partially integrated would need oral contracts to be accepted legally. You can take action against the other party based on oral contracts
  • Errors in written contracts: There might be defects or errors in written contracts. With an oral contract, these defects can be rectified, and both the parties can benefit from the contract

The drawbacks of a Parol Contract are

  • Payment problems: If there are payment problems in the written contract, then without an oral contract to rectify it, the problem will continue
  • Defects or fraud: If the written agreement was written with fraudulent intentions in mind, then without an oral agreement, it will be declared null and void. Both parties to the agreement will suffer heavy losses
  • No legal recourse: Without the oral evidence, the contracts which are partially integrated and do not contain complete information cannot be used as admissible evidence

What Happens in Case of Violation?

An oral contract is valid in certain circumstances, like for contracts that are not fully integrated, defects in the written agreement, or payment issues. In the case of fully integrated contracts, oral contracts are generally not suitable.

In such circumstances, an oral contract is accepted for taking legal action against the party who has violated the contract. If, after the oral contract was given legal status, any of the parties violate the terms of the contract, then the standard remedies for violation will apply.

The five basic remedies include monetary damages, rescission, restitution, specific performance, or reformation. Under monetary damages, the party who has violated the contract has to compensate the affected party for the damages incurred. If there is a full breach, then the full value of the contract including profits lost have to be reimbursed

Where fraud was used to make someone a part of the agreement, either contract is rejected, or new terms are written for a new contract. In the former case, rescission is the best remedy. In the latter case, where a new contract is drawn, a reformation would be the best choice. 

Restitution(1) was the right decision when the party who was supposed to fulfill the contractual obligations was found not competent to do so. The party who was affected due to this non-performance would have to be compensated enough to restore them to their original financial position before the contract.

A Parol Contract is an important instrument where the written contract has defects or whether the contract does not have complete information, as in the case of those that are partially integrated.

These contracts cannot be contradictory even when it comes to contracts that are not fully integrated. They need to provide additional information which would supplement the information provided in such contracts. 

If there is a written contract that has been drafted by the law, then oral contracts will not hold good and cannot be used as evidence in a court of law. 

Clauses like the limitation of liability and indemnity clause will apply to valid oral contracts. With valid oral contracts, the interest of both parties to the contract are protected, and both stand to gain from the contract.

It is essential to understand the difference between a valid contract and an invalid one.