Contract law (2022): Defenses against formation: Non est factum / Contract interpretation: Parol evidence rule

Non est factum (Latin for "it is not  deed") is a defense in contract law that allows a signing party to escape performance of an agreement "which is fundamentally different from what he or she intended to execute or sign." A claim of non est factum means that the signature on the contract was signed by mistake, without knowledge of its meaning. A successful plea would make the contract void ab initio.

The parol evidence rule is a rule in the Anglo-American common law that governs what kinds of evidence parties to a contract dispute can introduce when trying to determine the specific terms of a contract. The rule also prevents parties who have reduced their agreement to a final written document from later introducing other evidence, such as the content of oral discussions from earlier in the negotiation process, as evidence of a different intent as to the terms of the contract. The rule provides that "extrinsic evidence is inadmissible to vary a written contract". The term "parol" derives from the Anglo-Norman French parol or parole, meaning "word of mouth" or "verbal", and in medieval times referred to oral pleadings in a court case.

The rule's origins lie in English contract law, but has been adopted in other common law jurisdictions; however there are now some differences between application of the rule in different jurisdictions. For instance, in the US, a common misconception is that it is a rule of evidence (like the Federal Rules of Evidence), but that is not the case; whereas in England it is indeed a rule of evidence.

The supporting rationale for this is that since the contracting parties have reduced their agreement to a single and final writing, extrinsic evidence of past agreements or terms should not be considered when interpreting that writing, as the parties had decided to ultimately leave them out of the contract. In other words, one may not use evidence made prior to the written contract to contradict the writing.

Overview.

The rule applies to parol evidence, as well as other extrinsic evidence (such as written correspondence that does not form a separate contract) regarding a contract. If a contract is in writing and final to at least one term (integrated), parol or extrinsic evidence will generally be excluded.  However, there are a number of exceptions to this general rule, including for partially integrated contracts, agreements with separate consideration, to resolve ambiguities, or to establish contract defenses.

To take an example, Carl agrees in writing to sell Betty a car for $1,000, but later, Betty argues that Carl earlier told her that she would only need to pay Carl $800. The parol evidence rule would generally prevent Betty from testifying to this alleged conversation because the testimony ($800) would directly contradict the written contract's terms ($1,000).

The precise extent of the rule varies from jurisdiction to jurisdiction. As a preliminary or threshold issue, the court may first determine if the agreement was in fact totally reduced to a written document or (in US terminology) fully "integrated". In the case of State Rail Authority of New South Wales v Heath Outdoor Pty Ltd McHugh J held the parol evidence rule has 'no operation until it is first determined' that all the terms of the contract are in writing. This threshold question applies even in those jurisdictions that apply a very strong form of the parol evidence rule, called the "Four Corners Rule".