An oral contract is, in most circumstances, just as enforceable as a written contract. Of course, the law always prefers written agreements because it is easier to define each party’s rights and obligations by looking at a document. So if you have an oral agreement with another party, it is almost always better to put it in writing. This avoids confusion later. But if you do put an agreement in writing, it’s important to know about the “parol evidence rule” and how that might affect what is in the contract, and what is not.
When parties put their agreements in writing, if there is a dispute over the terms, rights, or obligations, the law will look only to the words actually written on paper. This is called the “parol” evidence rule. (“Parol” not “Parole;” so no, it has nothing to do with jail.)
Generally speaking, “parol evidence” is evidence outside the written agreement. This could be a conversation you had while negotiating the deal. It could also be a text or an e-mail. With limited exceptions, the parol evidence rule prevents parties from bringing this “extrinsic” evidence into later discussions about what the written contract means. Under the rule, you cannot use these prior conversations or “extrinsic evidence” to contradict, alter, add to, or vary the terms of a written agreement. But parol evidence can sometimes be used to supplement or complete a term. For example, if a price is described in the contract, but payment terms are not, parol evidence might be useful in showing the payment terms. In other words, where the parties have put their agreement in writing, “parol evidence” cannot be used to change or contradict the agreement later. But parol evidence can sometimes be used to fill in gaps in the written contract, so long as the “parol evidence” is otherwise consistent with the written contract.
The reason for this rule is quite simple: by writing down the terms of an oral agreement, courts assume that you have included all the terms you wanted to be binding as part of the deal. If the parties do not include something in the written contract, courts will generally assume the exclusion was intentional and that by leaving the term out, the parties intended to waive or abandon the term (even if that was not the parties’ intent).
So when you are putting your agreement in writing, make sure that each party includes all the terms, rights, and obligations that each wants to be enforceable against the other. Because if you do not include them, terms will generally not be enforceable, particularly if the oral term is at odds with the written agreement.
