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Parol Evidence: Oral and Written Contract Interpretation

The rules of interpretation for contracts, promissory notes, leases, personal guarantees, etc. all generally adhere to the parol evidence rule. Parol evidence is evidence outside of the four-corners of a document which suggests what the document means, in whole or in part. The parol evidence rule generally prohibits the use of such extrinsic evidence, particularly in integrated contracts. An integrated contract is one in which there is a clause which states that the document represents the entire agreement between the parties, and all prior negotiations and discussions are merged therein. The exception to this general prohibition in integrated contracts is if the contract is ambiguous.

There are two types of ambiguities in this context: (1) patent — arising on the face of the document and (2) latent — arising where it appears clear on its face, but some collateral matter makes the meaning uncertain. Royal Banks of Missouri v. Fridkin, 819 S.W.3d 359 (Mo. 1991).

When an ambiguity does exist, courts will then try to determine the intent of the parties. To do so, courts will consider the entire contract, subsidiary agreements, the relationship of the parties, the subject matter of the contract, the facts and circumstances surrounding the creation of the contract, the position the parties are in in following the contract, and most other external circumstances that cast light on the intent of the parties. Busch v. Latta Painting Corp. v. State Highway Commission, 597 S.W.2d (Mo. Ct. App. 1980).

Because it is generally advisable to avoid contract disputes, breach of contract, breach of promissory note, or breach of lease matters, it is incredibly important to avoid such problems by ensuring contracts are properly drafted. If such problems do nonetheless arise, it is vital to understand your legal rights and obligations with respect to the written instrument.