Delaware Trial Handbook § 20:6. THE PAROL EVIDENCE RULE

The parol evidence rule provides that where the parties have made an agreement and expressed it in a writing to which they have assented as the complete and accurate integration of the contract, evidence, parol or otherwise, of prior or contemporaneous negotiations, communications, understandings and other surrounding circumstances is not admissible for the purpose of varying or contradicting the writing.52 This rule is deemed to be a rule of substantive law, and not a rule of evidence.53 Thus, even if evidence in violation of the parol evidence rule is admitted at trial without objection, such evidence is of no probative force and should not be considered by the court.54

The parol evidence rule is subject to a number of exceptions. First, if a contract is deemed not to be a fully integrated expression of the parties’ agreement, evidence of external circumstances is admissible to supplement, but not to contradict, the terms of the contract.55 Parol evidence is admissible to prove that the writing was only a partial integration or that collateral or separate agreements exist.56

Even if a document is deemed to be fully integrated, if language in the contract is susceptible to more than one meaning or where uncertainty exists as to the application of or intended purpose for certain language, parol evidence of surrounding circumstances is admissible to determine the meaning and application of the language.57 Even when a term is defined in a contract, the definition itself may be worded in a manner requiring extrinsic evidence to determine its meaning and application.58

In Klair v. Reese,59 a 1987 decision, the Delaware Supreme Court appeared to retreat from the traditional strictness of the parol evidence rule. The Court, looking at the “modern view” of contract interpretation, stated that the goal is to discern the understanding of the parties, and not to have a court impose a meaning upon them. The Court stated that, in uncovering that common meaning, courts are “not free to exclude or disregard extrinsic evidence; for the meaning of words used in an agreement can only be known through an appreciation of the context and circumstances in which they were used.” Thus, the Court concluded, courts “must consider the statements of the parties concerning the meaning of the writing as well as evidence such as trade usage or course of dealing.”60 Three years later, however, in Pellaton v. Bank of New York,61 the Supreme Court held that, as the language of a document was clear, the trial court erred in admitting parol evidence to vary or contradict the document’s unambiguous provisions. In so holding, the Court cited Klair v. Reese.62 Lower courts generally have interpreted Pellaton as implicitly overruling the language of Klair allowing courts greater freedom in admitting parol evidence to interpret documents.63 In a subsequent case, City Investing Co. v. Continental Casualty Co.,64 the Supreme Court again reasserted the traditional rule against parol evidence where the writing is plain and clear on its face but went on to cite Klair for the proposition that extrinsic evidence must be admitted to establish the intent of the parties where the meaning of the language can only be known by looking at the surrounding circumstances.  The Court went on to explain that “[i]n that situation the language used by the parties is subject to different meanings and is, thus ambiguous, or more precisely, not reflective of the parties shared intent. But the language of an agreement, like that of a statute, is not rendered ambiguous simply because the parties in litigation differ concerning its meaning.”65

Ten years after the Klair decision, the Supreme Court confirmed its abandonment of the rule of contract interpretation set forth therein.  In Eagle Industries, Inc. v. DeVilbiss Health Care, Inc.,66 the Supreme Court characterized the Klair opinion as overbroad, and reiterated the rule that extrinsic evidence may be inrtroduced to interpret a contract only where the contractual language is ambiguous and requires interpretation.67

Parol evidence relating to circumstances surrounding the formation of the contract is admissible.68 Thus, the parol evidence rule does not preclude evidence of fraud, duress, mutual mistake, misrepresentation or overreaching in the making of a contract.69  The subject matter of a contract and identity of the parties thereto may also be proved by parol evidence.70   The parol evidence rule is also not violated by admitting evidence of a prior or contemporaneous oral agreement that a written instrument executed by the parties is not to take effect until the happening of some agreed condition. Such evidence of intent may be rejected, however, if it is inconsistent with the express terms of the written instrument.71 Further, the parol evidence rule does not preclude evidence of a subsequent agreement modifying the terms of an earlier contract.72

The parol evidence rule does not prohibit the contradiction of recitals of facts in written instruments.73 For example, parol evidence is admissible to vary or contradict depictions of events in minutes and resolutions of a meeting of a corporate board of directors.74 

52. Husband (P.J.O.) v. Wife (L.O.), 418 A.2d 994, 996 (Del. 1980); Consolidated Fisheries Co. v. Consolidated Solubles Co., 112 A.2d 30, 37-38 (Del. 1955), modified, 113 A.2d 576 (Del. 1955); Scott v. Land Lords, Inc., No. 34, 1992, slip op. at 6, Moore, J. (Del. Sept. 22, 1992) (ORDER), disposition reported at 616 A.2d 1214 (Del. 1992) (TABLE); Mesa Partners v. Phillips Petroleum Co., 488 A.2d 107, 113 (Del. Ch. 1984); Messersmith v. Delaware Trust Co.,  215 A.2d 721, 723 (Del. Ch. 1965); Turek v. Tull, 139 A.2d 368, 371 (Del. Ch. 1958), aff’d, 147 A.2d 658 (Del. 1958); Gluckman v. Holzman, 51 A.2d 487, 489-91 (Del. Ch. 1947); Cities Service Co. v. Gardinier, Inc., 344 A.2d 254, 258 (Del. Super. 1975), appeal dismissed, 349 A.2d 744 (Del. 1975); Brandywine Shoppe, Inc. v. State Farm Fire & Casualty Co., 307 A.2d 806, 809 (Del. Super. 1973); Scott-Douglas Corp. v. Greyhound Corp., 304 A.2d 309, 315 (Del. Super. 1973); Arthur Jordan Piano Co. v. Lewis, 154 A. 467, 472 (Del. Super. 1930); 13 North Enterprises, Inc. v. Bruner, C.A. No. 1179-K, slip op. at 4, Chandler, V.C. (Del. Ch. July 8, 1992); AOC Ltd. Partnership v. Horsham Corp., C.A. No. 12480, slip op. at 15, Chandler, V.C.  (Del. Ch. June 17, 1992); City Investing Co. Liquidating Trust v. Continental Casualty Co., C.A. No. 12146, slip op. at 21, Chandler, V.C (Del. Ch. Mar. 30, 1992), aff’d, 624 A.2d 1191 (Del. 1993); Engle v. Oney, C.A. No. 1249, slip op. at 4, Hartnett, V.C. (Del. Ch. Apr. 25, 1989); Auerbach v. Earth Energy Systems, Inc., C.A. No. 8568, slip op. at 9, Jacobs, V.C. (Del. Ch. Apr. 26, 1988); Lewis v. Ennis, Del. Ch., C.A. No. 4941, slip op. at 7, Marvel, C. (Del. Ch. May 19, 1976); McGraw v. Vanguard Corp., C.A. No. 5743, slip op. at 6, Brown, V.C. (Del. Ch. Sept. 25, 1979).

53. Carey v. Shellburne, Inc., 224 A.2d 400, 402 (Del. 1966); Keene Corp. v. Hoofe, 267 A.2d 618, 623 (Del. Ch. 1970), aff’d, 276 A.2d 269 (Del. 1971); Cities Service Co. v. Gardinier, Inc., 344 A.2d 254, 258 (Del. Super. 1975), appeal dismissed, 349 A.2d 744 (Del. 1975); Brandywine Shoppe, Inc. v. State Farm Fire & Casualty Co., 307 A.2d 806, 809 (Del. Super. 1973); Scott-Douglas Corp. v. Greyhound Corp., 304 A.2d 309, 315 (Del. Super. 1973); McGraw v. Vanguard Corp., C.A. No. 5743, slip op. at 5, Brown, V.C. (Del. Ch. Sept. 25, 1979).

54. Carey v. Shellburne, Inc., 224 A.2d 400, 402 (Del. 1966); McGraw v. Vanguard Corp., C.A. No. 5743, slip op. at 5, Brown, V.C. (Del. Ch. Sept. 25, 1979).

55. Consolidated Fisheries Co. v. Consolidated Solubles Co., 112 A.2d 30, 38 (Del. 1955), supplemental op., 113 A.2d 576 (Del. 1955); McGraw v. Vanguard Corp., C.A. No. 5743, slip op. at 5, Brown, V.C. (Del. Ch. Sept. 25, 1979).

56. Scott-Douglas Corp. v. Greyhound Corp., 304 A.2d 309, 315-16 (Del. Super. 1973); Arthur Jordan Piano Co. v. Lewis, 154 A. 467, 472 (Del. Super. 1930); Engle v. Oney, C.A. No. 1249, slip op. at 5, Hartnett, V.C. (Del. Ch. Apr. 25, 1989).

57. City Investing Co. Liquidating Trust v. Continental Casualty Co., 624 A.2d 1191, 1198 (Del. 1993); Citadel Holding Corp. v. Roven, 603 A.2d 818, 822 (Del. 1992); Pellaton v. Bank of New York, 592 A.2d 473, 478 (Del. 1991); Klair v. Reese, 531 A.2d 219, 223 (Del. 1987); Cleveland Trust Co. v. Wilmington Trust Co., 258 A.2d 58, 59 (Del. 1969); Mesa Partners v. Phillips Petroleum Co., 488 A.2d 107, 113 (Del. Ch. 1984); Cities Service Co. v. Gardinier, Inc., 344 A.2d 254, 258 (Del. Super. 1975), appeal dismissed, 349 A.2d 744 (Del. 1975); Kaplan v. Centex Corp., 284 A.2d 119, 125 (Del. Ch. 1971); Scott-Douglas Corp. v. Greyhound Corp., 304 A.2d 309, 315 (Del. Super. 1973); Turek v. Tull, 139 A.2d 368, 371 (Del. Ch. 1958), aff’d, 38 Del. Ch. 182, 147 A.2d 658 (Del. 1958); Foreman’s Systems, Inc. v. Milk Dealers’ Crate Corp., 120 A. 358, 363 (Del. Ch. 1923); University Realty Assoc., Inc. v. Wendy’s Old Fashioned Hamburgers, Inc., C.A. No. 12345, slip op. at 6, Hartnett, V.C. (Del. Ch. Dec. 10, 1992).

58. Cities Service Co. v. Gardinier, Inc., 344 A.2d 254, 258 (Del. Super. 1975), app. dismissed, 349 A.2d 744 (Del. 1975).

59. Klair v. Reese, 531 A.2d 219, 223 (Del. 1987).

60. Klair v. Reese, 531 A.2d 219, 223 (Del. 1987).

61. Pellaton v. Bank of New York, 592 A.2d 473, 478-79 (Del. 1991).

62. Pellaton v. Bank of New York, 592 A.2d 473 (Del. 1991).

63. See, e.g., University Realty Assoc., Inc. v. Wendy’s Old Fashioned Hamburgers, Inc., C.A. No. 12345, slip op. at 6, Hartnett, V.C. (Del. Ch. Dec. 10, 1992); AOC Ltd. Partnership v. Horsham Corp., C.A. No. 12480, slip op. at 15, Chandler, V.C. (Del. Ch. June 17, 1992); ISTI, Inc. v. Townsend, C.A. No. 91C-08-0l7, slip op. at 6, Graves, J. (Del. Super. Mar. 31, 1993), app. dismissed, 628 A2d 83 (Del. June 11, 1993). But see E.I. Du Pont Dc Nemours & Co. v. Admiral Ins. Co.,C.A. No. 89C-AU-99, slip op. at 3-4, Poppiti, J. (Del. Super. Jan. 13, 1992) (Pellaton did not overrule Klair).

64. City Investing Co. Liquidating Trust v. Continental Casualty Co., 624 A.2d 1191 (Del. 1993).

65. City Investing Co. Liquidating Trust v. Continental Casualty Co., 624 A.2d 1191, 1198 (Del. 1993).

66.  Eagle Industries, Inv. v. DeVilbiss Health Care, Inc., 702 A.2d 1228 (Del. 1997).

67. Eagle Industries, Inv. v. DeVilbiss Health Care, Inc., 702 A.2d 1228, 1232 & n.7 (Del. 1997).  See also SI Management LP v. Wininger, 707 A.2D 37, 42 (Del. 1998).

68. Scott-Douglas Corp. v. Greyhound Corp., 304 A.2d 309, 315 (Del. Super. 1973). See also Glenn v. Tide Water Associated Oil Co., 101 A.2d 339, 342 (Del. Ch. 1953) (time, place and circumstances of execution of contract may be proved by parol evidence); Cochran v. Denton, C.A. No. 11826, slip op. at 5-6, Allen, C. (Del. Ch. Oct. 9, 1991), aff’d mem., 612 A.2d 157 (Del. 1992) (parol evidence admissible to determine intent of parties to enter into a contract)

69. Anglin v. Bergold, No. 185, 1988, slip op. at 4-5, Walsh, J. (Del. June 26, 1989) (ORDER), disposition reported at 565 A.2d 279 (Del. 1989) (TABLE); Esso Standard Oil Co. v. Cunningham, 114 A.2d 380, 383 (Del. Ch. 1955), aff’d, 118 A.2d 611 (Del.. 1955); Reeder v. Sanford School, Inc., 397 A.2d 139, 141 (Del. Super. 1979); Ed Fine Oldsmobile, Inc. v. Knisley, 319 A.2d 33, 36-37  (Del. Super. 1974); Scott-Douglas Corp. v. Greyhound Corp., 304 A.2d 309, 315 (Del. Super. 1973); New Castle County v. Crescenzo, C.A. No. 7087, slip op. at 7, Hartnett, V.C. (Del. Ch. Feb. 11, 1985), aff’d mem., 505 A.2d 454 (Del. 1985); Ft. Howard Cup Corp. v. Quality Kitchen Corp.,C.A. No. 89C-DE-34, slip op. at 5, Steele, J. (Del. Super. Aug. 17, 1992).

70. Cieniewicz v. Sliwka, 128 A. 527, 528 (Del. Ch. 1925); Foreman’s Systems, Inc. v. Milk Dealers’ Crate Corp., 120 A. 358, 363 (Del. Ch. 1923); Lewis v. Ennis, C.A. No. 4941, slip op. at 7, Marvel,C. (Del. Ch. May 19, 1976).

71. Equitable Trust Co. v. Gallagher, 67 A.2d 50, 55 (Del. Ch. 1949), aff’d, 77 A.2d 548 (Del. 1950); Engle v. Oney, C.A. No., 1249, slip op. at 5, Hartnett, V.C. (Del. Ch. Apr. 25, 1989).  See also Cochran v. Denton, C.A. No. 11826, Allen, C. (Del. Ch. Oct. 9, 1991).

72. Brandywine Shoppe, Inc. v. State Farm Fire & Casualty Co., 307 A.2d 806, 809 (Del. Super. 1973).

73. Missouri-Kansas Pipe Line Co. v. Satterthwaite, 14 A.2d 414, 420-21 (Del. Super. 1940).

74. Cheff v. Mathes, 199 A.2d 548, 555 (Del. 1964); Schroder v. Scotten, Dillon Co., 299 A.2d 431, 440 (Del. Ch. 1972); GGS Co. v. Schuster, C.A. No. 11,950, slip op. at 4-5, Berger, V.C. (Del. Ch. June 19, 1991).

© 2010  David L. Finger