The Contract is King—Until It’s Not: When Courts Consider Extrinsic Evidence

When parties sign a contract, they often assume that the written agreement is the final word. And for the most part, they’re right—contracts are typically considered the “entire agreement” between the parties. This principle is backed by what’s known as the parol evidence rule, which generally prevents courts from considering outside evidence (like prior verbal discussions, emails, or text messages) to change or add to the terms of a clear, written contract.

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But like most legal rules, there are exceptions. Courts will look beyond the four corners of a contract in certain situations to uncover the parties' true intent or to prevent unfair outcomes. Often, clients will expect other verbal statements, writings, or circumstances outside the contract to be part and parcel of the contract. These forms of evidence are known as extrinsic evidence. In contract litigation, extrinsic evidence may be considered by a court in the following scenarios:

When the Contract is Unclear or Incomplete

Contracts should be precise, but sometimes, they contain ambiguous language or leave out critical details. If an argument is made that the wording of a contract is vague or open to multiple reasonable interpretations, and the court agrees as such, a court may then allow outside evidence to clarify the vague or ambiguous terms. Similarly, if a contract appears to be missing key terms, extrinsic evidence can fill in the gaps.

Example: A contract for consulting services states that payment is due upon “successful completion” of a project but doesn’t define what “successful completion” means. If the parties had prior emails agreeing on specific benchmarks, the court might consider them to clarify the term.

Prove Fraud, Duress, or Mutual Mistake

A contract should reflect a genuine agreement between the parties. However, if one party was bamboozled into signing through fraud, pressured into signing under duress, or both sides made a mutual mistake regarding the contract’s terms, courts may look at outside evidence to uncover the truth.

Example: A Seller intentionally misrepresents the value of a business, and the Buyer later discovers financial records contradicting the Seller’s claims. Even if the contract states that the Buyer accepts the business “as is,” the court might consider extrinsic evidence to determine whether fraud occurred.

Show a Witness’s Bias or Motive to Lie

Extrinsic evidence is also allowed when the credibility of a witness is being challenged. If a person testifying about the contract has a personal stake in the outcome, courts may allow evidence for the purpose of exposing that witnesses’ biases, that witnesses’ hidden agenda, or to refute testimony of the witness as a challenge to that witness’ credibility.

Example: A former employee testifies that their boss never intended to pay a contractor. If it turns out that the employee was fired and is suing the company separately, the court may allow evidence of this bias to assess the credibility of their testimony.

Final Thoughts: The Contract Usually Stands—But Context Matters

Contracts exist to provide certainty and prevent disputes. Still, when fairness and clarity are at stake, courts sometimes allow extrinsic evidence into the record to determine the true meaning of vague, ambiguous, or missing terms. Extrinsic evidence will sometimes be allowed to prove fraud, challenge the credibility of a witness, or expose a witness’ motivation. While the written contract is typically the final word, knowing when extrinsic evidence may be used can make a difference in ensuring that justice is served in a contract dispute.

Whether you’re signing a contract or facing a contract dispute, understanding these exceptions can help you understand the obligations placed on each party to a contract, protect your rights, and avoid surprises in court.

At Davidson Law Firm, we are committed to providing experienced legal guidance tailored to your needs. If you have questions or need legal assistance, our team is here to help. Contact us today to schedule a consultation and let us put our expertise to work for you.