Evidence which has some bearing on the interpretation of a document and is drawn from a source outside the document’s own terms (e.g. early negotiations, oral conversations, letters, and earlier drafts of the contract). In NSW, the parol evidence rule operates to exclude admission of extrinsic evidence where the contract is wholly written (Hoyts Pty Ltd v Spencer), and dictates that the contract should be read in line with an objective approach.
The parol evidence rule has two prongs of exclusion; it prevents the use of extrinsic evidence for identifying terms of a contract, and for constructing or explaining those terms.
In the absence of an entire agreement clause, the court must determine whether the agreement as it is written is whole, or whether it is constituted by multiple sources. In determining this, extrinsic evidence is often very relevant.
There are two views as to whether the parol evidence rule applies in the determination of a contract.
- Strict view: where a formal written document has been created, appearing mostly to be complete, it should be presumed that the parties intended to contain an exhaustive list of terms within that written agreement alone. Therefore, extrinsic evidence cannot be used to determine whether the agreement was made wholly in writing.
- Lenient view (favoured approach): no presumption should be adopted. Extrinsic evidence should be considered to determine whether the agreement was made wholly in writing. If extrinsic evidence shows that the agreement is wholly in writing, the parol evidence rule will then come into effect to exclude any further use of that extrinsic evidence for any purpose.
Extrinsic evidence is admissible to explain the technical meaning of a word or trade usage, or to explain some latent ambiguity in the terms of a contract. It may also be admissible to identify terms where a collateral contract exists, or where estoppel is claimed.