Court upholds contract’s prohibition of extrinsic evidence for interpretation

A California court recently enforced a contract clause prohibiting extrinsic evidence (a.k.a. parol evidence) from being admitted into evidence to help construe the contract. See Hot Rods, LLC, v. Northrop Grumman Sys. Corp., No. G049953 (Cal. App. 4th Dist. Dec. 7, 2015) (reversing and remanding damages award).

The extrinsic-evidence prohibition language was in the contract’s entire-agreement provision (a.k.a. “integration clause” a.k.a. “zipper clause”), as follows:

The Parties further intend that this Agreement constitutes the complete and exclusive statement of its terms and that no extrinsic evidence whatsoever may be introduced in any judicial proceedings involving this Agreement.

Id., slip op. at 9 (emphasis added, internal quotation marks omitted). Rejecting Hot Rod’s public-policy arguments, the appellate court agreed with Northrop Grumman that a referee in the court below erred by admitting extrinsic evidence to interpret the parties’ agreement. See id., slip op. at 12.

CAUTION: A party that asks for such provision might be setting a trap for itself — imagine a judge’s reaction if that party later changed its mind and sought to offer extrinsic evidence to support its preferred interpretation of the contract after all.

I’m adding the following language to the Common Draft collection, even though I doubt I’d ever recommend that a client use it:

The parties desire that extrinsic evidence not be considered in determining the meaning of this Agreement, or any provision of it, in any judicial- or arbitral proceeding; each party agrees not to offer any such evidence for that purpose.

(Notice how the phrasing is more deferential to the courts, and also how there’s an express covenant not to offer extrinsic evidence, so that doing so would constitute a separate breach of the agreement.)