Written Contracts and Oral Promises in Delaware
In an earlier article entitled “Contract Boilerplate - This is The Entire Agreement ...” I wrote about what happens when one of the parties to a written contract asks the Court to hear evidence of an oral statement that was made during the negotiations. As a Delaware business attorney, I’ve represented clients in Court where this very issue has come up.
Let’s consider a case where one Delaware business owner sues another Delaware business owner for breach of contract. The written contract is, of course, admitted into evidence so the Court can see what the parties agreed to at the time they signed the contract. But what if one of the parties claims that he was promised something during the negotiations leading up to the contract, and that this promise was one of the main reasons why he entered into the contract?
Under these circumstances, the question for the Court to decide is whether that oral promise can be taken into consideration. In making this determination, the Court focuses on whether the written contract is clear and unambiguous, or whether it’s written in a way that’s subject to two or more reasonable interpretations. Applying what's called the "parol evidence rule," the Court will not allow the introduction into evidence of oral understandings or promises if the contract is clear and unambiguous.
I remember a case where a commercial tenant sued the landlord for more than $1 million because of a structural defect in the building that caused damage. Claiming that it was not responsible, the landlord tried to introduce evidence that when the lease was written, the tenant and the landlord had noticed a tilting wall, and they both agreed that the landlord would be responsible for the wall in case it needed to be fixed. What was written, however, was that the landlord would be responsible for "structural defects." Despite the landlord's argument that it's only obligation was to fix a tilting wall, the Court refused to consider any testimony about the wall because the language in the contract clearly and unambiguously provided that the landlord would be responsible for structural defects.
In Delaware, the fact that the parties don’t agree on how a contract should be interpreted doesn’t mean the contract is ambiguous. Instead, the Court will give the words in the contract their ordinary and usual meaning if the language is clear and unambiguous. The only time the Court will consider oral promises that are not contained in an unambiguous contract is where there was either fraud or misrepresentation.
