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The Parol Evidence Rule states that when parties have reduced their agreement to writing in a complete and final document, any prior or contemporaneous oral or written agreements, negotiations, or understandings that contradict, modify, or vary the terms of the written contract are generally inadmissible to interpret or supplement the written contract. In effect, it limits the use of evidence to argue against the written contract terms.

There are various situations in which parol (external) evidence can be used to interpret a contract though they are largely limited. For example, parol evidence may be admissible to establish fraud, mistake, duress, illegality, or other defenses to the enforceability of the contract. Additionally, parol evidence may be allowed to clarify ambiguous terms or to interpret the contract in light of trade usages or course of dealing between the parties.