Legal Intelligencer: Litigating the Written Word: Parol Evidence Rule and the Gist of the Action Doctrine in Fraud Claims

Two doctrines frequently arise in Pennsylvania jurisprudence when addressing disputes between the parties to a contract: the parol evidence rule and the gist of the action doctrine. While each serves a distinct purpose, their application often overlaps, especially in fraud cases between the parties to a contract. Understanding both rules is essential for practitioners to craft persuasive arguments.

In the January 17, 2025 edition of The Legal Intelligencer, Edward T. Kang writes, “Litigating the Written Word: Parol Evidence Rule and the Gist of the Action Doctrine in Fraud Claims.“

Two doctrines frequently arise in Pennsylvania jurisprudence when addressing disputes between the parties to a contract: the parol evidence rule and the gist of the action doctrine. While each serves a distinct purpose, their application often overlaps, especially in fraud cases between the parties to a contract. Understanding both rules is essential for practitioners to craft persuasive arguments.

The parol evidence rule’s purpose is to preserve written contracts’ integrity. It prohibits using contemporaneous or earlier agreements that contradict, modify, or supplement the terms of an integrated written agreement. Among the factors the courts consider to determine whether a written contract is fully integrated, an integration clause within a contract is a clear sign. Such a clause explicitly states that the written contract represents the entire agreement between the parties, superseding any earlier negotiations or representations. See e.g., Yocca v. Pittsburgh Steelers Sports, 854 A.2d 425 (Pa. 2004). Pennsylvania courts recognize two types of integration: complete and partial. For partially integrated contracts, extrinsic evidence, such as oral agreements, may explain or supplement the agreement but cannot contradict its terms. Generally speaking, in cases of complete integration, no extrinsic evidence may be introduced to alter or add to the written terms. However, the parol evidence rule does not prevent the use of extrinsic evidence for other purposes. See Berger v. Pittsburgh Auto Equipment, 127 A.2d 334 (Pa. 1956) (allowing evidence of a misrepresentation “not to alter or vary” the terms of an integrated contract, but to rescind it); Estate of Herr, 161 A.2d 32 (Pa. 1960) (finding that parol evidence is admissible to explain or clarify or resolve the ambiguity within the contract).

The gist of the action doctrine, by contrast, seeks to maintain the boundary between tort and contract law. It prevents a purely contractual duty from serving as the basis for a tort claim. Rather, a breach of a duty owed to another as a matter of social policy should be the basis of tort claims. See Bruno v. Erie Insurance, 106 A.3d 48 (Pa. 2014) (explaining that tort claims involve a “violation of a broader social duty owed to all individuals” and thus exist “regardless of the contract”). When a duty is created by contract, the gist of the action doctrine requires that a claim for a breach of that duty be brought in contract, not tort.

Claims of fraud can test the limits of both the parol evidence rule and the gist of the action doctrine. In such cases, a plaintiff may allege that he was misled into entering into a contract based on the other party’s misrepresentations, or that he was mistaken as to the terms and the actual contents of the agreement he executed due to the other party’s fraud.

It would be incorrect to assume that because a fraudulent inducement claim arises from the material misrepresentation made by one party and relied upon by another party before the parties enter into a written contract, such a claim will be barred by the gist of the action and the plaintiff can only seek contract-based remedy. The claim may proceed if the fraud claim relates to an independent duty, such as a pre-contractual duty to disclose material facts. In SodexoMAGIC v. Drexel University, 24 F.4th 183 (3d Cir. 2022), the court held that the gist of the action doctrine did not apply to bar a claim of fraudulent inducement, reasoning that the party’s duty to not deceive through misrepresentation or concealment exists independently, with or without a later contract. The court also found that even if the misrepresentations were later incorporated into the contract, at the time the misrepresentations were made, there was no contract, so any duty owed was grounded only in tort. Therefore, because the tort claim exists regardless of the contract, the fraudulent inducement claim is not barred by the existence of the contract at issue.

Turning to the parol evidence rule. For fraudulent inducement claims, the parol evidence rule alone does not preclude the admission of extrinsic evidence of fraud because the purpose of such evidence is to prove pre-contractual misrepresentation or concealment—not to alter or vary the terms of the contract. See Blumenstock v. Gibson, 811 A.2d 1029 (Pa.Super. 2002) (explaining that the party seeks to offer extrinsic evidence to show not “that the representations were omitted from the written agreement, but, rather, … that the representations were fraudulently made”). However, when an integrated contract contains a fraud-insulating term, such as a “no-reliance” clause where a party expressly disclaims reliance on another party’s pre-contractual representations, the parol evidence rule precludes the use of extrinsic evidence to vary the fraud-insulating term, making it “virtually impossible” to establish the justifiable reliance element needed for a fraudulent inducement claim. See SodexoMAGIC, 24 F.4th 183; see also Yocca, 854 A.2d 425 (finding that a party failed to establish justifiable reliance because, by signing an agreement containing a “no-reliance” clause, the party explicitly disclaimed reliance on any of the pre-contractual representations and agreements).

In contrast, a fraud in the execution claim might be excepted from the parol evidence rule’s operation. In such claims, the plaintiff’s allegations of justifiable reliance might concern misrepresentations that do not appear as terms or conditions in the parties’ written agreement. See e.g., Toy v. Metropolitan Life Insurance, 928 A.2d 186 (Pa. 2007). In that scenario, representations made before contract formation are not considered superseded and disclaimed by a fully integrated written agreement; instead, they are viewed as wrongfully absent from the writing that was to memorialize the parties’ contractual undertaking. As a result, the justifiable reliance element would present a fact issue needing to be determined by a jury.