The Parol Evidence Rule

The parol evidence rule is an oral agreement that is not essential or sufficient enough as evidence to the relevance of the written document. It concerns extrinsic information that includes verbal agreement, or a written agreement that was not appeared to be in the context of agreement [5] . It is a rationale that upholds the integrity of agreements by disallowing parties to modify or change the meaning of the agreement through verbal communication or written declarations that are not stated in the agreement. The rule applies to written agreements to protect the contractual conditions and it does not permit parties to make amendment to the legal agreement that contradicts the evidence however, the presence of certain exceptions exist to the parol evidence rule [6] .

The parol evidence rule can be justified on the verge of, if parties take the effort to write down their conditions of the contract, it means that the written document would most probably be a sufficient source of recordings of everything that was agreed to upon writing the contract but it is not necessary to work out that way as the original intentions of the agreement is taken into account. If parties intend their agreement to be affected by external unwritten evidence, then the parol evidence rule must be exempted. In conjunction with the parol evidence rule, there are still exceptions to the evidence surrounding conditions that is precise and clearly expressed. However, it is unable to succeed unless evidence is based on unreliability of memory, untrustworthiness verbal testimony and this applies to any evidence on contemporaneous agreements or negotiations offered to challenge the power or rights of the written contract. This rule is also to determine the real intention or motive of the parties concerning the written document. It excludes extrinsic evidence including direct statements of intention and antecedent negotiations. Prior to the exceptions to the rule, there are seven types of exceptions where the parol evidence rule does not apply [7] .

The exceptions to the rule, referred to Stephen Graw’s 6th edition are contracts that are partly written and partly oral contracts. If both parties are unable to come to a conclusion of the written agreement as a whole and that it also involved verbal terms, then extrinsic evidence may be allowed to show that the agreement was made up of both written and oral contracts. This also shows the nature and intended effect of the verbal terms. Even though this exception may appear to break the overall objective of the parol rule, it does not. In fact courts allow this exception to clarify that there was no intentions of the written agreement as a whole agreement.

In the case of Van den Esschert v Chappell [1960] WAR 114 whereby a buyer ask the house seller if the house was affected by termites before signing a contract to purchase a house. The house seller then told the buyer that the house was free from termites and led the buyer in signing the contract. Few months later, the house owner found out that the house was affected by termites and had to pay Euro 6010 to treat and repair the house. This made the house owner take up legal actions against the house seller. Held, the sellers verbal assurance of the house being free from termites was considered a term of the contract even though it was not written in the document. Hence, the house owner successfully sued the seller for false allegations and breach of contract. The owner was also eligible to claim for damages. In another case of Nemeth v Bayswater Road Pty Ltd [1988] 2 Qd R 406, where both parties constituted a contract of hiring an aircraft and computed down the information of their agreement. The agreement also contained a statement that all terms are contained in this written document. Nemeth then sued for extra hire cost that was due to an external verbal agreement that occurred before executing the written contract. Held, the verbal agreement was considered to be part of the contract therefore Nemeth’s sue was unsuccessful. All alleged terms to the agreement include written and verbal conditions are considered as contractual terms [8] .

In the next exception where recognized trade usage or customs are implied in contracts, the parol evidence rule will not be applied to exclude extraneous evidence of that custom or trade usage. Instead, the case will be look into with detailed implied terms. In the case of Hutton v Warren (1836) 1 M & W 466; 150 ER 517, whereby a farm renter was sent a notice to discontinue his rented farm and the renter had claimed that a local custom existed stating that a farmer was entitled to a rebate from the farm owner for his seeds used in farming and his labour on the farm in the last year of the occupancy if the landlord were to terminate their tenancy contract. This custom existed despite the fact that it was not stated in the contract. Held, the farmer succeeded in his legal actions as he had a right to the contract. It was fair and justice to compensate the farmer for his seed and labour [9] .

The third exception is to demonstrate operation status of the contract. This occur where the contract operation proved through written was verbally made due to the existence of an effect or continuance of other matters, extraneous proves may be abducted to prove that the contract is not in operation. The acceptance of this exception is due to the fact that extraneous proves does not change or negate the written document. In the case of Pym v Campbell (1856) 6 EI & BI 370; 119 ER 903, negotiations between Pym, Campbell and others to sell Pym’s machine invention was made and they came to an agreement that Pym would explain this machine operation to two engineers. If the engineers approved the machine, only then they would purchase the machine. A meeting was arranged for a meet up with all the parties involved in the meeting but Pym was not present. When Pym turns up, only one engineer was found and he approved Pym’s machine. Then, the members signed an agreement which will eventually be a contract if the other engineer approved as well. There was no effect on the contract without the approval of the other engineer. Hence, the other engineer did not approve and they were not bound. Pym argues that their contract was valid and the verbal evidence could not be abducted. Held, the oral evidence was accepted as it did not change the contract contents [10] .

Exceptions are also to examine the validity of the contract. This exception may help establish the existence or absence of consideration, contractual intention or certain invalidity for instance falsification, an error or non est factum. Contracts may appear to be invalid with extraneous evidence. This is regard as evidence that exist but not in a whole manner and will be allowed to prove any invalidity. Thus, courts can only accept extraneous evidence with a purpose of proving evidence. It can also show that there was no consideration in the contract [11] .

The next exception is to rectify the written document only if some mistakes have been done in altering the agreement contents. This occurs when the contract does not convey the actual intentions of the parties’ agreement. Any one of the party may seek a rectification order. Extraneous evidence might be required to prove the existence of a prior agreement and that an error was made in altering it to writing. In the case of MacDonald v Shinko Australia Pty Ltd [1999] 2 Qd R 152 where parties participated in a contract to purchase and sell a house, the house plan that was part of the contract stated that the home unit was situated in the northern side of the building but the house was located in the southern side instead. The seller then rectified the contract and changed the contents from northern facing unit to a southern facing unit. For the parties that wanted their deposit back, argued that the parol evidence rule allowing “continuance of common intention” could not be applied to prove a mistake in a written contract or to rationalize rectification of the “mistake”. Despite the parol evidence rule, it is held that rectification is does not necessary have to be only in the contract. Thus, the seller may state that that particular floor plan was not the house that the parties intended to purchase and sell. The parol evidence rule can be used in contract rectification [12] .

For the sixth exception, it is to assist the structure of the contractual terms for instance uncertainty or ambiguousness. If the written contract is not certain and unreliable, then courts will not be able to identify what the parties’ real intends are. This is where parol evidence comes in to resolve the ambiguousness with the contribution of extraneous evidence to help distinguish the contract’s subject matter. In the case of Akot Pty Ltd v Rathmines Investments Pty Ltd [1984] 1 Qd R 302, where parties participated in a contract to purchase and sell “unit 115″ on the 5th floor of the offered building. The contract was attached with a floor plan that showed five units were on that floor without numbering the lots. However, it was clear and possible for parties to pick their plot by referring to the pamphlet the seller showed them and to support legal evidence by the unit broker that had went along with him when he choose the unit. Held the pamphlet and companioned was allowable to distinguish the contractual unit [13] .

In, the collateral contract argument as one of the exceptions, it is a separate contract that can consist of written or verbal evidence between parties. The collateral contract exist in situations where the contractual terms does not match the main contract, the principle of evidence is incorporated in the main contract, the main contract is defective or if it involves a third party to the contract [14] . Courts recognize a statement as not a term of the contract but equally, that it was seriously made and that without it, the main contract would probably not exist. It is also enforceable as a contract in its own right [15] . When one party makes a contract with two others, the court will sometimes use the device of ‘finding’ a collateral contract between the two others to evade the privity rule. However, there are two requirements for collateral contract which is the representor must intend the promise to be legally binding and the representee must have agreed to the content of the statement and in reliance on it [16] .

Parties uses collateral contract in litigation to prove verbal promote. This is made by giving a third party the benefit of an exemption clause in the main contract to which they are not a party. With the findings of any reference in the contract to the third party, courts are able to give them the benefit of an exemption clause. An oral statement can be deemed binding, even though it conflicts with a written agreement and does not fall within any of the exceptions to the parol rule. In the case of De Lassalle v Guildford (1901) 2 KB 215, where parties discussed the house rent, they finally agreed the deal but unfortunately the tenant refused to conclude the deal without the landlord’s assurance of the drain that is in a good condition. The landlord then assured the tenant that the drains were not well maintained and caused the tenant to sue. However, the landlord argues that the assurance was not a contractual term because it was not written in the lease therefore it could not be considered as breaching the contract. Held, the tenant sued successfully. The assurance was considered a separate collateral contract that was related to the main lease. The landlord breached the contract and was responsible for damages [17] .

In a nutshell, the Electronic Data Interchange (EDI) suggests that the lack of uniformity in the approach to determining the applicability of the parol evidence rule can pose difficulties for trade partners.