Parol Evidence States Contracts Are Merely in Writing

Introduction

The Parol Evidence Rule states that a contract is merely in writing only, with the assumption of all the terms and conditions related being enclosed in it. Hence, extrinsic evidence in any form whatsoever is not admissible in the court, irrespective of the time period it were to be in. It can be traced right back to the year 1833 where it originated from the case of Goss v Lord Nugent [1] . However, it wasn’t until the year 1891 in the case of Mercantile Bank of Sydney v Taylor [2] where it was briefly stated by Innes J, whereby simply the written contract was the standard of proof of the agreement between the two parties. (Graw, 2008). Furthermore, as seen in the case of HP Kasabia Brothers Ltd. v Reddy Construction Company Ltd [3] , changes in circumstances are not eligible for contractual obligation. (Paterson, 2008)

Nevertheless, there are exceptions for the parol evidence rule. These exceptions are generally applied to the case when a party is allegedly “hurt” by the agreement if, for instance, a clause is not in the written contract form, but in contrast verbally communicated. In such cases, extrinsic evidence is admissible into the court, to prevent from unjust decisions taking place (Paterson, 2008). As such, collateral contract is the most well-known exception in relation to parol evidence rule. A collateral contract is a separate contract which exists along with the main contract. The use of collateral contract is well-known for confronting the parol evidence rule (Cashman, 1997). For instance, after a contract has been formed, one party forgets to include an important term in the agreement, it has no right to add the particular term as a result of the parol evidence rule. Conversely, if the party argues that it was not a part of the agreement but an individual promise separate from the written agreement, it henceforth does not interfere and/or add or vary the terms of the agreement therefore overruling the parol evidence rule. (Carter, 2000) (ADD THESIS STATEMENT)

The grounds of the parol evidence rule is to avert the introduction of oral evidences that were either prior to or during the agreement was being prepared, which have the potential to vary the contract. This is generally necessary as when the contract is formed; parties construct the terms of the agreement and reduce it to its final form until the time however, one party may feel that not all conditions were present in the contract, and intends to introduce evidence in order to make changes to the terms of the contract. Therefore, the parol evidence rule makes the written document and the written document itself as a facsimile of the true intentions made by the parties, which furthermore means all the terms are to be inclusive in the contract. Hence extrinsic agreements are not paid attention to. (LaMance, 2008)

Justification of Parol evidence rule -> LATER

To avoid fraud

Clarity

State the intention of the parties to the contract

Exceptions to the Parol evidence rule

As pointed out earlier, there are always exceptions. There is always a way to get around legislations and same applies for the parol evidence rule. These exceptions vary from case to case, each one being used as applicable. There are a total of seven exceptions to the parol evidence rule (COMPLETE LATER)

Evidence of Custom or Trade Usage

Firstly, where there is proof of Custom or Trade usage, the parol evidence rule may be overlooked. Such evidence to prove any sort of custom or trade usage is admissible into the court if it already weren’t already stated in the written agreement. Thus, the written agreement is now allowed to be accompanied by the implied terms of custom and trade usage (Mohaammed L Ahmadu and Robert A Hughes, 2006). This can be clearly seen in the case of Smith v. Wilson [4] where the contract in its final form stated 1,000 rabbits, although it should have been 1,200 rabbits. Henceforth, the admission of oral evidence “to show that by a local custom, 1,000 rabbits meant 1,200 rabbits” [5] was permitted.

Evidence of non-operational written contracts

There are situations where contracts are not brought into operation, or are forced to stop operating as a consequence of particular occurrences, for instance any event and/or circumstance that may have happened during that time. In such cases, as to the beginning of the operation of the contract has to be marked orally, in which the court grants such evidences to be adducible. This oral condition has to be satisfied in order to make written contract to be operational. In short the parol evidence rule does not apply when the contract is not in force. (Stone, 2005). In Pym v Campbell [6] a written agreement was constructed for the sale of a share in a patent. However, the parties had orally agreed that it was not until a third party would approve the invention [7] , the written agreement was not obliged to operate, and so the court had granted extrinsic evidence to prove such oral agreement (CONTRACTUAL TERMS, 2007).

Invalid Contracts

Generally, when any particular contract is operational, then only the parol evidence rule applies so when they are not or that is to say when they are invalid, external evidence may be brought into the court. This evidence is granted as the contract itself, or the content included in the contract, is not being varied, but on the other hand as Graw stated it is actually showing some “defect which came into being”, that is, evidence for issues that are not shown in the written document, will be allowed to prove invalidity [8] . This invalidity may be due to mistake, misrepresentation or incapacity and extrinsic evidence is the only possible way to show such invalidity. “It can also be used to show that consideration was not paid or that the contract has been frustrated” [9] . The case which can be referred to for this exception is the one of Joscelyne v Nissen [10] in which daughter whom owned a house made an agreement with her father whereby he would be allowed to live in her house on the ground floor, for free of all expenses. Also during their talks for the agreement, the daughter agreed to take care of all the expenses incurred for basic utilities such as electricity and gas as well as the costs incurred for helping her mother. Yet, as is expected, the clause of her paying all the bills was not included in the written agreement. Therefore it was held by the court for oral evidence to be presented to prove that the contract was invalid, as a consequence of the parties not being able to successfully put into the written agreement what actually had been agreed upon.

Rectification

In place of a situation where there has been an error in drafting the written agreement, oral evidence is also admissible so as to clarify, or to say “rectify” the issue in question (Cheshire, 2007). For an example, A agrees to sell his car to B in its present state without any changes being made, excluding the sound system which is fixed in the interior, but the written agreement has the sound system as being inclusive of the sale, then parol evidence is permissible. This is because as Cheshire states in his book Law of Contract [11] the contract is not showing the real intentions of the parties, and so the rectification made is for the incorrect communication of the contract and not the whole contract itself. In the case of the example above, only the part of the sound system being included in the sale of the car will be rectified. Taking example of a real case however, a look may be taken at NSW Medical Defence v Transport Industries [12] in which an error was made when the agreement was being reduced to writing wrongly stating the price as different from the one that was agreed on, hence the court held for oral evidence to be presented to rectify the mistake in the written contract. However, there are some particular conditions that are essential to be met before rectification could be applied [13] .

Ambiguity or Uncertainty

Another important aspect of the parol evidence rule is when the contract is not written properly. That is to say, if the intentions of the parties are not stated in detail and are unclear, consisting of inaccurate words and lacking generality. At first reading it may not seem ambiguous yet when read under certain consideration and in proper context vagueness may emerge (Smiths, 2006). Here the parol evidence rule is not acceptable as extrinsic evidence is a must, needed for clarification of the ambiguity/uncertainty persistent. In White v Australian and New Zealand Theatres Ltd [14] which explained “language that on its face is capable of more than one possible meaning, or is otherwise made unclear by the other language in the document.” [15] De LaSalle v Guildford [16] is another important case to be referred to when it comes to ambiguity or uncertainty. In it,