Enforceability Of Verbal Promises In Contract Law: Parole Evidence Rule And Collateral Contracts

Verbal Promises and Contracts

Describe about the Enforceability of Verbal Promises.  
 

A contract is, basically speaking, an embodiment of promises. Sometimes, these promises culminate into the vesting of rights and obligations to parties of the given contract. As a result, it is essential to consider when the provisions or terms of a contract can be considered enforceable. As is the standard norm, contracts are usually written. However, the law of contracts has taken into consideration the idea of cases where apparent suits have been pursued on the basis of unwritten or verbal promises or contracts.

This is the basis of this treatise. The paper addressed the concept of verbal promises in contract law, the application and exclusions to the application of the parole evidence rule as well as collateral contracts. Finally, the paper will make a summative and symmetrical presentation of how the parole evidence role and collateral contracts relate to the enforceability of verbal statements.   

Whereas actions in Assumpsit (breach of promise)

are all part of the doctrine of consideration, the same concepts have elicited tremendous and mixed reactions from various quarters on the applicability, relevance and broad discretionary privileges left open to courts. In Australian law, the doctrine of consideration is relevant in the sense that it avers certain promises are unenforceable.       

It is not generally uncommon to come across various parties to a potential contract making rash promises. Often, these promises are made verbally and with little or no realization as to the fact that they could be legally binding. Nonetheless, it must be stated that whereas some verbally made promises are enforceable, a number of other promises are equally unenforceable.

The downside of verbal agreements and promises is that they are hard to prove. Such prove must, inter alia, be inclusive of the necessary evidence to prove the actual existence of the agreement or promises besides laying bare all the proof of the actual terms and conditions. In the absence of written or recorded evidence to prove such terms, all that will be left will be one party’s word against that of the other.

As a matter of recommendation, verbal contracts stand a better chance of enforcement if they are at least accompanied by some written record, chronology or even a diary. These documents lend credence to claims of the existence of a promise and the terms therein.     

The parole rule, on the other hand is a common law doctrinal appendage whose tenets thrive in the supposition that a written instrument- being and intended by parties to an agreement as the final depiction of the agreement they have reached- cannot be subjected to challenges and suits whose basic and bottom line content and evidence contradicts or fundamentally modifies the said instrument. This doctrine avers that once a written instrument has been validly sealed- as a show of credibility, it follows that the instrument is authentic and indisputably so. A number of cases, for example the Sharington v. Strotton indelibly confirms this doctrine by holding that on a scale of value and importance, a sealed document has a higher value than any other adducible evidence. 

Parole Evidence Rule

In England, for example, the parole evidence rule was lauded to be an important step towards establishing legal certainty. In Contract law, on the other hand, various circles of professionals and legal practitioners have held a long standing perception that the rule has been a major contributor to endless legal confusion. This is particularly in regard to the diverging ways in which precedent holds the rule. Various court decisions do not seem to point to some particular direction in terms of uniformity in interpretation of the rule.

However in Common law, as is the norm and standard in multiple common wealth jurisdictions, the parole evidence rule has be often subjected to two approaches at the time of consideration as a matter of justifying it: firstly, the parties must have been demonstrated to have wished that the instrument be their final manifestation of their intents and agreements – which in simple terms renders all other previous agreements to be voidable and of unenforceable nullity- and. The parties must also depict the fact that the document is to be interpreted in such a way as to hold in honor the final understanding. Secondly, the instrument constructed between the parties as a depiction of their  final understanding must be held to of a higher jurisprudential value than other pieces of evidence that may be adduced to contradict, modify or even disprove the instrument.

The Australian approach to contracting as been basically objective which- on face value- advocates for a complete rejection of the consideration of the subjective intentions of the parties involved in a contract. This means, as is expounded in the Codelfa Constr. Pty. Ltd. v. State Rail Auth. of New South Wales case, that extrinsic evidence is excluded in consideration of parole evidence. In the case,  certain portions of the judgment shed more light on when inclusions of evidence of surrounding circumstances were made. Mason J’s decision was an emboldening of the ‘plain meaning’ mode of interpreting contracts where the meaning of a contract derived from other sources would be discarded if the contract’s wording was sufficiently plain.   

By actual adoption of the objective approach, Australian Courts have been careful not to disallow the admission of enough background information to the contract so as to be able to build or construct a reasonable scenario of contracting parties and the agreements that led to the final agreement as the original parties would. It is a kind of a simulation involving parties and the agreement which is designed to shed more light what- in actual circumstances- would be considered to be reasonable.    

Australian Approach to the Parole Evidence Rule

Sometimes, the value attached to final instruments written to express the final understanding and agreement between parties may be a source of legal uncertainty- the very tenet that the instruments are designed to address. The meanings, terms and references of the document may not be easy to interpret. As a result, basing only on the document to interpret the document may prove to be time consuming and often parties will disagree on what can be implied from the document. The case of Pac. Gas & Elec. Co. v. G.W. Thomas Drayage & Rigging Coexemplifies this position. This is particularly relevant in instances where the words f the document o not necessarily convey the meaning that way originally intended by parties to an agreement.

In a more relevant consideration, Australia’s legal system- being a derivative of the British system- embraces the application of the parole evidence rule but with exceptions. In Australia, the position is that the rule is applicable unless in instances where a claimant can substantively prove that the written instrument or document was not actually intended to embody the contract in its entirety. The case of Gordon v. McGregorI is a perfect example of a situation where a claimants persistent view was that the document- even though indisputable on the basis of its authenticity- was not actually meant to exemplify the whole contract.

The bottom line is that a written document- once it is proved to have successfully met all the mandatory facets of a credible contract- cannot be allowed to be varied, edited or modified in the matter of its terms. It shall stand as a clear indication and the most fundamental piece of evidence of the intents of the parties. It is construed to mean that it holds the ideal terms understanding and positions of the parties to the contract and as a result, varying or modifying the document will be considered to be injurious to the parties’ final understanding.   

Conversely, as is the trend in England, Australian Courts have maintained a significant basis for exceptions to the application of the parole evidence rule- albeit with appreciable variations. For instance, whenever the terms of the agreement were considered doubtful, it followed subsequently that the Court would consider the ulterior motives of the contractual parties. This is a significant shift from the English exclusion to the rule where such consideration of the contractual parties’ behaviors wouldn’t be considered- in the absolute sense. This position was given attention in the case of Codelfa Constr. Pty. Ltd. v. State Rail Auth. of New South Walesand was further augmented by the high court in the case Royal Botanic Gardens & Domain Trust v. South Sydney City Council. It was held that the rule would subject to exclusions where the written document was constructed with ambiguity or worse still, where the document’s interpretation would be subject to more than a single meaning.

Collateral Contracts

In Australia, the ratification of the CISG  heralded an era of further debacles in relation to the application and interpretation of the parole rule. Partiular grounds for incompatibility in application of the rule were laid. A sample case in point to illustrate this point is the South Sydney District Rugby League v. News Ltd. Case where the implied meanings of the terms in the written document that were basically premised on the presumed intents of the parties to the contract were discussed.

Nevertheless, as in the norm in Australia, courts will normally consider not only the words of a written contract, but also consider the intended meaning of the contract terms and the corresponding legal significance and or effect. The consideration, in this context- would entail a detailed review of what the contract says. This is considered on the basis of individual words which later culminate into deciphering the entire wording of the document so as to lay bare the contents, terms and conditions of the contract. As is evident from precedent, courts are- sometimes- forced to look at the evidence that regards the surrounding circumstance of the contract as a way of reaching a conclusive, relevant and credible decision as to the exact rendering of the contractual terms and obligations. The evidence, in this sense, of the surrounding will often be used to reach decisions on the exact intents, purpose and origin of the contract. 

There is a raging debate, at this point, on when courts can revert to the use of evidence of the surrounding circumstances so as to aid the interpretation of contracts. This, of course, does not in any way accord disproportionate weight to contractual negotiations and agreements prior to the formulation and formulation of the actual contract as a final understanding. The idea is that where a written instrument can independently be interpreted, such interpretation must not be subject to other interpretations derived from other sources. Those other sources begin to only emerge on the ladder of significance when it can be proved that indeed the primary document is shrouded with ambiguity, haziness of terms or even outright incoherence of the terms of the contract.  

Collateral contracts are those contracts whose consideration is the actual entry in another entirely different contract and therefore exists on a side-by side basis. The contract may exist between one party to the main contract and another third party. For instance is a third party pays a party to some contract so as to make entry and reflect the payment in the main contract, it qualifies to be a collateral contract. In the Barry v Davies t/as Heathcote Ball & Cocase, for example, it was held the relationship between an auctioneer and some other buyer was primarily collateral in nature.    

Conclusion

In some cases, however, a collateral contract may exist between parties of the same contract (main contract), insofar as the content and terms of the collateral contract do not contradict- in any way- the contents of the main contract. This provision is, however, hard to prove especially if one cannot adequately and reasonable prove that the collateral contract was agreed on prior to the completion and finalization o f the main contract.

It must be grasped that a given collateral contract that significantly varies and or supplements the key provisions of a main contract ought to be supported by an independent and separate consideration so as to make it strand on its own as a contract. This also ensures that is enforceable in law.   

As has been examined in this discourse, parole evidence rule is chiefly concerned with giving preeminence to written instruments over verbal ones. This means, in the light of the suppositions of the rule of parole, verbal statements are inadmissible. This, however, is subject to exceptions. Where the contents and terms of a contract are vague and ambiguous, it is within the discretionary privilege of courts to consider evidence of the surrounding circumstances. At this point, it is arguable to state that verbal promises can then be considered. Again, these verbal promises must be weighed on a scale of relevance so as to ensure that the promises meet the pre determined criterion of constructing and indeed construing a contract.

On the other hand, collateral contracts (which may be verbal) must be supported with some credible and separate consideration. This qualifies it to be considered as a separate contract. When considered thus, it will be hopeful and helpful for the potential quest for remedies that would actually b denied when considered in the context of a main contract. So collateral contracts are an alternative that accords enormous opportunities for court remedies and reprieve for aggrieved parties- something that wouldn’t be so in main contracts.   

References

Arthur L Corbin, Corbin on Contracts (2nd ed, 1960) 465. 59

Arthur L Corbin, ‘The Parol Evidence Rule’ (1944) 53 Yale Law Journal 603, 607–8

Barry v Davies t/as Heathcote Ball & Co [2001] 1 All ER 944; [2000] 1 WLR 1962).

Codelfa Constr. Pty. Ltd. v. State Rail Auth. of New South Wales (1982) 149 C.L.R. 337

Gabriel A. Moens, Lisa Cohn & Darren Peacock, Australia, in A NEW APPROACH TO INTERNATIONAL CONTRACTS (M.J. Bonell ed., 1999). According to Section 66A of the Trade Practices Act 1974, the CIG’s preeminence over the provisions of the Trade Practices Act is established.   

Gordon v. McGregor (1909) 8 C.L.R . 316.

J J Savage & Sons Pty Ltd v Blakney (1970) 119 CLR 435

Mercantile Bank of Sydney v. Taylor (1891) 12 L.R. (N.S.W.) 252,262, aft’d, [1893] A.C. 317.

Pacific Gas & Electric Co v GW Thomas Drayage & Rigging Co, 69 Cal 2d 33 (Cal, 1968) (Traynor J).

Prenn v Simmonds [1971] 3 All ER 237, 239–241, 

Susan J Martin-Davidson, ‘Yes, Judge Kozinski, There Is a Parol Evidence Rule in California: The Lessons of a Pyrrhic Victory’ (1995) 25 Southwestern University Law Review 1. 78 Codelfa (1982) 149 CLR 337, 351

Sharington v. Strotton, (1565) 75 Eng. Rep. 454 (K.B.)

Shore v. Wilson, (1842) 8 Eng. Rep. 450.

Royal Botanic Gardens & Domain Trust v. South Sydney City Council (2002) 186 A.L.R. 289, 293)

The Parol Evidence Rule: Is It Necessary?, 44 N.Y.U. L. REv. 972, 972 (1969)

Tony Cole, ‘Scalia and the Institutional Approach to Law’ (2003) 34 University of Toledo Law Review 559.

Trident Center v Connecticut General Life Insurance Company, 847 F 2d 564 (9th Cir, 1988).

Val D Ricks “The Sophisticated Doctrine of Consideration” (2000) 9 GMLR 99 at 102. Val D Ricks “The Sophisticated Doctrine of Consideration” (2000) 9 GMLR 99 at 102.

Sharington v. Strotton, (1565) 75 Eng. Rep. 454 (K.B.)

Shore v. Wilson, (1842) 8 Eng. Rep. 450.

The Parol Evidence Rule: Is It Necessary?, 44 N.Y.U. L. REv. 972, 972 (1969)

Tony Cole, ‘Scalia and the Institutional Approach to Law’ (2003) 34 University of Toledo Law Review 559.

Pac. Gas & Elec. Co. v. G.W. Thomas Drayage & Rigging Co., 442 P.2d 641, 644 (Cal. 196 Gordon v. McGregor (1909) 8 C.L.R . 316.