Understanding The Parol Evidence Rule

What are express and implied terms of a contract?

Discuss the Parol evidence rule and its implementation.

Contract is the agreement between the two parties to establish a common goal for a particular consideration. Every contract has its own right as well as obligations and this right and obligation of the contract are established by the consent of the parties and it is considered as the terms of the contract[1]. The rights and obligation of a contract can be implemented in written form or in oral form. For every contract, two types of term are prevailed which are as follows:

• Express terms
• Implied terms

Express terms are those terms which is being articulated and implemented by the parties during the form of contract. In this scenario, the terms are stated during the form of the contract either in oral format or in written format.

On the other hand, implied terms are the terms which are not expressly stated during the form of the contract by any of the parties and these terms are considered to be the obvious items for the establishment of the contract. These implied terms of the contract give rise to difficulties in a contract.  

Parol evidence is the rule which is established by the court in order to maintain the integrity of the written terms of the contract which are being implemented by the parties during the formation of the contract. This rule help the parties to hold the terms which are expressed in the written documents and help to avoid the oral terms which does not have any validity. The parole evidence rule: this states that “oral evidence may not be adduced to add to, contradict or controvert a written document”. This rule is applicable to all sorts or documents along with legal contracts.  The validity of this rule states that “Evidence may be adduced to prove that the contract is not enforceable for some invalidating cause” as mentioned in Roe v R.A. Naylor Ltd (1918) 87 LJKB 958[2].

Various reasons are prevailed which lead the court to establish this Parol rule of evidence. The main objective of the Parol rule is to provide the facility of safeguarding the terms of the contract. Thus the originality of the written terms is kept secure by this rule and therefore it reduces the rate of breach of the contract. In every cases, the terms of the contract whether it is in oral form or in written form. It is merged and expressed in the document during the time o establishment of the contract. Thus it helps to maintain those written terms only and avoid extrinsic terms which may disrupt the contract.

What is the Parol Evidence Rule?

Parol evidence is simple in form and its basic statement is that the terms and condition for forming a contract which is agreed by the parties should be included in the document which is in written format. But the terms which are orally be promised by the parties and has no evidence in the written document are not considered as the valid terms of that particular contract. This rule thus protects the other parties from being deprived from the contract[3]. If we take the case study of Henderson V Arthur (1907) as a reference, we can define the Parol rule in a wide manner. In this scenario, the plaintiff is the seller and the defendant is the tenant and they were in a contract related to lease. The agreement which was established during the formation of the contract contained the terms for paying a certain amount on a particular dates which was fixed by consent of both the parties. However, the parties had an oral agreement related to the payment of the lease and there was no evidence of the orally expressed terms in the document. They had decided that the payment could also be paid in debts. However, latter the plaintiff had sued the defendant for not paying the rent on the particular date which was mentioned in the document during the formation of the contract[4]. However, the court has considered the oral terms as extrinsic terms and stated that the parties should stick upon the terms which were mentioned in the documents. Therefore, the oral terms which were made and agreed upon the parties did not have any evidence and thus they were considered as invalid in nature. However, these kinds of scenarios are common in nature. In many cases it is being observed that the terms and conditions of the contract on which the parties are agreed upon are partly written in a document and are partly made in oral form. Moreover, it is also relevant, that because of this the court has developed and established some exception where Parol evidence rule cannot be applied which are as follows:     

• Rectification is the foremost remedy implemented by the court in regards to Parol evidence rule. Rectification can be considered to be an equitable cure. Rectification is considered to be the important remedy because it allows and permits a recorded document to be reconsidered if there any kind of mistake which needed to be rectified.  Mistakes can be of various types. But in this scenario, mistakes related to recoding the past oral agreement into a written form which can be in a documented form. However, the application of rectification remedy is hard if there prevail no exceptional rule. Moreover, it is also relevant that the defendant required to showcase the e4xtrinbsic evidence in order to prove that there is an existence of oral agreement among the parties which does not have any proof in the written document. Apart from all this, there are various condition which are required to be fulfill in order to enjoy the rectification remedy. Therefore, it is obvious that without meeting the conditions, rectification cannot be acknowledged by the parties. On the other hand, there prevails another important condition, which is also important for enjoying rectification remedy. The written document which contains the terms and conditions which are being agreed by the parties during the establishment of the contract should contain any kind of error in it[5]. It is also mentioned by the court that the contract should be free from the intervention of third party when it comes to enjoy the interest from the contract, the third party should be deprived from that if any. It is also important that the terms and conditions written in the document should not be ambiguous in nature and it should be simple and meaningful and clear in nature. The case scenario of Webster v Cecil (1861) can be the finest example for explaining the rectification remedy in Parol evidence rule[6].
• Another important point for Parol evidence rule is that the contract which is being established by the parties should contain terms and conditions and those terms and conditions should partly be in written form and partly be in oral form. Therefore, if the terms and conditions of the contract are not entirely in a written form, then the Parol evidence rule could not be applied over that particular contract. In this scenario, the exception states that the parties are allowed to present the extrinsic evidences in order to prove that the terms and conditions of the contract are both ion oral and in written format. Therefore, this will conclude that the Parol evidence rule is almost negligible in this scenario[7]. This is because it can be easily ignored by introducing the extrinsic evidence i.e. the oral evidence and can conclude and prove that the contract is not only a written contract but also a verbal contract. The finest example can be Van den Esschert v Chappel which states that this exception for Parol evidence rule. The purchaser which was the plaintiff was going to sign a contract to purchase a house. Just before marking the contract, the vender ensured orally that the house weren’t influenced by white ants. The affirmation of the merchant came about the buyer to sign the contract and purchase the house. A while later, the buyer of the house found that they were white ants and needed to pay a whole of cash to have them wrecked and for the harmed timbers. The plaintiff sued the vender for the expenses of harm and repair. The plaintiff won despite the fact that the term that there were no white ants weren’t in the composed agreement. As Wolf CJ said when acquiring a house in that nation, data with respect to the nearness of white ants was an imperative matter. In any case, when the contract is deliberately composed, there is less certainty to contend that the report isn’t completely the proper agreement. The courts expressed that if the contract didn’t contain the entire understanding, why parties put their mark on without correction[8].
• The third important exception related to Parol evidence rule is the terms implied during the formation of the contract with the consent of the parties and this should be implemented through trade usage or custom. In this exception, it is being stated that the Parol evidence rule does not have the right to avoid the extrinsic evidences when it comes to trade usage or custom. Therefore, in this scenario, the matter should be get under control by the implied terms which has been written down during the establishment of the contract. This can be explained in the case study of Hutton v Warren (1836). In this case scenario, the plaintiff sends a notice to the defendant where it was stated that the defendant was liable to withdraw from his leased farm. However, there prevailed a local custom, which include that the defendant would be liable to receive a payment or refund from the landlord. This is because the defendant had invested seed and labor in the plaintiff’s land and for which the plaintiff was liable to refund or pay the defendant. Thus, the defendant raised his appeal that his right to be got paid cannot be deprived from him though that was not mentioned in the written document and it was implied in nature.    The tenant’s action succeeded. His contract with the landlord had to be viewed in the light of the established custom and it was decided that he had the right to recover fair compensation[9].

Besides the exceptions which are prevailed for the Parol evidence rule, there prevails the concept of collateral contract. The collateral contract is implemented in order to admit and act as an evidence of the oral or verbal terms and conditions which are discussed during the establishment of the contract by the two parties and are not documented in the written document. Thus, collateral contract is the separate contract which is verbal in nature and it exist parallel to the main contract which is in the written format. There are two important scenarios when the collateral contracts are acknowledged by the court are as follows:  

• In cases where the party shows that he would have refused to enter into the contract if there prevail no assurance on a particular point.
• In cases where there lies a promise and that promise is not included in the main contract which is in the written format[10].

However, it is also relevant that the collateral contract does not offend the extrinsic evidences which are present in a contract. This is because in this scenarios the terms and conditions which are made verbally during the establishment of the contract comes separately as collateral contract and is different from the main contract which is in the written format. Therefore, the collateral contracts are valued in the court of law but it does not have the capabilities or right to override the main contract which is in the written format. Thus, from the above discussion it is being noticed that the Australian court of law does not encourage oral terms which are promised during the establishment of the contract..

Reference:

Burks, Martin P, Parol Evidence Rule (Michie Co., 1993)

Kuhnel-Fitchen, Kathrin and Tracey Hough, Optimize Contract Law (Taylor and Francis, 2014)

Kuykendall, A. J, The Admission Of Parol Evidence To Affect Writings (2002)

McLauchlan, David W, The Parol Evidence Rule (Professional Publications Ltd., 2010)

Müller, Andreas, Protecting The Integrity Of A Written Agreement

Report On Parol Evidence Rule (Law Reform Commission of British Columbia, 1980)

Roberts, Frank E., “Evidence: Parol Evidence Rule: Admission Of Parol Evidence To Show Contract Was Sham” (1948) 46 Michigan Law Review

The Parol Evidence Rule (Manitoba Law Reform Commission, 2010)

“The Parol Evidence Rule” (1904) 17 Harvard Law Review