Introduction Over the years, the court has been deliberating about the effects and application of a legal

rule, Parol Evidence rule. Tony Cole introduced that the Parol Evidence rule has long been a polemical issue in the common law system resulting from its injustices application and even lack of rationality in its justification in the court1. A written contract has been always be made the priority for a case. However, terms which are not included in the written contract, spoken in oral form could create evidentiary problems for which the court must decide which forms of the facts in favor of if both forms of the evidence contradict with one another2.In such, Buckenara v Hawthorn Football Club Ltd3 case demonstrates that verbal arrangements could create evidentiary problem. If verbal agreement is taken into consideration, the written contract would not be finalized. To resolve these problems, the court will apply a legal rule, Parol Evidence rule which would assist the court in deciding which form of contract would be taken into consideration. Though many doubts have been put forward for its effects, how would it be applied and when should the Parol Evidence rule be applied. This essay would demonstrate all of these matters about Parol Evidence rule for a better understanding. Parol Evidence Rule Parol Evidence rule is an unique legal rule in such that it simple defines when a contract is activated the moment it is signed by the parties of it, it is assumed that all the terms will be contained in it and no extrinsic evidence would have any effects or may vary in any forms of way4. The court would not allow any either party to exhibit any adscititious evidence not included in the written contract. Parol Evidence rule has been one of the favorable rules in the court as it enables them to focus on the written contract; any parties of the attempt to deflect from the terms contained in the written contract would be precluded. Effects of Parol Evidence Rule Derived from the definition of Parol Evidence rule, the rule reduces time consumption and removes the risk of verbal evidence possessing the written terms in the contract; therefore strictly applied by the courts. Though, its strict application of the rule could create hardship, leading to a number of exceptions to the rule emerge and have been allowed in the court5 such as the collateral contract. In simple terms, the rule declares that a written memorial by the parties is not established as fact6.

Tony Cole, The Parol Evidence Rule: A Comparative Analysis and Proposal (2003) 26 (3) University of New South Wales Law Journal 680, 680. 2 D, Parker and G, Box, Business law for Business Students 2011, (Lawbook Co., 2011) 147. 3 [1988] VR 39. 4 Parker and Box, above n 2. 5 Ibid. 6 Emmanuel T Laryea, The Parol Evidence Rule, Electronic Commerce and the Relevant Law (1999) 3 (2) Newc LR 49, 51.

Justification Parol Evidence rule emerged towards the end of the middle ages, but only begin to gain complete recognition in modern times7. As the seal rise in the eleventh century, written agreements begun to gain evidentiary weight8. In the fifteenth century, the spread of printing and the enactment of statutes in the sixteenth and seventh centuries require certain transactions to be evidenced by writing before they can enforced by legal action9. Written agreements are prepared at the time the agreement is made clear, and the parties have knowledge of the terms in it. Despite the connection between the spread of literacy and the use of written contracts in proving the terms of an agreement, the spread of judicial respect for written contracts was less than as expected if literacy was the only consideration10. The limitations of the spread of literacy and documents could be forged lead to the development of such rule in the common law system11. Consequently, even though the parties have completed the written agreement and be enforced as legal action, once the agreement was challenged it could no longer stand on its own but to be supported by witnesses12. However, the court would not simply allow witnesses to be called upon to challenge the agreement13. Until the spreading of the usage of seal by the King in England to ordinary people, the contract was not given any privilege status but merely treated as a record of transaction. The seal was functioned as a kind of waiver in which whose seal was imprinted on the document seen would be testified that the document was accurate and clear. In contemporary times, the court practices refusing to allow written contract to be challenged in such a way of preventing juries from hearing evidences that would cause them to impart more towards sympathies rather than towards the facts of the case14. The problem with the judgment of the juries is reflected perhaps with the establishment of authority of the written contract by the 1300s, and is still being challenged today15. The doctrine states that evidences of a higher level cannot be contradicted by evidences of a lower level. For example, a sealed document could never be challenged by an unsealed document no matter how persuasive the unsealed document could be16. Later on, the court moved into an area in which the subjective theory was clearly rejected and the objective theory started to embrace in. With the passage of the Statute of Frauds and Prejuries 1677 (UK), the objective theory of contracting is now fully embraced and a true parol evidence rule came along17. Thought stated above, the statute did not apply to contracts generally; the court read it as affirming the validity of the objective approach which was already the theme of the contract law. Courts have to repeatedly appeal to the statute for
7 8

Ibid 52. Ibid. 9 Ibid. 10 Cole, above n 1, 683. 11 Ibid. 12 Ibid. 13 Ibid. 14 Ibid 685. 15 Ibid 686. 16 Ibid. 17 Ibid 687.

dealing with the questions of parol evidence rule arisen18. Consequently, the doctrine then represents the agreement between the parties spread throughout the common law system. The parol evidence rule was eventually fully adopted as a legal rule, excluding all parol evidence as relevant only to the question of the intention of the contract bounded, which is no longer a concern to the court19. Problems A general problem arises is that the parol evidence rule restricting any extrinsic evidences to be presented in the court which would challenge the agreement. While sometimes the terms contained in the written contract would be unclear and doubtful, the judgment for the case could be having hardship since the parol evidence rules strict application. Exceptions Because the strict applications of parol evidence rule, it could create hardship in the judgment of the case. Thus, leading to a number of exceptions emerge and have been allowed in the court20. The first exception to the rule is that the court will allow extrinsic evidence to be presented to prove that a custom or trade usage is part of the terms in the contract even thought not included in the contract21. This exception applies in commercial transactions where the parties often sign very brief documentation in which some terms are silent and not being expressed in written terms22. This exception was confirmed in the case of Hutton v Warren23 where the court includes and enforced the customary clauses of the local custom, granting the tenant to be reimbursed for the cost of seed and labour incurred in farming the land even thought such provision is absence in the lease. Also, another exception to the rule is given when the written agreement is subjected to a verbal agreement no included in the terms which must be satisfied before the written agreement can be enforced. This condition precedent is illustrated in the case of Pym v Campbell24 in which verbal agreement is taken into consideration in such that the written agreement has to be held upon until the condition of the verbal agreement was satisfied. The third exception to the rule is that, if the terms in the written agreement does not contain all of the terms agreed upon by the parties, verbal agreement can be taken into consideration25. In the example case for partly written and partly oral contract, Van Der Esschert v Chappell26, Ms Chappell asked the vendor for assurance that the house was free from white ant infestation prior to when she sign the contract and that assurance was given. She then signed and completed the purchase. Later, she
18 19

Ibid. Ibid. 20 Parker and Box, above n 2. 21 Ibid. 22 Ibid. 23 (1836) 1 M & W 466. 24 (1836) 119 ER 903. 25 th Ewan McKendrick, Contract Law: Text, Cases, and Materials (4 ed, 2010) [312-15]. 26 [1960] WAR 114.

discovered that there were white ants in the house and she sued the vendor, Van Den Esschert for the breach of contract. The court pleaded the parol evidence rule, pointing out that the contract is silent on the question of white ants with the result of Van Den Esschert being not liable. But, the court pleaded that Van Den Esschert was liable for the breach of contract based on the consideration of verbal agreement in such that Ms Chappell signed the contract after she was assured on the question of white ants. Her decision was based on the verbal agreement which is the assurance of the vendor which is not included in the written terms. On the consideration of the verbal agreement, the court held that the vendor is liable for the breach of contract and ordered the vendor to pay for the costs of rectification. In this case, two critical factors were apparent in the judgment. The first factor was the timing of the relevant promise made by the vendor in such that the contract was made immediately prior to signing, thus limiting Ms Chappells opportunity to include the verbal term in writing. The second factor was that the relative importance of the condition in the contract. In an ideal world, without these two assurances, Ms Chappell would not have signed the contract. In addition, another exception is that if the terms of the written contract are ambiguous, verbal agreement can be taken into consideration to remove such ambiguity in the contract. If there is a clear mistake in the written contract, oral evidence will be allowed to rectify such mistake(s). This exception is clearly illustrated in the case of L G Thorne & Co v Thomas Borthwick & Sons27. Collateral Contract In contract law, there is no remedy for the making of false statement unless that statement forms part of the resulting contract28. Collateral contract is a contract in which separates from but related to the main contract; also known as subsidiary contract. It is made by one party and the other party enters into the main contract because that collateral promise has been made to him. Collateral contract is resulted from the limitation of absence of remedy in contract law for the making of a false statement unless that statement forms of, is a part of, the resulting contract29. De Lassalle v Guildford30 is a good example of collateral contract in such that De Lassalle and Guildford executed a written lease. The tenant was arguing that he entered the main contract prior to the collateral promise made by the landlord regarding the functioning drains. If the assurance was not given, De Lassalle would have not leased the premises. In result, the court accepted this argument and awarded damages for breach of collateral contract. In short, exception of verbal evidence might be allowed under the condition that the terms of the written contract are ambiguous. This case is closely related to the previous case of partly oral and partly written contract case, Van Den Esschert v Chappell discussed above. As with that exception, the court allow no excessive use of the verbal argument as it will further erode the legal common rule, parol evidence rule. For this reason, the courts impose limitations on the use of collateral argument. In such, collateral contract argument must be consistent and motivated31.

27 28

(1956) 56 SR (NSW) 81. Parker and Box, above n 2, 151. 29 Ibid. 30 (1901) 2 KB 215. 31 Parker and Box, above n 2, 152.

To show consistency and motivation in the case literally means that the collateral contract must not contradict with the main contract. For such, Hoyts Pty Ltd v Spencer32 is an example. In this case, Spencers written four year sub-lease of premises to Hoyts provided that the sub-lease can be terminated by Spencer on a four weeks written notice. The parties verbally agreed that Spencer would not terminate the lease unless he was given notice to by the head lessor. But still, Spencer wants to terminate the lease by giving a four weeks notice to Hoyts even though he had yet not to receive the notice from the head lessor. Hoyts resisted his attempt to terminate the lease, arguing collateral contract which was made earlier. The court rejected this argument based on the consideration that the collateral contract that Hoyts were seeking to establish, clearly stating that all the terms in the main contract gave Spencer full right to terminate the sub-lease on four weeks notice basis. In other words, the collateral contract contradict with the main contract and thus not liable to be taken into consideration. As mentioned, apart from that the collateral rule must be consistent; there is also a motivation factor which is relevant to this. The collateral promisee must able to show that he entered into the contract based on the consideration of the collateral promise made33. This problem can be illustrated in the case of J.J. Savage and Sons Pty Ltd v Blakney34. The court rejected the collateral contract argument of Blakney as the court was not satisfied that he was in fact motivated by Savages statements about the engines to have them build the cruiser. Effects and Remedies Collateral contract was meant to eliminate false statement issues. Collateral contract allows the plaintiff to claim the compensations from the defendant based on the consideration in such that the plaintiff entered into the main contract based on the collateral promises gave by the defendant. For such decision, the court would consider to bring in collateral contract, giving it a contractual status. Conclusion As discussed above, parol evidence rule is a common law rule which eliminates any extrinsic evidence to contradict with the written contract while collateral contract assists the main contract in which the main contract may contains unclear terms. Though the parol evidence rule applies strictly in the Australia legal system, some cases have hardship in the judgment; result in several exceptions allowed in the court. Based on my opinion, Australian courts should provide remedies for the breach of contract even though the promise concerned was not included in the written contract because certain cases of exceptions discussed above highlighted that the plaintiff(s) entered into the contract as of the assurance(s) given by the defendant(s) verbally which is (are) not included in the terms of the contract. Example of such cases would be the Van Der Esschert v Chappell, Pym v Campbell, and De Lassalle v Guildford which all of them are good examples to show that verbal promises could be the reasons

32 33

(1919) 27 CLR 133. Parker and Box, above 2, 154. 34 (1970) 44 ALJR 123.

behind these legal action brought upon. In short, parol evidence rule and collateral contract should be applied at the right time, right case and right judgment.

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Bibliography
Articles/ Books Cole, Tony, The Parol Evidence Rule: A Comparative Analysis and Proposal (2003) 26 (3) University of New South Wales Law Journal 680 Emmanuel T Laryea, The Parol Evidence Rule, Electronic Commerce and the Relevant Law (1999) 3 (2) Newc LR 49 Ewan McKendrick, Contract Law: Text, Cases, and Materials (4th ed, 2010) [312-15] Parker, D and Box, G, Business law for Business Students 2011, (Lawbook Co., 2011)

Case Law(s) Buckenara v Hawthorn Football Club Ltd [1988] VR 39 De Lassalle v Guildford (1901) 2 KB 215 Hoyts Pty Ltd v Spencer (1919) 27 CLR 133 Hutton v Warren (1836) 1 M & W 466 J.J. Savage and Sons Pty Ltd v Blakney (1970) 44 ALJR 123 L G Thorne & Co v Thomas Borthwick & Sons (1956) 56 SR (NSW) 81 Pym v Campbell (1836) 119 ER 903 Van Der Esschert v Chappell [1960] WAR 114

Legislation Statute of Frauds and Prejuries 1677 (UK)