The process of determining the contents of a contract involves deciding what are the terms of a contract. Terms are individual sub-agreements, which when taken together, serve to limit the scope of a contract. In other words, without specific terms, a contract would have limitless scope, in theory.
A parol evidence rule exam question usually takes the form of a fact pattern with a written contract as well as some kind of oral assurance that was not included in the written contract.
Statement of the Parol Evidence Rule
The parol evidence rule is a rule of evidence which operates when a contract is entirely in writing. An excellent statement of the rule was stated by Innes J in Mercantile Bank of Sydney v Taylor 12 LR (NSW) 252, 262, as follows.
- Where a contract is reduced to writing, where the contract appears in the writing to be entire, it is presumed that the writing contains all the terms of it, and evidence will not be admitted of any previous or contemporaneous agreement which would have the effect of adding to or varying it in any way.
This statement of the parol evidence rule should be used in the exam answer, dividing the rule into five elements, as follows.
- The contract is in writing;
- The contract appears to be entire;;
- The presumption is that the writing contains all the terms
- Extrinsic evidence will not be admitted;
- To vary the written contract.
Each of these elements should be assessed separately in the exam answer’s analysis in order to decide whether or not the rule applies.
Innes J stated this rule so that it is in the form of a presumption. That means the effect of the rule can be rebutted, which implies the existence of exceptions to the parol evidence rule. Further, the rule restricts parties to a written contract from adducing in court either oral or written evidence which contradicts the terms of the written contract.
The rule was applied in the 1952 House of Lords case of British Movietone News v London & District Cinemas Ltd [1952] AC 166.
Exceptions to the Parol Evidence Rule
When answering a parol evidence rule exam question, always assess whether any of the rule’s exceptions might apply.
The following six circumstances operate as exceptions to the parol evidence rule, and each will allow adduction of extrinsic evidence.
- Custom or trade usage is part of the contract. Hutton v Warren (1836) 1 M & W 466, 475.
- The written document should not operate until a certain event takes place. Pym v Campbell (1856) 6 El & Bl 370.
- The written document is only part of the agreement. L. G. Thorne & Co. Pty. Ltd. V Thomas Borthwick & Sons (Australasia) Ltd. (1956) 56 SR (NSW) 81.
- The written contract is ambiguous. Bacchus Marsh Concentrated Milk Co Ltd (in liq) v Joseph Nathan & Co Ltd (1919) 26 CLR 410.
- The written contract has been inaccurately reduced into a writing. Bacchus Marsh Concentrated Milk Co Ltd (in liq) v Joseph Nathan & Co Ltd (1919) 26 CLR 410.
- There is a dispute as to who are the parties to the agreement. Gilberto v Kenny (1983) 48 ALR 620.
In Summary
The parol evidence rule is one of the devices used by the court to determine what are the contents of the contract. It is a presumptive rule, which means it has exceptions. No analysis can be complete without applying the rule then assessing the exceptions. Readers will benefit from reading Collateral Contract as an Exception to the Parol Evidence Rule.
Sources:
Mercantile Bank of Sydney v Taylor 12 LR (NSW) 252, 262.
British Movietone News v London & District Cinemas Ltd [1952] AC 166.
Hutton v Warren (1836) 1 M & W 466, 475.
Pym v Campbell (1856) 6 El & Bl 370.
L. G. Thorne & Co. Pty. Ltd. V Thomas Borthwick & Sons (Australasia) Ltd. (1956) 56 SR (NSW) 81.
Bacchus Marsh Concentrated Milk Co Ltd (in liq) v Joseph Nathan & Co Ltd (1919) 26 CLR 410.
Gilberto v Kenny (1983) 48 ALR 620.
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