Introduction
The parol evidence rule constitutes a fundamental principle of contract law that governs the admissibility of extrinsic evidence in legal proceedings concerning written agreements. At its core, this rule stipulates that when parties have formalized their agreement in a written document intended to be a complete and final expression of their terms, extrinsic evidence—whether oral or written—of prior or contemporaneous agreements is generally inadmissible to contradict, vary, add to, or subtract from the written terms. This technical principle seeks to preserve the sanctity of written contracts, ensuring that the document itself stands as the authoritative representation of the parties' intentions. The key requirement for the rule to apply is that the written contract must be intended by the parties to be a complete and final statement of their agreement. This intention, often inferred from the circumstances surrounding the contract's creation, determines whether courts will allow any evidence beyond the four corners of the document in disputes regarding its terms.
The Basis and Purpose of the Parol Evidence Rule
The parol evidence rule serves several important functions within contract law. Primarily, it aims to foster certainty and stability in contractual relationships by preventing parties from later asserting terms not included in their final written agreement. The rule provides assurance to parties who commit their agreement to writing that their documented terms will be given priority over any prior or concurrent understandings. Furthermore, it minimizes the potential for fraud or perjury, deterring parties from introducing false or self-serving testimony about prior discussions to alter the terms of a clearly stated written contract. As such, the rule’s existence creates a procedural framework for courts to rely on the written document, rather than having to determine the veracity of evidence external to this. It is important to note, however, that the rule is not absolute, as several exceptions exist to ensure equity and prevent injustice.
Defining Parol Evidence
Parol evidence refers to any evidence of terms not found in the written contract itself. This can include prior written drafts, oral agreements, correspondence, or any other forms of communication. The term "parol," in this context, does not solely denote oral evidence but rather all forms of evidence that are external to the written contract. It is essential to consider the nature of the extrinsic evidence that is being introduced. The fundamental aim of the rule is to ensure that the document accurately represents the terms agreed upon by the parties to a contract, and as such the courts will interpret the admissibility of parol evidence with the spirit of this aim at its centre.
Examples of Parol Evidence
For instance, in a case involving the sale of a business, where the parties have a written contract that specifies the sale price, the parol evidence rule would generally prohibit the buyer from introducing oral testimony claiming that the seller had verbally agreed to a lower price before the written contract was signed. Similarly, if a lease agreement explicitly states the rental amount, the tenant would typically be barred from introducing evidence of a prior conversation with the landlord where a different amount was discussed. The rule, therefore, seeks to ensure that the written contract remains the sole source of the agreement between parties.
Key Exceptions to the Parol Evidence Rule
While the parol evidence rule is generally a stringent one, several exceptions allow the introduction of extrinsic evidence in certain circumstances to prevent injustice and ensure that the contractual reality is not overlooked. These exceptions can be separated into a variety of categories.
Evidence of Ambiguity
One significant exception permits the use of parol evidence when the terms of the written contract are ambiguous or unclear. If a contractual term can reasonably be interpreted in more than one way, extrinsic evidence may be admitted to clarify the parties' true intentions. In the case of Raffles v Wichelhaus (1864) 2 H&C 906, the contract concerned the sale of cotton "to arrive ex Peerless from Bombay." Because two ships of that name sailed from Bombay, the court admitted parol evidence to show that the parties were referring to different ships and that therefore there had been no consensus ad idem. This case highlights how the courts will use parol evidence to ensure that contracts are accurately fulfilled based on the intention of both parties.
Evidence of a Collateral Contract
The courts may also allow parol evidence to demonstrate the existence of a separate, collateral contract. A collateral contract is a distinct agreement that is not included in the main written contract but is connected to it. The case of City & Westminster Properties v Mudd [1959] Ch 129, established that when a tenant was assured he could sleep on the premises, despite a lease clause stating use of the premises was for business purposes only, parol evidence was admissible to prove the existence of this collateral contract. This is because the initial contract did not cover the topic of residential occupation, meaning a separate contract had to be in place.
Evidence of Misrepresentation or Fraud
Extrinsic evidence can also be admitted to prove misrepresentation, fraud, or duress. If a party claims that they were fraudulently induced into entering a contract or coerced under duress, the parol evidence rule does not prevent them from presenting evidence of such circumstances. This exception ensures that the courts do not inadvertently uphold contracts that were obtained through unlawful means. For example, evidence of threats made by one party to the other, forcing the latter to enter the contract against their will, may be admitted to invalidate the agreement. This is demonstrated through the case of Attorney-General v Whelan [1934] IR 518, in which it was established that duress can be used as a defence against the criminal law, and that the defendant has to bear the burden of proof for demonstrating that this duress did occur. It is therefore an exception of sorts to the parol evidence rule, as these elements would require parol evidence.
Evidence of a Condition Precedent
Another exception allows the introduction of parol evidence to show that a written contract was subject to a condition precedent, meaning that the agreement would only become effective if a specific condition was satisfied. The case of Pym v Campbell (1856) 6 E & B 370 illustrates this point; the court admitted extrinsic evidence of an oral understanding that the written agreement for the purchase of a patent was dependent on a third-party’s approval of the invention. As the invention was not approved, the courts did not hold the party liable. This demonstrates the court's willingness to consider parol evidence that does not modify the written contract but merely establishes the criteria for its activation.
Rectification of Contract
Parol evidence may be admissible to rectify the written contract in cases where there is a mistake made in the formal drafting that does not accurately reflect the parties’ agreement. If it is shown that the written contract fails to record the parties’ true agreement, the court can rectify the document, using extrinsic evidence to correct the errors. However, the threshold of evidence required for rectification is high, demanding clear and convincing proof of such mistakes.
The Parol Evidence Rule in Practice: Case Examples
The application of the parol evidence rule is highly fact-specific, requiring a detailed examination of the circumstances surrounding each case.
Shogun Finance v Hudson
In Shogun Finance v Hudson [2003] UKHL 62, the House of Lords addressed the implications of the parol evidence rule when determining the parties to a hire-purchase agreement. A rogue, posing as a Mr. Durlabh Patel, fraudulently obtained a car from a motor dealer and subsequently sold it to a bona fide purchaser, Hudson. Shogun Finance argued that the hire-purchase agreement, made in writing with the name Mr. Patel, was conclusive and parol evidence of the rogue’s misrepresentation should not be admissible. The House of Lords agreed by a 3-2 majority, affirming the rule that in situations where there is a written contract, it is conclusively presumed to be a complete and final statement of the parties’ intentions. Oral evidence was not admitted to establish the agreement as being between the rogue and Shogun. As such, this case highlights how the courts will prioritise the written document, rather than potentially unreliable oral evidence.
Henderson v Arthur
The case of Henderson v Arthur [1907] 1 KB 10 further demonstrates the strict application of the parol evidence rule. In this case, a landlord attempted to bring an action against a tenant based on unpaid rent; the tenant claimed the landlord had verbally agreed that the landlord would accept debts as payment, but the written contract stated they had to be paid directly. The court held that the prior oral agreement was not admissible as evidence, and the written contract superseded all other previous agreements. This highlights the principle that in the interests of contractual sanctity, the courts will prioritise written agreements above all other extrinsic evidence, which should have been included in the contract if the parties had desired it to be considered valid.
Rochefoucauld v Boustead
In contrast, Rochefoucauld v Boustead [1897] 1 Ch 196 demonstrated that the Statute of Frauds (now s53(1)(b) of the Law of Property Act), which requires the creation of a trust over land to be conveyed in writing, does not always prohibit parol evidence from being presented. The defendant agreed to buy estates from the claimant with the understanding he would hold it on trust for them; however, there was no written evidence of this. The courts held that, due to fraud, parol evidence was admissible to prove that the estates were held on trust for the claimant, highlighting the courts' willingness to allow parol evidence when fairness is at stake.
Conclusion
The parol evidence rule, while seemingly restrictive, is designed to uphold the integrity of written contracts and prevent them from being easily modified by prior or contemporaneous oral agreements. The exceptions, however, demonstrate the courts' commitment to fairness and allowing evidence where the written contract does not fully reflect the true agreement of the parties, or where there was some unlawful action that took place during the formation of the contract. These specific references highlight the balance struck by the legal system between contractual certainty and equitable outcomes. The rule is therefore not an arbitrary bar to evidence, but an element within the system that demonstrates the commitment of courts to the sanctity of contracts. It serves as a crucial mechanism in contract law, promoting clarity and predictability while allowing for necessary flexibility in specific situations. This understanding of the parol evidence rule is essential for comprehending how courts approach the interpretation and enforcement of written contracts. The law, in its approach to this rule, shows a commitment to both certainty of contracts and fairness for each contracting party.
