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Chapter 11

Chapter 11. Parol Evidence Rule. Introduction. Bank of Australasia v Palmer (1897)

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Chapter 11

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  1. Chapter 11 Parol Evidence Rule

  2. Introduction • Bank of Australasia v Palmer (1897) • “parol testimony cannot be received to contradict, vary add to or subtract from the terms of a written contract, or the terms in which the parties have deliberately agreed to record any part of their contract.” (per Lord Morris)

  3. Exceptions • It has been said that “this archaic rule has been virtually abolished by various judicial pronouncements” (Friel, The Law of Contract (1995), p 153).

  4. Rule only applies where the written agreement is the whole agreement • Howden Brothers v Ulster Bank (1924) • Firm orally agreed to build a ship and a letter was sent to the plaintiff confirming the order. Letter did not demonstrate that the property in the boat was intended to pass to the plaintiff was it was being constructed, but oral evidence relating to the intention of both parties and the background indicated this and was admissible to show same

  5. Clayton Love v B & I Steampacket Company (1970) • Written contract gave details of how goods were to be carried, but there was an oral variation of those terms. Evidence of this oral variation was admissible to show the terms of the totality of the contract

  6. 2. Parol evidence is admissible for the purposes of interpreting a written contract, by explaining the surrounding circumstances. • Chambers v Kelly (1873) • a written contract for sale of trees related to the sale of oak trees and ”all other trees” in oak plantations. Parol evidence was available to show that the intention of the parties in respect of what “all other trees” referred to. This showed that the felling rights transferred only applied to a limited set of other trees – namely Larch trees. • ESB v Newman (1933) • parol evidence was admitted to show the meaning of the term “accounts”.

  7. 3. Parol evidence can be admitted to explain the background of an agreement to show the circumstances in which it was reached • Revenue Commissioners v Moroney (1972) • Oral evidence was admitted to show that the parties did not intend that the purchase price would ever be paid

  8. However…. • One cannot adduce evidence relating to the subjective intentions of the parties as to what they understand the agreement to mean in a subjective sense. • Nor can one admit evidence of past negotiations to explain the present meaning of contractual terms. Such would trump the general rule that the parties subjective intentions cannot overlay the words actually used. • Rather “what is permissible is evidence of the factual context in which the parties came to terms”. • Will be re-addressed in “Construction of Contracts”

  9. 4. parol evidence is admissible where it is alleged that a particular transaction is not limited to one written contract, but embodies another oral and collateral contract • City and Westminster Properties v Mudd (1958) • Written lease prohibited the tenant from using the property for residential purposes, but an oral promise was made that this prohibition would not be enforced against him. When the plaintiff sought to enforce this term, it was held that parol evidence to this effect was not admissible to contradict the terms of the lease itself. There was, however, a separate oral contract that the prohibition in question would not be enforced; and since this separate contract was not in writing, there was no question but that parol evidence was admissible to explain the terms of this contract.

  10. 5. parol evidence will be admissible to establish that a document which purports to be a contract is not in fact a contract for some reason. • Pym v Campbell (1856) • Parol evidence was admitted to show that a written agreement was not intended to have any legal force until such time as an engineer had inspected and approved of its subject matter. Consequently, no contract had been established, but merely the terms on which a contract might be entered into.

  11. Sixth, parol evidence is admissible to prove a custom or practice, to show (seventh) that a contract suffers from a mistake, to prove out (eighth) non est factum or (ninth) fraud or (tenth) any entitlement to equitable relief.

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