Parol Evidence Rule

According to the Oxford Law Dictionary:

Parol Evidence: "Evidence given orally, as opposed to documentary evidence."

Parole Evidence Rule: "The rule that parol evidence cannot be given to contradict, alter, or vary a written document unless there are allegations of fraud or mistake."

The parol evidence rule has many exceptions:

1. When the written agreement didn't intend to incorporate all the terms.
2. To prove terms which must be implied into the agreement
3. To prove a custom which must be implied into the contract
4. To show the contract is invalid (misrepresentation, fraud, mistake, non est factum)
5. To show the document should be corrected
6. To show that the contract has not yet come to fruition or that it is no longer operates
7. To prove the existence of a collateral contract

Because there are so many exceptions, the Parol Evidence Rule has very little practical effect.

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Express terms

Express terms are specifically agreed parts of a contract.  Implied terms are not specifically agreed but implied by the courts or Parliamentary acts.

Express terms to a contract can be agreed to either orally or in writing.

Written terms cause 3 problems:

1. Can the court go beyond the written contract to discover additional terms?
2. Is someone bound by written terms?
3. Can written terms be incorporated into a contract by notice or in the course of dealings?

Terms

SUMMARY OF CHAPTER 8, "CONTRACT LAW" by EWAN MCKENDRICK, 2009


A statement between an offeror and and offeree in the formation of a contact can be the categorized as such:

1. A statement of opinion "mere puffs" have no legal effect 
2. A term - If a statement is a term, then failure to comply with it is a breach of contract. 
3. A mere representation - If a statement is a mere representation, then there is no breach of contract, but there is misrepresentation

Distinguishing between a TERM and MERE REPRESENTATION relies on the INTENTION of the statement.  This will be determined objectively by the courts, based on several set principles in contract law, which follow:

1. Verification:  If the maker of the statement asks the other party to verify its truth, then it is most likely not a term, but instead, a mere representation. 
   
   Example:  If I offer to sell you a car and tell you that its in good condition, but tell you to take it to the mechanic for a checkup, this is a mere representation.
    
2. Importance: If a statement is of such importance that it brings about the decision to enter into a contract, then it is a term. 
   
   Example: If I am moving to the UK from the US, and want to buy a TV in the US prior to moving, and I need that TV to be 240v, and I am told by the salesperson at the electronics shop that the TV is 240v, but it turns out to be 120v, then that is a term, because of its importance in my purchasing the TV.
    
3. Special knowledge:  a) If the person making a statement has special knowledge or skill compared to the person the statement is being made to, then it is a term.  b) If the person making the statement has equal or lesser knowledge than the person the statement is being made to, then it is a mere representation.
   
   Example: If a mechanic selling a car makes a statement to a car buyer that the car is in good condition, and it has mechanical problems, then it is a term.  If an individual selling a car makes a statement to a car buyer, who is a mechanic, that the vehicle is in good condition and it's not, then it's a mere representation.

Consequences of distinction between TERM and REPRESENTATION

Due to the Misrepresentation Act of 1967, the availability of damages for misrepresentation are more easily attainable, so the consequences of distinction between TERM and MERE REPRESENTATION are not as stringent as they used to be.

1. The distinction on a claim between the two is the amount of recoverable damages
   
   
   
   
   • If the statement of breach is decided by the court to be a term, then the party recovering damages will be awarded "expectation interest" - what he would have expected from the fulfillment of the contract.
      
   • If the statement of breach is decided by the court to be a mere representation, then the party recovering damages will be awarded "reliance interest" - the calculated loss brought about by the misrepresentation.
   
   
   
   
   
2. The distinction between a term and a representation is important in "setting aside the contract
   
   
   
   
   • In the case of misrepresentation a contract can always (in principle) be "set aside" by the representee, both retrospectively and prospectively, bringing both parties back to the point where there was no contract.
      
   • In the case of a breach of term, the contract can only be "set aside" when the broken term is a "condition" or an "innominate term" (between a condition and a warranty), and the "consequences of the breach are significantly serious".  In this case, they can only be "set aside" prospectively without any retrospective consequences.

Incorporating a Representation as a Term in a Contract

This goes against the above principles, but has happened in several cases - ex. Pennsylvania Shipping Co v Compagnie Nationale de Naviation [1936] 2 All ER 1167.  Basically, a representation became a term in a contract, and the claimant brought about an action to "set aside" the contract on misrepresentation.  Held - The representation "merged in the higher contractual right", and the claimant did not need to set aside the contract on misrepresentation, but had a claim of breach of contract (breach of term).

Due to section 1(a) of the Misrepresentation Act of 1967, if a representee enters a contract based on a misrepresentation which is then incorporated into the contract, the representee has the right to rescind the contract, "provided that he would otherwise be entitled to rescind the contract".

Courtney & Fairbairn Ltd. v Tolaini Brothers (Hotels) Ltd. and Another, [1975] 1 W.L.R. 297 C.A, "Hotels and Contracts to Negotiate"

The plaintiffs are builders/contractors, the defendants are developers. The defendants got in touch with the plaintiffs to discuss construction on their acreage.  The plaintiff's offered the defendants to help them attain financing for the project, in return for being contractors, with a promise to negotiate between them to come to agree on a price for construction (through the defendants surveyor).  The plaintiff's sent a letter to the defendants in this regard.  The defendants replied with a letter of agreement.

The defendants negotiated with the plaintiffs but did not agree on terms, and instead the defendants hired another contracting company do to the construction. The defendants then solicited the financing from the company introduced to them by the plaintiffs.  The plaintiffs sued on breach of contract.

Lord Denning: 

Held: Appeal allowed

1) There was no agreement on any price between the plaintiff and defendant, only an agreement to negotiate, and price is essential in construction contracts.  There was no mechanism to determine the price (no third party), and the decision was left between the two parties, hence it is too vague to determine by the court.

2) A contract to negotiate is not a contract, differentiated from  Hillas v Arcos (in fact, it was stated to be a bad law).  Since the law does not recognize a contract to enter a contract as binding, there is no way for a contract to negotiate to be binding. "It is too uncertain to have any binding force".

3) "A fundamental matter was left undecided" and there was no agreement between the parties.


The plaintiff should have attached a "finder's fee" to the loan on condition that the defendant did not take the plaintiff to do the work but did take the loan.

ROSE AND FRANK COMPANY APPELLANTS vs J. R. CROMPTON AND BROTHERS AND OTHER RESPONDENTS [1925] A.C. 445, H.L. "Tissues and Honor Clauses"

Rose and Frank were sole distributors for J.R. Crompton and another, of tissue paper manufactured in England, in the US and Canada.  Initially they had a 12 month contract, but in 1913, they signed a document with the Respondents and another company whereby there was an understanding that Rose and Frank would serve as the sole distributor for a time of 3 years, with a right to renew, but with a clause stating the following:

"This arrangement is not entered into, nor is this memorandum written, as a formal or legal agreement, and shall not be subject to legal jurisdiction in the Law Courts either of the United States or England, but it is only a definite expression and record of the purpose and intention of the three parties concerned, to which they each honourably pledge themselves, with the fullest confidence - based on past business with each other - that it will be carried through by each of the three parties with mutual loyalty and friendly co-operation."

In 1919 differences arose between the parties, and the respondents refused to continue dealings with the appellants, and also refused to ship them tissues which they had ordered prior to the differences, and based this on the claim that there was no contract between them, that there was only an "honor clause", and that the order outstanding was part also not contractual because it emanated from this non-contractual relationship.

The appellants claimed that the first part of the document was in fact a contract, and the honor clause, which came at the end of the document, could not nullify the agreement, and that the claim should fail on repugnance.

Lord Phillmore decided the following:

1) The entire document can be construed to be an honor clause, and there was no contract to begin with, which squashes the argument of repugnance.

2) There is a claim for the outstanding orders, since these were done under the terms of a normal transaction, and even though the dealings emanated from a non-contract "honorable agreement of terms", there was no obligation on the American company to order the products or upon the English company to accept the order.  This in itself is a contractual transaction, and must be considered such.  (An example given was if the American company placed the order and the English company shipped something which damaged other goods on board, the American company would have legal recourse.)

3) On the appellants claim for damages emanating from future orders, since there was no contract, this is squashed.

The ratio of this case can be said to be that an honor clause in a document which is agreed to by both parties nullifies the document from being a contract.

Kleinwort Benson Ltd v Malaysia Mining Corp Bhd [1989] 1 All ER 785, C.A., "Malaysian Tin and a Comfort Letter"

The essence of the case is the following:  The Plaintiff's, a bank, gave a loan to the subdivision of the defendants, "Metals", for the sake of trading tin in the London metals exchange.  The defendants refused to assume joint and several liability or give a guarantee on the loan, and in its place, made it clear to the Plaintiff that they will provide a "comfort letter", stating the policy of the company.

The tin market collapsed, "Metals" liquefied, and the defendants refused to pay the loan given by the plaintiffs to Metals, because they claimed that the comfort letter was not a contract.  Defendants lost the case, and appealed.

Held: The comfort letter was not a contract, and the defendants were not liable for the loan.

Reasons for the decision by Gibons LJ:

1)  There were two agreements, one of them contained an agreement on interest rates on the loan, which, due to the fact that defendants refused to assume joint or several liability or give a guarantee, were increased by 1/8%

2) The wording of the comfort letter was not promissory

3) Clause #1 and #2 were contractual.  If clause #3 (the comfort letter) was promissory, then there would be no need in clause #1 and #2, hence subjectively there was no intention by the defendants to make #3 promissory.

4) The context in which the comfort letter was produced (with the knowledge of the plaintiff that the defendant refused to assume joint or several liability or give a guarantee), and with the express request of the plaintiff, shows that there was no intention by the defendant for the comfort letter to express any promissory obligations.

5) The wording of the comfort letter does not a contractual promise of any future policy of the defendant.

6) The plaintiffs agreed to give Metals a loan with the full knowledge that the defendants refused to assume joint or several liability or give a guarantee, and accepted the comfort letter in its place, which showed to the LJ that both parties were aware there was no security given.

7) The plaintiffs drafted #3, and if they wanted an express guarantee, they should have drafted #3 in those terms, although the fact that they alone drafted #3 was not decisive on his judgment.

The ratio of this case is that comfort letters, if drafted in a way as to not give a promise, cannot be considered a contract.

My first blog

This is my first blog.  The purpose of this will be to discuss (most likely with myself) thoughts on my courses and cases in the University of London LLB which I just recently started.

This years classes include:  Common Law Reasoning and Institutions, Elements of the Law of Contracts, and Criminal Law.

I'll start out of order with Contracts, since that's what I'm currently studying, and will take it from there, coming back eventually to add the chapters that were reviewed, but are not included.