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14 Cards in this Set

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Parol Evidence Rule
Designedto reach finality, improve certainty and place obstacles in the way of fraud:generally, if the terms of the contract have been reduced to writing, oralterms cannot be used to vary that…a written contract embodies the completeagreement between the parties and the document is the sole repository of theterms of the contract and so this forbids the introduction of extrinsicevidence (ie evidence of talks between the parties which is not contained inthe terms of the contract itself) which would add or change the terms of acontract that is later written down…
  • Mclaughlan ‘The admissibility of parolevidence to interpret written contracts’ (1974) NZULR pp121-139
  • Applebeypp190-196
Jacobs v Batavia and General Plantations Ltd [1924]

parol evidence rule

Plaintiff,in reliance upon a prospectus issued in September 1920, by defendant companyhereinafter called ‘the Trust’ applied for and had allotted to him subject tothe terms of the prospectus four £100 71/2 per cent profit-sharing depositnotes of the Trust. It was stated in the prospectus that the notes would bepaid off at 105 per cent by four annual drawings, and, under the heading‘Earlier payments,’ that the Trust retained the right to pay off at 105 percent all or any of the outstanding notes at any time on giving three months’previous notice in writing, but that in the event of the sale of the Trusts’ RBestates, further referred to in that prospectus, which according to theconstruction placed upon the prospectus by the court was not confined to a saleunder a certain option of purchase referred to later in the prospectus, butincluded a sale to anybody whomsoever, the Trust would set aside out of theproceeds of sale a sum sufficient to redeem all the notes then outstanding, andthe holders would be given an option of being then paid off in cash at 105 percent or of retaining their notes till the date of drawing. Each of the notes,which was in the form of the specimen note referred to in the prospectus,provided that the Trust would, as and when the principal sum of £100 becamepayable in accordance with the conditions endorsed thereon, pay to plaintiffthe sum of £105, and was expressed to be subject to and with the benefit ofthose conditions, which repeated the provisions contained in the prospectus forthe redemption of the notes by drawings and the option retained by the Trust topay off the notes on notice, but did not refer to the promise by the Trust containedin the prospectus as to earlier payments in the event of the sale of theTrust’s RB estates. The option to purchase referred to in the prospectus havinglapsed and the Trust having contracted to sell the RB estates without havinggiven notice to plaintiff that his option to be paid off or to retain his noteshad thereby become exercisable, and the Trust having repudiated their liabilityto perform their promise contained in the prospectus, plaintiff brought anaction to have the said liability of the Trust established and for aninjunction to restrain them from dealing with the proceeds of sale without inthe first place setting aside a sum sufficient to pay off the outstandingnotes: Held plaintiff was entitled to the relief claimed on either of two grounds,namely, (1) that the entire contract was contained in two writteninstruments, namely, the deposit notes and the prospectus, the terms or whichthe court could reconcile by construing the promise in the prospectus as if itwere inserted in the note as a proviso to come into operation, if and when theRB estates were sold, or (2) that the promise was a binding collateralcontract, the consideration for which was the contract by plaintiff to take upthe notes, and that, as the terms of that promise and an animus contrahendi onthe part of plaintiff and the Trust had been clearly proved, the test laiddown by Lord Moulton in Heilbut, Symons & Co v Buckleton wassatisfied.
Newman v Gatti (1907)

parol evidence rule

By a written contract defendants, who were the managers of a theatre, engaged plaintiff, who was an actress, for the run of a certain play, at thetheatre to understudy the principal actress at a certain salary, and plaintiffagreed not to appear at any place of public entertainment elsewhere during herengagement without defendants’ consent. During the run of the piece theprincipal actress left the theatre and plaintiff claimed the right to play thepart, which defendants refused. In an action to recover damages for breach of thecontract, evidence was given on behalf of defendants, that an understudy wasnot entitled as of right to play the principal’s part if the latter was absent:Held upon this evidence and upon the true construction of the contract, noright was conferred on plaintiff to play the part, the contract merely imposingon plaintiff the obligation of playing the part if called upon by the managersto do so.


(1)Writtencontract not whole agreement,

(2) validity,

(3) implied terms,

(4) oralwarranties,

(5) to prove operation of the contract ie condition precedent

(6)evidence as to who are the parties,

(7)specific performance,

(8)aid to construction,

(9)custom or trade usage,

(10) toidentify subject matter,


(12 )collateral agreements,

(13)evidence of consideration.

Pym v Campbell (1856)


Pym agreed to sell a 1/8 interest in his machine to Campbell. Pym entered into a written contract with Campbell to sell an interest in an invention. The court allowed Campbell to include the oral terms of acknowledgement that the sale was subject to an inspection and approval by an engineer. The engineer did not approve the invention. Pym sued. HELD that there was no breach. The agreement evidenced a requirement of satisfaction by Campbell, therefore there could be no agreement as Campbell was not satisfied
Joscelyn v Nissen [1970]


A father agreed with his daughter that she would buy his business and in return pay his home gas, electricity and coal bills. The contract did not express this ‘continuing common intention’. Russell, Sachs and Phillimore LJJ held that there could be rectification, because there was ‘convincing proof’ (98) of the intention.
Couchman v Hill [1947]


PAROLEVIDENCE RULE EXCEPTION-VERBAL CONDITION OVERRIDING WRITTEN CONDITIONA printed conditionin a catalogue protecting the vendor from personal liability in the case of anyerror of description can be overridden by a condition or warranty orallyexpressed on the basis of which the contract is made. The plaintiff purchasedtwo heifers at an auction sale which were described in the catalogue as"unserved". The catalogue contained the following condition:"The lots are sold with all faults, imperfections, and errors ofdescription". Another condition stated that the accuracy of theinformation was not guaranteed and that no compensation would be paid for anyerrors of description. Before the sale the plaintiff asked the defendant aswell as his auctioneer: "Can you confirm heifers unserved." andreceived from both the answer: "Yes". Two months later a six months'old foetus was removed from one of the heifers which died as a result ofcarrying a calf at too young an age. Held, the catalogue expressly protected the vendor in the event of an error of description and the plaintiff could not succeed so far as his action was based on the catalogue. However, the question and answer amounted to an oral offer of warranty which overrode the stultifying condition in the printed terms and that offer was accepted by the plaintiff when he bid and the contract was made on that basis when the lot was knocked down to him.

Shanklin Pier v Detel Products Ltd [1951]

PAROL EVIDENCE RULE EXCEPTION-WARRANTY INDUCING CONTRACT WITH THIRD PERSON-BREACH OF CONDITIONS AND WARRANTIES…Paint manufacturers represented to the owners of a pier that a paint which they manufactured was suitable for re-painting the pier. In reliance on this representation the pier owners specified that contractors under a contract with them to re-paint the pier should use the paint.The paint proved to be a failure and the pier owners suffered loss in consequence: Held on the facts the representation was a warranty; the consideration for the warranty was that plaintiffs should cause the contractors to enter into a contract with the manufacturers for the supply of the paint for re-painting the pier; and, therefore, the warranty was enforceable and the paint manufacturers were liable in damages for its breach. The paint proved not to be up to warranty and the plaintiffs were put to extra expense. Held, the plaintiffs were entitled to recover against the defendants damages for breach of the express warranties alleged, notwithstanding that the main contract of sale was between the defendants and the contractors and not between the defendant sand the plaintiffs.

Brown v Sheen and Richmond Car Sales Ltd [1950]

PAROL EVIDENCE RULE EXCEPTION-WARRANTY INDUCING CONTRACT WITH THIRD PARTY-BREACH OF WARRANTY…Acting on representations by motor car dealers that a car was in perfectcondition, a purchaser paid a deposit, and, in respect of the balance of thepurchase price, entered into a hire-purchase agreement with a finance companyto whom the dealers had sold the car under which the car was let to him onhire-purchase terms. He paid all the instalments due under the agreement, andthe property in the car passed to him. The car was not in perfect condition andthe purchaser was compelled to have considerable repairs done to it. In anaction by the purchaser against the dealers for damages for breach of warranty:Held the dealers had given a warranty as to the condition of the car whichhad induced the purchaser to enter, not into a contract for the sale of the car,but into the hire-purchase agreement; the warranty had been broken; and,accordingly, the dealers were liable for the damage suffered by the purchaserthrough his paying a larger sum for the car under the hire-purchase agreementthan the car was worth and he would have paid if the warranty had not beengiven. Drury v Victor Buckland Ltd [1941] 1 All E.R. 269 ,decided that where a plaintiff had to rely upon the condition as to the fitnessof goods for a particular purpose implied by virtue of s.14 of the Sale ofGoods Act, 1893, his action failed where the contract into which he had enteredwas one of hire-purchase and not one of sale. Where the plaintiff alleges thathe was induced by an express warranty to enter into a hire-purchase agreement,the decision of Drury v. Bucklandhas no application.The defendants by an advertisement and by their sales manager had warranted acar to be in perfect condition, and the plaintiff was induced thereby to enterinto a hire-purchase agreement with a company to whom the defendants had soldthe car, by which the car was let to him on hire-purchase terms, thehire-purchase price being GBP 235 5s. He paid all the instalments due under theagreement, and the property in the car passed to him. The plaintiff found thecar in unsatisfactory condition and claimed damages from the defendants forbreach of warranty. Held, as the plaintiff did not rely on the warranty impliedby virtue of s.14 of the Sale of Goods Act, 1893, but relied on the expresswarranty which induced him to enter into the hire-purchase agreement, he wasentitled to damages for breach of that warranty.

Smith v Wilson (1832)

PAROLEVIDENCE RULE EXCEPTION…Where terms are used which are known and understood bya particular class of persons, in a certain special and peculiar sense,evidence to that effect is admissible for the purpose of applying theinstrument to its proper subject-matter, and although this principle has beenmore frequently applied to mercantile instruments than to others, it is notconfined to them (Parke J). In a lease (inter alia) of a rabbit warren, lesseecovenanted that, at the expiration of the term, he would leave on the warren10,000 rabbits, the lessor paying for them £60 per thousand: Held in an actionby the lessee against the lessor for refusing to pay for the rabbits left atthe end of the term, that parol evidence was admissible to show that, by thecustom of the country where the lease was made, the word thousand, as appliedto rabbits, denoted twelve hundred.
InntrepreneurPub Co Ltd v East Crown Ltd [2000]


IPC applied for an injunction to restrain EC from breaking a beer tie contained in its lease and for an account of damages for breach of the clause. EC counterclaimed that, notwithstanding an "entire agreement" clause in the lease, IPC had given a collateral warranty that the tie would be released. The court held that the clause in the lease confirming that it constituted the entire agreement deprived the alleged warranty of all legal effect, rendered it inadmissible, and was not in breach of the Misrepresentation Act 1967 s.3. I applied for an injunction to restrain E from breaking a beer tie contained in its lease and for an account of damages for breach of the clause. E counterclaimed that, notwithstanding an "entire agreement" clause in the lease, I had given a collateral warranty that the tie would be released. E had relied upon the undertaking given by I to the Secretary of State for Trade and Industry that the number of pubs owned by I, which were subject to a tie in agreement, would be restricted by 1992 and, that all pubs still under I's ownership would be released from the tie by 1998. Held, giving judgment for I and dismissing the counterclaim, that the "entire agreement" clause contained in the lease not only had the effect of rendering evidence of the alleged collateral warranty inadmissible, but also deprived the warranty of all legal effect. Further, the agreement clause was not in breach of the Misrepresentation Act 1967 s.3 which was inapplicable to a contractual provision which defined where the terms of the contract were to be found. In any event, the reference to a release from the tie in 1991 was insufficient to support the giving of the alleged collateral warranty to E which, owing to the passage of time, would have been invalid at the time of the execution of the agreement.
Deepak Fertilisersand Petrochemical Corp v Davy McKee (London) Ltd [1999]


D entered into a contract with DFP for the sale of process design,licensing and know how to be used in the construction and operation of achemical plant in India. ICI, although not privy to the contract, agreed tocomment on D's designs under the terms of a licence agreement between ICI andD. Subsequently, the plant exploded. DFP sued both D and ICI for negligence,negligent misrepresentation and breach of collateral warranty in connectionwith the design and construction of the plant. ICI claimed an indemnity from D.D argued that its liability was precluded under the contract. The judge atfirst instance ([1998] 2 Lloyd's Rep. 139, [1998] C.L.Y. 858) held that aletter of acceptance had not released D from their contractual obligations andthat D could not exclude liability for misrepresentations or breach ofcontractual warranties, although it could do so for negligence. It was alsoheld that DFP were precluded from suing ICI under the terms of an impliedpromise to D and that DFP could not claim damages for reconstruction of theplant from D. D appealed. Held, allowing the appeal, that the judge below haderred in finding that D could not exclude liability for the tort of negligentmisrepresentation while being able to exclude liability in negligence. D hadsufficient interest under the indemnity to restrain DFP from claiming againstICI. Thejudge had been wrong in law to reject a claim for fixed costs and overheads. Thedirect result of the loss of the plant meant that DFP was left withoutproduction during the reconstruction and wasted overheads were no more remotethan reconstruction costs.
Prennv Simmonds [1971]


In construing a written agreement evidence of negotiations or theparties' intentions is not receivable but evidence of the factual backgroundknown to the parties at or before the date of contract is. S brought an action againstP claiming that under the terms of an agreement under seal he was entitled toacquire certain shares in a company controlled by P. P disputed the claim onthe ground that a necessary pre-condition of the agreement had not beensatisfied because less than GBP 300,000 profits available for dividend on theordinary stock of the company had been earned over the relevant period. Thedispute between P and S was whether the "profits" in question werethose of the company alone or, as S contended, of the company and itssubsidiaries together, in which case that figure was exceeded. On P's appeal tothe House of Lords, S contended that it was permissible to look at priornegotiations as an aid to the construction of the written agreement. Held,dismissing P's appeal, (1) that such evidence should not be received but shouldbe restricted to the factual background known to the parties at or before thedate of the contract, including evidence of the "genesis" andobjectively the "aim" of the transaction; but (2) that, however, theword "profits" in the context of the agreement meant"consolidated profits."Per curiam although in construing a written agreement the court isentitled to take account of the surrounding circumstances with reference towhich the words of the agreement were used and the object, appearing from thosecircumstances, which the person using them had in view, the court ought not tolook at the prior negotiations of the parties as an aid to the construction ofthe written contract resulting from those negotiations. Evidence should berestricted to evidence of the factual background known to the parties at orbefore the date of the contract, including evidence of the ‘‘genesis’’ and,objectively, the ‘‘aim’’ of the transaction.
ChartbrookLtd v Persimmon Homes Ltd [2009]


Persimmon agreed to get planning permission, build some residences on Chartbrook’s land at 1 to 9 Hardwicks Way, Wandsworth, and then sell the properties. Chartbrook would pay for it, subject to an ‘Additional Residential Payment’ defined as ‘23.4% of the price achieved for each Residential Unit in excess of the Minimum Guaranteed Residential Unit Value less the Costs and Incentives.’ This would be paid by Persimmon to Chartbrook. Chartbrook calculated this to mean £4,484,862 but Persimmon said on a proper construction the amount was £897,051. Persimmon argued that even if they were wrong on construction of the document, rectification should be granted, and if not their pre-contractual negotiations should be taken into account. Chartbrook argued the precontractual negotiations were inadmissible.The High Court and Court of Appeal agreed with Chartbrook's interpretation. Persimmon Ltd appealed on the interpretation given and argued that if they failed on those grounds, the contract should be construed in light of previous negotiations, or that the court should allow for the document to be rectified, because it was clear that the intentions of the parties was different from that found. Accordingly it contended that the rule in Prenn v Simmonds[1] that pre contractual negotiations should be ignored, was an illogical rule and should be overturned. The House of Lords held that Persimmon’s interpretation was right, and the amount due was £897,051. There was no limit to the ‘red ink’ that the court could use to correct the verbiage when it was clear that in its commercial context, an agreement could not make sense. The only requirement was that it should be clear to a reasonable person what was meant. It was rejected that pre-contractual negotiations should be taken into account.

It creates a so-called "red ink" rule, that there is no limit to verbal rearrangement that the court may deploy to give a commercial sensible meaning when construing a contract in its bargaining context. It also, importantly, reaffirmed the rule of English law, that pre-contractual negotiations were ordinarily inadmissible when construing a contract.