Parol Evidence Rule (PER)
The general patrol evidence rule is that extrinsic evidence is unadmissible to add to, vary, or contradict a written document where a judgment, contract, disposition of property or other transaction is wholly written then no oral evidence will be admitted to vary or expand the terms of the written document. So it is not permissible to call witnesses to give evidence of an oral promise. An example of the PER would be if a person (the vendor) agreed to sell their business to another (the buyer) and at the end of the negotiations they signed a contract completely covering the agreement. Suppose in the course of the discussions the vendor gave certain verbal assurances to the buyer about the turnover of the business then unless those assurances were placed in the written contract, no evidence could be called by the buyer about them/ accordingly, the buyer would be limited to whatever the written agreement contained.
Quite frequently to make certain the general rule applies, the person drawing up the contract (who is usually the vendor in the example given above) will include a clause stating ‘that the parties agree that the whole of the contract is contained within the written terms and cannot be varied by oral agreement or representations’ or words to that effect. You should be aware that it is not necessary to have such a clause for the rule to apply, – its just that it makes its application quite clear.
Exceptions to the Rule
There are cases in which extrinsic evidence may be admissible. So whether a contract is wholly in writing or only partly is a crucial matter for the courts to decide number of exceptions the general. These exceptions have been developed by the courts to overcome some of the hardship that can be cause by a strict application of the rule. Extrinsic evidence is admissible in the following cases even through the transaction is embodied in a written instrument.
- To show that there is no valid transactions e.g. want of consideration
- To prove a condition precedent to any obligation under a contract or disposition of property
- To add supplemental or collateral terms contained in a separate oral agreement
- To incorporate local or trade customs
- To show a subsequent oral agreement varying or rescinding the written instrument. These are examples only.
You will notice repeated problems in this area the fact that the contract is partly written, partly oral and whether there is a collateral contract are important issues.
The third exception to the general rule arises from the notion of collateral contracts.
A statement may fall outside the main contract under consideration, for example because of the rule, however the courts may still consider that it should have legal effect as a collateral contract.
A collateral contract must have evidence same as the same three basic elements, as in any other contract and consideration in this context, is the making of the main contract. In addition, the statement in question must be a promise.
For example if one party is hesitating about signing the main contract and in order to ‘clinch the deal’, the other may promise that a particular act will be done. In such a situation if the promisor reneges on his/her promise the plaintiff can argue that the promise, should be enforced as, in exchange, he or she entered into the main contract. A good example of a collateral contract is de Lassalle v Guildford  2KB 215.The consideration for the collateral contract is entry into the main contract. Without that reliance, entry into the main contract would not be good consideration for the collateral contract.
The question that arises is what happens where there is inconsistency between the main contract and the collateral contract, the main contract will prevail over any such collateral promise. However in an appropriate case it appears promissory estoppel may apply.
Two final points are relevant to this phase in the interpretation of a contract:
Since much depends on what is inside and what is outside the contract, the courts pay particular attention to the exact point at which the contract arises. This is the case whether the contract is oral, partly oral, partly written or even wholly in writing. The obvious point is that once the contract has been formed there is closure on additional terms and promises that might be incorporated within it.
Many of the problems or issues that arise under the rule, collateral contracts and generally defining the scope of the contract, are swept away by the operation Restrictive Trade Practices Act or other statute.