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Contract Law: Parol Evidence Rule

19th April 2013

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Contracts are fundamental in the nature of business. In a commercial sense, it regulates and defines the boundaries of the manner in which parties interact toward each other. Contracts are entered into with the view of profiting or benefitting by this agreement. Contracts can either be entered into by a written, oral or tacit agreement. Contracts are agreements that set out each party’s rights and obligations. It is a meeting of the minds – the parties mutually agree to the following terms and conditions.

Contracts are not entered into with the view of breaching the agreement or ending it. It is entered into with the intention of having some benefit. However, when parties breach the contract or when the contract is terminated and loss is suffered, parties may take a better look at the terms and conditions of their signed agreement. It is at that time that parties may say that their intention prior to the signing of the agreement is not correctly represented in the agreement, and as such, parties wish to state that the contract does not truly reflect their intention. If the contract is not a meeting of the minds then the terms and conditions do not correctly reflect their intention. As a general term of written contracts, terms and conditions may not be amended unless parties agree in writing. The question is whether a party can alter the terms and conditions of a written contract by adducing extrinsic evidence that contradicts said agreement. 

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The parol evidence rule applies to all written contracts whether it was stated in the contract or not. Parol evidence is evidence outside of the written contract – it is evidence comprising of what parties did or said before, during or even after the conclusion of the contract. The parol evidence rule has two components: the integration rule and the interpretation rule.

In terms of the integration rule, the written agreement is the “exclusive memorial” of the agreement between the parties.1 The written agreement contains all the express terms of the contract and as such “the contents of the document [may not be] contradicted, altered, added to or varied by parol evidence”.2 It was recently held in the Supreme Court of Appeal (SCA) that “a court may not admit evidence as to what the parties intended it to mean if that has the effect of changing the terms of which they clearly agreed [in writing]”.3

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There are many exceptions to the integration rule. Some of these exceptions follow:

  • A party may bring evidence if it goes to the validity of the contract – that is to say that the contract itself it not valid or is voidable; it does not go to the terms of the contract.
  • One can show that the contract was subject to a suspensive condition – that is to say that the contract would only be operational on the outcome of a certain future event; if the first agreement did not yield a favourable result to enforce the second contract then parties may adduce evidence to show that fact.

 

In terms of the interpretation rule, the court looks to ascertain the meaning of the terms. “Interpretation is a matter of law and not a matter of fact and, accordingly, interpretation is a matter for the court and not for witnesses”.4 If the contract is able to clearly and unambiguously define the terms of the contract, the court will interpret those terms according to the contract. Where the contract does not give a clear meaning to the terms of the contract then the court may engage in the surrounding circumstances of the case to ascertain the meaning of those terms – however, this approach must be used as conservatively as possible.5

To conclude, as a general rule, the parol evidence rule does not allow a party to a written contract to adduce extrinsic evidence that alters, contradicts, varies or adds to the contract.

Written and prepared by: Kirith P. Haria
Bouwer Kobeli Morabe Attorneys

Notes:
1 Union Government v Vianini Pipes 1941 AD 43 at 47.
2 Ibid.
3 ABSA Technology v Michael’s Bid a House (212/2012) [2013] ZASCA 10 (26 February 2013) at para 20.
4 KPMG Chartered Accountants v Securefin Ltd 2009 (4) SA 399 (SCA) at para 39.
5 Delmas Milling Co Ltd v Du Plessis 1955 (3) SA 447 (A) at 455.

Please do not hesitate to contact us on +27 11 788-0083 should you have any further enquiries or email enquiries@bkm.co.za.

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