Week 8:

Parol Evidence Rule, Enforcing Non-contractual

Representations, Disclaimers, and Remedies
Intended Learning Outcomes
1) Parol evidence rule.

2) Understand how to enforce a non-contractual

representation as
• a collateral contract or
• a misrepresentation

3) Understand disclaimers

4) Understand contract remedies

5) Understand when a contract ends

Part I:
Parol Evidence Rule

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Parol evidence rule
 What is it ?

 Parol evidence = Oral statement

 Parol Evidence Rule (PER) = Rule about the validity of an

oral statement.

 Note:

Different to its name, PER also applies to written

documents and signs.
Parol Evidence Rule

 If there is a written contract - PER applies.

 Accordingly, parties are not able to use oral or other outside

evidence…

to “subtract from, add to, vary or contradict

the language of the written instrument”.

(SkyWest Aviation Pty. Ltd. v Commonwealth of Australia).

 Simply put, a written contract cannot be changed by outside

statements !
You are bound by what you sign !!!
Parol Evidence Rule
 Why ?
• If the contract is written and signed – it is presumed to contain
everything.

• Adding terms at a later stage – adding uncertainty.

 According to PER,
• If there is an inconsistency between outside statements and
written terms,

• The written terms will prevail.

 Does this rule seem compatible with incorporation by

reasonable notice ?
Three Exceptions

Gate 1

Signed & Written Contract

Incorporated by
reasonable notice
Outside
statements
PER
Gate 2

Gate 1: The statement is very IMPORTANT;

Gate 3
Gate 2: The statement can be used to CLARIFY a term;

Gate 3: The statement can be used to FIX AN ERROR.

Three Exceptions

Exception 1:

 If the outside evidence is very important to the

agreement,

 the court may conclude that it is a term of the

contract.

Van den Esschert v Chappell [1960].

Example - White ants
 In Van den Esschert v Chappel, before signing a
contract to buy the house, the buyer asked the seller
Note:
whether there were any white ants in the house.
- a serious problem
 The seller said “No, there were not”, and the buyer in Australia,

signed the contract. - can destroy the

whole house after
 Some months later, the buyer discovered extensive several years.

white ant activity – which, according to an expert,

shown that white ants have been in the house for
more than 12 months.

 Is the oral statement important enough to be an

exception to PER ?
Three Exceptions

 Exception 2:

External evidence can be used to correct errors (often

clerical)
Abram v AV Jennings (2002) 84 SASR 363.

o Common situations include errors in parties’ names, price, or location.

 Examples:
o In Webster v Cecil [1861] 54 ER 812,

o Cecil agreed verbally that he would sell the land to Webster for £2,250.

o However, the written contract wrongly identified the price as £1,250.

o The court accepted the outside evidence and the written agreement was
amended accordingly.
Three Exceptions

 Exception 3:

External evidence can be used to clarify ambiguities in the written

document.

(Akot Pty Ltd v Rathmines Investments Pty Ltd [1984] 1 Qd R 302)

 Example:
Akot Pty Ltd v Rathmines Investments Pty Ltd [1984] 1 Qd R 302
o Parties signed a contract to sell and purchase “unit 115” on the 5th floor.
o The floor plan in the contract did not number the units on the fifth floors (there were 5
units altogether)
o Thus, from the contract itself, it was unclear which unit was “unit 115”.
o However, during negotiation, the seller already shown the buyer a small booklet
which indicated clearly the location of “unit 115” and other units.
o As a result, that booklet was allowed to be incorporated into the main contract to
clarify the location of “unit 115”.
Part II:
Going around Parol
Evidence Rule

If the statement is not a term because it

could not be an exception to PER, is
there any other way to enforce it ?
Going around Parol Evidence Rule

The outside statement may still be enforceable

as

• a breach of a collateral contract, or

• a misrepresentation
1. Collateral contract

• Statement – which is not a term - may still be enforceable as a

collateral contract.

• Let’s consider this example,

• “If you buy this BMW car for $40,000, I will give you a motorbike as
well”.

• Two contracts:
 The main contract:

BMW = $ 40,000

 The secondary/subsidiary/collateral contract:

Giving the motorbike = Entering into the main contract

1. Collateral contract

So,…

• Collateral contract is a secondary/subordinate contract, existing

independently to the main contract.

• It is formed when

• one party makes a promise,

• because of that promise, the other party enters into the main contract.

• If the promise is broken, the other party can sue for breaching
the collateral contract.

De Lasalle v Guildford [1901] 2 KB 215

• Collateral contract usually takes the following form

‘If you enter into the main contract, I will do this/that for you’.

• Examples:

o “If you buy this computer, the company will answer all
service calls within six hours”

o “If you buy the car, I will throw in a racing motorbike as well”

o “If you rent the shop, I will give you one month rent free”.
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2. Misrepresentation
(ALREADY DISCUSSED IN WEEK 5)

• An outside statement (not a term & must be statement of

facts) can still be enforceable as a misrepresentation.

• Example:
• 3 weeks before selling Mike an iPhone, Tom told Mike
that his iPhone has 64G of memory.
• However, later Mike found out that the iPhone has
only 8G of memory.
• Tom’s statement can be seen as a misrepresentation.
Misrepresentation
Misrepresentation is ...

1. A false statement. The party making the statement does not

have to know that the statement is false

2. About material fact = a statement of fact (i.e. VERIFIABLE BY

A THIRD PARTY), not mere opinion or puffery (salesmanship);

3. Addressed to the other party = the false statement was

actually made directly to the other party – the other party did
not just overhear the statement, etc.; and

4. Induces the other party to enter into the contract = the other
party would not have entered the contract if the false statement
had not been made.

Derry v. Peek (1889) LR 14 App Cas 337

Summary Gate 1

Incorporated by Signed & Written Contract

reasonable notice
Outside
statements PER

Gate 2

Collateral
Contract

Cannot be
incorporated - Gate 3
can still be …

Misrepresentation
• Time for Pair-Share.

• Please grab a partner and discuss the

following case as a team.
Adam is looking at smart phones at the store and Sam, the
salesman, tells him this POPPA phone has call waiting which
means it can receive a call even while on another call.

Adam says that’s interesting but what he really wants is a

phone with Angry Birds already installed.

He signs a basic contract and buys the POPPA phone and

later tries to use the waiting feature but it doesn’t work.

Can Adam bring the salesman’s statement into the written

contract?
Part III:
Disclaimers

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Disclaimers
• Are you driving a motorbike to the university today ?

• Do you have this card/ticket in your pocket/bag now ?

Situation:
o John parked his motorbike in the motorbike park and his helmet was stolen.
o He sued the owner of the motorbike park.
o Should the owner of the motorbike park be responsible for the stolen helmet under common law?
Disclaimers

• So what is a disclaimer ?

• A statement which tries to exclude one party from

liability for something.

• Examples:
 If your clothing is damaged while being dry cleaned, we are not responsible.

 This hotel is not responsible for any items which are stolen from your room.

 We will not be responsible for any damage or losses occurred during the
delivery.

 We will not be responsible if the case is not fit for your laptop.
Disclaimers

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Disclaimers

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Disclaimers
Disclaimers are also known as …

• “exclusion clause”,

• “exemption clause”,

• “Waiver”, or

• “limitation of liability clause”.

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Disclaimers
A disclaimer is effective (can protect a party from
contractual liability) if these two conditions are satisfied

1. CONDITION 1:

The disclaimer is part (a term) of the contract, and

2. CONDITION 2:

The breach (for which liability is excluded) falls

within the scope of the disclaimer
CONDITION 1
Is the disclaimer part (a term) of the contract ?

a) If the disclaimer is included in a signed and written contract,

• It is part of the contract.

=> parties are bound by that disclaimer ( L’Estrange v F Graucob Ltd)

• This remains true even though the parties have not read or understood the
clause.
CONDITION 1
Is the disclaimer part (a term) of the contract?
b) If the disclaimer is in a sign,

• It is part of the contract if reasonable notice of the sign

was given to the parties before the contract was formed
(Thornton v Shoe Lane Parking Ltd [1971] 2 QB 163)

 For example,

o A big sign displayed clearly at the front desk of a hotel stating

that “the hotel will not be held liable for the safety of articles
left in the room”.

o What if the sign was displayed in a dark corner of the hotel

room ?

• Was it visible enough for a reasonable person to see ?

• Was it given before the contract was made ?

CONDITION 1
Is the disclaimer part (a term) of the contract?

b) If the disclaimer is in a document,

• It is not part of the contract if contained in a non-contractual
document, e.g., a voucher, receipt, docket, manual, or advertising
brochure (Le Mans Grand Prix Circuits Pty Ltd v Iliadis [1998] 4 VR 661)
• Why ?
• A reasonable person would not expect to find contractual terms on
these types of documents – insufficient notice
Example

Le Mans Grand Prix Circuits Pty Ltd v Iliadis [1998] 4 VR 661

• The plaintiff, Iliadis, was injured while driving a go-kart at the defendant’s racetrack.

• Before he was entering the racetrack, he was asked to sign a document which started
with the words:

‘TO HELP WITH OUR ADVERTISING’.

(This part of the form was in capital letters and printed in red, the rest being in black).

• It turned out that the document contained a disclaimer stating that legal actions
cannot be taken against Le Mans by anyone injured while go-kart racing on its
premise.

• Is the disclaimer part (a term) of the contract?

Note
 Courts have generally decided that a reasonable person would expect
tickets to contain contractual terms
(Parker v South Eastern Railway Co (1877), Thompson v LMS Railway [1930]
1 KB 41)

 So, a reasonable person would expect…

 a plane ticket,

 a parking ticket,

 a train/bus ticket…

… to contain contractual terms.

CONDITION 1
Is the disclaimer part (a term) of the contract?

c) Disclaimer implied from prior dealings

• Sometimes the disclaimer is not expressly included in a contract;
or reasonable notice of the disclaimer is not given before the
formation of the contract.
Examples:

 A notice displayed inside the hotel room stating that “the hotel
will not be held liable for the safety of articles left in the room”.
 A notice inside the carpark stating that “We are not responsible
for items left in vehicle”

• However, if the parties have dealt with each other many times in
the past and they were aware of that disclaimer in the past,
• That disclaimer can still be implied into the contract.
Balmain New Ferry Co v Robertson (1906) 4 CLR 379
CONDITION 2 - Does the breach in question fall within the
scope of the disclaimer ?

• If the disclaimer is part (a term) of the contract, another question is whether it can
protect a party from contractual liability.
• The disclaimer can do so if the breach in question falls within the scope of/is covered
by, the disclaimer.
o Example:
 John entered into a contract with a local shop to buy a computer.
 There was a disclaimer in the signed and written contract stating that “We will not
be responsible if the computer is not compatible with Apple TV”.
 John took the computer home and the computer is not compatible with his Apple
TV.
 Does the breach (i.e. the computer is not compatible with the Apple TV) fall within
the scope of the disclaimer ?
 What if the computer is compatible with his Apple TV, but not a Sony TV ?
 Does the breach (i.e. the computer is not compatible with the Sony TV) fall within
the scope of the disclaimer ?
RULES OF INTERPRETATION

• The court will interpret the disclaimer strictly

against the interests of the party seeking to rely
upon it.

White v John Warwick & Co Ltd (1953)

• It means that any ambiguity will be resolved in

favour of the weaker/injured party.
Part IV:
Remedies
Remedies

Four types of remedies available to the innocent

party:

1. Rescission,

2. Damages,

3. Equitable remedies, and/or

4. Statutory remedies.
1. Rescission

• Rescission = termination of a contract

• Possible for …
 a complete non-performance

 a breach of a condition,

• Parties are restored to their original positions.

Rescission

Complete non- Breach of a

performance condition

Rescission

The parties are restored to

their original positions
Rescission

A party will completely fail to perform the contract if he/she:

o Makes no effort to perform his/her obligations, or

o Performs an action that is completely different to his/her

obligations

o Prior to performance, clearly indicates that he/she will not

be performing his/her obligations (anticipatory breach).

(Gold Coast Oil Pty Ltd v Lee Properties Pty Ltd [1985] QSC 416)
Rescission

• A party will partially perform the contract if he/she

• complies with some terms

• breaches one or more of the other terms.

• The contract can be terminated if the term breached is a

condition

(Please review condition & warranty discussed in week 6)

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2. 2. Damages

• Damages = Monetary Compensation

• Available for…

o a breach of a term(Koufos v. Czarnikow;

The Heron II [1969] 1 AC 530); or

o a breach of a collateral contract.

Damages
• The purpose of damages
Restore the innocent party to the position where he/she would have been in if
the breach had not occurred.
• For example,
o If you and I enter into a contract in which you would buy my house for 1 million
dollars.
o You can resell it at the market price of 1.2 million dollars.
o However, I did not perform the contract.
o How much money you can get from me as damages if you successfully sue me ?
o 1.2 million ?
o No
o 1 million ?
o No.
o 200.000 dollars
o That is where you would have been in if I would have performed the contract.
• The innocent party is under an obligation to mitigate their loss.
Equitable remedies
• If damages are not suitable, the court may provide an
equitable remedy, such as:

• Specific performance, i.e. a court decision directing the defendant to

do what they promised to do under the contract.

o For example, continue to provide internet service, or continue to

build the house

• Injunction, i.e. a court decision forbidding a party from doing

something.

o For example, forbidding construction works at night.

Statutory remedies

• If the term breached is also a term

implied into the contract by statute, the
innocent party can be entitled to statutory
remedies.

• Further discussed in week 10.

Part V:
Ending a contract
Ending by Agreement
 The parties can agree to end the contract.

 This could happen in a number of ways:

• The party who has already fully performed his/her own

obligations can release the other party from performing
his/her obligations.

• The parties can mutually agree to replace the existing

agreement with a new agreement on different terms, i.e.
novation.
Frustration
• A contract will be terminated as a result of frustration if:

o a supervening event has made performance of the contract either completely

impossible or at least impossible to perform in the way originally envisaged,

o neither party caused the supervening event,

o the contract did not provide for the supervening event, either expressly or by
implication, and

o it would be unjust to compel either party to proceed with the contract.

Frustration
• Taylor v Caldwell (1863)

o Taylor and Caldwell entered into a contract

o Taylor would rent Caldwell’s hall for four concerts

o The hall was then destroyed by fire

o The Court decided that the contract was frustrated and

Caldwell was under no further contractual obligation to perform
the contract.

• Note: When a contract is frustrated all outstanding obligations of

the parties are discharged.