The first step in resolving any contractual dispute is to ascertain the terms of that contract including their meaning and effect. Unfortunately, trying to determine what terms a party has contracted to is not always straightforward, particularly when the contract consists of written and verbal terms.  

The Contract

A contract does not need to be in writing to be binding and enforceable. A contract can be:

  • In writing;
  • Oral;
  • Implied (for instance, through conduct); or
  • A combination of the above.

There are circumstances where a written document does not contain the whole of the agreement between the parties.  An obvious example of this is when a written offer is accepted verbally. In this scenario, the contract between the parties is both in writing and oral and it is necessary to look at the oral acceptance of the offer when considering what the terms of the contract are.  

Pre-Contractual Statements

It is not always easy to determine if a statement made by one of the parties before entering into the statement is to be considered a term of the contract. Pre-contractual statements can be classed as any of the following.

  1. Mere puff – these are statements not intended to be taken seriously or ‘sales talk’.  A classic example of mere puff is a used car salesperson describing a car as ‘an absolute bargain’.
  2. Representations – this is a factual statement said to induce a party into entering into the contract. The representation does not form part of the contract and a party relying on it does not have any claim for breach of contract if that representation turns out to be false (they may, however, have another form of claim, not discussed in this article).
  3. Terms – if a pre-contractual statement is classed as a term of the contract, it is an express term, and any breach of that term will give rise to a claim for damages.  

As you can imagine, it is not uncommon for a written contract to include verbal terms.   

Wholly Written Contracts

What happens, however, when a written contract on its face appears to contain ALL of the terms of the agreement between the parties?  Where parties have reduced their agreement to writing, the contract will be taken to be wholly written and the “parole evidence rule” will take effect. 

What is the Parole Evidence Rule?

The parole evidence rule prohibits the admission of evidence to subtract from, add to, vary or contradict the written agreement between the parties. The High Court has unanimously decided that verbal terms made before a written contract generally will not override that written contract. Once a written contract has been executed, the parties are bound, and the courts will hold the parties to their written obligations.

Key Takeaways

Have you entered into a contract and are unclear on the exact terms? It’s important that you understand the terms of your contract and your obligations. Equally as important, if you are involved in a contractual dispute, you should seek legal advice early to protect your rights and understand your legal position. If you have any questions, let our disputes team know. 

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