Business Law Assignment
Part I
The parole evidence rule refers to a common law rule in the contract cases which prevents a party to written contract from giving extrinsic evidence that reveals some ambiguity and corrects it; or add to written terms of contract which seem to be complete. Chandler, Brown & Brown (2007) state that parole evidence rule is applied when one of the parties signed to a written contract alleges that the contract’s writings are not whole; that is, there exists some term that might have been agreed on, in a separate writing or orally, but which has not been stated in the signed writings. As such, parole evidence describes anything outside a written contract, whether a testimony regarding what was agreed on during the contract negotiations, letters memorializing discussions, or proposals. There are several rationales behind applying parole evidence rule to different cases before the court. For instance, since the parties to a contract condense their agreement to the final writing, the extrinsic evidence of previous terms or agreements must not be considered when interpreting the writing (Chen-Wishart, 2012). This is because the parties might have decided to eventually omit the evidence of the previous terms or agreements from the contract. As such, one cannot use any evidence that was made prior to the written contract to challenge the writing. Additionally, Koffman and Macdonald (2010) assert that “parole evidence rule states that parole evidence cannot be acceptable to adjust or explain the written terms of a contract.” In other words, whenever the parties involved make an agreement, the contract should state all the terms of agreement; parole evidence does not form part of the contract. Therefore, it is not acceptable to clarify the meaning of contract terms or what the parties involved implied or planned to do under the contract. In particular, this is true when a contract has an incorporation clause (Abbott, Pendlebury & Wardman, 2007). Generally, such clause contains what has been incorporated in the contract and also states the materials as the solitary contract documents. In addition, the party is not able to give an explanation that the written contract does not correctly express agreement because such testimony is regarded as parole evidence.
There are also several exceptions to the parole evidence rule. Bagley and Dauchy (2012) argue that if there exists a term within the contract which is not clear to the court, external evidence could be applied to resolve such ambiguity. Ambiguity may be words which have a double meaning. For instance, a buyer based in the UK might agree to buy a product from a seller based in the US for $2 apiece. However, if the contract does not stipulate whether this price is Canadian dollars or US dollars, evidence can be presented in court confirming that the parties involved understood the ‘dollars’ to imply US dollars or Canadian dollars (Bagley & Dauchy, 2012). Evidence can also be presented to confirm the parties’ understanding of what the specific terms implied or to demonstrate that a definite term within the contract was an error, particularly, that the error was made due to a clerical or grammatical error (Beatty, Samuelson & Bredeson, 2013). For example, if there is a zero missing from the dollar total, or there is a misspelling in a word, earlier drafts of the agreement might be brought in to correct such mistakes. Additionally, exception enables evidence to be introduced to confirm that the formation of the contract was done under fraud, force, or some tortuous behavior that might make the contract null and void (Beatty, Samuelson & Bredeson, 2013). This evidence may include communication between the parties involved or any other evidence which suggests fraud, duress, or misrepresentation.
Moreover, exception is straightforward when a party introduces evidence that shows that the non-payment of consideration. Such exception generally arises when one of the parties alleges to have paid and therefore wants the contract to be enforced although the other party replies that his/her action is not due since consideration was not paid. Chandler, Brown, & Brown (2007) further argue that identification is also an indispensable exception to the parole evidence rule. That is, evidence can be introduced to show that a party has changed their names or may be confused with another person or identify the subject matter of the contract. For instance, if a purchaser agrees to buy a car from a car-dealer, and the car-dealer owns numerous identical car models, evidence might be presented to confirm that a particular car was sold. Furthermore, if the contract clearly states that a certain term should be determined later, or may possibly be amended later by parties involved, evidence might be presented to confirm the later amendment (Koffman & Macdonald 2010). Exception is also allowed for evidence which shows that a certain condition should be met prior to the execution of the contract. For example, an inspection might be required before a house is sold thereby calling for execution of the process prior its execution. In such cases, evidence might be allowed to prove that the parties consented that the inspection was indispensable before going ahead to sale the house. Exception may also be allowed where evidence shows that the parties involved, through their earlier dealings or through business practices in the industry, figured out a particular term to be part of a contract, although such term was not included therein. The last exception involves whether a contract referred to a specific document or any other evidence, which may be presented as an element of the contract (Miller, Cross & Jentz, 2013). For instance, when a contract refers to a survey guide for the automobiles, the guide can be presented as evidence to provide complete meaning to the contract.
The exceptions to the parole evidence rule are also important in the contract law. It exists to preserve terms of the contract. The parole evidence rule helps to protect originality of the written document (Twomey & Jennings, 2010). As such, parole evidence rule only excludes the extrinsic terms where a document was agreed by the parties involved to be an absolute record of the whole contract prior to making written or oral agreements in the writings. Courts consider whether the written agreement seems to be a whole statement of the parties involved in the agreement; whether parole evidence rule contrasts with the original written contract; whether there is any claimed ‘collateral agreement’ made as separately and; whether the parole evidence can likely mislead the court (Twomey & Jennings, 2010). However, in practice, parole evidence rule may cause severe consequences especially for unwary individuals. For example, it allows owners of the building to utter things to the roofing contractors, but cannot be bound by their own statements. Nonetheless, it is a just rule because it allows the parties to understand their obligations and rights relating to the contract. Therefore, one must always be cautious when negotiating any contract and ensure that the favorable terms negotiated are incorporated in the contract.
Part II: Letter of Advice
Dear Salvatore,
There are several requisites for a contract to be valid. They include the presence of an offer, acceptance, competent parties with legal capacities to contract, legal subject matter, mutual agreement, consideration, mutual obligation, and writing if stipulated under the Frauds Statute (Emerson, 2009). An offer describes a promise which is, by its own terms, conditional on an act, tolerance, or reciprocal promise given in exchange for its performance or the promise itself. According to Twomey and Jennings (2010), an offer is a show of readiness to become involved in a bargain for another party to be warranted to understand that his/her agreement is invited and shall be concluded. An offer should comprise of a statement of current intention to enter into a contract; a specific proposal which is definite in its terms; as well as the communication of an offer to a recognized prospective offeree. Acceptance of offer often expresses the agreement to its terms. Acceptance is made by an offeree in the manner authorized or requested by an offeror. However, acceptance can only be valid if an offeree is aware about the offer; an offeree shows clear intentions to accept; such acceptance is unconditional and unequivocal and; acceptance is clear according to terms of the offer (Miller, Cross, & Jentz, 2013). Moreover, when one of the parties does not understand the nature and the consequences of a contract during its formation, he/she is considered to have mental incapacity. On the other hand, an individual who is declared incompetent by a court does not have legal capability to enter into any contract with others. The subject matter of the contract may be any undertaking, given that it is not prohibited by the law. At the same time, there must be mutual agreement between the parties involved or mutual agreement in order to form a contract (Miller, Cross, & Jentz, 2013). As such, for an agreement to be present, the parties should have some common intent on the contract terms and must agree with similar bargain. Consideration refers to a legal harm suffered by a promisee and is requested by the promisor in exchange for his/her promise. Valid contracts require some exchanges of consideration. A consideration can be made of a promise, an act, a restraint from suing for a claim, or modifying, creating or destroying a lawful relationship (Miller, Cross, & Jentz, 2013). Consideration indicates that the promisee shall surrender some lawful right presently, or that he/she will restrict his/her legal liberty to act in the future as an incentive for some promise made to another party. The mutuality of obligation often occurs where the promises comprise the consideration within a mutual contract, and they have to be mutually binding (Miller, Cross, & Jentz, 2013). As such, if a promise by one party does not really bind him/her to some forbearance or performance; it amounts to a false promise and therefore, no enforceable contract.
The reason for having a written commercial agreement is to exploit the benefits of the commercial arrangements and also protect the business when disputes arise. MacIntyre (2010) argues that a written commercial agreement provides a clear and definite framework that governs a certain commercial relationship or transaction, with suppliers, customers, co-partners, co-shareholders and financers. Agreements which are uncertain or vague might not be included in a contract in any way. Even if a contract is legally binding, any uncertainty might result in disputes and litigation, which may be expensive. Uncertainty in a contract normally arises because of a number of reasons (MacIntyre, 2010). For example, disputes might emerge if a law touching on a specific subject is not clear. A well-drafted contract seeks to avoid such legal uncertainty by incorporating express provisions to reduce the extent of applying uncertain legal rules. Additionally, disputes may arise because of unclear language usage in the contract (Beatty, Samuelson, & Bredeson, 2013). Therefore, the contract must be written in understandable terms in order to avoid unnecessary disputes, particularly because contract terms which are unclear might be interpreted against the party that relies on it. A written commercial agreement also seeks to distribute the risks which arise from the business relationship of parties to a contract (Miller, Cross, & Jentz, 2013). As such, a party in which a certain risk has been allocated to by the contract can seek protection by insurance companies. A well-drafted contract shall also seek to reduce the risks that fall on an individual while throwing as many risks as possible to another party. Nonetheless, a well-written contract shall not be extremely one-sided because it may otherwise become commercially harmful to one’s trading reputation and relationships.
References
Abbott, K., Pendlebury, N., & Wardman, K. (2007). Business law. London: Thomson.
Bagley, C. E., & Dauchy, C. E. (2012). The entrepreneur’s guide to business law. Mason, Ohio: South-Western.
Beatty, J. F., Samuelson, S. S., & Bredeson, D. (2013). Business law and the legal environment. Mason, Ohio: South-Western Cengage Learning.
Chandler, A., Brown, I., & Brown, I. (2007). Law of contract. Oxford: Oxford University Press.
Chen-Wishart, M. (2012). Contract law. Oxford: Oxford University Press.
Emerson, R. W. (2009). Business law. Hauppauge, N.Y: Barron’s Educational Series.
Koffman, L., & Macdonald, E. (2010). The law of contract. New York: Oxford University Press.
MacIntyre, E. (2010). Business law. Harlow, Essex, England: Pearson Longman.
Miller, R. L. R., Cross, F. B., & Jentz, G. A. (2013). Business law: Alternate edition: text and summarized cases: legal, ethical, global, and e-commerce environment. Mason, Ohio: South-Western Cengage Learning.
Twomey, D. P., & Jennings, M. (2010). Business law: Principles for today’s commercial environment. Mason, OH: South-Western Cengage Learning.
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