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Application and Limitations of the Parole Evidence Rule

1.Is the oral assurance, given by Kalpana to Rafia, a term of the contract or not?

2.If the oral assurance can be regarded as a term, is a court likely to regard it a condition or warranty?

3.What remedies are open to USC given the facts

The main issue in this question regards the application and the limitation of the parole evidence rule.

The Parole Evidence Rule prevents the alteration of an already composed written agreement by the introduction of extrinsic evidence (McKendrick 2015, p.149). In other words, the interpretation of the contract resides within its four corners and no external meaning can be brought which was not included in the written agreeement. The first element of the Parole Evidence Rule is a written agreement with meeting of mind from both parties that the signed agreement was the “final” agreement. The second element requires demands that the contract must be complete.

In regard to completeness, the court will quash the application of the parole rule if the main agreement contains a collateral contract or in the case of promissory estoppel where the oral promise induces the other party to making the contract. The work of (Roach 2016, p.166) summarizes the avenues for rebutting the parole rule as incompleteness, where the court feels that an implied term need be included, invalidity due to mistakes, duress, misrepresentation, etc., and lastly, rectification to give the written contract its true meaning.

The parole rule has been extensively applied in Australian law with the courts accepting sometime and at other times rejecting it. The courts usually reject the rule if it seems to contradict the intention of the parties. For instance, in (Gordon v Macgregor 1909) the court ruled that if the document seemed like an already completed contract, the court will not allow extrinsic evidence. The court held that as far as the contract was in writing, complete in entire, it is then presumed that all terms were included. Therefore, if this case would be applied to the case of Kalpana and Rafia, the first presumption of the court would be that the contract was as the parties needed it to be unless Rafia brings new evidence to refute this presumption.

Also, a court does not bar a party from asserting that the contract was is partly oral and partly written. In (State Rail Authority of New South Wales v Heath Outdoor Pty Ltd 1986), the court ruled that the parole evidence rule never applies where to bar the court from looking at the asserted extrinsic evidence. Therefore, the court must analyze the extrinsic evidence and then rule whether to take it or reject it. In regard to Kalpana and Rafia, the court will allow Rafia to bring evidence in so that the court can determine whether it is worth taking it or rejecting it.

Breaching Contract Terms: Conditions and Warranties


While analyzing the contract and the evidence of oral contract tabled by Rafia, the court would first require the contract to be wholly and complete in writing if a party wants to rely on the parole evidence rule. A collateral contract would quash the application of the parole rule.  For instance, in In oral or written (City and Westminster Properties (1934) Ltd v Mudd 1959). The defendant had been a tenant for six years. While renewing the lease, the claimant added a new clause that the premise would be used only for business purposes. However, he agreed with the defendant that the defendant could sleep there. The signed agreement did not mention about sleeping. The court held that the oral terms were admissible. A recent ruling of this nature was recently settled in (Prosperity Group International Pty Ltd v Queensland Communication Company Pty Ltd 2011), during the negotiations, the respondent’s agent told the claimant that the monthly charges would be capped at $6000 a month regardless of the number of calls made. However, the written agreement had left this statement and the claimant was subsequently charged an amount that was exceeding $6,000 per month. The main issue that was before the court was whether the tabled oral evidence of representations could be admissible given the presence of a written contracts which seemed constituted in whole. However, the court stated that the statement had induced the other party into making the agreement and could not be dismissed.

In addition, if an oral term was so important that the parties would not have come to the agreement, the court will likely allow the partly oral partly written agreement. For instance, in (J Evans & Son (Portsmouth) Ltd v Andrea Merzario Ltd 1976) the claimant was an importer of machines operating between England and Italy while the defendants worked as forwarding agents. The defendants assured the claimant that the goods would be carried under deck but they instead placed them above. Consequently, the goods were destroyed by the storm. The written agreement never had the oral terms stating that goods be carried under the deck. The court ruled that the oral assurance superseded the written contract since there was an assurance. On analysis regarding Rafia oral terms, “Of course! We perform the most beautiful Indian dance! I guarantee it!” this part is an assurance. Also, if not for the oral part of the agreement, Kafia would not have contracted Kaplan. Therefore, the oral agreement is admissible.

Innominate Terms

Conclusion

The oral terms given by Kaplan were part of the contract. There was assurance, and there was reliance on the side of Kafia.

In a contract, the conditions are the vital terms that rule the entire contract (Adams 2010, p.102). They are the elements that determine the life of the contract. A break of the conditions will break the entire contract meaning the other party will never have the benefit of the agreement. Therefore, whenever the conditions are breached, the innocent party has the right to treat the breach as sufficient to terminate the entire contract and claim for damages (McKendrick & Liu 2015, p.422). Else, the other party can also discharge its performance to the rest of the contract as the breach of condition denies it the benefits of following up with the remaining contractual duties


On the other hand, warranties are second to the conditions as they are minor terms which are subsidiary to the main conditions of the contract (McKendrick & Liu 2015, p.422). The failure to meet the warranties does not discharge the contract since the conditions remain still intact, and the other party will still get the benefits of the agreement. Only that the party will not receive the additional benefits. However, in a contract where there is a breach of a warranty, the other party has the right to claim the loss suffered from the lost benefits, but it should proceed with the performance.

In addition to conditions and warranties, a term may sit between the two, and its value to the contract cannot be stated as a condition or a warrant. Such terms are called innominate terms (Taylor & Taylor 2017, p.124). In most cases, this happens when such a term is broadly worded to cover different potential breaches and determining whether the breach would cause trivial consequences is not predictable. In most cases, a breach of innominate terms will result to recovery of the damages for the breach of the contract if such breach causes severe damages to the other party. Else if the breach of the innominate term causes less damages, the breach will only attract the damages for the breach of a warrant.

The application of these rules can were first ruled in the case of (Poussard v. Spiers 1876). In this case, the claimant was hired as to take a leading role in the performance of operetta. The terms required her to be in the performance from the start of the show. However, the claimant became ill and she was unavailable for the performance for the first week. The defendant who was the producer then hired a replacement for the claimant and denied the claimant the position. When the claimant sued, the court ordered that being the in the performance for the first week was a condition since the claimant was supposed to be there in the first days when the show was starting. Therefore, the claimant was in breach for the failure to perform the first night, and the respondent had the right to rescind the contract.


On the other hand, the case of (Bettini v. Gye 1876) was ruled that the availability for the rehearsal was a warrant but not a condition. In this case, the claimant was an opera singer who was hired by the defendant for a service of a series of performance that was to last for three months. There was also a requirement for the claimant to attend a rehearsal for six days. Unfortunately, the claimant missed three days of rehearsal and the defendant cancelled the contract. When the claimant brought an action, the court rule that the requirement for a rehearsal was not a condition but a warrant. In either way, the defendant was a singer and could perform with or without the rehearsal. The court ruled that by terminating the contract, the defendant was already in breach.

When the term cannot be determined whether it is a breach of warrant of a breach of a condition, the severity of the breach will determine the degree of damages. For instance, in (Hong Kong Fir Shipping Co Ltd v Kawasaki Kisan Kaisha Ltd 1962), the defendants  hired the claimant’s ship for 24 months. The contract has a statement demanding that the ship be in every way fit for carrying the cargo. Due to the ship’s engine and inexperienced crew, there was a delay in the voyage by five weeks there was a requirement for repairs.  The defendants alleged a termination of the contract stating that there was a breach of a condition.  However, the court decided that the term was not a condition but an innominate term since in the damage was not a significant delay.

Similarly, in (Cehave Nv v. Bremer Handelsgesellschaft mbH (The Hansa Nord) 1976), the decision followed the same reasoning of the earlier case of  Hong Kong Fir v Kawasaki. The court ruled that breach of condition must be the one that goes to the source of the contract. The court held that since the breach did not amount to serious consequences, the damages should also not be too severe. The case of Kaplan and Kafia can be exermined with these cases to determine whether it was a breach of conditions or contract. For one, it is evident that despite Kaplan not providing the Indian dance, the performance still went on meaning it can then be argued that the main condition of the contract was to provide the dance. The in addition to the dance, Kaplan was supposed to make the quality of the dance to be the Indian dance. By considering these facts, the terms broken were a warranty.

Also, if Rafia insisted on the statement that the event has to be successive given the potential contract between USC and the Indian University, this statement may indicate an innominate term, which could be a condition or a warranty. 

Conclusion

Kaplan breached warrant terms since the performance still happened. The main condition was to perform. Providing an Indian dance was an additional term which was a warranty. On the part of an innominate term, if it was insisted that the event had to be a successive given their contract with Kaplan, this could either turn to be a condition or a term.

All contract remedies aim to protect the innocent party from losing the expectation interests which are the initial reasons for entering into the contract (Monaghan & Monaghan 2013, p.137). They also aim to protect the reliance interests which the party get the reimbursement loss due to relying on the promises of the other party, and the restitution interests which are meant to bring the party to the position it was before the contract was made (Waddams 2011, p.172). However, in the cases of warranties and most of the innominate terms, the restitution interest may not be available since they are severe damages which could only be available at some cases where there is a breach of a condition. Where a warranty is broken the court only allows the wronged party to recover the damages suffered. The various remedies that are;

  1. The compensatory damages. These damages are aimed to restore the innocent party the position it would have been had the contract been performed in full (Andrews 2011, p.540). In this case, the contractual measure of damages for breach of warranty equates to the difference between the actual value of the targeted service and the value of the delivered service. In regard to UCU, they would pay Kaplan the price (the amount that was supposed to be paid to Kaplan) less the difference remaining to make the full performance.
  2. Incidental damages. These are damages that usually arise from directly from the breach (Cross & Miller 2011, p.223). Some of these are the costs that the innocent party incurs trying to fix the problems caused by the other party. The can be prices such as the one incurred reimbursing the tickets or any other cost UCU underwent trying to please the visitors after the failed performance.
  3. Consequential damages. These are the damages such as the loss of profit that arises from the defective performance (Emerson 2009, p.156). For example, these are the thousands of dollars that USC has lost thousands of dollars in advertising and refunding tickets. It may also include the price they would have earned if the failed USC and the Indian university contract had gone ahead.
  4. Reliance damages. These damages are awarded as an alternative to compensatory damages (Mann & Roberts 2012, p.301). These include all the costs and expenses of preparing the function and any other foreseeable costs.
  5. Nominal damages are only allowed when the court deems it fit (Mann & Roberts 2012, p.301).

References

Adams, A 2010, Law for business students. Pearson Longman, Harlow, England; New York.

Andrews, N 2011, Contract law. Cambridge University Press, Cambridge?; New York.

Bettini v. Gye 1876.

Cehave Nv v. Bremer Handelsgesellschaft mbH (The Hansa Nord) 1976.

City and Westminster Properties (1934) Ltd v Mudd 1959.

Cross, FB & Miller, RL 2011, The Legal Environment of Business: Text and Cases: Ethical, Regulatory, Global, and Corporate Issues. Cengage Learning.

Emerson, RW 2009, Business Law. Barron’s Educational Series.

Gordon v Macgregor 1909.

Hong Kong Fir Shipping Co Ltd v Kawasaki Kisan Kaisha Ltd 1962.

J Evans & Son (Portsmouth) Ltd v Andrea Merzario Ltd 1976.

Mann, RA & Roberts, BS 2012, Essentials of Business Law and the Legal Environment. Cengage Learning.

McKendrick, E 2015, Contract law, 11. ed. Palgrave Macmillan, Basingstoke.

McKendrick, E & Liu, Q 2015, Contract Law: Australian Edition. Macmillan International Higher Education.

Monaghan, N & Monaghan, C 2013, Beginning Contract Law. Routledge.

Poussard v. Spiers 1876.

Prosperity Group International Pty Ltd v Queensland Communication Company Pty Ltd 2011.

Roach, L 2016, Card and James’ Business Law. Oxford University Press.

State Rail Authority of New South Wales v Heath Outdoor Pty Ltd 1986.

Taylor, D & Taylor, R 2017, Contract Law Directions. Oxford University Press.

Waddams, S 2011, Principle and Policy in Contract Law: Competing or Complementary Concepts? Cambridge University Press.

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