Commercial Law Case Study Help

Facts of the case

Bob Burke has leased a shop premises at Southfield Shopping Centre Ltd (Southfield) in Melbourne, to conduct is marketing consultancy business.
Ken Keen – the Managing Director of the shopping center has verbally agreed with Bob before they sign an agreement that no other similar business would be allowed to operate within the shopping center.
There is a clause in written agreement to the effect that no verbal representation would be effective after the signing of agreement, which Bob signs without reading.
After shopping center has a high vacancy rate, the company allows entry to another similar business, this causes Bob to be aggrieved.

Issue

The instant case has two main questions to be answered as follows:

(i) What is the value of oral representations and verbal agreement between the parties, when later the contract itself specifies that the term and conditions as stipulated in the written agreement form the whole of the contract between the parties, and excludes any verbal representations made earlier?
(ii) Is Bob bound by the contract which he failed to read in entirety before signing?

Rule

If the contract is reduced in writing, courts will not allow any term outside of the written agreement that would add to, modify or contradict the existing written agreement (Parole evidence rule).[1] Similarly where agreement reduced into writing provides for its completeness than courts would not admit any any previous or contemporaneous terms into that written [2]
Parties to the contract should be complete knowledge of the terms (even if not completely read) and they should have intention to be bound by those terms (common intention of the parties).[3]
When a person has signed a written agreement / document and that has been done without any coercion, undue influence, fraud or misrepresentation, then later they cannot deny that fact and say that they are not bound thereby, even it they have not read the full terms and conditions of that agreement.[4]
A document signed by a person who knows it contains contractual terms and conditions would be binding on himself whether or not they have read it.[5]
An exception to parole evidence rule is when the written agreement is subject to the oral terms amounting to condition precedent agreed previous to the writing of the agreement.[6]

Application

Based on the above rules, firstly it is important to understand that upon signing a written agreement both Bob and the Shopping Center company are agreeing to be bound by all the terms contained therein. Now the question arises as to the validity of the terms agreed between them verbally prior to signing of the contract in writing. In the instant case the terms agreed in parole and later inscribed into writing are in conflict with each other. i.e., the parties verbally agreed that shops would not be let out to other similar business, whereas the written agreement explicitly excludes the effect of all such verbal agreement made prior to the singing of contract. Both parties sign this contract.

A reasonable bystander observing the situation would understand that parties now agree to the new terms and whatever agreed earlier has been rescinded herefrom. Therefore, applying the principles in L’Estrange v F Graucob Ltd and Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd it may be said that since both parties have given their free and true consent to the written agreement, any other vitiating parole factor cannot be allowed to intervene to the contrary.

In addition to above it may be said, one contract has been signed its terms are final and anything agreed prior to or subsequent to its formation have no value. Any further addition can only be made thru signing an addendum clause agreement.[7]

Since, Bob has ignored the written contract and proceeded to sign it without reading and ensuring his rights as agreed earlier have been protected under the written agreement, the only way out for the Bob to displace the default presumption (under the parole evidence rule) that the contract is wholly written. This presumption can be rebutted in a very rare circumstance when it can be proved what was agreed earlier verbally was of utmost importance to Ben and formed the very basis for him to agree to lease the shop premises. He needs to prove that orally agreement was intended to be a part of terms of the written agreement. Only once this presumption is displaced, could there be room for any oral terms earlier agreed. Judge Wolff CJ in the case law Van den Esschert v Chappell[8] reasoned at page 116 as follows:

“I would think that on the purchase of a house in this country an inquiry regarding the presence of white ants was most important: when (as in this case) the prospective purchaser immediately before signing a contract makes a specific request to be informed about that matter and gets an affirmative answer such as the purchaser got in this case it was intended to be made part and parcel of the contract and was to be regarded as a term”

This seems unlikely in the instant case as the terms agreed in writing do not allow any outside interferences in verbal form. Therefore, the present case can be distinguished from the one cited above. Similarly, in the case law Pym v Campbell[9] an exception to parole evidence rule is made only for the purpose so fundamental that it strikes to the core of the contract such that the verbal term formed the very basis for the conclusion of the contract. In the light of this case, it is necessary to prove that evidence from the oral negotiations between the Parties was so overwhelming that it did not concern whether a particular term was a part of the contract or not, but whether there exists any contract at all.

This clearly is not the situation in the instant case as certainly there is a signed agreement between both parties and the dispute is whether a particular oral term is a part of the contract.

Conclusion

In view of the above discussion, it may be said that in the presence of signed written contract it would be very difficult for Bob to prove that an overwhelming evidence exists that he did not intend to enter it in the absence of what was earlier agreed during the negotiations phase of the contract. Accordingly, it is more likely that courts would deduce based on the available evidence and the circumstances that verbal evidence given by Ken, the MD of the company, is not binding.