The parol evidence rule: a comparative analysis and proposal



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UNSW Law Journal Volume 26(3)


THE PAROL EVIDENCE RULE: A COMPARATIVE ANALYSIS AND PROPOSAL


TONY COLE*

I INTRODUCTION


The parol evidence rule has long been a controversial element of the common law system. It has been frequently attacked for the injustices that result from its application and sometimes even for a lack of rationality in its justification.1 This article results from the conviction that useful light can be shed on the problems surrounding the parol evidence rule by an examination of its status in other common law jurisdictions, where it has also been the subject of constant dispute throughout the previous half century.2

However, despite the similarity of the nature of the attacks launched against the parol evidence rule, it has maintained a vitality in some countries that it has rarely achieved in the jurisdictions of the United States.3 One of the primary contentions of this article is that this disparity is best explained in terms of a difference between the fundamental views of contract adopted in the United States and in the other major common law nations. Specifically, this difference is between the subjective and objective theories of contracting.4

According to the subjective theory of contracting, which is dominant in the United States, the written document produced by the parties is merely a memorandum of the agreement that they have reached. Consequently, when a court attempts to resolve a dispute regarding the agreement, the written document is construed as persuasive evidence of what was agreed, and can be contradicted by other evidence tending to show that the actual agreement was something different.5 By contrast, the objective theory of contracting holds that the written document is in fact the agreement itself, so that in attempting to discern the nature of the bargain between the parties it is improper to admit evidence that contradicts the written document.6 Since the actual intentions of the parties are not being considered by the court,7 evidence that would tend to demonstrate that their intentions were something other than the written document reflects is simply irrelevant.

Even the simplest overview of these theories of contracting reveals that the subjective approach supports a rejection of the parol evidence rule, while the objective approach wholeheartedly embraces it. This article, however, will argue that despite the fact that every jurisdiction can be seen to explicitly embrace either one or the other of these theories of contracting, in fact both approaches hold an unavoidable appeal. Consequently, both can be seen to exert an influence in every jurisdiction’s controversy over the parol evidence rule, regardless of whether the jurisdiction in question is supposedly ‘objective’ or ‘subjective’. As stated by one commentator, ‘[i]n virtually every jurisdiction, one finds irreconcilable cases, frequent changes in doctrine, confusion, and cries of despair’.8

Part II of this article discusses the historical development of the parol evidence rule in order to illustrate the ideas that have traditionally been used to justify its existence. Part III considers the nature of the conventional American parol evidence rule, examining the way in which the American embrace of the subjective theory of contracting has informed its treatment of the rule. Part IV is concerned with the parol evidence rule as it is applied in Australian law, highlighting the differences with the American law that result from Australia’s embrace of an objective approach to contract interpretation. Finally, Part V contains a theoretical discussion which attempts to explain the importance of both the subjective and objective approaches to contracting, and argues that the only solution to the ongoing conflict over the parol evidence rule is to bring both approaches within each jurisdiction, carefully delineating when each should properly be applied.

II THE HISTORY AND DEVELOPMENT OF THE PAROL EVIDENCE RULE


Although an objective approach to contracting could certainly be applicable in a legal regime that did not use written documents in contracting,9 there is nonetheless a strong connection between the spread of written contracts and the initial change in common law countries from a subjective to an objective theory of contracting.10 The goal of this section is to trace the historical developments that gave rise to the parol evidence rule, and to illustrate that they also reflected a move from a subjective to an objective theory of contracting.11

Despite the obvious link between the spread of literacy and the use of written contracts in proving the substance of an agreement,12 the spread of judicial respect for written contracts was less rapid than might be expected if illiteracy was the only consideration. For example, such a concern would be inapplicable once it had been demonstrated that the parties involved in the dispute could both read.13 However, the historical records suggest that at the time literacy truly began to spread, at the beginning of the second millennium, a document was still treated as merely one more piece of evidence to be considered by the court, even when neither party claimed an inability to read.14 This lag in granting written documents a privileged status is probably best explained institutionally, as the court system had by this time already evolved approaches that were regarded as adequate for determining the true nature of an agreement, such as the use of multiple witnesses.15 Consequently, courts would have felt no strong compulsion to adopt a new system that privileged written documents, especially when those documents could misrepresent the actual agreement, and could be forged.

Nonetheless, it is clear that limitations on the spread of literacy were a significant retardant to any legal privileging of written documents. Even if the parties had prepared a written document, it would often have been drafted by scribes, with the illiterate principals required to trust the integrity of the scribe.16 Consequently, the policy of the courts at the time was that even though a written document might serve as evidence of the true nature of the bargain in question, once the accuracy of the document was challenged it could no longer stand on its own, but had to be supported by witnesses.17 It is important to emphasise, however, that the practice was not simply to allow witnesses to be called to challenge the document. Rather, once a challenge had been made, witnesses also had to be called to support the document’s veracity. At this point, the document was not even privileged as a particularly persuasive form of evidence, and was treated as secondary to witness testimony.

This status of the document as merely one aspect of the complete agreement is captured by the following description of a land transaction from that era:

The act of delivery of the document was performed by the maker grasping the still blank parchment, lifting it from the earth (in land transfers at least, by Frankish usage), calling upon the witnesses to grasp it with him, handing it to the scribe to fill out the writing, and, after signatures affixed, delivering it to the grantee.18



In this transaction the written document is so enveloped by the old non-written form of land transfer that it is lifted from the land being transferred, as though it were merely a piece of earth being symbolically handed over to the new owner19 – with the added benefit that it could also serve as a record of the proceeding.20 Indeed, according to one authority, the primary role of the written document in these proceedings was to preserve the names of the witnesses, in case of a future dispute.21 The actual transaction, then, is clearly separate from the document – the document serves merely as a record of the transaction.

The question arises as to when the document itself began to attain the importance that it possesses today. Yet this question itself reflects a misunderstanding of the nature of the historical development being discussed. The change appears to have been an extended process that had already been significantly achieved, in some ways, while rituals such as those described above were still in common use. Perhaps the greatest influence was the increasing use of the seal.22 This practice, according to which a document would be closed with wax and imprinted with designs representing the contracting parties, initially gained prominence in England in the 1000s, but related only to the seal of the King. However, by the 1200s the use of a seal had spread to ordinary individuals.23

To tie this history to the theme of the objective and subjective theories of contracting, it is important to recognise that the increasing use of a seal did not truly alter the place of a written document within the legal system. Nor did it signify a move to a more ‘objective’ system. Rather, the use of a seal functioned as a kind of waiver, in which the individual whose seal was imprinted on the document was seen to have already ‘testified’ that the document was an accurate representation of the agreement in question.24 Hence he or she was prevented from bringing forth witnesses to challenge his or her own ‘testimony’.25

Nonetheless, while the widespread adoption of the seal may not have signalled a rejection of the subjective theory of contracting, the accompanying notion of the use of the seal as a ‘waiver’ is nonetheless a significant early move away from the subjective approach. The written document was not yet regarded as the agreement itself, as the practice was not that the individual would be held to the terms of the written document regardless of what the parties actually agreed, but rather that he or she had already ‘testified’ as to the nature of the agreement, via the written document. The enhanced importance of the written document does not come from any newly recognised reliability of the document itself as evidence of the actual agreement. Rather, the existence of the sealed written document served to exclude contradictory evidence, no matter how persuasive it might have been. The legal structure of contracting, then, had developed one area which stated clearly that, in legal contractual disputes, the actual agreement reached between the parties is perhaps not the only goal of the inquiry for a court. Parties could properly be held to an agreement to which they had affixed their seal, even if the written terms in question could be proven not to accurately represent the actual terms of the agreement between the parties.

This first move towards an objective theory of contracting was simultaneously given further impetus by other elements of the legal system, particularly the long-standing concern of courts over the reliability of juries. As in contemporary times,26 courts saw the practice of refusing to allow a written document to be challenged as a way of preventing juries from hearing evidence that could cause them to lend more weight to their sympathies than to the facts of the case.27 The reality of this ‘problem’ with juries is perhaps reflected in the fact that the authority of the written document was established by the 1300s for commercial transactions,28 which are the least likely to engender strong sympathies in a jury, but it was not until the 1 600s that it was accepted in realty transactions,29 and, of course, it is still being challenged today.30

The rise of the concept of different ‘qualities’ of evidence represented the next significant step in the move toward an objective theory of contracting in the common law system. The doctrine states that evidence of a higher quality cannot be contradicted by evidence of a lower quality.31 For example, a sealed document is of a higher quality than an unsealed document. Consequently, a sealed document could not be challenged by an unsealed document, no matter how persuasive the unsealed document might be.32

The importance of this new development did not lie in its practical effect, as this evidence would also have been excluded under the waiver theory.33 Rather, the ‘quality of evidence’ doctrine reflected a new way of thinking about written documents. While the waiver theory still adhered to the subjective approach, by offering an explanation as to why the evidence should not be used to determine the true agreement made,34 this new theory did not attempt to help the court discern the ‘true’ nature of the non-written agreement between the parties. Instead, it merely pointed to the ‘nature’ of the evidence itself, and insisted that the sealed document should be taken as decisive evidence of the agreement. That is, the sealed document was still construed as evidence of the agreement (and not the agreement itself), so the objective theory of contracting had not been fully embraced. However, the court had now abandoned the claim that its evidentiary procedures would accurately unearth the ‘true’ agreement between the parties. Instead, for the first time, we see a court stipulating clearly that the parties would be held to the terms of their sealed agreement, simply because it is a sealed agreement, no matter how poorly it may have represented the actual agreement between the parties. These courts, then, had moved into an area somewhere between the two theories, in which the subjective theory had been clearly rejected, but the objective theory had not yet been fully embraced.

The final step in the move to a full embrace of the objective theory of contracting, and the initial appearance of a true parol evidence rule, occurred with the passage of the Statute of Frauds and Perjuries 1677 (UK).35 Although the statute itself only required proof of land transactions to be in writing, and did not apply to contracts in general, the fact that the writing in question did not have to be under seal was a significant recognition of the idea that all written contracts should be privileged.36 Moreover, the terms of the statute affirmed that the writing in question did not merely represent or evidence the nature of the transaction. Rather, the writing constituted the transaction itself.37 As such it fully embraced the objective theory of contracting.

Although, as noted above, the statute did not apply to contracts generally, courts at the time nonetheless read it as affirming the validity of an ‘objective’ approach, which was already a theme of contract law. Courts repeatedly appealed to the statute as setting out a rule for dealing with questions of parol evidence in transactions of all kinds.38

Gradually, then, the doctrine that the written document itself actually constitutes, rather than merely represents, the agreement between the parties spread throughout the common law systems.39 The parol evidence rule was eventually adopted in full, excluding all parol evidence as relevant only to the question of the true intentions of the contracting parties, a question that was no longer of concern to the courts.

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