There is a way in which an oral statement can be deemed binding, even though it conflicts with a written contract and does not fall within any of the exceptions to the parol rule. If one party says something to the effect that ‘I will sign this document if you will assure me that it means …….’, the courts may find that two contracts have been created: the written agreement, and the collateral contract based on the oral statement. This was the position held by the court in the case of City and Westminster Properties (1934) ltd v Mudd (1959).

It has been suggested that the device of finding a collateral contract based on an oral statement largely eliminates the parol evidence rule, and the above case does tend to support this view. A statement seems to operate as a collateral agreement if supported by separate consideration. This will often be provided by the act of entering into the main contract. Hence entering the main contract will not be considered for the collateral promise if that promise is made after the main contract is concluded.

Oral and written statements

As earlier analyzed, where parties enter into a written contract after one party has made oral assurances, there are at least three possibilities as to the status of those oral statements:

  • The contract may be contained exclusively in the written document, with the oral statements being merely representations,
  • The contract may be partly written and partly oral, or
  • There may be two contracts, the main written one and a collateral one based on oral statements.

However it is important to note that different approaches can yield the same practical result as was illustrated in the case of J Evans & Son (Portsmouth) v Andrea Merzario (1976).

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