6 Exceptions to the General Rule of Exclusion of Evidence of Oral Agreement

The following are six exceptions to the general rule of exclusion of evidence of oral agreement:

1. Any fact which would (i) Invalidate any document, or (ii) entitle any person to any decree or order relating thereto, may be proved, such as fraud, intimidation, illegality, failure of consideration, mistake of fact or law.

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Illustration:

(i) A enters into a written contract with В to work certain mines, the property of B, upon certain terms. A was induced to do so by a misrepresentation of В as to their value. This fact may be proved.

(ii) A institutes a suit against В for the specific performance of a contract, and also prays that the contract may be reformed as to one of its provisions, as that provision was inserted in it by mistake. A may prove that such a mistake was made as would by law entitle him to have the contract reformed.

2. Any separate oral agreement (i) as to any matter on which the document is silent, and (ii) which is not inconsistent with its terms, may be proved.

Illustration:

(i) A orders goods of В by a letter, in which nothing is said as to the time of payment, and accepts the goods on delivery. В sues A for the price. A may show that the goods were supplied on credit for a term still unexpired.

(ii) A sells В a horse and verbally warrants him sound. A gives В a paper in these words: “Bought of A, a horse for Rs. 500.” В may prove the verbal warranty.

(iii) A hires lodgings of B, and gives В a card on which is written — “Rooms, Rs. 200 a month.” A may prove a verbal agreement that the terms were to include partial board.

(iv) A hires lodging of В for a year, and a regularly stamped agreement, drawn up by an attorney, is made between them. It is silent on the subject of board. A may not prove that board was included in the terms verbally: S. 92.

In such cases, the separate agreement should be on a distinct collateral matter, although it may form a part of the same transaction. The important point is that it should not vary or contradict the terms of the written contract.

In considering whether a case falls under this exception, the formality of the document is often an important consideration.

The more formal the document (as for instance, when made by an Advocate or an Attorney), the greater will be the Court’s reluctance to admit oral evidence of supplementary terms.

3. Any separate oral agreement, constituting a condition precedent, or the attaching of any obligation under the document, may be proved.

Illustration:

(i) A applies to В for a debt due to A by sending a receipt for the money. В keeps the receipt and does not send the money. In a suit for the amount. A may prove this.

(ii) A and В make a contract in writing to take effect upon the happening of a certain contingency. The writing is left with B, who sues A upon it. A may show the circumstances under which it was delivered.

This exception means that where there is a separate oral agreement that the terms of a written contract are not to take effect until a condition precedent has been fulfilled or a certain event has happened, oral evidence is admissible to show that as the event did not take place, there is no agreement at all.

Thus, in one case, where the defence was that a pro-note was executed by the defendant only as a receipt for the earnest money paid to him under an agreement with the plaintiff to purchase the defendant’s properties, and that the note was not to be acted upon in the case of failure of the transaction, it was held that oral evidence can be admitted to support such a plea.

Escrow:

A deed may be delivered as an escrow (or scroll), i.e., as a simple writing, not to become the deed of the party expressed to be bound thereby, until some condition is performed, or until the person to benefit under the deed executes, some other deed or document as agreed with the party delivering the escrow. No particular form is required for an escrow; nor should the delivery of an escrow be in any particular form.

Delivery as an escrow may be made in words or by conduct, the important thing in case of such delivery being that the party should, expressly or impliedly, declare his intention to be bound by the provisions of the deed, not immediately, but only in the case of and upon the performance of some other condition.

4. Any subsequent oral agreement to rescind or modify any such contract, grant, or disposition of properly, may be proved — except when such contract or grant (i) is required to be in writing or (ii) has been registered.

This exception deals with three distinct situations. Firstly in case where the law does not require a written agreement, the parties may choose, for their own convenience, to reduce their agreement into writing. In such cases, evidence of any subsequent oral agreement modifying the written agreement or rescinding it altogether, is admissible.

Secondly, if an agreement is reduced to writing, because the law requires it to be so done, such agreement can be rescinded or modified only by another written instrument. Parole (i.e., oral) evidence cannot be given of any subsequent agreement rescinding or modifying it.

Lastly, if a writing has been registered (whether or not registration is compulsory for such a document), it can be rescinded or modified by another registered instrument only. Parole evidence of any subsequent agreement rescinding or modifying the registered instrument will not be admitted.

5. Any usage or custom by which incidents not expressly mentioned in any contract are usually annexed to such contracts, may be proved if they are not repugnant to, or inconsistent with, it’s express terms.

This exception reproduces the English rule on law on the subject. Under this exception, oral evidence is admissible to explain or supply terms in commercial transactions like contracts, bills of exchange, insurance policies, etc. on the presumption that the parties did not intend to put into writing the whole of their agreement, but tacitly agreed that their contract was to be interpreted or regulated by established usages and customs, provided they are not inconsistent with the terms of such contract. The rule is not confined to mercantile transactions, but applies also to other transactions where established usages prevail.

6. Any fact which shows in what manner the language of the document is related to existing facts, may be proved.

This exception comes into play when there is latent ambiguity in a document, i.e., when there is a conflict between the plain meaning of the language used and the existing facts. In such cases, evidence of the surrounding circumstances may be admitted to ascertain the real intention of the parties.