Commercial Law

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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:

  1. 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?
  2. 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). Similarly where agreement reduced into writing provides for its completeness than courts would not admit any any previous or contemporaneous terms into that written agreement.
  • 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).
  • 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.
  • 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.
  • 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.

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.

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