CONTRACTS : FORM AND WRITING
Parole Evidence Rule ( since the 1600s)
Based upon the rule that once a contract is in writing, it is binding on the parties, it cannot be altered or
Outside forensic evidence cannot be used to alter or change the written contract.
It is problematic in the case where it’s not agreed between parties.
A and B are discussing that A is looking for a painter for his house. B is a painter. B says he can paint the
house for $500 . A is not sure. B says he will use the best quality paint.
Contract reads: B will paint the house for $500.
Under Parole Evidence rule , A will be in trouble.
Ways to go around this parole evidence rule.
1. Argument is to use top quality paint. It is a condition precedent : A special type of condition,
something that occurs when entered into agreement, but before the contract comes into
If condition is satisfied, it becomes crystal clear.
Here the quality paint is a condition that must be fulfilled so that the agreement comes into
existence. In the default of which the agreement becomes null and void.
2. Collateral Agreement: the inducement for A to enter into agreement is for the best quality
paint. It forms the basis of consideration for painting the house for $500.
3. Condition subsequent: example: A condition that must be fulfilled after the contract exist,
A agrees to employ B , there is a term that B will be in probation for 3 months, this is a condition
subsequent that says if B does not work properly, A can terminent B. So condition subsequent
can become effective within 3 months of employment or be lost forever.
A mistake in law is error made by one of the parties.
a. Mistake of fact:
b. Mistake of Law: A got an insurance of $500,000 with the children as the beneficiary. When A
died, there was no will, and the form designating the children as beneficiary was lost. Insurance
co. Pays the spouse the $500,000. Children calls up the insurance co and tells them they have
the form stating the beneficiary designation. Insurance co. Has to pay the children $500,000
Now the two mistakes are taken as one now: Common/ mutual mistake: A makes a contract with B , for the sale of his car, which is in the garage. The tornado strikes
which destroys A’s car and therefore the subject matter does not exist and the contract is not in
Remedy is rescission: if B paid A, A has to give back the money.
Example: A buys a book on the right side of the shelf. B gets the book from the left and sells it
thinking it is the right side of the shelf. It is a common mistake and therefore A must give back
the book and B must pay the price back.
Unilateral mistake ( as to identity):
Example: A is selling his stamp collection. B is a stamp collector . A says $5000 and sells it to B. B
finds a $500,000 worth stamp. After the sale, A finds out about it. And he can rescind the
contract , which brings them back to initial position.
Example: A agrees to sell the corvet to Jay leno for $100,000, the butler hears about it and finds out a
way to make money by buying the car from A , telling A that he is Jay leno.
Meanwhile Jay leno turns up for the car. It is a unilateral mistake as to identity of the party.
Unilateral mistake is a mistake as to the identity, a mistake about the subject matter of the contract.
In a unilateral mistake, the contract is voidable at the decision of one party.
Inducement to enter into a contract and can occur in a number of ways
1. Innocent Misrepresentation: A agrees to sell his car to B , in a contract. A’s car is in excellent
condition and A takes it to the specialist to find out if it is in the excellent condition. B actually
believes it to be true when it isn’t.
Remedy: rescission. A would take back the car and give B the money.
2. Fraudulent Misrepresentation: A sells the Brooklyn bridge for $100,000 to B . B pays and
believes he is the owner of the Brooklyn bridge.