Are verbal contracts valid? A comparative analysis between common law, civil law and CISG



Comparative contract law is a fascinating area of ​​academic discussion, as it explores many challenges relating to the interpretation and application of various rules in competing jurisdictions. This article deals in particular with the validity of oral contracts in common law, civil law and international trade law.

Common law

What is the Parol rule of evidence and why does it exist?

In the common law world, verbal contracts are subject to the Parol rule of evidence, which is one of the oldest rules of evidence. Its effect is to prohibit testimonials which are used to contradict, modify, add or subtract from the terms of a valid written contract document, which is intended by the parties to be their final agreement.[1] In practice, the type of testimony prohibited by the rule refers to verbal statements or agreements and to behavior before or after the conclusion of the written contract.

The main justifications for the emergence of the rule include legal insecurity arising from a person’s memory, on which verbal agreements and statements are based, and the risk of lying, fraud or perjury.[2] Other justifications are put forward using two approaches. The “consent approach” recognizes that the parties intend to make the writing a manifestation of their final agreement which is superior to any previous agreement.[3] The “quality of evidence approach” recognizes that a written agreement that has been carefully crafted to reflect the intentions of the parties must be given greater consideration and weight than any other agreement or understanding between the parties.[4] This ensures that the weaker evidence cannot modify or replace the stronger written evidence.[5]

Application of the parole rule of evidence to the interpretation of the contract

The rule of conditional proof is a feature of the interpretation of contracts, since it must be determined whether a writing constitutes a partial or complete declaration of the agreement of the parties.[6] In the common law world, this determination is made in such a way as to promote certainty and predictability in the performance of the contract.[7] This determination aims to determine the meaning of the language of the contract and therefore excludes evidence of pre-contractual negotiations used to interpret the contract.[8] It is here that a divergence appears between the common law and the civil theoretical approaches to the formation and therefore of the construction of contracts. The rule of evidence on parole was described by Judge Blackburn in the English case Smith vs. Hughes.[9] He said: “Whatever a man’s real intention, if he behaves in such a way that a reasonable man would believe that he consents to the terms proposed by the other party, and that party concludes the contract on the basis of this belief, the man would also be bound by the contract as if he had intended to accept its terms.[10]

This classic theory of contract law is based on the idea that a “contract is formed for a homogeneous product concluded between two foreigners who trade in a perfect spot market”.[11] This is important in the context of the rule of evidence on parole, because if the terms of a contract are ambiguous or unclear, thus making subjective intention difficult to determine, then the general rule is that objective intention parts will be verified by interpreting the actual language and wording. of the contract and prohibiting the use of extrinsic material to facilitate this interpretation.

However, many common law jurisdictions have introduced many exceptions to the rule. For example, in Australia, Judge Mason in the notable case Codelfa Construction Pty Ltd v State Rail Authority of NSW emphasized, “the real rule is that evidence of the surrounding circumstances is admissible to aid in the interpretation of the contract if the language is ambiguous or susceptible of more than one meaning”.[12]

However, evidence of the surrounding circumstances is not admissible to contradict the language of the contract if it has a clear and clear meaning and if the subjective intentions of the parties are displaced by the contract itself.[13] The rule is virtually unknown in civil law and it is questionable whether this principle should continue to function given its growing inability to reflect contemporary international trade realities.

Evidence of parole in civil law

Although the rule is universally recognized, it is only accepted in its true form in the common law tradition. While the common law classifies parole evidence as a rule of substantive law, the civil law classifies any equivalent as a rule of evidence,[14] which is primarily procedural rather than substantive. Civil or commercial codes generally contain the presumption that a written text is the final agreement of the parties and must be honored on the basis of pacta sunt servanda and the principle of good faith.[15] Civil codes allow certain restrictions on proof of parole in certain circumstances and this may also depend on the particular jurisdiction.

For example, the French Civil Code prohibits parol proof in the form of witness proof if the object of a contract exceeds a certain sum of money.[16] The Spanish Civil Code contains a provision similar to Article 51.[17] In Germany, the principles of good faith and custom can be used to interpret contracts.[18] Written agreements are presumed valid and accurate, however, formal evidence may be accepted to prove the intentions of the parties and to interpret the contract.[19]

Interestingly, it is only the Italian Civil Code that incorporates a rule comparable to the common law rule on parol evidence. It specifies that “the proof by witnesses of agreements before or contemporaneous with a written document is not authorized to establish stipulations which have been added or which are contrary to the contents of a document”.[20] Section 2724, however, continues to allow such evidence if the legitimacy of the writing is in doubt.[21]

As a general rule, however, civil law is largely uniform in its acceptance of extrinsic evidence such as verbal agreements to prove the intentions of the parties in contracting.[22] The absence of formal requirements in day-to-day transactions is common in civil jurisdictions and if terms are considered ambiguous, they should be interpreted in accordance with the subjective intentions of the parties and may take into account customs and usages.[23]

Parol Evidence and CISG – Business Realities

This article has so far discussed the parole rule of evidence and its application in common and civil legal traditions. The rule, however, has become subject to criticism regarding its archaic nature and the fact that its application no longer reflects contemporary business practice. The common law treats the contract as a final agreement reached after a series of negotiations.[24] While such an approach may benefit from a business opportunity within a national common law framework, internationalized business and commerce reflect a different reality.

Contracts negotiated between international parties are now recognized as “evolving instruments of negotiation and exchange” that can change and adapt to various contextual influences such as the economy, rather than being a rigid end product.[25] A conflict therefore arises between contracting parties of different jurisdictions as to the rules of interpretation of contracts and in particular, for the purposes of this article, whether formal evidence can be admitted to assist in the interpretation of contracts.

In order to overcome the challenges posed by the application of inconsistent rules between different legal traditions and states, CISG[26] was adopted to create a uniform international sales framework to facilitate international trade and commerce.[27] With 91 contracting parties, CISG represents an important part of international trade.[28]

The CISG Advisory Council emphasized in its opinion that CISG does not incorporate the rule of evidence on parole.[29] Article 11 CISG specifies that “a sales contract need not be concluded or evidenced in writing and is not subject to any other formal requirement. It can be proven by any means, including by witnesses.[30] The editorial conference commentary explained that this provision was incorporated due to the fact that an overwhelming number of “international sales contracts are concluded by modern means of communication, which may not always include the written word”.[31] In an increasingly globalized world where commerce and communication have become largely electronic and subject to technological advancements, such as the emergence of electronic commerce, it is conceivable that writing alone can no longer be seen as a holistic expression. or specifies the intentions of the contracting parties.

Therefore, Article 8 CISG specifies that “to determine the [subjective] intention of a party, due account must be taken of all the relevant circumstances of the case, including negotiations, practices and customs, and any subsequent behavior of the parties. ‘[32] In this way, it appears that CISG followed the civil tradition in interpreting contracts according to the subjective intention of the parties, which can be proved with the help of foreign and even conditional evidence.

Final remarks

This article has compared the treatment of parole evidence in the interpretation of contracts within common law and civil traditions, as well as under CISG. The strong dependence of the common law on the written agreement aims to achieve the objectives of legal certainty and predictability. These objectives are however achieved to the detriment of the true intentions of the parties, which this article suggests is contrary to the well-established principle of contractual freedom, which is part of the commercial world. To view contracts as a final, concluding agreement incapable of being amended to reflect the wishes of the parties, as expressed through verbal and other communications, runs counter to contemporary realities of international trade.

International contracts are increasingly treated as bargains and flexible exchanges given economic and other factors. Section 8 CISG appears to strike a balance between common law considerations of certainty and foreseeability, and the civil law preference for determining the true subjective intent of a contract by allowing the admission of all relevant evidence.[33]

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