Parol Evidence Rule Contract Law Malaysia

1. 1
In making a contract, after all the fundamental elements of contracts
have been fulfilled (eg: offer, acceptance, consideration), we then look at the
content of the contract. We have express and implied terms as well as
exemption clause. In this essay we will only look on parts of the express
terms. It may become a dispute in the process of making a contract, which
words during negotiation will then be reduced to writing to make up a written
contract. Sometimes, some of the words are not reduced to writing for it may,
in the eyes of the parties, be unnecessary to be put into writing. However, it is
difficult to prove the validity of the terms in the contract, whether there has
been a breach or not without any particular ground rules. Therefore, in this
essay we shall look at the admissibility and non-admissibility of oral evidence
under parol evidence rule and its exceptions; i) provisos in section 92
Evidence Act 1950, and ii) collateral contract. Promissory estoppel is also an
exception in parol evidence rule but we will not be discussing the topic in this
essay.
Parol evidence rule is also known as extrinsic evidence rule. Extrinsic
evidence, on the other hand, means oral evidence. Under the parol evidence
rule, oral evidence is not allowed to be adduced if terms of the contract have
been reduced to writing. This is with regards to Section 91 and Section 92 of
the Evidence Act 1950 which states that (only contains relevant parts of it):
Section 91: “When the terms of a contract… have been reduced by or
by consent of the parties to the form of a document… no evidence shall
be given in proof of the terms of the contract… except the document
itself…”

2. 2
Section 92: “When the terms of any such contract… have been proved
according to section 91, no evidence of any oral agreement or
statement shall be admitted as between the parties to any such
instrument or their representatives in interest for the purpose of
contradicting, varying, adding to or subtracting from its terms:
Where a written document is present in order to record the parties’
agreement, the court will not allow the parties to adduce oral evidence to add
to, vary, or contradict the terms of the written document1. Basically, the
presence of written document effectively destroys any oral agreement under
this provision. The rule only prevents use of extrinsic evidence concerning the
terms of a contract. Thus, where one side is seeking to prove whether or not a
contract is valid, (for instance, by claiming that there is no consideration, or
that there was misrepresentation) extrinsic evidence may be used albeit the
actual contract has been put in writing.
There are rationale to this rule mainly to protect the written contracts’
original content which will contribute to maintaining certainty and stability,
particularly in business dealings2. It encourages both parties to enter written
document, as it is easier for the court to construe parties’ true intention at the
time of the making of the contract besides providing conclusive evidence of
the parties’ consideration. Chang Min Tat FJ, in the case of Tindok Besar
Estate Sdn Bhd v Tinjar Co3 made a statement that laid out the rationale for
parol evidence rule:
1 Cheong, M. F. (2010). Contract Law in Malaysia. Malaysia: Sweet & Maxwell Asia.
2 Cheong, M. F. (2010). Contract Law in Malaysia. Malaysia: Sweet & Maxwell Asia.
3 [1979] 2 MLJ 229.

3. 3
“If this contention so generally stated and understood [that the
admission of parol evidence is that not all the terms had been
incorporated in the agreement] had any foundation at law, then it would
be open to any party to a litigation concerning an agreement to say that
the agreement which is the subject matter of the dispute, did not
contain all the terms thereof and to seek to introduce such terms or
even terms which might not even have been within the contemplation
of the other party. No agreement would then be safe from being re-
written by one party in a court of law.”4
Besides, the rational of parol evidence rule is to avoid mistake and
harshness to justice. By applying this evidence rule, any wrongful conduct
such as misrepresentation, fraud, duress, unconscionability or illegal purpose
on the part of one or both parties may be revealed. Thereto the injustice
towards the parties may be denied and the truth of consideration will prevail.
For instance, if the contract states that A has paid B $1,000 in exchange for a
painting, B can introduce evidence that A had never actually conveyed the
$1,000.
Though parol evidence rule may seem rigid, there are exceptions
under this rule that reduce the usefulness and the rigidity of this rule and thus,
preventing injustice. Under certain circumstances, oral evidence can be
admitted.
Section 92 will not permit the admission of oral evidence if it
contradicts, varies, add or subtract the terms of a written agreement.
4 Ibid.

4. 4
However, the exceptions to this general rule is also provided in Section 925
which, for instance, oral evidence may be admitted if it is to prove the fact
which would invalidate a document that is made due to fraud, intimidation,
illegality, want of due execution, want of capacity in any contracting party,
want or failure of consideration and mistake in law or fact, as stated in proviso
(a) of Section 926.
Where the contract is made partly in writing and partly by word of
mouth, extrinsic evidence may be brought in, that is to say, parol evidence
rule will not be applied and the court will then infer that the parties intended
that the document would be read in conjunction with their oral statements7.
The case of Walker Property Investment (Brighton) Ltd v Walker8 shows
the example of contract, which is partly written and partly by word of mouth.
The defendant entered into an oral agreement to lease the plaintiff’s flats and
stated that if he took the lease he was to have the use of two basement rooms
for the storage of his surplus furniture and also the use of the garden. Later, a
written agreement entered into for the lease of the flats made no mention of
the storage rooms or the garden. The English Court of Appeal held that the
oral agreement should be read with the written instrument so as to form one
comprehensive contract.
This is different in the case of Tindok Besar Estate Sdn Bhd v Tinjar
Co9 whereby in this case the appellant was a contractor for extraction of
6 Visu Sinnadurai. (2003). Law of Contract (3rd ed.). Kuala Lumpur, Malaysia: LexisNexis
Malaysia.
7 Syed Ahmad Alsagoff. (2010). Principles of the Law of Contract in Malaysia (3rd ed.).
Selangor, Malaysia: LexisNexis Malaysia.
8 (1947) 177 LT 204.
9 [1979] 2 MLJ 229, FC.

5. 5
timber for a company. He later decided not to carry on with the work. An
agreement was made between the appellant and the respondent where the
respondent undertook the work of extracting timber. There was a dispute as to
this agreement. At the trial, the trial judge relied on the decision of Coalfields
of Burma Ltd v HH Johnson10, a case in which there is no written contract.
This was pointed out as wrong by the Federal Court because the trial judge
failed to distinguish the facts of the case between the two whereby in the
instant case, there was a written agreement. The Federal Court further states
that:
“Section 92 specifically excludes evidence to contradict, vary, add to or
subtract from any of the terms of contract in writing, except in any of
the situations spelled out in the provisos thereto.”11
In this case, the Court held that the evidence sought to be adduced did not
come within proviso (a) or (b) of Section 92 but was evidence adding a new
term or terms to the agreement.
Another case that has contrasting decision with Tindok Besar is Tan
Chong & Sons Motor Co (Sdn) Bhd v Alan McKnight12, the respondent
was a member of the Royal Australian Air Force. He agreed to buy a car from
the appellants and signed a Buyer’s Order, which contained a condition, that
no guarantee or warranty of any kind whatsoever was given by the company.
However, the respondent only bought the car on the representations of the
appellant’s salesman that the car conformed to the Australian Design
Regulations allowing him import duty exemption on the car. The car supplied
did not comply with the Regulations and the respondent had to sell the car at
10 AIR 1925 Rang 128.
11 [1979] 2 MLJ 229, FC.
12 [1983] 1 MLJ 589.

6. 6
a loss. The respondent claimed damages for breach of warranty. The issue
that was argued is whether, under Section 92, the representations of the
appellant’s salesman were admissible. Salleh Abas FJ stated that where
some terms are given orally and some in writing, oral evidence could be given
to prove the terms agreed to orally. In discussing the scope of Section 92 of
the Evidence Act, he stated that:
… the prohibition against admissibility of evidence under s 92 only
applies where all — as opposed to some only — of the terms of the
contract are written into the agreement. Thus where some terms are
given orally and some in writing, oral evidence could be given to prove
the terms agreed to orally. The expression “When the terms of any
such contract” at the beginning of s 92 must be read to mean
“When all the terms of any such contract”.13
In this case, proviso (b) and (c) applied and Salleh Abas FJ said that the
sentence when the terms of any such contract should be understood as when
all the terms of any such contract is reduced to writing. Therefore, where the
contract is partly written and partly made by mouth, exceptions in Section 92
may be used to adduce the oral evidence so as to be read in conjunction with
the written terms.
Apart from what is available in the exceptions stipulated in Section 92
of the Evidence Act 1950, the courts resort to the doctrine of collateral
contract in order to permit oral statements made before the contract to be
adduced as a separate oral contract and collateral to the principal written
agreement. This doctrine is recognized in Malaysia by virtue of proviso (b) to
13 [1983] 1 MLJ 589.

7. 7
Section 92, which allows any separate oral agreement to be admitted as
evidence. However, the separate oral agreement must be one in which the
document is silent and is not inconsistent with its terms, as long as it falls
within the provisos of Section 9214.
Collateral contract is in the form of oral agreement. It is a device which
impose liability for oral statements made at the time of negotiations precedent
to the making of a contract15. For instance, one party submits to the court that
the written contract document did not form the entire agreement between the
parties. The alleged oral statements that is silent in the document also
constitutes an express terms of the contract16. It is just that it is separate and
collateral to the principal document.
The leading authority which strengthens the doctrine of collateral
contract is made by Raja Azlan CJ (as His Majesty then was) in Tan Swee
Hoe Co Ltd v Ali Hussain Bros17. In other cases where the courts have
found difficulty in allowing any evidence to vary a written contract, the courts
have held that any such assurance given by one party may amount to a
collateral contract18. Collateral contract is made when one party made an
assurance to the other party which then induces the other party to enter into
contract with them. This collateral contract will be then read together with the
main written contract. Where the parties intend the assurance to be binding,
the court will acknowledge them as collateral contract, which is a separate
oral agreement, and is to exist side by side with the main contract.
14 Cheong, M. F. (2010). Contract Law in Malaysia. Malaysia: Sweet & Maxwell Asia.
15 Syed Ahmad Alsagoff. (2010). Principles of the Law of Contract in Malaysia (3rd ed.).
Selangor, Malaysia: LexisNexis Malaysia.
16 Ibid.
17 [1980] 2 MLJ 16, FC.
18 Syed Ahmad Alsagoff. (2010). Principles of the Law of Contract in Malaysia (3rd ed.).
Selangor, Malaysia: LexisNexis Malaysia.

8. 8
It is difficult in determining collateral contract without any guidelines.
Thus, in Kluang Wood Products Sdn Bhd & Anor v Hong Leong Finance
Berhad and Anor19, the trial judge held that in order to establish the
presence of a collateral contract, the party must show:
i. A representation which was intended by the defendants to be
relied upon
ii. The representation induced the signing of the contract, and
iii. The representation itself must amount to a warranty, collateral to
the main contract and existing side by side with it.
The test can also be applied to see whether there is an existence of
collateral contract in the case of Tan Swee Hoe Co Ltd v Ali Hussain
Bros20. In this case, the appellants and respondents entered into an
agreement to lease premises to the respondent. There was an oral agreement
between them where the appellants had orally agreed to allow the respondent
to occupy the premises for as long as they wished on payment of $14,000 as
tea money. Two written agreements of tenancy were later executed but there
was no reference as to the appellants’ promise. A dispute eventually arose as
to the payment of rent and the appellants eventually sued for vacant
possession, arrears of rent, mesne profits and damages. The respondents
claimed under oral agreements to their entitlement in the occupation of
premises provided that they paid the rent regularly. The trial judge dismissed
the appellant’s claim and ordered the appellants to register a lease in favour
of the respondents for 28 years. In discussing this case, we can observe the
19 [1999] 1 MLJ 193, FC.
20 [1980] 2 MLJ 16, FC.

9. 9
existence of all the three elements in the case. Chitty on Contracts (24th
edition) (paragraph 674) put it this way:
"An assurance given in the course of negotiation may therefore give
rise to a contractual obligation, provided that an intention to be bound
can be shown. The rules of evidence, however, frequently prevent such
an assurance from being incorporated as part of a subsequent written
agreement, since extrinsic evidence is as a general rule not admissible
to vary or add to the terms of a written contract. As a result, the courts
have been prepared in some circumstances to treat the assurance as a
separate contract, collateral to the main transaction. In particular, they
will do so where one party refuses to enter into the contract unless the
other gives him an assurance on a certain point."
Collateral contract is made based on assurance given by a party to the other
party. Applying the statement to this case, as was made in the judgment, the
assurance given to the respondents that they can open their eating shop
provided that they paid tea money in advance to the appellants was relied on
heavily by the respondents and the oral agreement was intended to be
followed in the first place. The oral agreement was also the main thing that
induced the signing of the contract in the first place because the appellants
assured that the respondents will be allowed to occupy the premises after
paying tea money, which, the respondents did and thus, the contract was then
made between them. The oral agreement is also one that does not disturb the
function of the principal document and only exist beside the contract, acting
as an additional pillar in the enforcement of the contract.

10. 10
The terms of a collateral contract must be strictly proved, as held by
the Court of Appeal in SamaWorld Asia Sdn Bhd v RHB Bank Bhd 21:
“The law views with suspicion collateral contracts, the sole effect of
which is to vary or add to the terms of the principal contract. Collateral
contracts must be proved strictly. The terms of such contracts and the
existence of a contrary intention on the part of all the parties must be
clearly shown.”22
The court stated that proviso (b) to section 92 provides that in construing
whether there is a collateral contract, the court shall have regard to the
degree of the formality of the document. The more formal the written
document is, the more suspicious the court must be as to the existence of a
collateral contract. If the contract is informal, then the court attaches less
suspicion to the attempt to set up a collateral contract.
Not all oral evidence may be brought in and is regarded as collateral
contract. The court must examine and determine critically whether the oral
evidence may constitute collateral contract or not. The burden of proof of
proving the existence of collateral contract is laid out in Industrial &
Agricultural Distribution Sdn Bhd v Golden Sands Construction Sdn
Bhd23. Visu Sinnadurai J stated that:
“…the courts adopt a cautious approach in recognizing the existence of
a collateral contract, especially in cases where it contradicts the terms
of a written contract. The burden of proving the existence of a collateral
contract is on the party alleging its existence…”24
21 [2008] 6 CLJ 44.
22 [2008] 6 CLJ 44.
23 [1993] 3 MLJ 433, HC.
24 Ibid.

11. 11
Therefore, in tackling the issue stated out in the question, whereby in
the case of Tan Swee Hoe Co Ltd v Ali Hussain Bros25, Raja Azlan Shah
CJ (as His Majesty then was)
“Although it is trite law that parol evidence is not admissible to add to,
vary or contradict a written agreement, a technical way of overcoming
the rule is by invoking the doctrine of collateral contract or collateral
warranty.”26
Based on the statement, we can see that collateral contract exists to function
as an alternative to break away from the parol evidence rule. If parties are not
given the opportunity to adduce oral evidence to the court at all, the weaker
party, who relies on the oral evidence will be mistreated.
Raja Azlan Shah CJ then further stated that:
“In our view those cases are strong authority for the proposition that an
oral promise, given at the time of contracting which induces a party to
enter into the contract, overrides any inconsistent written agreement.
This device of collateral contract does not offend the extrinsic evidence
rule because the oral promise is not imported into the main agreement.
Instead it constitutes a separate contract which exists side by side with
the main agreement.”27
The classic statement on collateral contract was made by Lord Moulton in
Heilbut Symons & Co v Buckleton 28:
“It is evident, both on principle and on authority, that there may be a
contract the consideration for which is the making of some other
25 [1980] 2 MLJ 16, FC.
26 Ibid.
27 Ibid.
28 [1913] AC 30, 47

12. 12
contract. "If you will make such and such a contract I will give you one
hundred pounds," is in every sense of the word a complete legal
contract. It is collateral to the main contract, but each has an
independent existence, and they do not differ in respect of their
possessing to the full the character and status of a contract.”29
If all three of the elements of collateral contract are proved, we should then
understand, based on the statement made by Raja Azlan Shah CJ, the
existence of collateral contract does not go against the extrinsic evidence rule.
In the English case of J Evans & Son (Portsmouth) Ltd v Andre
Merzario Ltd30, the defendants were forwarding agents. They assured the
plaintiff importers that containers in which the latter’s goods were stored
would be carried under deck. Prices were renegotiated but nothing was put in
writing in relation to the containers being carried below deck. The goods were
carried ‘on the usual terms and conditions appearing on the form’ that
exempted the defendant from liability. The defendants did not store the
container below deck and the plaintiffs’ goods were lost due to swells
occurring during the voyage. The plaintiffs succeeded in enforcing the oral
assurance. The English Court of Appeal held that notwithstanding the printed
conditions, the oral assurance given by the defendants was binding. The
defendants gave the assurance in order to persuade the plaintiffs to accept
the use of their containers and it induced the plaintiffs to enter into the
contract. Here, it is proven that collateral contract may exist independently
and as a separate contract as an assurance to induce the party to enter into a
contract with the other party. Looking at the rigidity of the parol evidence rule,
29 Ibid.
30 [1976] 2 All ER 930

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the doctrine of collateral contract is brought in to prevent any possible
injustice that could happen due to the rigidity. Therefore, if the cases and
authorities acknowledge that collateral contract exist side by side and
independent of the main contract, there is no reason for collateral contract to
not be an exception to parol evidence rule.
Another nature of the collateral contract is that it destroys the written
terms that are inconsistent with it, provided that the parties rely on the oral
evidence. This is relevant in my opinion because if the collateral contract is a
form of agreement made by mouth, which encourage a party to the contract to
enter into a contract. Reasonable men would usually rely on what had been
said prior to the making of a written contract. If the party do not rely on the
assurance, they will not enter into the contract in the first place. The making of
collateral contract is similar to the making of any usual contract whereby it
fulfills all the fundamental elements of a contract. The difference is only that it
exists side by side of a main contract and it functions as an inducement for a
party to agree to be bound legally.
In Kandasami v Mohamed Mustafa31, the Privy Council agreed with
the findings of the trial judge that a written agreement entered into between
the parties was not binding on the parties as the parties had intended to be
bound only by the oral agreement entered into earlier. The Privy Council held
that collateral contract exists whereby the parties had agreed that the written
document will have no legal effect on them. Lord Brightman sets out:
“If parties put their names to a document, and one party represents and
the other party agrees that the document shall not, as between
31 [1983] 2 MLJ 85, PC (Appeal from Malaysia)

14. 14
themselves, have any legal effect so that it exists only to answer some
other purpose, the law will give effect to that collateral agreement and
deny the document whatever legal effect it might otherwise have
had.”32
While in Industrial & Agricultural Distribution Sdn Bhd v Golden Sands
Construction Sdn Bhd33, Visu Sinnadurai J referred to Lord Brightman’s
statement in Kandasami v Mohamed Mustafa34. The defendant purchased
two excavators from the plaintiff. After two months, the defendant wanted to
return it, and alleged that there was an oral collateral warranty by the plaintiff
that if the excavators were unsuitable, the defendant could return it without
any financial liability. The plaintiff then brought a claim for damages for, inter
alia, the depreciation value of the excavators during the two-month period.
The High Court held that the defendants had failed to establish that collateral
contract existed because the oral assurance will then destroy the main
contract.
In Tan Chong & Sons Motor Co (Sdn) Bhd v Alan McKnight35 that
has been set out earlier, Salleh Abas FJ stated:
“However, on the authority of J. Evans & Son’s case (supra) and other
authorities cited by Lord Denning in that case, we hold that the
representations must be given an overriding effect and the printed
condition must therefore be rejected.”36
Therefore, not all oral evidence can easily be regarded as collateral
contract. There is an extent to the availability in adducing oral evidence as
32 Ibid.
33 [1993] 3 MLJ 433, HC.
34 [1983] 2 MLJ 85, PC (Appeal from Malaysia)
35 [1983] 1 MLJ 589.
36 Ibid.

15. 15
collateral contract so as to overcome the parol evidence rule that is, collateral
contract cannot destroy the main contract. The existence of collateral contract
which favours oral evidence instead of written documents (only to a certain
extent) balances the parol evidence rule which is strict and the full
enforcement of it may cause injustice to a weaker party in the future. That is
why, it should prevail over the written document, otherwise, oral evidence will
have no access in court and relying on absolute written documents in some
circumstances, may result in injustice.
In conclusion, I highly agree with the statement sets out by Raja Azlan
CJ (as His Majesty then was) in Tan Swee Hoe Co Ltd v Ali Hussain
Bros37. Collateral contract should be exercised and the existence of it should
be examined critically to prevent unfairness that may occur. If parol evidence
rule is enforced broadly without giving any alternatives to admit oral evidence
to the court, it’s rigidness and strictness will cause misfortune in the making of
the contract and instead of protecting the parties of any ill intention of putting
a party at a disadvantage by producing inconsistent and unfair oral terms, it
would function otherwise because the function of parol evidence and collateral
contract as well as exceptions in section 92 may function as a vice versa.
37 [1980] 2 MLJ 16, FC.

16. 16
References:
Cheong, M. F. (2010). Contract Law in Malaysia. Malaysia: Sweet & Maxwell
Asia.
Elliot, C., & Quinn, F. (2007). Contract Law (6th ed.). England: Pearson
Education Limited.
Stone, R., Devenney, J., & Cunnington, R. (2011). Text, Cases and Materials
on Contract Law (2011). NY, USA: Routledge-Cavendish.
Syed Ahmad Alsagoff. (2010). Principles of the Law of Contract in Malaysia
(3rd ed.). Selangor, Malaysia: LexisNexis Malaysia.
Visu Sinnadurai. (2003). Law of Contract (3rd ed.). Kuala Lumpur, Malaysia:
LexisNexis Malaysia.