Simon's Megalomaniacal Legal Resources

Evidence - Parole Evidence

. Brampton Worship Centre v. Montgomery

In Brampton Worship Centre v. Montgomery (Div Court, 2022) the Divisional Court considered evidence of 'surrounding circumstances':

Evidence of surrounding circumstances

[14] In Sattva Capital, at para. 60, the court notes that the parol evidence rule does not apply to preclude consideration of surrounding circumstances in the interpretation of contracts:

Such evidence is consistent with the objectives of finality and certainty because it is used as an interpretive aid for determining the meaning of the written words chosen by the parties, not to change or overrule the meaning of those words. The surrounding circumstances are facts known or facts that reasonably ought to have been known to both parties at or before the date of contracting; therefore, the concern of unreliability does not arise.

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[16] Surrounding circumstances to be considered in interpreting a contract “must never be allowed to overwhelm the words of that agreement” and cannot be used “to deviate from the text such that the court effectively creates a new agreement”: Sattva, at para. 57. The “cardinal presumption” is that the parties have intended what they have said. The surrounding circumstances or factual matrix “cannot include evidence about the subjective intention of the parties”: Weyerhauser Co. v. Ontario (Attorney General), 2017 ONCA 1007, at para. 65, rev’d on other grounds 2019 SCC 60. See also: Prism Resources Inc. v. Detour Gold Corp., 2022 ONCA 326, at paras. 15-17.

[17] In my view, the evidence referred to by the appellant is not admissible as a surrounding circumstance because the appellant is asking the court to make an inference with respect to the subjective intention of the parishioners when Sterling made the agreement and because the court would then effectively be creating a new agreement. I also note that the agreement provides that it is the entire agreement and that: “There is no representation, warranty, collateral agreement or condition which affects this Agreement other than as is expressed herein.”

. Brampton Worship Centre v. Montgomery

In Brampton Worship Centre v. Montgomery (Div Court, 2022) the Divisional Court considers an exception to the parole evidence rule for 'subsequent conduct':

Subsequent conduct evidence

[18] In Shelanu Inc. v. Print Three Franchising Corp. (2003), 2003 CanLII 52151 (ON CA), 64 OR. (3d) 533 (C.A.), at para. 49, the court held that “an exception to the parol evidence rule is the existence of any subsequent oral agreement to rescind or modify a written contract provided that the agreement in not invalid under the Statute of Frauds” (citation omitted).

[19] In Shewchuk v. Blackmont Capital Inc., 2016 ONCA 912, the court held:

In summary, evidence of the parties' subsequent conduct is admissible to assist in contractual interpretation only if a court concludes, after considering the contract's written text and its factual matrix, that the contract is ambiguous. The court may then make retrospectant use of the evidence, giving it appropriate weight having regard to the extent to which its inherent dangers are mitigated in the circumstances of the case at hand, to infer the parties' intentions at the time of the contract's execution.

[20] Relying upon Shelanu, the appellant argues that the communications between Sterling and Montgomery’s real estate agent following the signing of the second agreement of purchase and sale should be considered in support of the appellant’s position that Montgomery had promised to refund the deposit if the sale was not completed. The application judge found that even if Montgomery “offered to ‘donate’ the deposit he was entitled to keep in order to broker a new deal, that does not show that giving up the deposit was part of the original deal.” I agree and would add that the parties’ subsequent conduct was not, in any event, admissible to assist in interpreting the agreement because the agreement is not ambiguous.

. 2249778 Ontario Inc. v Smith (Fratburger)

In 2249778 Ontario Inc. v Smith (Fratburger) (Ont CA, 2014) the Court of Appeal restated principles of interpretation applicable to commercial contracts, with particular attention to the role of 'surrounding circumstances' in interpretation (aka parole evidence):

[20] In Sattva, the Supreme Court addressed the issue of surrounding circumstances. Rothstein J. wrote, at para. 57:

While the surrounding circumstances will be considered in interpreting the terms of a contract, they must never be allowed to overwhelm the words of that agreement. The goal of examining such evidence is to deepen a decision-maker’s understanding of the mutual and objective intentions of the parties as expressed in the words of the contract. The interpretation of a written contractual provision must always be grounded in the text and read in light of the entire contract. While the surrounding circumstances are relied upon in the interpretive process, courts cannot use them to deviate from the text such that the court effectively creates a new agreement. [Citations omitted.]

[21] Evidence of surrounding circumstances should consist only of objective evidence of the background facts at the time of execution of the contract: knowledge that was or reasonably ought to have been within the knowledge of both parties at or before the date of contracting: Sattva, at para. 58.

. Sattva Capital Corp. v. Creston Moly Corp.

In Sattva Capital Corp. v. Creston Moly Corp. (SCC, 2014) the Supreme Court of Canada re-states the law that 'surrounding circumstances' may be taken into account for interpretation without offending the parol evidence rule:

(c) Considering the Surrounding Circumstances Does Not Offend the Parol Evidence Rule

[59] It is necessary to say a word about consideration of the surrounding circumstances and the parol evidence rule. The parol evidence rule precludes admission of evidence outside the words of the written contract that would add to, subtract from, vary, or contradict a contract that has been wholly reduced to writing (King, at para. 35; and Hall, at p. 53). To this end, the rule precludes, among other things, evidence of the subjective intentions of the parties (Hall, at pp. 64-65; and Eli Lilly & Co. v. Novopharm Ltd., 1998 CanLII 791 (SCC), [1998] 2 S.C.R. 129, at paras. 54-59, per Iacobucci J.). The purpose of the parol evidence rule is primarily to achieve finality and certainty in contractual obligations, and secondarily to hamper a party’s ability to use fabricated or unreliable evidence to attack a written contract (United Brotherhood of Carpenters and Joiners of America, Local 579 v. Bradco Construction Ltd., 1993 CanLII 88 (SCC), [1993] 2 S.C.R. 316, at pp. 341-42, per Sopinka J.).

[60] The parol evidence rule does not apply to preclude evidence of the surrounding circumstances. Such evidence is consistent with the objectives of finality and certainty because it is used as an interpretive aid for determining the meaning of the written words chosen by the parties, not to change or overrule the meaning of those words. The surrounding circumstances are facts known or facts that reasonably ought to have been known to both parties at or before the date of contracting; therefore, the concern of unreliability does not arise.

[61] Some authorities and commentators suggest that the parol evidence rule is an anachronism, or, at the very least, of limited application in view of the myriad of exceptions to it (see for example Gutierrez v. Tropic International Ltd. (2002), 2002 CanLII 45017 (ON CA), 63 O.R. (3d) 63 (C.A.), at paras. 19-20; and Hall, at pp. 53-64). For the purposes of this appeal, it is sufficient to say that the parol evidence rule does not apply to preclude evidence of surrounding circumstances when interpreting the words of a written contract.