The Law recognises oral (parole) contracts and will enforce those contracts subject to the principles of parole evidence. The Courts recognise that a contract can be in writing, partly in writing, partly oral or totally oral.
Further, the Courts have taken into account conversations and surrounding circumstances to clarify the terms of such contracts.
Whilst the Common Law has been varied or limited by legislation in Australia, eg Home Building Act 1989 (NSW), the Courts still recognise the Common Law principles in the formation of contracts.
Further, surrounding circumstances and conversations can assist the Court in determining the terms of the contract.
In County Securities Pty Ltd v Challenger Group Holdings Pty Ltd & Anor [2008] NSW CA 190, the Court found inter alia:-
- It is important in determining the terms of the contract to look at the parties’ conduct to determine their intention.
- Post contractual conduct and communications cannot be looked at to as an aid for construction of the contract but can be looked at as to an aid to decide whether a contract was entered into.
- It is permissible to have regard to the conduct of the parties, even subsequent conduct, as constituting an admission of the state of the parties’ rights.
A simple example of such a contract is where:-
- A principal contractor (A) contracts with a contractor (B) to carry out certain building works.
- Contractor (B) then sub-contracts part of the building works to sub-contractor (C).
- Sub Contractor (B) goes into liquidation and fails to pay sub-contractor (C) for the work performed by sub-contractor (C).
- The principal contractor (A) then approaches sub-contractor (C) with a request to complete the balance of the building works with an oral or partly oral promise to pay sub-contractor (B) for the previous unpaid works (“the oral contract”).
- Sub-contractor (C) proceeds to complete the balance of the building works under the oral contract.Both conduct, correspondence and conversations can be taken into account to support the oral contract to allow sub-contractor (C) to enforce against the principal contractor (A).