September 9th - 2013

Legal Beat: Verbal agreement doesn't hold up in court

Should the courts allow parol evidence in the context of a written agreement?

Should the courts allow parol evidence in the context of a written agreement?

In legal parlance, parol evidence is extraneous evidence, often verbal, that is not included in a written document such as a contract, deed, or will. The parol evidence rule aims to preserve the integrity of written documents by prohibiting parties from trying to alter the meaning of an original agreement through prior or simultaneous oral and written declarations not mentioned in the first written document.

In this Alberta transaction, the seller entered into a first listing agreement with a brokerage for 4 per cent commission on a group of commercial properties. An appendix to the document stipulated that if the properties were sold to any of four corporations listed in that appendix -- referred to as the seller’s customers -- the commission payable would be 1.75 per cent. One of the companies listed was RPM Equipment Transport. That company’s principal at the time was Rene P. McKale.

That listing agreement expired, and the seller subsequently entered into a second listing agreement with the same brokerage, expiring Dec. 31, 2010. An appendix to this agreement reads: “This is Appendix A to the commercial real estate listing contract. RPM Equipment Transport Ltd. and the Government of Alberta are the seller’s customers, and thereby excluded from item 6 of this listing contract. The seller will pay the listing brokerage a fee of 1 per cent of the selling price (plus applicable GST) in the event that either or both of the aforementioned complete a purchase.”

One parcel was sold to the government. In October 2010, McKale, who had by then left RPM Equipment, made an offer on another parcel through his corporation, Patren Enterprises Ltd. The brokerage claimed a 4 per cent commission, taking the position that since Patren Enterprises did not appear on the seller’s customers list, the full commission had to be paid.

The seller, while acknowledging the existence of an unambiguous written contract, argued that the contract did not constitute the entire agreement between parties. The seller cited a verbal agreement between himself and the REALTOR® to the effect that the commission would be reduced if the lot was sold to any corporate entity associated with McKale, which should include Patren Enterprises. The seller argued that this buyer’s identity was one of the exceptions to the rule, that is, that the document was not intended by the parties to constitute the whole agreement.

The brokerage argued that the contract was clear and that the parol evidence rule works to prevent the seller from adducing evidence of an alleged verbal agreement. It also stated that, in any event, the evidence pertaining to the verbal agreement was itself ambiguous and thus the seller could not meet the burden of establishing that he should be allowed to adduce parol evidence. The judge agreed with the brokerage, ruling that the seller could not rebut the strong presumption that the written listing agreement constituted the entire agreement between the parties. The judged ruled against the seller, stating that commission of $71,400 was owed to the brokerage.

Boychuk Transport v Noralta Real Estate Inc. 2011 ABQB 680

The seller is the one who drafted the appendix. That document listed the corporations that were to be excepted. If the seller had wanted to exclude “McKale or any of his corporations or business entities”, he could have said so in writing. A verbal agreement did not hold up in court.

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