Tuesday, 10 July 2012

Parole Evidence Admissible to Prove a Trust

The "parole evidence" rule is well known: extrinsic evidence of parties' intention "is not admissible to add to, subtract from, vary, or contradict" express contractual terms.  However, there is an exception to every rule and this particular one is said to have a myriad of exceptions, including use of extrinsic evidence to resolve an ambiguity, to establish a term implied by custom, or to establish a collateral contract.

In a recent decision in Bradshaw v. Stenner, 2012 BCCA 296, the court, after reviewing a number of venerable English and Canadian authorities, concluded that another recognized exception to the parole evidence rule is admissibility of extrinsic evidence to prove a trust:
[153]     In my opinion, the parol evidence rule and the entire agreement clause cannot be invoked by the appellant to exclude the oral evidence of the trust because, as in Marlborough ([1894] 2 Ch. 133) with respect to the Statute of Frauds, to do so would permit the parol evidence rule to be used as an instrument of fraud.  In cases in which a trust is alleged and proven, I consider that the correct approach is to conclude that the parol evidence rule has no application.  If the trust is proven, the court must consider any impact its terms may have on title and must also consider any accounting that arises between the parties.  
...
[157]     Because it was the intention of the parties that the appellant would take title to the property as a trustee only, the legal means they employed to achieve that result were of no importance.  Creation of the trust was the overriding purpose.  To borrow a phrase used in Ali, the “form of transfer” cannot be relied upon by the appellant to defeat the trust.  The appellant had obligations under the trust that she cannot avoid by relying on words in the printed-form contract used by the parties out of legal necessity (or what Mr. Stenner saw as legal necessity) in its implementation.  I consider this to be the proper application of the fundamental principle of law stated by Lindley L.J. in Rochefoucauld ([1897] 1 Ch. 196).  That principle, as Professor Waters points out and which the cases I have cited collectively support, has been with us for more than a century.  We have been cited no authority that entertains a contrary view of the law, or in which it is suggested that the principle should not have modern application.  
Notably, the court held that the presence of the "entire contract" clause, which would typically exclude any extra-contractual representations, did not apply to proving a trust.