DECEMBER 2018 (PART A – QUESTION 4) (20 MARKS)

Wai Wai Sdn Bhd (Wai Wai) via a purchase order dated 6 June 2017, ordered from Moon Dream Cake (MDC)
100,000 boxes of Mooncake Gift Set at a price of RM18.00 per box. Each box is to contain four pieces of
mooncakes with each individual piece packed in a clear tray with laminated printed wrapper, product
stickers, an oxygen absorber and a plastic knife. The packaging materials, including the wooden box, paper
carrier bag, the wrapper, the knife and the sticker for the box, must bear the exclusive design of Wai Wai.
Three dates of delivery and quantity to be delivered were agreed, which the last date of delivery would be
on 21st August 2017.

On 10th August 2017, a total of 60,000 boxes were delivered to Wai Wai and were paid for. A day later, Wai
Wai noticed that the sale of mooncakes is below their expectation, so they asked MDC to stop production at
60,000 units. However, via an email dated 18 th August 2017, MDC informed Wai Wai that the red bean paste
for 20,000 boxes have been cooked. MDC thus requested Wai Wai to allow them to deliver 20,000 boxes
before they stop production. There was no reply by Wai Wai.

When MDC delivered the 20,000 boxes of mooncakes, Wai Wai refused to take delivery. MDC argued that
Wai Wai had breached the purchase.

Issue: Whether the oral statement from MDC amounts to collateral contract?

Law:

Parol Evidence Rule is a rule that prohibits a person from adducing oral evidence where the terms of the
contract have been put into writing. In other words, where a written document purports to record the
parties’ agreement, the court will not allow the parties to adduce extrinsic evidence to add to, vary or
contradict the terms of the written contracts’ original content which will contribute to maintaining certainty
and stability, particularly in business dealings.

Chang Min Tat FJ in Tindok Besar Estate Sdn Bhd v Tinjar Co, stated that one of the rationales of this rule is to
limit party to a litigation to say the agreement, which is the subject matter of the dispute, not containing all
the terms and seek to introduce terms.

Parol Evidence Rule applies to documentary evidence as well or oral evidence. Some of the effects of this
rule are that It prevents admission of evidence relating to disagreements in respect to what was promised.
The Court will refer to the contractual words used by the parties to determine itself what was promised; it
also excludes what a party thought the contract meant, and what they were contracting for, excludes any
oral conversation/statement made prior to formation of the contract as well as the preliminary drafts of the
contractual documentation. Lastly, this rule renders inadmissible correspondence, letters, emails and other
communications where the terms of the contract were being negotiated prior to formation of the
agreement.

The parol evidence rule is found under common law and in Malaysia, it is provided in Section 91 and 92 of
the Evidence Act 1950 (the Act). Section 91 of the Act provided that ‘when the terms of a contract had been
reduced into writing…no evidence shall be given in proof of the terms of the contract…except the document
itself…’. Hence, it provides protection to the original contract in a sense that the best evidence about the
contents of a document is the document itself. Admission of oral evidence is not necessary as the document
itself will speak through its content. On the other hand, Section 92 of the Act stated that when the terms
have been proved as in Section 91, any extrinsic evidences (oral agreement/statement) will not be admitted
for the purpose of contradicting, varying, adding to or subtracting from the terms of a written agreement.
However, to overcome the injustice that may come result from this rule, the courts have resorted to the
device of the doctrine of collateral contract to enable oral statements made before the contract to be
admitted as a separate oral contract and collateral principal written agreement. there few exceptions
provided under section 92 of Evidence Act 1950 from proviso (a) to (f).

This doctrine of collateral contract is recognised by virtue of proviso (b) and (c) to Section 92 of the Evidence
Act 1950. A collateral contract is defined by 1 Chitty on Contracts (25th Ed) para 734 as “... the courts are
prepared in some circumstance to treat a statement intended to have contractual effect as a separate
contract or warranty collateral to the main transaction”.

Proviso (b) which allows to be admitted in evidence any separate oral agreement as to any matter on which a
document is silent and which is inconsistent with its term. Meanwhile, proviso (c) states that the existence of
any separate oral agreement constituting a condition precedent to the attaching of any obligation under any
such contract.

There are several elements that need to be fulfilled to establish a collateral contract and the principles
governing it. Firstly, is that collateral contract must exist side by side (separately) with the main contract, and
yet independent. Secondly, the collateral contract must override any inconsistent written term. Where the
collateral contract contradicts a written term in the main contract, then it is said to override the inconsistent
written term. Thirdly, the statement must be promissory in nature and has induced the party to enter into
the contract. Lastly, the collateral contract cannot destroy the main contract, as a collateral contract can only
exist if there is a written contract.