This section is from the book "The Law Of Contracts", by William Herbert Page. Also available from Amazon: Commercial Contracts: A Practical Guide to Deals, Contracts, Agreements and Promises.
To enforce the oral contract, even if not inconsistent, it must be collateral to the written contract and not merely a term thereof. The difficulty lies in the application of this rule. Under cover of enforcing collateral consistent contracts the attempt is often made to add oral terms to a complete written contract. Courts which recognize the parol evidence rule and the rule as to the collateral consistent contract in language which in the abstract would indicate that they were in perfect harmony, will show remarkable differences of opinion in deciding whether the term in question is a collateral contract or a mere term of the written contract. The true test of a collateral contract seems to be that it must be so far unconnected with the written contract that the court must be able to hold that the parties could have concluded their negotiations as embodied in the written contract without reference to or consideration of the terms of the oral contract. "Oral testimony will not be admitted of prior or contemporaneous promises on a subject which is so closely connected with the principal transaction with respect to which the parties are contracting, as to be part and parcel of the transaction itself, without an adjustment of which the parties cannot be considered as having finished their negotiations and finally concluded a contract."1 Thus in an action on a note and mortgage, extrinsic evidence was inadmissible to show a contract whereby the mortgagee was to receive board from the mortgagor for life, and at his death the note and mortgage were to be canceled though such contract might be available as a counterclaim,2 and in deciding the case the court pointed out a test for determining whether the contract was collateral or not. "A very satisfactory test of the question under consideration will be to suppose this action to have been by defendant against plaintiff for his board as a right independent of the note, and that Kracke had pleaded as a defense the obligation of Homeyer to board him because of the stipulation in the note. The effect would be to so change the note as to make it not only an obligation for the payment of the amount therein stipulated, but an obligation against Homeyer to board the payee of the note during his life or until the note was paid. The right to make such a change in a written contract by averments sustained only by verbal proofs, is not open to reasonable discussion."3 One of the English cases that is often cited as a leading case, as recognizing the theory of collateral contracts, and as enforcing an oral contract to repair as collateral to a written lease, is in reality directly opposed to the latter rule.4 When this case first came before the court, it did not appear whether a written lease had been given or not, and the only question decided was whether an oral contract to repair could be enforced or whether the statute of frauds made it unenforceable. The court very properly held that the statute of frauds did not affect the contract.5 When the case was finally heard on its merits, it appeared from the evidence, that a written lease had been given. The oral contract to repair was held unenforceable under the parol evidence rule.6 The rule allowing collateral oral contracts to be enforced is unfortunately sometimes confused with the rule allowing oral terms of a contract, part only of which has been reduced to writing by the parties; and which is on its face not complete to be enforced, and oral terms which are properly enforced under the latter rule have been ascribed to the former. If the distinction between the two rules is noted, cases apparently in conflict may be reconciled. Thus where the contract for the sale of a drug business is complete on its face extrinsic evidence is inadmissible to show an oral contract whereby the seller agreed not to engage in such business thereafter.7 A deed has been held not to merge an oral agreement by the vendor to construct a street if the vendee bought the land conveyed by such deed.8 Where a written lease has been given, an oral agreement whereby the lessor binds himself not to compete with the lessee, can be enforced9 on the theory that the lease is not complete on its face. Accordingly, the better rule is that if the written contract is incomplete on its face, then by the operation of a different principle, any oral term consistent with the writing may be enforced, while if the contract is complete on its face, and the principle of the collateral consistent contract is invoked, only such contracts as are really collateral to the written contract can be enforced.
18 Blackwood v. Brown, 34 Mich. 4. 19 See Sec. 1197.
20 Cloud v. Markle, 186 Pa. St. 614; 40 Atl. 811.
21 Ryder v. Faxon, 171 Mass. 206; 68 Am. St. Rep. 417; 50 N. E. 631.
22Redfield v. Gleason, 61 Vt. 220; 15 Am. St. Rep. 889; 17 Atl. 1075.
1 Naumberg v. Young, 44 N. J. L. 331, 342; 43 Am. Rep. 380; cited and followed in McTague v. Finnegan, 54 N. J. Eq. 454; 35 Atl. 542.
2 Kracke v. Homeyer, 91 la. 51; 58 N. W. 1056.
3 Kracke v. Homeyer, 91 la. 51, 53; 58 N. W. 1056.
4Angell v. Duke, L. R. 10 Q. B. 174.