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.
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.1 "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 can not be considered as having finished their negotiations and finally concluded a contract." 2 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,3 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."4 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.5 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.6 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.7
25Hieatzman v. Braecklein, 131 Md. 482, 102 Atl. 917.
26 Glenn v. Rudd, 68 S. Car. 102, 102 Am. St. Rep. 659, 46 S. E. 555.
27 Cutler v. Spens, 191 Mich. 603, 158 X. W. 224.
1 United States.. Reitz v. Brewers' Refrigerating Co., 141 U. S. 510, 35 L. ed. 837.
Arkansas. Harris v. Trueblood, 124 Ark. 308 [sub nomine, Sternberg v. Trueblood, 186 S. W. 836]; Ashley, B. & N. Ry. Co. v. Cunningham, 129 Ark.
346, 196 S. W. 798; Garner v. Murphy, 131 Ark. 594, 199 S. W. 902.
California. Ayers v. Southern Pac. R. Co., 173 Cal. 74, 159 Pac. 144.
Iowa. Empire Cream Separator Co. v. Bair, 180 Ia. 375, 159 N. W. 976.
Indiana. Welz v. Rhodius, 87 Ind. 1, 44 Am. Rep. 747.
Kentucky. Louisville Trust Co. v. Bayer Steam Soot Blower Co., 166 Ky. 744, 179 S. W. 1034.
Maine. Arthur E. Guth Piano Co. v. Adams, 114 Me. 390. 96 Atl. 722.
Massachusetts. Mills v. Swanton, 222 Mass. 557, 111 N. E. 384
Michigan. Appleby v. Sperling, 194 Mich. 681, 161 N. W. 873.
Oklahoma. Reed v. Moore, 54 Okla. 354, 154 Pac. 348.
Oregon. Sund v. Flagg & Standifer Co., 86 Or. 289, 168 Pac. 300.
Virginia. Slaughter v. Smither, 97 Va. 202, 33 S. E. 544.
"Undoubtedly the existence of a separate oral agreement as to any matter on which a written contract is silent, and which is not inconsistent with its terms, may be proven by parol, if under the circumstances of the particular case it may properly be inferred that the parties did not intend the written paper to be a complete and final statement of the whole of the transaction between them. But such an agreement must not only be collateral, but must relate to a subject distinct from that to which the written contract applies; that is, it must not be so closely connected with the principal transaction as to form part and parcel of it. And when the writing itself upon its face is couched in such terms as import a complete legal obligation without any uncertainty as to the object or extent of the engagement, it is conclusively presumed that the whole engagement of the parties, and the extent and manner of their undertaking, were reduced to writing." Seitz v. Brewers' Refrigerating Co., 141 U. S. 510, 517, 35 L. ed. 837.
"The so-called agreement that sales of liquor should never take place in Moron was essentially a warranty regarding the permanent advantages of the property sold. Such a warranty, if made, would be a part of the contract of sale and not collateral thereto.
To justify the admission of parol evidence of a contract between parties who have made an agreement in writing, on the ground that it is collateral, it must be upon a subject distinct from that to which the writing relates. Germain Fruit Co. v. Armsby Co., 153 Gal. 594, 96 Pac. 319. Here the written agreement itself speaks on the subject of the sale of intoxicating liquors, and provides that none shall ever be sold on the premises described. To add to this provision the further stipulation that none should ever be sold in the entire town of Moron and that the railroad company should see that none was ever sold there, would be to add by parol to a written agreement which on its face purports to be complete upon that subject, and which, under section 1856, is presumed to embrace all the terms agreed on. Such evidence is inadmissible. Harrison v. McCor-mick, 89 Cal. 330, 26 Pac. 830, 23 Am. St. Rep. 469; Germain F. Co. v. Armsby Co., supra; Gardiner v. McDonogh, 147 Cal. 319, 81 Pac. 964; Empire I. Co. v. Mort, 169 Cal. 739, 147 Pac. 960; Johnson v. Bibb L. Co., 140 Cal. 99, 93 Pac. 730." Ayers v. Southern Pac. R. Co., 173 Cal. 74, 159 Pac. 144.