RESOLVING AMBIGUITIES IN WRITTEN DOCUMENTS: Application of extrinsic evidence as an exception to the parole evidence rule.

“Where two or more clauses in a document are found to be inconsistent, effect is to be given to that which is calculated to give real effect to the intentions of the parties. This rule straightaway raises issues of extrinsic evidence. The commonest rule is that extrinsic evidence is not admissible to vary or alter the words in a document. But this rule has several exceptions, one of which is that where the document is conflicting on the face of it, extrinsic evidence may be admitted to resolve the conflict.”

- Atuguba JSC in P.Y. Atta & Sons Ltd v Kingsman Enterprises Ltd. [2007-2008] SCGLR 946.

1.0.????????Introduction

In the ordinary course of business, parties may agree with each other orally to perform certain obligations. These oral agreements are later reduced to writing by either of them or their lawyers as evidence of their prior oral agreement. Despite this, there may be times when the same parties dispute the nature and effect of the very same document they have signed because they disagree with the interpretation of a phrase or words in the agreement or feign ignorance of certain clauses. This is usually a defence by persons who seek to resile from or do not wish to fulfill their obligations under the contract or agreement. In law, this is termed the plea of non-est factum, a latin term that literally means “it is not my deed”. When that occurs, the court will now have the onerous duty of construing the written documents to ascertain the actual intentions of the parties at the time the agreement was made. The function of the court is to ascertain what the parties meant by the words they used. The court is to declare the meaning of what is within the instrument and not what was intended to have been written so as to give effect to the intention expressed [1]. It is important to consider, at this point, whether the courts have the power to alter the wording of a written document in order to establish the parties' true intentions. Can the courts rewrite a contract for the parties by introducing words and provisions that they never intended to include?

This article reflects on written documents, including contracts, their legal effect, and the circumstances under which the courts may introduce extrinsic (i.e., external) evidence to give effect to the object, purpose, and ultimate intentions of the parties.

2.0. The law governing the effect of written documents, contracts, or agreements.

?Generally, when a person of full age and understanding appends his signature to a written document, he is deemed to appreciate the legal effect of it and is thus bound by the document or deed he has assented to. He is therefore prohibited from introducing any kind of evidence, especially parole or oral evidence, to modify or refute the terms of the signed document [2]. This is popularly referred to as the “parole evidence rule."

The parole evidence rule is to the effect that, a written document is?prima facie?taken to be the whole contract, and everything dehors the written document is excluded. Thus, no extraneous evidence is allowed to add to, vary from, or contradict the terms of the written document. However, this is not the case when an illiterate executes a written document. In the instance of an illiterate, he is not bound by the document unless the party seeking to enforce the signed document against the illiterate proves to the satisfaction of the court that the terms of the document were read and explained to him in a language that he understands and that he perfectly appreciated and understood the same before signing [3].

But will it be just to hold every man, other than an illiterate, strictly bound by a document he signs or executes? Your guess is as good as mine. The Courts have ruled, and it is trite learning that “lawmakers, like all men, are mortals and do not write laws and other documents with angelic hands, and whenever there is a gap in the law, an interpreter is required to look for the mischief the law sought to cure, the social conditions which gave rise to the law, and the intention of the legislature at the time the law was made.”

?The above statement clearly shows that no man is without blemish. Men are fallible and prone to error; therefore, no matter how carefully a document is drafted, there is still the likelihood of errors. These errors could be the result of wrong choice of words, misspelling, or omission.?For this reason, this rule is not exceptional. Like every rule of law, some exceptions may be applied by the courts, in which case the court may admit extrinsic evidence. Even so, the courts will not admit extrinsic evidence for the purpose of rewriting the contract for the parties but only for the purpose of explaining the contract or giving effect to the intentions of the parties. The court may accept extrinsic evidence in the cases listed below as an exception to the parole evidence rule:

i. Parole evidence as an aid to interpretation—this is where evidence is required to resolve ambiguous terms or to otherwise assist in interpreting a term of the contract.

?ii.?To identify the parties or subject matter of the contract.

?iii. To modify the contract after it has been signed by all parties if the contract explicitly allows for that.

?iv. Parole evidence will be admitted where the parties have themselves agreed that the agreement should be partly oral and partly written.

?v. Parole evidence will be admitted to prove the existence of a vitiating factor such as fraud, duress, undue influence et al.

?vi. Subsequent agreement - this is where additional documents are prepared to complement the original document.

?vii. Parole evidence will be admitted to show that an implied term of custom or trade usage or past dealings is part of a contract even if not in a written agreement.

An illustration of the first exception, is for example, where a buyer, located in Canada, agrees to purchase 1,000,000 barrels of crude oil from a seller located in the United States, for $100 apiece but the contract fails to state whether the price is U.S. dollars or Canadian dollars.?In this case the Court would have to resort to evidence outside the written contract to show whether the parties understood “dollars” to mean “Canadian dollars” or “U.S. dollars” (as the case may be).

To demonstrate how the Supreme Court of Ghana applied the first exception in resolving an ambiguity in a written document, the author will explore the case of P.Y. Atta & Sons Ltd v Kingsman Enterprises Ltd. [2007-2008] SCGLR 946.

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3.0.??P.Y. Atta & Sons Ltd v Kingsman Enterprises Ltd. [2007-2008] SCGLR 946.

3.1.???Facts of the case

The brief facts of the case are as follows;

The parties, P.Y. Atta & Sons Ltd (P) and Kingsman Enterprises Ltd (K), entered into an agreement which provided that P would grant portions of a land it had leased from the Government of Ghana to K for the construction of stores for its business. In pursuance of this agreement, they executed an indenture prepared by their common Solicitor and in the said document, P was described as the “Sublessor” of the one part whereas K was described as the “Sublessee” on the other part. The description of P as a Sublessor was because P was itself a Lessee of the property from the Government of Ghana. The Indenture contained several covenants, some of which were to the effect that; the Subslessor (P) shall be given two (2) stores, the sublessee shall not assign or underlet any part of the stores without prior consent of the Sub-Lessor in writing, and the covenant that the Sublessee shall use the stores for commercial purposes only.

Following execution of the Indenture, K constructed stores on the land as agreed upon and complied with all the terms, conditions and covenants until later when it decided to sidestep the agreement to construct additional stores without the prior written consent of P, in breach of a covenant of the signed agreement.

K’s refusal to consult P was premised on its contention that, upon a true and proper construction of the habendum clause, the agreement executed between the parties was an “Assignment” and not a “Sublease” as initially contemplated, hence it was not obliged to seek P’s consent to construct the additional stores. P on the other hand insisted that the agreement was a “Sublease” and that at all material times, the parties intended to enter into a sublease and not an assignment as alleged by K.

?3.2.?The conflict or inconsistent clauses

?While the commencement clause of the indenture described the parties as a sublessor and a Sublessee and also included all the necessary covenants and conditions of a sublease, thus making it, prima facie, appear to be a sublease of some sort, the habendum clause on the other hand sought to transfer the entire unexpired term of the lease held by the sublessor (P) to the sublessee (K) as though it were an assignment, in the following terms:

“The Sub-Lessor as the beneficial owner HEREBY grants unto the Sub-Lessee part of the land comprised in and demised by the Lease TO HOLD UNTO the Sub-Lessee for all the residue now unexpired of the said term of 50 years granted by the Lease subject henceforth to the payment of the rent and the covenants agreements and conditions herein contained and to be observed and performed by the Sub-Lessee.”

According to the Plaintiff(P) they signed the indenture because they took the document to represent a sublease of the property to the defendant. The defendants on the other hand claim they signed it because they also took it as evidencing an assignment of the land from P. It is obvious that the parties are not ad idem, there is no meeting of the minds. It is this ambiguity on the face of the indenture that brought about the instant suit which required interpretation by the High Court.

?3.3.?The decision of the High Court

P.Y. Atta & Sons Ltd (P) ?commenced an action in the High Court for, among other reliefs, a declaration that upon a true and proper interpretation, the agreement made between the parties constituted a sublease and not an assignment, and an order for rectification of the said agreement by addition to the habendum 'less one day' or less such other period as will make the agreement reflect the true character of a sublease.

The key question the court had to resolve was; whether or not the document (i.e. Indenture) executed between the parties created a sublease or an assignment.

?The Plaintiff failed in his action both in the High Court and the Court of Appeal, both holding that the agreement between the parties was an assignment and not a sublease having regard to the habendum clause which conveyed "all the residue now unexpired of the said term of 50 years granted by the headlease."

3.4.????????The appeal and decision of the Supreme Court

?Following the decision of the Court of Appeal, P.Y. Atta & Sons Ltd (P) still dissatisfied with the said decision lodged a further appeal to the Supreme Court on grounds that the Court of appeal erred when it upheld the judgment of the High Court that the agreement constituted an assignment and not a sublease.

?At the Supreme Court, the basic issue for trial in the case related to construction of the indenture and possible rectification. While the appellant invited the court to construe the document as to amount to a sublease, the respondent invited the court to construe the same document as creating an assignment. By the habendum, the respondent took the position that in so far as the indenture granted "all the residue now unexpired" it amounted to assignment of the land to them and that was equivalent to a total sale.

Upon a further examination of the evidence on record, the Supreme Court had this to say;

?“In considering every agreement, the paramount consideration is what the parties themselves intended or desired to be contained in the agreement. The intentions should prevail at all times.

From the pleadings, both parties invited the court to construe exhibit B and to declare its real meaning. There are rules of construction which must be applied, given the peculiar circumstances of the instant case. The general rule is that document should be given its ordinary meaning if the terms used are clear and unambiguous. In the instant case, the terms are contradictory; while the use of the "unexpired residue" suggested assignment, the terms inserted in exhibit B had the effect of indicating that the document created a sublease. In such a situation, the rules of interpretation mandate that the document should be interpreted in a view that will cause the intention of the parties to prevail.

?No one can early tell the intentions of parties. Even the devil, it is said, does not know the state of a man's mind. In conflicting situations like those in the instant case, the process of determining the intentions of the parties should be objective. "Objective approach" in this context implies the meaning that the words in the document will convey to a reasonable person seised with the facts of the case. In such exercise, the entire document, the effect it has on the parties, the conduct of the parties and the surrounding circumstances will have to be taken into account.?

?Where two or more clauses in a document are found to be inconsistent, effect is to be given to that which is calculated to give real effect to the intentions of the parties. This rule straightaway raises issues of extrinsic evidence. The commonest rule is that extrinsic evidence is not admissible to vary or alter the words in a document. But this rule has several exceptions, one of which is that where the document is conflicting on the face of it, extrinsic evidence may be admitted to resolve the conflict.

?At the trial in the instant case, the respondent was asked a number of questions during the cross-examination on the nature of interest he took from the transaction. Almost all his answers indicated that at the start of the transaction between him and the appellant he knew he took a sublease. As the appellant rightly put it in his statement of case, it is unthinkable that the respondent who claimed to have taken an assignment and was therefore an assignee and 'who had allegedly purchased the land would covenant among others to pay rent which would be renewable every five years, give stores to the assignor upon completion of the building, build within a specific time frame and according to specifications to the satisfaction of the assignor, seek the assignor's written consent in given situations, surrender the demised premises at the expiration of the agreed term and exercise an option for renewal. The respondent knew very well that these are never done by a person who claims to have acquired land as an assignee. Yet all these conditions were dutifully fulfilled by him, with the exception of the last two. He claimed that he did not read the agreement before he signed it. Knowledge of the agreement could clearly be imputed to him, otherwise he could not have known which of its terms he had to comply with. The fact that he conducted his affairs within the terms of exhibit B and complied with its terms in full indicated that the respondent knew in his mind all the time that he had acquired leasehold and not an assignment. That was his state of mind until he decided to build on top of the ground floor.

?The claim of the respondent that he knew that he had acquired an assignment could not be correct. An assignee is in the position of a purchaser. On purchasing land, the purchaser simply walks away and does what he likes with it, so long as it is permitted by the law. He does not turn round to ensure compliance with what the seller prescribes. The way he complied with the terms of the agreement was not consistent with the buyer of landed property”.

?The Supreme Court upon applying the rules of construction of written documents concluded that the document executed between the parties created a sublease, thus overturning the decision of the Court of Appeal. In coming to this conclusion, the Court relied on extrinsic evidence in resolving the conflict considering the entire document, the effect it had on the parties, the conduct of the parties and the surrounding circumstances.?This approach, the Court termed as the “objective approach”.

?4.0. Conclusion

In sum, the law still holds that everyone is bound by his deeds, documents or contracts he signs, thus, he is prohibited from introducing extrinsic evidence (i.e both oral and written) to vary, modify or change the terms of the agreement he has assented to.?It is not the role of the Courts to rewrite contracts or agreements for parties. However, in the event of a dispute arising out of ambiguous or contradictory clauses in the said agreement, the courts will interpret the written document, and where applicable, admit evidence from sources outside the written document to give it meaning, effect, and ultimately realize the intentions of the parties. For interpretation must always be as near as possible to the mind of or intent of the parties as the law permits.

As widely acclaimed, no one knows the state of a man’s mind, not even the devil, therefore in ascertaining the intentions of the parties at the time of execution of the agreement, the Courts will resort to the language used in the agreement and any overt acts done subsequent to conclusion of the agreement. For equity considers as done that which ought to be done.

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[1] Akim Akroso Stool & others v Akim Manso Stool and others [1989-90] GLR 100, CA,

[2] Bank of Australasia v Palmer [1897] AC 540, page 545

[3] In re Kodie Stool; Adowaa v Osei [1998-99] SCGLR 23