Parol evidence is the legal term generally used to describe
verbal or oral promises made during negotiations that are not
ultimately included in the final form of written
agreement. The basic parol evidence rule states, in part, that
parol evidence extrinsic to a written contract may not be admitted
if the effect of that evidence would be to contradict the
contract.1This aspect of the parol evidence rule was
recently confirmed in the context of a loan agreement by the
British Columbia Supreme Court in the case of Pacific
In Pacific Paragon, the plaintiffs advanced to the
defendant the sum of $82,500 in three tranches, with a written loan
agreement and promissory note executed for each tranche. The
loan agreements described the advances as "loans" payable
on demand, provided that demand was not to be made prior to Oct.
31, 2010. Demand was made in June 2013, but the advances were
not repaid by the defendant in response to that demand.
Each of the loan agreements also contained an amendment
provision that read, in part:
"No amendment, modification or
waiver of any condition of this agreement or consent to any
departure by the borrower therefrom, shall in any event be
effective unless the same shall be in writing signed by the
The defendant claimed that the written loan documents did not
contain the entire agreement between the parties. It alleged
that there was a representation by or a collateral agreement with
the plaintiffs that the advances were not actually to be repaid on
demand, but rather would only be reimbursed to the plaintiffs from
any funds raised through a third party, Bi-Optic Ventures Inc.
(Bi-Optic), in taking the defendant public pursuant to a letter of
intent between the defendant, Bi-Optic and the principal of the
In deciding in favour of the plaintiffs, the Court referred to
the British Columbia Court of Appeal decision in
Bradshaw,3 which set out the existing case law
in support of the principle that a collateral contract will not be
admissible if it contradicts the main written contract. The
Court also noted that while the loan agreements did not contain an
express entire agreement clause, the amendment provision was
tantamount to such a clause by stating that the conditions of each
loan would not be varied from the terms set out in the loan
agreements unless done so in writing signed by the plaintiffs as
This decision serves as a reminder to lenders and borrowers
alike of the importance of putting into writing all salient
components of an initial agreement, as well as how any subsequent
changes to that agreement should be documented.
1. G.H.L. Fridman, The Law of Contract in
Canada, 6th ed. (Toronto: Carswell 2011) at pp.
2. Pacific Paragon Capital Group Ltd. v. PDC
Biological Health Group, Corp., 2014 BCSC 1725 [Pacific
3. Bradshaw v. Stenner, 2012 BCCA 296, at
paras. 130-131 [Bradshaw]
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