California Supreme Court Eases Admissibility of Oral Statements in Contract Fraud Disputes

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California, like most jurisdictions, prohibits parties to integrated contracts from introducing “parol evidence” — this is, evidence of prior written or verbal agreements made by a party to a contract — if those alleged agreements are inconsistent with the terms of the contract. In fact, this prohibition, known as the parol evidence rule, is codified in California: “Terms set forth in a writing intended by the parties as a final expression of their agreement with respect to such terms as are included therein may not be contradicted by evidence of any prior agreement or of a contemporaneous oral agreement.” Cal. Proc. Code § 1856(a); see also Cal. Civ. Code § 1625 (“The execution of a contract in writing … supersedes all the negotiations or stipulations concerning its matter which preceded or accompanied the execution of the instrument.”).

The parol evidence rule contains an explicit exception where a party to a contract alleges fraud in the formation of the contract. See Cal. Proc. Code § 1856(g) (“This section does not exclude … evidence [for the purpose of] establish[ing] illegality or fraud.”). However, for the good part of a century, this “fraud exception” to California’s parol evidence rule was narrowly curtailed. In 1935 the California Supreme Court, in Bank of America v. Pendergrass, held that parol evidence is admissible to prove that a party procured a contract through fraud, but is not admissible to contradict any of the terms of the contract. That remained the law in California for decades — until the recent decision handed down by the California Supreme Court in Riverisland Cold Storage v. Fresno-Madera Prod. Credit Ass’n (“Riverisland”).

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