Big Change in the Parol Evidence Rule

The California Supreme Court Discards the State's Idiosyncratic Interpretation of the Fraud Exception

Riverisland Cold Storage, Inc. v. Fresno-Madera Production Credit Association (No. S190581, January 14, 2013)

The California Supreme Court has unanimously overruled the often-criticized decision that for decades significantly restricted the use of the fraud exception to the parol evidence rule in California Courts. The new decision brings California law into harmony with the low of the majority of other states and the Restatement of Contracts.

In 1935 in Bank of America, etc. Assn v. Pendergrass 4 Cal.2d 258 (Pendergrass) held that to be admissible under the fraud exception to the parol evidence rule, evidence had to tend to establish an independent fact or representation, an action probative of intent to defraud that was more than a promise which conflicted with the contents of the document.

The Riverisland decision examines Pendergrass for flaws and finds many. Pendergrass has kept California out of step with other jurisdictions and authorities. The rule it establishes has the potential to be used to shield fraudulent conduct, the very thing the fraud exception is intended to protect people against. In the decades since Pendergrass the efforts of the Courts of Appeal to reconcile Pendergrass with the language of the statute it was interpreting have led to conflicting results and the creation of distinctions between types of evidence that cause confusion rather than enlightenment.

Ultimately, however, the Riverisland decision rests on a finding that Pendergrass was an incorrect statement of California law when it was written. Pendergrass was inconsistent with both the language of the statute it was applying and earlier decisions of the California Supreme Court. Upon examination the Court found the authorities cited in Pendergrass did not support its novel interpretation and the reasoning it used was unpersuasive.

The Riverisland decision overrules a seventy-seven year line of cases and greatly simplifies the use of the fraud exception to the parol evidence rule in California.