Key Decisions

February 2013 – Parol Evidence Is Admissible When There Is Fraud

(filed under: Key Decisions Archive | February 22, 2013)

Parol Evidence Is Admissible When There Is Fraud

Riversland Cold Storage, Inc. v. Fresno-Madera Production Credit Association
(Cal. Sup. Ct.), filed January 14, 2013 

The parol evidence rule protects the integrity of written contracts by making their terms the exclusive evidence of the parties’ agreement.  An established exception to the rule allows a party to present extrinsic evidence to show that the agreement was tainted by fraud.  However, in 1935 the California Supreme Court adopted a limitation on this exception.  It ruled that evidence offered to prove fraud “must tend to establish some independent fact or representation, some fraud in the procurement of the instrument or some breach of confidence concerning its use, and not a promise directly at variance with the promise of the writing.”

When it was called upon to reconsider the limitation, the California Supreme Court overruled itself.  It reasoned that the limitation finds no support in the language of the statute codifying the parol evidence rule and the exception for evidence of fraud.  Moreover, the limitation is difficult to apply and conflicts with the doctrine of the restatements, most treatises, and the majority of sister-state jurisdictions.  Furthermore, while intended to prevent fraud, the limitation may actually provide a shield for fraudulent conduct.