January 18, 2013
Speaking of Parol Evidence: California Revisits Promissory Fraud
In yesterday's post, Heidi Anderson introduced us to a football analogy for the parol evidence rule (PER). The parol evidence rule prevents certain extrinsic evidence from getting to the trier of fact just like an offensive lineman prevents defensive players from getting at the quarterback. She analogizes the PER to a very good offensive lineman, but in some jurisdictions the PER is pretty porous, and that may well be a good thing, as Heidi aknowledges. On Heidi's analogy a football safety is like fraud, and these days, letting evidence of fraud tackle the quarterback is widely viewed as a good thing. Or maybe the the safety is supposed to get through to the trier of fact.
On Monday, in Riverisland Cold Storage v. Fresno-Madea Production Credit Association, a case alleging a fraudulent misrepresentation in connection with a debt restructuing agreement, the California Supreme Court revisited a rule derived from a 1935 case, Bank of America etc. Assn. v. Pendergrass. In Pendergrass, the California Supreme Court held that the PER excludes evidence of fraud if that evidence indicates "a promise directly at variance with the promise of the writing." In Riverisland, the lower courts read Pendergrass narrowly and decided that it did not apply to exclude plaintiffs' evidence. On appeal, the Court noted that Pendergrass has been broadly criticized and is inconsistent with both the Restatement and contracts treatises, which suggest that evidence of fraud should not be excluded under the PER. A 1977 California Law Revision Commission also indicated its disappoval of the Pendergrass rule.
The Court then noted that Pendergrass has had its defenders both in the courts and in the scholarly literature. The Court also acknolwedged the principle of stare decisis but nonetheless recognized that the principle must be limited in cases of poorly-reasoned decisions out of step with existing law.
The Court concluded that Pendergrass was "plainly out of step with established California law" at the time it was decided. The Court accordingly overruled Pendergrass and embraced the rule that the PER does not bar evidence of fraud.
Quarterbacks had better watch their blind sides.
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