Overruling a 78-year-old precedent, the California Supreme Court on Monday made it easier for parties to a written contract to claim it was tainted by fraud. In Riverisland Cold Storage, Inc.v. Fresno-Madera Production Credit Association (Jan. 14, 2013), the justices unanimously held that limitations on extrinsic evidence of fraud found in Bank of America etc. Assn. v. Pendergrass (1935) 4 Cal.2d 258 run counter to both statutory and case law. The high court noted that although the parol evidence rule results in the exclusion of evidence, it is not a rule of evidence but one of substantive law founded on the principle that when the parties put all the terms of their agreement in writing, extrinsic evidence of its terms becomes irrelevant. The purpose of the rule, the Supreme Court said, is to ensure that the parties’ final understanding is not subject to change. Code of Civil Procedure Sec. 1856(f) establishes a broad exception to the operation of the parol evidence rule: “Where the validity of the agreement is the fact in dispute, this section does not exclude evidence relevant to that issue.” The provision rests on the principle, the Court explained, that the parol evidence rule, which is intended to protect the terms of a valid written contract, should not bar evidence challenging the validity of the agreement itself.
For more information about contractual fraud, you can contact Reza Sina at Sina Law Group.