Manatt Partner Quoted by Daily Journal on Expansion of Fraud Exception
"California Supreme Court Expands Fraud Exception to Parol Evidence Rule"
January 15, 2013 - Manatt's Carl Grumer, a partner in the firm's Litigation Division, was quoted by the Daily Journal on the California Supreme Court's decision to broaden the scope of evidence that's admissible to prove a contract's validity.
As reported by the Daily Journal, the state supreme court recently held that the fraud exception to the parol evidence rule applied to the plaintiffs' evidence of an alleged oral agreement to extend the term of a loan repayment by two years. Plaintiffs in Riverisland Cold Storage Inc. v. Fresno-Madera Production Credit Assn. contended that an oral agreement between the parties contradicted the written agreement. The parol evidence rule typically bars a party to a written contract from presenting evidence outside the contract itself, but the court found evidence of the oral agreement admissible.
The ruling thereby discards the state supreme court's 1935 decision in Bank of America v. Pendergrass, which held that a fraud claim needed more than an allegation that the other party never intended to perform the obligations. The court reasoned that the Pendergrass decision was not only in conflict with the California statute codifying the parol evidence rule, but also out of step with case law.
Grumer, who wasn't involved in the case, said concerns that the fraud exception now swallows the parol evidence rule - expressed by the Pendergrass court 75 years ago - aren't unfounded.
"There have been many people who have questioned what's left of the parol evidence rule," Grumer said.
But he added that an alleged oral agreement contrary to a contract's written terms is only the beginning of a fraud claim.
"As a practical matter, [Riverisland] can get people past the pleading stage," he said, "but proving fraud is ultimately more than alleging someone said something."