The California Supreme Court's 2012-2013 Term: Clearing Away the Underbrush
| Publication year | 2013 |
| Pages | 02 |
J. Clark Kelso
High courts are appropriately reluctant to overrule their own precedents. Respect for prior decisions lies at the heart of stare decisis and is one of the distinguishing features of judicial reasoning. At the same time, courts have an obligation to review their prior work to determine whether it still serves the public interest. If the needs of today's generation require improvements or changes to the law, the courts should not hesitate in making those improvements. Also, it sometimes happens that a court simply gets it wrong the first time around, and courts should not hesitate to correct their own mistakes. This year, the California Supreme Court had a number of important brush-clearing decisions.
The fraud exception to the parol evidence rule
Our first case this year is a good example of a decision that clears away some old underbrush and corrects an old error. In Riverisland Cold Storage v. Fresno-Madera Production Credit Association, 55 Cal.4* 1169 (2013), the court overruled its 77-year-old decision in Bank of America v. Pendergrass, 4 Cal.2d 258 (1935). The issue involved the fraud exception to the parol evidence rule. As a general matter, the parol evidence rule protects the integrity of written contracts by making their terms the exclusive evidence of the parties’ agreement. Under the rule, parol evidence is inadmissible to vary the terms of a contract.
However, like all good rules, it has a number of exceptions. One of the well-established exceptions to the parol evidence rule allows a party to present extrinsic evidence to show that the agreement was tainted by fraud. The reason for this exception seems obvious. Fraud is a serious enough allegation that if fraud can be proven, it should trump the writing. Although this exception is generally stated in broad terms around the country and in the Restatement of Contracts, in 1935 the California Supreme Court adopted in Pendergrass a limitation on the fraud exception pursuant to which 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.” Pendergrass, 4 Cal.2d at 263.
This so-called Pendergrass limitation on the fraud exception to the parol evidence rule has been criticized for decades, but lower courts have continued to apply it, as is their constitutional mandate. In Riverisland, the California Supreme Court unanimously overturned Pendergrass, noting that its holding really wasn’t supported by California law even at the time it was decided, appeared to be inconsistent with California’s parol evidence statute which codified the fraud exception, was not followed by other jurisdictions and was rejected by the restatement and most treatises. The rule also may actually have provided a shield for fraudulent conduct, which is precisely the opposite of what the fraud exception was supposed to accomplish. For all these reasons, the court rejected the Pendergrass decision and brought California’s version of the fraud exception to the parol...
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