Mum's the Word: Why Saying Too Much May Invalidate a Contract

• Jurisdiction: California,United States
• Author: By Eoin L. Kreditor and Guido I. Piotti
• Citation: Vol. 27 No. 2
• Publication year: 2014

Mum's the Word: Why Saying Too Much May Invalidate a Contract

By Eoin L. Kreditor and Guido I. Piotti

Abedrock principle of contract law is that parties who enter into written contracts have the right to rely on the expressed contract terms to obtain the contract's benefits, carry out the contract's obligations, and determine the outcome of disputes relating to contract enforcement. Law being law, however, there are exceptions to this rule, as well as exceptions to the exceptions, which — as clear as they may be — are subject to the often divergent and inconsistent views of judges and arbitrators.

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The defender of this bedrock principle is the parol evidence rule, the gist of which is that contracting parties may not introduce evidence of oral promises ("parol evidence") made before or contemporaneously with the execution of a written contract for purposes of altering or adding terms to the written contract when the contract is deemed a final expression of the parties. (Code Civ. Proc., § 1856, subd. (a); Civ. Code, § 1625; River-island Cold Storage, Inc. v. Fresno-Madera Prod. Credit Assn. (2013) 55 Cal.4th 1169, 1174 ("Riverisland").) Based on this longstanding principle, California courts have consistently held that "when a person with the capacity of reading and understanding an instrument signs it, he [or she] is, in the absence of fraud and imposition, bound by its contents, and is...[prohibited] from saying that its provisions are contrary to his [or her] intentions or understanding." (Edwards v. Comstock Ins. Co. (1988) 205 Cal.App.3d 1164, 1167.) In other words, parties are responsible for reading and understanding the contracts they sign.

Given that fraud is an exception to the parol evidence rule (Code Civ. Proc., § 1856, subd. (g)), attorneys will often plead fraud in complaints, even when disputes involve the enforcement of written contracts. Attorneys do this so the court may consider evidence that would not otherwise be admissible, in the hopes of voiding the contract or as a mechanism to survive summary judgment. To curb this litigation tactic, in 1935 the Supreme Court in Bank of America v. Pendergrass (1935) 4 Cal.2d 258, 263, ruled that parol evidence "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."

In Pendergrass, the defendant took over a ranch in 1928 for the purpose of growing lettuce seed. (Id., at p. 260.) The ranch was subject to a trust deed securing a note...