Riverisland: Inordinate Burdens or Leveling the Playing Field
| Jurisdiction | California,United States |
| Author | By David J. Myers |
| Citation | Vol. 27 No. 2 |
| Publication year | 2014 |
By David J. Myers
There has always been a tension between written contract expectations and judicial economy, on the one hand, and the prevention of fraud on the other. Until Riverisland Cold Storage, Inc. v. Fresno-Madera Production Credit Ass'n (2013) 55 Cal.4th 1169, resolution of that tension in California favored contract clarity and the minimization of litigation, even at the expense of truth and fairness. Now, however, as in most states, California courts must consider oral inducements that rise to the level of fraud, even if inconsistent with integrated written contract terms.
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Given the current economic backdrop, this shift in priorities was obviously of great importance to our Supreme Court, and may not create the unmanageable burdens that some may fear, due to the strict pleading and proof requirements applicable to fraud claims that the court highlighted in support of its decision. Indeed, a number of limitations are already being developed by our courts, or have been adopted in other states and may also find acceptance here.
The decision may also foretell an equally significant shift in the resolution of the tension between "at-will" termination rights and employee expectations of ongoing employment for satisfactory performance. Unlike the impossible burden on employers and courts to address punitive damage claims based on indeterminate "implied" good faith obligations that rightfully were rejected in Foley v. Interactive Data Corp. (1988) 47 Cal.3d 317, proof of oral promises of ongoing employment at variance with integrated "at-will" provisions that amount to fraud is as manageable as in any other context, and seemingly should now be actionable.
Thus, under the new rule, the key to protecting contract expectations, and avoiding fraud claims and protracted litigation, will be in the handling of negotiations, recordkeeping, and more particularized contract drafting, on what amounts to a more level playing field that should no longer favor either lender or borrower, landlord or tenant, vendor or purchaser, employer or employee, or any other contract party that may enjoy superior bargaining power or be able to benefit from standardized contract forms.
Not surprisingly, the courts that have since decided cases have engaged in extensive analysis of transaction histories to resolve the numerous questions of fact involved in ascertaining the parties' intentions and justifiable reliance. For example, in Julius Castle Restaurant, Inc. v. Payne (2013) 216 Cal.App.4th 1423, 1442, the court affirmed a fraud judgment for damages in favor of a restaurant operator tenant against its landlord. The lease included the customary "as-is" provision, a representation by the tenant that it had inspected and approved the condition of the premises, limitation of the landlord's repair obligations to the structure, and an integration clause. (Id. at p. 1427.) However, the restaurant owner obtained...
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