Source: https://ezerwilliamsonlaw.com/category/civil-law/
Timestamp: 2019-04-25 08:45:15+00:00

Document:
We recently wrote about contract integration clauses, which will usually state that the contract is “completely integrated,” and the parol evidence rule, which works to keep out prior or contemporaneous statements or writings that would modify the contract. In this post we discuss Riverisland Cold Storage, Inc. v. Fresno–Madera Production Credit Assn., 55 Cal. 4th 1169 (2013). In short, Riverisland states that the parol evidence rule is not a bar to evidence that goes to show fraud in connection with the contract, and the court may look to, for example, prior statements and emails, to determined what agreement was made by the parties.
In Riverisland, the plaintiffs restructured and reaffirmed a debt owed to the Fresno-Madera Production Credit Association (“Credit Association”). The restructuring agreement provided that the Credit Association would take no enforcement action for three months if the plaintiffs made specified payments and pledged eight (8) parcels of land as additional collateral.
Later, the plaintiffs fell behind on payments and the Credit Association instituted foreclosure proceedings. Eventually, the plaintiffs repaid the loan and the Credit Association dismissed its foreclosure proceedings.
However, the plaintiffs filed an action seeking damages for fraud and negligent misrepresentation, and included causes of action for rescission and reformation of the restructuring agreement. In their complaint, the plaintiffs alleged that the Credit Association’s vice president told them two weeks before the agreement was signed that the Credit Association would extend the loan for two years in exchange for two “ranch properties” as the additional real-property collateral, but the written contract actually allowed for only an additional three months of forbearance and identified eight (8) parcels as additional collateral.
The plaintiffs did not read the agreement, but simply signed it at the locations tabbed for signature. The Credit Association moved for summary judgment, contending that the plaintiffs could not prove their claims because the parol evidence rule barred evidence of any representations contradicting the terms of the written agreement.
At the time that the plaintiffs brought their complaint, California had operated under the longstanding rule set forth in Bank of America etc. Assn. v. Pendergrass, 4 Cal. 2d 258 (1935), which prohibited the use of parol evidence in cases where fraud is alleged in connection with a purportedly “integrated” contractual agreement.
How will this affect contract related litigation in California? Riverisland leans against a court granting dispositive motions, like demurrers, motions for summary judgment, and motions for judgment on the pleadings, where the plaintiff alleges or can show that there is parol evidence supporting their claims, even if the contract is “fully integrated” and/or has an integration clause.
What is an Integration Clause in a contract?
An integration clause (also known as a merger clause or an entire agreement clause) is found in most contracts and simply provides that the agreement or contract between the parties is the final and complete understanding between the parties, and supersedes all prior negotiations, agreements, or understandings on the subject.
Integration clauses are key when there is a dispute between two or more contracting parties and one party wants to use prior or contemporaneous discussions to contradict or explain terms within a contract.
By way of example, suppose that Party A negotiates to sell Party B 100 “type-1” gears for a specified sum. The parties sign a contract which states that Party A agrees to sell Party B 100 “industry standard gears” for a specified sum, but with no reference to “type 1” in the description. Party A delivers 100 “type-3” gears (considered “industry standard”) and demands payment. Party B refuses to pay. Party B wants to use communications between the parties before the contract was signed to show that Party A was to deliver 100 “type-1” gears. Party A, on the other hand, claims that the gears delivered are “industry standard” and the contract contains an integration clause that excludes prior or contemporaneous agreements.
California has codified (i.e., set out by statute) many rules of contract interpretation; these rules apply to all contracts, absent exceptional circumstances. Civil Code § 1635. The basic goal of contract interpretation is to give effect to the parties’ mutual intent that existed at the time of contracting. Civil Code § 1636. When an agreement is set forth in a final written contract, the parties’ intent is determined from the writing alone, if possible. Civil Code § 1639. “The words of a contract are to be understood in their ordinary and popular sense” (Civil Code § 1644), and the terms of a final, integrated contract “may not be contradicted by evidence of any prior agreement or of a contemporaneous oral agreement” (CCP § 1856).
Nevertheless, in our example above, Party B may still be able to submit evidence that the agreement was for 100 “type-1” gears. This is because a written contract “may be explained or supplemented by evidence of consistent additional terms unless the writing is intended also as a complete and exclusive statement of the terms of the agreement.” Code Civ. Proc., § 1856, subd. (b). Also, technical words are to be interpreted as usually understood by persons in the profession or business to which they relate, unless clearly used in a different sense. Civil Code § 1645; Cal. Civ. Proc. Code § 1856 (“The terms set forth in a writing described in subdivision (a) may be explained or supplemented by course of dealing or usage of trade or by course of performance.”).
Thus, the dispute between the parties in our example above will center on the court’s determination as to whether the prior and contemporaneous statements are admissible as consistent additional terms and/or to explain what “industry standard” means in this context.
1 Grey v. Am. Mgmt. Servs., 204 Cal. App. 4th 803, 805 (2012).
File Articles of Organization (Secretary of State Form LLC-1) with the California Secretary of State’s office and pay the associated filing fee. The type of management that is desired, i.e., manager-managed by one or more managers or member managed, is indicated by checking a box on the Articles of Organization, and should be carefully considered.
Designate an Agent for service of process. The agent shall be an individual that is a resident of the State of California, such as the company’s lawyer if a resident, or a corporate agent that complies under California law (Corporations Code Sections 17701.13(c), 1505) and whose capacity to act as an agent has not been terminated.
File a Statement of Information (Secretary of State Form LLC-12) with the California Secretary of State’s office within 90 days after filing the original Articles of Organization (biennially after that) and pay the associated filing fee.
Although some states have publication requirements for a newly formed LLC, California does not. California also does not legally require a newly formed LLC to prepare and file an LLC Operating Agreement. However, it is highly advisable to have an LLC Operating Agreement prepared (and negotiated if there is more than one member) before making any filings with the Secretary of State.
If you have any questions about forming a limited liability company, consult with an experienced attorney. Ezer Williamson Law provides a wide range of both transactional and litigation services to individuals and businesses. Contact us at (310) 277-7747 to see how we can help you with your business law needs.

References: v. 
 v. 
 § 1635
 § 1636
 § 1639
 § 1644
 § 1856
 § 1856
 § 1645
 § 1856
 v.