Source: https://dtc-systems.com/tag/pinnacle-peak-developers-v-trw-investment-corp-ariz-ct-app-1980-631-p-2d-540-545/
Timestamp: 2019-04-24 18:28:17+00:00

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Oral promises not appearing in a written contract are admissible in court when pleading borrowers were tricked into signing agreements. This unanimous decision overturns longstanding California Supreme Court decision from Bank of America etc. Assn. v. Pendergrass (1935) 4 Cal.2d 258, 263.
The parol evidence rule protects the integrity of written contracts by making their terms the exclusive evidence of the parties. agreement. However, an established exception to the rule allows a party to present extrinsic evidence to show that the agreement was tainted by fraud. Here, we consider the scope of the fraud exception to the parol evidence rule.
As we discuss below, the fraud exception is a longstanding one, and is usually stated in broad terms. However, in 1935 this court adopted a limitation on the fraud exception: 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.” (Bank of America etc. Assn. v. Pendergrass (1935) 4 Cal.2d 258, 263 (Pendergrass).) The Pendergrass rule has been criticized but followed by California courts, for the most part, though some have narrowly construed it. The Court of Appeal in this case adopted such a narrow construction, deciding that evidence of an alleged oral misrepresentation of the written terms themselves is not barred by the Pendergrass rule.
Plaintiffs, who prevailed below, not only defend the Court of Appeal.s holding but, alternatively, invite us to reconsider Pendergrass. There are good reasons for doing so. The Pendergrass limitation finds no support in the language of the statute codifying the parol evidence rule and the exception for evidence of fraud. It is difficult to apply. It conflicts with the doctrine of the Restatements, most treatises, and the majority of our sister-state jurisdictions. Furthermore, while intended to prevent fraud, the rule established in Pendergrass may actually provide a shield for fraudulent conduct. Finally, Pendergrass departed from established California law at the time it was decided, and neither acknowledged nor justified the abrogation. We now conclude that Pendergrass was ill- considered, and should be overruled.
2 Through an apparent oversight, their initials appear on only the first, second, and last of the four pages listing the properties in which the Credit Association took a security interest.
The Workmans did not make the required payments. On March 21, 2008, the Credit Association recorded a notice of default. Eventually, the Workmans repaid the loan and the Association dismissed its foreclosure proceedings. The Workmans then filed this action, seeking damages for fraud and negligent misrepresentation, and including causes of action for rescission and reformation of the restructuring agreement. They alleged that the Association.s vice president, David Ylarregui, met with them two weeks before the agreement was signed, and told them the Association would extend the loan for two years in exchange for additional collateral consisting of two ranches. The Workmans further claimed that when they signed the agreement Ylarregui assured them its term was two years and the ranches were the only additional security. As noted, the contract actually contemplated only three months of forbearance by the Association, and identified eight parcels as additional collateral. The Workmans did not read the agreement, but simply signed it at the locations tabbed for signature.
The Credit Association moved for summary judgment. It contended the Workmans could not prove their claims because the parol evidence rule barred evidence of any representations contradicting the terms of the written agreement. In opposition, the Workmans argued that Ylarregui.s misrepresentations were admissible under the fraud exception to the parol evidence rule. Relying on Pendergrass, supra, 4 Cal.2d 258, the trial court granted summary judgment, ruling that the fraud exception does not allow parol evidence of promises at odds with the terms of the written agreement.
The Court of Appeal reversed. It reasoned that Pendergrass is limited to cases of promissory fraud. 3 The court considered false statements about the contents of the agreement itself to be factual misrepresentations beyond the scope of the Pendergrass rule. We granted the Credit Association.s petition for review.
4 Code of Civil Procedure section 1856, subdivision (a) states: “Terms set forth in a writing intended by the parties as a final expression of their agreement with respect to such terms as are included therein may not be contradicted by evidence of any prior agreement or of a contemporaneous oral agreement.” Further unspecified statutory references are to the Code of Civil Procedure.
5 Cal.App.4th 1412, 1433.) There is no dispute in this case that the parties. agreement was integrated.
The most well-developed detour around Pendergrass has drawn a line between false promises at variance with the terms of a contract and misrepresentations of fact about the contents of the document. This theory, on which the Court of Appeal below relied, was articulated at length in Pacific State Bank v. Greene, supra, 110 Cal.App.4th at pages 390-396. However, in our view the Greene approach merely adds another layer of complexity to the Pendergrass rule, and depends on an artificial distinction. In Greene, a borrower was allegedly assured she was guaranteeing only certain indebtedness, an assurance that was both a false promise and a misrepresentation of the contract terms. (Greene, supra, 110 Cal.App.4th at pp. 382-383.) The Greene court conceded that evidence of the promise would have been inadmissible had it not been made when the contract was executed. (Id. at p. 394.) In this case, the Greene rule would exclude Ylarregui.s alleged false promises in advance of the parties. agreement, but allow evidence of the same promises at the signing. For another example of an elusive distinction between false promises and factual misrepresentations, see Continental Airlines, Inc. v. McDonnell Douglas Corp. (1989) 216 Cal.App.3d 388, 419-423.
There are multiple reasons to question whether Pendergrass has stood the test of time. It has been criticized as bad policy. Its limitation on the fraud exception is inconsistent with the governing statute, and the Legislature did not adopt that limitation when it revised section 1856 based on a survey of California case law construing the parol evidence rule. Pendergrass.s divergence from the path followed by the Restatements, the majority of other states, and most commentators is cause for concern, and leads us to doubt whether restricting fraud claims is necessary to serve the purposes of the parol evidence rule. Furthermore, the functionality of the Pendergrass limitation has been called into question by the vagaries of its interpretations in the Courts of Appeal.
We respect the principle of stare decisis, but reconsideration of a poorly reasoned opinion is nevertheless appropriate.9 It is settled that if a decision departed from an established general rule without discussing the contrary authority, its weight as precedent is diminished. (See, e.g., Phelan v. Superior Court (1950) 35 Cal.2d 363, 367-369; 9 Witkin, Cal. Procedure (5th ed. 2008) Appeal, § 537, pp. 606-608.) Accordingly, we review the state of the law on the scope of the fraud exception when Pendergrass was decided, to determine if it was consistent with California law at that time.
We expressed no view in Rosenthal on the “validity” and “exact parameters” of a more lenient rule that has been applied when equitable relief is sought for fraud in the inducement of a contract. (Rosenthal, supra, 14 Cal.4th at p. 423; see California Trust Co. v. Cohn (1932) 214 Cal. 619, 627; Fleury v. Ramaciotti, supra, 8 Cal.2d at p. 662; Lynch v. Cruttenden & Co. (1993) 18 Cal.App.4th 802, 807; 1 Witkin, Summary of Cal. Law, supra, Contracts, § 301, pp. 327-328.) Here as well we need not explore the degree to which failure to read the contract affects the viability of a claim of fraud in the inducement.
We affirm the Court of Appeal.s judgment.
CANTIL-SAKAUYE, C. J. KENNARD, J. BAXTER, J. WERDEGAR, J. CHIN, J. LIU, J.

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