Riverisland Erodes Calif. 'Parol Evidence Rule'
Perry Mocciaro wrote a column published by Law360 on March 5 about the parol evidence rule and how a recent California Supreme Court ruling has undercut it by giving parties more leeway to use outside evidence to claim that contracts were induced by fraud and should be voided. Traditionally, parties have been able to attack the validity of contracts by claiming fraud “based on some independent fact or representation,” but not an “alleged extrinsic promise at odds with a promise stated in the contract itself.” That changed this year with the Supreme Court's decision in Riverisland Cold Storage Inc. v. Fresno-Madera Production Credit Assn.
According to Mocciaro, the decision in Riverisland makes one thing clear: “parties will have broader latitude to claim fraud even where their claims are negated by the terms of an integrated written contract they have signed.” In his article he recommends a number of steps that lenders and others entering into contracts should take so they have proof to refute fraud allegations, such as having all parties initial every page of the contract.
“It would also be wise to have all parties separately initial all particularly significant provisions within the text of the contract, as is already done for certain types of provisions such as liquidated damages and arbitration,” he wrote. “Such precautions should go far to disprove claims that a party supposedly was not aware of a given provision or reasonably believed and relied upon some claimed extrinsic representation contrary to the written contract.”