In a decision with important
consequences to businesses that enter into contracts with consumers, the
Supreme Court of California in Riverisland Cold Storage, Inc. v.
Fresno-Madera Production Credit Association, 2013 Cal. LEXIS 253 (2013) [an enhanced version of this opinion is available to lexis.com subscribers],
ended the state's long adherence to the Pendergrass rule, which had
stood for almost 78 years. Riverisland brings California in line with
the majority of other jurisdictions in holding that fraud, without restriction,
is admissible to challenge the validity of a written agreement.
The Pendergrass Rule
It is a generally accepted exception to the parol evidence rule that a party to
an agreement may present extrinsic evidence without restriction to show that
the agreement was tainted by fraud. Corbin on Contracts explains:
"It is widely agreed that oral testimony is admissible to prove fraud or
misrepresentation . . . . This exception to the parol evidence rule applies
even if the testimony contradicts the terms of a completely integrated
In [Bank of America etc. Assn. v.
Pendergrass, 4 Cal. 2d 258 (1935) enhanced version] the California Supreme
Court manufactured a limitation to the fraud exception that was inconsistent
with even settled California law at the time it was decided in1935. Pendergrass
held that 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."
Almost eight decades later in Riverisland, the California Supreme Court
concluded that the Pendergrass rule restricting the evidence that may be
admitted to prove fraud needed to be scrapped because it was "bad
policy" and out of step with the California Code of Civil Procedure, the
majority of other jurisdictions, as well as the consensus of leading contract
law commentators. In addition, the rule Pendergrass created has proven
largely unworkable: California courts followed it with only "varying
degrees of fidelity," and they invented all manner of artifice to avoid
its impact. Finally, as a practical concern, instead of preventing fraud,
adherence to the Pendergrass limitation actually promoted it.
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Murray is a partner with the Pittsburgh,
Pennsylvania firm Murray, Hogue & Lannis. He has been a member of the
Pennsylvania bar since 1984, and is also admitted to practice in the U.S.
District Court, Western District of Pennsylvania and the U.S. Court of Appeals,
Third Circuit. He co-authors with Dr. John E. Murray, Jr., the biannual
supplements to the landmark contract law treatise Corbin on Contracts. He is
co-author of Contract Law for the 21st Century Lawyer: Critical Analysis and
Practical Application (PBI Press 2013). Mr. Murray is currently revising
various chapters in Lexis' form book series, Current Legal Forms. He is also
one of Lexis' authors of Emerging Issues Analyses, and Lexis Practice Advisor.
Mr. Murray has represented numerous businesses and individuals in all manner of
contract transactional matters and disputes, including automobile manufacturers
and dealers. He has been the course planner for numerous contract law seminars
in Pennsylvania and Ohio and has been a presenter at contract law seminars for
the Pennsylvania Bar Institute.