Pendergrass Rule Ends Run a Little Shy of 80 Years

Since Bank of America etc. Assn. v. Pendergrass, 4 Cal. 2d 258, 263 (1935) (Pendergrass), California Courts have, to various degrees, excluded evidence of fraud when the fraud is directly contrary to the terms of a written agreement.  In Riverisland Cold Storage, Inc. v. Fresno-Madera Production Credit Association (January 14, 2013), the California Supreme Court revisited the Pendergrass rule, concluding that it was time to overrule Pendergrass.

The plaintiffs in Riverisland restructured debt, secured by real property. They defaulted and the Association recorded a notice of default. After the plaintiffs repaid their loan, the Association dismissed the foreclosure proceedings. The plaintiffs then sued for fraud, contending that they were promised two years of forbearance by the Association’s Vice President in exchange for additional collateral. The plaintiffs did not read the subsequently prepared agreement and simply signed it. The trial court granted summary judgment, excluding evidence of fraud at odds with the writing pursuant to the Pendergrass rule. On appeal, the Court of Appeal reversed, narrowly construing Pendergrass. The Supreme Court granted review.

The Supreme Court observed that the Pendergrass rule has been criticized but followed by California courts, although Courts attempting to avoid its result have narrowly construed it.  The Supreme Court noted that 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 asked the Supreme Court to reconsider Pendergrass.  The Court agreed that there were good reasons to do so:

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.

Slip op., at 2.

While this case arises in the context of an individual suit for fraud, it provides substantial relief for consumer class action cases alleging claims of fraud stemming from misrepresentations about the subject of a later written agreement.