Riverisland Cold Storage, Inc. v. Fresno-Madera Prod. Credit Assn.

119 Cal.Rptr.3d 380

11 Cal. Daily Op. Serv. 201

2011 Daily Journal D.A.R. 169

RIVERISLAND COLD STORAGE, INC. et al., Plaintiffs and Appellants,

v.FRESNO-MADERA PRODUCTION CREDIT ASSOCIATION, Defendant and Respondent.

No. F058434.

Court of Appeal, Fifth District, California.

Jan. 3, 2011.

Background: Borrower brought action against lender for fraud, negligent misrepresentation, rescission, and reformation. The Superior Court, Fresno County, No. 08CECG01416, Adolfo M. Corona, J., granted summary judgment for lender. Borrower appealed.

Holding: The Court of Appeal, Hill, J., held that lender's alleged oral misrepresentations of terms in written agreement fell within fraud exception to parol evidence rule.

Reversed with directions.

Wild, Carter & Tipton and Steven E. Paganetti, Fresno, for Plaintiffs and Appellants.

Lang, Richert & Patch, Scott J. Ivy and Ana de Alba for Defendant and Respondent.

OPINION

HILL, J.

Plaintiffs appeal from a judgment entered against them after defendant's motion for summary judgment was granted. Plaintiffs' complaint alleged causes of action including fraud, negligent misrepresentation, rescission and reformation; plaintiffs alleged they signed a written agreement with defendant, but they were induced to do so by defendant's oral misrepresentations of the terms contained in the written agreement, made at the time of execution of the agreement. The court granted defendant's motion for summary judgment after ruling that plaintiffs' evidence of misrepresentations was inadmissible pursuant to the parol evidence rule, and therefore plaintiffs had not presented admissible evidence raising a triable issue of material fact that would prevent entry of judgment against them. We find the evidence fell within the fraud exception to the parol evidence rule and should have been admitted to raise a triable issue of material fact in opposition to defendant's motion. Accordingly, we reverse the judgment.

FACTUAL AND PROCEDURAL BACKGROUND

On January 1, 2007, plaintiffs' operating loan from defendant went into default when they failed to make a required payment. On March 26, 2007, plaintiffs and defendant entered into a written forbearance agreement, in which defendant agreed to temporarily forbear from pursuing collection and plaintiffs agreed to make specified payments and provide additional security for the debt. The written agreement provided that defendant would forbear from collection until July 1, 2007, and plaintiffs would pledge as additional collateral certain real property, which included plaintiffs' residence and a truck yard. Plaintiffs failed to make the payments required by the March 26, 2007, agreement and defendant recorded a notice of default. Plaintiffs subsequently repaid the loan.

On April 2, 2008, plaintiffs filed their complaint, alleging causes of action including fraud, negligent misrepresentation, rescission, and reformation. They alleged that, two weeks prior to their execution of the written forbearance agreement, defendant's senior vice president, David Ylarregui, met with them and represented defendant would agree to forbear from collection for two years if plaintiffs would pledge two orchards as additional security. On March 26, 2007, at the time of execution of the written agreement, Ylarregui told plaintiffs the agreement would be for two years and would include as security only the two orchards, and not plaintiffs' residence or the truck yard. Plaintiffs alleged they did not read the written agreement, but relied on Ylarregui's representations of its terms in executing the written agreement. They alleged defendant's fraud and misrepresentation damaged plaintiffs' credit, and defendant's notice of foreclosure interfered with plaintiffs' ability to sell their real property.

Defendant moved for summary judgment, asserting it was entitled to judgment on plaintiffs' first four causes of action because plaintiffs failed to perform in accordance with the written forbearance agreement, and they were barred by the parol evidence rule from presenting evidence of any prior or contemporaneous oral agreement that contradicted the terms of the written agreement. Plaintiffs opposed the motion, presenting evidence that, at the time of execution of the forbearance agreement, Ylarregui gave them the agreement to sign and stated that it contained a forbearance of two years and only included the two orchards as additional security. They asserted the fraud exception to the parol evidence rule applied, making the parol evidence of defendant's factual misrepresentations admissible. The trial court granted defendant's motion, concluding the parol evidence rule barred admission of evidence of an oral agreement that directly contradicted the terms of the written agreement, and therefore plaintiffs had failed to raise a triable issue of material fact to prevent entry of judgment in defendant's favor. Plaintiffs appeal.

DISCUSSION

I. Standard of Review

[1] "We review the trial court's decision [on a motion for summary judgment] de novo, considering all of the evidence the parties offered in connection with the motion[,] except that which the court properly excluded." ( Merrill v. Navegar, Inc. (2001) 26 Cal.4th 465, 476, 110 Cal.Rptr.2d 370, 28 P.3d 116.) Plaintiffs challenge the ruling on the summary judgment motion only as to the first four causes of action: fraud, negligent misrepresentation, rescission, and reformation.¹ Those causes of action were all dependent on the existence of oral agreements or representations made by defendant that were materially different from the provisions of the written contract. In support of its motion for summary judgment, defendant presented evidence that it entered into a written forbearance agreement with plaintiffs on specified terms, and plaintiffs breached that agreement by failing to make payments as required. In opposition, plaintiffs offered evidence of oral statements made by Ylarregui before or at the time plaintiffs executed the written agreement, which they assert misrepresented the terms of the written agreement. The trial court excluded evidence of the oral statements based on the parol evidence rule, and plaintiffs presented no other evidence with which to raise a triable issue of material fact. Thus, the only issue presented by this appeal is whether the evidence of defendant's oral statements, proffered by plaintiffs in opposition to the motion, was properly excluded by the trial court. "Whether the parol evidence rule applies in a given set of circumstances is a question of law, which we consider de novo to the extent that no evidentiary conflict exists. [Citations.]" ( EPA Real Estate Partnership v. Kang (1992) 12 Cal.App.4th 171, 176, 15 Cal.Rptr.2d 209.)

II. Parol Evidence Rule

[2][3][4] The parol evidence rule is codified at Civil Code section 1625 and Code of Civil Procedure section 1856.² It generally prohibits the introduction of extrinsic evidence, including evidence of any prior or contemporaneous oral agreement, to vary, alter or add to the terms of an integrated written instrument. ( Alling v. Universal Manufacturing Corp. (1992) 5 Cal.App.4th 1412, 1433, 7 Cal.Rptr.2d 718 ( Alling ).) "Although the rule results in the exclusion of evidence, it 'is not a rule of evidence but is one of substantive law.' [Citation.]" ( Casa Herrera, Inc. v. Beydoun (2004) 32 Cal.4th 336, 343, 9 Cal.Rptr.3d 97, 83 P.3d 497 ( Casa Herrera ).) "The rule derives from the concept of an integrated contract, and is based on the principle that when the parties to an agreement incorporate the complete and final terms of the agreement in a writing, such an 'integration' in fact becomes the complete and final contract between the parties, which may not be contradicted by evidence of purportedly collateral agreements.... 'Extrinsic evidence is excluded because it cannot serve to prove what the agreement was, this being determined as a matter of law to be the writing itself.' " ( Alling, supra, 5 Cal.App.4th at pp. 1433-1434, 7 Cal.Rptr.2d 718.) " '[T]he act of executing a written contract ... supersedes all the negotiations or stipulations concerning its matter which preceded or accompanied the execution of the instrument.' [Citation.]" ( Casa Herrera, supra, 32 Cal.4th at p. 344, 9 Cal.Rptr.3d 97, 83 P.3d 497.)

A. Integration

[5][6][7][8] An integrated contract is "a complete and final embodiment of the terms of an agreement." ( Masterson v. Sine (1968) 68 Cal.2d 222, 225, 65 Cal.Rptr. 545, 436 P.2d 561.) "The crucial issue in determining whether there has been an integration is whether the parties intended their writing to serve as the exclusive embodiment of their agreement." ( Id. at pp. 225-226, 65 Cal.Rptr. 545, 436 P.2d 561.) In making this determination, "the court may consider all the surrounding circumstances, including the prior negotiations of the parties. [Citation.]" ( Banco Do Brasil, S.A. v. Latian, Inc. (1991) 234 Cal.App.3d 973, 1002, 285 Cal.Rptr. 870 ( Banco do Brasil ).) The forbearance agreement contains detailed terms and appears to be a complete agreement. It also contains an integration clause providing that "this agreement constitutes the entire agreement between the parties with respect to the matters covered in this agreement." The trial court found the forbearance agreement is integrated, and neither party challenges that finding on appeal. Whether a writing is an integration is a question of law, which we review de novo. (Code Civ. Proc., § 1856, subd. (d); Wagner v. Glendale Adventist Medical Center (1989) 216 Cal.App.3d 1379, 1386, 265 Cal.Rptr. 412.) We agree that the forbearance agreement is an integrated agreement, to which the parol evidence rule applies.

B. Fraud exception

[9] Because the written forbearance agreement is integrated, the parol evidence rule makes extrinsic evidence that would vary, alter, or add to the terms of the writing inadmissible, absent some exception to the rule. Plaintiffs contend the fraud exception applies...