RIVERISLAND COLD STORAGE v. FRESNO MADERA PRODUCTION CREDIT ASSOCIATION

Respondent's Petition for Review

Cal.February 15, 2011

In the Supreme Court OF THE State of California RIVERISLAND COLD STORAGE, INC., LANCE WORKMAN, PAM WORKMAN, LAURENCE A. WORKMAN, CAROLE WORKMANand WORKMANFAMILYLIVING TRUST, Plaintiffs/Appellants VS. . FRESNO-MADERA PRODUCTION CREDIT ASSOCIATION, Defendant/Respondent After Rehearing Denied and After the Published Opinion” * LoD In the Court of Appeal, Fifth Appellate District PETITIONFORREVIEW Scott J. Ivy-—No. 197681 NickolasJ. Dibiaso—No. 43885 Lynne Thaxter Brown—No.104958 LANG, RICHERT & PATCH = DOWLING, AARON & KEELER 5200 North Palm Avenue 8080 North Palm Avenue Fourth Floor Third Floor P.O Box 40012 P.O. Box 28902 Fresno, California 93755-0012 Fresno, California 9372982 Telephone: (559) 228-6700 Telephone: +229) 435.4290 Fax: (559) 228-6727 Attorneys for Defendant/Respondent/Petitioner FRESNO-MADERA PRODUCTION CREDIT ASSOCIATION TABLE OF CONTENTS I. SUMMARYOF THIS PETITION o.oo. ceecececeseeeeeeceseesseeeeneesesaeceneeeseeeeteeas St Il. ISSUE PRESENTED FOR REVIEW ooo. cecccecceeteeneserecnnseseeeeeenieseaeeeeeneees 6 IH. STATEMENT OF THE CASE ooo. cecececcceceessneensecnaeceeeeeseessasseseesentesseeeneeensaes 6 IV. ARGUMENT 0. eecccccesscceceneeneeeneceessaceeesseesessaeenaaeeseaeeessauesaeasessaeeseesatersaeeeeeas 10 A. REVIEW IS REQUIRED TO RESOLVE A CONFLICT BETWEEN THE DECISION IN THIS CASE AND DECISIONS OF THE SUPREME COURT AND OTHER COURTSOF APPEAL............ 10 1. The Parol Evidence Rule, the Statutory “Fraud Exception,” ANd PENAELLASS oi. eeecccccceseeseuceesnneeteneeesneetenseeseenueeseaneeeneeeess 10 a. The Parol Evidence Rule «0.0.0...eeeeeneee 10 b. Pendergrass and Casa Herrerauu.12 2. Application of Pendergrass in Subsequent Appellate Cases Has Been Confusing, Inconsistent and Unpredictable........ 15 a. Lamb Finance and WeSt......ccccccccccseeseeeeeseeeees 15 b. Continental Airlines .....cccceccccecsccceesseceeessetestsenee: 17 C. Greene and RiverIsland ......cccccccccecteteteeeees 18 3. There Is No Justification In Pendergrass Or In Casa Herrera For The Distinction, Preserved And Applied In Riverlsland, Between A Pre-Contract “Promise” And A Pre-Contract ‘“Misrepresentation Of Fact.” oo... ceeeceseessceseeeteseeeeneeeaees 21 4. Riverlsland And Its Predecessors Fail To Distinguish Between “Fraud In The Procurement” Of An Instrument And “Fraud In The Inducement” Of An Instrument............ 24 B. REVIEW IS REQUIRED TO RESOLVE AN IMPORTANT QUESTION OF LAW ou ceccceccccsccceececsnseceeseseetaceseneeseaeeeaeeeeeeteeersaeeees 29 V. CONCLUSION(ucccceccecccescceseensecsceceeeeeneecesaeenaneesceseneeceasecsuesaeeeeeeseeaeeeeeesatessaees 31 TABLE OF AUTHORITIES Cases Alling v. Universal Manufacturing Corp. (1992) 5 Cal.App.4th 1412 0.0... 11,17 ‘Banco Do Brasil, S.A. v. Latian, Inc. (1991) 234 Cal.App.3d 973 ......eepassim Bank ofAmerica National Trust and Savings Association v. Pendergrass (1935) 4 Cal.2d 258 ooceeccscseesenecesneeeneceeeeneceneecseesseeesueeseesetesetaeeeaeespassim Bank ofAmerica v. Lamb Finance Co. (1960) 179 Cal.App.2d 498 ..........passim Casa Herrera, Inc. v. Beydoun (2004) 32 Cal4th 336.00... ceccecceceeteeeteseteees passim Continental Airlines, Inc. v. McDonnell Douglas Corp. (1989) 216 Cal.App.3d 375 ....ceicecccccssscessssecenseceseecestaesetnecstseeesuaeeseieeseesuteeseeeeseeeeesinenes passim Edwards v. Centex Real Estate Corp. (1997) 53 CalApp.4th 15 wi...cece 12 Estate ofGaines (1940) 15 Cal.2d 255 oii cccccecceccncececneeeeeneeeerseeecesieseneeesnresseeeees 11 Ferguson v. Koch (1928) 204 Cal. 342 .o.cccccccccscsecsneeecseeeeeeneeeesneeececaressaeeesnreesaeeees 12 Frusetta v. Hauben (1990) 217 Cal.App.3d 551 oececceceesseeseesteeseeeeseeceseeeeees 25 Golden v. Fischer (1915) 27 Cal.App. 271 ..ecceeeccecceesscsseeessseneecenresneeseieeseenees 25 Masterson v. Sine (1968) 68 Cal.2d 222 oo eciiccccscscecsneeceeneeecneeeceeeeeseeeetreeseeees 29 Newmark v. H andHProducts Manufacturing Co. (1954) 128 Cal.App.2d SS oe eeccesceeccetecsneeseessceceseceaeeaseeseeesscaeeaseeceeeenseaecaueseceeeseeseecateeeseeaeseaeseeeeaeseaeeaeeateaes 17 Pacific State Bank v. Greene (2003) 110 Cal.App.4th 375 oo. eeeseeeeeeeespassim Price v. Wells Fargo Bank (1989) 213 Cal.App.3d 465... ccceeeeeseteeeeeeenes 17, 29 Riverlsland Cold Storage, Inc. v Fresno-Madera Production Credit Association (2011) 191 Cal.App.4th 611eeeccceeeencereseeereeeeeeneeneeeneees passim Rosenthal v. Great Western Fin. Securities Corp. (1996) 14 Cal.4th 394......... 5, 25 Shyvers v. Mitchell (1955) 133 Cal.App.2d 569.0... ececsesccceeceeseeetteetteeseeeeneeeentees 17 Wang v. Massey Chevrolet (2002) 97 Cal.App.4th 856 0... ecceceeteeteeteeees 3,4, 17 West v. Henderson (1991) 227 Cal.App.3d 1578.0... ceccecesceeesterseseseeteneeeeeaespassim il Statutes California Rules of Court, rule 8.500(b)(1) uo...cc ccesccesccsesccssessccesrtenseeeseenees 1,10 Civil Code section 1625.0... ccceceesessessesssesseeeseeseesessessssseeseeseseseseeseessessccasenscseseasens 10 Code of Civil Procedure section 1856 ...c..cccccccccscssccssessessccsccsessesesecesesseesecsseesees 10 Code of Civil Procedure section 1856(f) and (2) .....cccccccsccssecscereceesseessesseseseseseees 11 Other Authorities 12 Williston on Contracts (3d ed. 1970) § 1488, p. 335...cccccceseseeesseeteeeees 25 ill L SUMMARYOF THIS PETITION As is shown by this Petition for Review, this Court’s seminal opinion on the application of the “fraud exception” to the parol evidence rule, Bank ofAmerica National Trust and Savings Association v. Pendergrass (1935) 4 Cal.2d 258 (“Pendergrass’’), has been effectively overruled as a consequence of a succession of subsequent decisions by the Courts of Appeal in some Appellate Districts, culminating in the decision of the Fifth Appellate District in RiverIsland Cold Storage, Inc. v Fresno-Madera Production Credit Association (2011) 191 Cal.App.4th 611 (Opn. filed 1/3/11 [Attachment “A” hereto]), from which this Petition is taken. Because the decisions that disregard Pendergrass conflict with other subsequent decisions on the same issue by the Courts of Appeal in other Appellate Districts, this Petition presents both an important question of law and a conflict among the Courts of Appeal -- and thus a lack of uniformity -- in the application ofthe fraud exception to the parol evidence rule. (Cal. Rules of Court, rule 8.500(b)(1).) In Pendergrass, this Court held that parol evidence of fraud offered to prove the invalidity of an instrumentis admissible only if it tends “to establish some independent fact or representation, some fraud in the procurement of the instrument or somebreach of confidence concerning its use, and not_a promise directly at variance with the promise in the writing.” (Pendergrass, supra, 4 Cal.2d at 263.) According to this Court, the fraud exception to the parol evidence rule does not encompass oral promises that contradict the terms of a written agreement because “{s]uch a principle would nullify the rule: for conceding that such an agreementis proved, or any other contradicting the written instrument, the party seeking to enforce the written agreement according to its terms would alwaysbe guilty of fraud.” (/bid.) This Court thus found that parol evidence of a creditor’s alleged fraudulent representation to the debtor, made before the debtor executed a demand note, that the creditor would “extend’” or “postpone” all payments on the note for one year was inadmissible because the representation was “in direct contravention of the unconditional promise contained in the note to pay the money on demand.” (/bid.) In 2004, this Court, in Casa Herrera, Inc. v. Beydoun (2004) 32 Cal.4th 336 (“Casa Herrera”), unambiguously reaffirmed Pendergrass, stating that “the parol evidence rule, as a practical matter, provides ‘absolute protection from liability’ for prior or contemporaneous statements at variance with the terms of a written integrated agreement.” (/d. at 347, fn. omitted, emphasis added.) In the 75 years since Pendergrass, the Courts of Appeal have struggled to apply Pendergrass in a myriad of factual settings. Most courts have accepted, although some begrudgingly, the seemingly straightforward principle laid out in Pendergrass and reaffirmed in Casa Herrera, that, if the alleged pre- execution oral statement conflicts with the terms of the written agreement, the statement does not fall within the fraud exception. (See, e.g., Bank ofAmericav. Lamb Finance Co. (1960) 179 Cal.App.2d 498; Price v. Wells Fargo Bank (1989) 213 Cal.App.3d 465; West v. Henderson (1991) 227 Cal.App.3d 1578; Banco Do Brasil, S.A. v. Latian, Inc. (1991) 234 Cal.App.3d 973; Wang v. Massey Chevrolet (2002) 97 Cal.App.4th 856.) However, other courts, notwithstanding the clarity of Pendergrass and Casa Herrera, have created and then applied a distinction between a statement described as a “false promise” and a statement described as a “misrepresentation of fact,” and have found the former to be inadmissible and the latter to be admissible. (See Continental Airlines, Inc. v. McDonnell Douglas Corp. (1989) 216 Cal.App.3d 375 (“Continental Airlines”).) Still another has put a temporal gloss on the “‘misrepresentation of fact” exception by making admissible only “misrepresentations of fact over the content of an agreement at_the time of signing.” (Pacific State Bank v. Greene (2003) 110 Cal.App.4th 375, 392, 394, 396 (“Greene’’); emphasis added.) In Riverlsland, the Fifth District adopted the Greene distinction between “false promises” statements and “misrepresentations of fact” statements as the test of admissibility but expanded the temporal reach ofthe latter by holding that the “misrepresentation of fact” exception to the parol evidence rule encompaéssesany “false statement about the terms contained in the contract” made “after the written contract was prepared.” (Opn.at 16.) This Court has previously described much of the post-Pendergrass appellate history of the fraud exception to the parol evidence rule as “judicial confusion,” a “confusion” that has spawned appellate decisions which conflict between appellate districts. (Bank of America v. Lamb Finance Co., supra, 179 Cal.App.2d 498; Wang v. Massey Chevrolet, supra, 97 Cal.App.4th 856; and Greene, supra, 110 Cal.App.4th 375), within a single district (West v. Henderson, supra, 227 Cal.App.3d 1578 and Greene, supra, 110 Cal-App.4th 375) and even within itself (Continental Airlines, supra, 216 Cal.App.3d 388.) The instant decision of the Fifth District in RiverIsland comesfull circle because Riverlsland simply does away with Pendergrass, and with it, Casa Herrera. This Court has never spoken on the differentiation between pre- execution “promise” statements and pre-execution “misrepresentations of fact” statements as the test of admissibility. Riverlsland thus squarely presents this Court with the opportunity to address that issue, an issue it could not reach in Casa Herrera. (Casa Herrera, supra, 32 Cal.4th at 346, n.6.) The line drawn by Continental Airlines, Greene, and Riverlsland between a pre-execution “false promise” statement and a _pre-execution “misrepresentation of fact” statement, regardless of the precise time when the statement is made,is entirely inconsistent with Pendergrass and Casa Herrera and nullifies the foundational principle that “the parol evidence rule . . . provides ‘absolute protection from liability’ for prior or contemporaneous statements at variance with the terms of a written integrated agreement.” (Casa Herrera, supra, 32 Cal.4th at 347, fn. omitted, emphasis added.)' The distinction has led to unpredictable, confusing and divergent results in the Courts of Appeal and allows the party against whom the contract is sought to be enforced not only to purposely avoid reading the contract but also to unilaterally prevent application of the parol evidencerule by culpable falsehood or innocent failure of precise recollection. Application of the parol evidence rule should not be governed by the pre-contract phraseology of a statement made by a contracting party, or the time the statement is uttered, such that the pre-execution statement “the agreement will contain X term,” characterized as a promise of inclusion, invokes the parol evidence rule, but the pre-execution statement “the agreement contains X term,” characterized as an assertion of fact, does not. Riverlsland is the culmination of 75 years of judicial disorder about the proper application of the fraud exception to the parol evidence rule. The decision nullifies Pendergrass (and Casa Herrera as well), authorizes the fraud exception to swallow up whole the parol evidence rule, and brings about the very policy evil Pendergrass sought to escape — the litigation of disputes over contractual terms “armed with an arsenal of tort remedies inappropriate to the ' Pendergrass and Casa Herrera were misapplied by Continental, Greene, and Riverlsland because the three cases each overlooked the fundamental, substantive distinction, recognized by this Court in Rosenthal v. Great Western Fin. Securities Corp. (1996) 14 Cal.4th 394, 415, between fraud in the execution of a contract and fraud in the inducement of a contract. The topic is addressed later in this Petition for Review. resolution of commercial disputes.” (Banco Do Brasil, S.A. v. Latian, Inc., supra, 234 Cal.App.3d at 1010.) After Riverlsland, it will be a rare contract dispute in any commercial context that is not susceptible of being turned into a tort case, complete with prayers for punitive damages and immunefrom attack on a motion for summary judgment. This Court now has more than enough intermediate appellate decisions, with their varied fact situations and contradictory results, to speak definitively on the topic after granting this Petition for Review. It is well past the time for this Court to step in and clean up the mess that has accumulated around the fraud exception to the parol evidence rule during the past three-quarters of a century and under which River/sland buried Pendergrass. Il. ISSUE PRESENTED FOR REVIEW Is this Court’s articulation, in Bank ofAmerica v. Pendergrass and Casa Herrera, Inc. v. Beydoun, of the scope and application of the “fraud exception”to the parol evidencerule still the law in California and, if not, whatis the appropriate scope and application of the fraud exception? Ti. STATEMENTOF THE CASE Defendant Fresno-Madera Production Credit Association (“PCA”) provided financing to plaintiffs since 2001 through a series of loans secured by real and personal property and personal guarantees. (1 CT 11, 124.) These were commonly referred to together as the “operating loan,” which was due in full on January 1, 2007. (1 CT 124.) Plaintiffs defaulted on the operating loan. (1 CT 124-125.) Instead of immediately filing a notice of default, PCA entered into a written forbearance agreement with plaintiffs on March 26, 2007. (1 CT 11, 125.) This written forbearance agreement provides that PCA would forbear from collection for approximately 90 days, until July 1, 2007, and plaintiffs would pledge additional collateral to secure the operating loan, including their residence and a truck yard. (1 CT 11, 13, 18.) The forbearance agreement contains an integration clause. (1 CT 16.) Plaintiffs failed to make the payments required by the forbearance agreement and PCA recorded a notice of default. (1 CT 125.) Plaintiffs later repaid the loan and PCA dismissedits foreclosure proceedings. (1 CT 125.) Plaintiffs sued PCA in April 2008, claiming they were fraudulently inducedinto entering into the forbearance agreement and pleading causes of action for fraud, negligent misrepresentation, rescission and reformation. (1 CT 1-37.) Plaintiffs alleged that, two weeks before they signed the forbearance agreement, PCA’s senior vice president, David Ylarregui, told them that PCA .would agree to forbear from collection for two years if plaintiffs would agree to pledge two orchards as additional security. (1 CT 2:26-3:4.) Plaintiffs also alleged that, before they signed the agreement on March 26, 2007, Ylarregui told them that the agreement was for two years and included only the two orchards as additional security and not their residence or the truck yard. (1 CT 3:5-11.) Plaintiffs maintained that PCA’s fraud and misrepresentations damagedtheir credit and that PCA’s notice of foreclosure interfered with their ability to sell their real property. (1 CT 4:10-14.) PCA moved for summary judgment. PCA asserted that it was entitled to judgment because plaintiffs failed to perform in accordance with the forbearance agreement and becauseplaintiffs were barred by the parol evidence rule from presenting evidence of the alleged prior and contemporaneous oral statements by Ylarregui contradicting the terms of the written agreement. (1 CT 46-275.) In opposition to the motion, plaintiffs presented evidence that Ylarregui told them a couple of weeks before they signed the forbearance agreement, and again at the time of signing, that the agreement wasfor a period of 2 years and only included two ranches as additional security. (1 CT 303:12-16, 343:1-4, 349, 353-355.) Plaintiffs argued that this evidence was admissible under the “fraud exception”to the parol evidence rule and thus created a triable issue of fact about whether the agreement had been fraudulently induced. Plaintiffs admitted they did not read the agreement before signing it. (1 CT 303:17-23, 343:4-5, 349.) The trial court ruled that the alleged oral statements did not fall within the fraud exception to the parol evidence rule and were inadmissible under Bank ofAmerica National Trust and Savings Assn. v. Pendergrass (1935) 4 Cal.2d 258 and Casa Herrera, Inc. v. Beydoun (2004) 32 Cal.4th 336, because the statements were in direct conflict with the plain language of the written forbearance agreement. Thetrial court therefore found that plaintiffs had failed to raise a triable issue of material fact in opposition to PCA’s motion andthe court entered judgment in PCA’s favor. (2 CT 496-502.) Plaintiffs appealed. (2 CT 515.) The Court of Appeal reversed. (Jan. 3, 2011 Opn. [Attachment A].) Although the Court expressly found that the forbearance agreement was “integrated” and thus subject to the parol evidence rule (Opn. at 5-6), the Court held that Pendergrass intended the limitations on the fraud exception to apply only to instances of “promissory “fraud at variance with a promise in an integrated writing. (Opn. at 17.) The Court of Appeal relied on Continental Airlines, supra, 216 Cal.App.3d 375, and Greene, supra, 110 Cal-App.4th 375, in concludingthat Ylarregui’s alleged oral statements, both prior to and at the time of signing, were within the fraud exception because they were “misrepresentations of the content of the written contract” and should have been admitted and considered bythetrial court in ruling on PCA’s summary judgment motion, and that the motion should have been denied. (Opn.at 17.) IV. ARGUMENT This Court may grant review “to secure uniformity of decision or to settle an important question of law.” (Cal. Rules of Court, rule 8.500(b)(1).) Review is warranted here for both reasons. A. REVIEW IS REQUIRED TO RESOLVE A CONFLICT BETWEEN THE DECISION IN THIS CASE AND DECISIONS OF THE SUPREME COURT AND OTHER COURTS OF APPEAL 1. The Parol Evidence Rule, the Statutory “Fraud Exception,” and Pendergrass a. The Parol Evidence Rule The parol evidence rule, codified in Civil Code section 1625° and Code of Civil Procedure section 1856,’ “‘generally prohibits the introduction of ? Civil Code section 1625 provides: “The execution of a contract in writing, whether the law requires it to be written or not, supersedes all the negotiations or stipulations concerning its matter which preceded or accompanied the execution of the instrument.” > Code of Civil Procedure section 1856 provides: “(a) Termsset 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 contemporaneousoral agreement. [{] (b) The terms set forth in a writing described in subdivision (a) may be explained or supplemented by evidence of consistent additional terms unless the writing is intended also as a complete and exclusive statement of the terms of the agreement. [{]] (c) The terms set forth in a writing described in subdivision (a) may be explained or supplemented by course of dealing or usage of trade or by course of performance. [{] (d) The court shall determine whether the writing is intended by theparties as a final expression of their agreement with respect to such terms as are included therein and whether the writing is intended also as a complete and exclusive statement of the terms of the agreement. [§] (e¢) Where a mistake or imperfection of the writing is put in issue by the pleadings, this section does not exclude [continued] 10 any extrinsic evidence, whether oral or written, to vary, alter or add to the terms of an integrated written instrument.’” (Casa Herrera, supra, 32 Cal.4th at 343, quoting Alling v. Universal Manufacturing Corp. (1992) 5 Cal.App.4th 1412, 1433.) Although the parol evidence rule results in the exclusion of evidence, it “‘is not a rule of evidence but is one of substantive law. . . . The rule as applied to contracts is simply that as a matter of substantive law, a certain act, the act of embodying the complete terms of an agreement in a writing (the ‘integration’), becomes the contract of the parties. The point then is, not how the agreement is to be proved, because as a matter of law the writing is the agreement.’” (Casa Herrera, supra, 32 Cal.4th at 343, quoting Estate of Gaines (1940) 15 Cal.2d 255, 264 [emphasis in original].) The law recognizes an “exception” to the parol evidence rule where the evidence is introduced to show that a contract was procured by fraud. (Code of Civil Procedure section 1856, subdivisions (f) and (g).) Such evidence is not offered to contradict the terms of an integrated agreement but, rather, to show that evidence relevant to that issue. [§] (f) Where the validity of the agreement is the fact in dispute, this section does not exclude evidence relevant to that issue. [4] (g) This section does not exclude other evidence of the circumstances under which the agreement was made or to whichit relates, as defined in Section 1860, or to explain an extrinsic ambiguity or otherwise interpret the terms of the agreement, or to establish illegality or fraud. [§] (h) As used in this section, the term agreement includes deeds and wills, as well as contracts between parties.” 11 the purported agreementis null and void. (Ferguson v. Koch (1928) 204 Cal. 342, 346-347; Edwards v. Centex Real Estate Corp. (1997) 53 Cal.App.4th 15, 42.) b. Pendergrass and Casa Herrera The controlling California authority on the fraud exception to the parol evidence rule is this Court’s 1935 decision in Bank of America National Trust and Savings Association v. Pendergrass, supra, 4 Cal.2d 258. In Pendergrass, the plaintiff, Bank of America, brought suit to recover payment on a promissory note. The defendants contended the note was induced by fraud. The note was a demand note for $4,750 and represented a portion of a previously unsecured debt by the defendants to the bank for a ranch purchase. (/d. at 260.) The defendants attempted at trial to introduce evidence that bank representatives had orally promised the defendants that, if they executed the note and mortgage, they would not be required to make any payments on the indebtedness until the 1932 crop wasin andalso that the bank would let them “go ahead and operate and produce” the 1932 crop. (/d. at 261.) While this language came from counsel for the defendants’ opening oral presentation, the defendants’ written pleading alleged that the bank had promised to “extend” or “postpone”all payments for one year. (/d. at 263.) The defendants claimed these statements by the bank representatives were made without any intention to perform and were fraudulently made for the purpose of inducing the defendants to sign the note and mortgage. (/d. at 261.) The trial court directed judgment for the bank at the conclusion of defense counsel’s opening statement. (/d. at 259.) 12 Onthe defendants’ appeal from the judgment, this Court reversed on groundsnot implicating the parol evidence rule. However, because the case would be remanded to the trial court for further proceedings, this Court specifically addressed the question whether parol evidence of the bank’s alleged promises about extending or postponing note payments for one year — promises “in direct contravention of thé unconditional promise contained in the note to pay the money on demand” — was admissible to prove the defendants’ fraud defense. This Court unhesitatingly held that the evidence was not admissible: “Our conception ofthe rule which permits parol evidence of fraud to establish the invalidity of the instrumentis that it must tend to establish some independentfact 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.” (Pendergrass, supra, 4 Cal.2d at 263.) Thus, Pendergrass stands for the principle that, to come within the fraud exception, the proffered evidence must tend to show (1) an independentfact | or representation; or (2) fraud in the procurementofthe written agreement; or (3) a breach of confidence concerning use of the written agreement. If the extrinsic evidence does not fit within one of these three categories but instead directly contradicts the writing, the evidence is simply not admissible to undermine the writing. In the Court’s view, to allow a writing to be vitiated by parol evidence which contradicts the terms of the writing “‘would be to open the doorto all evils 13 that the parol evidence rule was designedto prevent.’ (Citation omitted.)” (/d. at 264.) Sixty-nine years after Pendergrass, and under facts closely analogous to those in RiverIsland, this Court, in Casa Herrera, Inc. v. Beydoun, supra, 32 Cal.4th 336, confirmed the continued vitality of Pendergrass and implicitly rejected the significance of any perceived distinction between a “promise” and a “misrepresentation of fact” in the application of the fraud exception to the parol evidencerule. The contract in Casa Herrera wasfor the sale of a tortilla oven. The written terms stated that the oven would produce 1,500 dozen ten-ouncetortillas per hour, 1,800 dozen eight-ouncetortillas per hour, and 2,000 dozen six-ounce tortillas per hour. (Jd. at 340.) The buyer sued for breach of the contract and fraud, claiming that the seller had falsely represented orally that the oven would produce 1,500 dozen sixteen-ouncetortillas per hour. (Jd. at 339.) This Court made no distinction between the form of the oral statements relied upon by the buyer, applied the parol evidence rule as mandated by Pendergrass, and found that the buyer could not recover under either a contract or a fraud theory based upontheseller’s alleged oral statements. (/d. at 346.) This Court was unequivocal in both its confirmation and its recitation of the rule of Pendergrass, explaining that, “despite some criticism, our courts have consistently rejected promissory fraud claims premised on prior or 14 contemporaneous statements at variance with the terms of a written integrated agreement.” (/d. at 346. emphasis supplied.) 2. Application of Pendergrass in Subsequent Appellate Cases Has Been Confusing, Inconsistent and Unpredictable This Court has described the post-Pendergrass history of the fraud exception to the parol evidence rule as “judicial confusion.” (Casa Herrera, supra, 32 Cal.4th at 348.) As Petitioner will demonstrate, the “confusion” stems from, first, a perceived but unjustified distinction drawn by some appellate courts >between a “misrepresentation of fact” and a “promise,” and, second, from the failure of those courts to distinguish between the tort of “fraud in the procurement” of an instrument and the separate tort of “fraud in the inducement” of an instrument. The result has been unpredictable, confusing and inconsistent applications of the parol evidence rule. What one court has found to be an inadmissible “promise,” another court has found to be an admissible “misrepresentation offact.” a. Lamb Finance and West In Bank ofAmerica National Trust & Savings Association v. Lamb Finance Co, supra, 179 Cal.App.2d 498 (“Lamb Finance”), the sole shareholder of the Lamb Finance Company executed a guaranty of a promissory note in favor of the Bank of America. The shareholder alleged she had been assured by the bank that, by signing the guaranty, she would not be personally liable on the note. In fact, the written agreement was to the contrary and allowed the holder of the note to proceed directly against the shareholder in the event of default. (/d. at i) 501.) The shareholder argued that the statement of assurance came within the “fraud exception”to the parol evidence rule. The Second District Court of Appeal disagreed: “The false promise or representation in the instant case is clearly one relating to the identical matter covered by the main agreement and which contradicts its very terms. The main agreement is the written guarantee signed by defendant . . . and the oral false promise that no personal liability would attach to her as a result of the transaction, far from constituting some additional fact not covered by the terms of the guarantee, covers the very matter of the main agreement; thus her testimony relating to the alleged false promise which contradicted the plain language of the guarantee wasproperly stricken .. ..” (Ud. at 502-503.) In West v. Henderson (1991) 227 Cal.App.3d 1578 (“West”), the plaintiff sought to avoid liability on a lease, claiming the defendant had induced her into signing the lease by misrepresenting three facts: first, that the lease would be for five years with two five-year options rather than a flat 15 years; second, that a third party would be a guarantor rather than a primary obligor; and third, that the defendant would erect a sign near the street with the names of plaintiff's businesses. (/d. at 1583.) Relying on Pendergrass as the “controlling authority,” the Third District Court of Appeal in West held that the alleged 16 misrepresentations, which were contradicted by the written lease, were inadmissible. (Id. at 1584.) b. Continental Airlines If any appellate opinion should stand as the poster boy for the ‘judicial confusion” about the nature and scopeof the fraud exceptionto the parol evidencerule, it is Continental Airlines, supra, 216 CalApp.3d 388, relied on in Riverlsland. \n Continental Airlines, the Second District Court of Appeal distinguished between certain statements made in pre-contract promotional sales brochures. One statement wasthat “[t]he fuel tank [of the aircraft] will not rupture under crash load conditions.” The other two were that “[t]he landing gear, flaps and wing engines/pylons are designed for wipe-off without rupturing the wing fuel tank” and “the main landing gear is designed to break away from the wing structure without rupturing fuel lines or the integral wing fuel tank.” Despite the lack of any material difference between either the text or the import of these statements, the court found the first inadmissible under the parol evidence rule as an “unequivocal promise”that contradicted the language of the contract involving the aircraft (/d. at 419-421) and the other two admissible under the fraud exception 4 See also Newmark v. H and H Products Manufacturing Co. (1954) 128 Cal.App.2d 35; Shyvers v. Mitchell (1955) 133 Cal.App.2d 569; Price v. Wells Fargo Bank (1989) 213 Cal.App.3d 465; Banco Do Brasil, S.A. v. Latian, Inc. (1991) 234 Cal.App.3d 973; Alling v. Universal Manufacturing Corp. (1992) 5 Cal.4th 1412; Wang v. Massey Chevrolet (2002) 97 Cal.App.4th 856. 17 as “factual misrepresentations” inconsistent with the terms of t he contract (/d. at 422-423). Cc. Greene and Riverlsland In Greene, supra, 110 Cal.App.4th 375, under facts virt ually identical to those in Lamb Finance and West, the Third District Court of Appeal rejected the Second District's Lamb Finance, abrogated its own earlier decision in West, and found instead that extrinsic evidence which cont radicted the plain language of the writing in issue was nonetheless admissibl e under the fraud exception to the parol evidencerule. In Greene, the defendant signed guaranty agreements person ally and on behalf of her company. She thought the documents covere d a single loan. She claimed that a bank representative told her, on the day she si gned the agreements, that they covered only one loan. In fact, the agreements by t heir terms covered four loans. The trial court sustained the bank’s parol evidence rule objections to the defendant’s introduction of the bank employee's alleged misrepresentations and granted the bank’s motion for summary judgment. (/d. a t 378, 382-383.) The Third District reversed. The court held that the alleged ex trinsic evidence was admissible under the fraud exception to the parol evidence rule even though the statements were directly contrary to the expr ess terms of the agreements because the statements consisted of “misrepresentat ions of fact” rather than “promises”and thus fell within what the court believed wa s an exception to the Pendergrass rule of exclusion. (Id.at 385-387.) 18 Greene found the supposed distinction between “fa promise that induces an agreement and a misrepresented fact concerning the physical content of an agreementat the time of signing” to be “a valid one,”although it conceded -- in considerable understatement -- a “fine line” between them. (/d. at 392, 394; emphasis in original.)° The court rationalized that “Pendergrass and mostofits progeny have involved promissory fraud, not misrepresentations of fact,” and thus that Pendergrass did not apply to the latter type of statement: “We conclude that the Pendergrass limitation on the fraud exception to the parol evidence rule should not be extended to preclude parol evidence of a mischaracterization — that is, a misrepresentation of fact — over the content of an agreement at the time of signing.” (Jd. at 391, 396; emphasis in original.) The court took the view that the admission of such evidence did not “threaten to swallow up”the parol evidence rule because “[i]n the case of promissory fraud, an earlier or contemporaneous promise is proffered in variance with the promises in the agreement; evidence of such a contrary promise goesto the heart of that which the parol evidence rule is intended to protect against. But a claim of a mischaracterization of the content of the physical document to be signed is more narrow in time and circumstance: It can only occur_at the time of signing, whereas a claim of promissory fraud can > To be sure, this Court in Casa Herrera court was aware of Greene. It expressly acknowledged Greene in a footnote. However, Casa Herrera did not decide whether “such an exception exists” because, according to the Court, even if the exception existed it would not apply on the facts presented in Casa Herrera. (Casa Herrera, supra, 32 Cal.4th. at 347, n.6.) 19 arise from a purported promise made at any time at_or before the agreement is signed. (Jd. at 392-393; emphasis added.)° Greene rejected both Lamb Finance and its own earlier decision in West. Greene acknowledged the factual analogy between it and Lamb Finance, but criticized the Second District’s decision. The Greene court concluded that Lamb Finance had relied upon the wrong cases and had misconstrued the bank’s alleged oral statements as a “promise” instead of a “mischaracterization of the terms of the written guaranty.” Ud. at 394.) With respect to West, Greene said it had made a mistake: “While we initially characterized the misrepresentations [in West] as ones of fact, the misrepresentations were in fact misrepresentations of ‘prior agreement[s]’ of the lease terms, as we later acknowledged . . . . Thus, the misrepresentations were promissory, not ones of fact mischaracterizing the content of the physical document at the time of execution.” (Greene, supra, 110 Cal.App.4th at 391-392.) In Riverlsland, the Fifth District Court of Appeal went along in most respects with Greene and Continental Airlines, similarly distinguishing between “promises” and “factual misrepresentations.” The River[sland court foundthat the ° The Greene court also thought that the “reasonable reliance” elementof the tort of fraud would tend to protect the parol evidence rule from being submerged under the fraud exception: “In light of the general principle that a party whosigns a contract ‘cannot complain of unfamiliarity with the language of the instrument’ (citation), the defrauded party must show a reasonable reliance on the misrepresentation that excuses the failure to familiarize himself or herself with the contents of the document. (Citations.)” (Jd. at 393.) 20 PCA’s alleged statements to plaintiffs, made before and at the time of the signing of the forbearance agreement, were admissible misrepresentations of fact (i.e., that the term is two years and only the orchards were included in the agreementas additional security). But the Fifth District also may have gone farther than Greene but not as far as Continental Airlines with respect to the time when the misrepresentation of fact must occur to be admissible. Riverlsland limited admissible misrepresentations to those made “after_the written _contract_was prepared” (Opn.at 16), a period that, depending upon the circumstances, may be longer than the “time of signing” in Greene but shorter than the presentation of pre-contract promotional sales materials in Continental Airlines. Finally — and, as will be shownlater in this Petition, critically — Riverlsland concluded that a “[mlJisrepresentation of the terms of the written contract, in order to induce the other party to sign it, constitutes “‘fraud in the 359procurement of the instrument’” [citation omitted], which Pendergrass .. . recognized as an appropriate circumstance for application of the fraud exception to the parol evidencerule.” (Opn.at 16.) 3. There Is No Justification In Pendergrass Or In Casa Herrera For The Distinction, Preserved And Applied In Riverls/and, Between A_ Pre-Contract “Promise” And A_ Pre-Contract “Misrepresentation Of Fact.” Nothing in Pendergrass or Casa Herrera conditions the admissibility of pre-contract statements at odds with the terms of the ultimate contract upon the distinction, ethereal at best and hollow at worst, between a “promise” and a “misrepresentation of fact.” There is no such differentiation in 21 either Pendergrass or Casa Herrera, and, as Continental Airlines makes abundantly (and painfully) apparent, any collection of words about a particular topic can be construed after the fact as either a “promise” or a “representation of fact” on the basis of nothing more than the impression of the person (or Court) called on to make the assessment. The representations about the tortilla making capacity of the oven found inadmissible in Casa Herrera (Casa Herrera, supra, 32 Cal.4th at 339) are substantially equivalent to the representations about the aircraft equipment found admissible in Continental Airlines (Continental Airlines, supra, 216 Cal.App.3d at 422-423). The application of the parol evidence rule should not be controlled by the haphazard manner in which words may be used by contracting parties during the period before the contract is signed, whether at signing (Greene) or at any time after the contract is prepared (RiverIsland), or at any time prior to execution (Continental Airlines). A pre-contract statement, regardless of when made, that the “the agreement will contain X term” can be characterized as both a promise to include the term and a representation of fact that the contract will contain the term. Equally so, a pre-contract statement, regardless of when made, that the “the agreement contains X term” can be characterized as both a representation of fact and a promise that the agreement contains the term. The alleged misrepresentation in Casa Herrera was equally a promise of performance (that the oven would produce 1,500 sixteen-ounce tortillas per hour) and an 22 assertion of fact (that the oven could produce 1,500 sixteen-ouncetortillas per hour). (Casa Herrera, supra, 32 Cal.4th at 339.) The base principle of Pendergrass and Casa Herrera is that the aceparol evidence rule provides “‘absolute protection from liability’ for prior or contemporaneous statements at variance with the terms of a written integrated agreement.” (Casa Herrera, supra, 32 Cal.4th at 347, fn. omitted, emphasis added.) This rule encompasses any and all pre-contract statements or representations, whenever made, that contradict the terms of the ultimate contract. By adopting the distinction used in Greene and Continental Airlines between a pre-contract “promise” and a pre-contract “misrepresentation of fact,” and by making relevantthe artificial and fluid time limitation “after the contractis prepared,” Riverlsland, like Greene -- and, except for a time limit, like Continental Airlines -- not only failed to follow Pendergrass and Casa Herrera but continued the trend of Greene and Continental Airlines to transform the bright line test, as articulated and confirmed by this Court, of the admissibility of parol evidence into a shapeless standard subject to the vagaries of language, the personal abilities of the parties to communicate, and the selective, imprecise or downright false recollection of a party at a later time when the dispute over contract terms arises. In doing so, Riverlsland adds to the “judicial confusion” surrounding the fraud exception to the parol evidence rule, allows the parol evidence rule to be supplanted by the fraud exception, and ensures that any commercial transaction in this state can be transformedinto a tort action, complete with the threat of punitive 23 damages and, more often than not, immune from summary judgment, all the precise outcomes Pendergrass sought to prevent. (See Banco Do Brasil, S.A. v. Latian, Inc., supra, 234 Cal.App.3d at 1010.) In addition, Riverlsland’s limitation of admissible statements to those made “after the contract is prepared” promises nothing but multitudes of factual controversies about when the contract was “prepared.” Was the contract “prepared” only after all edits or insertions or revisions, no matter how minor, were completed? Or, was the contract “prepared” after the principal provisions had been drafted? Or, was the contract “prepared” only when the terms in dispute have been settled? What about when an interlineation is made immediately before signing? The possible factual variants, and thus the possible factual disputes, are infinite. 4, Riverlsland And Its Predecessors Fail To Distinguish Between “Kraud In The Procurement” Of An Instrument And “Fraud In The Inducement” Of An Instrument. Pendergrass involved the tort of “fraud in the inducement” of the written agreement and specifically held that evidence consisting of oral statements that conflict with the terms of the written agreement do not fall within the fraud exception to the parol evidence rule and thus are inadmissible to prove fraud in the inducement. (Pendergrass, supra, 4 Cal. 2d at 263.) Fraud in the inducement of a contract is a species of tort entirely separate from the tort of “fraud in the procurement” of a contract, also known as “fraud in the execution” or “inception.” (Rosenthal v. Great Western Fin. 24 Securities Corp. (1996) 14 Cal.4th 394, 415.)’ Fraud in the inducement occurs whenthe promisor knows whatheis signing but his consentis “induced” by fraud. (Ibid.) In this circumstance, mutual assent is present and a contract is formed, which may be avoidedby a rescission. (/d.) On the other hand, fraud in the procurement of a contract occurs when the “promisor ts deceived as to the nature of his act, and actually does not know what he is signing, or does not intend to enter into a contract at all.” (Rosenthal v. Great Western Fin. Securities Corp, supra, \4 Cal.4th at 415.) In this circumstance, mutual intent is lacking and the contract is void because it was never formed. (/d.) Petitioner submits that the failure to appreciate the differences between these two categories of fraud is the catalyst that led the courts in Greene, Continental Airlines, and RiverIsland to erroneously adopt the “promise” versus “misrepresentation of fact” test of the application of the fraud exception to the parol evidence rule. Because these courts did not identify which type of fraud was alleged by the party asserting it, the Pendergrass rule got lost in the analyses and 7 Rosenthal v..Great Western Fin. Securities Corp. (1996) 14 Cal.4th 394, 415; Frusetta v. Hauben (1990) 217 Cal.App.3d 551, 556 [quoting 12 Williston on Contracts (3d ed. 1970) § 1488, p. 335 defining fraud in factum as “such fraud in the procurement of the execution of a note or bill as results in the signer’s being ignorant of the nature of the instrumenthe is signing” (underscoring added;italics in original)]; see also, Golden v. Fischer (1915) 27 Cal.App. 271, 280 [discussing fraud “in the procurementof the execution of the agreement, . . . in its conception, inception, and execution”].) 25 was misapplied. In effect, the courts in Greene, Continental Airlines, and Riverlsland took from the tort of fraud in. the procurement the notion of a misrepresentation of fact about the character or nature of a contract, turned it into a misrepresentation of fact about the terms of a contract, and applied the latter to circumstancesthat, in each case, raised a claim, though an unsustainable one, of fraud in the inducementrather than a claim offraud in the procurement.’ Thus, in Greene, Continental Airlines, and Riverlsland, the complaining parties knew the character and nature of what they were signing — guarantee agreements, an aircraft sale contract, and a forbearance agreement, respectively — but were allegedly misled as to one or more of the terms of those instruments. This situation is not fraud in the procurement such that the evidence is admissible under Pendergrass. It is attempted fraud in the inducement, an attempt that cannot succeed because Pendergrass unequivocally held that fraud in the inducement cannot be proved by statements that contradict or vary the terms of the contract in violation of the bar of the parol evidence rule. Accordingly, ® The court in Greene noted the distinction between fraud in the execution or procurementof a contract and fraud in the inducement, but concluded, erroneously, that it was not necessary to address the type of fraud involved in order to reach its decision. (Greene, supra, 110 Cal.App.4th at 389, n. 7.) ° Pendergrass itself perhaps is confusing on this point for it does include “fraud in the procurement”as oneofthe three categories of extrinsic evidence subject to the fraud exception. (Pendergrass, supra, 4 Cal.2d at 263.) For purposes ofthis Petition for Review, Petitioner will treat fraud in the procurementas it wastreated, correctly, by Rosenthal v. Great Western Fin. Securities Corp, supra, 14 Cal.4th at 415; that is, as a distincttort. 26 Pendergrass and Casa Herrera controlled in each of the cases and should have been applied to bar the admission of the extrinsic evidence under the parol evidencerule. Riverlsland is the culmination of these misapplications of the Pendergrass rule, and effectively overrules it, because, unlike Greene and Continental Airlines, RiverIsland expressly and wrongly characterizes the facts before it as fraud in the procurement and thus within the Pendergrass exception, notwithstanding that those facts raise only an unsustainable case of fraud in the inducement. (Opn. At 16.) There is no allegation or claim by the plaintiffs in Riverlsland that they were deceived by something PCA said about the character or nature of the agreement they signed. To the contrary, plaintiffs knew that they were signing a forbearance agreement and knewits purpose, and they intended to enter into a forbearance agreement and not some other type of instrument. The Riverlslandplaintiffs claim only that their consent to the forbearance agreement as a forbearance agreement was induced by PCA’s alleged misrepresentations about certain terms of the agreement. This is a text-book example of alleged fraud in the inducementthat cannot go anywhere because ofthe parol evidence rule. It is not fraud in the procurement. However, the court in Riverlsland mistakenly construed the fraud alleged as fraud in the procurement (Opn. at 16). By doing so, and because Pendergrass permits extrinsic evidence to be introduced to prove fraud in the procurement (Pendergrass, supra, 4 Cal.2d at 263) — that is, to prove that the 27 complaining party was misled about the character or nature of the contract but not the terms of the contract — Riverlsland wrongly concluded that the statements alleged by plaintiffs were admissible under the fraud exception. The court in RiverlIsland should have applied Pendergrass to the alleged fraud in the inducementcase before it, found the evidence be inadmissible under Pendergrass, and affirmed the trial court. By mischaracterizing a clear case of alleged fraud in the inducement — as to which Pendergrass required exclusion of the evidence contradicting the forbearance agreement -- as fraud in the procurement and thus making admissible such evidence despite Pendergrass’s explicit mandate to the contrary, Riverlsland effectively overrules Pendergrass. Riverlsland is simply the latest and most extreme exemplar of the ‘Judicial confusion” about the application of the fraud exception to the parol evidence rule and, along with Greene and Continental Airlines, implicitly establishes the validity of the proposition that those courts, in formulating and then applying the false distinction between a “promise” and a “misrepresentation of fact,” lost track of the differences between the tort of fraud in the inducement and the tort of fraud in the inception of a contract. The result is that utter chaos now exists about the fraud exception to the parol evidence rule and the proper scope and application of Pendergrass and Casa Herrera, including whether or not they are even still good law. 28 B. REVIEW IS REQUIRED TO RESOLVE AN IMPORTANT QUESTION OF LAW . This case presents an important issue of statewide interest that has the ability to impact, directly or indirectly, virtually all future contractual relationships and commercial disputes. In Pendergrass, this Court made “a very defensible policy choice which favored the considerations underlying the parol evidence rule over those supporting a fraud cause of action.” (Banco Do Brasil, S.A. v. Latian, Inc., supra, 234 Cal.App.3d at 1010; see also Price v. Wells Fargo Bank, supra, 213 Cal.App.3d at 485-486 [Pendergrass “represents a rational policy choice” favoring policies of the parol evidence rule over policies of tort law].) In Casa Herrera, this Court reaffirmed Pendergrass and again gave priority to policies supportive of the parol evidencerule. One of the most important of these policy considerations is the need for predictability in written agreements. Another is the fear that fraud or unintentional invention by witnesses interested in the outcomeofthe litigation will mislead the finder of fact. (Masterson v. Sine (1968) 68 Cal.2d 222, 227.) The decision in RiverIsland (and Greene before it) ignores these important policy factors and instead gives priority to the policy concerns underlying tort law, in direct conflict with this Court’s decisions in Pendergrass and Casa Herrera. The result after River/slandis the very situation against which 29 this Court cautioned more than 75 years ago — allowing the fraud exception to obliterate the parol evidencerule. The distinction between “promissory fraud” and “misrepresentations of fact” applied in Greene, Riverlsland and Continental Airlines is a distinction without a difference. It conflicts with this Court’s decisions in Pendergrass and Casa Herrera, encourages creative lawyers and opportunistic parties to recast “promises” as “representations,” and leads to inconsistent and unpredictable results. It permits any party to a fully integrated written agreement, by refusing to read the agreement before signing and later claiming the termsare different from what was represented to them before signing, to nullify the agreement, avoid his or her contractual obligations, and turn any commercial dispute into a tort dispute, complete with prayers for punitive damages, immune from attack on a motion for summary judgment. The effect of RiverIsland on commercial contracts in California is profound. The decision makes the enforcement of every contract uncertain and “permit[s] clear and unambiguous integrated agreements . . . to be rendered meaningless by the oral revisionist claims of a party who,at the end of the game, does not care for the result.” (Banco Do Brasil, S.A. v. Latian, Inc., supra, 234 Cal.App.3d at 1011.) No public policy supports the expansive reading of the fraud exception to the parol evidence rule given by the court in Riverlsland, particularly in a time of limited judicial resources, and provides another, new encouragement for commerce to flee from California. 30 V. CONCLUSION The scope and application of the fraud exception to the parol evidence rule has been percolating through the appellate system for the 75 years that have passed since Pendergrass. It has resulted in dozens of published (and hundreds more unpublished) decisions, with inconsistent, confusing and unpredictable results. This muddled state of affairs is a serious problem not only for the orderly development of California law, but also for those who conduct business in California, the very foundation of which is the parties’ ability to rely upon the enforceability of clear and unambiguous contractual obligations. Because of the unfavorable factual scenario presented in Casa Herrera, this Court did not have the opportunity then to resolve the “judicial confusion”over the fraud exception to the parol evidence rule by there addressing and rejecting the incorrect “promise” versus “misrepresentation” distinction applied in Greene, by explaining definitively the differences between fraud in the procurement of a contract and fraud in the inducement of a contract, and by making clear that the fraud exception to the parol evidence rule applies to the former andalso to the latter only if the alleged pre-contract statements do notalter or vary the terms of the ultimate contract entered into by the parties. The inevitable consequence of this lost opportunity is the additional confusion and variation on the theme represented by Riverlsland, which, because it expressly mischaracterizes a case of bad fraud in the inducementas a good case of fraud in 31 the procurement, effectively writes Pendergrass and Casa Herrera out of existence. Riverlsland provides this Court with the perfect vehicle to step in, at long last, and put a stop to the existing “judicial confusion” swirling around the fraud exception to the parol evidencerule before it becomes even more obscure. It is well past the time for the Court to do so, well past. For all the reasons set out above, PCA requests that this Court grant this Petition for Review. Dated: February 14, 2011 Respectfully submitted, LANG, RICHERT & PATCH . Scott J. Ivy DOWLING, AARON & KEELER Nickolas J. Dibiaso Lynne Thaxter Brown Attorneys for Respondent FRESNO-MADERA PRODUCTION CREDIT ASSOCIATION 32 CERTIFICATE OF WORD COUNT The text in this Petition for Review is proportionally spaced. The typeface is Times New Roman, 13 point. The word count generated by the Microsoft Word© word processing program used to prepare this Petition, for the portions subject to the restrictions of California Rules of Court, Rule 8.204(c), is 7,974. Dated: February 14, 2011. LANG, RICHERT & PATCH By Ss YD A, Scott J.Ivy DOWLING, AARON & KEELER Nickolas J. Dibiaso Lynne Thaxter Brown Attorneys for Respondent FRESNO-MADERA PRODUCTION CREDIT ASSOCIATION W:\NETDRIVE\wdocs\maindocs\14850\001\00670276.DOC Filed 1/3/11 CERTIFIED FOR PUBLICATION IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA FIFTH APPELLATEDISTRICT RIVERISLAND COLD STORAGE,INC.etal., F058434 Plaintiffs and Appellants, (Super. Ct. No. O8CECG01416) V. FRESNO-MADERA PRODUCTION CREDIT OPINION ASSOCIATION, Defendant and Respondent. APPEALfrom a judgmentofthe Superior Court of Fresno County. Adolfo M. Corona, Judge. Wild, Carter & Tipton and Steven E. Paganetti for Plaintiffs and Appellants. Lang, Richert & Patch, Scott J. Ivy and Ana de Alba for Defendant and Respondent. -00000- 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 containedin the written agreement, madeatthe time of execution of the agreement. The court granted defendant’s motion for summary judgmentafter ruling that plaintiffs’ evidence of misrepresentations was inadmissible pursuantto the parol evidencerule, and therefore plaintiffs had not presented admissible evidenceraising a triable issue of material fact that would prevent entry ofjudgment against them. Wefind 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 whenthey failed to make a required payment. On March 26, 2007, plaintiffs and defendantentered 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 pledgeas additional collateral certain real property, which includedplaintiffs’ residence and a truck yard. Plaintiffs failed to make the payments required by the March 26, 2007, agreement and defendantrecorded 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 weekspriorto 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 yearsif plaintiffs would pledge two orchards as additional security. On March 26, 2007, at the time of execution of the written agreement, Ylarreguitold plaintiffs the agreement would be for two years and would includeas security only the two orchards, andnotplaintiffs’ residence or the truck yard. Plaintiffs alleged they did not read the written agreement, but relied on Ylarregui’s representationsofits terms in executing the written agreement. They alleged defendant’s fraud and misrepresentation damagedplaintiffs’ 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 judgmenton plaintiffs’ first four causes of action becauseplaintiffs failed to perform in accordance with the written forbearance agreement, and they were barred by the parol evidencerule from presenting evidenceof any prior or contemporaneousoral agreementthat 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 agreementto sign andstated 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 termsof the written agreement, and therefore plaintiffs had failed to raise a triable issue of material fact to prevent entry ofjudgmentin defendant’s favor. Plaintiffs appeal. DISCUSSION L Standard of Review “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.) Plaintiffs challenge the ruling on the summary judgment motion only as to the first four causes of action: fraud, negligent misrepresentation, rescission, and reformation.! Those causes of action were all dependent onthe 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, defendantpresented evidencethat it entered into a written forbearance agreement with plaintiffs on specified terms, and plaintiffs breached that agreementbyfailing to make paymentsas required. In opposition, plaintiffs offered evidence of oral statements made by Ylarregui beforeorat the time plaintiffs executed the written agreement, which they assert misrepresented the terms of the written agreement. Thetrial court excluded evidence of the oral statements based on the parol evidencerule, andplaintiffs presented no other evidence with whichto 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 bythe trial court. “Whether the parol evidence rule applies in a given set of circumstances is a question of law, which weconsider de novoto the extent that no evidentiary conflict exists. [Citations.]” (EPA Real Estate Partnership v. Kang (1992) 12 Cal.App.4th 171, 176.) Il. Parol Evidence Rule Theparol evidence rule is codified at Civil Code section 1625 and Codeof Civil Procedure section 1856.2 It generally prohibits the introduction of extrinsic evidence, 1 Thetrial court found defendant was entitled to summary judgmenton the other causes of action on other grounds, and the appeal does not challenge the disposition of those causes of action. 2 The basic rule is stated in Code of Civil Procedure section 1856, subdivision (a), as follows: “Termsset forth in a writing intended by the parties as a final expression oftheir agreement with respect to such termsas are included therein may not be contradicted by evidence of any prior agreementor of a contemporaneousoral agreement.” Civil Code section 1625 provides: “The execution of a contract in writing, whether the law requiresit to be written or not, supersedes all the negotiations or stipulations concerning its matter which preceded or accompanied the execution of the instrument.” including evidence of any prior or contemporaneousoral 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 (Alling).) “Althoughthe rule results in the exclusion of evidence,it ‘is not a rule of evidence but is one ofsubstantive law.’ [Citation.]” (Casa Herrera, Inc. v. Beydoun (2004) 32 Cal.4th 336, 343 (Casa Herrera).) “The rule derives from the concept of an integrated contract, and is based onthe principle that whentheparties to an agreement incorporate the complete and final termsofthe agreementin a writing, such an ‘integration’ in fact becomes the complete and final contract between the parties, which maynot 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.) “‘[T]he act of executing a written contract ... supersedes all the negotiationsor stipulations concerning its matter which preceded or accompanied the execution of the instrument.’ [Citation.]” (Casa Herrera, supra, 32 Cal.4th at p. 344.) A. Integration Anintegrated contractis “a complete and final embodimentofthe terms of an agreement.” (Masterson v. Sine (1968) 68 Cal.2d 222, 225.) “The crucialissue in determining whetherthere has been an integration is whether the parties intendedtheir writing to serve as the exclusive embodimentof their agreement.” (/d. at pp. 225-226.) In making this determination, “the court may considerall the surrounding circumstances, including the prior negotiationsofthe parties. [Citation.]” (Banco Do Brasil, S.A.v. Latian, Inc. (1991) 234 Cal.App.3d 973, 1002 (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 betweenthe parties with respect to the matters covered in this agreement.” Thetrial court found the forbearance agreementis integrated, and neither party challenges that finding on appeal. Whethera 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.) We agree that the forbearance agreementis an integrated agreement, to which the parol evidencerule applies. B. Fraud exception Because the written forbearance agreementis integrated, the paro! evidence rule makesextrinsic 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 and the extrinsic evidence they offered should have been admitted. The statutory exception provides: “This section does not exclude other evidence of the circumstances under which the agreement was madeor to whichit relates, as defined in Section 1860, or to explain an extrinsic ambiguity or otherwise interpret the terms of the agreement,or fo establish illegality orfraud.” (Code Civ. Proc., § 1856, subd. (g), italics added.) “{P]arol evidence of fraudulent representations is admissible as an exception to the parol evidence rule to show that a contract was induced byfraud. [Citations.]” (Richard v. Baker (1956) 141 Cal.App.2d 857, 863.) In Bank ofAmerica etc. Assn. v. Pendergrass (1935) 4 Cal.2d 258 (Pendergrass), the court limited application of the fraud exception, concludingit did not authorize admission of parol evidence to prove an oral promise made without intent to perform it, wherethe promise directly contradicted the provisions of the written agreement. In Pendergrass, plaintiff sued to recover on a promissory note. Defendants asserted fraud in the inducement; they contended they executed the note based onplaintiff's representation that, if they did so, plaintiff “would ‘extend’ or ‘postpone’all payments for the period of one year.” (/d. at p. 263.) Defendants alleged this representation was a promise made by plaintiff without any intention of performing it. The alleged promise was, however, “in direct contravention of the unconditional promise contained in the note to pay the money on demand.” (/bid.) The court concluded evidenceofthe oral promise was inadmissible. “Our conception of the rule which permits parol evidence of fraud to establish the invalidity of the instrumentis that it must tend to establish some independentfact or representation, some. fraud in the procurement of the instrument or some breach of confidence concerningits use, and not a promise directly at variance with the promise of the writing.” (Pendergrass, supra, 4 Cal.2d at p. 263.) The court explained: “Tt is reasoning in a circle, to argue that fraud is made out, whenit is shown byoral testimony that the obligee contemporaneously with the execution of a bond, promised not to enforce it. Such a principle would nullify the rule: for conceding that such an agreementis proved, or any other contradicting the written instrument, the party seeking to enforce the written agreement accordingto its terms, would always be guilty of fraud.’” (Pendergrass, supra, 4 Cal.2d at p. 263.) Therule has beencriticized, but it continues to be applied in cases of promissory fraud. In Price v. Wells Fargo Bank (1989) 213 Cal.App.3d 465, plaintiffs alleged they entered into a loan agreement with defendant after defendant promised to makethe loan with an interest rate less than that being offered by another bank. Bythe time the promissory note wasready for signing, however, interest rates had risen and both banks were demandinga higherrate. After noting that Pendergrass, supra, “perceived a conflict between the [parol evidence] rule and promissory fraud relating to the principal terms of an agreement” (4 Cal.2d at pp. 483-484), the court discussed that decisionat length: “The Pendergrass decision has been severely criticized by scholarly commentators. [Citations.] While applying the decision, the court in Coast Bank v. Holmes (1971) 19 Cal.App.3d 581, 591, termed the Pendergrass distinction between different forms of promissory fraud as being ‘tenuous’ and ‘inconsistent’ with tort principles. The court opined, ‘[t]he recent decisionsliberalizing the parol evidence rule cast some doubton the continuedvitality of the distinction.’ [Citations.] “We must accept Pendergrass, however, as the governing law. The first (and sufficient) reasonis that, since the decision has never been overruled, it may not be challenged by an appellate court. [Citation.] ... Moreover, despite scholarly criticisms, the decision is based on an entirely defensible decision favoring the policy considerations underlying the parol evidencerule over those supporting a fraud causeofaction. “The scholarly commentators correctly point out that there is no conceptual inconsistency between promissory fraud and the parol evidence rule. Promissory fraud requires a showing oftortious intent and reliance in addition to proof of an oral promise; the parol evidencerule is concerned only with proof of an oral promise. The two legal concepts canlogically coexist. The policy considerations underlying promissory fraud apply fully whenthe promiserelates to the main terms of the agreement. By limiting promissory fraud to promisesrelating to collateral matters, not at variance with the principal obligations, Pendergrass compromises the objectives of tort law in a mannerthatis not strictly necessary to give effect to the parol evidencerule. “On the other hand,if loosely construed, the concept of promissory fraud may encourage attempts to convert contractual disputes into litigation overalleged fraud. To be sure, fraud requires proof of the additional elements of intent and reliance. But these can so easily be inferred from any broken promise that promissory fraud mayin fact open the door to attempts to enforce oral promises through tort causes of action underthe guise of a promise made withoutintention to perform. A broad doctrine of promissory fraud mayallow parties to litigate disputes over the meaning of contract terms armed with an arsenal of tort remedies inappropriate to the resolution of commercial disputes. Thus, the practical impact of alleged promissory fraud mayin fact underminethepolicies of the parol evidence rule. “In short, Pendergrass compromisesthe policies of tort law, but a contrary rule would compromise those of the parol evidence rule. How one weighsthe conflicting considerations will depend largely on the importance one attaches to the respective policies. In Pendergrass, the Supreme Court gave priority to the policies of the parol evidence rule. While the decision wasby no meanslogically inevitable, it represents a rational policy choice that should be reconsidered only by the Supreme Court itself.” (Price v. Wells Fargo Bank, supra, 213 Cal.App.3d at pp. 484-486.) In Banco Do Brasil, the bank sued defendants to recover on promissory notes and a written guaranty. (Banco do Brasil, supra, 234 Cal.App.3d at p. 981.) Defendants cross-complained against the bank,asserting fraud and claiming the bank orally promised to extend them a $2 million line of credit, which it failed to do. (/d. at pp. 982-983.) The bank’s request for exclusion of parol evidence ofthe alleged line of credit agreement was denied, and defendants prevailed on their cross-complaint. (/d. at pp. 983-984.) The appellate court reversed. It concluded evidenceofthe alleged oral agreement was not admissible as evidence ofa false promise madeto induce defendantsto enter into the agreement. “While it is true that a recognized exception to the parol evidencerule permits evidenceoffraud in orderto nullify the main agreement[citation], that rule has no application where “promissory fraud”is alleged, unless the false promise is independentofor consistent with the written instrument. [Citations.] It does not apply where, as here, parol evidence is offered to show a fraudulent promise directly at variance with the terms of the written agreement. [Citations.]’ [Citations.]” (Ud. at p. 1009,fn. omitted.) The court observed that Pendergrass “made a very defensible policy choice which favored the considerations underlying the parol evidence rule over those supporting a fraud causeofaction.” (Banco do Brasil, at p. 1010.) It added: “While [the Pendergrass] rule has been subjected to some scholarly criticism, we believe that the policy decision made by the court in Pendergrass is the better one. In explaining how a broadapplication ofthe concept of promissory fraud would undermine thepolicies of the parol evidence rule and encourage attempts to convert contractual disputes into fraudlitigation, one court commented, ‘A broad doctrine of promissory fraud mayallow partiesto litigate disputes over the meaning of contract terms armed with an arsenalof tort remedies inappropriate to the resolution of commercial disputes.’ [Citation.] We concur with that view.” (Banco do Brasil, supra, 234 Cal.App.3d at p. 1010, fn. omitted.) In Bank ofAmerica v. Lamb Finance Co. (1960) 179 Cal.App.2d 498 (Lamb Finance) and Wang v. Massey Chevrolet (2002) 97 Cal.App.4th 856 (Wang), the court followed the Pendergrass rule where the party seeking admission of the parol evidence alleged the other party induced execution ofthe written agreement by misrepresenting the terms it contained. In both cases, the court applied the rule without distinguishing between promises madewithoutintent to perform and factual misrepresentationsas to the content of the written contract. The parties did not raise, and the court did not discuss, this issue. In Lamb Finance, defendant signed a guarantee of a promissory note. She testified a representative of plaintiff bank represented at the time she signed that she was not guaranteeing the note with any ofher personal property and it was only a corporate note. The court observedthat, “if, to induce one to enter into an agreement, a party makes an independent promise without intention of performingit, this separate false promise constitutes fraud which may be provento nullify the main agreement; butif the false promise relates to the matter covered by the main agreement and contradicts or varies the terms thereof, any evidenceofthe false promise directly violates the parol evidence rule andis inadmissible.” (Lamb Finance, supra, 179 Cal.App.2d at p. 502.) Parol evidence of promissory fraud is “‘only permissible in the case of a promise to do someadditional act which was not covered by the termsof the contract.” ([bid.) Because the alleged false promiserelated to the identical matter covered by the written agreement anddirectly contradicted the plain language ofthe guarantee, evidenceof the oral statements was properlystricken as incompetent under the parol evidencerule. (/d. at pp. 502-503.) In Wang,plaintiffs sued for damagesfor fraud in the purchase of a vehicle from defendant. Plaintiffs had gone to defendant intending to purchase a vehicle with a down paymentandthe balance ($15,000) to be financed through a short-term (two month)loan. 10. Instead, defendant prepared a lease agreement which requiredplaintiffs to pay the balance in 60 monthly payments with a final payment of $15,000 to purchase the vehicle at the end of the lease. (Wang, supra, 97 Cal.App.4th at p. 863.) The lease required plaintiffs to pay $22,000 morethan if they had purchased the vehicle with the short-term loan. Defendant inducedplaintiffs to sign the lease by misrepresenting that they could pay off the contract in two monthsor at any time without a prepaymentpenalty and there were no contractual differences between a loan and a lease. (Jbid.) Thetrial court granted defendant’s summary judgment motion, on the ground the parol evidencerule precluded admission of evidence of the defendant’s alleged oral misrepresentations. Following the Pendergrassrule, the appellate court agreed, concluding the fraud exception did not apply becausethe alleged oral representationsdirectly contradicted the terms ofthe written agreement.* (Wang, at pp. 873, 876.) Just two years after Pendergrass was decided, the California Supreme Court issued its decision in Fleury v. Ramacciotti (1937) 8 Cal.2d 660 (Fleury), indicating admissibility of parol evidence to prove that fraudulent representations asto the content of a written agreementinducedits execution survived Pendergrass. In that case, defendant Ramacciotti executed a promissory note and mortgage. Babin, the executor of the estate of the payee, allowed the statute of limitations to run on his action on the note. Babin discussed the matter with his friend, Ramacciotti, and Ramacciotti offered to waive the defense ofthe statute oflimitations provided no deficiency judgment would be entered against him. Ramacciotti signed a renewal note and mortgage on whichhe later defaulted. After Babin’s death, Ramacciotti discovered Babin had obtained a decree of foreclosure and deficiency judgment against him. He had the judgmentset aside and 3 The court reversed the judgment on causes ofaction alleging violation of the Consumers Legal Remedies Act andthe unfair business practices law, finding they were not barred by the parol evidencerule. (Wang, supra, 97 Cal.App.4th at pp. 869-871.) 11. defended,alleging he signed the new note withoutreadingit, in reliance on Babin’s representation that it contained provisions preventing a deficiency judgment from being entered against him. Thetrial court found in Ramacciotti’s favor and the appellate court affirmed. The evidence supportingthetrial court’s judgment was“largely the testimony of defendant Ramacciotti as to conversations between himself and Babin.” (Fleury, supra, 8 Cal.2d at p. 661.) Nonetheless, it was not barred bythe parol evidencerule. “Plaintiff's contention that the evidence was admitted in violation of the parol evidence rule is of course untenable, for although a written instrument may supersedeprior negotiations and understandings leading upto it, fraud may always be shown to defeat the effect of an agreement.” (/d. at p. 662.) Thecourt also rejected plaintiff's claim that Ramacciotti could not prove fraud “because ofhis carelessness in failing to read the renewal note.” (Jbid.) “[W]here failure to read an instrumentis induced by fraud ofthe otherparty, the fraud is a defense evenin the absenceoffiduciary or confidential relations.” (/bid.) Plaintiffs cite Pacific State Bank v. Greene (2003) 110 Cal.App.4th 375 (Greene) in support of their contention that the Pendergrassrule does not apply to exclude parol evidence that execution of a written agreement was induced by a misrepresentation of the content of the written agreement, which was madeat the time the written agreement was executed. In Greene, the defendant claimed she agreed to guarantee a single loan. On the day she signed the guarantee agreement, the bank’s representative stated the guarantee related only to that loan; that loan’s number and amount were specified at the top of the guarantee agreement. (Greene, supra, at p. 378.) In the fine print of the written agreement, however,the “‘Indebtedness’” to be guaranteed wasdefined as “‘all of Borrower’s liabilities, obligations, debts, and indebtedness to Lender,’” which included four loans. (Jd. at pp. 380-381.) Thetrial court granted summary judgmentin 12. favorofthe plaintiff, after sustaining the plaintiff's objections to the defendants’ parol evidence of the misrepresentation. The appellate court reversed. The court held that, even though the bank’s alleged misrepresentation wasdirectly contrary to the express termsofthe contract, the evidence was admissible under the statutory exception for fraud. (Greene, supra, 110 Cal.App.4th at pp. 385-387; Code Civ. Proc., § 1856, subd. (g).) “‘It is ... settled that parol evidence of fraudulent representations is admissible as an exception to the parol evidence rule to show that a contract was induced by fraud.’ [Citations.]” (Greene, at p. 389.) Although Pendergrass limited the fraud exception, makingit inapplicable when the evidence is offered to show a promisecontradicting the written agreement, the Greene court declined to extend that limitation to include evidence of a misrepresentationoffact. (Greene, at pp. 389-390, 396.) It discussed the Pendergrassrule: “In short, the perceived necessity for this promissory fraud limitation lies in the recognition that withoutit, the fraud exception could swallow the rule. Any party who claimed a promise contrary to that contained in the contract could claim that the contrary contract constituted proofof promissory fraud—thatis, that the earlier or contemporaneous promise was false and made without anyintention of performingit, as evidencedbyits absence in the subsequent agreement. Althoughthis judicial rule has been — criticized as inconsistent with the unqualified language in the statutory exception forfraud[citation], we are bound bythe California Supreme Court’s ruling. [Citation.] “But we disagree that the promissory fraud limitation precludes admission of a misrepresentation offact over the content of a physical documentat the time of execution. ‘“Promissory fraud” is a promise made without any intention of performingit.’ [Citation.] The Supreme Court’s limitation on the fraud exception expressly bars ‘a promise directly at variance with the promise of the writing’ [citation], not a misrepresentation of fact. [Citations.]” (Greene, supra, 110 Cal.App.4th at pp. 390-391.) The Greene court believed “a distinction between promissory fraud and misrepresentations of fact over the content of an agreementat the time of executionis a 13. valid one.” (Greene, supra, 110 Cal.App.4th at p. 392.) It posited three justifications for holding the fraud exception applicable to such misrepresentationsof fact: “The language of the statutory exception is unqualified and does not limit the misrepresentations covered;it is not necessary to extend Pendergrass to cover factual misrepresentations over the contentof the writing in order to safeguard the vitality of the parol evidencerule; and a further extension of Pendergrass would undulyrestrict the statutory exception for fraud.” (Greene, at p. 392.) It explained: “In the case of promissory fraud, an earlier or contemporaneouspromiseis proffered in variance with the promises in the agreement, evidence of such a contrary promise goesto the heart of that which the parol evidence rule is intended to protect against. But a claim of a mischaracterization of the content of the physical documentto be signed is more narrowin time and circumstance: It can only occurat the time of signing .... And the need to prove the element ofreasonablereliance in order to successfully make out a misrepresentation claim also protects against abuse: In light of the general principle that a party who signs a contract ‘cannot complain of unfamiliarity with the languageofthe instrument’ [citation], the defrauded party must show a reasonablereliance on the misrepresentation that excuses the failure to familiarize himself or herself with the contents of the document.” (/d. at p. 393.) The court acknowledged “there can occasionally be a fine line between a promise that induces an agreement and a misrepresentedfact concerningthe physical content of an agreementat the time of signing”(id. at p. 392), but concluded the Pendergrass limitation onthe fraud exception “must not be expanded so as to underminethe vitality of statutory fraud exceptionitself.” (Greene, at p. 396.) The court in Continental Airlines, Inc. v. McDonnell Douglas Corp. (1989) 216 Cal.App.3d 388 (Continental) also distinguished between precontract oral promises and statements of fact. It applied the Pendergrass exclusion only to promises madeprior to execution of the written contract and not to factual misrepresentations that were contrary 14. to the provisionsofthe written contract. It concluded statements madeorally andin precontract promotionalsales brochures that “‘[t]he fuel tank will not rupture under crash load conditions’” were promises that contradicted the language of the contract. (Continental, supra, at p. 418, italics omitted.) In light of Pendergrass, those statements were inadmissible to prove promissory fraud. (Continental, at p. 421.) Statements madein the promotionalsales brochuresthat “‘[t]he landing gear, flaps and wing engines/pylons are designed for wipe-off without rupturing the wing fuel tank’” and “the main landing gear is designed to break away from the wing structure without rupturing fuel lines or the integral wing fuel tank” were properly admitted. (Continental, supra, 216 Cal.App.3d at p. 422,italics omitted.) They were analyzed as factual misrepresentations which were admissible pursuantto the fraud exceptionto the parol evidencerule evenif they contradicted the provisions of the contract. (/d. at pp. 422- 424.) Although the agreementwasintegrated, factual representations at variance with the written agreement were not barred, because to do so wouldnullify the fraud exception. (Id. at p. 424.) “[T]he clear mandateof our [L]egislature [is] that, when fraudis alleged, the parol evidence rule does not apply, and evidence of precontract representations which vary or contradict the termsof an integrated contract[is] admissible. [Citations.] [{] The theory of the exceptionis that such evidence does not contradict the termsofan effective integration, since it shows the purported instrumenthas no legal effect. [Citation.]” (dd. at pp. 427-428.) We agree with Greene and Continental that parol evidence of a prior promise made without any intention of performing it that directly contradicts the provisions ofthe written contract must be distinguished from parol evidence of a contemporaneousfactual misrepresentation of the terms containedin a written agreement submitted for signing. Pendergrass stated that, to come within the fraud exception, parol evidence “musttend to establish some independentfact or representation, somefraud in the procurementofthe 15. instrument or some breach of confidence concerningits use, and not a promisedirectly at variance with the promise of the writing.” (Pendergrass, supra, 4 Cal.2d at p. 263, italics added.) Misrepresentation of the terms of the written contract, in order to induce the other party to sign it, constitutes “fraud in the procurementof the instrument”(ibid), which Pendergrass and Fleury recognized as an appropriate circumstance for application of the fraud exception to the parol evidencerule. The Pendergrass court’s rationale for excluding evidence ofa prior oral promise that directly contradicts the promises contained in the written agreement depended on the nature of promissory fraud. The court was concernedthat, if evidence of a prior oral promise contrary to the promises madein the written agreement were admissible as an exception to the parol evidencerule, such oral promises would be admissible in every case where anoral agreementpreceded the final written contract, thereby nullifying the parol evidence rule. This would be so because the party seeking to admit the evidence could always argue that the failure to include the prior oral promise in the written contract was evidenceof an intention not to perform it. (Pendergrass, supra, 4 Cal.2dat p. 264.) The Supreme Court has not extended the Pendergrass rule to fraud committed by misrepresenting the content of a written agreementin orderto induce anotherto signit. Relief based on this type of fraud would not be available in every case. It would be available only when one party made a false statement about the terms contained in the contract after the written contract was prepared, and the other party reasonably relied on that statement and was thereby inducedto sign the written contract without discovering that the actual provisions were not as represented. As pointed out in Continental, the evidence would not be admitted to alter, vary or add to the provisions of an integrated agreement; rather, it would be admitted to prove the written contract wasnotthe actual, integrated agreementofthe parties. 16. Weconclude that the Pendergrass court did not intend its limitation on the fraud exception to the parol evidencerule to extend beyond evidence of promissory fraud. Like the Greene court, we declineto applyits limits where the party seeking admission of the parol evidence hasalleged that the other party misrepresented the content ofthe written contract and thereby induced execution of the contract. Plaintiffs’ extrinsic evidence of the alleged misrepresentations made by defendant’s representative should have been admitted in opposition to defendant’s motion for summary judgment. That evidenceraised triable issue of material fact that prevented entry of summary judgment in favor of defendant onthe first four causes of action of the complaint. DISPOSITION The judgmentis reversed with directions to vacate the order granting summary judgmentandto enter a new order denying summary judgment, and granting defendant summary adjudicationofthe fifth, sixth, and seventh causesof action only. Plaintiffs are entitled to their costs on appeal. HILL,J. WE CONCUR: LEVY,Acting P.J. KANE,J. 17. PROOF OF SERVICE STATE OF CALIFORNIA ) ) ss COUNTY OF FRESNO ) I am a citizen of the United States and a resident of the County aforesaid; I am over the age of eighteen (18) years and not a party to the within-entitled action. My business address is 8080 North Palm Avenue, Fresno, California 93711. On February 14, 2011, I served the within document(s): Petition for Review X BY MAIL: Byplacing the document(s) listed above in a sealed envelope with postage thereon fully prepaid, in the United States mail at Fresno, California, addressed as set forth below. Steven E. Paganetti Hon. Adolfo M. Corona Wild, Carter & Tipton Fresno County Superior Court 246 West Shaw Avenue Department201 Fresno, CA 93704 1130 “O”Street PH: 559-224-2131 Fresno, CA 93721 FAX: 559-229-7295 E-mail: spaganetti@wctlaw.com Attorneyfor Appellants Court ofAppealFifth Appellate District2424 Ventura StreetFresno, CA 93721 I am readily familiar with the firm’s practices of collection and processing of correspondence for mailing. Underthat practice, it would be deposited with the United States Postal Service on that same day with postage thereon fully prepaid in the ordinary course of business. I am aware that on motion of the party served, service is presumed invalid if postal cancellation date or postage meter date is more than one dayafter date of deposit for mailing in affidavit. I declare under penalty of perjury under the laws of the State of California that the foregoing is true and correct. Executed on February 14, 2011, at Fresno, California. George Hewett