California Supremes: Oral Promises Not Appearing In Written Contract Admissible In Court When Trying To Prove Bankster Fraudulently Tricked Borrower Into Signing Agreement

In Sacramento, California, the San Francisco Chronicle reports:

• Borrowers facing default on a loan can try to prove that the lender orally promised them an extension that didn't appear in the written contract, the state Supreme Court ruled Monday while overturning a 1935 decision that restricted evidence of fraud in contract disputes.
  
  A lawyer for the borrowers, a Fresno County couple, called the unanimous ruling a victory for consumers. The lender's lawyer said the court had eliminated important protections for written contracts.
  
  The couple, Lance and Pamela Workman, fell behind on repaying a $776,000 loan from the Fresno-Madera Production Credit Association and signed an agreement in March 2007 pledging eight properties as security in return for a three-month extension.
  
  The lender sought foreclosure after the Workmans failed to meet the three-month deadline. But the couple said the credit association's vice president had told them two weeks before the agreement was signed, and repeated at the time of signing, that they would actually have two years to make the payments and would have to put up only two ranches as security.
  
  The Workmans later repaid the loan - selling the eight properties at a loss, according to their lawyer, Steven Paganetti - and then sued the lender for fraud for allegedly misleading them about the terms of the loan.
  
  The credit association argued that the vice president's alleged promise to the couple was inadmissible because, under the law, a written contract overrides any previous oral statements between the signing parties.
  
  The California Bankers Association and other lending organizations took the same position when the case reached the state's high court. Arguing that contracts should be enforced as written, they asked the court to reaffirm the 1935 ruling that allowed oral evidence in such cases only to prove that a contract was procured by fraud and not to contradict any of its stated terms.
  
  But the court, in an opinion by Justice Carol Corrigan, said the 1935 ruling was poorly reasoned, had been rejected by other states and "may actually provide a shield for fraudulent conduct."
  
  Monday's decision allows the Workmans to offer the lending officer's promise as evidence that the credit association had deceived them into signing the agreement or misled them about its contents.
  
  The ruling will "protect consumers from the old bait-and-switch" and should allow the Workmans to take their case to a jury, said Paganetti, their lawyer.
  
  Scott Ivy, the credit association's lawyer, said the ruling allows California courts to refuse to enforce written contracts "based upon alleged oral statements that directly conflict with the written terms." He said the lender will now try to get the suit dismissed on the grounds that the Workmans acted unreasonably by failing to review the contract before signing it.

Source: Oral promises can be used in fraud case.

See also Metropolitan News-Enterprise: S.C. Overturns Limit on Fraud Exception to Parol Evidence Rule.

For the ruling, see Riverisland Cold Storage, Inc. v. Fresno-Madera Production Credit Association, S190581 (January 14, 2013).