Not Worth The Paper It’s Printed On? Strategies For Dealing With The Fraud Exception To The Parol Evidence Rule

This article explores possible measures that parties to commercial transactions and their attorneys can take to help ensure greater contract certainty when fraud claims of one type or another are not barred by the parol evidence rule. In California, as in a majority of other states, the parol evidence rule does not bar claims for fraudulent misrepresentations or promises at variance with the terms of a written contract. This presents a dilemma for parties involved in retail leasing, financing and other commercial transactions. Most lenders, landlords and other institutional and corporate parties do not want their loan documents, leases, and other agreements to be impaired or voided, in whole or in part, due to actual or alleged representations or understandings not reflected in the negotiated written documents.

A. SUMMARY OF EXISTING LAW AND EXPLANATION OF THE DILEMMA.

To comprehend the dilemma more fully and better evaluate possible solutions, it is helpful to have a basic understanding of the parol evidence rule. It is also helpful to have a working understanding of the fraud exception to the parol evidence rule. The following summary is not an exhaustive analysis of the applicable law. It should, however, assist the parties and their counsel involved in negotiating retail transactions to understand the potential problems that fraud claims (whether legitimate or not) pose to parties who want to be able to rely on the express terms of their negotiated agreements. The summary also demonstrates why there is likely no universal solution to the problems such fraud claims present, nor one single way to prevent such fraud claims from being raised in the first place.

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