One of the first things that real estate agents learn is to "get everything in writing." Moreover, they hear this over and over again. Additionally, and much to the industry's satisfaction, courts have ruled many times that parties will be held to the terms of a written contract. "I didn't read all that stuff; it's just too long and complicated" does not constitute an adequate defense on the part of someone who is trying to escape the obligations of a contract that they have signed.
Nonetheless, there are some situations in which a person may not be bound by the terms of a contract they have signed. This can happen when fraud has been used to induce the person to sign the contract. This principle is illustrated and explained in a California Appellate Court ruling (Riverisland [sic] Cold Storage v. Fresno-Madera Production Credit Association, Fifth District Court of Appeal, January 3, 2011).
Riverisland had gone into default on a loan made by the credit association. On March 26, 2007 the parties entered into a written forbearance agreement. The agreement provided that the credit association would forbear from collection until July 1, 2007, and that the borrowers would pledge certain properties as additional collateral. When the borrowers failed to make the payment by the agreed-upon time, the credit association recorded a notice of default.
The borrowers ultimately repaid the loan. But, then, in April of 2008 they filed a complaint against the lender. They claimed both damages to their credit and also that the notice of default had impaired their ability to sell their property. The borrowers, Riverisland, said that two weeks prior to the signing of the forbearance agreement, they had met with the senior vice-president of the credit association. They claimed that he told them that the agreement provided a two-year period to forbear from collection if they would pledge certain additional properties as security. Also, at the time the agreement was signed, he told them that it would be for two years and that it did not include all the properties previously specified.
At the time of trial, the credit union moved for summary judgment (essentially, dismissal) on the grounds that the parol evidence rule barred the admissibility of the evidence provided. Parol evidence is oral evidence (parol is from a legal French term; it has nothing to do with being on parole) or evidence that is extrinsic (outside of) a document. Evidence, for example, that negotiations toward a contract had been quite different from the final document, would be barred by the parol evidence rule.
But there is an important exception to the parol evidence rule, and that is a fraud exception. However, in this case, the trial court ruled that the fraud exception did not apply. Hence, the dismissal was granted. Naturally, Riverisland appealed.
The Appellate Court disagreed with the trial court. Its discussion included what most folks might agree was a tortured discussion of legal distinctions. The essence of that was that parol evidence of a contrary promise to do something in the contract (e.g. "You don't have to pay me by the 15th" whereas the contract says you do.) is not admissible. It's what is in the contract that counts.
But the question of promise was not at issue here; it was a misrepresentation of terms, and the misrepresentation was "in order to induce the other party to sign..." That, the appellate court found, was an exception to the usual bar to parol evidence. Hence, the trial court's dismissal was reversed.
There's a lesson for agents here, because agents are frequently called upon by circumstances to represent or explain the terms of a contract. (We will, for the moment, set aside issues about practicing law.) Sometimes there may be incentives to "water down" that explanation - to make contract terms seem less burdensome than they actually are. DON'T DO IT. It would be evidence beyond the written contract; but it could come back to bite you.
Published: February 12, 2013
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