Evidence extrinsic to the parties’ contract is admissible to prove false advertising

Posted in: Appellate Practice by Steven Vartabedian on

In Duncan v. The McCaffrey Group, Inc. (filed October 28, 2011) 2011 DJDAR 15875, plaintiffs bought from defendants residential lots in a tract marketed as Treviso Custom Home Development. Plaintiffs claim they bought in the development, paying premium prices, because of its marketing as an exclusively custom home development; instead, defendants, unbeknownst to plaintiffs, intended to build smaller tract homes on some of the lots .The matter came before the Fresno County Superior Court on defendants’ demurrers and motion for summary adjudication. On the issues that are the subject of this appeal, the trial court sustained the demurrers and granted summary adjudication on the basis that the parol evidence rule precluded plaintiffs from establishing facts supportive of their claims. The Court of Appeal, Fifth Appellate District, reversed.

Defendants took the position that plaintiffs’ allegations in question could not be considered because they contradicted the terms of the lot sales agreements and the CC&R’s that included giving the developer the right to build different types of residences. Under the parole evidence rule, argued defendants, the integrated agreement on each lot was the final expression of the terms of the agreement.

On their causes of actions for unfair competition and false advertising, the plaintiffs successfully argued to the appellate court that these claims did not contain allegations that required proof that would vary, alter or add to the terms of a written agreement. Rather than argue the terms of the agreement, each plaintiff alleged he or she was mislead by and reasonably relied upon false advertising.

Plaintiffs also appealed the trial court’s ruling that they could not prove breach of fiduciary duty by defendant McCaffrey as their real estate broker because each agreement established McCaffrey was acting only as the broker for the seller. The appellate court found the cited provision to be ambiguous rendering it susceptible to plaintiffs’ extrinsic proof supportive of plaintiffs’ asserted interpretation.

On plaintiffs’ cause of action for fraud, the appellate court found evidence extrinsic to each contract would not be admissible to prove the fraud claim. Plaintiffs’ theory here was that although their proof would technically be offered to contradict the terms of each agreement, this proof fell within the fraud exception. The court found the fraud exception did not apply here primarily because this case did not involve a misrepresentation of what the terms of the executed contract were. For an example of the application of this exception, see Pacific State Bank v. Greene (2003) 110 Cal.App.4th 375.

As the Duncan opinion notes, the scope of this exception to the parole evidence rule is a matter of debate and currently before the California Supreme Court in Riverisland Cold Storage, Inc. v. Madera Production Credit Association, S190581. Dowling Aaron Incorporated serves as one of the counsel in that matter which is discussed in this site’s July 6. 2011 blog.

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