Pacific State Bank v. Greene, C039662.

Citation110 Cal.App.4th 375,1 Cal.Rptr.3d 739
Decision Date10 July 2003
Docket NumberNo. C039662.,C039662.
CourtCalifornia Court of Appeals
PartiesPACIFIC STATE BANK, Plaintiff and Respondent, v. Dawn GREENE et al. Defendants and Appellants.

Kroloff, Belcher, Smart, Perry & Christopherson, Orlie L. Curtis, Christopher H. Engh, Stockton, and Allison Cherry Lafferty for Defendants and Appellants.

Parish & Small and Arthur A. Small II, Stockton, for Plaintiff and Respondent.

KOLKEY, J.

This case raises the question whether the parol evidence rule bars a party from offering evidence that her signature on an agreement was procured by a misrepresentation over the content of the physical document to be signed. The aggrieved party claims that she agreed to guarantee a single loan and that a bank employee misrepresented on the day of signing that the guaranty agreements at issue related only to that single loan. But although that single loan's number and amount were specified at the top of the guaranty agreements, the agreements' fine print defined the "indebtedness" that was to be guaranteed to include "all of Borrower's liabilities," which covered four loans. The bank subsequently brought an action against the aggrieved party to recover on all of the borrower's loans up to the limits of the guarantees. And the trial court sustained the bank's objections to the aggrieved party's offer of the bank employee's misrepresentations pursuant to the parol evidence rule and granted the bank's motion for summary judgment.

We shall reverse. The parol evidence rule "generally prohibits the introduction of any extrinsic evidence, whether oral or written, 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, 7 Cal.Rptr.2d 718) "`because [such evidence] cannot serve to prove what the agreement was, this being determined as a matter of law to be the writing itself.' [Citation.] [Fn. omitted.]" (Tahoe National Bank v. Phillips (1971) 4 Cal.3d 11, 23, 92 Cal.Rptr. 704, 480 P.2d 320.)

But at least since the parol evidence rule's codification in this state in 1872, the rule has specified statutory exceptions for mistake, illegality, or fraud. (Code Civ. Proa, § 1856, subds. (e), (f), (g).) Although the California Supreme Court narrowed the scope of the statutory fraud exception nearly 70 years ago so as to exclude "a promise directly at variance with the promise of the writing" (Bank of America etc. Assn. v. Pendergrass (1935) 4 Cal.2d 258, 263, 48 P.2d 659 (Pendergrass)), we conclude that this judicial limitation should not be further extended to preclude parol evidence of a misrepresentation of fact over the content of the physical document at the time of signing. Such an extension would conflict with the Legislature's express and unqualified statutory exception for fraud—a policy judgment that we have no power to overrule—and is unnecessary to safeguard the vitality of the parol evidence rule (which was Pendergrass's purpose in narrowing the scope of the fraud exception).

In Pendergrass, the California Supreme Court limited the scope of the statutory fraud exception in order to avoid the risk that the fraud exception, by permitting evidence of promises at variance with the writing, would swallow up the rule.

But evidence of a mischaracterization of the agreement to be signed does not create the same risk: Factual misrepresentations over the content of a document at the time of signing are more narrow in time and circumstance than allegations of promissory fraud, which can arise at any time during contract negotiations; factual misrepresentations, unlike prior promises, do not go to the heart of that which the parol evidence rule prohibits; and claims of misrepresentation over the content of a document are not easily abused and will rarely be successful because the defrauded party cannot normally complain of unfamiliarity with the language of the document and must show he or she reasonably relied on the misrepresentations. (See Rosenthal v. Great Western Fin. Securities Corp. (1996) 14 Cal.4th 394, 419-423, 58 Cal.Rptr.2d 875, 926 P.2d 1061.) Most importantly, qualifying the unqualified language of a statute with unexpressed exceptions premised on legislatively unmentioned policy judgments creates a trap for the unwary reader, undermines the predictive value of statutory language so necessary for jurisprudential stability, imposes transaction costs consisting of lawyer and judicial hours scouring the case law for counterintuitive interpretations, and risks judicial trespass upon the Legislature's province by varying the enacted words of the statute. Jurisprudential stability demands predictability, based largely on a judicious respect for the doctrine of stare decisis and reliance on the plain language of our laws (which reliance also serves to restrain the judiciary from overstepping its constitutional role of interpreting, and not rewriting, statutes). Accordingly, we will not interpret the unqualified statutory exception for fraud to exclude factual misrepresentations over the content of a writing at the time of its signing.

FACTUAL AND PROCEDURAL BACKGROUND
I. The Guaranty Agreements

Plaintiff Pacific State Bank (Pacific) made four loans to Dell Merk, Inc., doing business as Uprite Construction (Uprite). Three of the loans were each in the principal amount of $150,000. The fourth loan— loan No. 22004673, dated July 6, 1999, which was secured by a trailer owned by Uprite—was for $32,075.

Defendant Dawn Greene is president of defendant Dawn's Transport. Greene is married to Christopher Dell' Aringa, president of Uprite. Greene agreed with Dell' Aringa to purchase the trailer securing the $32,075 loan by assuming the loan, which had a balance of $27,000. Pacific agreed to the arrangement.

To effect the transfer, Greene signed two guaranty agreements in favor of Pacific, one personally and the other on behalf of Dawn's Transport. The form and terms of the two guaranties were identical, other than the capacity in which Greene signed them. The amount of each guaranty was $27,000—the balance owing on the trailer. And the maximum amount of liability under each guaranty was $27,000 (plus all costs and expenses of enforcement). Although the boxes headed "Loan Date" and

"Loan No." on page 1 of the guaranties were left blank, the notations "07-06-1999" and "Loan No[.] 22004673"—the loan date and number of the trailer loan—appeared in the upper left-hand corner of pages 2 through 4 of the guaranties.

Each guaranty provided that the guarantor "absolutely and unconditionally guarantees and promises to pay PACIFIC STATE BANK (`Lender') ... the Indebtedness (as that term is defined below) of DELL MERK, INC. DBA UPRITE COSTRUCTION (`Borrower')" on the terms and conditions set forth in the Guaranty.

But the "DEFINITIONS" section of each guaranty defined the term "Indebtedness" to extend beyond the trailer loan and to include all of Uprite's loans: "The word `Indebtedness' is used in its most comprehensive sense and means and includes any and all of Borrower's liabilities, obligations, debts, and indebtedness to Lender, now existing or hereinafter incurred or created; including, without limitation, all loans, advances, interest, costs, debts, overdraft indebtedness, credit card indebtedness, lease obligations, other obligations, and liabilities of Borrower, or any of them, and any present or future judgments against Borrower, or any of them; and whether any such indebtedness is voluntarily or involuntarily incurred, due or not due, absolute or contingent, liquidated or unliquidated, determined or undetermined; whether Borrower may be liable individually or jointly with others, or primarily or secondarily, or as guarantor or surety; whether recovery on the indebtedness may be or may become barred or unenforceable against Borrower for any reason whatsoever; and whether the Indebtedness arises from transactions which may be voidable on account of infancy, insanity, ultra vires, or otherwise."

Each guaranty also contained an "Integration" clause that provided in relevant part: "Guarantor warrants, represents and agrees that this Guaranty, together with any exhibits or schedules incorporated herein, fully incorporates the agreements and understandings of Guarantor with Lender with respect to the subject matter hereof and all prior negotiations, drafts, and other extrinsic communications between Guarantor and Lender shall have no evidentiary effect whatsoever. Guarantor further agrees that Guarantor has read and fully understands the terms of this Guaranty; ... the Guaranty fully reflects Guarantor's intentions and parol evidence is not required to interpret the terms of this Guaranty...."

Similarly, each guaranty contained a provision that the guarantor "represents and warrants to Lender that (a) no representations or agreements of any kind have been made to Guarantor which would limit or qualify in any way the terms of this Guaranty...."

II. The Defaults

After Greene signed the guaranties, Dawn's Transport was added to the certificate of title for the trailer. Greene claims that she made all the monthly payments on the trailer in a timely fashion. Uprite, however, defaulted on its loans to Pacific, leaving a principal balance due of over $428,000 on the first three loans and of approximately $23,000 on the trailer loan.

III. Pacific's Lawsuit

Pacific brought an action against Uprite and amended the complaint to add causes of action for breach of the guaranty agreements against Greene and Dawn's Transport, seeking the full amount of each guaranty for Uprite's indebtedness. In their answer, Greene and Dawn's Transport raised affirmative defenses that their consent to the guaranties was obtained by mistake, innocent misrepresentation, and fraud.

Pacific moved for summary judgment against defendants Greene...

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