Desserts Without Guilt, Inc. v. Coffee Barrel (9th Cir. 1989) 868 F.2d 1272 [mem. disp.]

Desserts and Barrel entered into a written agreement. The preamble represented that Desserts wanted to use Barrel’s “secret recipes and concepts.” The contract went on to say that for $12,000 Barrel sold Desserts “the exclusive right to use their recipes and know-how in the County of Nassau” along with Barrel’s “secret recipe book” and the training of personnel of Desserts in the proper use of the products and the recipes. The contract further provided that it was to be construed by the law of California and that if there was any litigation it would be within Los Angeles County.

Desserts sued.  It alleged that (1) Barrel “falsely and fraudulently warranted and represented” that its secret recipes had exchange values with certain food products; (2) these representations and warranties were made recklessly; (3) Barrel and its partners had conspired to defraud Desserts by these warranties and representations; and (4) there had been a failure of consideration. Barrel sought rescission and the refund of the $12,000 paid as well as $1.5 million for the fraud.  The district court restricted the evidence as to fraud and, on the basis of the evidence he admitted, held that Desserts had failed to make its case. The court further concluded that there was an ambiguity in the contract.

On appeal, the Court of Appeals reversed. It held that the district court erred in excluding evidence under California’s parol evidence rule. It was unclear whether the written agreement was intended to be an integration. If it was not, extrinsic evidence of other contract provisions which did not contradict the writing—including the alleged warranty—was admissible. And, even if the writing was intended to be an integration, parol evidence was admissible both to demonstrate that the writing was ambiguous and to clarify such ambiguity. However, if the writing was intended to be integrated, parol evidence was inadmissible to “add to or vary [its] terms.”