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Is The Pendergrass Rule Greener On The Other Side?: The Need For Strict Limits On Promissory Fraud Claims After Riverisland.

GMSR partner Ted Xanders provides an in-depth look at the myriad promissory fraud issues that remain unresolved after Riverisland Cold Storage, Inc. v. Fresno-Madera Production Credit Association, 291 P.3d 316 (Cal. 2013) (Riverisland) abrogated the Pendergrass rule.  The Pendergrass rule had barred evidence of fraudulent promises that directly contradicted written contract terms.  It had been the law in California law for almost eight decades, ever since Bank of America National Trust & Savings Association v. Pendergrass, 48 P.2d 659 (Cal. 1935).   But the Riverisland decision raises more questions than answers, shifting the public-policy debate it purported to resolve to new battlegrounds:  the proper standards for proving Pendergrass-type promissory fraud claims and the proper remedies for such claims.  Although over four years have passed since the Pendergrass rule’s abrogation, the questions left open by Riverisland remain unanswered.

The white paper explains that business interests and California public policy will suffer if courts couple Riverisland’s liberal rule for admitting fraud evidence with liberal standards for proving fraud that encourage unfounded fraud claims and discourage parties from reading contracts.   The Pendergrass rule may be gone, but its legitimate public-policy predicates should not be forgotten.  Instead, courts should accommodate those policy considerations in the case-by-case evidentiary analysis that now determines the viability of Pendergrass-type fraud claims after Riverisland, particularly in addressing the fraud element of justifiable reliance.   The white paper provides numerous tips for navigating the post-Pendergrass-rule waters, including a model for evaluating the justifiable reliance element, contract-negotiation recommendations to help minimize the prospect of a promissory fraud claim, and litigation tips for defending against Pendergrass-type fraud claims and potentially defeating them as a matter of law.


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