California court ruling may increase real estate contract fraud cases

Earlier this year, the California Supreme Court made a decision that alters the interpretation and enforcement of certain contracts. The ruling changes well-settled law and may drastically increase the number of contract law cases in the state.

California contract law

Evidence of oral agreements, promises or explanations made at the time of or prior to creation of a written contract cannot be used to invalidate or alter that contract. This is known as the "parol evidence rule" in California and there is only one exception to the rule; oral evidence is permissible to prove that someone committed fraud. For example, if a property owner lied about the condition of a piece of real estate in order to induce a buyer to purchase it, the buyer can present evidence of the lies in court in order to prove fraud.

However, over 75 years ago, California courts allowed an exception to the exception. If the oral promise directly contradicts the written promise, evidence of what was said cannot be used to contradict what was written. In the example, if the seller said the purchase price of the property was $500,000 but the written contract stated $600,000, the buyer could not present evidence disputing the amount.

What was changed

The recent decision by the California court took back the exception to the exception, opening the floodgates to litigation in the state. Now, a party to a contract can dispute the express terms of a business or commercial deal by claiming that the written contract is not what he or she orally agreed to. While this may be a boon to those who have been fraudulently coerced into signing an agreement, it can mean increased litigation for others.

When a dispute arises

If a dispute arises from a contract to which you or your business are a party, it is important to know your rights. No matter which side of the deal you are on - defending yourself from a dispute or raising issues concerning the terms of a contract - careful analysis and an in-depth understanding of California laws is necessary.

Your contract may contain contingencies that allows for termination of the deal in certain circumstances and one party may be able to enforce fulfillment of particular provisions on another. Additionally, your contract may outline the amount of damages that can be awarded in the event of default or termination.

Before finalizing a contract - or in the event of a dispute - consult an experienced contract law attorney. A California lawyer knowledgeable about real estate, business and commercial transactions may be able to help you avoid litigation.