United States: California Fraudsters Beware: Protection By ‘Integration Clause' Less Than Rare

Last Updated: October 13 2018
Article by Lauren Chee

Parties to contracts sometimes want it both ways: They want solid, ironclad contracts that can't be altered or disputed, but they also want an escape hatch if it turns out they were defrauded in the formation of the agreement.

This dichotomy is on full display in California following a recent ruling that clarifies the expanse of the state's fraud exception to the parol evidence rule — the rule that generally bars outside evidence that contradicts or alters the final terms of an integrated contract.

It also serves as a reminder to those accused of fraud that, in California, they can't hide behind  the parol evidence rule. If a claim of fraud in the inducement crops up, their misdeeds or misleading statements could be on full view in front of the triers of fact.


The parol evidence rule prohibits parties from introducing extrinsic evidence to vary, alter, or contradict the terms of a contract the parties intended to be the final expression of their agreement. Often, to indicate such intent, the parties to the contract include an integration clause – a contract provision seeking to bind the parties to the contract as their full and final agreement, superseding any other oral or written agreements and effectively preventing them from later claiming the written contract differs from what they actually agreed to.

However, California Code of Civil Procedure section 1856(g) carves out an exception to the parol evidence rule for fraud, allowing parties to introduce extrinsic evidence to establish fraud or illegality. Specifically, it reads: "this section does not exclude other evidence . . . to establish . . . fraud."

Notwithstanding the unqualified language of section 1856(g), the fraud exception had been subject to limitations, largely stemming from the 1935 case, Bank of America v. Pendergrass. Under Pendergrass, the fraud exception could only apply to evidence tending to establish "some independent fact or representation" with respect to the fraudulent procurement of a written agreement, but would not cover mere promises that were in direct variance with the express terms of the written agreement.

In 2013, the California Supreme Court in Riverisland Cold Storage Inc. v. Fresno-Madera Production Credit Association overruled Pendergrass and refused to adhere to such a narrow reading of the fraud exception. Riverisland held, "Pendergrass was an aberration . . . [I]ts restriction on the fraud exception was inconsistent with the terms of the statute, and with settled case law as well . . . The fraud exception has been part of the parol evidence rule since the earliest of days of our jurisprudence, and the Pendergrass opinion did not justify the abridgment it imposed."

How far does the exemption extend?

Yet, even after California law conclusively found it is against public policy to contract away liability for fraud, parties frequently attempted to creatively circumvent the fraud exception. But, in a recent decision, the California Court of Appeal again declined to accept a narrow interpretation of the fraud exception, this time rejecting the exception only applies to cases challenging the validity of a written agreement, e.g., cases seeking rescission of contracts.

Rather, the Court found that under the fraud exception, extrinsic evidence is more broadly admissible to show a plaintiff had a different understanding of the contract's terms because of a defendant's fraudulent misrepresentations. In IIG Wireless, Inc. v. Yi, IIG Wireless alleged a former shareholder, John Yi, fraudulently induced the other shareholders to enter into shareholder agreements by making misrepresentations and false promises prior to the execution of the agreements. Yi argued the alleged oral misrepresentations were inadmissible to prove fraud and calculate damages because the shareholder agreements were fully integrated and thus the statements were barred by the parol evidence rule. In fact, IIG Wireless conceded the following clause integrated the agreements:

This instrument constitutes the entire Shareholder Agreement . . . and correctly sets forth the rights, duties, and obligations of each Shareholder . . . Any prior agreements, promises, negotiations, or representations concerning the Agreement's subject matter not expressly set forth in this Agreement are of no force or effect.

IIG Wireless argued, instead, that despite the integration clause, Yi's prior statements should be admitted under the fraud exception to the parol evidence rule as broadly interpreted by the California Supreme Court in the Riverisland decision. Yi attempted to argue that Riverisland applied only to cases "where the validity of the agreement is at issue," i.e., breach of contract cases where rescinding or voiding the contract was the remedy sought. The Court declined to give Riverisland such a narrow reading and held that although IIG Wireless was not attempting to rescind the integrated shareholder agreements or challenge their validity, the extrinsic evidence of Yi's oral statements was admissible to prove IIG Wireless's damage claims.

This holding reaffirms the trend that, in California, courts will likely not impose narrow limitations on the fraud exception to the parol evidence rule, even with a fully integrated contract, but will be more likely to broadly consider extrinsic evidence related to fraud or illegality. California courts will likely not allow the parol evidence rule to be used as "a shield to prevent the proof of fraud" despite one's best efforts to bypass the fraud exception to the parol evidence rule.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions