Has The Erosion Of The Parol Evidence Rule In California Impaired Banks’ Ability To Enforce The Terms Of Their Loan Documents?

In contract disputes in California courts, the Parol Evidence Rule (codified in California Code of Civil Procedure section 1856) prohibits evidence of promises or representations that are contrary to the written terms of a contract that was intended to be a complete and final statement of the parties’ agreement.  For decades (since the 1935 case of Bank of America v. Pendergrass), financial institutions relied on athe Parol Evidence Rule to prohibit borrowers from making claims or defenses based on the lender’s alleged false promises or misrepresentations that contradict the terms of the loan documents.

In 2013 and the years that followed, the California Supreme Court and Courts of Appeaal issued several decisions that have eroded the Parol Evidence Rule’s strict prohibition against evidence of alleged false promises that contradict the terms of a written contract.

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