BILL ANALYSIS �
SENATE JUDICIARY COMMITTEE
Senator Noreen Evans, Chair
2013-2014 Regular Session
AB 824 (Jones)
As Introduced
Hearing Date: June 11, 2013
Fiscal: No
Urgency: No
RD
SUBJECT
Written Agreements: Exclusion of Evidence
DESCRIPTION
This bill would add trust instruments to the list of agreements
that are covered by the statute codifying the parol evidence
rule.
BACKGROUND
Codified at Section 1856 of the Code of Civil Procedure, the
parol evidence rule, with certain exceptions, operates to bar
the introduction of any extrinsic evidence (oral or written) to
vary or add to the terms of a complete and final written
agreement. This rule is not merely a rule of evidence; rather,
it is a rule of substantive law which holds that the act of
embodying the complete terms of an agreement in writing becomes
the contract of the parties. In other words, as a matter of
law, the writing is the agreement and extrinsic evidence is
excluded because it cannot serve to prove what the agreement was
when the agreement has already been determined to be the writing
itself. (2 Witkin Cal. Evid. Documentary Evidence Secs. 59,
62.)
A writing constitutes an integration when it is intended to be a
final expression of one or more terms of the parties' agreement.
(See Code Civ. Proc. Sec. 1856(a).) The existence of
integration, which triggers the application of the parol
evidence rule, is a question of law for the judge, as opposed to
a question of fact for the jury. The judge must also decide
whether the writing is intended also as a complete and exclusive
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statement of the terms of the agreement-in other words, if the
agreement was completely integrated. (Code Civ. Proc. Sec.
1856(d).) If it is a completely integrated agreement, then,
generally, no extrinsic evidence may be introduced (exceptions
are made in some circumstances, such as where a mistake or
imperfection in the writing is put at issue in the pleadings.)
If not, then evidence of a consistent collateral term would not
necessarily be barred by the parol evidence rule.
To help illustrate this distinction, a written contract between
an inventor and an entity may provide that royalties received
from a license of the inventor's invention should be paid to the
entity. While the contract may, in fact, constitute an
integrated agreement as to the form of payment and thereby bar
any introduction of extrinsic evidence as to that agreement,
other evidence may still be relevant and introduced in court to
establish an agreement as to the use of that money-such as where
it is alleged that the entity had agreed use those royalties to
conduct research in the inventor's particular field. (Simmons
v. California Institute of Technology (1949) 34 Cal.2d 264.)
In such an instance, the introduction of the evidence is not
permitted in order to contradict the writing, but rather,
operates to prove a consistent additional agreed upon term that
is either agreed to for separate consideration or is such a term
as in the circumstances might naturally be omitted from the
writing. (2 Witkin Cal Evid., Documentary Evidence, Secs. 65,
68, 86-87.)
With respect to this bill, the parol evidence rule, as codified
in Section 1856, defines "agreement" as a contract, deed, or
will. This bill would add "trust instrument" to that
definition, thereby ensuring that such instruments fall within
the scope of the rule.
CHANGES TO EXISTING LAW
Existing law provides that the terms set forth in a writing
intended by the parties as a final expression of their agreement
as are included therein may not be contradicted by evidence of
any prior agreement or of a contemporaneous oral agreement.
(Code Civ. Proc. Sec. 1856(a).)
Existing law provides that the terms set forth in a writing
described above may be explained or supplemented by evidence of
consistent additional terms unless the writing is intended also
as a complete and exclusive statement of the terms of the
agreement. (Code Civ. Proc. Sec. 1856(b).)
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Existing law requires that the court determine whether the
writing is intended by the parties as a final expression of
their agreement with respect to such terms as are included
therein and whether the writing is intended also as a complete
and exclusive statement of the terms of the agreement. (Code
Civ. Proc. Sec. 1856(d).)
Existing law specifies circumstances in which evidence is not
excluded, including, among other things, evidence of a mistake
or imperfection in the writing that is put in issue by the
pleadings, or where the validity of the agreement is in dispute.
(Code Civ. Proc. Sec. 1856(e)-(g).)
Existing law defines "agreement" to include deeds and wills, as
well as contracts between parties. (Code Civ. Proc. Sec.
1856(h).)
This bill would amend the definition above to include "trust
instruments" and make other technical changes.
COMMENT
1. Stated need for the bill
According to the author:
Code of Civil Procedure [Section] 1856 sets forth California's
statutory "parol evidence rule," which states, in effect, that
if a contract (or other similar document) is intended to be
final and complete, its terms cannot be contracted by evidence
of an earlier agreement or contemporaneous oral agreement.
The section specifically refers to deeds, wills, and contracts
between the parties, but not trust instruments.
It is completely logical and good policy for trust instruments
to be included within the parol evidence rule. Courts have
recognized this fact, and there is an abundance of case law
holding that trust instruments are indeed within the rule's
scope. (See Miller v. Security-First National Bank of Los
Angeles (1933) 219 Cal. 120, 128-129, Lonely Maiden
Productions, LCC v. Goldentree Asset Mgmt., LP (2011) 201
Cal.App.4th 447, 453, Wells Fargo Bank v. Marhsall (1993) 20
Cal.App.4th 447, 453; Levy v. Crocker-Citizens National Bank
(1971) 14 Cal.App.3d 102, 104, Kr[o]pp v. Sterling Savings and
Loan Assoc. (1970) 9 Cal.App.3d 1033, 1045.)
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Case law notwithstanding, the fact is that the statute does
not include trust instruments in the list of agreements
subject to the parol evidence rule. By adding trust
instruments to the list, AB 824 would promote clarity and
predictability in probate and trust litigation by codifying
existing case law. It also would reduce unnecessary
litigation and cost to the extent the change would discourage
(obviously futile) attempts to litigate the issue of whether
the parol evidence rule applies in these cases.
2. This bill appears consistent with case law applying the
parol evidence rule in the context of trusts
The parol evidence rule generally operates to prohibit the use
of extrinsic evidence to contradict the terms of a final and
complete agreement between two parties. This rule has been
codified in Section 1856 of California's Code of Civil Procedure
since 1872, and in its current form since 1978. That section
defines agreement to mean a contract, deed, or will. This bill
would add "trust instruments" to that definition to remove any
ambiguity as to the inclusion of trust instruments within the
scope of the rule.
The sponsor of this bill, the Conference of California Bar
Associations, writes that "[t]he lack of specific mention in
statute has not dissuaded the courts, which have found on
numerous occasions that trust instruments are indeed within the
rule's scope. [Citations omitted.] Even so, the lack of
specific mention can lead to unnecessary and wasteful litigation
by attorneys who see this absence as an issue that can be
raised. AB 824 would stop this practice."
In support of their position, the author and sponsor note
several cases. While some of these cases predate the current
version of the statute, the prior statute also included a
substantially similar definition of "agreements" (the 1978
amendments renumbered the provision and added the words "As used
in this section"). To be clear, staff notes that the courts in
some of these cases did not rule specifically on Section 1856 of
the Code of Civil Procedure but, nonetheless, they applied
principles of the parol evidence rule to cases involving trust
instruments.
For example, in Miller v. Security-First National Bank of Los
Angeles (1933) 219 Cal. 120, 128-129, the California Supreme
Court rejected the plaintiff's argument on appeal that they
should have been permitted to introduce extrinsic evidence of a
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preliminary oral contract where there was otherwise in existence
a trust instrument, writing that "[t]hese prior negotiations and
stipulations were all superseded by the written documents of the
parties subsequently executed which purported to and did contain
in full the agreement of the parties. [ . . . ] No claim is made
that the declaration of trust is in any way uncertain or
ambiguous as to the obligations it imposed upon the bank.
Neither do the appellants contend that they were not perfectly
familiar with the terms of the declaration of trust at the time
of their written approval thereof. [ . . . ] Under these facts
and circumstances the court correctly and properly struck out
all evidence of plaintiffs as to any prior or preliminary oral
contract [ . . . ]." (See also Kropp v. Sterling Savings and
Loan Assoc. (1970) 9 Cal.App.3d 1033, 1045: extrinsic evidence
legitimately bearing on a trustor's intent is admissible only
when the trust instrument is unclear or ambiguous.)
Also of note, California case law provides that "[i]n
interpreting a document such as a trust, it is proper for the
trial court in the first instance and the appellate court on de
novo review to consider the circumstances under which the
document was made so that the court may be placed in the
position of the testator or trustor whose language it is
interpreting, in order to determine whether the terms of the
document are clear and definite, or ambiguous in some respect.
Thus, extrinsic evidence as to the circumstances under which a
written instrument was made is admissible to interpret the
instrument, although not to give it a meaning to which it is not
reasonably susceptible." (Wells Fargo Bank v. Marshall (1993)
20 Cal.App.4th 447, 453, citing Estate of Russell (1968) 69
Cal.2d 200, 208-210.) In Wells Fargo Bank v. Marshall, while
the court made no specific mention of the parol evidence rule or
Section 1856, the court ruled that because the language in the
trust instrument relating to the trustor's son's wife was
ambiguous when taking into consideration all the circumstances
surrounding the making of the trust, it was proper to consider
other evidence (the trustor's letter to the proposed trustee
outlining the terms of the trust and the trust language itself)
to determine the intent of the trustor with respect to the
potential trustee. Based upon that extrinsic evidence, the
court then held that the trustor had intended to benefit whoever
the son may be married to and living with at the time of his
son's death.
More recently, in 2011, a California Court of Appeal was
presented with an issue of whether or not a trust was created
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between the parties-a question that turns upon whether or not
the court finds that the parties manifested the intent to create
a trust. In making this determination, the court noted that
"[t]he settlor is not required to use the words 'trust' or
'trustee.' In interpreting the settlor's words and conduct [to
determine if the parties manifested an intent to create a trust,
as opposed to a debt], the circumstances surrounding the
transfer may be considered unless they are excluded by the parol
evidence rule." There, the court found, however, that an
"integration clause establishe[d] that the written service
agreements are complete and final expressions of the parties'
terms" and thus, while parol evidence might still be used for
interpretation purposes, in that case and in accordance with
Section 1856, extrinsic evidence could not be considered to
explain the terms because the service agreements between the
parties were not ambiguous. Accordingly, the court held that no
trust had been created in that case: "They did not properly
manifest intention to create an express trust [in the service
agreements] and the parol evidence rule bars extrinsic evidence
from showing otherwise." (Lonely Maiden Productions, LLC v.
Goldentree Asset Mgmt. (2011) 201 Cal.App.4th, 368, 376-381.)
This bill would arguably be consistent with the above cases,
among others, and remove any ambiguity in the law by explicitly
adding trust instruments to the definition of agreement in the
statute codifying the parol evidence rule.
Support : None Known
Opposition : None Known
HISTORY
Source : Conference of California Bar Associations
Related Pending Legislation : None Known
Prior Legislation : None Known
Prior Vote :
Assembly Floor (Ayes 75, Noes 0)
Assembly Judiciary Committee (Ayes 10, Noes 0)
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