Failure to read a contract did not necessarily preclude equitable relief from the contract terms based on misrepresentations, although such claims for equitable relief ultimately were found to be moot. Riverisland Cold Storage, Inc. v. Fresno-Madera Production Credit Association, 2015 WL 2213195 (Cal. Ct. App. 2015).
From 2001 through 2007, plaintiffs obtained and renewed operating loans for their business from defendant. In March 2007, after plaintiffs defaulted on their loans, the parties entered into a written forbearance agreement, with a forbearance period that ended July 1, 2007, and listed eight pieces of real property (including plaintiffs’ residence and a truck yard) as additional security. However, plaintiffs did not actually read the agreement before signing it, claiming they relied solely on oral representations, made prior to and at the time of execution by the defendant’s representative, that the agreement contained a two year forbearance period and listed only two ranches as additional security.
When they learned the actual terms of the written agreement, plaintiffs sued defendant, alleging causes of action including fraud, negligent misrepresentation, rescission, and reformation. In response, defendant moved for summary judgment, asserting plaintiffs were bound by the written contract and that parol evidence of an oral agreement to different terms was not admissible. The trial court granted summary judgment on that ground. The court of appeals reversed, concluding that the fraud exception to the parol evidence rule made the evidence of the misrepresentations alleged by plaintiffs admissible. The California Supreme Court then affirmed that reversal.
After remand to the trial court, defendant again moved for summary judgment, asserting that plaintiffs could not demonstrate that they justifiably relied on the alleged misrepresentations due to the fact that they did not read the agreement. The trial court granted the summary judgment motion. Plaintiffs appealed.
Defendant presented three main arguments in its motion for summary judgment. First, the defendant argued that plaintiffs’ action was based on a claim of fraud in the execution of the contract, and that the element of justifiable reliance essential to that claim could not be established due to plaintiffs’ failure to read the contract. Second, if plaintiffs’ action was instead based on fraud in the inducement, a more lenient rule allowing for relief even when plaintiff did not read the contract, it would apply to claims for equitable relief, and such claims for relief were moot because the loan was paid off and the security interest released. Third, even if the first two arguments were inapplicable, the undisputed facts presented by defendant demonstrated that plaintiffs’ reliance on the alleged misrepresentations was not justifiable.
The court of appeals in this case ultimately held defendant’s first argument to be invalid because the evidence indicated that plaintiffs knew they were entering into a contract, and thus plaintiffs’ action was not based on a claim of fraud in the execution of the contract. For the second argument, the court cited to several cases to show that failure to read a contract does not necessarily preclude equitable relief from the contract terms based on a misrepresentation. The court cited to a rule that would permit it to balance the alleged neglect of the party that failed to read the contract, which may amount to negligence or mere carelessness, against the fraud of the other party, which may consist of intentional or merely negligent misrepresentation. However, the court held that this rule did not permit plaintiffs in this case to pursue equitable claims for rescission or reformation due to such claims being moot. Plaintiffs’ claim for rescission was moot since the consideration in the agreement could not be effectively returned due to the plaintiffs paying off their operating loan and the defendant having dismissed its cross-complaint for foreclosure. Similarly, plaintiffs’ claim for reformation was moot since the parties had already fully performed and any damages would be too speculative. Moreover, the court held that plaintiffs cited no legal authority to support an award of attorney fees, and punitive damages were not recoverable where no actual damages were awarded.
Plaintiffs also asserted that they had the right to affirm the contract and sue for damages for fraud and negligent misrepresentation. However, since those claims were not equitable causes of action, and the aforementioned rule applied only to equitable claims, justifiable reliance could not be established due to the plaintiffs’ failure to read the agreement. For all of these reasons, the court affirmed the trial court’s grant of summary judgment on all of plaintiffs’ causes of action.