Banco Do Brasil, S.A. v. Latian, Inc. (234 Cal. App. 3d 973, 1991)

Court of Appeal of the State of California 1991-09-27

Citations

Full opinion text

Opinion

CROSKEY, J.

Plaintiff, cross-defendant and appellant Banco Do Brasil, S.A., Los Angeles Agency, a banking association organized and existing under the laws of Brazil (Banco), and cross-defendant and appellant Joao Stefanon (Stefanon) appeal from a judgment entered against them following a jury verdict in favor of the defendants, cross-complainants and respondents Latían, Inc., a California corporation (Latían), and Amanollah Sarbaz (Amanollah).

This appeal arises from a lender liability claim asserted by Latían and Amanollah by way of a cross-complaint to Banco’s original action which it brought to enforce and recover on certain promissory notes and a written loan restructure agreement. Banco’s claims were rejected by the jury in a verdict which awarded to Latían and Amanollah over $27 million on their cross-complaint.

Latían and Amanollah received a judgment for substantial compensatory and punitive damages for breach of contract and fraud arising from their claim that Banco had orally promised to extend to them a “$2 million line of credit” as an integral part of a transaction in which they purchased the assets of a business by assuming certain secured debts of their seller to Banco. While all other aspects of the transaction were fully documented, the alleged promise to extend additional credit, while assertedly critical, was never the subject of any writing and was vigorously disputed by Banco.

Banco asserts that the evidence was simply insufficient to establish either that (1) any enforceable contract to provide such a line of credit ever existed or (2) any fraudulent conduct ever took place. In addition, it argues that the documentation of this transaction was such that evidence of an oral collateral agreement should have been barred by the parol evidence rule. From our examination of the extensive record of the month-long jury trial which is before us, we have concluded that Banco’s arguments are well taken. The trial court erroneously overruled Banco’s parol evidence objections. In addition, when the record is examined in its totality, there is simply no substantial credible evidence to support the claim that Banco had agreed to or promised a $2 million line of credit to Latían or Amanollah. We will therefore reverse the judgment.

Procedural History

Banco commenced this action against Latían, Amanollah and, with respect to the fraud claim, a number of Doe defendants on January 28, 1985. On that date, it filed a complaint seeking to recover sums due and unpaid under a January 1983 guaranty payment agreement ($1,072,874.51) (hereinafter the Guaranty Agreement) and three promissory notes dated June 28, 1983 ($40,000), December 6, 1983 ($5,685.17) and December 31, 1983 ($11,927.11). Banco alleged that only two principal payments were made under the Guaranty Agreement, in February and March of 1983, and none was ever made with respect to the three promissory notes. A principal unpaid balance of $1,053,433.90, plus substantial accrued interest, was claimed on several theories: a common count for money lent, breach of promissory notes and the Guaranty Agreement and promissory fraud. There is no dispute that these amounts remain unpaid.

On February 12, 1985, the respondents filed a “Joint and Several Answer and Cross-Complaint.” By this pleading, the respondents denied all liability to Banco and affirmatively alleged that they had been substantially damaged by Banco’s failure to honor an oral commitment to provide a “$2 million line of credit” to be used in the operation of Latian’s business. The defendants sought damages on several theories which were asserted against both Banco and Stefanon: breach of an oral agreement, fraud, negligent misrepresentation and interference with prospective advantageous economic relationships.

Prior to trial, Banco, by a motion for summary judgment sought to bar, under the parol evidence rule, any evidence of a collateral oral agreement or promise by Banco to extend a “line of credit” to Latían. After extensive argument, the trial court ruled that the collateral oral evidence would be admitted. In support of such ruling, the court took the position that the claimed promise to provide such a line of credit was a matter which was “naturally separate” from the extensively documented loan and guaranty agreements which were entered into between Banco and Latían and Amanollah; based on that conclusion, the trial court held that the Guaranty Agreement was not integrated. Banco’s efforts to reassert this objection first by a motion to reconsider and, just prior to trial, a motion in limine were similarly rejected.

The case went to trial before a jury on June 12, 1989, and concluded one month later on July 12. The jury found against Banco on its contract and fraud claims and for the defendants on their cross-complaint. The jury awarded compensatory damages of $3.6 million for breach of contract against Banco. On the fraud count, the jury awarded $1.9 million compensatory damages against Banco and Stefanon and punitive damages of $22 million against Banco and $500,000 against Stefanon.

Motions for judgment notwithstanding the verdict and a new trial were filed by Banco and Stefanon. The trial court denied the former and conditionally granted the latter. The court ruled that if the defendants would accept a remittitur of punitive damages against Banco down to $5 million and against Stefanon down to five dollars then the motion for new trial would be denied. The defendants filed a timely acceptance of these conditions. In addition, the trial court made a postjudgment award of attorneys fees to Latían in the sum of $637,516.50.

Banco and Stefanon filed a timely notice of appeal. The respondents filed a cross-appeal seeking reinstatement of the original punitive damage awards.

The principal claim of Banco in this action is based upon the Guaranty Agreement and related documents executed in January of 1983. The balance of their claim rests upon three subsequently executed and admittedly unpaid promissory notes. However, to fully understand the competing claims of the parties a detailed chronological (and even tedious) review of the preceding events, which began in April of 1982, is necessary.

Factual Background

The Sarbaz family, headed by Amanollah, came to the United States from Iran following the 1979 revolution in that country. While in Iran they apparently had owned and operated a successful auto parts business. Thus, in 1982 when they sought an opportunity in that same business, a broker introduced them to the possibility of acquiring a group of auto parts sale companies collectively referred to as the “Kudsy companies” or, simply, “Kudsy.” The two shareholders of these companies were John Koudsi (Koudsi) and Mariano Antoci (Antoci).

The Sarbaz family retained counsel to represent them and, in April 1982, commenced negotiations with Koudsi and Antoci for the purpose of acquiring Kudsy or its business. All such negotiations were handled through their attorneys. On May 21, 1982, the Sarbaz family caused Latían to be incorporated under the laws of California for the express purpose of acquiring the Kudsy business.

Having apparently decided not to purchase the capital stock of the Kudsy companies, but rather only their assets, Latian submitted four separate written offers to Kudsy from May 21, through July 7, 1982. These offers all contained variations and differences which are not particularly relevant here. What is clear is that the Sarbaz family and Latian had decided, as a result of their own investigation of Kudsy’s business, that the financial condition of the Kudsy companies was such that only the assets should be purchased. It was ultimately agreed that the principal asset, a large inventory of auto parts, would be valued independently and paid for by the assumption by Latian of the then outstanding obligation due from Kudsy to Banco. The final agreement contained extensive written provisions for the independent inspection and valuation of the auto parts inventory.

The first meeting involving Banco, or any of its agents, took place on June 14, 1982. By this time, the respondents had been negotiating with Koudsi and Antoci, the owners of Kudsy, for over a month and had submitted three firm written offers (one of which was in response to a Kudsy counter-offer) to purchase all of the assets of those companies. During those negotiations the respondents had been informed about the Kudsy relationship with Banco. That relationship, which was apparently well established, included not only Banco’s security interest in all of the auto parts inventory but also a line of credit arrangement which at that time was in the approximate sum of $2 million, of which approximately $1,860,000 had been drawn down and was then outstanding.

Present at this initial meeting were (1) Amanollah, Manoucher and Dariush Sarbaz (one of Amanollah’s other sons) acting for themselves and Latían, (2) Koudsi and Antoci on behalf of Kudsy and (3) Stefanon and Messrs. Jose Boiteux and Angel Ferral on behalf of Banco. Amanollah spoke only Farsi and so Manoucher had to translate for him. Manoucher testified that at this meeting his father asked Stefanon, “If and when we buy it [i.e., Kudsy], would you cooperate with us? Would you let us assume the line of credit?” According to Manoucher, Stefanon replied, “If and when you buy the business, we will cooperate with you. And there should be no problem to let you assume the line of credit. . . . There are some paper works and formality you have to do with the head office, but there would be no problem and we would cooperate with you.” According to Stefanon, and this does not appear to be disputed, there was no discussion at that time of a line of credit for Latían, separate and apart from that of Kudsy nor did the respondents make any application for such a separate credit extension or submit any financial information to Banco. In other words, Stefanon had no problem with Kudsy and Latían working together with Kudsy’s existing line of credit which, as we have noted, was entirely drawn down except for $150,000 and would be of no practical importance without substantial paydowns to Banco.

The second meeting involving Banco and the respondents occurred on July 21, 1982, two weeks after Latían had entered into the written agreement of July 7 to purchase all of the assets of Kudsy. This meeting involved Stefanon and Ferral on behalf of Banco and Amanollah and Manoucher on behalf of Latían. Also present were Latian’s counsel, Robert Nagata, and Henry Fields, representing Banco.

The central purpose of this meeting was to discuss Banco’s participation in and consent to the sale transaction that the respondents had already concluded with Koudsi and Antoci to purchase the assets of the four Kudsy companies. In order for Latían to acquire the Kudsy assets by assuming Kudsy’s obligation to Banco, Banco’s approval was required. Mr. Fields, counsel for Banco, testified that he explained all of this to the respondents and that Amanollah would have to personally guarantee Latian’s obligation and that Banco would retain its security position with respect to the inventory. Manoucher requested that Latían be allowed to assume the credit line and Stefanon responded that Banco’s head office would have to approve any additional credit and that the respondents would have to provide adequate financial information. Finally, Stefanon indicated that the then outstanding Kudsy debt would have to be reduced by $500,000 before the deal could be approved. Following this meeting, Stefanon, on July 26, 1982, submitted a lengthy written report to Banco’s home office (see the last paragraph of fn. 12, ante, and the reference to exhibit 49) recommending approval of the transaction allowing Latían to assume Kudsy’s bank debt and to provide credit availability up to $1.6 million, for a period of six months, upon certain conditions. However, this report was based upon the assumption that the transaction would close upon the terms and conditions spelled out in the written contractual agreement signed by the parties on July 7, 1982. Unfortunately, it did not.

By the time of the meeting of July 21, the respondents had inspected the Kudsy auto parts inventory and had concluded that a substantial portion was not marketable. After the meeting on July 21, the respondents entered into further negotiations with Koudsi and Antoci which resulted in the execution, in early August 1982, of an “addendum” to the July 7 contract. Under the terms of the addendum, Latían was given the right to “aggregate and transfer back” to Kudsy $442,000 in inventory which was to be designated “at the Buyer’s [i.e., Latian’s] discretion.” In addition, from the total value of the inventory, as reduced by $442,000, there was to be deducted a further $100,000 as a “discount” from the original agreed purchase price.

This amendment to the transaction had the effect of reducing the total “value of the inventory” for the purpose of the sale transaction by $542,000 and in the bargain, gave Latían the right to select from the inventory the most marketable items and to return to the Kudsy companies the less desirable items. Finally, the addendum provided that if Latían were not successful, within one year of the closing date (which ultimately turned out to be August 25, 1982), in obtaining the Blaupunkt distributorship then held by Kudsy, the purchase price would be reduced by still another $100,000.

Thus, when the transaction closed on August 25, 1982, neither the total value of the inventory had been determined by the parties (i.e., the “independent valuation” provided for in the sale agreement had not taken place) nor had Latían determined which inventory items it would return to Kudsy.

Although Banco’s representatives who attended the closing stated, on Stefanon’s instructions, that Banco would not oppose the transaction (i.e., the transfer of the inventory to Latían and its assumption of the secured inventory liability), there had been no action by Banco’s head office on Stefanon’s letter of July 26, 1982, requesting a six-month credit line for Latían. Although Stefanon had specifically requested it at the meeting of July 26, as of the closing date Banco had not been supplied with any credit information on Latían or any of the respondents. However, during Stefanon’s absence on vacation, members of his staff received communications from Banco’s home office regarding the need for additional financial information. This process was not completed by the time of the closing of the transaction on August 25, 1982.

Nonetheless, the sale transaction, as modified by the addendum, closed on August 25, 1982. At that time, Latian and Amanollah signed the continuing guarantee agreement by which they undertook to guarantee Kudsy’s inventory debt in a sum not to exceed $1,534,296.33. This sum was less than the higher figure originally discussed because of the reduction in the inventory which Latian had agreed to purchase. In addition, Stefanon, on behalf of Banco, had requested that there be a reduction of the total Kudsy indebtedness by $500,000 as a part of the transaction. This request was acknowledged and agreed to by Kudsy’s letter of August 11, 1982. On August 26, 1982, Latian took possession of the inventory and commenced selling it.

On September 8, 1982, following his return from vacation, Stefanon met with Amanollah and Manoucher. They explained why they had decided not to buy all of the inventory. By this time Stefanon was aware that Latian did not intend to take all of the inventory and he had been informed that as a result of this change in the transaction, Latian and Kudsy had agreed to split the $500,000 debt reduction payment requested by Banco, $310,000 from Latian and $190,000 from Kudsy. At this meeting Amanollah delivered a check payable to Banco in the sum of $310,000. There is considerable conflict in the evidence as to the purpose and appropriate disposition of this check. Both Amanollah and Manoucher testified that when they gave this check to Stefanon on September 8, they told him it was to be placed in an escrow account and held until approval of the line of credit was received from Banco’s head office. Stefanon, on the other hand, denied that either of the Sarbazes said any such thing. He testified that such payment was accepted as a paydown on the $500,000 debt reduction on the secured obligations then due to Banco. The contemporaneous records of Banco are consistent with Stefanon’s testimony and reflect that these funds were in fact promptly applied to the debt. Indeed, the record confirms that Manoucher was informed as to Banco’s application of said $310,000 and he neither raised any objection thereto nor requested that his counsel do so.

Following the meeting of September 8, Stefanon wrote a report to Banco’s home office regarding the changed nature of the transaction. He advised Banco that his Los Angeles Agency had been in the process of collecting the materials requested by Banco, “when we were informed by the interested parties that there would no longer be a total inventory transfer. ... [1] We request, therefore, that the proposal referred to in our letter . . . dated July 26, 1982, be suspended until it is substituted by another with the elements of the new position.” Much was later made of this letter, with counsel for the respondents arguing that Stefanon, without telling the respondents, had requested that Banco give no further consideration to their request for a credit line.

Thereafter, on or about September 27, 1982, Stefanon met again with Amanollah and Manoucher to discuss their failure to have signed, on August 25, all of the documentation necessary to their assumption of the Kudsy obligations. The missing document was a Security Agreement in which Latían was described as the “Debtor” and the Kudsy companies were denominated the “Borrowers.” A printed form was modified for this purpose and it described the security as “All inventory of Debtor now owned or hereafter acquired . . . and All proceeds” of such collateral. This agreement also incorporated a special “Addendum to Security Agreement” which stated that, “To induce Secured Party [i.e., Banco] from time to time to make line of credit facilities available to Borrowers, Debtor agrees [to maintain a certain minimum inventory value, to give a proper notice to Secured Party in the event of a sale of assets other than inventory in the ordinary course of business and to provide monthly inventory reports and] ... At the time of a request for utilization of any line of credit by any Borrower, to provide to Secured Party a Compliance Certificate [in a particular described form].” (Italics added.) This document was signed by Latían, as debtor, on Sept. 27 and Banco signed on October 21, 1982.

Subsequently, on or about October 6, 1982, Stefanon met with Amanollah and Manoucher. At this time, Stefanon was informed that the respondents were unhappy with the Kudsy people, particularly Koudsi and Antoci. Apparently differences had arisen as to how to operate the business. Stefanon testified that Manoucher requested that Latían be given its own line of credit separate from Kudsy. Stefanon replied that he would do his best to provide it and would submit a proposal for such a credit line.

On November 5, 1982, Stefanon wrote to Banco and explained that the original transaction had changed. Latían would not be taking all of the inventory and had agreed to assume no more than $1,534,000 of Kudsy’s total indebtedness to Banco. The $310,000 payment (made on Sept. 8) was described as a “partial payment of the commitment [which Latían] had assumed.” This report also described the deteriorating relationship between the Kudsy owners and the respondents and the fact that Koudsi and Antoci were contemplating bankruptcy. This was of concern because they were liable for the entire debt due Banco. Stefanon stated that since “Latían Inc. [had] committed itself to such an extent that it would not accept a cancellation [and had] practically assumed the control of the business, with the only debt being that [due] to [Banco],” Stefanon (in the absence of a different authorization from Banco) had agreed to the partial sale of inventory to Latían based upon “the guaranties, Latían’s UCC-1, personal guaranties of its owners, and insurance policy endorsed in favor of the Bank.” In this way, Stefanon concluded, at least “part of the debt would be protected against the bankruptcy of [Kudsy].” After describing the unpaid obligations and applying the two payments made by Latian of $310,000 and $150,000, the total remaining debt for which Latian was liable was $1,072,876.33. Stefanon stated that Latian had agreed “to liquidate this balance in 12 monthly installments of approximately equal amounts with interest at 15% per annum.”

After recommending vigorous collection activities for the portion of Banco’s unpaid debt which was the sole responsibility of the Kudsy companies, Stefanon concluded his report with die statement that, “it is in our interest that Latian Inc. continue operating, which depends on the support of the Bank.” To express such support, Stefanon proposed that Banco, as an exception grant Latian a fixed credit ceiling of $1,100,000 (to cover the debt already assumed) plus a revolving credit line of $800,000. Stefanon asked that this revolving credit line be valid for a period of six months, at which time a reevaluation of Latian’s credit position could be made.

Banco responded to Stefanon by a telex dated November 18, 1982, and, among other things, requested a copy of Latian’s opening balance sheet. Stefanon called Manoucher and requested that he provide such balance sheet. Manoucher replied that it was being prepared and would be provided later. He orally advised Stefanon that the paid-in capital was $800,000 which Stefanon accepted, as he was in a rush to respond to Banco’s request for financial information. He communicated such information to Banco on November 19. As of this date, no financial documents had been supplied to Banco. The requested financial statement, allegedly in preparation in November 1982, was not in fact delivered to Stefanon until April 15, 1983.

In December 1982, Stefanon met with Manoucher at the bank’s Los Angeles Agency offices. Manoucher inquired about the status of the line of credit and stated that Latian was having financial difficulties and was going to have trouble meeting its obligation to Banco. Stefanon approved an additional loan (for 90 days) of $50,000 to be used to apply on a $57,000 interest payment which was then due. As a result of this disclosure of Latian’s financial problems the parties entered into discussions regarding the restructure of the debt obligations which Latian had undertaken. Although Manoucher, in his testimony, stated that he did not know that the Kudsy debt which had been assumed was all due and payable by December 31,1982, the record makes clear that he indeed must have known such fact.

Obviously, a restructure of the payment schedule of the monies due Banco was very important to the respondents. Although there is conflicting testimony on the point, it is also clear that Manoucher, on behalf of Latian, requested that the interest rate be reduced and the payments extended over 18 rather than 12 months. This was favorably considered by Stefanon and in early January 1983, Banco’s attorneys began preparing drafts of the necessary documents.

On January 19, 1983, Stefanon was advised by Banco that his November 5,1982 request for approval of Latian’s purchase of the Kudsy inventory and assumption of related debt, payable over a 12-month period, was approved; however, his request for the extension of a revolving $800,000 line of credit was refused. According to Stefanon, this information was immediately communicated to Manoucher by telephone as well as to Banco’s attorneys who then were in the process of completing work on the restructure documents.

On the next day, January 20, 1983, Banco’s attorneys sent the restructure documents to counsel for respondents. They were reviewed by said counsel and Manoucher carefully read them to make certain that they reflected the agreement which had been reached with Banco regarding the payment of the outstanding obligations which Latían had assumed. He also carefully explained the documents to his father before they were signed. That explanation included the fact that this agreement was the entire agreement between the parties and that it contained no provision for a “$2 million line of credit.” There can be little doubt that both Manoucher and Amanollah clearly understood.

The restructure of the debt relationship is set forth in the Guaranty Agreement and it recites and acknowledges certain facts which are conclusively presumed to be true. (Evid. Code, § 622.) Specifically, the Guaranty Agreement states:

“A. Latian and Sarbaz [i.e., Amanollah] are joint and several guarantors of any and all indebtedness (the ‘Indebtedness’) of J. Kudsy & Co., Inc., Herbert Albrecht Autoparts, Inc. and Wholesale Autoparts Supply, Inc. (the ‘Borrowers’), existing on August 25, 1982 (and any renewals and extensions thereof), up to a principal amount of $1,534,296.33, pursuant to a Continuing Guaranty of Latian and Sarbaz in favor of the Bank dated August 25, 1982 (the ‘Guaranty’).

“B. The Borrowers are in default in payment of the Indebtedness and the Bank has made demand upon the Borrowers for payment of the Indebtedness. The Borrowers have failed to make such payment.

“C. The Bank has also made demand upon Latian and Sarbaz to make payment on the Indebtedness pursuant to the terms of the Guaranty. Latian and Sarbaz have made partial payments on the Indebtedness and have requested that the indebtedness remaining unpaid on January 1, 1983 (which Indebtedness remaining unpaid is $1,072,874.51) be repaid in 18 consecutive monthly installments, together with interest, as hereinafter provided and the Bank has agreed, all on the terms and subject to the conditions hereinafter set forth.

“1. Acknowledgement of Guaranty. Latian and Sarbaz each acknowledge their joint and several obligations under the Guaranty to pay the Indebtedness and agree that such obligations are absolute and unconditional.’’'’ (Italics added.)

After setting forth the terms, conditions and security for the repayment of this indebtedness, the following integration clause is set forth: “4. Entire Agreement; Amendment. This Agreement together with exhibits attached hereto, embodies the entire agreement and understanding among the parties hereto and supersedes all prior agreements and understandings relating to the subject matter hereof. This Agreement may not be amended or altered except by a writing duly executed by each of the parties hereto.” (Italics added.)

Manoucher testified that he understood this integration clause and he conceded that no written amendment was thereafter made. He also admitted that during the time that his attorneys were negotiating this agreement he never asked them to make any provision for a $2 million line of credit.

It is on this restructured obligation which Banco has based this action. Latían made the payments called for under this agreement for February and March 1983, but did not make any further principal payments, although interest payments were made through December 1983. In May of 1983, Latían obtained a line of credit from another bank (Capistrano Bank) which ultimately rose to approximately $500,000. In support of its application for credit, Latían and Amanollah provided Capistrano Bank with financial information which reflected that as of May 1983 Latían had a net equity of $535,648 and Amanollah had a personal net worth of $11,268,000. Manoucher testified that this financial information which was supplied to Capistrano Bank was true and correct.

Manoucher testified, contrary to the testimony of Stefanon, that the respondents were never informed at any time during January through May 1983, that Banco had refused to extend to them aline of credit. Thus, on July 25, 1983, the respondents’ attorney, Robert Nagata, wrote to Stefanon and complained about the failure to make a “line of credit available for Latían, notwithstanding your prior promises and representations.” Mr. Nagata stated that failure to provide this credit extension had resulted in financial difficulties for Latían and if Banco continued to refuse to provide a credit line, Latían would file suit. However, the parties apparently were having ongoing discussions regarding credit extensions and $40,000 was loaned to Latían on a 30-day note on June 23, 1983. In addition, in December 1983, Banco agreed to provide a $200,000, 90-day revolving line of credit to Latían. Two draws were taken by Latían: on December 6, 1983, it borrowed $5,685.17 on a 62-day note and on December 31, 1983, it borrowed $11,927.11 on a 60-day note. None of these sums was ever repaid.

In December 1983, Latían had stopped making even interest payments. Thereafter, on behalf of himself and Latían, Amanollah met with Stefanon and offered Banco three options: (1) provide the $2 million line of credit, (2) retain the guarantees from Latían and Amanollah, but release Banco’s security interest so that Latían could obtain a line of credit from another lender or (3) foreclose on the security and take Latian’s inventory in satisfaction of the debt. Banco declined to accept any of these alternatives.

Latían retained, and presumably sold, the auto parts inventory purchased from Kudsy which had been security for the repayment of the sums due Banco. No accounting for such sales has apparently even been made and Banco received no credit therefore in the judgment entered against it.

Contentions

Banco in its appeal makes six principal arguments.

1. There was insufficient evidence to establish the formation of a contract whereby Banco would provide to Latían and Amanollah a “$2 million line of credit.”

2. There was insufficient evidence to establish fraud against either Banco or Stefanon;

3. There was insufficient evidence to establish the damages awarded by the trial court or, indeed, any damages, whether based on contract or fraud and, further, that the compensatory damages were improper and duplicative;

4. There was no evidentiary or legal basis for an award of punitive damages against either Stefanon or Banco;

5. As there is no dispute that Latían failed to pay the obligations to Banco which it had agreed and undertaken to do, Banco is entitled to judgment notwithstanding the verdict; and

6. Banco was denied due process of law when its motion for a new trial was not heard or decided by the trial judge.

For their part, respondents contend that the trial court abused its discretion in conditionally granting a new trial and that the punitive damage awards, reduced by respondents’ acceptance of the remittitur, should be restored.

As we conclude that the parol evidence rule barred the essential evidence relied upon by respondents and that, in any event, such evidence, when examined in light of the whole record, was not sufficient to demonstrate a binding commitment or promise, we need only reach one of the other issues raised by Banco. In light of our conclusions, the issues raised by respondents in their cross-appeal are moot.

Discussion

The entire case asserted by respondents, both in defense of Banco’s complaint and in support of their successful claims for affirmative relief, is based upon the allegation that Banco orally promised to provide a $2 million line of credit to Latían and failed to honor that commitment. Respondents sought and obtained relief on the theory of breach of contract and, claiming that Banco’s promise was falsely made, on fraud as well.

Banco argued at trial and urges here that evidence of the collateral oral agreement upon which respondents base their case should have been excluded under the parol evidence rule. Banco also argues that, in any event, the evidence was not sufficient to establish that Banco had in fact made a commitment or promise to provide such line of credit. We consider each of these arguments in turn.

1. The Parol Evidence Rule

In California, the parol evidence rule is statutorily defined in Code of Civil Procedure section 1856. It provides that where the parties to a contract have set forth the terms of their agreement in a writing which they intend as the final and complete expression of their understanding, it is deemed integrated and may not be contradicted by evidence of any prior agreement or of a contemporaneous oral agreement. (2 Witkin, Cal. Evidence (3d ed. 1986) § 967, pp. 915-916.)

a. Nature of Rule and De Novo Review

This “is not merely a rule of evidence excluding precontractual discussions for lack of credibility or reliability. It is a rule of substantive law making the integrated written agreement of the parties their exclusive and binding contract no matter how persuasive the evidence of additional oral understandings. Such evidence is legally irrelevant and cannot support a judgment. [Citation.]” (Marani v. Jackson (1986) 183 Cal.App.3d 695, 701 [228 Cal.Rptr. 518], italics in the original; see also, BMW of North America, Inc. v. New Motor Vehicle Bd. (1984) 162 Cal.App.3d 980, 990 [209 Cal.Rptr. 50].)

The resolution of the issue of whether the rule applies so as to exclude any collateral oral agreement is one of law to be determined by the court. (Code Civ. Proc., § 1856, subd. (d); Kaufman & Broad Bldg. Co. v. City & Suburban Mortg. Co. (1970) 10 Cal.App.3d 206, 215-216 [88 Cal.Rptr. 858]; Salyer Grain & Milling Co. v. Henson (1970) 13 Cal.App.3d 493, 499 [91 Cal.Rptr. 847]; Brawthen v. H & R Block, Inc. (1972) 28 Cal.App.3d 131, 137 [104 Cal.Rptr. 486]; Wagner v. Glendale Adventist Medical Center (1989) 216 Cal.App.3d 1379, 1385-1386 [265 Cal.Rptr. 412].) We are therefore not bound by the trial court’s determination that the Guaranty Agreement was not integrated and that evidence of a collateral oral agreement was therefore admissible. We will consider and resolve the issue de novo. (Wagner v. Glendale Adventist Medical Center, supra, 216 Cal.App.3d at p. 1386.)

b. Application of the Rule

“In its actual application the rule is, however, limited to those cases where the parties intended the writing to be complete unto itself.” (Salyer Grain & Milling Co. v. Henson, supra, 13 Cal.App.3d at p. 498.) “It is based upon the premise that the written instrument is the agreement of the parties. [Citation.] Its application involves a two-part analysis: 1) was the writing intended to be an integration, i.e., a complete and final expression of the parties’ agreement, precluding any evidence of collateral agreements [citation]; and 2) is the agreement susceptible of the meaning contended for by the party offering the evidence? [Citation.]” (Gerdlund v. Electronic Dispensers International (1987) 190 Cal.App.3d 263, 270 [235 Cal.Rptr. 279].) Put another way, “If a writing is deemed integrated, extrinsic evidence is admissible only if it is relevant to prove a meaning to which the language of the instrument is reasonably susceptible. [Citations.]” (Bert G. Gianelli Distributing Co. v. Beck & Co. (1985) 172 Cal.App.3d 1020, 1037, fn. 4 [219 Cal.Rptr. 203].) We will discuss these two issues separately.

(1) The January 1983 Guaranty Agreement Was Integrated

The crucial issue is whether the parties intended the written instrument to serve as the exclusive embodiment of their agreement. (Salyer Grain & Milling Co. v. Henson, supra, 13 Cal.App.3d at p. 498.) “The instrument itself may help to resolve that issue. It may state, for example, that ‘there are no previous understandings or agreements not contained in the writing,’ and thus express the parties’ ‘intention to nullify antecedent understandings or agreements’. (See 3 Corbin, Contracts (1960) § 578, p. 411.)” (Masterson v. Sine (1968) 68 Cal.2d 222, 225-226 [65 Cal.Rptr. 545, 436 P.2d 561].) Indeed, if such a clause is adopted and used by the parties, it may well be conclusive on the issue of integration. (Salyer Grain & Milling Co. v. Henson, supra, 13 Cal.App.3d at p. 501; Rest.2d Contracts, § 216, ccm. e, p. 140.)

In order to resolve this threshold issue, the court may consider all the surrounding circumstances, including the prior negotiations of the parties. (Masterson v. Sine, supra, 68 Cal.2d at p. 226.) “In determining the issue, the court must consider not only whether the written instrument contains an integration clause, but also examine the collateral agreement itself to determine whether it was intended to be a part of the bargain. [Citations.] However, in determining the issue of integration, the collateral agreement will be examined only insofar as it does not directly contradict an express term of the written agreement; ‘it cannot reasonably be presumed that the parties intended to integrate two directly contradictory terms in the same agreement.’ ([Gerlund v. Electronic Dispensers International (1987)] 190 Cal.App.3d at p. 271.) In the case of prior or contemporaneous representations, the collateral agreement must be one which might naturally be made as a separate contract, i.e., if in fact agreed upon need not certainly have appeared in writing. [Citation.]” (Wagner v. Glendale Adventist Medical Center, supra, 216 Cal.App.3d at p. 1386.)

The resolution of the question of integration also requires, as the court in Masterson explained, the accommodation of at least two policy considerations. The first “is based on the assumption that written evidence is more accurate than human memory. [Citation.] This policy, however, can be adequately served by excluding parol evidence of agreements that directly contradict the writing. [The second] policy is based on the fear that fraud or unintentional invention by witnesses interested in the outcome of the litigation will mislead the finder of facts. [Citations.]” (Masterson v. Sine, supra, 68 Cal.2d at p. 227.) This fear, which is at the heart of the concern of this second policy consideration, can be alleviated by indicia of credibility. The court in Masterson suggested two such indicia. The first of these, taken from the Restatement of Contracts section 240 (§ 216 in Rest.2d Contracts), states that “An oral agreement is credible if it might naturally have been made as a separate agreement by parties similarly situated.” (FPI Development, Inc. v. Nakashima (1991) 231 Cal.App.3d 367, 388 [282 Cal.Rptr. 508], fn. omitted.) A second and related indicia, based on Uniform Commercial Code section 2-202, rests upon the proposition that an oral agreement is also “creditable unless it can be said with certainty that the parties would have included the oral agreement in the writing.” (231 Cal.App.3d at p. 388.)

From the foregoing, we perceive that an analysis based on the examination of four questions is appropriate: (1) does the written agreement appear on its face to be a complete agreement; obviously, the presence of an “integration” clause will be very persuasive, if not controlling, on this issue; (2) does the alleged oral agreement directly contradict the written instrument; (3) can it be said that the oral agreement might naturally have been made as a separate agreement or, to put it another way, if the oral agreement had been actually agreed to, would it certainly have been included in the written instrument; and (4) would evidence of the oral agreement be likely to mislead the trier of fact. (Malmstrom v. Kaiser Aluminum & Chemical Corp. (1986) 187 Cal.App.3d 299, 314 [231 Cal.Rptr. 820]; Brawthen v. H & R Block, Inc. (1975) 52 Cal.App.3d 139, 146 [124 Cal.Rptr. 845].)

(a) The Written Agreement Is Complete.

An examination of the Guaranty Agreement leaves no doubt that it is complete and was intended by the parties to be a complete expression of their understanding. On its face, it purports to fully describe the entire restructured debt relationship among the parties. Most importantly, however, it contains an express “integration” clause. This provision, which the respondents concede they read, understood and discussed with their attorneys, specifically provided that the Guaranty Agreement “embodies the entire agreement and understanding among the parties hereto and supersedes all prior agreements and understandings relating to the subject matter hereof.” (Italics added.) It is difficult to imagine how the parties could have more clearly expressed their intent to make the written instrument a full and complete expression of their agreement.

(b) The Oral Agreement Directly Contradicts the Written Instrument.

Respondents’ argument to the contrary notwithstanding, there can be no question that the claimed oral agreement directly contradicts the written Guaranty Agreement. According to the record, the oral agreement relates to the extension of a $2 million line of credit which is claimed by respondents to have been an indispensable condition to their obligations under the written Guaranty Agreement. The testimony offered by respondents repeatedly emphasized that the “promised” line of credit was critical to Latían’s purchase of the Kudsy inventory and indeed was a condition, absent the performance of which, they would not have assumed the obligations of such purchase. That the extension of such a line of credit was a critical condition of the deal was stated several times in the testimony offered by respondents and was asserted by their counsel as the foundation of his damage arguments and is repeated in the briefs before this court. Thus, it is obviously the position of respondents that the granting of the line of credit was a condition of their entire obligation. This is, however, entirely and directly inconsistent with an express term of the integrated written agreement: “Latían and Sarbaz each acknowledge their joint and several obligations under the Guaranty [the original Guaranty agreement executed in favor of Banco on August 25, 1982] to pay the Indebtedness and agree that such obligations are absolute and unconditional." (Italics added.) It is simply not possible to reconcile the respondents’ claim of an oral condition on which their liability to Banco depends with their expressed written commitment that there are no conditions to such liability.

(c) The Claimed Oral Agreement Would Not Naturally Have Been Made the Subject of a Separate Agreement.

This issue can best be addressed by examining not only the written Guaranty Agreement, but also the entire transaction. Such surrounding circumstances provide the context in which the Guaranty Agreement was negotiated and executed. First, it must be emphasized that respondents were sophisticated and experienced businessmen who were at all times, from the very outset of their involvement with the Kudsy companies, advised, counseled and assisted by attorneys of their own choosing. The record clearly reflects that respondents were both cautious and deliberate with respect to their negotiations and agreements in this matter. Their renegotiation and restructuring, prior to the August 25, 1982, closing, of the fundamental terms of their original purchase agreement with the Kudsy companies is particularly telling. It is with that background that the events leading to the negotiation and execution of the Guaranty Agreement must be examined.

In December 1982, the respondents, unable to meet the obligation they had undertaken to Banco in the original August 1982 purchase transaction, sought an extension of the time in which such repayment could be made as well as a reduction of their interest rate burden. This was a major debt restructuring which was sought by the respondents and negotiated by them with the continuous aid and assistance of their counsel. A significant part of this context is the fact that, according to respondents, Banco had failed to deliver on the promised $2 million line of credit for over six months at the time the restructure documents were negotiated and drafted; yet not one word about such line of credit appears in the documents or in any other contemporaneous writing or correspondence.

Nonetheless, the trial judge, with such documents and all of this background before him, concluded that the oral collateral agreement relied upon by respondents was “a naturally separate agreement” from the Guaranty Agreement. According to his comments from the bench when he made such determination, he was persuaded to this conclusion by the language contained in the Addendum to the Security Agreement executed on September 27, 1982, which was included in and made a part of the January 1983 documents. The language in the Addendum to which the judge referred stated: “To induce Secured Party from time to time to make line of credit facilities available to Borrowers, Debtor agrees ...” (Italics added.)

The trial court concluded that such “language suggests that there was some arrangement between these parties involving a line of credit, and they do not say what that arrangement is. They don’t say it. That language does not indicate it. . . . So I’m convinced that the document is not integrated.”

The trouble with the court’s conclusion is that its premise was faulty and, in any event, it misses the point. First, the language to which the court referred anticipates line of credit extensions to Kudsy not Latían. The Addendum identified Kudsy as the “Borrowers” and Latían as the “Debtor.” The January 1983 documents represented a restructure of the prior debt arrangement (a three-way transaction which involved Kudsy as the principal obligor) in which Banco agreed to make an entirely separate and extended payment agreement with Latían with respect to its assumed portion of the original Kudsy debt. The Addendum makes no reference whatever to any line of credit availability to Latían. The trial court simply misread the documents.

Second, that there may have been some prior, or even pending, discussions regarding a possible extension of a line of credit in the future is of no help in avoiding a conclusion of integration. If a prior binding commitment had been made, as opposed to incomplete negotiations, it would seem obvious, if not compelling, that the terms of such a credit arrangement would have been included in the very written agreement which purported to fully describe the entire relationship of the parties. Indeed, respondents themselves repeatedly have asserted that the claimed oral agreement was integral and indispensable part of the entire transaction. Even their own attorney testified that he understood that any credit line agreement would have been spelled out in writing (see fn. 12, ante).

The Guaranty Agreement before us purports to set forth and describe the entire debt relationship between Banco and Latían. It refers to a total remaining unpaid obligation, specifies the security therefore and describes just how that debt will be repaid. It is inconceivable that an additional agreement to extend further credit would not be provided for therein. That a bank, which has gone to such lengths to document an entire debt relationship, would make a cavalier oral commitment, such as is described in respondents’ testimony, to provide further open-ended credit is an incredible proposition. This is especially true here, where even the respondents do not claim that their “oral discussions” with Banco involved (1) the terms of such credit extension, (2) the periods for which it would be extended, (3) the interest rates to be used, (4) any schedule of repayment or maturity dates and (5) the collateral which would secure the debt.

Contrary to the trial court, we have no trouble whatever concluding that a binding agreement for further credit would not have been “naturally separate” from the Guaranty Agreement, but indeed would have necessarily been an integral part thereof; if in fact agreed upon, such a significant commitment would most certainly have been included in the written Guaranty Agreement. This is particularly true here, where the contradiction of the oral agreement arises primarily from the fact that it was not included in the writing but stands apart, asserting the existence of a condition which is expressly denied by the writing.

(d) The Trier of Fact Would Be Misled.

It seems obvious to us, given the circumstances and the carefully drafted language of the written agreement, that a trier of fact would be misled by the contradictory terms of the alleged oral agreement. Certainly, the jury in this case was misled by such evidence. Based upon respondents’ testimony, which the jury apparently chose to believe, Banco’s affirmative claims were rejected and respondents were awarded substantial damages. Absent testimony as to such collateral oral agreement, the result would necessarily have been just the opposite.

(2) The Written Agreement Is Not Reasonably Susceptible to the Meaning Supplied by the Proferred Oral Agreement

Having concluded that the Guaranty Agreement was integrated, we turn next to the issue of whether the evidence of the alleged oral agreement is nonetheless admissible to explain the meaning of the written contractual language. “This aspect of the parol evidence rule was stated by the Supreme Court in Pacific Gas & E. v. G. W. Thomas Drayage etc. Co. [1968] 69 Cal.2d 33, 37 [69 Cal.Rptr. 561, 442 P.2d 641, 40 A.L.R.3d 1373]: ‘The test of admissibility of extrinsic evidence to explain the meaning of a written instrument is not whether it appears to the court to be plain and unambiguous on its face, but whether the offered evidence is relevant to prove a meaning to which the language of the instrument is reasonably susceptible.’ ” (Gerdlund v. Electronic Dispensers International, supra, 190 Cal.App.3d at p. 272.)

In the interest of a complete and systematic analysis, it is necessary to address this issue; however, when, as here, the claimed oral agreement is a direct contradiction of the written instrument, it is clear that the issue has already been resolved. In the presence of such a conflict, it is not possible to say that the written instrument is reasonably susceptible to the proposed new meaning of the parties’ debt relationship which would be supplied by the parol evidence offered by respondents. “Testimony of intention which is contrary to a contract’s express terms . . . does not give meaning to the contract; rather it seeks to substitute a different meaning. It follows under the P.G. & E. case that such evidence must be excluded.” (Gerdlund v. Electronic Dispensers International, supra, 190 Cal.App.3d at p. 273; see also, Malmstrom v. Kaiser Aluminum & Chemical Corp., supra, 187 Cal.App.3d at p. 316; Blumenfeld v. R. H. Macy & Co. (1979) 92 Cal.App.3d 38, 46 [154 Cal.Rptr. 652]; American Nat. Ins. Co. v. Continental Parking Corp. (1974) 42 Cal.App.3d 260, 264-265 [116 Cal.Rptr. 801].)

Indeed, the respondents do not seriously make such a contention. They do not offer the oral agreement to explain or provide meaning to the written instrument. They offer it as a new, additional and completely different agreement.

(3) Admission of the Oral Agreement Cannot Be Justified by Allegations of Promissory Fraud

Our conclusion that evidence of the oral agreement relied upon by respondents is inadmissible is not altered by respondents’ attempt to characterize that agreement as a false promise. While it is true that a recognized exception to the parol evidence rule permits evidence of fraud in order to nullify the main agreement (2 Witkin, Cal. Evidence (3d ed. 1986) §§ 999, 1000, pp. 945-947), that rule has no application where “ ‘promissory fraud’ is alleged, unless the false promise is independent of or consistent with the written instrument. [Citations.] It does not apply where, as here, parol evidence is offered to show a fraudulent promise directly at variance with the terms of the written agreement. [Citations.]” (Continental Airlines, Inc. v. McDonnell Douglas Corp. (1989) 216 Cal.App.3d 388, 419 [264 Cal.Rptr. 779]; see also Price v. Wells Fargo Bank (1989) 213 Cal.App.3d 465, 483-486 [261 Cal.Rptr. 735].)

Over 50 years ago, our Supreme Court made a very defensible policy choice which favored the considerations underlying the parol evidence rule over those supporting a fraud cause of action. In Bank of America etc. Assn. v. Pendergrass (1935) 4 Cal.2d 258 [48 P.2d 659], the court rejected a debtor’s attempt to avoid the clear terms of an unconditional promise to pay contained in a promissory note by the assertion of an oral agreement allegedly made by the bank that the obligation was in fact conditional. The court stated, “Our conception of the rule which permits parol evidence of fraud to establish the invalidity of the instrument is that it must tend to establish some independent fact or representation, some fraud in the procurement of the instrument or some breach of confidence concerning its use, and not a promise directly at variance with the promise of the writing.” (Id., at p. 263.)

Similarly, in Bank of America v. Lamb Finance Co. (1960) 179 Cal.App.2d 498 [3 Cal.Rptr. 877], the court rejected a plaintiff’s effort to avoid liability pursuant to the express written terms of a guaranty based upon alleged oral assertions by the bank that she would not have such liability. The court stated, “A distinction has been made by our courts in cases in which the fraud sought to be proved consists of a false promise. They have held that if, to induce one to enter into an agreement, a party makes an independent promise without intention of performing it, this separate false promise constitutes fraud which may be proven to nullify the main agreement; but if the false promise relates to the matter covered by the main agreement and contradicts or varies the terms thereof, any evidence of the false promise directly violates the parol evidence rule and is inadmissible.” (Id., at p. 502; see also, Shyvers v. Mitchell (1955) 133 Cal.App.2d 569, 573 [284 P.2d 826]; Cobbs v. Cobbs (1942) 53 Cal.App.2d 780, 783-785 [128 P.2d 373].)

While this rule has been subjected to some scholarly criticism, we believe that the policy decision made by the court in Pendergrass is the better one. In explaining how a broad application of the concept of promissory fraud would undermine the policies of the parol evidence rule and encourage attempts to convert contractual disputes into fraud litigation, one court commented, “A broad doctrine of promissory fraud may allow parties to litigate disputes over the meaning of contract terms armed with an arsenal of tort remedies inappropriate to the resolution of commercial disputes.” (Price v. Wells Fargo Bank, supra, 213 Cal.App.3d at p. 485.) We concur with that view.

As we have concluded that the claimed oral “promise” of a $2 million line of credit is inconsistent with the written Guaranty Agreement, and is certainly not independent of it, respondents’ claim of fraud with respect to this promise must also fail.

c. Conclusion

We therefore conclude that the trial court erred in determining that the Guaranty Agreement was not integrated and in admitting the evidence regarding the inconsistent collateral oral agreement for a “$2 million line of credit.” Such error was obviously prejudicial to Banco. Absent testimony about the collateral oral agreement, there was no evidentiary basis whatever for respondents to recover on their cross-complaint; in addition, such inadmissible evidence provided the only defense asserted by respondents to Banco’s complaint.

We cannot leave this discussion without a general comment. We do not share the concern expressed in some circles that parties to a contract in California are not capable of drafting a written instrument which will fully and completely define a particular legal relationship. As we view it, it is the essence of the judicial function to contribute to legal certainty and reasonable predictability in the affairs of our citizens rather than to suggest that such goals are not attainable. Parties to a business or commercial transaction, such as those in this case, should be able to clearly express their intent as to the nature and scope of their legal relationship and then be able to rely on that expression. If, as in this case, they agree that their entire understanding is completely set forth in a particular writing then they are both entitled and required to live with the agreed terms. The courts simply cannot permit clear and unambiguous integrated agreements, such as the one before us, to be rendered meaningless by the oral revisionist claims of a party who, at the end of the game, does not care for the result.

2. Sufficiency of the Evidence

As we address this second major issue, we are mindful of the special rules which are applicable. “[T]he scope of our review begins and ends with the determination whether, on the entire record, there is any substantial evidence, contradicted or uncontradicted, which will support the conclusions reached by the jury. [Citations.] In reviewing the voluminous record, we must examine all factual matters in the light most favorable to the prevailing

parties and resolve all conflicts in support of the judgment. [Citations.] [][] ‘Substantial’ evidence, however, is not synonymous with ‘any’ evidence. To constitute sufficient substantiality to support the verdict, the evidence must be ‘reasonable in nature, credible, and of solid value; it must actually be “substantial” proof of the essentials which the law requires in a particular case.’ (Estate of Teed (1952) 112 Cal.App.2d 638, 644 [247 P.2d 54]; [citations].)” (Kruse v. Bank of America (1988) 202 Cal.App.3d 38, 51-52.) “It means such relevant evidence as a reasonable mind might accept as adequate to support a conclusion.” (Edison Co. v. Labor Board (1938) 305 U.S. 197, 229 [83 L.Ed. 126, 140, 59 S.Ct. 206].) Improbable conclusions drawn in favor of a party litigant through the sanction of a jury’s verdict will not be sustained where testimony is at variance with physical facts and repugnance is material and self evident. (Estate of Teed (1952) 112 Cal.App.2d 638, 644 [247 P.2d 54].)

As we have already noted, our examination of this record fails to disclose sufficient evidence to support either the contract or fraud claims of the respondents. Each claim necessarily depends upon evidence which must be legally sufficient to support a conclusion that Banco made a binding commitment or promise to provide a $2 million line of credit.

The evidence produced in this case which respondents claim is sufficient consists almost entirely of (1) the disputed testimony of Amanollah and Manoucher that Stefanon and other Banco representatives had orally “promised” that a “$2 million line of credit” would be provided and (2) some superficial conflicts between the testimony of Stefanon at trial and some testimony given by him at his pretrial deposition. However, when the evidence presented is examined in its entirety, and in context, the conclusion is inescapable that the evidence relied upon by respondents does not constitute the “substantial” proof required. It is only some evidence, but when examined in the context of the total case it is not “reasonable in nature, credible, [or] of solid value.” (Estate of Teed, supra, 112 Cal.App.2d at p. 644.)

A review of the total record compels two major conclusions:

a. Respondents’ Version Was Neither Reasonable Nor Credible

The express denials by Stefanon and all other Banco representatives who participated in the meetings of June 14, July 21 and August 25, 1982, were specific and consistent with each other as well as all of the documentation. They all testified that no oral commitment was ever made to provide the claimed line of credit. What was discussed at one or more of these meetings was the possibility that some credit extension, beyond approval of