Guan v. Hu ( 2018 )

Filed 2/7/18 (unmodified opn. attached)
CERTIFIED FOR PARTIAL PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION ONE
LI GUAN, B276546
Plaintiff and Appellant, (Los Angeles County
Super. Ct. No. BC572177)
v.
ORDER MODIFYING THE
YONGMEI HU, MAJORITY OPINION (NO
CHANGE IN JUDGMENT)
Defendant and Appellant.
THE COURT:
It is ordered that the majority opinion, filed in the
above-entitled matter on January 12, 2018, shall be modified in
the following manner:
On page 3, in the first paragraph of the Factual and
Procedural Summary, the third sentence is deleted and replaced
with the following sentence:
The parties documented the transaction in two separate,
but related, documents, each dated February 23, 2011:
a one-page “Agreement” signed by Guan, Hu, and Chen; and
a one-page “Arrangement” signed by Chen and Hu only.
This modification does not constitute a change in the
judgment.
ROTHSCHILD, P. J. LUI, J.
Filed 1/12/18; on rehearing (unmodified version)
CERTIFIED FOR PARTIAL PUBLICATION*
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION ONE
LI GUAN, B276546
Plaintiff and Appellant, (Los Angeles County
Super. Ct. No. BC572177)
v.
YONGMEI HU,
Defendant and Appellant.
APPEALS from a judgment of the Superior Court of
Los Angeles County, Richard L. Fruin, Jr., Judge. Affirmed.
Arent Fox, Malcolm S. McNeil, Allan E. Anderson and
Ismael Bautista, Jr., for Plaintiff and Appellant Li Guan.
Quinn Emanuel Urquhart & Sullivan, Dominic
Surprenant, and Daniel H. Bromberg for Defendant and
Appellant Yongmei Hu.
*Pursuant to California Rules of Court, rules 8.1100 and
8.1110, this opinion is certified for publication with the exception
of Parts II and III of the Discussion.
Plaintiff Li Guan and defendant Yongmei Hu entered into a
contract under which Guan paid the purchase price for a Malibu
residence (the property) to be held by Hu as the “nominal owner.”
Hu agreed to sell the property upon receiving instructions to
do so, and to distribute the sale proceeds between the parties
according to a mathematical formula in the contract. After
receiving instructions to sell, Hu failed to sell the property.
Guan sued Hu for causes of action arising from Hu’s breach of
the contract, and for fraud. Guan sought, among other relief,
rescission of the contract, the return of the money Guan paid to
purchase the property, a declaration that Hu is a constructive
trustee of the property for Guan’s benefit, and damages.
The case was tried to the court, which rejected Guan’s fraud
claim, but found that Hu had breached the contract. The trial
court denied Guan’s request for rescission, but ordered that
the property be sold and the proceeds apportioned between the
parties in accordance with the contract. The trial court charged
Hu’s share with imputed rent and credited to Hu the payments
she made for property-related expenses.
Hu contends that the court could not grant any relief to
Guan because it had determined that Guan had failed to prove
fraud or the right to rescission, and that the judgment violates
Hu’s right to due process. Hu further contends that the court
erred with respect to determinations regarding the date of
breach, the value of the property, and the award of imputed rent.
We reject these contentions and affirm the judgment.
Guan also appealed, challenging an order denying his
motion for leave to file an amended complaint to conform to proof
at trial to add a breach of contract claim for damages. Because
we affirm the judgment, Guan’s appeal is moot.
2
FACTUAL AND PROCEDURAL SUMMARY
In 2010, Hu became romantically involved with Qi Wei
Chen. At Chen’s request, Guan, a Chinese businessman and
friend of Chen’s, loaned $2.55 million to Hu so that she could
purchase a house in Malibu. The parties documented the
transaction in two separate, but related, documents, each dated
February 23, 2011: a one-page “Agreement” signed by Guan, Hu,
and Chen; and a one-page “Arrangement” signed by Guan and
Hu only. Together, the two documents constituted the parties’
contract (the contract).
The contract provided that Hu would hold title to the house
as its “nominal owner,” and that Hu would sell the house when
and if instructed to do so by Chen. Hu was required to complete
the sale of the house within six months after Chen’s instruction.
Upon the sale of the house, Hu was entitled to receive a
percentage of the property’s fair market value. Specifically, Hu
would “get 20%” if the house was “sold from Jan[uary] 1[,] 2012,”
and her percentage would increase by 20 percent each year the
house was not sold until January 1, 2016. Thereafter, Hu would
receive “100%” of the house “as a gift from Mr. Guan.”
Escrow closed in early March 2011, and Hu moved into the
house shortly thereafter. In November 2011, Chen emailed Hu
telling her that “[i]t is very sad now both of us realized the
relationship [cannot] work,” and advising her that she was “not
qualified to own the house.” A month later, in December 2011,
Chen visited Hu at the Malibu house, gave her gifts, and said
nothing about selling the house.
3
By April 2012, Chen and Hu’s romantic relationship had
ended. On July 21, 2012, Chen emailed Hu telling her that
“ ‘[i]t is over! Don’t you re[a]lize[] it with normal sense?! S[ell]
the house as instructed by [Guan] so that you could stil[l] be
benefited from the deal.’ ” Hu, however, did not sell the house or
take any steps to sell it.
In February 2015, Guan filed a complaint against Hu,
alleging breach of a written contract, fraud, and other claims.
In a second amended complaint, Guan alleged causes of action
for breach of contract, fraud, and rescission based on breach of
contract, among others. The court sustained Hu’s demurrer as to
each cause of action, allowing leave to amend as to the rescission
cause of action only.
In September 2015, Guan filed a third amended complaint
asserting three causes of action styled as “Rescission,”
“Cancellation,” and “Common Count for Money Had and
Received.” The rescission cause of action was based upon the
same facts Guan had previously pled in his breach of contract
cause of action.
Hu thereafter propounded interrogatories concerning the
contract allegations. In response to the question whether there
was a breach of the contract, Guan answered “yes,” and described
the breach as Hu’s refusal to sell the property and pay the
proceeds to Guan. In response to an interrogatory regarding the
nature and amount of damages, Guan identified “[m]onetary
damages caused by misrepresentations and breach of contract” in
the amount of “$2.655 million.”
In a demurrer to the third amended complaint, Hu again
asserted that Guan failed to plead any ground for rescission,
and that the cause of action was “an even worse version of the
4
already-dismissed-with-prejudice breach of contract claim.” In
opposing the demurrer, Guan explained that he was relying in
part on Civil Code section 1689, subdivision (b)(2),1 which
provides that a contract may be rescinded “[i]f the consideration
for the obligation of the rescinding party fails, in whole or in part,
through the fault of the [nonrescinding] party.” Guan argued
that rescission was thus adequately pled by the allegation that
Hu had “breached the written Contracts by total failure to
perform her obligations to sell the Property.” The court overruled
the demurrer.2
In January 2016, Guan filed a fourth amended complaint,
which realleged the causes of action in the third amended
complaint and added causes of action for promissory estoppel and
fraud in the inducement. The rescission cause of action alleged
the parties’ entry into the contract, Guan’s performance, and the
following: “Pursuant to the terms of the contract, between
February 20, 2012 and January 1, 2016, on four occasions,
Plaintiff either directly, or through his authorized agent, Chen,
1
All further statutory references are to the Civil Code
unless otherwise indicated.
2 In overruling Hu’s general demurrer, the court stated
that Guan had “adequately allege[d] the contractual basis” for
the rescission claim. The court also overruled a special demurrer
that was based on Code of Civil Procedure section 430.10,
subdivision (g), which provides: “In an action founded upon a
contract, it cannot be ascertained from the pleading whether the
contract is written, is oral, or is implied by conduct.” The court
overruled the demurrer stating that “[t]he claim is for rescission,
not for breach of contract; therefore, this isn’t an ‘action on a
contract,’ as to which this ground for demurrer could apply.”
5
instructed Defendant by email to sell the Property. Defendant
breached the Contract by failing to sell the Property within
six months of receiving unequivocal, written instructions to
do so.” “Plaintiff will suffer substantial harm and injury under
the Contract if it is not rescinded in that Plaintiff would lose his
investment of $2,550,000 actually made to purchase the Property
and lose his interest in the Property.” “Plaintiff has served
Defendant with a notice of rescission of the Contract by initiating
this action, and hereby demands that Defendant restore to
him the consideration furnished by Plaintiff in [the] sum of
$2,550,000 plus the appreciation of the Property’s market value
to be proved at the time of trial.” The rescission cause of action
did not include any allegation of fraud or misrepresentation.
Among other relief, Guan sought: rescission of the contract;
return of the funds Guan loaned to Hu; “appreciation of the
Property’s market value”; a declaration that Hu is a constructive
trustee of the property for Guan’s benefit; compensatory damages
of no less than $2,550,000; and such other and further relief as
the court deems just and proper.
Hu answered the fourth amended complaint with a general
denial and asserted numerous affirmative defenses to the
contract claim. The cause of action for rescission, she alleged, “is
actually a cause of action for breach of contract [and] has already
been dismissed with prejudice.” Hu averred that she and Guan
had no contractual relationship, and that the alleged contract
violated the statute of frauds and is illegal, void, and contrary to
public policy. Hu further alleged that if a contract did exist, she
had no duty to perform because she did not receive an instruction
to sell the property; and, because Guan failed to perform, he
6
repudiated the contract and breached the implied covenant of
good faith and fair dealing.
Hu moved for summary judgment. Regarding rescission,
Hu pointed out that Guan did not plead fraud as a basis
for rescission, and that the claim “is actually a claim for
breach of contract.” In his opposition, Guan again relied
on the “contractual basis for his rescission claim” based upon
section 1689, subdivision (b)(2). The court denied Hu’s motion.
Before trial, Hu filed a motion in limine to exclude evidence
challenging or contradicting the terms of the written agreement.
Guan filed an opposition to the motion in which he stated that
“this case has been narrowed through the pleadings to concern
only rescission of the Contract and related theories. The case is
now about [Hu’s] fraudulent conduct, requiring rescission and a
full refund . . . of all the money [Guan] provided for the purchase
of the property, among other remedies, and not about whether
or not the Contract required [Hu] to sell the property.” (Fn.
omitted.)
One week later, Guan filed his trial brief, and asserted that
he was entitled to rescission of the contract and damages for
money had and received because Hu “breached the Contract by
failing and refusing to take any steps to sell the Property after
two written instructions from [Chen].” Guan further argued that
the facts support his cause of action for promissory estoppel “in
the event that [he] cannot establish a cause of action for breach
of contract.” In addition, Guan asserted that he is entitled to
damages based on fraud in the inducement.
7
At the outset of the bench trial, the court asked Guan’s
counsel whether Guan was asserting breach of contract or
“simply going for broke and asserting that the contract was [void
ab initio] because of fraud.” Counsel stated: “We do have the
rescission claim, there had been an earlier contract claim the
court struck. So we have promissory estoppel and the rescission,
which we believe is a contract claim. In our opinion, . . . Hu
breached the agreement and the arrangement by not doing
anything to sell the house once instructed. So yes, we’re seeking
breach of contract. This is not a go-for-broke claim.”
Hu’s counsel responded to this point by asserting that
“[t]here’s no breach of contract in the fourth amended
[complaint]. What there is, . . . is a fraud inducement. There’s
a cancellation claim for canceling the facially valid but void
agreement, void because of fraud. . . . There’s promissory estoppel
which is a weak form of fraud. There was a promise, the promise
on intended reliance. There’s rescission. Now, rescission—
breach of contract cannot support rescission. What triggers
rescission is extensively and exclusively set forth in Civil Code
section 1689. Breach of contract is not one of them. Now, the
fourth amended complaint only alleges breach of contract to
support rescission, but should [the court] during the trial decide
to exercise [its] discretion and conform the pleadings to proof, a
claim of fraud could in some circumstance, although I think not
this one, give rise to rescission.” He added: “I do think this is
entirely a fraud claim. That’s what plaintiff told you in
opposition to motions in limine [and] the only way to read their
claims.”
8
Hu’s defense at trial was based on three theories. First,
Chen, as Guan’s agent, failed to fulfill his obligations under the
contract to make the arrangements necessary to sell the house;
therefore, Hu’s contractual obligation to sell the property was
never triggered and she did not breach the contract. Second, Hu
intended to perform when she entered into the contract and,
therefore, did not commit fraud. Third, the money used to
purchase the house was Chen’s, not Guan’s, and, therefore, Guan
has suffered no damage. Regarding rescission, Hu’s counsel
acknowledged that the claim was based on breach of contract, but
he asserted that rescission cannot be based on that theory. This
case, he asserted, “is entirely a fraud claim.”
At trial, evidence was adduced regarding the negotiation
and formation of the contract, Hu’s intent in entering into the
contract, the parties’ understanding of the contract’s terms, the
purchase of the house, the source of the purchase money, Chen’s
instructions to Hu to sell the property, Hu’s failure to sell the
property after receiving such instructions, and the value and
rental value of the property at different times. Hu testified that
she had an obligation under the contract to sell the property if
she received an “adequate and a proper—serious written
instruction to sell the house,” but believed that she never
received such instructions. She further testified that she paid the
property taxes, property insurance, and maintenance expenses
for the property.
In closing argument, Guan’s counsel argued that the
evidence established that Hu had done nothing to “demonstrate
that she performed in any fashion . . . under the contract.” After
the court questioned Guan’s counsel regarding the fraud claim,
counsel pointed out that “only the fifth cause of action is for fraud
9
[in] the inducement.” Even if the court does not find fraud, he
explained, the other four causes of action are “all based on failure
of consideration.” Thus, he stated, “all roads in this case lead to
rescission.” By this, Guan’s counsel explained, he meant that
each of Guan’s “causes of action invoke the court’s equitable
authority, and the court can take whatever action it deems
appropriate and equitable under the law to make sure that
[Guan] is protected and gets his money back.”
At the outset of Hu’s counsel’s closing argument, counsel
stated that he would address the lack of evidence that Hu did not
intend to perform the contract. The court interjected that he
must also “address whether or not there was a breach of the
contract once the contract was made.” Counsel stated that he
would do so, and acknowledged that “most of [Guan’s] . . . case
put on at trial was a breach of contract.” He asserted, however,
that there was “no breach of contract claim” and that “all of
[Guan’s] claims are fraud-based.”
The trial court issued a tentative decision and, after
considering Hu’s objections, a final statement of decision. The
court found that Guan had failed to prove his fraud allegations,
and that the evidence was insufficient “to support rescission of
the contract on the statutory grounds.” The court further found
that Hu breached the contract in August 2012 by “failing, after
receiving Chen’s instruction in his July 21, 2012 email to her, to
sell the house and remit the proceeds, net of her share, to Guan.”
The court stated that “a party asserting the right to rescind a
contract may recover damages for its breach if rescission is not
found.”
10
Based on the findings that Hu had breached the contract,
the court granted the following relief: The court declared Guan
the beneficial owner of the property, and appointed a receiver to
sell the property; Hu was to receive 20 percent of the value of the
property; Hu should be reimbursed $274,400 for her payment of
property taxes, insurance, and maintenance expenses for the
property; and Hu would be charged with $10,000 per month fair
rental value for the 43 months that she possessed the property
after her breach, for a total of $430,000. These remedies, the
court later explained, were based “upon the allegations and
prayer” of the fourth amended complaint, which “provide[d]
adequate notice of plaintiff’s claims against defendant.”
On June 18, 2016, the court entered an amended judgment
in accord with its statement of decision. Hu and Guan each
appealed. Guan challenged only the court’s order denying his
motion for leave to amend to conform to proof.
DISCUSSION
I. The Court Did Not Err in Granting
Guan Relief Based on Hu’s Breach of the
Contract.
Hu contends that the court, after finding that Guan failed
to prove fraud or the right to rescission, erred by granting Guan
relief based on Hu’s breach of the contract. We disagree.
A.
According to Hu, each of the causes of action asserted in
Guan’s fourth amended complaint “failed because [Guan] failed
to prove that Hu did not intend to perform her contractual
obligation to sell [the property] when she entered into the
February 2011 contract.” The argument is without merit because
11
the only cause of action in the fourth amended complaint that
alleged that Hu did not intend to perform her obligations at the
time she entered into the contract agreement was the fifth cause
of action for fraudulent inducement. None of the first four causes
of action—labeled rescission, cancellation, common count for
money had and received, and promissory estoppel—included any
allegation of Hu’s fraudulent intent.
With respect to Guan’s first cause of action, labeled
“Rescission,” Guan alleged: The parties had entered into the
contract; Guan performed his duties under the contract; Hu
breached the contract by failing to perform her obligation to sell
the property as instructed; and Hu’s breach caused Guan harm.
A plain reading of the allegations reveals that the rescission
cause of action is unrelated to, and independent of, the allegation
of Hu’s fraudulent intent asserted in the fifth cause of action.
The court’s conclusion that Guan failed to prove such intent,
therefore, is irrelevant to the merits of the first cause of action.
Nor was an allegation or proof of Hu’s fraud necessary for
Guan’s first cause of action. In that cause of action Guan sought
rescission. Although fraudulent inducement is one ground for
rescission (§ 1689, subd. (b)(1)), a party to a contract is also
entitled to rescission when the other party’s breach constitutes
a material failure of consideration. (Id., subd. (b)(2); Wyler v.
Feuer (1978) 85 Cal. App. 3d 392, 403-404; Crofoot Lumber,
Inc. v. Thompson (1958) 163 Cal. App. 2d 324, 332-333; 1 Witkin,
Summary of Cal. Law (11th ed. 2017) Contracts, § 877,
pp. 922-923.)3 With one possible exception (discussed below),
3“Failure of consideration is the failure to execute a
promise, the performance of which has been exchanged for
12
Guan consistently asserted Hu’s breach and the resulting failure
of consideration as a basis for his rescission cause of action. In
opposing both Hu’s demurrer to the rescission cause of action in
the third amended complaint and Hu’s motion for summary
judgment on the fourth amended complaint, Guan relied on the
failure of consideration basis for rescission. Guan reasserted
Hu’s breach of the contract in his trial brief and, as Hu’s counsel
acknowledged, “most of [Guan’s] case put on at trial was a breach
of contract.”
The one exception, which Hu emphasizes, is language in
Guan’s opposition to a motion in limine in which Guan stated
that this “case is now about [Hu’s] fraudulent conduct, . . . and
not about whether or not the Contract required [Hu] to sell the
property.” Even if that statement, when viewed in isolation,
arguably narrowed Guan’s theory of rescission, Guan’s trial brief,
filed one week later, clarified that he was seeking rescission on
the ground that Hu “breached the Contract by failing and
refusing to take any steps to sell the Property after two written
instructions from [Chen].”
performance by the other party.” (Bliss v. California Cooperative
Producers (1947) 30 Cal. 2d 240, 248.) Not every breach or failure
to perform, however, will warrant the remedy of rescission; the
failure “must be ‘material,’ or go to the ‘essence’ of the contract.”
(Wyler v. Feuer, supra, 85 Cal.App.3d at pp. 403-404; see
also Crofoot Lumber, Inc. v. Thompson, supra, 163 Cal.App.2d
at pp. 332-333; Taliaferro v. Davis (1963) 216 Cal. App. 2d
398, 411-412; Medico-Dental etc. Co. v. Horton & Converse (1942)
21 Cal. 2d 411, 433; Wilson v. Corrugated Kraft Containers (1953)
117 Cal. App. 2d 691, 696.)
13
Any doubt as to Guan’s theories at trial was removed when
the court inquired at the outset of trial as to whether Guan was
“going for broke” based on the theory of fraudulent inducement,
and Guan’s counsel clarified that he was not; the rescission
claim, he stated, was based on the theory that “Hu breached the
agreement and the arrangement by not doing anything to sell
the house once instructed. . . . [W]e’re seeking breach of contract.
This is not a go-for-broke claim.” In light of the otherwise
consistent assertion that Guan was pursuing a contract-based
theory of rescission, as well as the allegations in the operative
pleading, the lone statement in Guan’s opposition to a motion in
limine did not alter the nature of Guan’s first cause of action.4
Hu also relies on the trial court’s language in its statement
of decision that each of Guan’s “causes of action allege[s] that Hu
had no intention when she signed the contract to comply with a
4 The concurring and dissenting opinion (the
concurrence/dissent) relies on the statement in Guan’s
opposition to a motion in limine for the conclusion that Guan’s
“claim . . . was not based on Hu’s breach of a valid contract,”
but rather “on Hu’s fraudulently inducing Guan to enter into
an invalid contract.” (Conc. & dis. opn. post, at p. 6.) The
concurrence/dissent implies that Guan asserted a single “claim,”
not multiple claims, and that Guan changed that claim from a
rescission claim based on breach of contract to a rescission claim
based on fraudulent inducement. The implication is belied by the
record. Guan asserted five causes of action, only one of which is
based upon an allegation of fraud. Moreover, Guan’s operative
complaint, his discovery responses, his trial brief, his counsel’s
statements to the court at the outset of trial, and the evidence
at the trial show that Guan pursued both the contract-based
rescission claim and the fraudulent inducement claim.
14
written instruction to sell the house.” The court’s mistaken belief
that all causes of action included a fraud allegation was trivial
and not consequential; the important point was that Guan did
allege breach of contract, and the court was aware of it.
B.
Hu further contends that Guan’s “contract claim was
dismissed long before trial, [and he] had no right to advance that
claim at trial.” She points to the court’s order sustaining the
demurrer without leave to amend to the breach of contract cause
of action in the second amended complaint. That ruling, Hu
contends, puts that claim “at rest” and barred Guan from
reviving it at trial. For the reasons that follow, we reject this
argument.
We agree with the position Hu took in the trial court
proceedings that Guan’s rescission cause of action was “actually
a claim for breach of contract.” Generally, a cause of action is
the “right to obtain redress for a harm suffered, regardless of the
specific remedy sought or the legal theory . . . advanced.” (Boeken
v. Philip Morris USA, Inc. (2010) 48 Cal. 4th 788, 798, italics
added.) Thus, although a breach of contract may be redressed in
various ways, such as by rescission, specific performance,
declaratory relief, the payment of damages, or injunctive relief
(see 1 Witkin, Summary of Cal. Law (11th ed. 2017) Contracts,
§ 878, pp. 924-925), the remedy is not the cause of action. And
where various remedies are sought for the same breach, there is
a single cause of cause of action for breach of contract; the
“ ‘seeking of different kinds of relief does not establish different
causes of action.’ ” (Marden v. Bailard (1954) 124 Cal. App. 2d
458, 465.)
15
Here, Guan labeled his first cause of action “Rescission.”
“Rescission,” however, “is not a cause of action; it is a remedy.”
(Nakash v. Superior Court (1987) 196 Cal. App. 3d 59, 70.)
To determine the nature of Guan’s cause of action, we look at
the facts alleged, not its label. (See, e.g., Saunders v. Cariss
(1990) 224 Cal. App. 3d 905, 908; McBride v. Boughton (2004)
123 Cal. App. 4th 379, 387.) It is “an elementary principle of
modern pleading that the nature and character of a pleading is to
be determined from its allegations, regardless of what it may be
called, and that the subject matter of an action and issues
involved are determined from the facts alleged rather than from
the title of the pleadings or the character of the damage recovery
suggested in connection with the prayer for relief.” (McDonald v.
Filice (1967) 252 Cal. App. 2d 613, 622; accord, Ananda Church
of Self-Realization v. Massachusetts Bay Ins. Co. (2002)
95 Cal. App. 4th 1273, 1281; Lovejoy v. AT&T Corp. (2001)
92 Cal. App. 4th 85, 98.) As set forth above, and as Hu asserted
below, the allegations in Guan’s first cause of action for
“rescission” establish a cause of action for breach of contract,
regardless of its label or the remedies he sought.
To the extent that the court’s rulings allowing Guan to
proceed with his contract-based rescission cause of action are
inconsistent with its prior ruling sustaining Hu’s demurrer to the
second amended complaint’s breach of contract cause of action
without leave to amend, the later rulings supersede the prior
ruling. The trial court’s inherent power to do so is well-settled.
(See Le Francois v. Goel (2005) 35 Cal. 4th 1094, 1107; Kerns v.
CSE Ins. Group (2003) 106 Cal. App. 4th 368, 388; Nave v. Taggart
(1995) 34 Cal. App. 4th 1173, 1177.) If the rule were otherwise, a
court that “ ‘realizes it has misunderstood or misapplied the law,
16
[would be] prohibited from revisiting its ruling, whether it
realize[d] its mistake 10 minutes or 10 days later, and no matter
how obvious its error or how draconian the effects of its misstep.
“A court could not operate successfully under the requirement
of infallibility in its interim rulings. Miscarriage of justice
results where a court is unable to correct its own perceived legal
errors.” ’ ” (Le Francois v. Goel, supra, 35 Cal.4th at p. 1105; see
also Greenberg v. Superior Court (1982) 131 Cal. App. 3d 441, 445
[trial court has inherent power to “correct a ruling which it
believes to have been erroneous”].)
This rationale applies forcefully here. Guan had
adequately pleaded a cause of action for breach of contract in
his second amended complaint, and the trial court erroneously
sustained Hu’s demurrer to that cause of action. Guan’s
allegations of the elements of breach of contract in the third
amended complaint were not substantially different from the
allegations in the second amended complaint; each made
identical allegations regarding the parties’ entry into the
contract, the terms of the contract, Guan’s performance, and Hu’s
breach of the contract. The only material change Guan made was
to add the remedy of rescission.5 Indeed, as Hu argued, the third
amended complaint was essentially a “rehash of the exact same
allegations” that failed to support a cause of action in the second
amended complaint. The court, however, correctly determined
that Guan had adequately pleaded a contractual basis for the
claim and, having “realize[d] its mistake” (Case v. Lazben
5The request for compensatory damages remained, but
was moved to the prayer for relief in the fourth amended
complaint.
17
Financial Co. (2002) 99 Cal. App. 4th 172, 185), allowed the
restated claim to proceed.
The concurrence/dissent takes the untenable position
that once the court sustains a demurrer without leave to
amend a cause of action it can never change its mind. The
concurrence/dissent would, in effect, hold that interim orders are
final judgments—a principle contrary to settled law, as discussed
earlier. The concurrence/dissent’s reliance on Smith v. City
of Los Angeles (1948) 84 Cal. App. 2d 297 (Smith) for this
proposition does not withstand scrutiny. Citing to Smith, the
concurrence/dissent states “that ‘orders sustaining demurrers
without leave to amend’ effectively ‘constitute a trial on the
merits’ and, as such, ‘must be considered as judgments after
trial.’ ” (Conc. & dis. opn. post, at p. 19, quoting Smith, supra,
84 Cal.App.2d at p. 302.) Smith, however, actually states:
“The judgments rendered herein, being upon orders sustaining
demurrers without leave to amend, constitute a trial on the
merits, based upon issues of law raised by such demurrers,
and must be considered as judgments after trial.” (Ibid.) By
selectively quoting only portions of the relevant sentence, the
concurrence/dissent conjures a completely new and unworkable
legal principle—that interim orders constitute final judgments.
The concurrence/dissent cites Roybal v. University Ford
(1989) 207 Cal. App. 3d 1080 for the proposition that a dismissal
with prejudice “ ‘clearly means the plaintiff ’s right of action
is terminated and may not be revived.’ ” (Conc. & dis. opn.
post, at p. 19, quoting Roybal v. University Ford, supra,
at pp. 1086-1087.) In that case, the court held that a plaintiff’s
voluntary dismissal of a complaint with prejudice operated as a
retraxit and barred a subsequent action on the same cause under
18
the doctrine of res judicata. (Id. at pp. 1085-1087.) Here,
the order sustaining the demurrer to Guan’s second amended
complaint was not a retraxit, and res judicata does not apply
to interim, interlocutory rulings. (See Imperial Beverage Co. v.
Superior Court (1944) 24 Cal. 2d 627, 634; Phillips v. Sprint PCS
(2012) 209 Cal. App. 4th 758, 770; 7 Witkin, Cal. Procedure
(5th ed. 2008) Judgment, § 363, p. 985; 6 Witkin, Cal. Procedure
(5th ed. 2008) Proceedings Without Trial, § 308, p. 763.)
The concurrence/dissent states that our opinion “would
invite havoc” (conc. & dis. opn. post, at p. 21) by allowing a trial
court to countenance a plaintiff’s realleging a claim after the
court sustains a demurrer without leave to amend to that claim.
There will be no havoc. Indeed, if the court continued to believe
that the reasserted claim had no merit, the court could sustain
a demurrer filed by a defendant so pointing out, strike the new
claim on its own motion, and sanction the plaintiff if the pleading
was filed in bad faith or for an improper purpose. (See Code Civ.
Proc., §§ 128.5, 128.7; cf. Janis v. California State Lottery Com.
(1998) 68 Cal. App. 4th 824, 829; Ricard v. Grobstein, Goldman,
Stevenson, Siegel, LeVine & Mangel (1992) 6 Cal. App. 4th
157, 162.) Here, however, the realleged claim gave the court
an opportunity to correct its earlier error—the sustaining of the
demurrer to the contract cause of action in the second amended
complaint—and conformed to the commendable purpose of
making interim orders changeable.
The concurrence/dissent’s complaint that the trial court did
not give Hu notice that it was considering allowing the stricken
claim relies on form over substance. Whether the court or
Guan gave that notice is immaterial. What matters is that Hu
had notice of Guan’s contract claim upon service of the fourth
19
amended complaint and an opportunity to oppose the claim’s
resurrection, which she did more than once.
C.
Although Guan’s “rescission” cause of action was, in
substance, a breach of contract cause of action, the question
remains whether the court, having found that Guan was not
entitled to the remedy of rescission, could nevertheless award
damages based upon Hu’s breach. We conclude that it could.
In the fourth amended complaint, Guan sought rescission
and compensatory damages, among other relief. The alternative
remedies may be asserted in the same action. (§ 1692; Wong v.
Stoler (2015) 237 Cal. App. 4th 1375, 1385; Karapetian v. Carolan
(1948) 83 Cal. App. 2d 344, 351-352; see generally 1 Witkin,
Summary of Cal. Law (11th ed. 2017) Contracts, § 966,
pp. 1015-1017.) A party may thus seek “rescission first and
damages if he cannot have it.” (Bancroft v. Woodward (1920)
183 Cal. 99, 102.)6 Here, Guan expressly sought rescission and
6 The concurrence/dissent cites Akin v. Certain
Underwriters at Lloyd’s London (2006) 140 Cal. App. 4th 291, 296,
for the statement that an “ ‘action for rescission and an action
for breach of contract are alternative remedies,’ ” and that the
“ ‘election of one bars recovery under the other.’ ” (Conc. & dis.
opn. post, at p. 18, italics omitted.) If the concurrence/dissent
is suggesting that a plaintiff who is harmed by a defendant’s
breach of contract cannot pursue each of the alternative remedies
of damages and rescission at trial, it is incorrect. Although
a plaintiff cannot obtain both rescission and damages for the
same wrong, it is well-settled that he or she can seek each in the
alternative. (See Williams v. Marshall (1951) 37 Cal. 2d 445, 457;
20
compensatory damages, among other relief. Although rescission
may have been his preferred remedy, he was entitled to recover
damages if, as the court determined in this case, “he cannot have
it.” (Ibid.)
The concurrence/dissent asserts the trial court found
that there was a failure of consideration and thus Guan had
prevailed on his rescission claim on that basis. (Conc. & dis.
opn. post, at p. 10.) First, the trial court made no such finding.
Rather, it expressly rejected that conclusion and found the
opposite true, that the evidence did not establish grounds for
rescission. Second, as the court found, Hu partially performed
under the contract by “protecting the property” and paying
the property taxes, insurance, and maintenance expenses
during her possession of the property. Lastly, we note that the
concurrence/dissent’s theory was not even proposed by either
party.
D.
Hu argues that the judgment violated her right to due
process. In particular, she contends that she “went to trial
reasonably believing that she would win if [Guan] did not prove
that she had a fraudulent intent not to perform because the
claims in the operative complaint were all premised on such an
intent.” She argues that she also “believe[d] that that contract
claim could not be an issue because [Guan’s] breach of contract
claim had been dismissed long before trial at the pleadings stage,
and [Guan] had adamantly asserted that there were no contract
Walters v. Marler (1978) 83 Cal. App. 3d 1, 16; 1 Witkin, Summary
of Cal. Law (11th ed. 2017) Contracts, § 936, pp. 986-987.)
21
issues left in the case.” These arguments are generally refuted
by the conclusions we reached above: Guan’s first four causes of
action were based on Hu’s breach of contract, not her alleged
fraudulent intent; and Guan’s breach of contract claim was
indisputably in play in the fourth amended complaint.
Moreover, even if Guan’s first cause of action as pleaded
was ambiguous as to the nature of his claim or remedies he
sought, the record reveals that Hu had ample notice of the breach
of contract claim and potential remedies. As described above,
Guan represented his rescission cause of action as one based on
breach of contract and Hu responded to it as such. In opposing
Hu’s demurrer to that cause of action in the third amended
complaint, Guan explained he was relying on the allegation
that Hu had “breached the written Contracts by total failure
to perform her obligations to sell the Property.” After Guan
realleged the rescission cause of action in substantially the same
form in the fourth amended complaint, Hu, in her answer,
expressly characterized the claim as “a cause of action for breach
of contract,” and asserted numerous affirmative defenses to
breach of contract. Hu’s motion for summary judgment again
asserted that Guan’s first cause of action was “actually a claim
for breach of contract,” and argued that the court should grant
summary adjudication of the cause of action because the court
had previously sustained a demurrer to Guan’s breach of contract
claim.
Hu propounded interrogatories concerning Guan’s contract
allegations, to which Guan affirmed he was seeking damages for
breach of contract and identified “[m]onetary damages caused by
misrepresentations and breach of contract” in the amount of
“$2.655 million.” (Italics added.)
22
In his trial brief, Guan stated that his rescission claim was
based on Hu’s breach of the contract, and his counsel informed
the court at the outset of trial that “we’re seeking breach of
contract,” and that the rescission claim “is a contract claim.” The
evidence at trial presented by both sides was focused primarily
on issues related to the breach of contract claim. In particular,
the parties testified about the negotiations concerning the
contract and their understanding of its terms, Guan and Chen
were examined about the source of the funds used to purchase
the property, and evidence was introduced concerning the
communications from Guan and Chen to Hu, which Guan argued
were instructions to sell and Hu argued were not. Evidence that
Hu had done nothing to sell the property, as well as evidence of
the rental value of the property and Hu’s payments of property
expenses, was also introduced. The evidence related to Hu’s
alleged fraudulent intent, by contrast, was remarkably brief; in
essence, Hu testified that she intended to perform, and Guan
attempted to impeach her with her deposition testimony that she
considered the contract to be a “joke” or a “fiction.” The record of
the trial, in short, reveals a trial focused almost exclusively on
Guan’s breach of contract claim and Hu’s defenses thereto.7
7 We note that the statement of facts and procedural
history in Hu’s opening brief omitted almost all of the relevant
facts bearing upon the question whether Guan’s claims were
based on breach of contract and Hu’s notice thereof. The brief
thus violates rule 8.204(a)(2)(C) of the California Rules of Court,
which requires that opening briefs “[p]rovide a summary of the
significant facts.” (See Hjelm v. Prometheus Real Estate Group,
Inc. (2016) 3 Cal.App.5th 1155, 1166; Eisenberg et al., Cal.
Practice Guide: Civil Appeals and Writs (The Rutter Group
23
E.
Hu further contends that the court erred in relying on
section 1692 in fashioning the remedy for Hu’s breach. The
second paragraph of that section provides: “If in an action or
proceeding a party seeks relief based upon rescission and the
court determines that the contract has not been rescinded, the
court may grant any party to the action any other relief to which
he may be entitled under the circumstances.” Hu contends that
the language, “any other relief to which [the plaintiff] may be
entitled under the circumstances,” limits the court’s ability to
grant “other relief” to cases where the plaintiff sought rescission
along with other claims and is entitled to relief on the other
claims. It cannot be applied, she argues, when the plaintiff
“failed to prove any of the claims in the operative complaint.”
The flaw in this argument is that Hu erroneously assumes
the success of her earlier argument that all of Guan’s claims were
based upon fraud and that Guan had failed to prove fraud. As
explained above, only Guan’s fifth cause of action was based on
Hu’s alleged fraud, and his first cause of action was indisputably
based on Hu’s breach of contract. Because the court found that
Hu had breached the contract and thereby caused Guan harm,
the court reasonably determined that although Guan was
not entitled to rescission, he was entitled to relief under the
circumstances. (§ 1692; see, e.g., FDIC v. Air Florida System,
Inc. (9th Cir. 1987) 822 F.2d 833, 841 [under section 1692, “a
breach [of contract] insufficiently material to form the basis for
2016) ¶ 9:27, pp. 9-8 to 9-9, ¶ 9:126, pp. 9-38 to 9-39.) It was only
after this court granted a motion for rehearing that Hu was more
forthcoming.
24
rescission may entitle the aggrieved party to . . . damages”];
Kulawitz v. Pacific etc. Paper Co. (1944) 25 Cal. 2d 664, 672
[plaintiff’s failure “to establish his right to rescission did not
preclude him from any other relief that might be open to him”].)
II. Hu’s Contentions Regarding Particular
Relief
Hu also challenges particular provisions of the judgment.
We address each in turn.
A.
Hu contends that the court should have applied 40 percent,
instead of 20 percent, to the value of the property in determining
Hu’s share. We disagree.
Under the contract, Hu is to receive 20 percent of the
property’s fair market value if the property “is sold from
Jan[uary] 1[,] 2012 on,” and 40 percent “if it is sold from
Jan[uary] 1[,] 2013 on.” Hu was required to “complete all the
procedure[s] to sell [the property] within 6 months” after
receiving Chen’s instruction to sell. Hu’s duty to sell the property
was triggered by Chen’s July 21, 2012 email to her. According
to the contract, Hu then had six months within which to sell
the property. The court awarded Hu an amount based on the
20 percent figure because, the court explained, “Hu should have
initiated procedures to sell, for instance, by interviewing or hiring
a real estate broker, or advertising the house for sale, not later
than August, 2012. Because Hu did not take any steps to initiate
a sale she is not entitled to a reasonable period, much less the
6 months specified in the contract, to complete the sale.”
25
The court did not err. Because Hu did not sell the property,
there is no date of sale from which the court could determine
which percentage should be applied. The inability to determine a
date of sale was, of course, because Hu breached the contract by
failing to sell the property. Indeed, as the court found, Hu did
not merely fail to sell the property, she did not even take any
steps to do so. The trial court determined that Hu should not
profit by her wrongdoing. We agree.
B.
Hu contends that she is entitled to a percentage of the
actual sale proceeds, not the percentage of the property’s value
at the time of the breach. We disagree. If Hu had performed her
contractual obligation, she would have received no more than
20 percent of the proceeds from a sale that should have taken
place in 2012. According to Hu, however, she should receive the
benefit of any appreciation in the property after her breach. She
cites no authority to support her argument, and her position is
contrary to the maxim that one may not benefit by his or her own
wrong. (§ 3517; Post v. Jacobsen (1960) 180 Cal. App. 2d 297, 303.)
Hu argues that the property should have been valued as
of the time of breach. We agree that that would have been the
ideal valuation date. But neither party presented evidence
of that value. In the absence of evidence of the value at the
time of breach—August 2012—the court reasonably used the
closest-in-time valuation presented—March 2011.
26
C.
Lastly, Hu contends that the court erred by charging her
with $430,000 of imputed rent because Guan waived any right to
such rent by failing to identify such damages prior to trial. We
disagree. Although Guan did not specifically ask for imputed
rent in his prayer for relief or pretrial discovery, he introduced
evidence of the property’s rental value at trial without a
relevance objection from Hu. Moreover, when the court asked
Hu’s counsel during closing argument whether Hu should have to
pay rent “for the holdover period [while] she’s lived in that house
without paying rent,” counsel only asserted that requiring her to
pay rent would be unfair because neither Guan nor Chen ever
asked her to vacate the property. Counsel also stated that
any payment of rent should be apportioned based upon the
apportionment of the sale proceeds in the contract. Significantly,
counsel did not assert that Guan’s claim for rent was made
too late or violated Hu’s right to due process. Nor did counsel
request a continuance to counter the fair rental amount. Hu thus
waived any claim of error by not asserting it timely.
III. Guan’s Appeal from Order Denying His
Motion for Leave to Amend Is Moot.
Because we conclude that the judgment should be affirmed
based on the court’s application of section 1692, Guan’s appeal
challenging the order denying his motion for leave to amend is
moot.
27
DISPOSITION
The amended judgment is affirmed. Guan is awarded his
costs on appeal.
CERTIFIED FOR PARTIAL PUBLICATION.
ROTHSCHILD P. J.
I concur.
LUI, J.
28
JOHNSON, J., Concurring and Dissenting.
The trial court reached the right result (a judgment in
favor of Li Guan (Guan) and against Yongmei Hu (Hu)), but
for the wrong reasons. Contrary to what the trial court
found, Guan proved his rescission cause of action. Guan’s
rescission cause of action had two prongs, one based on fraud
and one based on a failure of consideration. The trial court
correctly found that Guan had not proved his fraud theory
of rescission. The trial court, however, failed to consider
the second potential basis for the rescission cause of action
when crafting its statement of decision. The evidence
unequivocally established the failure of consideration basis
for rescission. The court’s error was compounded by Guan,
who, instead of advising the trial court of its omission,
attempted to resuscitate his breach of contract claim which
had been dismissed with prejudice from the case months
before trial.
Similarly, while the majority correctly determines that
the judgment for Guan should be affirmed, its Sherlockian
efforts to conclude that a cause of action which the trial
court had expressly dismissed had not really been dismissed
undermine the sacrosanct principles of procedural due
process, notice, and fairness. The majority engages in a
revisionist reinterpretation of isolated statements in the
trial record in order to shoehorn back into the case Guan’s
previously dismissed breach of contract cause of action. The
majority would have us believe that while the trial court
knew how to expressly and explicitly dismiss the breach of
contract claim, it inexplicably chose not to be express or
explicit when it ostensibly determined to reverse its earlier
decision. To bolster its conclusion, the majority engages in a
number of grave distortions to both the record and the law,
including the following: claiming without any support
whatsoever from the record that the trial court knew that it
had made an “error” (maj. opn. ante, at p. 19) when it
dismissed Guan’s breach of contract cause of action without
leave to amend and therefore “allowed” (maj. opn. ante, at
p. 18) Guan to replead his breach of contract claim as a
rescission claim; and arguing that Guan’s rescission cause of
action was not a rescission claim at all but actually a breach
of contract claim and that the dismissal with prejudice of
Guan’s breach of contract was not really a dismissal with
prejudice.
While I agree that the judgment in favor of Guan
should be affirmed, I would remand the matter to the trial
court for a reconsideration of the damages award. Since
Guan actually prevailed on his rescission cause of action, the
court should restructure the award so that it complies with
rescission principles (i.e., restores Guan to the status quo
ante).
I. Guan’s Dual-Pronged Rescission Cause of Action
The majority asserts that Guan “did allege [at trial]
breach of contract and the court was aware of it.” (Maj. opn.
ante, at p. 15.) The majority is wrong on both accounts. The
record plainly shows that Guan tried but failed to allege a
breach contract cause of action. The record also shows that
Guan alleged a dual theory rescission cause of action based
2
on fraud and failure of consideration. Finally, the record
shows that while the trial court was well aware of Guan’s
fraud theory of rescission, it was not similarly attuned to
Guan’s failure of consideration theory.
A. GUAN’S DUAL THEORY OF RESCISSION
As noted above, Guan initially pursued, not a
rescission cause of action, but a breach of contract claim.
Guan, however, could not allege successfully a breach of
contract cause of action, and the trial court ultimately
dismissed that claim without leave to amend. Only then did
Guan elect to pursue a rescission cause of action. Under the
Civil Code, a plaintiff seeking rescission may do so under a
number of different theories, including fraud or a failure of
consideration, (Civ. Code, § 1689, subd. (b)(1) & (2)1), which
is exactly what Guan did here. Guan made clear in his
opposition to Hu’s demurrer to his third amended complaint
(TAC) that his election to seek rescission was based on two
distinct theories: fraud and a failure of consideration: “TAC
alleged the facts that [Hu] made misrepresentations to
induce [Guan] to enter into the Contracts and thus satisfied
the requirements of § 1689(b)(1). Additionally, TAC alleged
the facts that [Hu] breached the written Contracts by total
failure to perform her obligations to sell the Property and
this satisfied the requirements of § 1689(b)(2).”
1 All further statutory references are to the Civil Code
unless otherwise indicated.
3
B. THE DUAL NATURE OF GUAN’S THEORY OF
RESCISSION GETS LOST IN THE SHUFFLE
Unfortunately for all concerned, Guan’s dual theory of
rescission appears to have been largely overshadowed by
trial events and by Guan’s heavy emphasis of his fraud
theory of rescission.
1. Guan opted to give primary emphasis at trial to
his fraud theory of rescission
On December 21, 2015, the tenor and direction of
Guan’s case changed in an important way. On that day, the
Hu testified at her deposition that she regarded the parties’
contract as a “fiction,” a “joke,” and that, as a result, she
“never had any plan to respond” to any directive by Guan to
sell the house.
Guan seized on Hu’s deposition testimony and adjusted
his strategic focus of the case accordingly. On January 21,
2015, less than a month after Hu’s deposition, Guan filed his
fourth amended complaint (FAC), the operative pleading at
trial. The FAC, among other things, added a companion
cause of action to Guan’s rescission claim, a cause of action
for fraud-in-the-inducement. In his new fraud-in-the-
inducement claim, Guan quoted Hu’s deposition testimony
about “never” having an intent to comply with the terms of
the parties’ agreement.
In pretrial briefing, Guan repeatedly stressed the
central importance of Hu’s deposition testimony in shaping
the issues for trial. For example, in opposition to one of Hu’s
motions in limine, Guan stated that “the character of the
case changed dramatically with the filing of the [FAC] on
4
January 21, 2016, incorporating facts that Guan learned
from Hu’s deposition a few short weeks ago.” Guan
explained that “after Hu gave her deposition and effectively
admitted that she fraudulently never intended to honor the
terms of the contract, the issue of Hu’s ‘equity’ was
extinguished because her conduct supports rescission of the
Contract.”
In order to clarify for the trial court just how much the
his theory of the case had changed as a result of Hu’s
deposition testimony, Guan noted that the issue of Hu’s
equity in the Malibu house “was once relevant when the case
was a breach of contract action because the timing of valid
instructions to sell the property would have impacted
whether or how much ‘equity’ [Hu] would be allowed to
retain upon the sale of the property.” But because Guan’s
case was now based on a fraud theory of rescission and a
fraud-in-the-inducement cause of action, Hu’s alleged equity
was “no longer directly at issue.”
According to Guan, the “main focus of the currently
operative complaint is now on the false promises by [Hu] and
her unequivocal expression at her deposition that she had no
intention of performing relevant duties under the Contract vis
a vis [Guan] when she entered into it. (Italics added.)
Just in case there was any doubt in the trial court’s
mind about the focus of Guan’s litigation strategy at trial,
Guan explained that “this case has been narrowed through
the pleadings to concern only rescission of the Contract and
related theories. This case is now about [Hu’s] fraudulent
conduct, requiring rescission and a full refund from [Hu] to
5
[Guan] of all of the money he provided for the purchase of
the property . . . and not about whether or not the Contract
required [Hu] to sell the property if [Guan] (and/or if Mr.
Chen) gave [Hu] written instructions to sell the property.”
(Second italics in original.) In other words, Guan’s claim
against Hu—as clarified and stated by Guan himself—was
not based on Hu’s breach of a valid contract that both parties
intended from the start to fully honor; rather, Guan believed
his strongest theory of liability hinged on Hu fraudulently
inducing Guan to enter into an invalid contract—invalid
because she never had any intention of fulfilling any of her
contractual promises.
Consistent with this viewpoint, Guan emphasized in
his trial brief Hu’s statement that the contract was a
“fiction” and detailed for the court the “substantial evidence”
that supported his fraud theory of rescission and his fraud-
in-the-inducement cause of action.
As the majority correctly notes (maj. opn. ante, at
pp. 7–10), Guan did not, by any means, abandon his failure
of consideration theory of rescission. But he did not push it
nearly as hard as he did his fraud theory. Guan’s heavy
emphasis on his fraud theory, however, had certain
consequences, including most notably, the trial court’s
conclusion that Guan’s rescission cause of action was unitary
in nature.
6
2. The trial court mistakenly accepted Guan’s fraud
theory as the only theory of rescission
The trial court, which oversaw Guan’s case from start
to finish, came to regard Guan’s rescission cause of action as
being based on a unilateral theory. By way of example,
during closing argument, the trial court stated: “Guan’s
argument is not benefit of the bargain or out of pocket loss.
Guan’s argument is that the contract is void ab initio. The
fraud caused the contract not to form.” (Italics added.)
The trial court expanded on its understanding in its
tentative written decision, “Guan’s operative complaint, his
[FAC], pleads causes of action for rescission of the contract;
cancellation of the contract; money had and received;
promissory estoppel; and fraud in the inducement. These
causes of action alleged that Hu had no intention when she
signed the contracts to comply with a written instruction to
sell the house, and, therefore, the contract is subject to
rescission or some other remedy to restore the parties to their
precontract position.” Neither of the parties, including
Guan, objected to this statement as inaccurate; as a result, it
was incorporated into the trial court’s final statement of
decision.2 In its final statement of decision, the trial court
went on to add the following: “[Guan] argued that when
2 Ironically, Guan never reminded the trial court of
its failure of consideration theory when it moved for leave to
conform its pleadings to the proof at trial by adding a breach
of contract cause of action.
7
[Hu] signed the contract . . . she did not intend to sell the
house even if she received proper written notice and that her
promise to do so was a misrepresentation. This is the
premise underlying [Guan’s] claims to rescind, cancel and
void (for fraud) the contract.” (Italics added.) In other
words, for whatever combination of reasons, the trial court
apparently perceived at the time it wrote its statement of
decision that Guan was not proceeding on a dual theory of
rescission that included a failure of consideration theory, as
well as fraud theory.
Through this singularly focused understanding of
Guan’s rescission cause of action, the trial court viewed and
assessed the evidence. For example, during Guan’s closing
argument, the trial court was plainly concerned with the
dearth of evidence supporting Guan’s fraud-based claims
(rescission and fraud in the inducement): “So, essentially,
your argument is that there was fraud in the inducement
and that . . . she had no intention to perform the
contract . . . . [¶] Isn’t that a real gamble? [¶] . . . You have
no evidence at the time she didn’t intend to perform the
contract. That’s at the time she signed the contract. . . . [¶]
There’s no evidence right then that she didn’t intend to
perform the contract.”
This paucity of evidence explains why the trial court
ultimately found against Guan on his rescission and fraud-
in-the-inducement causes of action: “[Guan] argued but did
not prove that Hu, at the moment when she signed the
contract, did not intend to perform her contract obligation to
sell the house when and if Chen gave her written instruction
8
that she do so. There is evidence, but not sufficient
evidence, . . . to support rescission of the contract.”
However, it is also manifest from the entire record that
the trial court found that there was in fact a failure of
consideration (i.e., Hu failed to honor the promises that she
made to Guan and QiWei Chen (Chen), her paramour). As
the court stated in its statement of decision: “Hu breached
the contract in failing to take any steps to sell the house
after receiving Chen’s email directing her to do that on
July 21, 2012 . . . . [¶] Chen’s July 21, 2012, email was
unequivocal that Hu was to sell the house. Chen did not at
any time retract or qualify that written instruction. Hu took
no steps whatsoever to initiate the sale of the house.” Hu’s
defenses to this failure of consideration claim, according to
the trial court, were either “not believable,” “not tenable,” or
had “no support.”
“The meaning of a court order or judgment is a
question of law within the ambit of the appellate court.
[Citation.] “The true measure of an order . . . is not an
isolated phrase appearing therein, but its effect when
considered as a whole. [Citations.] In construing orders
they must always be considered in their entirety, and the
same rules of interpretation will apply in ascertaining the
meaning of a court’s order as in ascertaining the meaning of
any other writing. If the language of the order be in any
degree uncertain, then reference may be had to the
circumstances surrounding, and the court’s intention in the
making of the same.” (In re Ins. Installment Fee Cases
(2012) 211 Cal. App. 4th 1395, 1429.)
9
Consequently, it appears from the record that the trial
court did indeed find that Guan had established a failure by
Hu to provide consideration—which, as stated above, was an
alternate legal theory on which Guan’s rescission theory
stood. Thus, in finding that Guan had established a failure
of consideration, the trial court effectively determined that
Guan had prevailed on his alternate theory for rescission.
Had the trial court focused on the fact (or had it been
reminded in a timely and concrete manner) that Guan’s
theory of rescission was not unitary in nature but based in
part on a failure of consideration theory, the court clearly
would have awarded rescissionary damages (and possibly
also adjusted the equities pursuant to section 1692). But
that is not what the trial court did. Instead, the trial court
awarded Guan a form of benefit-of-the-bargain damages,
something that is not permitted under California’s law of
rescission.
As our Supreme Court has observed, the damages
available for a breach of contract cause of action versus one
for a rescission, are quite different: “The award given in an
action for [breach of contract] compensates the party not in
default for the loss of his ‘expectational interest’—the benefit
of his bargain which full performance would have brought.
[Citation.] Relief given in rescission cases—restitution and
in some cases consequential damages—puts the rescinding
party in the status quo ante, returning him to his economic
position before he entered the contract.” (Runyan v. Pacific
Air Industries, Inc. (1970) 2 Cal. 3d 304 316, fn. 15.)
10
Accordingly, the judgment in favor of Guan should be
affirmed, but the matter should be remanded so that the
trial court, after briefing and argument from the parties,
may reconsider and reconfigure its award of damages so that
it complies with California law on rescission.
The majority attempts to dismiss the analysis of the
dissent by pointing to the undisputed fact that the trial
court, in its statement of decision, determined that the
evidence did not establish rescission. (Maj. opn. ante, at
p. 20.) Closing one’s eyes to the trees does not make the
forest go away.
The majority’s argument is not only disingenuous in
that it is a clear departure from the majority’s gestalt-
approach to re-engineering the trial court’s intentions (which
the majority uses to resuscitate a breach of contract claim
despite the trial court’s express dismissal with prejudice of
that cause of action), but also maladroit in its failure to
recognize that the analysis of the dissent begins with an
acknowledgement that the trial court found no rescission
because it focused exclusively on a fraud theory as opposed
to a failure of consideration theory. The dissent’s approach
does not re-conjure a cause of action; instead, it simply
points out that the trial court forgot to consider an
alternative theory of rescission—a theory that had been
pleaded and which, based on the trial court’s findings, a
theory that if remembered would have justified a finding for
Guan on rescission for lack of consideration. That the
parties did not argue this theory on appeal is of no
consequence. The meaning of a court order or judgment is,
11
as noted above, a question of law subject to our independent
review (In re Ins. Installment Fee Cases, supra, 211
Cal.App.4th at p. 1429), which means that we give “no
deference” to the trial court’s ruling or the reasons for its
ruling. (Oakland Raiders v. National Football League (2007)
41 Cal. 4th 624, 628.) Accordingly, in my view, the trial
court’s indefensible resort to breach of contract damages
requires a remand for consideration of an appropriate
rescission-based remedy.
II. The Majority Misconstrues the Record
In order to justify its holding, the majority has taken a
number of unusual steps, which include the construction of
an alternative history of this case.
On August 25, 2015, the trial court dismissed without
leave to amend the breach of contract cause of action from
Guan’s second amended complaint (SAC). According to the
majority, however, the trial court made a mistake in
dismissing the breach of contract cause of action without
leave to amend: Guan “had adequately pleaded a cause of
action for breach of contract in his second amended
complaint, and the trial court erroneously sustained Hu’s
demurrer to that cause of action.” (Maj. opn. ante, at p. 17.)
The majority’s assertion is not only devoid of any meaningful
textual and legal analysis of Guan’s pleadings, but it is also
plainly contradicted by the record. The record clearly shows
that the trial court repeatedly demanded that Guan make
certain changes in his breach of contract cause of action,
including clarifying whether the parties’ contract was oral or
written or some combination of the two, and that Guan
12
repeatedly failed to do so: “The changes made in the [SAC]
don’t cure the defects previously noted by the
Court. . . . [Guan makes] the same arguments the Court
previously found to be meaningless. . . . Further, in re the
prior demurrer, the Court stated that ‘it appears that the
actual agreement was part written and part oral. . . . Any
amendment must clarify the nature of the [contract] sued
upon . . . .’ The [SAC] still fails in this regard.” Given
Guan’s repeated failure to correct the demonstrable defects
identified by the trial court with the breach of contract cause
of action, it cannot reasonably be maintained that the trial
court abused its discretion when it dismissed that cause of
action with prejudice.
Even more bizarrely, the majority asserts that the trial
court itself “realize[d]” that its dismissal of the breach of
contract cause of action with prejudice was a mistake and
sought to correct that mistake when Hu challenged Guan’s
third amended complaint (TAC) and his new cause of action
for rescission. (Maj. opn. ante, at p. 16.) The majority,
however, does not (and cannot) point to any oral or written
statement by the trial court in the record before us
indicating or even suggesting that it regarded its ruling on
the SAC as a mistake and was trying to correct that mistake
through its ruling on Hu’s demurrer to the TAC. In fact,
even when the trial court had the opportunity posttrial to
revive Guan’s breach of contract cause of action, it refused.
Moreover, there is little evidence that even Guan thought
the trial court’s dismissal of its breach of contract cause of
action was a mistake at the time or later. On the record
13
before us, there is no indication that Guan ever petitioned
for an extraordinary writ challenging the trial court’s ruling,
or filed a motion for reconsideration. Notably, if Guan had
actually believed that the trial court’s ruling on his breach of
contract cause of action was a prejudicial error, he could
have dismissed the remaining causes of action immediately
following the court’s order on the SAC, and then appealed
from the subsequent judgment with regard to the breach of
contract claim. (See Code Civ. Proc, § 472c.) But Guan did
not take this action. In fact, Guan did not even seek review
of the court’s dismissal with prejudice ruling in its
subsequent cross-appeal.
The majority further asserts that Guan’s cause of
action for rescission was really a “restated” cause of action
for breach of contract which the trial court purportedly
“allowed to proceed.” (Maj. opn. ante, at p. 18.) The sole
support from the record that the majority cites for this
remarkable contention is the following statement by the trial
court in overruling Hu’s demurrer to the TAC: “[Guan]
adequately alleges the contractual basis for the [rescission]
claim.” From the phrase “contractual basis,” the majority
infers that the rescission cause of action is really a breach of
contract cause of action. The majority’s reasoning falls short
of the mark because every rescission cause of action, (as with
every breach of contract cause of action) must have a
contractual basis, otherwise, there would be nothing to
rescind (or to be breached).
14
Moreover, the trial record flatly contradicts the
majority’s claim. Hu challenged the legal sufficiency of
Guan’s rescission cause of action in the TAC on a variety of
grounds, including that it was just a “rehash” of Guan’s
legally insufficient breach of contract cause of action. The
trial court found all of Hu’s arguments, including the
“rehash” argument, wanting and overruled the demurrer as
to the rescission cause of action and all other causes of action
in the TAC. Critically, when Hu argued in its summary
judgment motion that Guan’s rescission cause of action was
nothing more than a recycled version of the “breach of
contract [cause of action] that had already been dismissed
with prejudice,” the trial court once again found the
argument to be without merit. In short, the trial court
repeatedly had the opportunity to find that Guan’s rescission
cause of action was nothing more than a ”restated” breach of
contract cause of action and each time it refused to do so.
Put a little differently, the trial court consistently found
Guan ’s rescission cause of action to be separate and distinct
from the dismissed breach of contract claim.
There is, in sum, little to commend in the majority’s
counterfactual, alternative history of this case. The record
does not show that the trial court ever regarded (a) its
dismissal of the breach of contract cause of action as a
mistake or (b) Guan’s rescission cause of action as nothing
more than a restated breach of contract cause of action.
As discussed below, there is even less to commend in
the majority’s alternative version of the law.
15
III. The Majority Turns the Law on Its Head
A. THE MAJORITY MISAPPREHENDS RESCISSION
The majority asserts that rescission is not a cause of
action separate and distinct from a breach of contract cause
of action but merely a remedy and that Guan’s cause of
action for rescission “regardless of its label” is a breach of
contract cause of action. (Maj. opn. ante, at p. 16.)
Specifically, the majority urges that “the allegations in
Guan’s first cause of action for ‘rescission’ establish a cause
of action for breach of contract, regardless of its label or the
remedies he sought.” (Maj. opn. ante, at p. 16.) The majority
is mistaken—a breach of contract cause of action and a
rescission cause of action are mutually exclusive.
As the leading treatise on California law makes plain,
there are (and there have long been) two distinct causes of
action for a plaintiff in a contract-based dispute: seek
“damages for breach of contract” or seek “restitution after
rescission.” (4 Witkin, Cal. Procedure (5th ed. 2008)
Pleading, §§ 515–540, pp. 648–668 and §§ 541–552, pp. 668–
680.)3
3 In fact, prior to 1961 and the enactment of section
1692, California law recognized two different actions by
which a plaintiff could obtain rescissionary relief— the first
an “ ‘action to enforce a rescission’ ” and the second an
“ ‘action to obtain a rescission’ ” (California Law Revision
Commission’s Recommendations and Study relating to
Rescission of Contracts (1960) in 3 Cal.Law Revision
Com.Rep. (Sept. 1961) D–5, D–15 (Law Revision Report); see
16
Moreover, although both rescission and breach of
contract are contract-based causes of action, it has long been
recognized that they are distinctly different and that
difference is of “practical importance.” (Koford, Rescission at
Law and Equity (1948) 36 Cal. L. Rev. 608, 609.) “When one
party has been injured by a breach of contract and she either
lacks the ability or the desire to keep the contract alive, she
can choose between two different remedies. [Citation.] She
can treat the contract as rescinded and recover damages
resulting from the rescission. Or she can treat the contract
as repudiated by the other party and recover damages to
which she would have been entitled had the other party not
breached the contract or prevented her performance.
[Citation.] An action for rescission is based on the
disaffirmance of the contract and an action for damages for
breach of contract is based on its affirmance. [Citations.] An
action for rescission and an action for breach of contract are
alternative remedies. The election of one bars recovery under
Philpott v. Superior Court (1934) 1 Cal. 2d 512, 524
[discussing pre-1961 law]; Runyan v. Pacific Air Industries,
Inc., supra, 2 Cal.3d at pp. 311–312 [same].) The first was
an action at law, while the second was an “action in
‘equity.’ ” (Law Revision Report, supra, p. D–5.) The 1961
legislation “abolished the action to obtain court rescission
and left only an action to obtain relief based upon a party
effected rescission.” (Paularena v. Superior Court (1965) 231
Cal. App. 2d 906, 913.)
17
the other.” (Akin v. Certain Underwriters at Lloyd’s London
(2006) 140 Cal. App. 4th 291, 296, italics added.)
Here, the majority loses its way by equating a failure of
consideration theory of rescission with a breach of contract
cause of action. Plainly and simply, a rescission cause of
action, whatever its underlying theory, is something very
different from a breach of contract cause of action.
B. THE MAJORITY IMPROPERLY DISREGARDS THE
DISMISSAL WITH PREJUDICE OF GUAN’S BREACH OF CONTRACT
CAUSE OF ACTION
As noted above, Guan initially pursued a theory of
recovery based on the affirmance of the parties’ contract.
Guan, however, could not successfully allege a breach of
contract cause of action. After three unsuccessful attempts,
the trial court dismissed the claim without leave to amend.
The majority treats that dismissal as effectively a nonevent.
(Maj. opn. ante, at pp. 15–17.) Nothing could be further from
the truth.
Although California is a “code pleading” state,
pleadings and the causes of action asserted therein are not
empty formalities. (See generally, 4 Witkin Cal. Procedure
(5th ed. 2008) Pleadings §§ 1, 33, 419, pp. 65, 97, 556–557.)
In fact, pleadings, especially complaints, perform an
essential role—they determine what a party must prove at
trial in order to be entitled to relief. As our Supreme Court
has observed, “The complaint in a civil action serves a
variety of purposes [citation], of which two are relevant here:
it serves to frame and limit the issues [citation] and to
apprise the defendant of the basis upon which the plaintiff is
18
seeking recovery.” (Committee On Children’s Television, Inc.
v. General Foods Corp. (1983) 35 Cal. 3d 197, 211–212;
Simmons v. Ware (2013) 213 Cal. App. 4th 1035, 1048 [“ ‘The
pleadings are supposed to define the issues to be tried’ ”].)
California courts have long held that “orders
sustaining demurrers without leave to amend” effectively
“constitute a trial on the merits” and, as such, “must be
considered as judgments after trial.” (Smith v. City of Los
Angeles (1948) 84 Cal. App. 2d 297, 302.) This is so because it
is “ ‘well settled that a trial need not involve the
determination of a fact, but may consist solely or partially in
the determination of an issue of law.’ ” (Ibid.)
Consequently, sustaining a demurrer without leave to
amend effectively dismisses that claim with prejudice and
California courts have held that “with prejudice,” as that
term is used in the context of dismissals, “clearly means the
plaintiff’s right of action is terminated and may not be
revived.” (Roybal v. University Ford (1989) 207 Cal. App. 3d
1080, 1086–1087.)4
4 Federal courts take a similar view: “Dismissal
“without leave to amend” means that those claims are no
longer part of the active proceedings, it does not mean that
Plaintiff can continually attempt to amend his complaint to
re-allege the dismissed claims or seek discovery on the
dismissed claims.” (Bever v. Citimortgage, Inc. (E.D.Cal.
May 15, 2014, No. 1:11–cv–01584–AWI–SKO) 2014 WL
2042015 at *3; see Lazo v. U.S. (S.D. Cal. Feb. 9, 1999,
Nos. 98CV0119–B (LSP), 99CV0037–B) 1999 WL 250893 at
19
The majority tries to escape from the jurisprudential
effect of the dismissal with prejudice of Guan’s breach of
contract cause of action by adopting a dangerous “anything
goes” approach to court orders.5
The majority asserts that the trial court purportedly
“allowed” Guan to replead his dismissed breach of contract
cause of action as a rescission cause of action, which means
that the trial court was implicitly “correct[ed] its earlier
error—the sustaining of the demurrer to the contractual
cause of action in the [SAC].” (Maj. opn. ante, at pp. 17, 18.)
There are several highly troubling aspects to the
majority’s conclusion. First, as discussed supra, it is based
on wishful speculation, not fact. Tellingly, the majority does
not cite to any written or oral statement by the trial court
evincing such a decision or even the intent to make such a
decision. In fact, the record before us suggests the exact
*2 [“by dismissing without leave to amend, the Court means
exactly that—without leave to amend, ever”].)
5 At oral argument on rehearing, Guan’s counsel
extended this procedural apostasy by arguing that even if a
trial court expressly excluded a plaintiff’s breach of contract
claim from the lawsuit, the plaintiff—on his/her own
authority— could nonetheless successfully reinsert that
claim into the lawsuit through such relatively informal
means as responses to form interrogatories and remarks
during opening statement. In other words, Guan’s counsel
argued that a litigant’s desire alone can trump a trial court’s
written order. Such a position would turn our entire system
of justice upside down.
20
opposite conclusion from the one reached by the majority.
When Guan moved posttrial to conform his pleadings to the
proof presented at trial by adding a breach of contract claim,
the trial court denied the motion.
Second, the majority’s reasoning would invite havoc
into the legal system. Under the majority’s approach, a trial
court, at any time and without any notice whatsoever to the
litigants, could reverse itself on an issue of supreme
importance to the parties and to the conduct of the litigation.
As noted above, the order dismissing Guan’s breach of
contract claim without leave to replead was not some minor,
insignificant order, such as a scheduling order for a status
conference. Rather, the order was the legal equivalent of
a judgment after a trial on the merits. (Smith v. City of
Los Angeles, supra, 84 Cal.App.2d at p. 302.)
To allow a court, as the majority does here, to
implicitly reverse a judgment without any due process is
flatly contrary to our whole system of justice. Under current
California law, if a trial court comes to believe that one of its
prior interim orders was erroneous, it may, sua sponte,
reconsider its decision, provided it “inform[s] the parties of
this concern, solicit[s] briefing, and hold[s] a hearing.” (Le
Francois v. Goel (2005) 35 Cal. 4th 1094, 1108–1109.) Here,
the trial court did none of those things.
21
IV. Conclusion
Any one reading the majority’s opinion who has a
passing familiarity with both the law and the writings of
Lewis Carroll will be reminded of Alice’s frustrating
encounter with Humpty Dumpty after she fell through the
looking glass: “ ‘I don’t know what you mean by “glory,” ’
said Alice. Humpty Dumpty smiled contemptuously. “Of
course you don’t—till I tell you . . . . ‘When I use a word,”
Humpty Dumpty said, in a rather scornful tone, ‘it means
just what I choose it to mean—neither more nor less.’ ‘The
question is,’ said Alice, “whether you can make words mean
so many different things.’ ‘The question is,’ said Humpty
Dumpty, ‘which is to be the master—that’s all.” (Carroll,
Through the Looking Glass (Palazzo 2015), p. 109.)
Here, the majority, like Humpty Dumpty, has
redefined words and the court record as it sees fit in order to
reach the result it desires. According to the majority, a
rescission cause of action is not really a rescission cause of
action, but a breach of contract cause of action. According to
the majority, a dismissal with prejudice of Guan’s breach of
contract cause of action is not really a dismissal with
prejudice, and, in any event, that dismissed cause of action
may be resurrected by anyone, at any time, and in any
manner—a plaintiff can do it by sticking breach of contract
allegations into rescission causes of action; the trial court
can do it implicitly without a word to anyone until after the
trial is over.
22
This is not how our judicial system is designed to
function. As our Supreme Court recognized long ago, even
where a court has jurisdiction over a matter, “ ‘it is still
limited in its modes of procedure, and in the extent and
character of its judgments. It must act judicially in all
things, and cannot then transcend the power conferred by
the law.’ ” (Baar v. Smith (1927) 201 Cal. 87, 100.) If a court
“ ‘transcend[s] the limits of its authority,’ ” the resulting
judgment would be “ ‘absolutely void.’ ” (Ibid.)
Here, the trial court effectively and correctly but not
expressly found that Guan had prevailed on his rescission
cause of action. Accordingly, the judgment in favor of Guan
should be affirmed. However, because the trial court
believed that Guan had not prevailed on his rescission cause
of action but on some nonexistent breach of contract cause of
action, it awarded Guan breach of contract damages and not
rescissionary damages. Accordingly, the matter should be
remanded to the trial court for a reconsideration of the
damages award.
I, therefore, respectfully concur in the majority’s
determination that judgment for Guan is proper, but I
dissent from its conclusion and analysis that Guan’s
damages properly lie in a breach of contract theory.
JOHNSON, J.
23