Guan v. Hu ( 2017 )

Filed 6/2/17
CERTIFIED FOR 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.
APPEAL from an order and a judgment of the Superior
Court of Los Angeles County, Richard L. Fruin, Jr., Judge.
The order is affirmed; the judgment is reversed with
directions.
Arent Fox, Malcolm S. McNeil, Allan E. Anderson and
Ismael Bautista, Jr., for Plaintiff and Appellant.
Quinn Emanuel Urquhart & Sullivan, Dominic
Surprenant and Daniel H. Bromberg for Defendant and
Appellant.
Defendant Yongmei Hu (Hu) appeals from a judgment
entered in favor of plaintiff Li Guan (Guan). Guan initially
sued Hu for breach of a contract. However, several months
before trial, the trial court dismissed the breach of contract
claim with prejudice. As a result, Guan proceeded to trial on
various fraud-based claims (e.g., rescission, cancellation, and
fraud in the inducement) that effectively disaffirmed the
validity of the parties’ contract.
Following a bench trial, the trial court found that Guan
had failed to prevail on any of his claims because, while his
evidence in support of those claims was “considerable,” it
was nonetheless “insufficient.” However, because there was
evidence showing that Hu had breached the parties’
contract, the trial court awarded damages to Guan. The
trial court justified its decision in favor of Guan on language
in Civil Code section 1692,1 which purportedly allowed it
under these circumstances to “ ‘adjust the equities’ ” between
the parties.
We hold that the trial court’s interpretation of section
1692 was flawed and, as a result, we reverse the judgment
and direct that judgment be entered in favor of Hu. We
further hold that the trial court did not abuse its discretion
in denying Guan’s posttrial motion to conform his pleadings
to the proof presented at trial.
1
All further statutory references are to the Civil Code
unless otherwise indicated.
2
BACKGROUND
I. The parties’ dispute
In 2010, Hu, a concert pianist, became romantically
involved with QiWei Chen (Chen), a professor at a university
in China. 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, both
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 provided, among other things that Hu
would hold title to the house as its “nominal owner.” The
contract further provided that Hu would sell the house when
and if instructed to do so by Chen. Upon sale of the house,
Hu was to remit the proceeds to Guan. Under the terms of
the contract, Hu would be entitled to certain benefits when
she sold the house. Specifically, Hu would “get 20%” if the
house was “sold from Jan 1st, 2012” and her percentage of
the equity would increase by 20 percent each year the house
was not sold, with Hu obtaining 100 percent of the equity “as
a gift from Mr. Guan after Jan. 1st, 2016.” Escrow closed in
early March 2011 and Hu moved into the house shortly
thereafter.
The relationship between Chen and Hu proved to be
somewhat tempestuous. For example, in November 2011,
Chen emailed Hu telling her that “[i]t is very sad now both of
3
us realize the relationship can not work” and advising her
that she was “not qualified to own the house.” A month
later, however, in December 2011, Chen visited Hu at the
Malibu house, gave her thousands of dollars in gifts, and
said nothing further about selling the house. Eventually, in
July 2012, after their romantic relationship had ended, Chen
emailed Hu telling her that “ ‘[i]t is over! Don’t you realize it
with normal sense?! S[ell] the house as instructed by
Mr. Guan Li so that you could stil[l] be benefited from the
deal.’ ” Hu, however, in the wake of Chen’s July 2012 email
did not sell the house or take any steps to sell the house or
seek any assistance in selling the house.
II. The parties litigate their dispute
In February 2015, Guan filed suit against Hu, alleging
breach of a written contract, as well as fraud and various
other related claims.
Guan’s initial complaint, however, did not attach the
contract. As a result, in April 2015, Guan filed a verified
first amended complaint attaching the parties’ contract and
adding a claim for rescission. The trial court sustained Hu’s
demurrer to the first amended complaint with leave to
amend, noting, inter alia, that “[a]ny amendment must
clarify the nature of the [contract] sued upon.”
In June 2015, Guan filed a second amended complaint,
alleging three principal causes of action: breach of contract,
fraud, and rescission. In August 2015, Hu demurred again
and again the trial court sustained the demurrer to the
breach of contract claim but this time without leave to
4
replead, stating that Guan had failed to “cure the defects
previously noted by the Court.”
In September 2015, Guan filed a third amended
complaint asserting three claims: rescission, cancellation;
and a common count for money had and received. The trial
court overruled Hu’s demurrer to this pleading.
A. THE OPERATIVE COMPLAINT
In January 2016, just two months before the start of
trial, Guan filed a fourth amended complaint (FAC) adding
to the claims from the previous pleading a claim for fraud in
the inducement and promissory estoppel.
During pretrial briefing on motions in limine, Guan
advised the trial court 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 . . . and not about whether or not the
Contract required [Hu] to sell the property . . . .”
(Underscore added.) At trial, in a similar vein, Guan’s
counsel stressed his client’s claims were all premised on
rescission. For example, during closing argument his
counsel repeatedly stated that “all roads in this case lead to
Rome, meaning that all roads lead to rescission.”
B. THE TRIAL COURT’S DECISION
Over the course of five days in late March to early
April 2016, the trial court presided over a bench trial. On
April 5, 2016, four days after closing arguments, the trial
5
court issued a written tentative decision finding in favor of
Guan even though the court could “not find a basis to rescind
the contract.” Instead, the court found that Hu “deliberately
breached the contract.”
On April 28, 2016, over Hu’s objections, the trial court
issued a final statement of decision (the statement of
decision) re-affirming its decision in favor of Guan.
Consistent with the causes of action alleged in the FAC and
consistent with the representations made by Guan’s counsel
both before and during trial concerning the gravamen of
Guan’s claims, the statement of decision noted that all of the
FAC’s “causes of action allege[d] that Hu had no intention
when she signed the contract 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 pre-contract position.” The trial court then
went on to find that Guan had failed to prove any of his
rescission-related causes of action: “Plaintiff 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
that she do so. There is evidence, but not sufficient
evidence, . . . to support rescission of the contract”
However, the trial court nonetheless found for Guan
because the evidence showed that Hu “repudiated her
contract responsibilities in 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.”
6
The trial court justified its decision to find for Guan despite
his failure of proof by citing to section 1692: “the court may
exercise equitable jurisdiction to ‘adjust the equities among
the parties’ even if it does not find a basis to rescind the
contract. Civil Code 1692 . . . . In exercising equitable
jurisdiction, Civil Code 1692 authorizes the court to “grant
any party to the action any other relief to which he may be
entitled under the circumstances.” In its statement of
decision, however, the trial court did not address its earlier
decision dismissing Guan’s breach of contract claim without
leave to replead.
On April 18, 2016—nearly two weeks after the trial
court issued its tentative statement of decision, Guan filed a
motion to conform the FAC to the proof presented at trial by
adding a breach of contract cause of action (the motion).
On May 11, 2016, the trial court denied the motion,
explaining that Guan had “unreasonably delayed” in seeking
to amend the FAC and noting that Guan filed the motion
“after completion of trial, after the matter was submitted,
and, indeed, after the court had issued its Statement of
Tentative Decision.”
Hu timely appealed from the judgment and Guan
timely cross-appealed from the denial of the motion.
DISCUSSION
I. The judgment must be reversed because the trial
court misapplied section 1692
On appeal, Hu argues that section 1692 “does not grant
trial courts authority to grant relief to plaintiffs who do not
7
prove the claims they advanced at trial. It merely permits
trial courts to adjust the equities if a plaintiff proves that it
is entitled to rescission or, if a plaintiff fails to prove
rescission, to award relief should the plaintiff establish a
right to relief on other claims in the operative complaint.”
We agree.
A. THE STANDARD OF REVIEW
We review the trial court’s interpretation of section
1692 de novo. (People ex rel. Lockyer v. Shamrock Foods Co.
(2000) 24 Cal. 4th 415, 432; Reid v. Google, Inc. (2010) 50
Cal. 4th 512, 527; Cuiellette v. City of Los Angeles (2011) 194
Cal. App. 4th 757, 765.)
B. THE LAW GOVERNING STATUTORY INTERPRETATION
“We begin with the fundamental rule that our primary
task is to determine the lawmakers’ intent.” (Delaney v.
Superior Court (1990) 50 Cal. 3d 785, 798.) “In construing
statutes, we aim ‘to ascertain the intent of the enacting
legislative body so that we may adopt the construction that
best effectuates the purpose of the law.’ ” (Klein v. United
States of America (2010) 50 Cal. 4th 68, 77.) California
courts “have established a process of statutory interpretation
to determine legislative intent that may involve up to three
steps.” (Alejo v. Torlakson (2013) 212 Cal. App. 4th 768, 786–
787 (Alejo).) The “key to statutory interpretation is applying
the rules of statutory construction in their proper
sequence . . . as follows: ‘we first look to the plain meaning
of the statutory language, then to its legislative history and
finally to the reasonableness of a proposed construction.’ ”
8
(MacIsaac v. Waste Management Collection & Recycling, Inc.
(2005) 134 Cal. App. 4th 1076, 1082 (MacIsaac).)
“The first step in the interpretive process looks to the
words of the statute themselves.” (Alejo, supra, 212
Cal.App.4th at p. 787; see Klein v. United States of America,
supra, 50 Cal.4th at p. 77 [“ ‘statutory language is generally
the most reliable indicator of legislative intent’ ”].)
“If the interpretive question is not resolved in the first
step, we proceed to the second step of the inquiry. [Citation.]
In this step, courts may ‘turn to secondary rules of
interpretation, such as maxims of construction, “which serve
as aids in the sense that they express familiar insights about
conventional language usage.” ’ [Citation.] We may also
look to the legislative history. [Citation.] ‘Both the
legislative history of the statute and the wider historical
circumstances of its enactment may be considered in
ascertaining the legislative intent.’ [Citation.] [¶] ‘If
ambiguity remains after resort to secondary rules of
construction and to the statute’s legislative history, then we
must cautiously take the third and final step in the
interpretive process. [Citation.] In this phase of the process,
we apply “reason, practicality, and common sense to the
language at hand.” [Citation.] Where an uncertainty exists,
we must consider the consequences that will flow from a
particular interpretation. [Citation.] Thus, “[i]n
determining what the Legislature intended we are bound to
consider not only the words used, but also other matters,
‘such as context, the object in view, the evils to be remedied,
9
the history of the times and of legislation upon the same
subject, public policy and contemporaneous construction.’
[Citation.]” [Citation.] These “other matters” can serve as
important guides, because our search for the statute’s
meaning is not merely an abstract exercise in semantics. To
the contrary, courts seek to ascertain the intent of the
Legislature for a reason—“to effectuate the purpose of the
law.” ’ ” (Alejo, supra, 212 Cal.App.4th at pp. 787–788;
MacIsaac, supra, 134 Cal.App.4th at p. 1084.)
We do not necessarily engage in all three steps of the
analysis. “It is only when the meaning of the words is not
clear that courts are required to take a second step and refer
to the legislative history.” (Soil v. Superior Court (1997) 55
Cal. App. 4th 872, 875.) “If ambiguity remains after resort to
secondary rules of construction and to the statute’s
legislative history, then we must cautiously take the third
and final step in the interpretative process.” (MacIsaac,
supra, 134 Cal.App.4th at p. 1084.)
C. SECTION 1692
Section 1692 provides as follows: “When a contract
has been rescinded in whole or in part, any party to the
contract may seek relief based upon such rescission by
(a) bringing an action to recover any money or thing owing to
him by any other party to the contract as a consequence of
such rescission or for any other relief to which he may be
entitled under the circumstances or (b) asserting such
rescission by way of defense or cross-complaint. [¶] If in an
action or proceeding a party seeks relief based upon rescission
10
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. [¶] A claim for damages is not inconsistent
with a claim for relief based upon rescission. The aggrieved
party shall be awarded complete relief, including restitution
of benefits, if any, conferred by him as a result of the
transaction and any consequential damages to which he is
entitled; but such relief shall not include duplicate or
inconsistent items of recovery. [¶] If in an action or
proceeding a party seeks relief based upon rescission, the
court may require the party to whom such relief is granted to
make any compensation to the other which justice may
require and may otherwise in its judgment adjust the equities
between the parties.” (Italics added.)
D. SECTION 1692’S LEGISLATIVE HISTORY
Section 1692 was added by the Legislature in 1961.
Prior to 1961, California law recognized two methods by
which a party entitled to rescind 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 Philpott v. Superior Court (1934) 1 Cal. 2d 512,
524 [discussing pre-1961 law]; Runyan v. Pacific Air
Industries, Inc. (1970) 2 Cal. 3d 304, 311–312 (Runyan)
[same].) The first was an action at law, while the second
11
was an “action in ‘equity.’ ” (Law Revision Report, supra,
p. D–5.) Neither method was expressly recognized in the
Civil Code. (Id. at pp. D–15–D–16.)
“Significant substantive and procedural differences
existed between these two methods for obtaining
rescissionary relief. The right to a jury trial, the applicable
statute of limitations, the availability of the provisional
remedy of attachment and the possibility of joinder of other
claims all depended upon which of these two methods the
plaintiff elected to use in seeking rescissionary relief.”
(Runyan, supra, 2 Cal.3d at p. 312.)
The result was a body of law which was “unnecessarily
complex and confusing to both courts and attorneys, to say
nothing of laymen.” (Law Revision Report, supra, at p. D–6.)
Accordingly, the Law Revision Report recommended a
number of changes to the Code of Civil Procedure and the
Civil Code, including the adoption of section 1692. (See Law
Revision Report, supra, at pp. D–9–D–11.) The purpose of
these proposed changes was to eliminate the confusing and
complex duality of rescission procedures by “providing a
single, simple procedure to be followed in all situations
where rescissionary relief is sought.” (Id. at p. D–6.) As our
Supreme Court has observed, “[i]t is manifest that section
1692 . . . was intended by the Legislature to effectuate the
recommendations of the Law Revision Commission . . . since
the section is identical in language with the measure
suggested by the Commission.” (Runyan, supra, 2 Cal.3d at
p. 313.) In sum, the 1961 legislation “abolished the action to
12
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.)
The Law Revision Report, however, did not address or
offer any general recommendations regarding the role of
pleadings at trial or the power of a trial court to ignore
either the pleadings or the evolution of the parties’ pleadings
in fashioning an equitable award. (Law Revision Report,
supra, passim.)
E. THE TRIAL COURT’S INTERPRETATION OF SECTION
1692 IS UNTENABLE
According to the trial court, pursuant to section 1692,
it “may exercise equitable jurisdiction to ‘adjust the equities
among the parties’ even if [it] does not find a basis to rescind
the contract.” The trial court’s interpretation of section 1692
is untenable for two reasons.
First, it is based on a patent misreading of section
1692. The “adjust the equities” language relied upon by the
trial court comes from the section’s fourth paragraph, which
states as follows: “If in an action or proceeding a party seeks
relief based upon rescission, the court may require the party
to whom such relief is granted to make any compensation to
the other which justice may require and may otherwise in its
judgment adjust the equities between the parties.” (Italics
added.) That paragraph plainly provides that a court may
“adjust the equities” only when the litigant seeking
rescission prevails on that claim—that is, when “such relief
is granted.” Here, no rescissionary relief was granted to
13
Guan. The trial court expressly found that while there was
some evidence to support Guan’s claim for rescission, it was
“not sufficient evidence, in the court’s view, to support
rescission of the contract on statutory grounds.” In other
words, the factual finding as to Guan’s claim for rescission
made it legally impossible for the trial court to adjust the
equities between Guan and Hu.
Second, to the extent that the trial court’s decision was
based on section 1692’s second paragraph, it rests on a
flawed interpretation of that provision’s language. Section
1692’s second paragraph provides as follows: “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.” (Italics added.) The statement of decision
indicated that trial court believed that Guan, although he
failed to prevail on any of his claims, was nonetheless
entitled to relief because Hu breached the Agreement. Such
an interpretation of the term “entitled,” however, is
inconsistent with (1) that term’s plain meaning, (2) section
1692’s legislative history, and (3) established judicial policy.
1. The plain meaning of entitled is inconsistent
with the trial court’s interpretation
The plain meaning of entitled—both in general usage
and as that term is generally understood in a legal sense—
links a conferred benefit with a right to receive that benefit.
For example, Webster’s Third New International Dictionary
14
defines “entitle” as “to give a right or legal title to quantify
(one) for something . . . : [to] furnish with proper grounds for
seeking or claiming something.” (Webster’s 3d New
Internat. Dict. (2002) p. 758, col. 1.) Similarly, Black’s Law
Dictionary defines “entitle” as “to . . . qualify for” and an
“entitlement” as “[a]n absolute right to a . . .
benefit . . . granted immediately upon meeting a legal
requirement.” (Black’s Law Dict. (10th ed. 2014) p. 649,
col. 2.) A respected scholar on legal writing and usage has
described the phrase “is entitled to” as “[w]ords of
[a]uthority,” which mean “ ‘has a right to.’ ” (Garner, Dict.
Of Modern Legal Usage (2d ed. 1997), p. 319, col. 1 and
p. 942, col. 1.) Here, Guan was not “entitled” to any relief
under the circumstances, because he failed to prevail on any
of the claims alleged in his FAC—that is, he failed to
establish a right to relief.
Although California is a “code pleading” state,
pleadings and the claims 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 seeking recovery.”
(Committee On Children’s Television, Inc. v. General Foods
15
Corp. (1983) 35 Cal. 3d 197, 211–212, superseded on other
grounds as stated in Californians for Disability Rights v.
Mervyn’s, LLC (2006) 39 Cal. 4th 223, 227–228; Simmons v.
Ware (2013) 213 Cal. App. 4th 1035, 1048 [“ ‘The pleadings
are supposed to define the issues to be tried’ ”].)
Consequently, as explained by our Supreme Court, “[a]
party is entitled to ‘any and all relief which may be
appropriate under the scope of his pleadings and within the
facts alleged and proved.’ ” (Estrin v. Superior Court (1939)
14 Cal. 2d 670, 678, italics added.) Indeed, as one trusted
treatise on California law has stated, “it is error to give a
remedy or relief entirely outside the issues raised by the
pleadings.” (2 Witkin, Cal. Procedure (5th ed. 2008)
Jurisdiction, § 291, p. 901.) In other words, “ ‘[a] judgment
must be confined to matters which have been placed in issue
by the parties’ ” (Tokio Marine & Fire Ins. Corp. v. Western
Pacific Roofing Corp. (1999) 75 Cal. App. 4th 110, 123.)
Here, if Guan had alleged both breach of contract and
rescission in the FAC, then the trial court’s interpretation of
section 1692 would have been consistent with its plain
meaning. However, there were no claims for breach of
contract in the FAC. Moreover, there was no suggestion by
Guan at trial that he was pursuing a breach of contract
theory of liability in addition to his rescission-based claims;
in fact his counsel stressed just the opposite, that all of
Guan’s claims and supporting evidence, “all roads,” led to
rescission. Under the plain meaning of section 1692, when
16
Guan failed to prove up any of the claims in the FAC, he lost
any entitlement to relief.2
2. The legislative history does not support the
trial court’s interpretation of its powers under section 1692
There is nothing in the Law Revision Report indicating
that section 1692 and the other related proposed
amendments were designed to alter the general role that
pleadings play at trial and/or the role that courts play in
setting the parties’ pleadings. Rather, the legislative history
of section 1692 shows that the Legislature enacted the
statute for a far more limited purpose, namely to simplify
and streamline procedures for asserting a claim for
rescission. (Law Revision Report, supra, at p. D–6.)
In addition, there is nothing in the Law Revision
Report stating or even suggesting that section 1692 allows a
trial court to award damages to a plaintiff based on a claim
that was previously dismissed without leave to replead. In
2
Although the pleadings of both parties must be
considered in determining the issues raised at trial (Estrin v.
Superior Court, supra, 14 Cal.2d at p. 676), Hu’s answer to
the FAC, which generally denied the allegations of the FAC,
did not, on balance, affirm the parties’ contract to such a
degree that it overwhelmed the rescissionary gravamen of
the FAC. While Hu asserted some affirmative defenses that
arguably affirmed the parties’ agreement (e.g., “breach” and
“anticipatory repudiation”), she also asserted other defenses
that expressly disavowed the parties’ contract (e.g., “[n]o
contractual relationship” and “[v]oid [a]greement or
[a]greements”).
17
fact, courts have held the exact opposite. A trial court’s
authority under section 1692 “to adjust the equities is one
that must be exercised in accordance with established
principles of law and equity.” (Sharabianlou v. Karp (2010)
181 Cal. App. 4th 1133, 1147, italics added.) Put a little
differently, although a trial court’s equitable powers are
broad (see Abers v. Rohrs (2013) 217 Cal. App. 4th 1199,
1208), they are not unlimited. “ ‘[A] court of equity will
never lend its aid to accomplish by indirect means what the
law or its clearly defined policy forbids to be done directly.’ ”
(Tuthill v, City of San Buenaventura (2014) 223 Cal. App. 4th
1081, 1088, italics added.)
Guan argues that the legislative history of section 1692
does support the trial court’s award because of the following
language in the Law Revision Report: “The statute
should . . . make plain that the court may grant any other
relief that is appropriate under the circumstances if it
develops at the trial that the plaintiff has mistaken his
remedy and the purported rescission was not effective.”
(Law Revision Report, supra, at p. D–7.) This passage is
unavailing to Guan’s cause.
The trial did not reveal that Guan had mistaken his
desired remedy by inadvertently asserting a rescission claim
when he meant to allege a breach of contract claim. Rather,
the case’s procedural history shows that Guan knew he had
a breach of contract claim against Hu. That history shows
further that Guan repeatedly tried to allege a breach of
contract claim. Moreover, the history of the case reveals
18
that the absence of a breach of contract claim from the FAC
was not a voluntary one; rather, it was forced upon Guan by
his own failings. The trial court finally dismissed Guan’s
breach of contract claim without leave to replead after he
failed repeatedly to cure the defects identified by the trial
court.
Compounding matters, Guan did not challenge the
trial court’s dismissal of his breach of contract claim in any
way. There was no motion for reconsideration. Nor did
Guan seek immediate review by extraordinary writ—
“[a]lthough [appellate courts] rarely grant extraordinary
relief at the pleading stage of a lawsuit, mandamus will lie
when it appears that the trial court has deprived a party of
an opportunity to plead his cause of action . . . , and when
extraordinary relief may prevent a needless and expensive
trial and reversal.” (Taylor v. Superior Court (1979) 24
Cal. 3d 890, 894.) If Guan felt committed to his breach of
contract claim, he could have dismissed the remaining
causes of action immediately following the court’s order on
Hu’s demurer to the second amended complaint, and then
appealed from the subsequent judgment with regard to the
breach of contract claim. (See Code Civ. Proc, § 472c.)
Instead, Guan elected to abandon his breach of contract
claim entirely and proceed to trial on his rescission-based
claims alone. Under such circumstances, holding Guan to
the consequences of his deliberate, “all roads lead to
rescission” strategy does not create an injustice.
19
In short, there is nothing in the legislative history
showing that the trial court was empowered by section 1692
to effectively restore posttrial—sua sponte and without any
advance notice to the defendant—a breach of contract claim
that had previously been dismissed from the action without
leave to replead.
3. The trial court’s interpretation of section
1692 is inconsistent with established judicial policy.
The trial court’s decision to revive Guan’s breach of
contract claim and base the judgment in favor of Guan on
that claim alone conflicts with a number of touchstone legal
policies.
First, “ ‘ “[i]t is well established that an amendatory
pleading supersedes the original one, which ceases to
perform any function as a pleading.” ’ [Citations.] Thus, an
amended complaint supersedes all prior complaints.
[Citations.] The amended complaint furnishes the sole basis
for the cause of action, and the original complaint ceases to
have any effect either as a pleading or as a basis for
judgment. [Citation.] [¶] . . . Thus, once an amended
complaint is filed, it is error to grant [judgment] on a cause of
action contained in a previous complaint.” (State Comp. Ins.
Fund v. Superior Court (2010) 184 Cal. App. 4th 1124, 1130–
1131, italics added.) The trial court’s interpretation of
section 1692 would stand this deep-rooted policy on its head.
Second, the trial court’s interpretation of section 1692
would render the sustaining of demurrers without leave to
amend meaningless—that is, it would allow claims
20
dismissed without leave to replead to be reasserted into the
action. 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.)3 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, italics added.)
Third, to use section 1692 to award contract and
benefit of the bargain damages would run counter to
California jurisprudence. It is well-established that there
are fundamental differences between the cause of action at
issue here (rescission) and the cause of action used by the
trial court to justify its award (breach of contract). “When
one party has been injured by a breach of contract and she
3
Of course, sustaining a demurrer with leave to amend
does not constitute a trial because it is not “ ‘a final
determination of the rights of the parties.’ ” (Mass v.
Superior Court (1961) 197 Cal. App. 2d 430, 435.)
21
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 the other.” (Akin v. Certain Underwriters at Lloyd’s
London (2006) 140 Cal. App. 4th 291, 296 (Akin), italics
added.) Section 1692, in other words, precludes the
prevailing party from receiving “inconsistent items of
recovery.” (§ 1692; Akin, at p. 297.)
Due to the significant differences between a claim for
breach of contract and a claim for rescission, courts have
held that a “plaintiff cannot recover damages under section
1692 for a claim based upon the affirmance of the contract.”
(Akin, supra, 140 Cal.App.4th at p. 297, italics added.) Yet
that is exactly the kind of damages that the trial court
awarded here pursuant to section 1692. Instead of returning
the parties to the status quo ante, as required by a rescission
claim, the trial court structured the damages award so that
it gave the parties the benefits and “implications” of their
bargain. Most notably, the trial court awarded Hu, pursuant
22
to the parties’ contract, 20 percent of the proceeds from the
sale of the house. In other words, the trial court used
section 1692—a statute premised on claims disaffirming a
contract—to impermissibly award damages based on an
affirmance of the parties’ contract.4
In sum, having reviewed the entire record, we believe
that the trial court, after hearing the evidence, was acting in
good faith and trying to achieve substantial justice between
the parties. However, in trying to achieve that noble aim,
the trial court went too far and ignored too easily the plain
language and clear history of section 1692, established
judicial policy, and the consequences of its own prior
actions.5
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
4
Although section 1692 allows the recovery of certain
types of damages, its reference to “ ‘complete relief’ ” does not
entitle the plaintiff to traditional “ ‘benefit of [the] bargain’ ”
and breach of contract damages. (Akin, supra, 140
Cal.App.4th at p. 298; Sharabianiou v. Karp, supra, 181
Cal.App.4th at pp. 1144–1145, 1146 [not available in a
§ 1692 action].)
5
Under 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.
23
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 exceeded
the limits of its authority under section 1692. Accordingly,
the judgment here must be reversed.
II. The trial court properly denied Guan’s motion to
conform
In his cross-appeal, Guan contends that the trial court
erred by denying the motion, because “there was no delay in
bringing it as the breach of contract claim was alleged
multiple times before” and because the motion “only relates
to adding a legal theory, i.e., breach of contract, rather than
adding facts,” and, as a result, there was no prejudice to Hu.
(Italics omitted.) We disagree.
Guan’s argument is completely beside the point—his
breach of contract claim was not only raised multiple times
prior to trial, but it was dismissed without leave to replead
(i.e., dismissed with prejudice) six months before trial. Put
differently, Guan’s argument would only have merit if his
breach of contract claim had not been dismissed without
leave to replead.
A. GUIDING PRINCIPLES AND STANDARD OF REVIEW
The Code of Civil Procedure gives trial courts
discretion to allow a party to amend his or her pleadings “in
furtherance of justice” (Code Civ. Proc., § 473) and provides
that such leave to amend may be granted even after the
24
commencement of trial. (Code Civ. Proc., § 576.) Code of
Civil Procedure section 469 specifically governs motions to
amend at trial to conform to proof, and provides in relevant
part as follows: “No variance between the allegation in a
pleading and the proof is to be deemed material, unless it
has actually misled the adverse party to his prejudice in
maintaining his action or defense upon the merits.”
“As summarized by our Supreme Court . . . : ‘[T]he
allowance of amendments to conform to the proof rests
largely in the discretion of the trial court and its
determination will not be disturbed on appeal unless it
clearly appears that such discretion has been abused.
[Citations.] Such amendments have been allowed with great
liberality “and no abuse of discretion is shown unless by
permitting the amendment new and substantially different
issues are introduced in the case or the rights of the adverse
party prejudiced [citation].” (Italics added.)’ ” (Garcia v.
Roberts (2009) 173 Cal. App. 4th 900, 909.)
“ ‘Generally, “the trial court has wide discretion in
determining whether to allow the amendment, but the
appropriate exercise of that discretion requires the trial
court to consider a number of factors: ‘including the conduct
of the moving party and the belated presentation of the
amendment’ ” ’ ” (Duchrow v. Forrest (2013) 215 Cal. App. 4th
1359, 1377.) “ ‘ “ ‘ “[E]ven if a good amendment is proposed
in proper form, unwarranted delay in presenting it may—of
itself—be a valid reason for denial.” ’ ” ’ ” (Ibid.) “ ‘Thus, [if
the trial court denies a motion to amend during trial,]
25
appellate courts are less likely to find an abuse of discretion
where, for example, the proposed amendment is “ ‘offered
after long unexplained delay . . . or where there is a lack of
diligence . . . .’ ” ’ ” (Ibid.) In addition, courts are generally
disinclined to allow an amendment when the plaintiffs has
“ ‘blow[n] hot and cold’ ” with respect to his or her claims—
that is, repeatedly raising and withdrawing claims.
(Brautigam v. Brooks (1964) 227 Cal. App. 2d 547, 561.)
Under the abuse of discretion standard of review,
“there is no abuse of discretion requiring reversal if there
exists a reasonable or fairly debatable justification under the
law for the trial court’s decision or, alternatively stated, if
that decision falls within the permissible range of options set
by the applicable legal criteria.” (Cahill v. San Diego Gas &
Electric Co. (2011) 194 Cal. App. 4th 939, 957.) Additionally,
“ ‘[a] judgment or order of a lower court is presumed to be
correct on appeal, and all intendments and presumptions are
indulged in favor of its correctness.’ ” (In re Marriage of
LaMoure (2011) 198 Cal. App. 4th 807.) The appealing party
has the burden to affirmatively show error. (Phillips,
Spallas & Angstadt, LLP v. Fotouhi (2011) 197 Cal. App. 4th
1132, 1138.)
B. THE TRIAL COURT DID NOT ABUSE ITS DISCRETION IN
DENYING THE MOTION
As discussed above, when the trial court sustained
Hu’s demurrer to Guan’ breach of contact claim without
leave to amend, that claim was dismissed with prejudice
from the case and could not be revived. (Smith v. City of Los
26
Angeles, supra, 84 Cal.App.2d at p. 302; Roybal v. University
Ford, supra, 207 Cal.App.3d at pp. 1086–1087.) Because the
trial court’s order denying leave to replead was akin to a
judgment after trial on Guan’s breach contract claim, there
would be few things more prejudicial to Hu than to have that
judgment replaced posttrial with a new judgment against
her based on a revival of that very claim. Accordingly, the
trial court did not abuse its discretion in denying the motion.
DISPOSITION
The order denying Li Guan’s motion to conform is
affirmed. The judgment is reversed and the trial court is
directed to enter judgment in favor of Yongmei Hu. The
parties are to bear their own costs on appeal.
CERTIFIED FOR PUBLICATION.
JOHNSON, J.
We concur:
ROTHSCHILD, P. J.
LUI, J.
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