TD General Co. v. Chimes Tower Investment CA2/2 ( 2024 )

Filed 2/22/24 TD General Co. v. Chimes Tower Investment CA2/2
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions
not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion
has not been certified for publication or ordered published for purposes of rule 8.1115.
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION TWO
TD GENERAL COMPANY, B322718
INC. et al.,
(Los Angeles County
Plaintiffs and Super. Ct. No.
Appellants, 20STCV27092)
v.
CHIMES TOWER
INVESTMENT INC.,
Defendant and
Respondent.
APPEAL from a judgment of the Superior Court of Los
Angeles County, Barbara A. Meiers, Judge. Reversed in part and
remanded for further proceedings.
The Green Law Group, Mahbod M. Khalilpour; Benedon &
Serlin, Gerald M. Serlin and Melinda W. Ebelhar for Plaintiffs
and Appellants.
Lagerlof and Yaw-Jiun (Gene) Wu for Defendant and
Respondent.
******
A general contractor sued a hotel owner for breach of
contract, quantum meruit, and other claims to recover amounts
the general contractor alleged it was owed for construction work
at the hotel. The trial court dismissed the breach of contract and
quantum meruit claims on the pleadings, and the contractor has
appealed. Although the court properly ruled that the claims as
pled were not viable, the court abused its discretion in denying
the contractor leave to amend. We accordingly reverse and
remand for further proceedings.
FACTS AND PROCEDURAL BACKGROUND
I. Facts1
A. The parties
Daniel Hwang is the president of TD General Company,
Inc. (TD General) (collectively, plaintiffs), which operates as a
general contractor in the construction business.
Chimes Tower Investment Inc. (Chimes) owns the Zane
Grey Pueblo Hotel (the hotel) located in the city of Avalon on
Catalina Island. The hotel has three buildings—a north building,
a west building, and a south building.
1 These facts are drawn from the operative complaint, the
original complaint, and the exhibits attached to those pleadings.
2
B. Contracts between the parties
1. Written original contract
In late February 2017, TD General and Chimes executed a
form contract in which Chimes hired TD General to make
renovations to the north and west buildings of the hotel (the
original contract). The renovations were to start on March 2,
2017, and were due to be “substantially complete[d]” by March
31, 2018, when a certificate of occupancy was to be obtained. For
this work, Chimes would pay plaintiffs a total of $3,456,000, to be
paid in monthly progress payments that allowed Chimes to
withhold 10 percent of each monthly amount due until the
certificate of occupancy was obtained. If TD General did any
additional work on the hotel for which the parties could not agree
on payment, plaintiffs would be paid their “actual cost plus
reasonable overhead and profit.” The parties agreed that any
changes to the contract had to be made in writing.
2. Alleged oral modification or novation of
original contract
Plaintiffs assert that in “[a]pproximately . . . August 2017,”
“likely toward the end of 2017,” or “[r]oughly around March of
2018,” the parties orally agreed to alter the terms of the original
contract in two ways: (1) they broadened the scope of work to
include renovations to the south building and the pool deck of the
hotel; and (2) they agreed that plaintiffs would be paid—rather
than by a fixed amount—on a “cost-plus” basis, entitling
plaintiffs to their costs plus a 10 percent “mark-up.” It is unclear
whether the shift to “cost-plus” payments pertained only to the
newly added work or also to the work encompassed in the
original contract.
3
From March 2017 “through” April 2019, Chimes paid
plaintiffs’ monthly payment demands. Chimes stopped paying in
April 2019.
3. Written supplemental agreement
On June 10, 2019, TD General and Chimes entered into a
“negotiat[ed]” “Supplementary Agreement” (the supplemental
agreement). Under that agreement, which was drafted in
Chinese, TD General agreed to (1) “finish and deliver” all
renovations to the north and south buildings by June 15, 2019;
(2) “finish and deliver” the south building’s kitchen and “top floor
main bathroom,” the “outdoor handrails” of the south and north
buildings, and the “swimming pool” by June 30, 2019; and (3)
“complete[] and deliver[]” “all other constructions [sic]” by July
15, 2019. Chimes could impose a $5,000-per-day penalty under
the supplemental agreement if TD General failed to meet these
deadlines. Chimes agreed to pay $100,000 in past-due payments
by June 10, 2019.
C. Issuance of certificate of occupancy
On October 8, 2019, TD General “managed to complete the
hotel project . . . when the City of Avalon . . . issued [a] Certificate
of Occupancy.”
By that time, Chimes had paid plaintiffs $6,998,785.
II. Procedural Background
A. Operative complaint
Plaintiffs sued Chimes on July 20, 2020, on the ground that
Chimes still owes $807,614.26.2 In the operative first amended
complaint, plaintiffs alleged two claims pertinent to this appeal—
2 The trial court sustained a demurrer to the original
complaint with leave to amend.
4
namely, (1) “Breach of Written/Oral Contracts,” and (2) “Common
Count: Goods and Services Provided/Quantum Meruit.”3
B. Demurrer to breach of contract claim
In December 2020, Chimes demurred to the breach of
contract claim on the ground that it had paid plaintiffs (that is,
nearly $7 million total) more than they were owed by the terms of
the original contract (that is, $3,456,000).4 After briefing and a
hearing, the trial court sustained the demurrer on the ground—
first mentioned by the court at the hearing—that an unspecified
section of the Business and Professions Code “requires all
construction contracts to be in writing and any change orders to
be in writing, signed by both sides.”
C. Motion for judgment on the pleadings to
quantum meruit claim
After Chimes filed its answer on the last remaining claim
for quantum meruit,5 Chimes filed a motion for judgment on the
3 Plaintiffs also alleged claims for (1) “Common Count:
Account Stated,” (2) “Negligent Misrepresentation,” and (3)
“Unjust Enrichment.” A demurrer to those claims was sustained
without leave to amend, and plaintiffs have not appealed that
ruling as to those claims.
4 Chimes simultaneously filed a motion to strike allegations
regarding punitive damages and prejudgment interest, which the
trial court granted as to the punitive damages allegations once it
sustained a demurrer to the only tort claim in the first amended
complaint.
5 Chimes also filed a cross-complaint alleging five claims,
including that plaintiffs owed $425,000 under the penalty
provision of the supplemental agreement, but later voluntarily
dismissed that cross-complaint.
5
pleadings on the ground that courts may not grant a quantum
meruit claim after they have dismissed a contract claim. After
briefing and a hearing, the court granted the motion.
D. Appeal
After the court entered judgment at the parties’ prompting,
plaintiffs filed this timely appeal.
DISCUSSION
Plaintiffs argue that the trial court erred in dismissing
their breach of contract and quantum meruit claims and doing so
without granting them leave to amend either claim.
A demurrer and a motion for judgment on the pleadings are
“‘equivalent.’” (People ex rel. Harris v. Pac Anchor
Transportation, Inc. (2014) 59 Cal.4th 772, 777.) In assessing
both, we ask two questions: (1) Was the demurrer or motion
properly sustained or granted, and (2) Was leave to amend
properly denied? (Shaeffer v. Califia Farms, LLC (2020) 44
Cal.App.5th 1125, 1134 (Shaeffer).) In answering the first
question, “we ask whether the operative complaint ‘“states facts
sufficient to constitute a cause of action.”’” (California Dept. of
Tax & Fee Administration v. Superior Court (2020) 48
Cal.App.5th 922, 929; Loeffler v. Target Corp. (2014) 58 Cal.4th
1081, 1100.) In undertaking that inquiry, we accept as true all
material facts properly pleaded in the operative complaint as well
as the facts appearing in the exhibits attached to it, giving
precedence to the facts in the exhibits if they contradict the
allegations. (Tax & Fee Administration, at p. 929; Gray v.
Dignity Health (2021) 70 Cal.App.5th 225, 236, fn. 10; Brakke v.
Economic Concepts, Inc. (2013) 213 Cal.App.4th 761, 766-767.) In
answering the second question, we ask whether there is a
reasonable possibility that the defect in the operative complaint
6
can be cured by amendment. (Shaeffer, at p. 1134.) We review
the trial court’s ruling regarding the first question de novo (so, we
are not bound by the court’s construction of the complaint or by
its reasoning), and review its ruling regarding the second for an
abuse of discretion. (Rodas v. Spiegel (2001) 87 Cal.App.4th 513,
517; Environmental Health Advocates, Inc. v. Sream, Inc. (2022)
83 Cal.App.5th 721, 728-729; Harris, at p. 777; Branick v.
Downey Savings & Loan Assn. (2006) 39 Cal.4th 235, 242.)
We will address the propriety of each cause of action.
I. Breach of Contract
A. Was the demurrer to the breach of contract
claim properly sustained?
A demurrer is properly sustained if a “pleading does not
state facts sufficient to constitute a cause of action” (Code Civ.
Proc., § 430.10, subd. (e)), which, “[i]n an action founded upon a
contract,” renders a demurrer appropriate if “it cannot be
ascertained from the pleading whether the contract is written, is
oral, or is implied by conduct” (id., subd. (g)). Although plaintiffs
here alleged three different contracts—the written original
contract, the alleged oral modification to or novation of that
contract, and the written supplemental agreement—and
although we are ordinarily charged with “tak[ing] together”
“[s]everal contracts relating to the same matters, between the
same parties” (Civ. Code, § 1642), it is impossible to ascertain
whether plaintiffs’ breach of contract claim—as currently pled—
is based on a written or oral contract.
We reach this conclusion for two reasons.
First, plaintiffs vacillate between referring to the alleged
oral contract as being a “novation” and a “modification” of the
7
original contract; at times, plaintiffs even seem to assert that
characterizing it as one or the other does not matter.6
But it does.
A “novation” extinguishes a prior contract and replaces it
with a new contract (Civ. Code, § 1531, subd. (1); Alexander v.
Angel (1951) 37 Cal.2d 856, 860-861; Wells Fargo Bank v. Bank of
America (1995) 32 Cal.App.4th 424, 431), so if the oral contract in
this case effected a novation, then plaintiffs are suing on an oral
contract. A “modification,” by contrast, alters an existing
contract without extinguishing it (e.g., Davies Machinery Co. v.
Pine Mountain Club, Inc. (1974) 39 Cal.App.3d 18, 25), so if the
oral contract in this case effected a modification, then plaintiffs
are suing on a written contract that was modified orally. What
distinguishes a novation from a modification is not how much the
new contract deviates from the prior contract, but instead
whether the parties intended to extinguish the prior contract.
(E.g., Howard v. County of Amador (1990) 220 Cal.App.3d 962,
978.) The allegations in the operative complaint do not speak to
the parties’ intent in this regard.
Second, the supplemental agreement further complicates
and confounds the nature of plaintiffs’ contract claim. Plaintiffs
attached the supplemental agreement to their operative
complaint, but argue on appeal that it is invalid because it was
the product of economic duress, lacks consideration, and is
doomed to fail because it sets impossible deadlines. The
6 Plaintiffs complicate matters further by referring to
“abandonment” as a third possible theory, but, as discussed
below, it is not; instead, abandonment of a prior contract is part
of the showing necessary to establish a novation. (E.g., Hunt v.
Smyth (1972) 25 Cal.App.3d 807, 818.)
8
supplemental agreement is irrelevant if it is invalid. But if the
supplemental agreement is valid, then plaintiffs’ contract claim is
either based on (1) an oral contract (due to the novation) modified
by a written contract (that is, the supplemental agreement); or
(2) a written contract that was modified orally (due to a
modification) and then again in writing (that is, the supplemental
agreement).
Although we must liberally construe pleadings and parties
may plead claims in the alternative, the law makes clear that it
is insufficient to allege a contract that is everything, every way,
all at the same time. Yet that is precisely what plaintiffs have
done.7
Thus, the trial court did not err in sustaining the demurrer
to plaintiffs’ claim for breach of contract.
B. Was leave to amend the breach of contract claim
properly denied?
Plaintiffs have offered various ways in which they may
amend the convoluted defect in the operative complaint described
above that would, hopefully, clarify the nature and basis of the
contract on which plaintiffs are suing. (Shaeffer, supra, 44
Cal.App.5th at p. 1145 [“[t]he onus is on the plaintiff to
articulate” the ways in which the identified defect can be
“cure[d”].) Chimes nevertheless proffers what boils down to three
reasons why plaintiffs’ breach of contract claim is barred as a
matter of law and, therefore, why the trial court did not abuse its
discretion in denying plaintiffs leave to amend.
7 Because it is the ambiguous nature of plaintiffs’ pleading
that dooms the current articulation of the contract claim, we need
not examine whether the supplemental agreement is invalid on
any of the myriad theories plaintiffs offer up.
9
First, Chimes argues that the oral alteration to the original
contract—whether it is deemed a novation or a modification—is
unenforceable because (1) the statute of frauds (Civ. Code, §
1624) applies, and (2) the original contract required any changes
to be made in writing;8 because the oral alteration is plaintiffs’
sole alleged basis for seeking more than the original contract
price, Chimes reasons, its invalidity means plaintiffs have
suffered no damage.
We reject this claim.
Although the statute of frauds declares “[a]n agreement
that by its terms is not to be performed within a year from the
making thereof” to be “invalid” if is it not in writing (Civ. Code, §
1624, subd. (a)(1); Foley v. Interactive Data Corp. (1988) 47 Cal.3d
654, 671), it is unclear whether this provision applies here
because it has been construed to apply only when an agreement
“cannot be performed within” a year (Hollywood Motion Picture
Equipment Co. v. Furer (1940) 16 Cal.2d 184, 187, italics in
original), and there is nothing to establish that it was impossible
to complete the renovations within a year, even though it was
contemplated to—and did—take longer. Even if we construe the
statute of frauds as applying here, it does not bar the
enforceability of a contract where one of the parties has “fully
performed all of [their] obligations under the” contract at issue
(Zakk v. Diesel (2019) 33 Cal.App.5th 431, 454, 451-452; Nesson
v. Moes (1963) 215 Cal.App.2d 655, 659; Prince v. Varona (1956)
144 Cal.App.2d 673, 676), and it is undisputed that, based on the
issuance of the certificate of occupancy for the hotel, TD General
8 Chimes does not attempt to defend the trial court’s
reasoning.
10
completed the renovations.9 Chimes resists this conclusion,
relying on its argument that plaintiffs did not obtain the
certificate of occupancy until three months after the due date set
forth in the supplemental agreement, but tardiness speaks only
to timing, not to the substance of what plaintiffs were
contractually obligated to do—and the statute of frauds is
concerned with the latter.
In addition, although Civil Code section 1698 specifies that
“[a] contract in writing may be modified by a contract in writing”
(Civ. Code, § 1698, subd. (a)), and the original contract in this
case explicitly calls for any modifications to that contract or any
change orders to all be in writing, it is well settled that “[a]
contract in writing may be modified by an oral agreement to the
extent that the oral agreement is executed by the parties” (id.,
subd. (b))—even where, as here, “the original contract provides
that extra work must be approved in writing” (MacIsaac & Menke
Co. v. Cardox Corp. (1961) 193 Cal.App.2d 661, 670). As
described above, plaintiffs completed the renovations.
Second, Chimes argues that plaintiffs admitted they did
not “complete” the renovations until October 8, 2019, that this
constitutes a breach of the contract, and that plaintiffs are
therefore barred from suing because they cannot establish their
own performance of the contract. (Pech v. Morgan (2021) 61
Cal.App.5th 841, 855.) We reject this argument as well. The
parties debate whether “completion” refers to finishing the
renovations or obtaining a certificate of occupancy. We need not
enter that fray because, even if plaintiffs did not complete their
9 We consequently have no occasion to examine plaintiffs’
argument that Chimes is estopped from relying upon the statute
of frauds.
11
contractual duties until the certificate of occupancy was issued
and even though that occurred three months after the deadline
set forth in the supplemental agreement, plaintiffs can allege
that that this constitutes substantial performance, and a
plaintiff’s substantial performance with their obligations under a
contract is sufficient to enable them to sue on that contract.
(Patrick J. Ruane, Inc. v. Parker (1960) 185 Cal.App.2d 488, 503-
504 [a contractor “need prove only substantial performance”
because owner is “allowed an offset for deficiencies in the work”];
Magic Carpet Ride LLC v. Rugger Investment Group, L.L.C.
(2019) 41 Cal.App.5th 357, 364 [same]; Lowy v. United Pacific
Ins. Co. (1967) 67 Cal.2d 87, 92-93 [substantial performance “in
the case of a building contract” exists “where the owner has taken
possession of the building”].) Chimes resists this conclusion,
pointing to the parties’ interlineation of a paragraph in the
original contract referring to “Substantial Completion.” (Italics
added.) But this omitted section would have set up a milestone
that triggered inspection by the architect; it did not speak to
whether substantial performance would be permitted. On that
question, the original contract elsewhere seems to contemplate
that substantial performance will suffice when it specified that
plaintiffs were obligated to “substantially complete” the
renovations by March 31, 2018. Chimes also suggests that being
months late can never be substantial performance as a matter of
law; it cites no law for this sweeping proposition.
Third and lastly, Chimes cites Ladas v. California State
Auto. Assn. (1993) 19 Cal.App.4th 761, and thus seems to be
arguing that the contracts are so void as to be unenforceable. We
agree that they are too vaguely alleged to withstand a demurrer,
12
but they are not inherently vague to such a degree that granting
plaintiffs a further opportunity to amend should be foreclosed.
II. Quantum Meruit
To state a claim for quantum meruit, a plaintiff must allege
that (1) it “acted pursuant to ‘an explicit or implicit request for
the services’ by the defendant,” and (2) “the services conferred a
benefit on the defendant.” (Port Medical Wellness, Inc. v.
Connecticut General Life Ins. Co. (2018) 24 Cal.App.5th 153, 180.)
Plaintiffs have alleged in various places in the operative
complaint that the contracts requested TD General’s services as a
general contractor, and that the renovations plaintiffs performed
benefitted Chimes. Those allegations are sufficient. Although an
otherwise valid claim for quantum meruit must be dismissed if a
related breach of contract claim is barred by the statute of frauds
(to avoid turning quantum meruit into a means of end-running
around the statute) (Westside Estate Agency, Inc. v. Randall
(2016) 6 Cal.App.5th 317, 324), the statute of frauds is not
implicated at this point of this case. And although a plaintiff
may not recover on both a breach of contract and a quantum
meruit theory, it may plead both theories in the alternative.
(Newport Harbor Ventures, LLC v. Morris Cerullo World
Evangelism (2016) 6 Cal.App.5th 1207, 1223.)
Thus, the trial court erred in dismissing plaintiffs’
quantum meruit claim as foreclosed by its demurrer ruling.
13
DISPOSITION
The judgment is reversed in part, and remanded for further
proceedings in which plaintiffs shall have leave to file an
amended complaint as to only their breach of contract and
quantum meruit claims. The judgment is affirmed in all other
respects. The parties are to bear their own costs on appeal.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS.
______________________, J.
HOFFSTADT
We concur:
_________________________, Acting P. J.
ASHMANN-GERST
_________________________, J.
CHAVEZ
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