JOHNSON, J. —
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
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,
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.
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.
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 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.
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]
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 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) reaffirming 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." The trial court justified its decision to find for Guan despite his failure of proof by citing to section 1692: "[T]he 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 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.
On appeal, Hu argues that section 1692 "does not grant trial courts authority to grant relief to plaintiffs who do not 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.
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 [101 Cal.Rptr.2d 200, 11 P.3d 956]; Reid v. Google, Inc. (2010) 50 Cal.4th 512, 527 [113 Cal.Rptr.3d 327, 235 P.3d 988]; Cuiellette v. City of Los Angeles (2011) 194 Cal.App.4th 757, 765 [123 Cal.Rptr.3d 562].)
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 [64 Cal.Rptr.2d 319].) "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." (MacIsaac, supra, 134 Cal.App.4th at p. 1084.)
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 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.)
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.'" (Recommendations and Study Relating to Rescission of Contracts (Oct. 1960) 3 Cal. Law Revision Com. Rep. (1961) pp. D-5, D-15 (Law Revision Report); see Philpott v. Superior Court (1934) 1 Cal.2d 512, 524 [36 P.2d 635] [discussing pre-1961 law]; Runyan v. Pacific Air Industries, Inc. (1970) 2 Cal.3d 304, 311-312 [85 Cal.Rptr. 138, 466 P.2d 682] (Runyan) [same].) The first was an action at law, while the second 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 through 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 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.
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.
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 [96 P.2d 340], 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 [89 Cal.Rptr.2d 1].)
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.)
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 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 [157 Cal.Rptr. 693, 598 P.2d 854].) 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
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.
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.
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 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.
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.
"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 [93 Cal.Rptr.3d 286].)
"`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 [156 Cal.Rptr.3d 194].) "`"`"[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,] 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 plaintiff 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 [38 Cal.Rptr. 784].)
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 [124 Cal.Rptr.3d 78].) 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, 829 [132 Cal.Rptr.3d 1].) The appealing party has the burden to affirmatively show error. (Phillips, Spallas & Angstadt, LLP v. Fotouhi (2011) 197 Cal.App.4th 1132, 1138 [128 Cal.Rptr.3d 320].)
As discussed above, when the trial court sustained Hu's demurrer to Guan's breach of contract claim without leave to amend, that claim was dismissed with prejudice from the case and could not be revived. (Smith v. City of Los 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.
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.
Rothschild, P. J., and Lui, J., concurred.