Opinion
C095489
10-25-2023
FERNANDO PONCE MERCADO et al., Plaintiffs, Cross-defendants and Respondents, v. NICK ROBERTSON et al., Defendants, Cross-complainants and Appellants.
NOT TO BE PUBLISHED
(Super. Ct. No. 17CV02762)
MESIWALA, J.
Plaintiffs and cross-defendants Fernando Ponce Mercado and Christina Ponce (collectively lessees) entered into an agreement to lease a single-family property with an option to purchase with owner, defendant and cross-complainant Nick Robertson. Neither Robertson nor the other owner, defendant and cross-complainant Lolita Gomez, provided lessees a disclosure statement under Civil Code section 1102.3 (further statutory references are to the Civil Code). Section 1102.3 requires the seller to deliver a statement disclosing whether the seller is aware of any significant defects or malfunctions on the property. (See also § 1102.6.) The trial court concluded Robertson and Gomez (collectively owners) could not maintain a cause of action for breach of contract against lessees because providing the disclosure statement operated as a condition precedent to lessees' performance. Owners appeal. We find no prejudicial error and affirm.
FACTUAL AND PROCEDURAL BACKGROUND
In 2010, lessees entered into an agreement with Robertson to lease a single-family property owned by owners in Oroville, California. The agreement provided for a term of 240 months, included an option to purchase the property for a set price, required a down payment of $5,000, and provided for termination of the agreement in the case of rent default. In September 2017, lessees filed a complaint against owners seeking declaratory relief regarding the parties' interest in the property and rescission of the agreement. Owners filed a cross-complaint against lessees for breach of contract, alleging that lessees owed rent and various fees under the agreement, including attorney fees and costs. Lessees filed a first amended complaint, expanding their request for declaratory relief to include 11 specific requests for adjudication and making other changes. The declaratory relief request asked the court to determine: (1) whether owners could summarily terminate or cancel the agreement because the lessees had not been making their monthly payments; and (2) whether lessees owed late payment and default fees.
The parties agreed to bifurcate their dispute and submitted lessees' declaratory relief request to the court based on the parties' briefs and supporting declarations. After a hearing, Judge Tamara L. Mosbarger made the following findings: (1) lessees' failure to make monthly payments under the agreement "amounts to an automatic right to cancel"; (2) lessees owe late payment and default fees "pursuant to Section 21 of the [a]greement"; and (3) owners are "entitled to their attorney fees and costs pursuant to Section 21 of the [a]greement."
The parties agreed to submit the remaining causes of action (lessees' rescission claim and owners' breach of contract claim) to the trial court based on the parties' briefs and a joint stipulation of facts. The stipulated facts included that owners did not give lessees a written disclosure statement described in section 1102.3. The lessors opposed on the merits and noted that the lessees' pleading did not allege section 1102.3 as a basis for rescission. In reply, the lessees moved to amend their complaint to conform to proof by specifying the failure to comply with section 1102.3 as a basis for rescission.
In two sets of supplemental briefs, owners insisted the motion to amend was improper and the parties disputed the merits of lessees' rescission claim. Judge Stephen E. Benson granted the motion to amend but agreed with owners that the rescission claim was time-barred. Judge Benson also ruled that owners could not recover under their breach of contract claim, making the following findings: (1) a reasonable inference is that lessees "were moving forward intending to exercise their option" under the agreement; (2) this claim must fail as a matter of law because owners failed to provide the required disclosures under section 1102.3; and (3) the agreement is not divisible into a lease agreement and an option contract. The court (Judge Benson) entered judgment awarding both parties zero dollars and ordering each party to bear their own attorney fees and costs. Owners filed a timely notice of appeal.
DISCUSSION
Owners contend Judge Benson committed prejudicial error by: (1) granting lessees' motion to amend their pleading to conform to proof; (2) finding owners' enforcement of the agreement was barred by their failure to comply with section 1102.3; and (3) improperly overruling the previous declaratory relief order issued by Judge Mosbarger. Because lessees did not file a respondent's brief, we decide this appeal on the record, the opening brief, and any oral argument by owners. (Cal. Rules of Court, rule 8.220(a)(2), (c).) Owners bear the affirmative burden to show error, and we reverse only if we find prejudicial error. (Smith v. Smith (2012) 208 Cal.App.4th 1074, 10771078.) Turning to each of owners' arguments, we find no such error.
I
Motion to Amend to Conform to Proof
Owners contend the trial court erred when it granted lessees' motion to amend their complaint to conform to proof because the motion was not made via noticed motion and added "an entirely new legal theory." Owners argue they were prejudiced because they lacked the opportunity to oppose the motion and demur to the amended pleading. We disagree.
"Amendments to conform to proof should be liberally granted." (20th Century Cigarette Vendors v. Shaheen (1966) 241 Cal.App.2d 391, 396.) "[T]he allowance of amendments to conform to . . . 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.]" (Trafton v. Youngblood (1968) 69 Cal.2d 17, 31; see Duchrow v. Forrest (2013) 215 Cal.App.4th 1359, 1378 [motion to amend pleadings to conform to proof permitted so long as opposing party not prejudiced].) No such abuse is present here.
By granting the motion, the trial court allowed lessees to allege the failure to provide a disclosure statement under section 1102.3 as a ground to rescind the agreement. Before the trial court allowed that amendment, the parties stipulated to the fact that owners did not deliver the disclosure statement. Lessees then argued the missing disclosure statement provided grounds to rescind the agreement, owners countered that section 1102.3 did not apply, and lessees replied to those arguments and made their motion to amend their pleading to conform to proof. Following a set of additional briefs in which both parties presented arguments regarding the application of section 1102.3, the trial court allowed owners to argue a statute of limitations defense. The parties submitted another set of supplemental briefs on that defense, and the court found merit in owners' argument. These facts show that the owners were not prejudiced by the motion to amend the complaint: owners were aware of and agreed to the fact regarding the disclosure statement; they were given many opportunities to argue both the propriety of the amendment and the application of section 1102.3; and they ultimately prevailed by defeating lessees' rescission cause of action. The trial court therefore did not abuse its discretion in allowing the amendment.
Owners briefly suggest that allowing this amendment gave rise to a new defense to their breach of contract claim. But they do not argue, nor did they in the trial court, that lessees waived this defense by not asserting it in their answer to the cross-complaint. Thus, any argument to that effect is forfeited. (Badie v. Bank of America (1998) 67 Cal.App.4th 779, 784-785; Hata v. Los Angeles County Harbor/UCLA Medical Center (1995) 31 Cal.App.4th 1791, 1804-1805 [failure to object at trial waives right to challenge pleading on appeal].)
II
Application Of Section 1102.3
Section 1102.3 requires the seller of a single-family real property to deliver a completed disclosure statement to the prospective buyer. In the statement, the seller must disclose whether they are aware of any significant defects or malfunctions on the property, among other information. (§ 1102.6.) "In the case of [a] sale . . . by a lease together with an option to purchase," the disclosure statement must be provided "as soon as practicable before execution of the contract." (§ 1102.3, subd. (b).) The consequence of failing to provide this statement is addressed in Realmuto v. Gagnard (2003) 110 Cal.App.4th 193, 202. There, the plaintiff sued the defendants for breach of a contract to purchase the plaintiff's residence. (Id. at p. 196.) The trial court granted summary judgment in favor of the defendants because the plaintiff never delivered a disclosure statement under section 1102.3. (Realmuto, at p. 198.) The appellate court affirmed, holding that the seller's delivery of the disclosure statement "is a nonwaivable condition precedent to the buyer's duty" to "perform the contract" and that the seller's failure to perform that condition precedent precludes their action for breach of contract. (Id. at p. 205.)
Here, relying on Realmuto, the trial court found that owners' breach of contract action failed as a matter of law because they did not provide the disclosure statement. Owners argue the court erred in applying Realmuto because the agreement with lessees is merely a lease and not an agreement to purchase like that considered in Realmuto. Specifically, they contend the option portion of the agreement lacked mutuality of obligation as lessors were under no obligation to exercise the option. Owners' arguments are unpersuasive. While they are correct that an option to purchase gives a right to purchase without imposing any obligation to purchase (Allen v. Smith (2002) 94 Cal.App.4th 1270, 1279), section 1102.3 expressly applies to a lease with an option to purchase and requires delivery of the disclosure statement before the lease is executed. Appellate courts may not rewrite unambiguous statutes (Richman v. Hartley (2014) 224 Cal.App.4th 1182, 1191), and owners provide no cogent argument for us to distinguish the holding in Realmuto that compliance with section 1102.3 operates as a condition precedent to the buyer's (here, lessees') duty to perform under the agreement (here, the lease).
In a similar vein, owners appear to argue that (1) section 1102.3 does not apply in the case of a lease with an option to purchase until the option is exercised, (2) lessees did not exercise their option, and (3) the trial court's finding to the contrary lacks substantial evidence. These arguments also fail. The disclosure required by section 1102.3 is not triggered by exercise of the option but rather execution of the lease with an option to purchase. Thus, we need not address whether the court erred in finding lessees "were moving forward intending to exercise their option." That finding had no bearing on the trial court's separate finding that owners did not provide the required disclosure statement before the agreement was executed. Thus, any error in that finding was not prejudicial. (Red Mountain, LLC v. Fallbrook Public Utility Dist. (2006) 143 Cal.App.4th 333, 347348.)
Finally, owners argue that their failure to comply with section 1102.3 should affect only the option portion of the agreement, leaving the lease portion intact, including its provisions requiring the payment of rent and attorney fees. On this point, the trial court found that the agreement was not divisible into an option portion and a separate lease portion. Owners contend this finding is incorrect, citing various cases for the proposition that an option contract is different from the contract to which the offer relates. However, those cases address the difference between the option contract and the contract that results after the option is exercised. (Warner Bros. Pictures v. Brodel (1948) 31 Cal.2d 766, 772 [an option contract relating to the sale of land is not "a sale of property, but is a sale of a right to purchase"]; City of Orange v. San Diego County Employees Retirement Assn. (2002) 103 Cal.App.4th 45, 57 [acceptance of offer resulted in an agreement separate from the option contract].) They do not address whether a lease with an option to purchase can be separated into the lease portion and the option portion.
Moreover, on independent review, we find no error in the trial court's conclusion regarding the divisibility of the agreement. (See Foxcroft Productions, Inc. v. Universal City Studios LLC (2022) 76 Cal.App.5th 1119, 1130 [standard of review].) A divisible contract is one "under which the whole performance is divided into two sets of partial performances, each part of each set being the agreed exchange for a corresponding part of the set of performances to be rendered by the other promisor ...." (Filet Menu, Inc. v. C.C.L. & G., Inc. (2000) 79 Cal.App.4th 852, 860.) Owners acknowledge the interconnected nature of the lease and the option: they describe the agreement as containing "an option to purchase so long as the Lessee was in good standing on the obligations under the [l]ease." That description is also reflected in the agreement's terms. The option to purchase is available while the agreement is in effect, but the agreement is terminated, and the option to purchase thereby eliminated, if any default is made in the payment of rent or the performance of any other term. It is clear from these provisions of the agreement that the covenant to pay rent supports both the option and the right to occupy the premises. (See Gordon v. Dufresne (1928) 205 Cal.512, 514 [lease and option formed one document, the provisions of which were interdependent]; Prichard v. Kimball (1923) 190 Cal.757, 764 [option ran only during lease term and grant of option was conditioned on compliance with lease].) Thus, we agree with the trial court's finding that the agreement is not divisible into an option agreement and a separate lease agreement.
III
Overruling Previous Judge's Ruling
In owners' view, Judge Benson's finding that their breach of contract claim failed as a matter of law improperly overruled Judge Mosbarger's earlier rulings that (1) lessees' failure to make monthly payments under the agreement provided owners an automatic right to cancel the agreement and (2) lessees owe late payment and default fees under the agreement. We disagree. The stipulated fact concerning the disclosure statement and the arguments regarding section 1102.3 were not before Judge Mosbarger when she ruled on lessees' declaratory relief request. Thus, Judge Benson's departure from Judge Mosbarger's ruling based on this additional stipulated fact and related law was not error. (See In re Marriage of Oliverez (2015) 238 Cal.App.4th 1242, 1248 [judge may overrule ruling of another judge when former has considered further evidence and law].)
DISPOSITION
The judgment is affirmed. The parties shall bear their own costs on appeal. (Cal. Rules of Court, rule 8.278(a)(5).)
We concur: HULL, Acting P. J., MAURO, J.