Opinion
NOT TO BE PUBLISHED
APPEAL from a judgment of the Superior Court of Los Angeles County No. BC374014. Yvette M. Palazuelos, Judge.
Gordon & Rees, Calvin E. Davis and Gary A. Collis for Defendant and Appellant.
Horvitz & Levy, Mitchell C. Tilner and Katherine Perkins Ross; Tharpe & Howell, Todd R. Howell and Johnna J. Hansen for Plaintiffs and Respondents.
CHAVEZ, J.
Equity Title Company (Equity) appeals from a judgment entered after a jury trial. The jury found Equity liable to David R. (David) and Constance M. (Constance) Schott (collectively, the Schotts) on their claims of fraudulent misrepresentation and breach of contract. The jury awarded the Schotts damages of $2,936,985.
As to the breach of contract claim, we find that the trial court erred in: (1) determining that the contract was ambiguous, and (2) submitting this cause of action to the jury without any guidance as to Equity’s contractual obligations. We therefore reverse the judgment as to breach of contract and remand for further proceedings on this cause of action.
We reverse the judgment on the fraudulent misrepresentation cause of action because substantial evidence does not support the jury’s verdict.
CONTENTIONS
Equity contends that the judgment against it cannot be upheld under either the breach of contract or fraudulent misrepresentation theory.
Equity argues that the judgment against it on the breach of contract cause of action was caused by prejudicial error. Specifically, Equity contends that the trial court erred by: (1) failing to interpret the contract as a matter of law and improperly permitting the jury to determine Equity’s contractual obligations; (2) giving the jury a confusing instruction as to what conduct the Schotts alleged had breached the contract; and (3) rejecting Equity’s proposed jury instructions. Further, Equity contends that substantial evidence did not support the jury’s determination that any breach of contract by Equity caused the Schotts’ damage.
As to the fraudulent misrepresentation cause of action, Equity contends that: (1) there was no substantial evidence that the Schotts ever saw or relied upon the alleged misrepresentation, and (2) there was no substantial evidence that Equity made a false representation of fact.
FACTUAL BACKGROUND
1. The Schotts decide to sell commercial property in a “1031 exchange”
The Schotts, as trustees of the Schott Family Trust, co-owned an office building (the relinquished property) in downtown Santa Barbara with their son, Eric Schott (Eric). In late September 2006, they signed an agreement to sell the property to a group of investors represented by Nick Schaar (Schaar).
The sale price for the building was $5,375,000. At that time, the Schotts owned 62.5 percent of the building and Eric owned the remaining 37.5 percent. The Schotts expected to net just over $2 million from their share of the sale. David, who had been a real estate broker for about 40 years, was the transaction’s broker. Eric was the agent for the transaction. The Schotts retained Equity as the escrow holder in connection with the sale of the relinquished property. David and Eric had used Equity in prior transactions. Lynn Nichols (Nichols) served as the primary escrow officer.
In order to defer payment of capital gains tax, the Schotts decided to structure the sale of the office building in compliance with section 1031 of the Internal Revenue Code, utilizing what is known as a 1031 delayed real estate exchange or “1031 exchange.” A 1031 exchange allows a real estate owner to sell property without paying taxes on the profit from the sale if the profit is invested in new, similar property within 180 days. David had been involved in about 20 prior 1031 exchanges.
2. Qualified Exchange Services (QES) is hired as an intermediary
For a transaction to qualify as a 1031 exchange, the taxpayer—here, the Schotts—cannot receive the proceeds from the sale of the property. A “qualified intermediary,” also known as an “exchange accommodator,” must be used. The qualified intermediary holds the proceeds until the replacement property is purchased with those proceeds. The Schotts hired QES to facilitate the transactions.
The Schotts agreed to pay QES a fee to act as the intermediary for their sale of the office building and purchase of new property. Under the contract between the Schotts and QES (the exchange agreement), QES became the assignee of the sale contract for the relinquished property. This assignment is critical to the process of a 1031 exchange because the taxpayer must be unable to control or access the sale proceeds. The contract provided that the Schotts would “assign to [QES] all of [the Schotts’s] rights... in and to the Relinquished Property Sale Contract.”
Specifically, the exchange agreement provided: “Exchanger shall have no rights to receive, pledge, borrow, or otherwise obtain the benefits of any money or other property held by INTERMEDIARY or received by INTERMEDIARY in connection with the Sale Escrow or of any interest accrued or earned thereon at any time after the end of the Identification Period..., it being the parties’ intention herein to deny Exchanger any direct or indirect access to, constructive or actual receipt of, control over or benefit of the funds held by INTERMEDIARY or received by INTERMEDIARY on the closing of the Sale Escrow....”
Pursuant to the exchange agreement, QES became the substituted seller of the office building. Thus, QES would receive the proceeds from the sale of the Schotts’ office building and hold the proceeds until the Schotts identified their new investment properties. The exchange agreement also provided that QES would use the Schotts’s proceeds to purchase new investment properties on the Schotts’ behalf. The exchange agreement required QES to deliver the proceeds to the Schotts after 180 days if the Schotts were unable to find suitable investment properties during that time.
The Schotts and QES entered into the exchange agreement on November 2, 2006.
3. The escrow instructions
Escrow opened in the Schott transaction in September 2006. The escrow instructions pertaining to the sale of the office building were contained in three documents: the commercial property sale agreement (sale agreement); the supplemental escrow instructions provided by Equity (supplemental instructions); and the Schotts’ assignment of proceeds to QES (assignment). The parties agree that these three documents made up the contract between Equity and the Schotts.
Although Equity was provided with a copy of the exchange agreement, that agreement was between QES and the Schotts and did not constitute part of the escrow instructions.
The provisions of the supplemental instructions provided that Equity was: “acting as an escrow holder in connection with this transaction and is not acting as a trustee or in any other fiduciary capacity. [Equity’s] duties shall be limited to safekeeping of such money and documents received by it as Escrow Holder, and for the disposition of such money and documents received by it as Escrow Holder, and for the disposition of such money and documents in accordance with the written instructions accepted by it in this escrow.”
As to its obligation to distribute the funds, the agreement provided: “All documents and funds due the respective parties are to be mailed to the addresses set out, unless otherwise specified.”
Pursuant to the assignment agreement, the Schotts assigned to QES all of their rights “in that certain Commercial Property Purchase Agreement and Joint Escrow Instructions dated September 28, 2006, with SCHAAR as the Buyer, in Escrow No. 63793, (the ‘Escrow’) for the sale of an undivided 62.5% interest of that certain real property located at 101 East Victoria Street, Santa Barbara, California 93101.” QES accepted the assignment. The assignment directed that QES would establish in its books and records “an exchange account to reflect the credits and charges arising out of the exchange.” QES was required to “deposit all funds held in the Exchange Account in money market deposit accounts, repurchase agreements, time deposit accounts or in such other interest bearing accounts or investments as may be approved by Exchanger and the interest earned thereon shall be credited to [QES] in accordance with Section 2.3.5.” Equity received a copy of the assignment, which constituted an additional instruction to Equity.
The parties agree that Equity’s obligations to the Schotts were limited to strict compliance with the escrow instructions. The instructions provided: “You [Equity] are to [be] concerned only with the directives specifically set forth in the escrow instructions and amendments thereto, and are not to be concerned or liable for items designated as ‘memoranda,’ nor with any other agreement or contract between the parties, notwithstanding receipt of a copy thereof.”
4. QES becomes affiliated with Southwest
Nichols, the primary escrow officer at Equity for the Schotts’ transaction, had previously handled about 100 1031 exchanges, including several in which QES was involved. She had a professional relationship with the two owners of QES, Megan Amsler (Amsler) and Kyleen Dawson (Dawson).
In October of 2006, Nichols received a phone call from Amsler during which Amsler informed Nichols that QES had been sold to a company called Southwest Exchange (Southwest). Amsler also told Nichols that Nichols should not be surprised if she saw paperwork relating to the Schott transaction coming directly from Southwest.
The exchange agreement between the Schotts and QES was dated November 2, 2006, weeks after the alleged sale of QES to Southwest. Nichols testified that because the Schotts had direct contact with QES regarding the exchange agreement, she expected that the Schotts had been informed of the sale of QES. In addition, there was information available in the community regarding the affiliation between QES and Southwest. Nichols testified that “[t]hey were running ads that showed their association with Southwest Exchange so it wasn’t some quiet, you know, whispered information that I had.”
Nichols admitted that she never received any written confirmation of the sale of QES to Southwest, nor was any such corporate relationship established at trial. Dawson testified at trial that, in fact, QES had not been sold to Southwest but to a company called Capital Reef Management, which is affiliated with Southwest. Dawson was not aware of the precise nature of the relationship, but testified that “it was a subsidiary or affiliated company, parent company.”
5. The close of escrow
On November 2, 2006, as part of the escrow, QES sent Equity wiring instructions which read, in pertinent part:
“Please disburse the entire balance as follows:
Wire transfer to: TREASURY BANK, N.A.
Alexandria, Virginia
FC to: TREASURY BANK
Account Name: SCHOTT TRUST / SOUTHWEST EXCHANGE
Credit Account Number: 402024
ABA Number: 056-009-110
Telephone Number: (866) 227-7999
Contact: Alma Ramirez”
Around December 8, 2006, Schaar made an early release of $250,000. Nichols testified that when she went into her banking system and entered the ABA number that she had been provided, she was informed by the system that the name Countrywide Bank corresponded with that ABA number. At that time, either Nichols or the secondary escrow officer, Anita Mizunaga (Mizunaga), telephoned QES regarding this discrepancy. Nichols and Mizunaga were informed that “those two companies were a part of the same thing and that, indeed, it would make sense that the bank entry read Countrywide.” However, Equity never received a written instruction from QES to deposit the money at Countrywide Bank. A wire detail report generated the same day confirmed that $156,250—the Schotts’ share of the $250,000—had been successfully wired to the account designated by QES at Countrywide Bank.
As part of the escrow, Equity prepared settlement statements in connection with the sale of the relinquished property. An “estimated settlement statement” is an estimate of closing costs to be distributed at closing. David received copies of “a number” of estimated settlement statements. Nichols prepared one estimated settlement statement on November 3, 2006, which David signed. Another estimated settlement statement was prepared on December 27, 2006, which David also signed. These estimated settlement statements did not include a description of the intended recipients of the Schotts’ 67.5 percent of the sale proceeds.
The December 27, 2006 estimated settlement statement was also sent to QES. Anna Martinez of QES made some handwritten changes to the document. Specifically, she wanted it to read “QES for the benefit of David Schott and Constance Schott Trustees.” Nichols explained that QES “want[ed] us to express the seller’s name for the purposes of the exchange so it doesn’t look as if... David Schott and Eric Schott are just selling... directly as opposed to that they have used a qualified intermediary exchange accommodator.”
On the evening before escrow closed, Nichols printed another estimated settlement statement at 7:10 p.m. Nichols calculated the Schotts’ share of the net proceeds on the bottom of the document. Approximately 17 minutes later, Nichols printed yet another estimated settlement statement. This estimated settlement statement used the following language to describe the intended recipient of the Schotts’ 67.5 percent: “Exchange funds to Schott Trust/QES.” Nichols testified that she identified the recipient this way because “the accommodator has continued to be QES and it’s the Schott Trust slash QES for purposes of this closing statement.” The designation of QES meant that “what we’re doing is following QES’s instructions.” Neither of the Schotts testified that they ever saw or reviewed this estimated settlement statement or relied upon it in any way.
The escrow closed over two days—December 28 and 29, 2006. On December 29, 2006, Equity received a second notice from QES with instructions as to where the sale proceeds should be wired. It contained similar language as to the notice sent on November 2, 2006, but designated a different account number. In pertinent part, it read:
“Please disburse 62.5% of the entire balance as follows:
Wire transfer to: TREASURY BANK, N.A.
Alexandria, Virginia
FC to: TREASURY BANK
Account Name: SCOTT TRUST / SOUTHWEST EXCHANGE
Credit Account Number: 412262
ABA Number: 056-009-110
Telephone Number: (866) 227-7999
Contact: Alma Ramirez”
On December 29, 2006, at 11:31 a.m., Equity successfully wired the Schotts’ proceeds to the bank account designated by QES.
The “Final Settlement Statement” was printed on January 2, 2007. As to the $1,920,461.65 which constituted the Schotts’ 67.5 percent, the Final Settlement Statement read: “Exchange funds to Schott Trust/QES.” When asked if he received the Final Settlement Statement, David responded that he had “no specific recollection.”
6. The theft of the Schotts’ money
During the first week of January 2007, Eric heard a rumor that “Southwest was having troubles.” He immediately went to QES’s offices and was informed by Amsler and Dawson that they were having difficulty accessing their clients’ money. Eric immediately informed the Schotts.
David testified that Eric came to the Schotts’ home and told them, “‘your money is gone.’” They “started doing some research, and that’s when Eric got the wire transfer document from Lynn Nichols at Equity Title. And that was our first knowledge of learning that Southwest was the entity that the money had gone to at Countrywide—through Countrywide Savings.”
7. Other court actions
Before filing this action against Equity only, the Schotts filed a complaint in the Los Angeles County Superior Court against a number of defendants including Donald McGhan (McGhan), owner of Capital Reef, Capital Reef, Southwest, QES, Dawson, Amsler, and Equity (the prior action). The prior action was voluntarily dismissed by the Schotts after it was removed to federal court. The trial court here took judicial notice of the complaint in the prior action.
In the complaint in the prior action, the Schotts alleged that QES became affiliated with McGhan, Capital Reef, and Southwest on October 20, 2006—two weeks before the Schotts hired QES to act as their intermediary in this exchange. Through their affiliation with QES, McGhan, Capital Reef, and Southwest “obtained access to funds held in trust by QES for clients of QES” and embezzled the Schotts’ money. McGhan was alleged to have “absconded” with trust funds “originated from QES” by causing the money to be transferred from Southwest to Capital Reef. The Schotts alleged that the proceeds from the sale of their property were transferred out of Countrywide Bank, to which Equity successfully wired the funds, to another bank entirely, named Silver State Bank.
In addition, the Schotts are also plaintiffs in a lawsuit pending in Nevada against a number of banks, insurance companies, and QES, wherein numerous parties allege that more than $100 million dollars was lost in a Ponzi scheme (the federal action). Equity is not a party to that action. The trial court also took judicial notice of the second amended complaint in the federal action. The second amended complaint alleges that McGhan was primarily responsible for the theft of client money entrusted to QES.
PROCEDURAL HISTORY
The Schotts filed this case against Equity on July 10, 2007. The case received calendar preference due to the Schotts’ advanced age and fragile health.
Prior to trial, Equity filed a trial brief advising the trial court that Code of Civil Procedure section 592 requires the court to dispose of legal issues before trial. Equity asked the court to decide whether the escrow instructions required Equity to provide a copy of QES’s wiring instructions to the Schotts. The court made no such decision.
1. The trial
Trial began on June 17, 2008. The Schotts pursued claims of fraudulent misrepresentation, fraudulent concealment, and breach of contract.
Citing to the special verdict form, the Schotts now claim that their breach of contract claim included a claim for breach of fiduciary duty. Nothing within the cited pages raises any indication that a claim for breach of fiduciary duty was considered.
Again, before jury selection began, Equity asked the trial court to make a legal determination regarding Equity’s contractual obligations. The court declined. Mid-trial, during a discussion regarding jury instructions, Equity reiterated its request that the trial court “make certain legal rulings” before the jury was permitted to proceed. Later, during the same exchange, the trial court asked the Schotts’ counsel, “I want you to point out to me which contract, which provision of the contract is breached?” The Schotts’ counsel pointed out paragraph 8 of the assignment, which reads, in part:
“Exchanger agrees that if a dispute hereafter arises between Intermediary and Buyer prior to the close of the Sale with respect to the duties and obligations of Buyer or the seller under the Escrow, the Intermediary (i) shall be entitled to assign Intermediary’s rights and to delegate Intermediary’s duties under the Exchange Agreement, the Escrow Instructions, to a replacement qualified intermediary designated by Exchanger within three (3) business days following notice by Intermediary to Exchanger of the existence of such dispute.”
The Schotts’ counsel argued, “We’re saying it’s a supplemental escrow instruction and that they have to advise that there’s been a change of the intermediary.” Upon the court’s inquiry, “Where does it say Equity has the obligation?” the Schotts’ counsel responded, “It doesn’t say who has it but it’s a supplemental escrow instruction and there’s been a change to the intermediary.”
At the conclusion of the Schotts’ case, Equity moved for nonsuit or, alternatively, directed verdict. Equity argued that the Schotts alleged that Equity failed to comply with two purported contractual obligations which were not, in fact, obligations under its contract. Equity emphasized that the Schotts were not arguing that the contract was ambiguous. Equity again asked the trial court to interpret, as a matter of law, its obligations under the contract. In oral argument, Equity argued that the Schotts “fail to establish that a duty was owed in the contract that was breached.” The court stated:
“Well, you’re going back to the legal question thing. I have already ruled on that so when it comes to the facts, I think it’s thin. I think there’s credibility issues. But the bottom line is that’s for the jury so I think you know the arguments that you have to make. I think they know what arguments they have to make. It’s really in their hands, not mine. I understand your arguments, but I’m going to deny it.”
In closing argument, the Schotts’ changed their position as to which provisions of the contract were breached. First, the Schotts’ counsel raised paragraph 1 of the supplemental escrow instruction, which states:
“Equity Title Company’s duties shall be limited to safekeeping of such money and documents received by it as Escrow Holder, and for the disposition of such money and documents in accordance with the written instructions accepted by it in this escrow.”
Counsel asked the jury: “Did Equity Title keep the Schotts’ money safe? No, I think not. It’s gone.”
Next, counsel argued that Equity breached paragraphs 12 and 16 of the supplemental escrow instructions by accepting Amsler’s representation that QES had been purchased by Southwest. The Schotts’ counsel also argued that paragraph 10 of the supplemental escrow instructions, which required “Escrow Holder to provide copies to Buyer and Seller and their agents of any notices received from the other party or their agents,” had been breached. Finally, the Schotts’ counsel pointed out paragraph 6 of the supplemental escrow instructions, arguing:
Paragraph 12 reads: “You are not to be concerned with the giving of any disclosures except as expressly required by Federal or State law to be given by an escrow agent. Neither are you to be concerned with the effect of zoning ordinances, land division regulations, environmental issues, or building restrictions which may pertain to or affect the land or improvements that are the subject of this escrow.” Paragraph 16 states: “You are to [be] concerned only with the directives specifically set forth in the escrow instructions and amendments thereto, and are not to be concerned or liable for... any other agreement or contract between the parties, notwithstanding a receipt of a copy thereof.” The Schotts’ counsel argued: “[W]hat happens? Outside of escrow, outside of the escrow instructions, Lynn Nichols receives a phone call from Megan Amsler at QES and was told that QES had been sold to a company called Southwest Exchange.” Later, the Schotts’ counsel stated to the jury: “I challenge [you] to find anyplace in any of these escrow instructions where it says: please take the information that you get from a phone call to be gospel.” In addition, the Schotts’ counsel argued to the jury, “show me an escrow instruction... that says it’s okay to do whatever QES says and wire the money wherever they say to. Those two pieces of paper were notices outside of the escrow instructions and if their defense is our only job is to follow our instructions, they didn’t follow their instructions.”
“[L]et’s take a look at paragraph 6. This is the one that I was talking about before. ‘All notices, demands and instructions must be in writing and timely delivered at the offices of Equity Title Company as set forth herein.’ I don’t think it says anything about phone calls from somebody over at Southwest Exchange saying: Oh, QES, oh, guess what, by the way, we have been sold to Southwest Exchange.
“And then the next sentence: ‘In the event of conflicting demands or notices are made or served upon you, you have the right to shut this down and get clarification.’ Did they do that? No, they didn’t do that. Why not, because they took the word of Megan Amsler and Kyleen Dawson on faith because they had too close a relationship with them. Familiarity wreaks neglect and that’s exactly what happened here.”
2. The verdict
The jury found Equity liable for misrepresentation and breach of contract, and awarded damages of $2,936,985. Equity was found not liable on the Schotts’ fraudulent concealment claim.
The special verdict on breach of contract did not ask the jury whether any specific provision of the contract was breached. Instead, it simply asked:
The trial court later signed and entered a new judgment on the jury verdict that included costs and attorney fees.
3. Equity’s posttrial motions
Equity moved for judgment notwithstanding the verdict and for a new trial. Equity argued that the trial court had failed to decide the contract’s legal effect as a matter of law, and that, even assuming Equity had breached the contract, the Schotts had not presented any evidence that the breach was the cause of their damages. Equity also argued that the Schotts did not present any evidence that Equity had made a false statement of fact, that the Schotts actually relied upon the purported misrepresentation, or that the purported misrepresentation was the cause of their damages.
The trial court denied Equity’s posttrial motions. In a written order, the court stated: “[T]he record supports that the Court made a finding that there was an ambiguity regarding Equity’s duties under the agreement and that evidence (testimony) was admitted to resolve this ambiguity.”
At the hearing on the posttrial motions, the trial court admitted that its purported finding of contractual ambiguity was not made clear during the proceedings: “I looked at it to see where the court says, ‘I am finding that this contract is ambiguous.’ There’s nothing like that in the record.” However, the court felt that it made a “clear inference” that the contract was ambiguous. Equity’s counsel then asked, “Was there some specific provision the court was finding to be ambiguous?” To which the court responded: “No. I didn’t address, specifically, which provision and I’m not sure that counsel ever identified which portions of the contract were ambiguous.” However, the court ultimately concluded that it had made “an implicit finding... that [the contract was] ambiguous.” The court informed the Schotts’ counsel, “You never pointed out to me what were the unambiguous terms. So that’s what I found in there.”
The Schotts argue on appeal, “the trial court did not find the contract to be ambiguous, did not admit extrinsic evidence to clarify the meaning of the contract, and did not instruct the jury that it was to interpret the contract.” This statement is contrary to the court’s own order, quoted above.
4. The appeal
Equity’s motions for a new trial and for judgment notwithstanding the verdict were denied on September 26, 2008. Equity timely filed and served its notice of appeal on October 27, 2008.
DISCUSSION
We must determine whether the judgment against Equity may be upheld under either a breach of contract or fraudulent misrepresentation theory. We discuss Equity’s arguments as to each claim separately below.
The jury awarded the same amount of damages on the breach of contract claim and the fraudulent misrepresentation claim. Thus, if the judgment were supportable under either theory, the judgment could be affirmed in its entirety.
I. Breach of contract
Equity contends that the trial court committed legal error by failing to construe the contract as a matter of law. We agree.
A. Contractual interpretation
In order to analyze Equity’s claim of error, it is necessary to understand the established principles of contract interpretation.
“It is... solely a judicial function to interpret a written instrument unless the interpretation turns upon the credibility of extrinsic evidence.” (City of Manhattan Beach v. Superior Court (1996) 13 Cal.4th 232, 238.) In interpreting a contract, the court’s “basic goal” is to “give effect to the parties’ mutual intent at the time of contracting. [Citations.]” (Founding Members of the Newport Beach Country Club v. Newport Beach Country Club, Inc. (2003) 109 Cal.App.4th 944, 955 (Founding Members).) The parties’ intention is to be determined from the writing alone, if possible. (Ibid.)
“‘Where the meaning of the words used in a contract is disputed, the trial court must provisionally receive any proffered extrinsic evidence which is relevant to show whether the contract is reasonably susceptible of a particular meaning. [Citations.] [I]t is reversible error for a trial court to refuse to consider such extrinsic evidence on the basis of the trial court’s own conclusion that the language of the contract appears to be clear and unambiguous on its face.... [Citations.]’” (Wolf v. Superior Court (2004) 114 Cal.App.4th 1343, 1350-1351 (Wolf), fn. omitted.)
The decision whether to admit extrinsic evidence “‘involves a two-step process. First, the court provisionally receives (without actually admitting) all credible evidence concerning the parties’ intentions to determine “ambiguity,” i.e., whether the language is “reasonably susceptible” to the interpretation urged by a party. If in light of the extrinsic evidence the court decides the language is “reasonably susceptible” to the interpretation urged, the extrinsic evidence is then admitted to aid in the second step—interpreting contract. [Citation.]’” (ASP Properties Group, L.P. v. Fard, Inc. (2005) 133 Cal.App.4th 1257, 1267, citing Winet v. Price (1992) 4 Cal.App.4th 1159, 1165.)
“The ultimate construction placed on the contract might call for different standards of review. When no extrinsic evidence is introduced, or when the competent extrinsic evidence is not in conflict, the appellate court independently construes the contract. [Citations.] When the competent extrinsic evidence is in conflict, and thus requires resolution of credibility issues, any reasonable construction will be upheld if it is supported by substantial evidence. [Citations.]” (Founding Members, supra, 109 Cal.App.4th at pp. 955-956.)
The general rules of contract construction apply to escrow instructions. (Claussen v. First American Title Guaranty Co. (1986) 186 Cal.App.3d 429, 437.)
B. The trial court erred in determining that the contract was ambiguous
At trial, neither of the parties argued that any of the contractual terms were ambiguous. As Equity’s counsel pointed out to the trial court in a posttrial hearing, “I just want to state for the record that no one in this case ever argued, on either side, that the contract was ambiguous. No evidence was presented that the contract was ambiguous. There were interrogatory responses given to us from opposing sides saying the contract was not ambiguous.” Nevertheless, the trial court did not provide an interpretation of Equity’s obligations under the contract, as requested on numerous occasions by Equity throughout the trial. Instead, the scope of Equity’s contractual obligations was left for determination by the jury with the following vague query: “Did Equity Title Company fail to do something that the contract required it to do?”
The court’s stated rationale for failing to undertake its obligation to interpret the contract was that the court had, in fact, found the contract to be ambiguous. In its written order, the court stated that “the record supports that the Court made a finding that there was an ambiguity regarding Equity’s duties under the agreement and that evidence (testimony) was admitted to resolve this ambiguity.” The court admitted that it never specifically informed the parties of this finding, however, the court insisted that it “wouldn’t have submitted it to the jury if it was unambiguous.”
A trial court’s determination that a contract provision is ambiguous is a question of law, subject to de novo review on appeal. (Wolf, supra, 114 Cal.App.4th at p. 1351.) We conclude that the trial court’s finding of ambiguity was erroneous. Neither party had argued that the contract was ambiguous, and the trial court admitted that it “didn’t address, specifically, which provision” of the contract was ambiguous. Instead, the trial court insisted that it was the obligation of the parties to point out to the court the unambiguous contractual terms. The court criticized the parties: “You never said to me, ‘Judge, this is—this is what’s unambiguous. Look at this provision.’ There was nothing like that pointed out to the court and, as a matter of fact, defense counsel nor plaintiffs’ counsel, I may add, never told the court that plaintiffs had stated in an interrogatory that the contract was unambiguous.”
It was not the obligation of the parties to point out the unambiguous provisions of the contract. Only if “the meaning of the words used in a contract is disputed,” the trial court may provisionally receive extrinsic evidence to aid in interpreting the contract. Once it has determined that the contract is “reasonably susceptible” to the interpretation urged, the court may admit such evidence to aid in determining the meaning of the contract. Further, it is only when such extrinsic evidence is in conflict is the meaning of the contract decided by the jury. (Wolf v. Walt Disney Pictures & Television (2008)162 Cal.App.4th 1107, 1126-1127.) In this matter, there was no dispute as to the meaning of any words used in the contract; the court never “provisionally” received the evidence it purportedly admitted to resolve the ambiguity; and the court never determined whether any contractual language was reasonably susceptible to more than one meaning.
The trial court’s evaluation should have started with the assumption that the parties’ mutual intent could be determined from the “writing alone.” (Founding Members, supra, 109 Cal.App.4th at p. 955.) Because neither party argued that the contract was ambiguous, the contract should have then been interpreted by the court as a matter of law.
C. The matter must be remanded for further proceedings as to this cause of action
The trial court’s determination that the contract was ambiguous—on the ground that no party pointed out any unambiguous provisions—constituted legal error. The trial court should have interpreted the contract as a matter of law based on the contractual language. Because the trial court never interpreted any specific provisions of the contract, we have no legal ruling to review. (See Sanborn v. Pacific Mut. Life Ins. Co. (1940) 42 Cal.App.2d 99, 105 [“An appellate court is a reviewing court, and... not a trial court or court of first instance”].) We therefore reverse and remand this cause of action to the trial court for a determination of Equity’s relevant obligations under the contract as a matter of law.
This error led to a second error: submitting the breach of contract cause of action to the jury without any guidance as to Equity’s contractual obligations. A court’s error in allowing a jury to interpret a contract is only prejudicial if the jury’s interpretation is incorrect. (California Shoppers, Inc. v. Royal Globe Ins. Co. (1985) 175 Cal.App.3d 1, 35.) Under the circumstances of this case, it is impossible to know which provision or provisions of the contract the jury found to be breached, thus it is impossible for this court to make any assessment as to the accuracy of the jury’s contractual interpretation. As described in the Procedural History section of this opinion, throughout the trial, the Schotts changed their position as to which provisions of the contract were purportedly breached. On appeal, the Schotts argue that they advanced three theories of breach of contract at trial—citing only to their entire closing argument. Five specific contractual provisions were raised in the closing argument: paragraphs 1, 6, 10, 12, and 16 of the supplemental escrow instructions. However, the breach of contract theories raised in the closing argument are not consistent with the breach of contract theories advanced by the Schotts on appeal. In sum, because of the lack of clarity as to which provision, or provisions, the jury found to have been breached, or what conduct caused such breach, a de novo review of the jury’s contractual interpretation is impossible.
Because we reverse and remand this cause of action to the trial court, we do not reach Equity’s claims of instructional error.
II. Fraudulent misrepresentation
“The elements of fraud that will give rise to a tort action for deceit are: ‘“(a) misrepresentation (false representation, concealment, or nondisclosure); (b) knowledge of falsity (or ‘scienter’); (c) intent to defraud, i.e., to induce reliance; (d) justifiable reliance; and (e) resulting damage.”’ [Citation.]” (Engalla v. Permanente Medical Group, Inc. (1997) 15 Cal.4th 951, 974.)
The Schotts state that the basis of their fraudulent misrepresentation claim is that “Equity represented that it sent the Schotts’ $2 million sale proceeds to QES. Specifically, Equity’s final settlement statement described the transfer of the Schotts’ sale proceeds as: ‘Exchange funds to Schott Trust/QES.’” The Schotts allege that this representation was false because the name assigned to the bank account at Countrywide Bank to which the funds were wired was “Schott Trust/Southwest Exchange.” The Schotts argue, “Equity’s statement was... unquestionably false. Equity did not send the Schotts’ proceeds to QES. Instead, Equity sent the funds to Southwest.”
The Schotts gloss over the actual facts of the exchange. Contrary to the Schotts’ description, Equity did not “sen[d] the funds to Southwest.” Instead, the record shows that, at the direction of QES, Equity sent the funds to a bank account at Countrywide Bank which bore the name “Schott Trust/Southwest Exchange.”
Equity attacks the finding against it on two grounds. It argues that: (1) there is no substantial evidence that the Schotts ever saw or relied upon the final settlement statement to their detriment, and (2) there is no substantial evidence that Equity made a false representation of fact.
A. Standard of review
Factual determinations made by the trier of fact are reviewed on appeal for substantial evidence. (Ermoian v. Desert Hosp. (2007) 152 Cal.App.4th 475, 510.) Under this standard, we must “resolve all explicit conflicts in the evidence in favor of the respondent and presume in favor of the judgment all reasonable inferences.” (Kuhn v. Department of General Services (1994) 22 Cal.App.4th 1627, 1633, fn. omitted.) In addition, we must determine whether the evidence is substantial. Substantial evidence “‘must be of ponderable legal significance.’” (Id. at p. 1634.) “‘Obviously the word cannot be deemed synonymous with “any” evidence. It must be reasonable..., credible, and of solid value....’ [Citation.]” (Ibid.) “While substantial evidence may consist of inferences, such inferences must be ‘a product of logic and reason’ and ‘must rest on evidence’ [citation]; inferences that are the result of mere speculation or conjecture cannot support a finding [citations].” (Ibid.)
Bearing this standard in mind, we review the evidence supporting the Schotts’ fraudulent misrepresentation claim.
B. The Schotts failed to present substantial evidence of actual reliance
To prevail on their fraud claim, the Schotts were obligated to present substantial evidence of actual reliance upon an affirmative misrepresentation. (Mirkin v. Wasserman (1993) 5 Cal.4th 1082, 1103.) “California courts have always required plaintiffs in actions for deceit to plead and prove the common law element of actual reliance. [Citations.]” (Id. at p. 1092.) In order to prove this element, the plaintiff must establish that he “actually read or heard the alleged misrepresentations.” (Id. at p. 1088.)
The record contains no substantial evidence that either David or Constance actually read or heard the alleged misrepresentation contained on the final settlement statement. The parties focus their arguments on two questions that were asked of David at trial:
Constance was not asked at trial whether she actually read the final settlement statement. Neither party points to any evidence suggesting that she read or relied upon the alleged misrepresentation.
“Q: Do you have a recollection of receiving the seller’s final settlement statement when escrow closed on the Victoria property?
“A: I’m sure I did, but no specific recollection.
“Q: Based on your review of any of the final settlement statement [sic], did you realize at that time that the money had been transferred to an account entitled ‘Schott Trust/Southwest Exchange’?”
“A: No.”
As to the first question and answer, David’s statement that he was “sure” he received the final settlement statement does not constitute substantial evidence that he read it. In fact, because David had “no specific recollection” of receiving it, the only logical inference is that he had no specific recollection of reading it. Because he could not recollect receiving the final settlement statement, the jury could not reasonably have inferred that he read or relied upon the final settlement statement or anything written within it.
The second question and answer do not support the Schotts’ claim of actual reliance either. The attorney uses the words, “Based on your review,” however the jury was not entitled to infer from the attorney’s question that David in fact reviewed any specific document. The question continues, “of any of the final settlement statement [sic]....” The words “any of” were significant, as we know that David read and signed at least two of the estimated settlement statements. While there was only one final settlement statement, the witness and the jury likely assumed that by his use of the words “any of,” the attorney meant to include the estimated settlement statements that David did review—particularly because the only logical inference the jury could make from the previous question was that David did not review the final settlement statement.
In their brief, the Schotts quote this second question in a manner that borders misrepresentation. They quote, “Based on your review of... the final settlement statement...,” leaving out the words “any of.” The precise wording of the question is important to our analysis of the significance of the question and the witness’s response. We do not condone counsel’s editing the testimony to suit their purposes.
Putting aside any attempt to decipher the meaning of this long and grammatically improper question, David’s monosyllabic negative response simply cannot support an inference that he did in fact “review” the final settlement statement. At best, it confirms that he did not know that the money had been transferred to an account entitled “Schott Trust/Southwest Exchange.” That lack of knowledge is insignificant unless it arose from David’s review of, and actual reliance upon, the alleged affirmative misrepresentation contained in the final settlement statement. This testimony does not evidence such reliance.
In addition, because the final settlement statement was printed at least four days after the funds were actually transferred, it is unclear how this alleged misrepresentation could have caused the Schotts’ damages. There was no evidence as to the date the Schotts received this statement, but even assuming the Schotts received the statement the day it was printed—January 2, 2007—this was four days after escrow closed and the money had been wired to the account designated by QES. There was no evidence that the Schotts would have been able to avoid the theft of their money at that time.
Neither David nor Constance were ever directly asked whether they read the final settlement statement, whether they saw the words “Exchange Funds to Schott Trust/QES,” or whether they relied on those words to accurately represent the destination of the funds. Nor does the evidence support a reasonable inference of such reliance. The Schotts failed to establish this essential element of their fraudulent misrepresentation claim, therefore the verdict in their favor must be reversed.
Because we have determined that the Schotts failed to establish actual reliance, we do not reach Equity’s argument that the words on the final settlement statement did not constitute a misrepresentation of fact. Because there is no substantial evidence that the Schotts read or relied upon the alleged misrepresentation, the fraudulent misrepresentation claim must fail. (Mirkin v. Wasserman, supra, 5 Cal.4th at p. 1092.)
DISPOSITION
The judgment is reversed. The matter is remanded for a determination of Equity’s relevant obligations under the contract on the breach of contract cause of action only. Equity is awarded its costs of appeal.
We concur: BOREN, P. J. ASHMANN-GERST, J.
“4. Did Equity Title Company fail to do something that the contract required it to do?
___Yes ___No
“5. Were David R. Schott and Constance M. Schott harmed by that failure?
___Yes ___No”