Opinion
B320549
12-21-2023
AREPIII PROPERTY TRUST, LLC, Plaintiff and Appellant, v. RELEVANT GROUP, LLC, et al., Defendants and Respondents.
Cozen O'Conner and Brett D. Watson, for Plaintiff and Appellant. Quantum Law Group, Steven A. Morris, and Jonathan M. Deer for Defendants and Respondents.
NOT TO BE PUBLISHED
APPEAL from a judgment of the Superior Court of Los Angeles County, No. 21STCV14241 Barbara A. Meiers, Judge. Reversed with directions.
Cozen O'Conner and Brett D. Watson, for Plaintiff and Appellant.
Quantum Law Group, Steven A. Morris, and Jonathan M. Deer for Defendants and Respondents.
EDMON, P. J.
This appeal arises out of a failed loan transaction between a real estate developer and an investor. When the contemplated loan did not close, the investor brought the present action for breach of contract, breach of the implied covenant of good faith and fair dealing, quantum meruit, and promissory fraud, urging that the developer had violated the parties' written agreement by negotiating with other lenders during a contractual "exclusivity" period and had never intended to honor the agreement.
The trial court sustained the developer's demurrer without leave to amend, concluding that the written agreement was not enforceable and the investor had not adequately alleged a breach of the express or implied terms of the agreement or resulting damages. The court also concluded that the investor had not alleged the elements of quantum meruit and had not pled promissory fraud with sufficient specificity.
We conclude that the complaint adequately pled the causes of action for breach of contract, breach of implied covenant, and promissory fraud, and that the investor should have been permitted leave to amend as to the cause of action for quantum meruit. We thus reverse the judgment of dismissal.
FACTUAL AND PROCEDURAL BACKGROUND
I. Background.
Defendant Relevant Group, LLC (Relevant) is a large real estate development firm whose portfolio includes over $1 billion worth of development projects in the Los Angeles area. Plaintiff AREPIII Property Trust, LLC (Arden) is a real estate investment firm.
In 2021, after failing to reach a deal with another lender, Relevant solicited a $67 million loan from Arden to construct two hotels and redevelop a historic building. The $67 million loan was to be junior to a $133,500,000 loan provided by the senior lender on the project, Calmwater Capitol (Calmwater).
We will refer to the three buildings collectively as "the properties," and the development project collectively as "the project."
On February 24, 2021, Relevant and Arden entered into a term sheet (the term sheet) that set out the principal terms by which Arden would provide financing for the project, subject to Arden's "satisfactory completion of due diligence and underwriting of the assets and satisfactory documentation." In brief, the term sheet stated that Arden would loan Relevant $67 million for a term of two years, subject to two optional sixmonth extensions, at an interest rate of 15 percent and an origination fee of two percent. The term sheet "constitutes neither an offer nor a commitment by [Arden], but rather summarizes the general terms under which [Arden] would be willing to fund the Loans. The terms outlined . . . will be subject to satisfactory completion of due diligence items customary for such a transaction, including a review of the title, survey, insurance coverage and approval by Arden's investment committee."
Three provisions of the term sheet are of particular relevance to this appeal. They are as follows:
"Expenses: [Relevant] to reimburse Arden for all out-ofpocket expenses associated with the documentation and closing [of] the proposed [loan], including but not limited to, fees for closing expenses, appraisal review, and third-party consultant fees, title, etc. [Relevant] acknowledges that prior to the date hereof [Relevant] has deposited $50,000 with Arden as an expense deposit. At execution of this term sheet, [Relevant] will provide Arden with an additional $150,000 expense deposit."
"Exclusivity/Breakup Fee: [Relevant] agrees that for a period of 21 days following the execution of this term sheet (the 'Exclusivity Period'), [neither] [Relevant] nor its affiliates will directly or indirectly, solicit, accept, discuss, encourage or respond to any inquiries or proposals related to any information concerning the matters discussed in this term sheet[,] and [Relevant] shall (and cause its affiliates to) provide all information and diligence items required by Arden in connection with the underwriting and evaluation of the Arden loans in a timely manner (or the Exclusivity Period shall be extended for a day-for-day basis in connection with any delays in Arden's receipt of such information or diligence items). The provisions of this section are intended to and shall be legally binding upon the parties. In consideration of [Arden's] allocation of time, effort and potential lost opportunity cost for other transactions that Arden might otherwise pursue, and provided that Arden is willing to enter into the transactions contemplated by this term sheet on the same or better terms as those outlined herein, if at any time during the Exclusivity Period, there is any recapitalization of the Property (including, without limitation, any debt and/or equity financing), then [Relevant] agrees, for itself and on behalf of Borrower, that . . . Borrower and [Relevant] will, jointly and severally, pay and be liable to pay Arden an amount equal to $500,000.00 as liquidated damages (the 'Breakup Fee'), in addition to any and all other amounts payable to Arden hereunder, including, but not limited to, reimbursement of Arden's expenses. Under mutual agreement of both parties the exclusivity period can be extended or shortened."
The term sheet defined "borrower" as "[e]ach Property's separate single-purpose, bankruptcy remote entity wholly owned by Hollywood International Regional Center and controlled by [Relevant]."
"Legal Effect: Arden and [Relevant] each acknowledge that a transaction of this type involves terms and conditions which have not yet been agreed upon and that this term sheet is in no way intended to be a complete or definitive statement of all the terms and conditions of the proposed transaction but contemplates and is subject to the negotiation and execution of definitive Loan documentation between the parties. Except as provided in the section entitled 'Exclusivity/Breakup Fee' above, neither Arden [n]or [Relevant] will be legally bound in any manner, unless and until such definitive Loan documentation has been executed by both parties."
On March 27, 2021, an agent for Relevant told Arden that Relevant would not pursue a loan from Arden, but instead would obtain the loan from Machine Investment Group (Machine), an investor with whom Relevant had negotiated before approaching Arden.
II. The present action.
A. Complaint.
Arden filed the present action against Relevant in April 2021, and filed the operative third amended complaint in December 2021. The operative complaint alleged as follows:
The intent of the parties in entering into the term sheet was to consummate a loan agreement under which Arden would provide mortgage financing secured by the properties. Completing the due diligence necessary for Arden to evaluate the loan required a significant investment of time and money, and thus Arden required Relevant to refrain from seeking financing from other lenders during the evaluation period, "to give [Arden] a 'first crack' at becoming Relevant's lender for the Project." Without this provision, Arden "would not have invested the time and money necessary to evaluate the potential loans to Relevant."
The exclusivity period defined by the term sheet was 21 days, or through March 17, 2021. However, the term sheet provided that the exclusivity period would be extended" 'for a day-for-day basis in connection with any delays in [Arden's] receipt of such information or diligence items." Relevant did, in fact, delay Arden's receipt of such information, including the information necessary to bind terrorism insurance, organizational documents, a construction budget, and information about the sources and uses of certain funds. As a result, the exclusivity period was extended to March 27, 2021, the date Relevant terminated the term sheet.
During the exclusivity period, and in violation of the exclusivity provision, Relevant communicated with several other lenders about a loan for the properties. Specifically, Relevant continued to contact Machine beginning on February 27, 2021; it spoke with Hyatt on March 8, 2021, Taconic Capital on March 12, 2021, and Related Fund Management on March 17, 2021; and it used the term sheet to negotiate a more favorable loan with Machine. Further, Relevant never intended to abide by the terms of the exclusivity provision; instead, it intended to use Arden's term sheet as a means to achieve better terms from Machine, with whom it had discussed a loan before it approached Arden.
When Relevant pulled out of the Arden term sheet, Arden had already obtained and allocated the funds necessary to finalize the loan, and it was in the process of collecting signatures and finalizing the closing statement. Arden was prepared to close with Relevant the day after Relevant pulled out of the deal. Arden accrued expenses of approximately $1,939,120 in connection with the loan.
Arden alleged that Relevant's actions gave rise to four causes of action: (1) breach of contract, (2) breach of the implied covenant of good faith and fair dealing, (3) quantum meruit, and (4) promissory fraud (fraud in the inducement). The allegations specific to each of these causes of action are discussed more fully below.
B. Prior history.
Relevant demurred to the fourth and sixth causes of action of the first amended complaint. The trial court filed a lengthy minute order describing what it characterized as "problems with the [first amended complaint] [that] appear to be so extensive that the issues raised by [Relevant] as to the Fourth . . . and Sixth causes of action cannot or should not be dealt with unless the other deficiencies in the complaint are also addressed," and it set a further hearing to allow the parties to address the issues raised by the court. The court also said that Arden could "elect to submit a proposed [second amended complaint] before the hearing date as an 'offer' of what it would propose to add were leave to amend to be granted."
Arden filed a second amended complaint with four causes of action, and Relevant demurred to all four causes of action. The trial court sustained the demurrer to the first and second causes of action for breach of contract and breach of the implied covenant with leave to amend, directing Arden to add additional details alleging the contract period, what the breaches were, when the breaches occurred, and the damages Arden claimed resulted from the breach. The trial court overruled the demurrer to the third and fourth causes of action for quantum meruit and promissory fraud.
C. Relevant's demurrer to the third amended complaint.
Arden filed a third amended complaint (complaint), which reasserted the same four causes of action and added additional detail regarding the alleged breach and damages.
Relevant filed a demurrer to the causes of action for breach of contract and breach of the implied covenant of good faith and fair dealing. With regard to the breach of contract claim, Relevant asserted that Arden had not alleged facts sufficient to show that the exclusivity period was extended, Arden did not allege any specific losses due to the alleged breach, and the contract was illusory because Arden had no obligation to do anything under the term sheet. With regard to the breach of implied covenant claim, Relevant asserted that its alleged intent not to abide by the terms of the exclusivity provision could not support a claim for breach of the implied covenant of good faith and fair dealing. Relevant therefore urged the court to sustain the demurrers to the first and second causes of action without leave to amend.
Arden opposed the demurrer. It asserted that it had properly alleged that the exclusivity period was extended to March 27, 2021 by Relevant's failure to provide requested information; Relevant breached the exclusivity provision by negotiating with other lenders during the exclusivity period and using Arden's term sheet to renegotiate with Machine; Arden prepared loan documents, obtained the funds necessary to close, and was ready, willing, and able to close the day after Relevant pulled out of the deal; and Arden was damaged in the amount of its expenses to evaluate and document the loan. It further alleged that Relevant breached the implied covenant of good faith and fair dealing by breaching the exclusivity provision within days of entering into it.
The trial court sustained Relevant's demurrers to the first two causes of action without leave to amend, and on its own motion, the court also dismissed the third and fourth causes of action without leave to amend. In brief, the trial court found as follows:
The court explained its dismissal of the causes of action to which Relevant had not demurred as follows: "[T]o the extent that a demurrer [had] been previously denied as to some causes of action which [are] still now in play but [as to which a demurrer] has not [been] reasserted in reliance on that earlier ruling, given that a court can always reverse a decision if shown that it was wrong, any earlier decision along those lines is now reversed and the entire case is ordered dismissed. Finally, even though the earlier demurrers were entirely briefed and heard, [Arden] may seek and will be given a hearing based on surprise, regardless of the limitations as to reconsideration motions that might otherwise apply, as to every aspect[ ] of this Ruling to the extent that the points made herein were not also included in [Relevant's] demurrer papers."
(1) The contract failed for lack of consideration: "[E]ven though Relevant, as the promisor, was obligated to wait 21 days (or as extended) before entering into a contract with any lender other than the plaintiff or suffer severe consequences, [Arden] did not agree to confer any 'benefit' in return, nor did it agree to suffer some prejudice in return for the performance promised by Relevant. It told Relevant that it was its intention to incur costs to prepare a bid and that it therefore wanted the exclusivity promise from [Relevant], which it got, but the [term sheet] says nothing about [Arden] actually promising to incur those costs and to prepare a bid[,] much less that it would provide that bid to [Relevant] or deliver it within any specified period of time. On the very face of the Proposal it is therefore clear that there was no consideration . . . and, accordingly, [Arden] cannot recover based upon a breach of contract claim."
(2) Relevant did not breach the contract: Relevant "made only one enforceable promise to the plaintiff and that was that it would not enter into a contract with another lender during the exclusivity period. That is it. The defendant never breached this obligation, and [Arden's] cause of action based on the face of the contract, if indeed there was any contract that could ever be deemed to have been formed, for a breach of contract fails to state a cause of action."
(3) Arden did not perform its obligations under the contract: "[Arden] itself admits that it did not timely perform by the date that it was required to do so, saying that, even though the exclusivity period was to extend to March 27 (or it now has orally argued, through March 27), it was prepared to 'close' (whatever 'close' is supposed to mean) only on the next day, the 28th, which means a day late. The court finds that this is an admission that [Arden] plain and simply did not perform. This was a contract in which time was of the essence, [Relevant's] time strictures having been subject to very specific numbers of days with draconian results should it misstep by even a day, which calls for the same strictures to be applied to the timing of [Arden's] performance. That being the case, a late performance by [Arden] was tantamount to no performance at all." (Fn. omitted.)
(4) Arden did not suffer damages: "[The] present action to obtain huge damages from [Relevant] is certainly exposed to an interpretation that it is nothing more than 'sour grapes.' Like it or not, the contract these parties entered into says that no matter what the final bid might be or its terms, [Relevant] was not bound to accept it. That being the case, it does not matter at all what [Relevant's] state of mind might have been or when it formed [the contract] .... There are no damages provided for in the contract between these parties to be based on a failure on the part of [Relevant] to ultimately contract with [Arden] so no damages can be postulated based on any premise, which is what [Arden] seems to be relying upon should its implied promise relating to getting a 'first crack' be rejected, that had [Arden] actually performed, it would have received a remunerative contract."
(5) Arden did not adequately plead claims for quantum meruit or breach of the implied covenant of good faith and fair dealing: "[T]here can be no action brought under either of these theories where the parties have a controlling written contract." Under the written contract, "[Relevant] performed and [Arden] did not. This case at bottom line is really nothing more than that."
(6) Arden's fraud in the inducement claim is frivolous: "The false statement or promise which [Arden] alleges [Relevant] made to it was that [Relevant] wanted to work with it when the [term sheet] was being entered into and to in good faith attempt to achieve the goals of the term sheet . . . and ultimately enter into a loan agreement for the project, and that, this statement was false .... [¶] Such claims are simply not actionable.
'Puffing' is not actionable. Statements of future intent are not actionable .... [¶] [Further], fraud must be pled with specificity. This is a basic tenet of pleading, yet [Arden] has not pled with specificity anything at all about who said what to whom or when."
The court entered a judgment of dismissal on March 7, 2022. Arden timely appealed.
DISCUSSION
Arden contends that the trial court erred by dismissing the complaint without leave to amend because the complaint adequately pled each of its four causes of action; alternatively, Arden urges it should have been granted leave to amend. As we discuss, we find that Arden adequately pled causes of action for breach of contract, breach of the implied covenant of good faith and fair dealing, and promissory fraud, and it should have been granted leave to amend the cause of action for quantum meruit. We therefore reverse the judgment of dismissal.
Arden also contends the trial court erred by dismissing causes of action to which Relevant had not demurred and by permitting Relevant to demur to causes of action not challenged in earlier demurrers, in violation of Code of Civil Procedure section 430.41, subdivision (b). We agree with Arden that the trial court's order was unusual, and it would have been better practice for the trial court to have allowed the parties to brief the asserted deficiencies in the third and fourth causes of action before sustaining the demurrer as to the entire complaint without leave to amend. However, because the trial court had the power to reconsider its earlier order on its own motion (Le Francois v. Goel (2005) 35 Cal.4th 1094) and expressly permitted Arden to seek reconsideration of its order, we will address the merits of the appeal without regard to the procedural irregularities.
I. Standard of review
"On appeal from an order of dismissal after an order sustaining a demurrer, the standard of review is de novo: we exercise our independent judgment about whether the complaint states a cause of action as a matter of law. [Citation.] First, we give the complaint a reasonable interpretation, reading it as a whole and its parts in their context. Next, we treat the demurrer as admitting all material facts properly pleaded. Then we determine whether the complaint states facts sufficient to constitute a cause of action. [Citations.] [¶] We do not, however, assume the truth of contentions, deductions, or conclusions of law. [Citation.]" (Stearn v. County of San Bernardino (2009) 170 Cal.App.4th 434, 439-440.)
"When a demurrer is sustained without leave to amend, '" 'we decide whether there is a reasonable possibility that the defect can be cured by amendment: if it can be, the trial court has abused its discretion and we reverse; if not, there has been no abuse of discretion and we affirm. [Citations.] The burden of proving such reasonable possibility is squarely on the plaintiff.' [Citation.]"' (State of California ex rel. Bowen v. Bank of America Corp. (2005) 126 Cal.App.4th 225, 239.)" (State of California ex rel. McCann v. Bank of America, N.A. (2011) 191 Cal.App.4th 897, 906 (McCann).)
II. Breach of contract and breach of the implied covenant of good faith and fair dealing (first and second causes of action).
The elements of a cause of action for breach of contract and breach of the implied covenant of good faith and fair dealing are (1) the existence of the contract, (2) plaintiff's performance or excuse for nonperformance, (3) defendant's breach, and (4) the resulting damages to the plaintiff. (Oasis West Realty, LLC v. Goldman (2011) 51 Cal.4th 811, 821; Aton Center, Inc. v. United Healthcare Ins. Co. (2023) 93 Cal.App.5th 1214; CACI No. 325.)
When reviewing a breach of contract claim in connection with a demurrer, the court determines whether the alleged contract is" 'reasonably susceptible'" to the meaning ascribed to it in the complaint. (Aluma Systems Concrete Construction of California v. Nibbi Bros. Inc. (2016) 2 Cal.App.5th 620, 624 (Aluma).)" '"' "So long as the pleading does not place a clearly erroneous construction upon the provisions of the contract, in passing upon the sufficiency of the complaint, we must accept as correct plaintiff's allegations as to the meaning of the agreement." '" '" (Ibid., see also Marzec v. Public Employees' Retirement System (2015) 236 Cal.App.4th 889, 909; Aragon-Haas v. Family Security Ins. services, Inc. (1991) 231 Cal.App.3d 232, 239 [demurrer to complaint based on written contract admits the contents of the instrument and any pleaded meaning to which the instrument is reasonably susceptible].)
An implied covenant of good faith and fair dealing is implied by law in every contract (Thrifty Payless, Inc. v. The Americana at Brand, LLC (2013) 218 Cal.App.4th 1230, 1244; Durell v. Sharp Healthcare (2010) 183 Cal.App.4th 1350, 1369), and "functions' "as a supplement to the express contractual covenants, to prevent a contracting party from engaging in conduct which (while not technically transgressing the express covenants) frustrates the other party's rights to the benefits of the contract.'" (Racine &Laramie, Ltd. v. Department of Parks &Recreation (1992) 11 Cal.App.4th 1026, 1031-1032 [(Racine)].) The covenant also requires each party to do everything the contract presupposes the party will do to accomplish the agreement's purposes. (Harm v. Frasher (1960) 181 Cal.App.2d 405, 417.) A breach of the implied covenant of good faith is a breach of the contract." (Thrifty, at p. 1244.)
Because a breach of the implied covenant is a breach of contract, we will refer to both the first and second causes of action jointly as breach of contract claims.
Here, the operative complaint pled the essential elements of a breach of contract-namely, that (1) the term sheet was an enforceable contract that required Relevant to refrain from negotiating with other lenders during the exclusivity period, (2) Relevant breached the term sheet by seeking out other potential lenders during the exclusivity period, (3) Arden performed by being ready and willing to close, and (4) Arden suffered damages as a result of Relevant's breach. Nonetheless, Relevant contends that the complaint does not state a claim for breach of contract because the exclusivity provision was illusory and thus not enforceable, Arden has not alleged that Relevant entered into a loan with another lender during the exclusivity period, and Arden's alleged damages were speculative and contingent. For the reasons that follow, each of these contentions lacks merit.
A. The complaint alleges the existence of an enforceable contract that prohibited Relevant from negotiating with other lenders during the exclusivity period.
Relevant asserts that the term sheet was illusory because it did not impose any obligations on Arden-that is, it did not require Arden to conduct due diligence or make a loan offer. Accordingly, Relevant asserts, the term sheet was not an enforceable contract, and so Arden cannot state a cause of action for its breach.
We do not agree. While it is true that a purported contract is not enforceable if it imposes no obligations on one party (Scottsdale Ins. Co. v. Essex Ins. Co. (2002) 98 Cal.App.4th 86, 94-95), courts must "interpret the provisions of a contract to avoid rendering the instrument 'illusory.' (Scottsdale Ins. Co. v. Essex Ins. Co.[, supra,] 98 Cal.App.4th [at pp.] 94-95)" (John's Grill, Inc. v. The Hartford Financial Services Group, Inc. (2022) 86 Cal.App.5th 1195, 1219). Further," '[w]hen a party is given absolute discretion by express contract language, the courts will imply a covenant of good faith and fair dealing to limit that discretion in order to create a binding contract and avoid a finding that the promise is illusory.'" (Hester v. Public Storage (2020) 49 Cal.App.5th 668, 680, fn. 3; see also Storek & Storek, Inc. v. Citicorp Real Estate, Inc. (2002) 100 Cal.App.4th 44, 57 (Storek) [same].) Thus, for example, where a lender agreed to make loan disbursements only if a borrower's construction project budget was "in balance," the lender was required to make "an objectively reasonable determination that the project budget was not in balance" to avoid "injuring the right of the other party to receive the fruits of the contract." (Storek, at pp. 48-49, 55, italics added.) Similarly, in Chen v. PayPal, Inc. (2021) 61 Cal.App.5th 559, 571 (Chen), the court held that although a user agreement authorized the defendant to place a hold on the plaintiff's account in its" 'sole discretion,'" the defendant was required to exercise that discretion in good faith. (See also Automatic Vending Co. v. Wisdom (1960) 182 Cal.App.2d 354, 358 [" '[W]here a contract confers on one party a discretionary power affecting the rights of the other, a duty is imposed to exercise that discretion in good faith and in accordance with fair dealing' "].)
In the present case, the term sheet outlined "the basis upon which [Arden] would be prepared (subject to [its] satisfactory completion of due diligence and underwriting of the assets and satisfactory documentation) to provide mortgage financing secured by the Properties," and it required Relevant to refrain from seeking a loan from other lenders for at least 21 days to allow Arden to conduct due diligence, obtain the necessary financing, and draft loan documents. Thus, while the term sheet expressly did not obligate Arden to extend a loan to Relevant, as in Storek and Chen, the implied covenant of good faith and fair dealing implied the terms necessary to prevent Arden from frustrating Relevant's rights to the benefits of the contract (Racine, supra, 11 Cal.App.4th at pp. 1031-1032)-in this case, by undertaking the due diligence necessary to decide whether Arden would make such a loan. In short, the term sheet imposed reciprocal obligations on the parties, and thus it was not an illusory contract.
B. The complaint alleges Relevant's breach of the term sheet.
The complaint alleges that the term sheet contained a binding exclusivity provision that barred Relevant from seeking financing for the properties from other lenders during the exclusivity period. The complaint further alleges that Relevant breached the exclusivity provision by, during the exclusivity period, contacting Machine and other potential lenders, seeking Calmwater's consent to move forward with a loan between Relevant and Machine, attempting to persuade Calmwater to enter into an inter-creditor agreement, and using the term sheet to negotiate a more favorable loan with Machine.
Relevant contends that the complaint does not allege a breach of the term sheet because it does not allege that Relevant entered into a loan with Machine during the exclusivity period. Relevant notes that the term sheet's exclusivity provision states that, "[I]f at any time during the Exclusivity Period, there is any recapitalization of the Property (including, without limitation, any debt and/or equity financing), then [Relevant] agrees [to] . . . pay and be liable to pay Arden an amount equal to $500,000.00 as liquidated damages (the 'Breakup Fee'), in addition to any and all amounts payable to Arden hereunder." Based on this clause, Relevant suggests that negotiating with other lenders during the exclusivity period could not breach the term sheet unless Relevant also recapitalized the properties (i.e., entered into a loan agreement with another lender) during that period.
We do not agree that the exclusivity provision is reasonably susceptible of the interpretation Relevant suggests. As described above, the exclusivity provision states both that (1) for a period of 21 days following the execution of the term sheet, neither Relevant nor its affiliates "will directly or indirectly, solicit, accept, discuss, encourage or respond to any inquiries or proposals related to any information concerning the matters discussed in this term sheet," and (2) if Relevant enters into a loan with another lender during the exclusivity period, it will owe liquidated damages of $500,000. Relevant would have the court read these two provisions together, but nothing in the plain language of the liquidated damages clause suggests that Relevant's duty to avoid soliciting/responding to proposals from other lenders is breached only if Relevant enters into a loan agreement with another lender during the exclusivity period. To the contrary, the second clause provides for an additional penalty if Relevant breaches the exclusivity provision in a particular way. The exclusivity provision, therefore, could be breached in at least two different ways: if Relevant either solicited/responded to loan offers during the exclusivity period or entered into a loan with another lender during that same period. Because the complaint alleges that Relevant solicited loan offers from other lenders during the exclusivity period, it adequately alleges a breach of the term sheet.
We reach a similar conclusion with regard to Relevant's contention that Arden did not adequately allege an extension of the exclusivity period. While Relevant is correct that a court reviewing a demurrer need not assume the truth of legal conclusions (see Gulf Ins. Co. v. TIG Ins. Co. (2001) 86 Cal.App.4th 422, 429), here the complaint alleged not only that the exclusivity period was extended to March 27, 2021, but also the facts on which that legal conclusion was based-i.e., that Relevant delayed Arden's receipt of information and diligence items required by Arden in connection with the underwriting and evaluation of the loan, including "the necessary information to bind terrorism insurance," "Relevant's organizational documents, draw requests, a pro forma construction budget, and the status of certain EB-5 funds," and "corrections and updates to the sources and uses of funds." Arden further alleged that it considered this information to be "critical" to its due diligence We assume the truth of those factual allegations for purposes of this appeal following an order sustaining a demurrer (County of Santa Clara v. Superior Court (2023) 14 Cal.5th 1034, 1041 (County of Santa Clara)), and thus we conclude that Arden adequately pled the extension of the exclusivity period through March 27, 2021.
C. The complaint adequately alleges Arden's performance.
The complaint alleges that Arden performed under the term sheet by sending Relevant a first draft of proposed loan documents on or around March 4, 2021, and then by obtaining and allocating the funds necessary to close, collecting signatures, and finalizing the closing statement. When Relevant notified Arden on March 27, 2021 that it would not proceed with the loan, Arden "was ready, willing and able to, and was planning to, close with Relevant on the next business day." The complaint thus alleged that "[a]ny and all conditions precedent to [Arden's] right to enforce the . . . term sheet have been waived or satisfied," and "[t]o the extent that the . . . term sheet obligated [Arden] to take any other action in connection therewith, [Arden's] performance thereof was excused." This was sufficient to satisfy Arden's burden to plead its performance of the contract. (See Code Civ. Proc., § 457 ["In pleading the performance of conditions precedent in a contract, it is not necessary to state the facts showing such performance, but it may be stated generally that the party duly performed all the conditions on his part."]; Careau &Co. v. Security Pacific Business Credit, Inc. (1990) 222 Cal.App.3d 1371, 1389 [requirement to plead plaintiff's performance under a contract "can be satisfied by allegations in general terms"].)
Relevant contends that Arden did not adequately allege its performance under the term sheet because it did not allege that it was willing to enter into the transaction contemplated by the term sheet on the same or better terms than those outlined. We disagree. The language on which Relevant relies appears in the sentence setting out the conditions under which Arden will be entitled to a breakup fee-that is: "[P]rovided that Arden is willing to enter into the transactions contemplated by this term sheet on the same or better terms as those outlined herein, if at any time during the Exclusivity Period, there is any recapitalization of the Property (including, without limitation, any debt and/or equity financing), then [Relevant] agrees . . . [it] will . . . pay and be liable to pay to Arden an amount equal to $500,000.00 as liquidated damages (the 'Breakup Fee'), in addition to any and all other amounts payable to Arden hereunder, including, but not limited to, reimbursement of Arden's expenses." Arden does not assert an entitlement to the breakup fee, and therefore it need not allege that it was willing to enter into a loan agreement with Relevant on the same or better terms than those set out in the term sheet.
D. The complaint adequately alleges that Arden suffered damages as a result of Relevant's breach.
The complaint alleges as a result of Relevant's breaches of the term sheet, Arden suffered damages in an amount to be proven at trial. Those damages "include, but are not necessarily limited to, the costs [Arden] incurred in reliance on the . . . term sheet in an attempt to close on the loan. When the $200,000 expense deposit is taken into account, these costs total $2,239,120." (Italics added.)
Relevant contends that Arden did not allege any recoverable damages resulting from the alleged breach because under the language of the term sheet, Arden can recover damages only if Relevant recapitalized the property during the exclusivity period. Not so. While the exclusivity provision contains a liquidated damages clause, it does not say that liquidated damages are the only recoverable form of damages for breach. To the contrary, the exclusivity provision says that if Relevant recapitalizes the property during the exclusivity period, Arden will be entitled to recover the $500,000 breakup fee as liquidated damages "in addition to any and all other amounts payable to Arden hereunder." (Italics added.) This provision, therefore, is reasonably susceptible to the interpretation that Arden is entitled to damages for breach of contract in circumstances other than those subject to the liquidated damages provision.
Relevant further contends that under the language of the term sheet, it was responsible to pay Arden's costs only if the parties entered into a loan agreement, which did not occur here. Again, we do not agree. The term sheet is ambiguous with regard to Relevant's responsibility for Arden's costs: While it provides that neither party will be bound in any manner except as stated in the exclusivity provision, the exclusivity provision says that the amounts payable to Arden in the event of a breach may include "reimbursement of Arden's expenses," and a separate provision says that Relevant will provide Arden with an expense deposit "[a]t execution of this term sheet"-i.e., logically prior to any possible future breach of contract. We thus conclude that in the absence of any contrary extrinsic evidence, the term sheet is reasonably susceptible of the interpretation that Relevant is liable for Arden's expenses even if a loan agreement was not ultimately entered into. Arden thus adequately alleged an entitlement to damages.
Further, even in the absence of a contractual provision providing for damages, a plaintiff suing for breach of contract "is entitled to recover as damages 'the amount which will compensate . . . for all the detriment proximately caused thereby, or which, in the ordinary course of things, would be likely to result therefrom.' (Civ. Code, § 3300.)" (Mission Beverage Co. v. Pabst Brewing Co., LLC (2017) 15 Cal.App.5th 686, 710-711 (Mission Beverage).) Those damages may include" 'general damages,' which are damages that 'flow directly and necessarily from a breach of contract,'" and" 'special' or consequential damages, which are damages that 'do not arise directly and inevitably' but which are recoverable to the extent they 'were either actually foreseen . . . or were "reasonably foreseeable" when the contract was formed.'" (Ibid.)
E. Conclusion.
For all the foregoing reasons, we conclude that Arden properly alleged a breach of the term sheet. The trial court accordingly erred in sustaining the demurrer to the first and second causes of action.
III. Quantum meruit (third cause of action).
" 'Quantum meruit refers to the well-established principle that "the law implies a promise to pay for services performed under circumstances disclosing that they were not gratuitously rendered." [Citation.] To recover in quantum meruit, a party need not prove the existence of a contract [citations], but it must show the circumstances were such that "the services were rendered under some understanding or expectation of both parties that compensation therefor was to be made."' (Huskinson &Brown v. Wolf (2004) 32 Cal.4th 453, 458.) The doctrine manifests '" 'a general principle, underlying various legal doctrines and remedies, that one person should not be permitted unjustly to enrich himself at the expense of another, but should be required to make restitution of or for property or benefits received, retained, or appropriated, where it is just and equitable that such restitution be made, where such action involves no violation or frustration of law or opposition to public policy, either directly or indirectly.'" '" (County of Santa Clara, supra, 14 Cal.5th at pp. 1049-1050.)
"To recover in quantum meruit, the 'plaintiff must establish both that he or she was acting pursuant to either an express or implied request for such services from the defendant and that the services rendered were intended to and did benefit the defendant'; further, the defendant must have' "retained [the] benefit with full appreciation of the facts ...."' (Day v. Alta Bates Medical Center (2002) 98 Cal.App.4th 243, 248.)" (Pacific Bay Recovery, Inc. v. California Physicians' Services, Inc. (2017) 12 Cal.App.5th 200, 214-215, italics omitted; see also Advanced Choices, Inc. v. State Dept. of Health Services (2010) 182 Cal.App.4th 1661, 1673 [same].) The receipt of a benefit thus is an essential element of a cause of action for quantum meruit:" 'The idea that one must be benefited by the goods and services bestowed is thus integral to recovery in quantum meruit; hence courts have always required that the plaintiff have bestowed some benefit on the defendant as a prerequisite to recovery. [Citation.]'" (Day v. Alta Bates Medical Center, supra, 98 Cal.App.4th at pp. 248-249.)
Breach of contract and quantum meruit causes of action are inconsistent because" 'there is no equitable basis for an impliedin-law promise to pay reasonable value when the parties have an actual agreement covering compensation.'" (Newport Harbor Ventures, LLC v. Morris Cerullo World Evangelism (2016) 6 Cal.App.5th 1207, 1222-1223.) However, while a plaintiff cannot recover for both breach of contract and quantum meruit, it is permitted to plead inconsistent causes of action for breach of contract and common count. (Ibid.)
In the present case, the complaint alleges that Arden expended substantial resources of time and money to evaluate and prepare the proposed loan to Relevant, but it does not allege that Relevant benefited from the expenditure of those resources. To the contrary, Arden alleges it paid significant sums of money to evaluate the loan to third parties, not to Relevant. And, while Relevant allegedly used the term sheet (i.e., the contract) to its benefit, the complaint does not allege that Relevant benefited from Arden's due diligence or preparation of loan documents- that is, from the work Arden did pursuant to the term sheet. Accordingly, the complaint does not state a claim for quantum meruit.
Arden asserts on appeal that it can allege that Relevant benefited from Arden's services under the term sheet. On remand, therefore, Arden should be given the opportunity to amend the complaint to state a cause of action for quantum meruit. (See McCann, supra, 191 Cal.App.4th at p. 906.)
IV. Promissory fraud (fourth cause of action).
The elements of a cause of action for promissory fraud are:" '(1) a promise made regarding a material fact without any intention of performing it; (2) the existence of the intent not to perform at the time the promise was made; (3) intent to deceive or induce the promisee to enter into a transaction; (4) reasonable reliance by the promisee; (5) nonperformance by the party making the promise; and (6) resulting damage to the promise[e].' [Citation.] As with any other form of fraud, each element of a promissory fraud claim must be alleged with particularity." (Rossberg v. Bank of America, N.A. (2013) 219 Cal.App.4th 1481, 1498; see Gruber v. Gruber (2020) 48 Cal.App.5th 529, 540.)
In the present case, Arden alleges (1) when Relevant entered into the term sheet, it promised, for 21 days following the execution of the term sheet, not to directly or indirectly solicit or accept any proposals relating to a loan for the project; (2) this representation was false when it was made; (3) Relevant "never intended to abide by the term sheet's exclusivity provision"; (4) Arden" 'never would have entertained proceeding with the [term sheet] had [it] known that Relevant would be simultaneously out shopping [the] financing with other potential lenders' "; (5) Relevant spoke with other potential lenders during the exclusivity period, including Machine beginning in late February, Hyatt on March 8, 2021, Taconic Capital on March 12, 2021, and Related Fund Management on March 17, 2021; and (6) Arden expended approximately $1.9 million to document and prepare to close the loan in reliance on Relevant's promises.
Relevant contends that the promissory fraud claim is not pled with sufficient particularity because "the alleged misrepresentation [is] stated in the most general terms, without stating who made the representation, when it was made, how it was made, or where it was made." We do not agree. The complaint incorporates by reference the term sheet, which contains the misrepresentation on which the promissory fraud claim is based-i.e., that "for a period of 21 days following the execution of this term sheet, [Relevant] will [not] directly or indirectly solicit, accept, discuss, encourage or respond to any inquiries or proposals related to any information concerning the matters discussed in this term sheet." Further, the term sheet is dated and bears the signature of Relevant's managing partner, Grant King, thus supplying the "who," "when," and "how" of the alleged misrepresentation.
Relevant further contends that the complaint "fails to allege facts sufficient to show the alleged representation was false at the time it was made." Relevant is correct that" 'something more than nonperformance is required to prove the defendant's intent not to perform his promise'" (Tenzer v. Superscope, Inc. (1985) 39 Cal.3d 18, 30), but here the complaint alleges that Relevant's intent at the time it entered into the term sheet not to abide by the terms of the exclusivity provision was evidenced by Relevant's continued contact with Machine "beginning on February 27, 2021 and continuing thereafter," and Relevant's conversation with Hyatt and Taconic Capital on March 8 and 12, 2021, respectively. Accordingly, we conclude that the complaint properly alleges a cause of action for promissory fraud.
DISPOSITION
The judgment is reversed with directions to the trial court to enter a new and different order (1) overruling the demurrer to the first, second, and fourth causes of action, and (2) permitting Arden to amend its third cause of action. Arden is awarded its appellate costs.
We concur: LAVIN, J., EGERTON, J.