Opinion
NOT TO BE PUBLISHED
Appeal from a judgment of the Superior Court of Orange County No. 07CC05093, Gregory Munoz, Judge.
Larry Rothman and Associates and Larry Rothman, for Plaintiffs and Appellants.
Aidan Butler for Defendants and Respondents.
OPINION
BEDSWORTH, ACTING P. J.
Adolfo and Lorena Gomez, husband and wife, sued Henry and Bong Kim, also husband and wife, on various theories arising out of a failed real estate transaction. Essentially, the parties reached an agreement in 2001, whereby the Kims would subdivide a parcel of property they owned in La Habra, containing both a grocery store and a restaurant operated by the Gomezes, and sell the portion upon which the restaurant sat to the Gomezes for $165,000.
Pursuant to that agreement, Henry Kim (Kim) and Adolfo Gomez (Gomez) opened an escrow, and the Gomezes paid the Kims a lump sum of $140,000, with the understanding they would pay the additional $25,000 when Kim accomplished the anticipated subdivision. Unfortunately, that subdivision – and hence the sale – was never completed, and years passed during which the escrow remained open and the Gomezes continued to occupy the property without any payment of rent, while the property appreciated significantly in value.
Ultimately, the Kims refused to cooperate with the Gomezes’ own efforts to complete the subdivision and sale in 2006, and the Gomezes filed suit in 2007. After several rounds of pleadings, the trial court granted a motion for judgment on the pleadings with respect to the Gomezes’ causes of action for specific performance, breach of contract and reformation of the contract, on the grounds the third amended complaint failed to state those causes of action. The case went to trial on the Gomezes’ causes of action for money had and received (specifically, the $140,000 paid by the Gomezes for the property’s purchase, which had never been returned) and for quiet title, and on the Kims’ claims for recovery of the rent collected by the Gomezes after they had leased what they considered to be their own “restaurant” portion of the property to a third-party tenant.
The court denied the Gomezes’ claim for quiet title, but ruled in their favor on their claim for money had and received. However, the court also concluded equitable considerations required that the Gomezes’ claim for reimbursement of their purchase money be offset by the rental value of the property they occupied (and subsequently leased to the third party) during the several years the sale transaction had been pending. The net effect of that decision is that the court awarded the Gomezes a judgment of only $45,621.
The Gomezes appealed, arguing the trial court erred in three ways: (1) in granting the motion for judgment on the pleadings; (2) in refusing to quiet title in their favor, and (3) in ordering an offset against their recovery of the purchase money paid. We agree with them only with respect to the last point.
The court did not err in granting the motion for judgment on the pleadings. The third amended complaint offered even less information about the terms of the parties’ agreement than had prior versions. The Gomezes nonetheless steadfastly argued it was sufficient, apparently because all the details missing from the pleading (such as a clear description of the subdivided piece of property they agreed to purchase) would be established through the parties’ testimony at trial. However, that argument, which the Gomezes continue to assert on appeal, simply conflates a plaintiff’s obligation to plead a cause of action with his obligation to prove it. A plaintiff must do both. Having concluded that their third amended complaint was sufficient as pled, the Gomezes did not request leave to amend, and have specifically eschewed any desire to do so on appeal. Consequently, we need not consider whether the flaws in the third amended complaint might have been cured by amendment.
We are also unpersuaded by the Gomezes’ assertion the court erred in rejecting their claim for quiet title through the imposition of a constructive trust. The case relied upon by the Gomezes supports such a remedy only when the defendant has gained legal title through his wrongful act; it does not support the remedy in cases such as this, where the Kims held legitimate title long before the events giving rise to this lawsuit.
However, we do agree with the Gomezes’ contention the court erred in offsetting the rental value of the property against their claim for money had and received. The court concluded that the Kims were equitably entitled to be compensated for the fact the Gomezes had continued to occupy during the lengthy pendency of the contemplated sale transaction. Given the facts of this case, there is nothing equitable about such an offset. Even assuming, as the Kims contended, that the property sale agreement is not legally enforceable – and thus that the Gomezes are properly relegated to their claim for money had and received – equity does not require us to ignore the facts demonstrating that the Kims did orally agree to subdivide and sell the restaurant portion of their property to the Gomezes; that they accepted the Gomezes’ payment of nearly the entire purchase price up front, while excusing the Gomezes’ obligation to pay rent during the pendency of the transaction; and that only later did the Kims refuse to complete the transaction because the value of the property had increased. Under those circumstances, the fact that the Kims may be able to defeat the legal claim for breach of contract – and thus deprive the Gomezes of the benefit of their bargain (i.e., the property’s increased value) – certainly does not mean that equity will allow them to additionally claim a retroactive entitlement to rent payments for the highly appreciated property.
Based upon the foregoing, we reverse the judgment, and remand the case to the trial court with directions to deny the Kims’ claim for a “rental value” offset against the Gomezes’ claim for money had and received, and enter a new judgment which reflects no such offset.
I
We first address the motion for judgment on the pleadings. The Gomezes filed their initial verified complaint in April of 2007, alleging causes of action styled “specific performance,” “breach of contract,” “quiet title,” “declaratory relief” and “Liability Pursuant to Family Code Section 910.” The Gomezes alleged, in brief, that they had entered into a written agreement with the Kims on April 5 and May 16, 2001, for the purchase of real property, providing both a street address and a legal description of the property (possibly describing the entirety of the plot containing both the grocery store and restaurant).
Because the errors asserted by the Gomezes in this appeal arise out of two very distinct phases of the trial court proceedings – pleadings and trial – we will set forth the relevant facts with respect to each separately, followed by a discussion and analysis of the relevant law.
Family Code section 910, subdivision (a) provides: “Except as otherwise expressly provided by statute, the community estate is liable for a debt incurred by either spouse before or during marriage, regardless of which spouse has the management and control of the property and regardless of whether one or both spouses are parties to the debt or to a judgment for the debt.”
They alleged the agreed purchase price for the property was $165,000, with $140,000 of that price paid at the time the contract was formed. An escrow was opened on April 5, 2001, and escrow instructions drafted. And they alleged that after May 16, 2001, “the parties to the subject contract were attempting to obtain the required documentation to complete the sale according to the terms of the contract.” However, in November of 2006, the Kims allegedly refused the Gomezes’ demand that they convey title, despite the fact that the Gomezes had “performed all of the conditions, covenants and promises that are required to be performed by [them].” The complaint did not explain, however, how the Gomezes’ alleged payment of $140,000 of the $165,000 purchase price could constitute complete performance of their obligations.
The court sustained the Kims’ demurrer to the causes of action for specific performance and breach of contract, and gave the Gomezes leave to amend to allege additional facts regarding “consideration and the terms of the contract.”
The Gomezes’ first amended complaint alleged the terms of the agreement in a more detailed, but also somewhat more confusing, manner. Distilled to its essence, the first amended complaint alleged that the Gomezes paid $140,000 to the Kims for purchase of the property, which the Kims represented would be used to pay off the principal owing on the property’s mortgage. The parties further “verbally” agreed that in addition to the $140,000, the Gomezes would pay “$25,000 for the expenses incurred in subdividing the property and/or whatever else was needed with the City in order to for [the Gomezes] to be able to formalize ownership of the purchased property,” which payment was to be made “after [the Kims] obtained the approval of the City of La Habra for the subdivision of the property.” However, the Kims allegedly did not follow through with the City’s requirements for conveying title, and thereafter refused to cooperate with the Gomezes’ own efforts to fulfill those requirements. The Gomezes again alleged that an escrow had been opened in connection with the transaction, but also that the escrow had been closed at the Kims’ request, and no escrow instructions had ever been signed.
The Kims again demurred, and the court again sustained the demurrer to the specific performance and breach of contract causes of action with leave to amend. On their third try, the Gomezes specifically alleged the parties’ written agreement was embodied in the $140,000 check paid by them, the receipt given by Henry Kim for that payment, and the escrow instructions which they alleged were signed by all parties. They alleged the substance of the agreement was essentially the same as had been alleged in the first amended complaint.
Our record includes neither the demurrer, nor the transcript of the hearing held in connection with it, so we do not know what arguments were raised.
This time, the Kims moved for judgment on the pleadings. The court granted the motion with respect to the specific performance and breach of contract causes of action, noting that the allegations of the second amended complaint as to the purchase price were “inconsistent” with the purchase price reflected in the escrow instructions which were attached to the complaint. The court also reasoned that the Gomezes had “fail[ed] to adequately allege what [the Kims] were [supposed] to do with regards to the subdivision of the property.” The court gave the Gomezes only six days leave to amend, due to the proximity of the trial date.
Between the second amended complaint and the third amended complaint, the Gomezes apparently hired new counsel. Thus, the third amended complaint bears the name of a different attorney and looks substantially different than the prior versions. It alleged that the parties entered into their agreement on or about May 16, 2001, and that the “only full[] memorialization of this written agreement was escrow instructions prepared by Chapman Avenue Escrow Company... signed by all parties.” However, Chapman had apparently “discarded” the agreement, without ever providing a fully executed copy to the Gomezes. The pleading summarized what the Gomezes alleged were the important terms of the agreement as: “[the Kims] were to subdivide the property and deed the ‘restaurant’ portion of the property to [the Gomezes]”; and “[the Gomezes were to pay the sum of $140,000 to the [Kims] at the time of the signing of the Escrow Instructions.”
The third amended complaint simply ignores the discrepancy between the $165,000 purchase price (reflected in the escrow instructions) and the $140,000 allegedly paid by the Gomezes, and does not mention any additional requirement that the Gomezes would pay the Kims another $25,000 upon completion of the property’s subdivision. The third amended complaint does allege that the Kims did not fulfill their promise to subdivide the property, and that they breached the agreement by failing to deliver title to the Gomezes.
The Kims filed a verified answer to the third amended complaint, along with a cross-complaint claiming entitlement to the rent collected by the Gomezes from their third-party tenant (but not to compensation for the property’s rental value during the period the Gomezes themselves were operating the restaurant). The Kims then once again moved for judgment on the pleadings, and although their motion was filed after the deadline established by Code of Civil Procedure section 438, subdivision (e), they did not request advance permission of the court to have it heard.
Code of Civil Procedure section 438, subdivision (e) provides: “No motion may be made pursuant to this section if a pretrial conference order has been entered pursuant to Section 575, or within 30 days of the date the action is initially set for trial, whichever is later, unless the court otherwise permits.”
The Kims argued that judgment should be granted as to all causes of action on the basis that the various factual inconsistencies among the Gomezes’ pleadings evidenced “sham pleadings.” They also asserted that the complaint failed to allege sufficient facts to constitute a cause of action for breach of contract or specific performance; that the cause of action for specific performance was further fatally flawed because performance of the agreement in question called for a “series of acts,” and was thus not amenable to such relief; and that the complaint failed to allege facts sufficient to constitute a cause of action for reformation of contract.
The Gomezes filed an opposition to the motion for judgment on the pleadings, asserting the motion was not timely and should be summarily denied on that basis. They also argued the facts alleged in the complaint were sufficient to state the relevant causes of action, and the details of the parties’ agreement need not be spelled out in the agreement, and would instead be established at trial.
At the hearing, which took place only four days prior to trial, the Gomezes’ attorney asserted that the causes of action were sufficient as pled, and argued that any omitted facts, such as the $25,000 discrepancy between the $140,000 paid and the $165,000 total purchase price would be explained at trial. Counsel explained that the evidence would show the parties had agreed that the Gomezes would pay an additional $25,000 to the Kims upon the successful subdivision of the property, which they were never able to accomplish. So as counsel explained it, “up to the time where the defendant had breached the contract, plaintiff completely performed all obligations that he was supposed to....” And even assuming that all relevant terms of the agreement were not embodied in the written escrow document, as the Kims had asserted in their motion, counsel argued “the statute of frauds doesn’t apply because, as the court knows, if one party to an oral sale of real property performs completely, then that’s taken out of the statute of frauds.”
That assertion is actually not correct in a case such as this, where it appears the plaintiffs’ entire “performance” was the payment of money. Such performance is not sufficient to avoid the strictures of the statute of frauds. (Anderson v. Stansbury (1952) 38 Cal.2d 707, 715-716.) In any event, the Kims were not asserting the statute of frauds, but instead merely using the complaint’s allegation that the escrow instructions “fully embodied” the contract to their own advantage. Their point was well-taken, as the escrow instructions clearly do not embody the complete agreement.
In response, the Kims’ counsel pointed out the lateness of the motion was caused solely by the Gomezes’ delays in filing their third amended complaint. He also asserted that arguments made by the Gomezes’ counsel regarding the facts he expected to establish at trial were not a substitute for proper allegations in the complaint, and that the Gomezes’ third amended complaint did nothing to address the flaws identified by the court in connection with the second amended complaint. The court agreed, and granted the motion without leave to amend.
In its ruling the court explained that “the essential terms of the contract have not been pled. The [complaint] alleges that the parties entered into a written agreement to buy the property for $140,000, but the escrow instructions attached as Ex. A refer to a price of $165K.”
The Gomezes contend the court’s ruling was erroneous, asserting the exact same points raised in their opposition filed in the trial court. We disagree.
Their first assertion is that the court was obligated to deny the motion summarily, because the Kims had failed to obtain the court’s advance permission before filing it, as required by Code of Civil Procedure section 438, subdivision (e). However, while that subdivision does state that “[n]o motion may be made... within 30 days of the date the action is initially set for trial... unless the court otherwise permits,” it does not actually state that such permission must be obtained in advance. Since the trial court clearly has the discretion to decide whether the motion should be heard (Sutherland v. City of Fort Bragg (2000) 86 Cal.App.4th 13, 25, fn. 4), we can conceive of no reason why the court would be constrained from exercising that discretion even after the motion is filed. After all, the court’s consideration of a meritorious motion promotes efficiency and benefits both sides, since “[t]he interests of all parties are advanced by avoiding a trial and reversal for defect in pleadings.” (Ion Equipment Corp. v. Nelson (1980) 110 Cal.App.3d 868, 877.)
In any event, the Gomezes cannot demonstrate how they might have been prejudiced by the court’s decision to consider the Kims’ motion after the deadline. After all, they opposed the motion on the merits and were apparently pleased enough with their efforts that they have essentially reproduced that opposition in their opening brief on appeal. Absent some demonstration that the court’s decision was actually erroneous on the merits, there would be no point in reversal. We consequently turn to those merits.
Indeed, the portion of the Gomezes’ opening brief on appeal which addresses the motion for judgment on the pleadings is nearly a word-for-word copy of their opposition to the motion in the trial court.
“Because a motion for judgment on the pleadings is similar to a general demurrer, the standard of review is the same. (Ramirez v. USAA Casualty Ins. Co. (1991) 234 Cal.App.3d 391, 397.) We treat the pleadings as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law. When leave to amend is not given, we determine whether the complaint states a cause of action and whether the defect can reasonably be cured by amendment. If it can be cured, the trial court has committed reversible error. Otherwise, we affirm. The burden of proof is squarely on the plaintiff. (See Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) The judgment of dismissal will be affirmed if it is proper on any grounds stated in the motion, whether or not the trial court relied on any of those grounds. (Carman v. Alvord (1982) 31 Cal.3d 318, 324.)” (Baughman v. State of California (1995) 38 Cal.App.4th 182, 187.)
The requirements for pleading a cause of action based upon breach of contract are well settled. “To state a cause of action for breach of contract, [a party] must plead the contract, his performance of the contract or excuse for nonperformance, [the other party’s] breach and the resulting damage. [Citation.] Further, the complaint must indicate on its face whether the contract is written, oral, or implied by conduct.” (Otworth v. Southern Pac. Transportation Co. (1985) 166 Cal.App.3d 452, 458-459.) Moreover, as the Kims point out, “If the action is based on an alleged breach of a written contract, the terms must be set out verbatim in the body of the complaint or a copy of the written instrument must be attached and incorporated by reference. [Citation.]” (Id. at p. 459.)
The Gomezes’ third amended complaint does allege the parties entered into a “written agreement” for the sale of the real property at issue. Moreover, it specifically alleges that the “full[] memorialization of this written agreement was escrow instructions prepared by Chapman Avenue Escrow Company...” which are attached to the complaint as Exhibit A. However, those escrow instructions fall short of a “full memorialization” of any land sale agreement. The instructions state that the buyer “will deposit... into escrow the sum of $165,000 for property, which the escrow agent is authorized to ‘use and/or deliver’ provided [she] can provide upon completion of subdivision a standard Policy of Title Insurance... covering the property.”
The instructions further provide that the sale is contingent upon “[c]ompletion of subdivision of the subject property,” but do not expressly obligate anyone to undertake that task. The instructions do obligate the sellers to “hand [the escrow officer] all instruments and/or funds necessary to enable [the escrow officer] to comply herewith, including deed(s) to the herein described property,” but nothing more. The escrow instructions include no deadlines for completion of any of these obligations.
Finally, the escrow instructions apparently fail to even identify the property to be sold, stating somewhat unclearly that a legal description is “to be provided upon completion of subdivision property commonly known as: 2340 West Whittier Blvd., La Habra, Ca. 90631.” While it is possible that this term is intended to reflect that the 2340 West Whittier Blvd. address is the “common” description of the propertybeing sold, it is also possible the term is intended to reflect that the property being sold will be identified “upon completion of subdivision [of]the property commonly known as 2340 West Whittier Blvd.”
The allegations of the third amended complaint suggest it is the latter. They characterize the “subject property” as the property “located at 2340 West Whittier Boulevard, La Habra, California, 90631” and allege that the parties’ agreement obligated the Kims to subdivide the property and deed “the ‘restaurant’ portionof the property” to the Gomezes. (Italics added.) Thus, the third amended complaint reflects that the escrow instructions, alleged to be the “full[] memorialization” of the parties’ land sale agreement, do not include any description of the property at issue.
The third amended complaint is also problematic in that it alleges the agreement at issue required the Gomezes “to pay the sum of $140,000 to [the Kims] at the time of the signing of the Escrow Instructions,” while making no effort to square that amount with the $165,000 payment specified in the escrow instructions themselves.
“‘The material factors to be ascertained from the written contract are the seller, the buyer, the price to be paid, the time and manner of payment, and the property to be transferred, describing it so it may be identified.’” (Patel v. Liebermensch (2008) 45 Cal.4th 344, 349, quoting King v. Stanley (1948) 32 Cal.2d 584, 588-589.) In this case, the third amended complaint, taken as a whole, seeks to recover for the breach of a written contract requiring the Kims to sell the Gomezes a piece of property which is not specifically identified but will be created when a larger piece of property is subdivided, at a price that can’t be discerned, at some point in time. To say this falls short of an enforceable agreement is an understatement.
The Gomezes seem to acknowledge that the contract claims in their third amended complaint have some holes, but simply argue that any questions regarding the parties’ intentions can be answered at trial, or supplied by implication. But that is not the point. The plaintiffs’ obligation to prove their case at trial is distinct from their obligation to plead it. The Gomezes did not do the latter in their third amended complaint, and thus the court did not err in its order granting judgment on their flawed causes of action.
The Gomezes’ cause of action for “reformation” of the contract did nothing to salvage their other contract claims, and was itself fatally insubstantial. Other than incorporating the insufficient allegations of the prior causes of action, the reformation claim alleged only that “Plaintiffs request this Court to reform the contract to order transferring the property [sic] to Plaintiffs from Defendants and ordering a money judgment against Defendants for all costs, expenses, and loss of profits incurred by Plaintiffs due to the delay in Plaintiffs[’] receiving legal title to the subject property.” Although the Gomezes argue in their briefs that there are several factual scenarios which might justify the reformation of a contract (e.g., mutual mistake, or mistake of one party which was known to the other), they did not allege any facts supporting such a scenario in their third amended complaint. Thus, the court did not err in granting a motion for judgment on the pleadings on the reformation cause of action as well.
II
A. Facts
We now turn to the alleged errors in the causes of action that went to trial. Both Gomez and Kim testified at the trial, but neither of their wives did. Kim acknowledged that the claims made by the Gomezes were largely accurate. He admitted the parties had reached an agreement in 2001, whereby the Gomezes were to pay them a total of $165,000 to purchase a portion of the property owned by the Kims in La Habra. $140,000 of the purchase price was to be paid up front, with an additional $25,000 to be paid after subdivision of the property was completed.
The Gomezes paid the $140,000 up-front payment, which the Kims used to pay off their mortgage on the property, so that it would be unencumbered and ready for subdivision and partial conveyance to the Gomezes.
Thereafter, Kim did make some preliminary efforts to subdivide the property, continuing until at least the middle of 2002. Kim explained that he hired an engineer who “drew a line” where he thought the property could be divided, but that line was never specifically agreed to between the parties. The parties never agreed to any precise legal description of the property to be sold.
However, at some point Kim concluded it was too difficult to subdivide the property, and abandoned his efforts to do so. He later suggested to Gomez that he should try to accomplish the subdivision himself. As Kim explained it: “the person I hired for subdivi[sion] couldn’t complete the work because the procedure was very complicated so I told Mr. Gomez, I suggested to him that if you can find someone to do this subdivision, that would work....”
Finally, though, Kim decided his best course was simply to renege on the deal. He would no longer complete the subdivision and sale negotiated with the Gomezes because “now the property value has gone up considerably... so I cannot sell this portion of property like this.” He testified he ultimately informed Gomez that “[i]f you really want to purchase this property, we have to come up with some kind of different agreement like adjusting the purchase price.” Kim claimed he had offered to return the Gomezes’ $140,000 payment to them, although he was vague about the timing of that offer, but the Gomezes had refused it.
Kim admitted he had never sought any payment of rent from the Gomezes during the lengthy period in which the subdivision and sale transaction was pending. He explained, however, that because he still held the $140,000 payment made by the Gomezes, he did not feel it was appropriate to demand additional payments for rent as well. Ultimately, Kim began to view the $140,000 as a substitute for rent payments, and so never sought to evict the Gomezes from their occupancy of the property they believed they were purchasing. However, Kim never informed the Gomezes that he was applying their purchase money to the payment of rent.
Gomez testified that in 2001, when the parties reached their agreement for subdivision and sale of the restaurant property, he and his wife were tenants on that property. However, once they paid the Kims the initial $140,000 for the purchase of the property, they ceased paying any rent and considered themselves to be owners of the restaurant portion. Thereafter, they occupied the property without paying rent, and later rented it to a third party tenant.
Gomez explained the parties’ agreement had required he and his wife to do nothing other than pay the purchase price – comprised of the initial $140,000 payment plus an additional $25,000 once the property was subdivided – and placed the burden of subdivision on Kim. Gomez stated that he and his wife had made that first payment and remained ready, willing and able to make the final one as soon as the subdivision was completed.
Gomez denied that Kim had ever told him the property sale agreement was canceled, or that Kim had ever offered to return the $140,000 paid at any time prior to their final meeting in 2006.
Gomez also testified it was not until late 2003 or early 2004 that Kim informed him Kim did not have time to complete the subdivision, and suggested Gomez could try to accomplish it himself. Gomez stated he then spent approximately $12,000 in trying to complete the subdivision by 2006, before Kim informed him he would not participate in that effort. Gomez claimed that the subdivision process was nearly complete by that point, and would have been easily accomplished with Kim’s nominal cooperation. However, documents obtained from the City of La Habra apparently suggested otherwise.
Gomez acknowledged he never paid property taxes on the restaurant portion of the property but stated he had paid for repairs and improvements, such as the roof, and adding windows to the patio.
It was undisputed that the property to be subdivided and conveyed in part to the Gomezes was owned by the Kims together, and the parties ultimately stipulated that while Messers. Gomez and Kim signed the escrow instructions, neither of their wives did.
After the conclusion of evidence, the court took the matter under submission and later issued a statement of decision. The court concluded the Gomezes were entitled to prevail on their cause of action for money had and received, but not on their claim for quiet title.
With respect to the claim for quiet title, the court explained: “The fact that Defendant Kim was the legal owner of the property, even before he met the Plaintiffs, is undisputed by the evidence presented by the parties. As holders of only equitable title, the Plaintiffs cannot state a quiet title action against Defendant, who has always held legal title to the property. (Warren v. Merrill 143 Cal.App.4th 96.) Plaintiffs have failed to carry their burden of proof of establishing grounds for this Court to impose a constructive trust in their favor. There was no evidence that Defendants defrauded Plaintiffs or that Defendant owed Plaintiffs a fiduciary duty....”
With respect to the claim for money had and received, the court explained: “Although the evidence falls short of establishing that there was a binding contract between the parties because of the uncertain terms surrounding the arrangement between the parties, the evidence did establish that Plaintiffs delivered the sum of $140,000.00 to Defendant on 5/16/01 with the idea of purchasing part of a parcel of property on which was situated a restaurant and a grocery store. The Plaintiffs were interested in obtaining the part of the property on which the restaurant was located. The property on which the grocery store was located was to be retained by Defendant. There was evidence that the parties agreed that Defendant would attempt to do the leg work to subdivide the property to enable the transfer of title to the restaurant property to Plaintiffs.... Although Defendant did some work to start the process of sub-dividing, it soon became apparent that he simply did not have the experience or the expertise to accomplish the task. Subsequently, Plaintiff Adolfo Gomez attempted to take over the job of sub-dividing and even employed experts to assist him with this task. Gomez testified that he made great progress in this regard and was on the verge of completing the subdivision process, but could not complete it because he was unable to get the cooperation of Defendant, who refused to sign papers. However, much of this evidence was refuted by the official records from the City of La Habra which reflected that significant and somewhat costly work remained in order to complete the subdivision process. Needless to say, the subdivision was never completed and to this day, some seven years later, Defendant continues to hold onto the $140,000.00. In the meantime the value of the property has appreciated very substantially which more than explains why both parties would like to own title to the property.”
“Based on the evidence presented and the applicable law the Court finds that Plaintiffs are entitled to be reimbursed the sum of $140,000.00 (less set-offs) with interest from the date of May 16, 2001, to the present for a total sum of $241,221.00.”
However, the court also reasoned that the Kims should be entitled to set-off that reimbursement against the rental value of the property during the time the parties’ property sale transaction was pending. The court explained that “[a]lthough a cause of action for money had and received sounds in law, it is governed by principles of equity (Mains v. City Title Ins. Co. [(1949)] 34 Cal.2d 580.) Under the evidence of this case, it would be inequitable to allow the Plaintiffs to be reimbursed the full amount of their payment with interest as well as the monies that they saved by not paying rent for over two years and the rent monies they collected from the [third-party tenant.]” The court acknowledged that “Defendant never complained about the restaurant being sub-leased and failed for years to demand that the rents be paid to him, instead of the Plaintiffs,” and noted that while “Defendant now claims that he decided to deduct the rent that Plaintiffs failed to pay from the $140,000.00 that he was holding... this appears to have been an afterthought by the Defendant as part of his trial strategy, since this arrangement was never discussed with the Plaintiffs for at least 5 years and Plaintiffs never agreed to it.” However, despite its belief that Kim was essentially making up his claim of having always intended to offset the rental value of the property against the purchase money paid, it nonetheless concluded that “in keeping with the spirit of equity, the Court feels that Defendant should get credit for some of these rents together with interest.”
After applying that offset (which the court calculated to be comprised of $152,000 in rent payments, plus $45,600 as “reasonable interest” on that amount over a period of six years, for a total of $195,600), the court ordered a net judgment of $45,621 in favor of the Gomezes.
B. The Quiet Title Claim
We first turn to the Gomezes’ claim that the court erred in refusing to quiet title to the property in their favor. They argue that under the facts established at trial, they were entitled to be declared the owners of the property, because they had fully performed their obligations under the land sale agreement as of the time the Kims breached (i.e., the initial payment of $140,000) and thus were entitled to enforce that agreement. We disagree.
First, as we have already explained, the Gomezes’ claims based upon their legal right to enforce their contract with the Kims were disposed of prior to trial. They consequently cannot prevail on those claims.
But even if we were to consider the enforceability of the contract, the Gomezes fail to establish that the result in this case should have been any different than it was. While the Gomezes make several references to the statute of frauds, and suggest the contract at issue herein was enforceable despite its strictures – because they had “completely performed their portion of the contract” – we cannot agree. As the Gomezes repeatedly emphasize, their “performance” under the contract consisted entirely of their initial payment. Such a performance is insufficient to take a contract outside the statute of frauds. “The payment of money is not ‘sufficient part performance to take an oral agreement out of the statute of frauds’ [citation], for the party paying money ‘under an invalid contract... has an adequate remedy at law.’ [Citation.]” (Anderson v. Stansbury, supra, 38 Cal.2d at pp. 715-716.)
Civil Code section 1624, commonly referred to as the statute of frauds, provides in pertinent part that “(a) the following contracts are invalid, unless they, or some note or memorandum thereof, are in writing and subscribed by the party to be charged or by the party’s agent: [¶]... [¶] (3) An agreement for the leasing for a longer period than one year, or for the sale of real property, or of an interest therein; such an agreement, if made by an agent of the party sought to be charged, is invalid, unless the authority of the agent is in writing, subscribed by the party sought to be charged.”
Nor was there any evidence of fraud in this case, which the Gomezes assert would support an estoppel against reliance on the statute of frauds, or might support the imposition of a constructive trust (citing Monarco v. Lo Greco (1950) 35 Cal.2d 621, 623; and Mazzera v. Wolf (1947) 30 Cal.2d 531). The undisputed evidence is that the Kims initially did intend to subdivide and sell a portion of their property to the Gomezes. Kim made efforts to accomplish the subdivision before ultimately giving up, and later deciding not to go through with the agreement (while keeping the money.) The Kims behavior in this case was not admirable, but neither was it shown to be fraudulent.
As for their assertion of a right to quiet title, the law has long been settled that the owner of a mere equitable interest is not entitled to quiet title against the property’s legal owner. (G.R. Holcomb Estate Co. v. Burke (1935) 4 Cal.2d 289, 297-299; Stafford v. Ballinger (1962) 199 Cal.App.2d 289.) An exception to this general rule exists when the owner of the legal title acquired that title through wrongful or fraudulent conduct committed against the plaintiff, because in such a case the court may conclude that the defendant holds her legal title as a constructive trustee for the plaintiff, who “based on the equities, [holds] superior title.” (Warren v. Merrill (2006) 143 Cal.App.4th 96, 114.) This is not such a case, and consequently the Gomezes did not establish any right to a declaration quieting title in their favor.
C. The Equitable Set-off
The Gomezes’ final argument is that the court erred in declaring the Kims were equitably entitled to offset the rental value of the property against the money they paid to purchase it. This time, we agree.
As explained in Hirshfield v. Schwartz (2001) 91 Cal.App.4th 749, 770-771, “‘Equity or chancery law has its origin in the necessity for exceptions to the application of rules of law in those cases where the law, by reason of its universality, would create injustice in the affairs of men.’ (Estate of Lankershim (1936) 6 Cal.2d 568, 572-573 [although rule of law prohibited lawyer, as executor of estate, from recovering legal fees for services on behalf of estate, equitable principles called for departure from that rule].) The object of equity is to do right and justice. It ‘does not wait upon precedent which exactly squares with the facts in controversy, but will assert itself in those situations where right and justice would be defeated but for its intervention. “It has always been the pride of courts of equity that they will so mold and adjust their decrees as to award substantial justice according to the requirements of the varying complications that may be presented to them for adjudication.” [Citation.]’ (Times-Mirror Co. v. Superior Court (1935) 3 Cal.2d 309, 331.) ‘The powers of a court of equity, dealing with the subject-matters within its jurisdiction, are not cribbed or confined by the rigid rules of law. From the very nature of equity, a wide play is left to the conscience of the chancellor in formulating his decrees.... It is of the very essence of equity that its powers should be so broad as to be capable of dealing with novel conditions. [Citation.]’ (Bechtel v. Wier (1907) 152 Cal. 443, 446.) Equity acts ‘“in order to meet the requirements of every case, and to satisfy the needs of a progressive social condition, in which new primary rights and duties are constantly arising, and new kinds of wrongs are constantly committed.” [Citation.]’ (Wuest v. Wuest (1942) 53 Cal.App.2d 339, 346.)”
We review the court’s assessment of equitable considerations pursuant to an abuse of discretion standard. (Hirshfield v. Schwartz, supra, 91 Cal.App.4th at p. 771; City of Barstow v. Mojave Water Agency (2000) 23 Cal.4th 1224, 1256.) “Under that standard, we resolve all evidentiary conflicts in favor of the judgment and determine whether the court’s decision ‘“falls within the permissible range of options set by the legal criteria.”’ (Dorman v. DWLC Corp. (1995) 35 Cal.App.4th 1808, 1815.)” (Hirshfield v. Schwartz, supra, 91 Cal.App.4th at p. 771.)
In this case, we conclude the trial court did abuse its discretion in concluding that equity required the Gomezes to be held liable for the rental value of the property which they intended to purchase, when it was the Kims, and not they, who: (1) backed out of the contemplated sale transaction; (2) never informed them that they would be considered renters of the property they had paid to purchase; (3) kept the purchase money; and (4) benefited from the significant increase in the value of the property for which they had been paid back in 2001.
We do not come to this conclusion lightly. But the set-off ordered by the court amounted to nothing more than the legal remedy of rescission – each side was restored to the position they would have been in had their agreement never been made. (See NMSBPCSLDHB V. County of Fresno (2007) 152 Cal.App.4th 954, 963.) Such a result would certainly be equitable where both sides were equally at fault in the dispute, and nothing significant had changed during the time that one or both parties believed they had an agreement. But this is not such a case. This is a case “where the law, by reason of its universality, would create injustice in the affairs of men.” (Estate of Lankershim, supra, 6 Cal.2d at p. 573.)
What is clear from the court’s decision is that both sides originally intended the Gomezes would purchase the property on which their restaurant sat, as soon as Kim, the property’s owner, accomplished the anticipated subdivision. The Gomezes paid the Kims a lump sum of $140,000 in anticipation of that purchase, with the understanding that an additional $25,000, to cover the costs of the subdivision, would be due upon its completion. The Gomezes’ then waited patiently, trusting that the Kims would ultimately do what was necessary to complete the deal. The Gomezes’ patience was not unreasonable, given that both sides apparently treated the transaction as effectively completed when the Gomezes paid their $140,000 – hence the Kims demanded no payment of rent from the Gomezes’ after that time.
The Gomezes have remained at all times – including now – ready and willing to complete that transaction. By contrast, the Kims at some point decided not to complete it – perhaps they were initially stymied by the fact the process of subdividing was more onerous than they had anticipated, but ultimately, as Kim admitted, their refusal was because the deal began to seem less financially advantageous than they had originally believed. As Kim’s testimony made clear, he would have agreed to complete the deal in 2006, but only if the Gomezes paid a higher price for the property.
But the Kims nonetheless kept the money they knew had been intended to serve as consideration for the property’s purchase in 2001, and although Kim did claim at trial that he had expected to receive rent from the Gomezes at all times prior to the completion of a purchase transaction – and had failed to expressly demand such payments only because he believed he could legitimately deduct it from the Gomezes’ $140,000 purchase payment – it is undisputed that he never informed the Gomezes that they would be charged rent, and the court expressly concluded that Kim’s claim was untrue.
Ultimately, the Kims have asserted the arrangement negotiated with the Gomezes, pursuant to which they accepted the payment of $140,000, was legally insufficient to constitute a binding agreement, and that they could not consequently be compelled to abide by it.
Whatever the legal merit of the Kims’ position, it is devoid of any equitable appeal. In effect, the Kims chose to take the money and run. They accepted what was essentially the entire purchase price for the restaurant portion of the property, used it to pay off their mortgage, and then failed to follow through on their promise to subdivide. They were apparently fine with that status quo – having both the property and the money – until the Gomezes finally lost patience and sought to force the subdivision issue in 2006. Only then did Kim inform Gomez that more money would be required. Based upon the findings in the court’s statement of decision, we have no problem concluding that the Kims were primarily “at fault” for the mess this case became.
And if that were not enough, when the Gomezes filed suit and pursued their claims in court, Kim apparently made up a story about having expected to receive rent payments all along. In its statement of decision, the court expressly concluded that Kim’s testimony in that regard was “an afterthought” and “part of his trial strategy.” Equity cannot not reward such attempts, and we cannot countenance giving the Kims benefit of a state of mind the trial court expressly – albeit euphemistically – found to be made up.
Moreover, the court’s decision seems to ignore the fact that the Kims reaped a great financial benefit – i.e., the substantial rise in the value of the property the Gomezes had paid them for in 2001 – as a result of their refusal to go through with the subdivision and sale in 2006. By contrast, the Gomezes were effectively deprived of the opportunity to use their $140,000 to purchase another piece of property and reap their own profits. The court cannot restore to the Gomezes the opportunity to purchase property in 2001. But it can recognize, and should have recognized that if the Kims had wished to transform the Gomezes back into mere renters of the property they had paid for, they needed to inform them that they would henceforth be charged rent, actually return the Gomezes’ purchase money, and then suffer the risk that the Gomezes might choose to use that money to purchase elsewhere and then reap their own benefit from rising property values.
Having failed to do any of that, equity should not allow the Kims to retroactively transform the Gomezes into both involuntary lenders (of $140,000) and involuntary renters of the property they believed they had purchased. Consequently, we conclude the trial court abused its discretion in allowing the Kims to keep both the benefit of the bargain that would have belonged to the Gomezes if the property purchase agreement had been legally enforceable, plus the rent that the Kims had agreed to forego when they accepted payment for the property’s anticipated purchase.
The judgment is reversed and the case is remanded to the trial court with directions to enter judgment in favor of the Gomezes for their $140,000 payment, plus interest, and without offset. The Gomezes are to recover their costs on appeal.
WE CONCUR: MOORE, J., ARONSON, J.