Opinion
B197106
6-24-2008
HELEN YANG et al., Cross-complainants and Appellants, v. SHAN MEI WANG et al., Cross-defendants and Respondents.
Roderick C. Lipscomb; Law Offices of Stephen E. Ensberg and Stephen E. Ensberg for Cross-complainants and Appellants. Law Offices of John J. Ma and John Jingsheng Ma for Cross-defendant and Respondent Shan Mei Wang. Law Offices of Max C. Chiang and Max C. Chiang for Cross-defendants and Respondents Tsung Chang Su and Kuei Lien Lo.
Not to be Published
Respondents Tsung Chang Su and Kuei Lien Lo agreed to purchase a home from respondent Shan Mei Wang; appellants Helen Yang and YF Limited, Inc., dba IRN Realty, acted as brokers. The sale did not go through and the buyers sued the seller as well as the brokers. The seller cross-complained against the buyers and the brokers. In turn, the brokers cross-complained against the seller and the buyers. On the first day of trial, the buyers and seller settled, leaving the action as one between the seller and buyers, on the one hand, and the brokers, on the other. Following a bench trial, the buyers recovered a compensatory judgment of $5,965 and punitive damages of $25,000; the seller recovered a compensatory award of $23,108.88 plus costs of $20,000. In both instances, the judgment was against the brokers. The brokers appealed; we reverse.
FACTS
Respondents briefs are seriously deficient. The summary of the facts in respondents Lo and Sus brief does not contain a single citation to the record, with the exception of two citations to trial exhibits. Respondent Wangs brief does not cite at all to the trial transcript, although it cites to several trial exhibits. This is a violation of rule 8.204(a)(1)(C) of the California Rules of Court; a violation of this rule may result in this court disregarding the purported statement of facts, or even in striking the briefs. (C.J.A. Corp. v. Trans-Action Financial Corp. (2001) 86 Cal.App.4th 664, 673.) While appellants opening brief complies with rule 8.204(a)(1)(C), the summary of facts in this brief is not complete.
1. Introduction
The controversy in this case revolves around the purchase agreement and a side-agreement not reflected in the purchase agreement. The purchase agreement, signed by the sellers and the buyers, respectively, on July 28 and July 29, 2005, set the price of the house at $595,000. The side-agreement was signed by Lo, one of the buyers, and was written and executed on July 28, 2005, before either seller or buyer signed the purchase agreement. The text of this handwritten note, translated from Chinese, is: "I, Kuei Lien Lo (Kuei Lien Lo) agree to pay cash $48,000 to Shan Mei Wong [sic], plus the offering price of $595,000.00, all to be paid off on the date of close escrow [sic]." Lo admitted that she wrote and signed this note.
As we set forth in detail below, the trial court concluded that the agreement to pay $48,000 in cash outside of escrow was illegal and therefore invalidated the entire purchase agreement. The trial court found that Yang was the person who had conceived of the transaction represented by Los note; thus, the judgment in this case is predicated on the findings that (1) the entire purchase agreement was illegal because of the side-agreement reflected in Los note; and (2) Yang was responsible for the execution of the side-agreement evidenced by Los note.
How Los note came into being and who suggested it were sharply contested at trial. Wang, the seller, Yang, the principal broker, and Lo, who signed the side-agreement, all presented contrary testimony on these issues. We set forth their testimony separately below.
There is another event that indisputably took place but the parties are in disagreement as to why the event occurred. This event is a letter dated August 26, 2005, by Yang to the seller and the buyers.
In this letter, Yang wrote that the escrow instructions had to be amended to reflect a purchase price of $643,000 with the down payment increased by $48,000. The letter leaves no room for doubt why Yangs advice should be followed: "Our recommendations[] are based entirely on our belief that it is very important to both of you and those providing you service in this transaction, that the escrow instructions fully and accurately reflect the terms and conditions of the subject contract. [¶] It is our understanding that closing an escrow based on instructions that are inaccurate may result in both parties to an escrow facing claims of criminal fraud, and penalty assessments by the Internal Revenue Service, Franchise Tax Board, the City and County Governments, as well as fraud claims asserted by any lender . . . ." The letter urged the recipients to consult counsel and requested authorization to instruct the escrow holder to amend the instructions. (Escrow was to close on or before September 5, 2005.)
The third transaction that is important to this case was the sequence of offers and counter-offers that took place on July 27 and July 28, 2005. At this point, we relate only the sequence and amounts of the offer and the counter-offers. On July 27, 2005, Lo offered $638,000 for the house; Wang countered with $650,000. There was no response to this from the buyer. In the evening of July 27, 2005, Yang called Lo and asked her to increase her offer of $638,000, which Lo did by $5,000, bringing the price to $643,000. Nonetheless, the purchase agreement that was signed by the seller and buyer stated the price to be $595,000. How this came to be is explained in part 2 of the Facts, post.
While Tsung Chang Su was also a buyer of the property, Lo appears to have been in control of the negotiations. We therefore use the singular, indicating Lo.
We set forth the testimony relevant to Los note and to Yangs letter of August 26, 2005, respectively in parts 2 and 3 of the Facts. In the fourth part of the Facts, we set forth the conflicting testimony that describes how and why the sale of Wangs house was finally aborted.
2. Los Note
a. Wangs Testimony
Wang testified that she wanted to sell the house for $643,000. While her testimony is frequently less than lucid, Wang testified that Yang told her that the buyer had a lot of cash and wanted to pay part cash. Wang also testified that Yang was "very professional" and that Yang explained that Wang could "avoid some tax" if part of the price was paid out of escrow. Wang explained that she signed the purchase agreement, which gave the price as $595,000, only because Yang brought over Los note promising to pay $48,000 cash on top of the $595,000. These events transpired in the evening of July 28, 2005.
Wang testified through a Chinese interpreter; the interpreter did not appear to have a firm grasp of English.
When asked at trial whether she understood that the $48,000 was an "under-the-table payment" Wang first responded with a flat no and, when pressed about this explained: "I dont understand whether this is under-the-table. All I know is, that process escrow ahead and will bring the cash to me." In a portion of her pretrial deposition read into the record, Wang stated that the "cash was under the table." At trial, Wang testified that if the sale had gone through, she would have reported the sale at $643,000 on her tax return.
b. Los Testimony
Yang called Lo in the evening of July 27, 2005, and asked her if she could pay some cash; Yang did not explain why she made this request. The next day, Yang and Lo met in the afternoon. Yang showed Lo the purchase agreement that gave the price as $595,000. When Lo asked about the price, Yang told her that she would dictate a note for Lo to write. Yang proceeded to do so, and Lo wrote the note that Yang dictated.
Lo signed the purchase agreement reflecting the $595,000 price on July 29, 2005.
Wei Chin Chou, Los nephew, testified at trial that he was present during the afternoon meeting on July 28, 2005, between Yang and Lo. He corroborated Los testimony that Los note was dictated by Yang.
c. Yangs Testimony
Yangs testimony diverged from Los in two respects. First, according to Yang it was Lo who told Yang to insert the price of $595,000 into the purchase agreement. Second, Yang disclaimed any responsibility for Los note. We relate Yangs testimony on these two points in the order indicated.
As far as the sale price of $595,000 was concerned, Yang testified that it was "not my idea to put down the 595,000. I was told by Ms. Lo to write down this number." Yang thought that the seller would believe this to be too low, but Yang thought the house was worth around $590,000. All the same, she told Lo that Lo probably could not close the sale for $595,000. On the other hand, Yang was aware of the fact that Wang had other properties and that Wang was anxious to sell this particular property.
The house was initially listed at $708,000. This was reduced to $660,000 and then increased to $666,000.
Yang testified that on or after August 22, 2005, her boss told her that there was a cash transaction between the seller, Wang, and the buyer, Lo. Yang went to see Wang who showed her Los note. Yang took five or six minutes to study the note, which she found strange. It was written in traditional Chinese characters that are used in Taiwan; Yang was not familiar with the characters used in the note. Yang concluded that she had to "go to the escrow company to make a correction and to change to accurate correct numbers, I mean the price."
There is a troubling inconsistency in Yangs testimony in that at one point she appears to state that her boss showed her a copy of Los note, while at another point she testified that the first time she saw Los note was when Wang showed it to her on or after August 22, 2005.
3. Yangs Letter of August 26, 2005
Wang testified that Yang hand-delivered Yangs letter to Wang on or after August 26, 2005. Wang testified that Yang told her not to sign the amended escrow instructions proposed by this letter until the buyers signed the amended instructions. Wang stated that she became very angry at this because "[t]his whole idea, it is from Helen Yang. Now she want to say that it is from the seller and the buyer on both side. [Sic.]" A little later, Wang testified that she didnt sign the amended instructions because "Helen Yang told me the buyer back-off the idea of purchasing, so Helen Yang asked me to hold and wait until the buyer signed the document and then Ill sign it."
After being recalled to testify, Wang emphatically reiterated that she was very angry at Yang for suggesting that the idea of a cash payment came from the Wang and Lo.
As we relate more fully below in part 4 of the Facts, post, Lo twice evaded answering the question why she didnt sign the amendments. The third time, Lo testified that she did not sign the amended escrow instructions because the statement in Yangs letter that the "situation was created by the seller and the buyer" was a lie; Lo had never met Wang, and did not meet her until Los deposition was taken in 2006.
Without expressly stating it, Yangs letter strongly insinuated that Wang and Lo had informed Yang about the cash payment outside escrow.
Oddly enough—or perhaps revealingly enough—there is no testimony by Yang about the circumstances under which her August 26, 2005 letter was generated.
4. Why the Sale Fell Apart
Wang and Yang blamed each other for Wangs failure to sign the amended instructions. Wang testified that Yang told her not to sign until the buyers signed, while Yang testified that she encouraged Wang to sign immediately.
Wang was asked the following question: "If Helen [Yang] had not put in this letter in the first paragraph, try to shift the blame to you and the buyer, you would already conclude [sic] this deal; isnt that true?" She answered yes.
Thus, as far as Wang was concerned, there appears to have been two reasons why she didnt sign. First, she was instructed by Yang not to sign until the buyer(s) had signed. Second, she was angry at Yang for suggesting that she, Wang, and the buyer had suggested the cash payment.
It is, of course, apparent that neither reason was an insurmountable obstacle, if Wang really wanted the sale to go through. She could easily have taken the first step and signed the amendment without waiting for Lo to sign. Wangs professed anger at Yang because she ascribed the idea of a cash payment to the seller and buyers was in and of itself not a reason not to sign the amended instructions. This said, there is some plausibility to Wangs decision to wait for the buyers to sign the amendment since the amendment affected the buyers conduct, i.e., it would be the buyers who would have to put an additional $48,000 into escrow under the proposed amendment.
If Wangs decision not to sign until the buyers had signed (assuming this was her actual decision) was plausible, Lo repeatedly failed to give any reason at all why she didnt sign the amendment. We examine and set forth Los testimony in detail because it is central to our disposition of this appeal.
The first time Lo took the stand, the following transpired when she was cross-examined by appellants counsel: "BY MR. LIPSCOMB: After you received the letter from Helen Yang that was dated August 26th, you refused to sign an amendment to the escrow instructions to show that the purchase price was not 595, but the amount that you actually agreed to pay, a sum of $643,000; isnt that correct? [¶] A. From the very beginning to the very end, it was 643,000. [¶] Q. My questions was, you refused after receiving Helen Yangs letter to sign an escrow instruction to accurately indicate the price of the property to be $643,000; isnt that correct? [¶] A. Not from Helen. Helen did not bring that letter to me; it was her husband. I dont know who he was, and then he faxed it. I dont know the reason why he just give that letter to me. She is my agent. Shes the one — [¶] THE COURT: What was the question that was asked? [¶] (The record was read by the reporter.) [¶] THE COURT: The answer is `yes or `no. [¶] THE WITNESS: Yes."
Two days after the foregoing, Lo was recalled to the stand by appellants counsel. She testified that after she received Yangs letter, she consulted counsel. She was asked: "So after receiving this [Yangs August 26th] letter, did you sign an amendment to the escrow instructions to show that the amount of money being paid to escrow was $643,000?" Los reply was very evasive: "That August 26th, I would close escrow already. I dont know why I have to sign that form you just said." (The statement that she didnt know why she was being asked to sign the amendment is disingenuous since Yangs letter fully explains the reasons for the amendment.) Follow-up questions and answers did nothing to clear the air. After Los quoted reply, the question was: "In other words, you didnt think it was necessary to amend the escrow instructions because you were going to pay the $48,000 separately to Mrs. Wang; is that right? [¶] A. Yes, I was paying 643,000. [¶] Q. Did Mrs. Wang ever make a demand on you to pay the $48,000 to her? [¶] A. No."
After this exchange, Los counsel asked Lo how she received Yangs letter and Lo answered that Yangs husband hand-delivered it. Counsel asked whether Lo signed and she answered that she did not. Counsel then asked: "Why didnt you sign this letter? [¶] A. [Lo:] Okay. But it state — [¶] THE INTERPRETER: Pointing to the first paragraph. [¶] THE WITNESS: — That I say the whole idea is originated [sic] from the seller and the buyer which is not true. It was totally originated by Helen Yang. [¶] Q. BY MR. CHIANG [counsel]: After you refused to sign this letter, what did Helens husband do, if anything? [¶] A. That he was very angry. He was yelling that — repeatedly insist that I have to sign it."
Two things are true of Los testimony on the issue why she did not sign the amendment proposed by Yangs letter. First, after twice evading giving an answer, she finally appears to have given as the reason that Yangs letter shifted the responsibility for the cash payment idea to the seller and the buyers. Given that the problem was a misstatement of the sales price that had to be corrected and not who had originated the idea that led to the problem, the reason given by Lo made no sense and was evasive. She could sign the amendments regardless of who had conceived of the idea of the side-agreement, which was being set aside by the amendments. Second, Lo never stated that she did not sign because the purchase agreement was illegal. In fact, when asked immediately before the second exchange we have set forth whether, after she retained counsel, she thought that "the transaction you entered into was illegal" she answered: "Its not illegal. I still pay $643,000."
A letter written by Los counsel, Attorney Max C. Chiang, dated September 1, 2005, addressed to David Cheng of YF Limited, Inc., dba IRN Realty, makes it clear that Lo did not sign the amendments because she thought that an opportunity had been created for her to acquire the house for $595,000.
Attorney Chiangs letter states that the purchase price was $595,000 and that the buyers had executed all required documents to close the sale at this price. The letter went on to note that Yang had attempted to amend the escrow instructions on or about August 26, 2005, and that this was rejected by the buyers. After noting that, during a telephone conversation on August 30, 2005, with Mr. Cheng, the latter had stated that the broker discovered in a writing by one of the buyers that part of the purchase price was to be paid outside of escrow. The letter went on to state that "our investigation reveals that it was the suggestion or scheme designed by IRN Realty, through its agent Helen Yang, to assist the seller to avoid the capital gains tax." The letter pointed out that it was not in the buyers interest to underreport the purchase price of the house. The letter closed by stating that the adverse legal ramifications of an under-the-table payment had not been explained to the buyers.
Chiang followed up this letter with one addressed directly to Wang in which he demanded that Wang complete the sale, on the terms contained in Chiangs letter to the brokers.
Lo testified that she did not see either letter written by Attorney Chiang. She did admit, however, that she authorized Chiang to send the letter dated September 1, 2005, to appellants.
As it turned out, the escrow instructions were never amended and on October 28, 2005, Wang instructed the escrow to cancel the transactions entirely.
THE STATEMENT OF DECISION
The statement of decision commenced with the finding that the purchase agreement of July 29, 2005, was illegal in that "part of the consideration for the purchase and sale in the sum of $48,000, which was not stated in the Purchase Agreement, was found to be an attempt to cover up an illegal agreement and that any part of a single consideration, which is illegal, will render the entire contract void." The statement of decision rejected Yangs testimony that she did not know of the "illegal agreement," finding her testimony not to be credible, and found Wangs testimony to be credible. Although the statement of decision does not expressly state that the trial court concluded that the idea of the cash payment of $48,000 outside of escrow was suggested by Yang, the clear import of finding Wang to be credible is that the court found that the originator of the idea of the $48,000 cash payment outside of escrow was Yang. The court found that appellants were not entitled to any commission because they breached their fiduciary duties.
The court also found that there had been no direct contact between the seller and the buyers at any time. The trial court evidently thought that this supported Los deposition testimony that she had nothing to do with the suggestion of the cash payment outside of escrow.
The statement of decision finds that Yang breached her fiduciary duties as a broker to both the seller and the buyers by her failure to disclose the illegality of the cash payment of $48,000 to either party, by Yangs subsequent denial of any involvement in the illegal agreement and "finally by [Yangs] refusal to assist both Defendant [] Wang and Plaintiffs [Lo and Su] to remove the illegality prior to the close of escrow."
As far as Wangs, the sellers, damages are concerned, the court awarded $38,395, which represents mortgage payments for 12 months, property taxes ($6,422) and insurance ($991), from which $22,700 in rental income was deducted for a total award of $23,108.
Cents are omitted throughout.
The buyers (Lo and Su) were awarded $30,000 for loss of one years rentals, predicated on Yangs knowledge that the buyers intended to lease the house for $2,500 per month. This award was subsequently deleted by the court from the judgment.
In awarding loss of rentals, the trial court found in the statement of decision: "The Court further finds that due to the illegality of the Purchase Agreement, Plaintiffs were compelled to forgo the opportunity to acquire the Subject Property and have lost the rental income in the total sum of $2,500X12=$30,000." The finding that Lo and Su, the buyers, were "compelled" to forgo purchasing the property due to the illegality of the purchase agreement was critical. It served to deflect responsibility for the failure of the sale from the seller and buyers, who, as we explain below, easily could have signed the amendments proposed by Yang and thus closed the sale on lawful terms. As we explain in part 1 of the Discussion, the trial courts finding that the buyers were "compelled" to forego the sale because of the illegality of the purchase agreement is both factually and logically flawed.
The buyers were also awarded their out-of-pocket costs for the home inspection fee ($190), appraisal fee ($325) and escrow cancellation fee ($500). The court also found that the buyers had withdrawn $183,613 from a time deposit earning 4.5 percent interest, and deposited it in escrow earning 2.02 percent interest. The court awarded the difference of $4,950. These sums come to $5,965, which was the buyers compensatory award. Finally, in the statement of decision the court awarded attorney fees and costs in an unstated amount; the judgment awarded Wang costs of $20,000.
The court awarded the buyers $25,000 in punitive damages. The court gave five reasons for this award. First, the court found that Yang knew at all times that the fair market value of the house was $595,000 and failed to disclose that fact to the buyers. Second, the court found that Yang had discussed with Wang, the seller, "the split of the purchase price so as to evade capital gain taxes," but at trial denied having done so; on this issue, the court also found that Yang had failed to advise the buyers of the illegality of the cash payment and adverse tax consequences of buying the house at a lower base price. Third, the court found that once the buyers had expressed a concern over the cash payment, Yang "designed a letter which intended to wash [the brokers] hand clean and to shift the guilt to the Seller and Buyers. These acts . . . constitute outrageous breach of fiduciary duties against Buyers and Seller." Fourth, the court found that Yang had misrepresented the condition of the central air conditioning in the house. Fifth, the court found that Yang had represented, i.e., advertised the house to be in a quiet neighborhood, while the truth was that the house was on a street with heavy traffic.
DISCUSSION
1. There Is No Evidence To Support the Finding That the Illegality of the Purchase Agreement Prevented the Buyers from Going Through with the Sale
The trial court found "that due to the illegality of the Purchase Agreement, Plaintiffs were compelled to forgo the opportunity to acquire the Subject Property and have lost the rental income in the total sum of . . . $30,000."
"In reviewing the sufficiency of the evidence to support the trial courts findings we are bound by the substantial evidence rule . . . . (Nestle v. City of Santa Monica (1972) 6 Cal.3d 920, 925-926.)" (Swanson v. Skiff (1979) 92 Cal.App.3d 805, 808.) We must consider the entire record (People v. Johnson (1980) 26 Cal.3d 557, 577) and look to the evidence that supports the successful party, and disregard the contrary showing. (Nestle v. City of Santa Monica, supra, 6 Cal.3d at p. 925.)
While substantial evidence is not synonymous with "any" evidence (People v. Bassett (1968) 69 Cal.2d 122, 138-139) and is such evidence as is reasonable, credible and of solid value (Kuhn v. Department of General Services (1994) 22 Cal.App.4th 1627, 1633), there must be at least some evidence, contradicted or not, that supports the trial courts finding.
In this case, there is simply no evidence that supports the finding that the buyers were "compelled" to forgo purchasing the residence because of the alleged illegality of the purchase agreement.
Lo never testified that she did not sign the amended escrow instructions because the purchase agreement was illegal; in fact, she testified that, in her opinion, the purchase agreement entered into on July 28/29, 2005, was legal. As far as giving a reason for not signing the amendment, Lo twice avoided giving a reason and, when asked this question for the third time, she gave a reason that made no sense, i.e., that she didnt sign because Yangs letter ascribed the idea of the cash payment to the seller and buyers. She could be angry about this, but this did not prevent her from signing the amendment.
In addition to the circumstance that there is no evidence to support the courts finding, it is simply not true, as a matter of law and logic, that the buyers were "compelled" to abandon the purchase because of the side-agreement calling for a cash payment outside of escrow. If the amendment proposed by Yang had been executed, the purchase agreement would have been perfectly lawful and proper. Since there was nothing that prevented the buyers (or the seller) from signing the amendment, it is erroneous to conclude, as the trial court did, that the buyers were "compelled" to abandon the sale because of the illegality of the initial purchase agreement.
The evidence in this case is not in conflict. This is one of those unusual cases in which there is literally no evidence to support a critical finding of the trial court. Indeed, Los own testimony contradicts the courts finding. In fact, there is other probative evidence that directly contradicts the finding. It is Attorney Chiangs letter of September 1, 2005, which shows that the buyers, i.e., Los, actual intent was to rely on the purchase agreement entered into on July 28/29, 2005, to disregard the side-agreement, and to acquire the house for $595,000. This explains, of course, Los evasive and unresponsive answers when she was asked why she didnt sign the amendments to the escrow instructions.
This refers to Los statement that she did not think that the purchase agreement was illegal. Because she held this opinion, she would hardly have refused to sign the amendment because the purchase agreement was "illegal."
In sum, we conclude that there is no evidence to support the trial courts finding that the illegality of the purchase agreement prevented the buyers from going through with the sale.
2. Appellants and Respondents Are In Pari Delicto; Respondents Are Therefore Not Entitled to Damages
The trial court could have reasonably concluded that the purchase agreement, as structured with the side-agreement represented by Los note, was illegal. It would have been illegal if the object of the cash payment outside of escrow was to avoid paying taxes based on the actual price of $643,000. "It is essential to the existence of a contract that there should be . . . [¶] . . . [¶] [a] lawful object." (Civ. Code, § 1550.) While technically there was nothing illegal about the purchase agreement that gave the price as $595,000, it is not possible to sever it from the agreement represented by Los note since the two transactions (the payment of $595,000 in escrow and of $48,000 outside of escrow) were integrated and mutually dependent. As the trial court found, under these circumstances, the entire agreement was illegal. (See generally 1 Witkin, Summary of Cal. Law (10th ed. 2005) Contracts, § 421, pp. 462-463.) Indeed, it appears that the purchase agreement is void in terms of Civil Code section 1608 in that part of the consideration, i.e., the payment of $48,000 outside of escrow, was unlawful.
Civil Code section 1608: "If any part of a single consideration for one or more objects, or of several considerations for a single object, is unlawful, the entire contract is void."
It is also true that there is substantial evidence showing that appellants and respondents were in pari delicto.
Wang went along with the side-agreement because she could avoid paying taxes based on a sale of $643,000, and thereby pay taxes based on $595,000. This was certainly an illegal object. Wang did not help her case by claiming at trial that she would have reported the sale to taxing agencies as $643,000. This testimony is not credible, in light of her own testimony that Yang proposed the side-agreement as a device to avoid taxes. Wangs evasive and contradictory testimony about whether she knew that the payment of $48,000 was "under the table" only underlines that she well knew that the object of the separate payment outside of escrow was to enable her to evade some taxes.
Lo, as evidenced by her attorneys letter, sought to take advantage of the situation by disavowing her note and agreement to pay $48,000 outside of escrow, and thus acquire the house for $595,000, when the parties had clearly agreed, as of July 28/29, 2005, on $643,000. Lo did not improve upon her conduct during trial, when she claimed not to have seen attorney Chiangs letter, and when she attempted to evade answering the question why she did not sign the escrow amendments proposed by Yang, thus trying to mask her actual objective.
Yang, contrary to her obligations as a licensed broker, at the very least implemented and supported the illegal scheme, instead of rejecting it. We are guided here by the trial courts finding Yang not to be credible, which is a matter within the trial courts purview, and, additionally, by evidence that Yangs version (see fn. 12, ante) is inherently not credible since it is clear that Wang would not have signed the purchase agreement, if the actual price would have been $595,000. That is, Yang clearly knew that the purchase agreement did not reflect the actual price, which meant that on July 28/29, 2005, she was well aware of the illegal scheme to pay $48,000 outside of escrow. As with Wang and Lo, Yangs testimony at trial was less than truthful. Her testimony that she did not learn of Los note until August 22, 2005, simply cannot be believed.
We refer here to Yangs testimony that she did not learn of Los note until on or about August 22, 2005.
"Perhaps the most common exception to the rule of invalidity [of an illegal contract] is the in pari delicto exception. At its most fundamental level, the exception allows an illegal contract to be enforced `so long as the party seeking its enforcement is less morally blameworthy than the party against whom the contract is being asserted, and there is no overriding public interest to be served by voiding the agreement. " (McIntosh v. Mills (2004) 121 Cal.App.4th 333, 347.)
In this case, substantial evidence shows that the parties were in pari delicto. Wang was ready to commit tax fraud, Lo brazenly attempted to snap the house up for $595,000 when she had agreed to pay $643,000, and Yang facilitated and very possibly conceived of the tax fraud that Wang was ready to commit. Furthermore, all three parties testified less than truthfully at trial. When, as here, the parties are in pari delicto, the court will not enforce the contract and will not give any party the remedies of rescission and restitution, i.e., the court "leaves them as it finds them." (Irvine v. Postal Telegraph-Cable Co. (1918) 37 Cal.App. 60, 66.)
"Normally, relief given to one who is not in equal wrong is limited to rescission and restitution." (1 Witkin, Summary of Cal. Law, supra, Contracts, § 440, p. 480.)
We gave the parties an opportunity to file supplemental briefs on the questions whether they were in pari delicto and, if so, what the legal consequences are. Both Yang and Wang admit they were in pari delicto. While Yang takes the position that this means that the agreement is unenforceable, Wang contends that we should separate the listing agreement between her and Yang from the purchase agreement and allow Wang to recover for the breach of the listing agreement.
There are three reasons why we reject Wangs suggestion. First, while it is true that in Wangs brief she has set forth multiple breaches of the listing agreement, she failed to provide a single citation to the record to support the factual claims that she advances. As we have noted (see fn. 1, ante) this is reason enough to disregard claims that Yang breached the listing agreement. Second, the trial courts statement of decision is silent on the alleged breaches of the listing agreement; given that there no references to the record where these breaches are set forth, it appears that these alleged breaches were never even litigated. Third, and most important, the listing and purchase agreements are intertwined; the concession that Wang was in pari delicto on the purchase agreement necessarily applies to the listing agreement. Wang cannot claim that Yang breached the listing agreement by telling Wang to commit tax fraud when Wang did everything necessary to commit tax fraud, including failing to rectify the situation upon receiving Yangs August 26, 2005 letter. Wang and Yang are just as much in pari delicto when it comes to the listing agreement, as they are in the instance of the purchase agreement.
This would be reason enough to reverse the judgment awarding respondents damages. It is true, however, that respondents sued appellants for breach of fiduciary duties and for fraud, i.e., they arguably have claims against appellants that do not arise directly from the (illegal) purchase agreement. We therefore proceed to discuss two additional reasons why the judgment awarding damages must be reversed.
3. The Trial Court Awarded Loss of Bargain Damages to Wang
Having found the purchase agreement illegal and unenforceable, the trial court awarded Wang damages that compensated her for the loss of the bargain, i.e., the loss of the sale of the house by Wang to Lo and Su. In effect, this award enforced the purchase agreement and nullified the finding that the agreement was unlawful.
The court awarded Wang the net amount that Wang expended on the house for the period of one year. That is, the award is based on expenditures of $38,395 (including mortgage payments) less rental income of $22,700. Had the house been sold, Wang would have not incurred these expenditures. Thus, the theory upon which this award is based is that Wang lost the benefit of the bargain. It is basic that damages for breach of contract are, in the first place, the profits or benefits that were lost as a result of the breach. (1 Witkin, Summary of Cal. Law, supra, Contracts, § 879, pp. 966-968.) Awarding Wang the loss of the benefit of the bargain is nothing more or less than enforcing the purchase agreement that the court found illegal and unenforceable.
There is, however, an additional flaw in this award. It is based on the period of one calendar year. No reason appears in the record, or the facts of the case, for the trial courts choice of a one-year period. That is, the decision to award these loss-of-bargain damages for the period of one year is completely arbitrary.
In her supplemental brief, Wang states that the one-year period is based on the fact that escrow was supposed to have closed in September 2005 and the trial of this action "was to begin in late September of 2006." Apart from the fact that the trial did not in fact begin in September 2006, the only rational cutoff date, if it is based on the trial, is the entry of judgment. Be that as it may, a projected trial date that does not materialize is certainly not a rational cutoff date.
In her supplemental brief, Wang contends that this award is based not on the purchase agreement, but the listing agreement. As we have already pointed out, if Yang breached the listing agreement by proposing an illegal scheme, Wang is in pari delicto with Yang because she not only knowingly agreed to this scheme but also refused to rectify the situation and insisted on the performance of the illegal bargain. Thus, Wang cannot recover under either agreement.
Independently of the reason set forth in part 2 of the Discussion, ante, the award of $23,108 to Wang must reversed for the reasons hereinabove stated.
4. Respondents Losses, If Any, Were Not Caused by Appellants
It is quite apparent that the sellers and buyers reasons for not signing the escrow amendments proposed by Yangs letter of August 26, 2005, did not in fact operate to prevent them from signing the amendments.
Wang did not have to wait for the buyers to sign, and Los professed anger at Yang was of course no reason not to sign the amendments.
In Los case, the real reason she did not sign is obvious. She thought that she could force the sale through at $595,000. We do not know the real reason Wang did not sign, although once she received Attorney Chiangs letter of September 1, 2005, it must have been obvious to Wang that the sale would not go through at the agreed-upon price of $643,000, no matter what Wang did.
If respondents suffered any losses, it was because the sale of the house did not go through. And the reason that the sale did not go through was because respondents chose not to sign the amendments to the escrow instructions, which would have made the sale perfectly legal.
If respondents sustained any losses, they themselves are the cause of those losses.
The statement of decision attempted to make Yang responsible for the illegality of the purchase agreement, for the fact that the sale did not go through and for not assisting the seller and buyers to "remove the illegality prior to the close of escrow." While Yang without a doubt bore some of the responsibility for the side-agreement, we have shown in part 1 of the Discussion that neither the facts nor logic support the idea that the sale fell through because the purchase agreement was illegal.
Nor is it true that Yang did nothing to assist the seller and buyers to "remove the illegality prior to the close of escrow." The whole point of Yangs rather carefully crafted letter of August 26, 2005, was to explain why the escrow amendments proposed in the letter should be signed. No one contested that the letter was sent, received and read by the seller and buyers. In fact, there is evidence that the bearer of the letter stridently demanded that Lo should sign the amendments. In other words, Yang could hardly have done more than she did to correct an unsavory and illegal transaction. Thus, there is no evidence to support the trial courts finding that Yang did nothing to correct the situation, because uncontradicted evidence shows the contrary to be true.
5. Punitive Damages
There was no evidence presented on the issue of appellants net worth, which is a prerequisite to an award of punitive damages. (Adams v. Murakami (1991) 54 Cal.3d 105, 115-116.) In addition, the award cannot stand since Yang is not substantively liable to respondents for the reasons set forth in this opinion.
As an equitable consideration, this leaves the question whether Yangs acts and omissions are actionable. It is true that she probably conceived of the side-payment and acted to implement it. Her attempt in her letter of August 26, 2005, to deflect responsibility and to shift it to Wang and Lo must also be condemned. And we accept as true the trial courts findings in support of its award of punitive damages that Yang was not truthful about the state of the houses air conditioning and about the houses location.
The fact of the matter is that neither Wang nor Lo are in a position to compel Yang to respond in damages. The three parties are in pari delicto, which precludes any restitutionary recovery by Lo or Wang. It is also true that Wang and Lo could have signed the escrow amendments and effectuated the sale, and thus minimized their damages, if there were any. If they were not in pari delicto and if they had closed the sale at the agreed-upon price of $643,000, Wang and Lo may well have had a sustainable claim against Yang. As it is, they have none.
Particularly with Lo and Su, their out-of-pocket expenses of $5,965 would be recoverable under a restitutionary theory. Wangs benefit of the bargain damages would in no event be recoverable.
6. The Brokers Cross-action for Breach of Contract and Fraud
Appellants cross-action against Lo, Su and Wang set forth two causes of action, one for breach of contract and one for fraud. In the first cause of action appellants sought their fees and in the second cause of action they alleged that the side-agreement evidenced by Los note was fraudulently concealed from them and caused the sale to fall through.
Appellants do not challenge in their opening brief the adverse disposition, by the trial court, of these causes of action, although in their reply brief they make the conclusory claim that they are entitled to judgment.
We agree with the trial courts disposition of these causes of action. Appellants cannot recover fees for a sale that never took place and that rested on an illegal contract. There is substantial evidence that Yang was well aware of the agreement evidenced by Los note on July 28, 2005, when Wang signed the purchase agreement. Thus, the cause of action of fraud is without merit.
7. Conclusion
For the reasons stated, the judgment must be reversed.
We note the following actions and cross-actions in this case: (1) Los and Sus action against Wang, David Chen, Yang, YF Limited, Inc., dba IRN Realty and Acres-West Cost, Inc. (the principal action); (2) the cross-complaint by YF Limited against Su, Lo and Wang (brokers cross-action); and (3) the cross-complaint by Wang against Su, Lo, Yang, and YF Limited, Inc. (Wangs cross-action).
In our opinion, a retrial of this case would be pointless. Substantial and, for the most part, uncontradicted evidence shows that none of these three actions has any merit for the reasons that we have set forth in this opinion. Accordingly, we remand with directions that will terminate this entire controversy with no recovery in damages for any of the parties.
The new judgment is to award costs incurred in the trial court in conformance with the provisions of Code of Civil Procedure section 1032, subdivision (a)(4). (See generally 7 Witkin, Cal. Procedure (4th ed. 1997) Judgment, § 93, pp. 623-625.)
DISPOSITION
The judgment is reversed and remanded with directions to enter a new and different judgment for the defendants in the principal action, and the cross-defendants in the brokers cross-action and in Wangs cross-action. The parties are to bear their own costs on appeal.
We concur:
RUBIN, Acting P. J.
EGERTON, J.