Case Name: C-M Hope Street, et al. v. Edmund Y. Sun and Jane V. Sun as Co-Trustees of the Los Altos Holding Trust, et al.
Case No.: 2015-1-CV-288062

Demurrer to the First Amended Cross-Complaint by Defendant Calvano Development, Inc.

Factual and Procedural Background

This is an action for cancellation and rescission of a written instrument. Cross-Complainants Christopher S. Sun (“Chris”), John S. Sun (“John”), and Jane V. Sun (“Jane”) (collectively, “Cross-Complainants”) are owners of interests in certain real property located at 278 Hope Street and 280 Hope Street in Mountain View, California (collectively, “Hope Street Properties”). (First Amended Cross-Complaint [“FACC”] at ¶¶ 1-3.) Edmund Y. Sun (“Edmund”) also owns an interest in the 280 Hope Street property. (Id. at ¶ 11.)

On March 30, 2015, cross-defendant Calvano Development, Inc. (“Calvano”) executed a standard AIR commercial real estate contract (“Purchase Agreement”) for the Hope Street Properties. (FACC at ¶ 13, Exhibit A.) The Purchase Agreement is voidable in the event of Calvano’s material non-compliance. (Id. at ¶ 13.) Cross-Complainants complied with the disclosure and document production requirements under the Purchase Agreement by April 20, 2015. (Id. at ¶ 18.) Calvano, however, failed to remove buyer’s contingencies within 30 days thereafter as required under the Purchase Agreement and deposit an additional $50,000 into escrow. (Ibid.) In response, on May 20, 2015, Cross-Complainants executed and delivered a written demand for buyer to remove contingencies by May 23, 2015. (Ibid.) Calvano failed to comply with the written demand. (Ibid.) On May 23, 2015, Cross-Complainants executed and delivered a written Cancellation of Contract, Release of Deposit, and Cancellation of Escrow. (Ibid.) Calvano refused to acknowledge the cancellation. (Ibid.)

On November 13, 2015, Calvano and cross-defendant C-M Hope Street filed the underlying action against Cross-Complainants and Edmund. (FACC at ¶ 20.) Shortly thereafter, Calvano and C-M Hope Street filed and recorded a Notice of Pendency of Action, thereby creating a cloud on title to the Hope Street Properties. (Ibid.)

On January 9, 2017, Cross-Complainants filed a Cross-Complaint alleging causes of action for: (1) cancellation of written instrument; (2) rescission; (3) disparagement of title; (4) breach of fiduciary duty; (5) negligence; (6) breach of written contract; (7) implied indemnity; (8) comparative indemnity; and (9) declaratory relief.

On June 27, 2017, Calvano filed a demurrer to the first, second, third, and ninth causes of action in the Cross-Complaint on the grounds of uncertainty and failure to state a cause of action. The Court overruled the demurrer for uncertainty but sustained the demurrer with leave to amend on the ground each claim failed to state a cause of action.

On August 11, 2017, Cross-Complainants filed the operative FACC alleging causes of action for: (1) cancellation of written contract and damages; (2) rescission due to breach of written contract; (3) disparagement of title; (4) breach of fiduciary duty; (5) negligence; (6) breach of written contract; (7) implied indemnity; (8) comparative indemnity; and (9) declaratory relief.

Demurrer to the FACC

Currently before the Court is Calvano’s demurrer to the first, second, third, and ninth causes of action in the FACC on the grounds of uncertainty and failure to state a cause of action. (See Code Civ. Proc., § 430.10, subds. (e), (f).) Calvano also submitted a request for judicial notice in conjunction with the motion. Cross-Complainants filed written opposition. Calvano filed reply papers.

Request for Judicial Notice

In support of the motion, Calvano requests judicial notice of the FACC and the Court’s tentative ruling on the prior demurrer to the Cross-Complaint. (See Request for Judicial Notice at Exhibits A, B.) Although neither side contested the tentative ruling, the Court issued a formal written order that superseded the tentative ruling. The Court may take judicial notice of Exhibit A as a record of the superior court under Evidence Code section 452, subdivision (d). (See Stepan v. Garcia (1974) 43 Cal.App.3d 497, 500 [the court may take judicial notice of its own file].) The Court will not take judicial notice of the tentative ruling.

Accordingly, the request for judicial notice is GRANTED in part and DENIED in part.

Legal Standard

“In reviewing the sufficiency of a complaint against a general demurer, we are guided by long settled rules. ‘We treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law. We also consider matters which may be judicially noticed.’” (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) “A demurrer tests only the legal sufficiency of the pleading. It admits the truth of all material factual allegations in the complaint; the question of plaintiff’s ability to prove these allegations, or the possible difficulty in making such proof does not concern the reviewing court.” (Committee on Children’s Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 213–214.)

“The reviewing court gives the complaint a reasonable interpretation, and treats the demurrer as admitting all material facts properly pleaded. The court does not, however, assume the truth of contentions, deductions or conclusions of law. … [I]t is error for a trial court to sustain a demurrer when the plaintiff has stated a cause of action under any possible legal theory. And it is an abuse of discretion to sustain a demurrer without leave to amend if the plaintiff shows there is a reasonable possibility any defect identified by the defendant can be cured by amendment.” (Gregory v. Albertson’s, Inc. (2002) 104 Cal.App.4th 845, 850.)

Uncertainty

According to the Notice of Motion, Calvano demurs to the first, second, third, and ninth causes of action on the ground of uncertainty. (Code Civ. Proc., § 430.10, subd. (f).) However, the memorandum of points and authorities in support of the motion fails to address the demurrer for uncertainty. (See Chavez v. Netflix, Inc. (2008) 162 Cal.App.4th 43, 52 [where appellant’s motion was supported by deficient memorandum, trial court was justified in denying the motion on procedural grounds]; see also Quantum Cooking Concepts, Inc. v. LV Assocs., Inc. (2011) 197 Cal.App.4th 927, 934 [trial court not required to “comb the record and the law for factual and legal support that a party has failed to identify or provide”].) Furthermore, demurrers for uncertainty are disfavored and will only be sustained where the pleading is so bad that the defendant cannot reasonably respond, i.e., he or she cannot reasonably determine what issues must be admitted or denied, or what counts or claims are directed against him or her. (See Khoury v. Maly’s of Calif., Inc. (1993) 14 Cal.App.4th 612, 616.) Given Calvano’s arguments on general demurrer, it clearly has notice of the issues and claims raised by Cross-Complainants in this action.

Consequently, the demurrer to the FACC on the ground of uncertainty is OVERRULED.

First and Ninth Causes of Action: Cancellation of Written Contract and Declaratory Relief

In the first cause of action, Cross-Complainants seek an order compelling Calvano to cancel the Purchase Agreement. (FACC at ¶ 23.) The request for cancellation is based on Calvano’s failure to remove buyer’s contingencies as required under the Purchase Agreement and deposit an additional $50,000 into escrow. (Id. at ¶ 18.) Similarly, the ninth cause of action for declaratory relief seeks a judicial determination that Calvano was contractually obligated, and failed to remove contingencies following expiration of the due diligence period. (Id. at ¶ 63, subd. (a).)

A claim for cancellation of written instrument is codified in Civil Code section 3412. That section provides that “[a] written instrument, in respect to which there is a reasonable apprehension that if left outstanding it may cause serious injury to a person against whom it is void or voidable, may, upon his application, be so adjudged, and ordered to be delivered up or canceled.” (Civ. Code, § 3412.) Thus, to state a cause of action under section 3412, Cross-Complainants must allege the written instrument was void or voidable against them. (Saterbak v. JPMorgan Chase Bank, N.A. (2016) 245 Cal.App.4th 808, 818-819; see Johnson v. PNC Mortg. (N.D. Cal. 2015) 80 F.Supp.3d 980, 990 [section 3412 requires “the challenged instrument be void or voidable against the party seeking to cancel it”].)

The Court previously sustained the demurrer to these claims finding that Cross-Complainants did not plead facts demonstrating that the Purchase Agreement is void or voidable against them. (See Request for Judicial Notice at Exhibit B.) Cross-Complainants have since amended their pleading to allege that the Purchase Agreement is voidable in the event of a material non-compliance by cross-defendants. (See FACC at ¶¶ 13, 16.) Calvano argues that this newly pled allegation is conclusory and thus fails to state a cause of action. As this is the pleading stage, the Court finds this allegation sufficient to support claims for cancellation and declaratory relief to overcome demurrer. (See Olson v. Toy (1996) 46 Cal.App.4th 818, 823 [for purposes of demurrer, we accept these allegations as true].) Alternatively, Calvano contends these claims are deficient as Cross-Complainants did not plead a valid cause of action for breach of contract. This argument is also unavailing as the subject claims are causes of action for cancellation and declaratory relief, not breach of contract.

Finally, Calvano argues there is no factual basis to support the allegation that it was required to remove buyer’s contingencies. This argument lacks merit as the FACC alleges that Calvano was required to remove buyer’s contingencies as provided under the Purchase Agreement. (See FACC at ¶ 18.) Such allegation must be accepted as true for purposes of demurrer.

Accordingly, the demurrer to the first and ninth causes of action on the ground that they fail to state a claim is OVERRULED.

Second Cause of Action: Rescission Due to Breach of Written Contract

The second cause of action seeks the remedy of rescission for cross-defendants’ alleged breach of the Purchase Agreement. (See FACC at ¶¶ 25-30.) As a procedural matter, Calvano argues that any such claim for breach of contract is improper as it was added without leave of Court. (See Harris v. Wachovia Mortgage, FSB (2010) 185 Cal.App.4th 1018, 1023 [“The plaintiff may not amend the complaint to add a new cause of action without having obtained permission to do so, unless the new cause of action is within the scope of the order granting leave to amend.”].) The Court however, in its prior order on demurrer to the Cross-Complaint, noted that Cross-Complainants had intended for the second cause of action to be a claim based on breach of contract seeking a remedy of rescission. (See Request for Judicial Notice at Exhibit B.) On that basis, the Court sustained the demurrer to the second cause of action with leave to amend so they could add such a claim. (Ibid.) Even if this is a claim for breach of contract, Calvano asserts there are insufficient facts to support the element of breach. (See Memo of P’s & A’s at p. 8:2-7; see also Oasis West Realty, LLC v. Goldman (2011) 51 Cal.4th 811, 821 [elements for breach of contract].) This contention is not persuasive as Calvano allegedly breached the Purchase Agreement by failing to remove buyer’s contingencies within 30 days and deposit an additional $50,000 into escrow. (See FACC at ¶¶ 18, 25, 27.) Such allegations are sufficient to state a claim and must be accepted as true on demurrer.
Consequently, the demurrer to the second cause of action on the ground that it fails to state a claim is OVERRULED.

Third Cause of Action: Disparagement of Title

In the third cause of action, Cross-Complainants allege that Calvano published false statements on a website disparaging their lawful ownership of the Hope Street Properties. (FACC at ¶¶ 32-36.) “Slander or disparagement of title occurs when a person, without a privilege to do so, publishes a false statement that disparages title to property and causes the owner thereof some special pecuniary loss or damage. [Citation.] The elements of the tort are (1) a publication, (2) without privilege or justification, (3) falsity, and (4) direct pecuniary loss.” (Summer Hill Homeowners’ Assn., Inc. v. Rio Mesa Holdings, LLC (2012) 205 Cal.App.4th 999, 1030 [internal quotation marks omitted].)

The Court previously sustained the demurrer to the third cause of action on the ground Cross-Complainants did not allege that the false statements were published without privilege or justification. (See Request for Judicial Notice at Exhibit B; see also Hill v. Allan (1968) 259 Cal.App.2d 470, 489-490 (Hill) [“The burden of proof of the lack of privilege is on the plaintiff.”]; Phillips v. Glazer (1949) 94 Cal.App.2d 673, 677 [slander of title is effected by one who without privilege publishes untrue and disparaging statements with respect to the property of another].) Cross-Complainants have since amended the third cause of action to indicate that these alleged statements were false and published without privilege or justification. (FACC at ¶ 34.) Calvano argues the amendment is inadequate and claims that Cross-Complainants were required to plead malice to overcome the conditional privilege. In support, Calvano relies on Hill which provides in relevant part “that a rival claimant of property is privileged to disparage or is justified in disparaging another’s interest in property by an honest and good faith assertion of an inconsistent legally protected interest in himself.” (Hill, supra, at p. 490; Gudger v. Manton (1943) 21 Cal.2d 537, 545 [overruled in part on other grounds in Albertson v. Radoff (1956) 46 Cal.2d 375].) This argument however is underdeveloped as Calvano fails to establish the existence of a conditional privilege from the face of the pleading for purposes of demurrer. To the extent that such a privilege exists, Calvano may later raise the issue on a motion for summary judgment supported by admissible evidence or as a defense at trial.

Therefore, the demurrer to the third cause of action on the ground that it fails to state a claim is OVERRULED.

The Court will prepare the Order.