Case Name: Hong v. Roseau Motel and Diner, Inc., et al.
Case No.: 1-13-CV-249853

Defendants/cross-complainants Roseau Motel and Diner, Inc. (the “Motel”) and Ammy Shih Johnson (collectively, “Defendants”) demur to the first amended complaint (“FAC”) filed by plaintiff Michael Hong (“Plaintiff”).

This is an action for breach of contract arising out of agreements to lease and purchase property. On November 10, 2011, Plaintiff entered into a written agreement with Defendants whereby the latter agreed to lease and sell the Motel to Plaintiff. (FAC at ¶ 16 and Exhibit A.) At the time the agreement was executed, Plaintiff paid Defendants a first installment of deposit in the amount of $20,000. (Id. at ¶ 17.)

On June 8 and 13, 2012, the foregoing agreement was revised to a purchase and sale agreement whereby Defendants agreed to sell the Motel to Plaintiff, James C.W. Wong (“Wong”) and Joey Chen Young (“Young”). (FAC at ¶ 18 and Exhibit B.) In addition to the $20,000 already paid by Hong, Wong and Young each paid $10,000 under the terms of the purchase and sale agreement for a total of $40,000 in earnest money. (Id. at 19.)

On January 1, 2012, unable to obtain the necessary financing to complete the purchase, the three buyers sent Defendants a written Notice of Cancellation as they were permitted to do under the terms of the purchase and sale agreement. (FAC at ¶ 21 and Exhibit C.) The agreement further provided that if the buyer elected to cancel it, all earnest money was to be refunded to him. (Id. at ¶ 20 and Exhibit C at paragraph (n).) Defendants agreed to refund Wong and Young the $20,000 they had paid but refused to refund Plaintiff any of the funds he had expended towards the purchase. (Id. at ¶¶ 23, 24.)

On April 24, 2014, Plaintiff filed the FAC asserting the following causes of action: (1) Breach of Contract; (2) Breach of Covenant of Good Faith and Fair Dealing; (3) Unjust Enrichment; and (4) Misrepresentation. On May 19, 2014, Defendants filed the instant demurrer to each of the four causes of action asserted in the FAC on the ground of failure to state facts sufficient to constitute a cause of action. (See Code Civ. Proc., § 430.10, subd. (e).)

Defendants’ demurrer to the first cause of action (Breach of Contract) on the ground of failure to state facts sufficient to constitute a cause of action is OVERRULED. A cause of action for damages for breach of contract is comprised of the following elements: (1) the contract; (2) the plaintiff’s performance or excuse for nonperformance; (3) the defendant’s breach; and (4) the resulting damages to the plaintiff. (See Durell v. Sharp Healthcare (2010) 183 Cal.App.4th 1350, 1367.) Contrary to Defendants’ assertions, Plaintiff has sufficiently pleaded the foregoing elements in alleging that Defendants refused to refund him the $20,000 in earnest money he expended towards the purchase of the motel. Paragraph (n) of the purchase and sale agreement between the parties provides, in pertinent part, that:

This Agreement is contingent on Buyer obtaining loan(s) of Buyer’s choice …. If, at any time, the financial or appraisal contingency is not satisfied, Buyer may cancel this Agreement by delivering to Seller a written Notice of Cancellation, along with supporting documentation, and all Earnest Money must be refunded to Buyer.

(FAC, Exhibit B, emphasis in original.)

Thus, in allegedly failing to return Plaintiff’s earnest money, Plaintiff has alleged that Defendants breached this provision of the purchase and sale agreement between the parties.

Defendants’ demurrer to the second cause of action (Breach of Covenant of Good Faith and Fair Dealing) on the ground of failure to state facts sufficient to constitute a cause of action is OVERRULED. Defendants insist that this claim is deficient because Plaintiff has not sufficiently pleaded a breach of contract by them and “a prerequisite for any action for breach of the implied covenant of good faith and fair dealing is the existence of a contractual relationship between the parties, since the covenant is an implied term in the contract” (Molecular Analytical Systems v. Ciphergen Biosystems, Inc. (2010) 186 Cal.App.4th 696, 711). Plaintiff has pleaded such a contractual relationship based on the two agreements relating to the purchase of the Motel and there is no authority which provides that a claim for breach of the implied covenant cannot exist in the absence of a breach of the underlying agreement, as Defendants appear to insinuate.

Defendants’ demurrer to the third cause of action (Unjust Enrichment) on the ground of failure to state facts sufficient to constitute a cause of action is OVERRULED. While it is generally true that there is no cause of action for unjust enrichment in California, courts will overlook labels in a complaint and in considering whether a complaint for “unjust enrichment” states a claim, will consider whether the complaint states facts that constitute a cause of action warranting restitution. (See McBride v. Houghton (2004) 123 Cal.App.4th 379, 387-388.) As Plaintiff notes, “restitution may be awarded in lieu of breach of contract damages when the parties had an express contract, but it was procured by fraud or is unenforceable or ineffective for some reason. Alternatively, restitution may be awarded where the defendant obtained a benefit from the plaintiff by fraud, duress, conversion, or similar conduct.” (Durell, supra, 183 Cal.App.4th 1350, 1370.) Here, Plaintiff alleges that but for various misrepresentations by Defendants, he would not have entered into the subject agreements with them and thus was fraudulently induced to pay Defendants the $20,000 in earnest money that they have wrongfully retained. (FAC at ¶ 41.)

Defendants’ demurrer to the fourth cause of action (Misrepresentation) on the ground of failure to state facts sufficient to constitute a cause of action is OVERRULED. Defendants’ insistence that no claim for misrepresentation has been stated because the provisions in the first agreement did not include any language that Plaintiff’s deposit was to be carried over to the second agreement ignores the allegations upon which the fourth cause of action are predicated. The fourth cause of action is based on allegations that Defendants made various representations regarding the ownership of the Motel that were not true and not allegations relating to the terms of the contracts, specifically those pertaining to the amounts paid by Plaintiff towards the purchase of the Motel. (FAC at ¶¶ 37-39.)