Judge: Armen Tamzarian, Case: 22STCV35907, Date: 2023-02-17 Tentative Ruling

Case Number: 22STCV35907    Hearing Date: February 17, 2023    Dept: 52

Plaintiff/Cross-Defendant Santa Central, Inc.’s Demurrer to Cross-Complaint

Plaintiff/cross-defendant Santa Central, Inc. demurs to the first cause of action for rescission alleged in defendant/cross-complainant Glendale I Mall Associates, LP’s cross-complaint. 

There is a split in authorities regarding whether rescission is a cause of action or a remedy.  Some cases hold, “Rescission is not a cause of action; it is a remedy.”  (See, e.g., Nakash v. Superior Court (1987) 196 Cal.App.3d 59, 70.)  Other cases hold, “A rescission is enforced by a civil action for relief based on rescission.”  (Southern Ins. Co. v. Workers’ Comp. Appeals Bd. (2017) 11 Cal.App.5th 961, 963–964; accord Civ. Code § 1692 [ “When a contract has been rescinded … any party to the contract may seek relief based upon such rescission by (a) bringing an action to recover any money or thing owing to him … or (b) asserting such rescission by way of defense or cross-complaint”].)  It does not make a difference to the court’s analysis because regardless “of the labels attached by the pleader to any alleged cause of action, [courts] examine the factual allegations of the complaint, ‘to determine whether they state a cause of action on any available legal theory.’ ”  (Adelman v. Associated Intern. Ins. Co. (2001) 90 Cal.App.4th 352, 359.) 

Whether it is a cause of action or a remedy, a party seeking rescission must allege “a valid substantive ground for rescission.”  (Wong v. Stoler (2015) 237 Cal.App.4th 1375, 1387.)  Grounds for unilateral rescission include when plaintiff’s consent “was given by mistake, or obtained through duress, menace, fraud, or undue influence, exercised by or with the connivance of” the defendant.  (Civ. Code, § 1689(b)(1)).)  “[W]hen a party has been induced by fraud or mistake to enter into a contract, the party may have the contract set aside and seek restitution of those benefits lost to him by the transaction.”  (Merced County Mut. Fire Ins. Co. v. State of California (1991) 233 Cal.App.3d 765, 771.)

The cross-complaint alleges sufficient facts to constitute grounds for rescission based on fraud.  Promissory fraud requires “(1) the defendant made a representation of intent to perform some future action, i.e., the defendant made a promise, and (2) the defendant did not really have that intent at the time that the promise was made, i.e., the promise was false.”  (Beckwith v. Dahl (2012) 205 Cal.App.4th 1039, 1060.)  Promissory fraud is “fraud or deceit based on a promise made without any intention of performing it.”  (Behnke v. State Farm General Ins. Co. (2011) 196 Cal.App.4th 1443, 1453; see also Civ. Code, § 1710(4).)  “A defrauded party has the right to rescind a contract … on establishing that fraudulent contractual promises inducing reliance have been breached.”  (Engalla v. Permanente Medical Group, Inc. (1997) 15 Cal.4th 951, 979.)

The label for this cause of action describes it as “rescission … for mutual mistake, fraud, breach, or failure of consideration.”  (Cross-Comp., p. 6, lines 23-24.)  The cross-complaint alleges, “Santa Central never intended to follow the Tenant Package requirements and it misled GMA into relying on Santa Central’s promise to do so.”  (¶ 31.)  Glendale I Mall Associates alleges the lease incorporates the Tenant Package.  (¶ 17, Ex. A.C, ¶ A.d. [“By the execution of Tenant’s Lease, Tenant acknowledges receipt of the Tenant Package and by this reference, it is incorporated in the lease”].)  The cross-complaint also alleges the Tenant Package requires “City of Glendale Building Permits, a Certificate of Insurance, Glendale Fire Department approval of proposed barricades, and a Pre-Construction Meeting at GMA’s main office.”  (¶ 12.) 

Glendale I Mall Associates further alleges that after executing the contract, “Santa Central’s principal informed GMA that he ‘never’ obtains a permit prior to commencing construction.  He stated he would ‘rather ask for forgiveness than permission.’ ”  (¶ 25.)  Finally, the cross-complaint alleges, “Santa Central still does not have a City permit to even begin the Tenant Improvement construction.” (¶ 26.) 

Accepting the factual allegations as true, the cross-complaint sufficiently alleges that Glendale I Mall Associates’ consent was obtained through false promises to comply with the lease’s pre-construction requirements.  Cross-complainant therefore shows grounds to rescind the contract for fraudulent inducement.

Santa Central, Inc. argues the cross-complaint fails to specifically allege the details required in an action for fraud against an entity.  “The requirement of specificity in a fraud action against a corporation requires the plaintiff to allege the names of the persons who made the allegedly fraudulent representations, their authority to speak, to whom they spoke, what they said or wrote, and when it was said or written.”  (Tarmann v. State Farm Mut. Auto. Ins. Co. (1991) 2 Cal.App.4th 153, 157.)  Though the body of the cross-complaint does not include those details, the lease is attached.  (Cross-Comp., Ex. A.)  For promissory fraud, the contract itself contains the misrepresentation.  The lease shows that Mike Rafipoor, president of Santa Central, Inc., executed the lease on May 17, 2022.  (Id., pp. G-1, G-4, 28-29.)  The cross-complaint therefore includes the specific facts required.

Santa Central also argues the cross-complaint improperly “prays for both damages and rescission,” which are inconsistent.  (Demurrer, p. 8.)  “A claim for damages,” however, “is not inconsistent with a claim for relief based upon rescission.”  (Civ. Code, § 1692.)  A rescinding party may recover “damages that would restore the plaintiff to the position that she would have been if had she not entered the contract.”  (Akin v. Certain Underwriters at Lloyd’s London (2006) 140 Cal.App.4th 291, 296.)  The cross-complaint prays “[f]or restitution or reimbursement of damages suffered.”  (Cross-Comp., prayer ¶ 2.)  That remedy is consistent with restitution. 

Disposition 

            Plaintiff/cross-defendant Santa Central, Inc.’s demurrer to the cross-complaint is overruled.  Plaintiff/cross-defendant Santa Central, Inc. is ordered to answer within 20 days.