Guan v. Hu, DCA2/1, 1/12/18
This was a breach of contract case concerning the purchase of a single family home. Defendant Hu’s lover arranged the acquisition of $2.6M Malibu property in Hu’s name, with financing provided by the lover’s very generous friend, Mr. Guan. Hu agreed to sell the property if the relationship didn’t work out; when it didn’t work out, Hu refused to the sell the property. The terms of the contract, and how the parties agreed to split the proceeds if a sale should be required do not matter to the outcome. What matters most, and makes this case very strange, are the following facts: First, the trial court granted Hu’s demurrer to Guan’s breach of contract action without leave to amend. And while the trial court never formally reconsidered its demurrer ruling, it nonetheless allowed Guan to proceed to trial on that cause of action. The cause of action was styled as one for “Rescission”— but was , in substance, a breach of contract claim asking for remedy of rescission. After a bench trial, the trial court found for Guan, ordered the sale of the property by receiver, and further ordered that Hu’s share be reduced by the value of the four years’ free rent she had enjoyed during the controversy. Hu appealed, arguing that Guan couldn’t proceed let alone prevail on a breach of contract action for rescission because of the trial court’s earlier ruling granting the demurrer without leave. Held: Affirmed. While the trial court never officially reconsidered and reversed its earlier ruling, the appellate court reasoned that a trial court must be allowed to correct erroneous interim rulings: “A court could not operate successfully under the requirement of infallibility in its interim rulings. Miscarriage of justice results where a court is unable to correct its own perceived legal errors.” The majority also felt that there had been enough discussion by the parties and court for all to understand that the breach of contract theory would be tried.
There was a strong (not to mention strongly worded) dissent. The dissent accused the majority of turning California law on its head. According to the dissent, Rescission is in fact a cause of action (and distinct from breach of contract) and that “sustaining a demurrer without leave to amend effectively dismisses that claim with prejudice and California courts have held that with prejudice, as that term is used in the context of dismissals, clearly means the plaintiff’s right of action is terminated and may not be revived.” The dissent felt that if the trial court had in fact reconsidered its earlier ruling it would have (and, for due process purposes, should have) said something to the parties.