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Garcia v. Roberts

May 4, 2009


APPEAL from a judgment of the Superior Court of Fresno County. Stephen R. Henry, Judge. (Retired Judge of the Fresno Sup. Ct. assigned by the Chief Justice pursuant to article VI, § 6 of the Cal. Const.) (Super. Ct. No. 04CECG03607).

The opinion of the court was delivered by: Kane, J.



Plaintiff Johnny Garcia brought suit for breach of oral contract, fraud and related causes of action when defendants Ronald and Sherry Roberts allegedly reneged on their agreement to allow plaintiff to purchase certain real property located in Sanger, California. Plaintiff claimed during discovery that his agreement was based solely on an oral loan arrangement, not a written contract. Plaintiff died prior to trial and his wife, Omega Garcia, was permitted to continue plaintiff's lawsuit as his successor-in-interest. After trial commenced, plaintiff (through Omega Garcia as successor-in-interest) moved to amend the complaint to add a new cause of action for breach of a written contract for an option to purchase the real property.*fn2 The trial court granted the motion to amend over defendants' objections and the jury subsequently found in plaintiff's favor on all causes of action, including breach of written contract. Judgment was entered on the verdict.*fn3 Defendants appeal on several grounds, including that the trial court abused its discretion in allowing the amendment during trial, the oral contract cause of action was invalid as a matter of law, and there was no substantial evidence to support the jury's findings of liability on any of the causes of action. Although we agree that the trial court abused its discretion in granting leave to amend, in all other respects we affirm the orders and judgment of the trial court.


Factual Background Prior to Plaintiff's Lawsuit

The parties' dispute concerns a parcel of land located on Academy Avenue in Sanger, California (the property). Plaintiff originally rented the property, along with a mobilehome situated there, from an entity known as the Sasashima Family Trust for $500 per month. Plaintiff lived in the mobilehome and also ran a modest business as a backhoe operator from there. In 2001, plaintiff entered into negotiations with Akiko Sasashima, the trustee of the Sasashima Family Trust, to purchase the property. In October or November of 2001, an agreement was reached giving plaintiff an option to purchase the property for $140,000. Pursuant to that agreement, plaintiff paid the sum of $7,500 to the Sasashima Family Trust and was given two years to come up with the remaining balance of the purchase price ($132,500), with the $7,500 counting as a down payment. In the interim, plaintiff agreed to continue paying $500 in monthly rent.

Plaintiff found it difficult to obtain financing to pay the $132,500 balance to the Sasashima Family Trust. Eventually, he mentioned this fact to an acquaintance, defendant Ronald Roberts.*fn4 Plaintiff occasionally performed backhoe work for Mr. Roberts, who was a plumbing contractor. During one such job, plaintiff asked Mr. Roberts if he would be willing to loan the money to plaintiff. According to plaintiff's deposition testimony introduced at trial, plaintiff and Mr. Roberts entered into an oral agreement regarding the property. Under the terms of the oral agreement, Mr. Roberts agreed to pay the $132,500 balance of the purchase price to the Sasashima Family Trust as a loan to plaintiff, but title to the property would be put in Mr. Robert's name and plaintiff would be required to pay interest on the loan of 12 percent or approximately $1,325 per month for a period of two years. By the end of the two-year period, plaintiff was to secure financing to pay off the loan, whereupon title would be conveyed to plaintiff.

In reliance on this oral agreement, plaintiff facilitated the sale of the property from the Sasashima Family Trust to defendants. The Sasashima Family Trust sold the property to defendants for $132,500, a price that was apparently based on the fact that plaintiff previously paid $7,500 toward the $140,000 purchase price. With additional closing costs, defendants obtained title to the property for a total sum of $133,027. Escrow closed on September 26, 2002.

On September 26, 2002, shortly after escrow closed, defendants asked plaintiff and his wife to come to their home to sign paperwork regarding the property. Defendant Sherry Roberts presented a form contract entitled "LEASE WITH OPTION TO PURCHASE" (the lease-option agreement). After Mrs. Roberts filled out the lease-option agreement, she read all or most of the terms out loud and provided additional explanation of the terms as she read them. This was apparently done because plaintiff spoke some English, but could not read it, while plaintiff's wife did not understand English at all. All four parties then signed the lease-option agreement.*fn5

The gist of the lease-option agreement was that plaintiff and his wife would lease the property for a period of two years beginning on September 26, 2002, at the end of which time they could exercise an option to purchase the property by giving written notice. Rent for the lease term was expressed as "[t]welve percent (12%)" or $1,330.27 per month. This amount was based on defendants' desire to earn 12 percent interest on the money they paid the Sasashima Family Trust in purchasing the property. The portion of the lease-option agreement describing the option stated that the purchase price of the property was $133,027 and that the option could be exercised "at any time during the period beginning October 26, 2004, and ending October 26, 2004, by giving [defendants] sixty (60) days written notice at any time prior to ________, ___." The last blank was never filled in.*fn6 Mrs. Roberts testified that the October 26, 2004 date was meant to give plaintiff a one-month grace period in which to exercise his option to purchase the property after the lease term ended in September of 2004.*fn7

In 2004, plaintiff began the process of seeking to qualify for and obtain financing to purchase the property from defendants. Plaintiff started working closely with a mortgage broker by the name of Gilbert Servin, who was owner of Su Casa Mortgage Company. Mr. Servin helped plaintiff "clean up" his credit history and improve his credit score. With Mr. Servin's assistance, plaintiff's credit score improved significantly by August of 2004. At that point, Mr. Servin "knew that [he] could get [plaintiff] a loan" to complete plaintiff's purchase of the property. Accordingly, Mr. Servin opened an escrow regarding the property with Stewart Title Company on August 19, 2004, a preliminary title report was requested from the title company and plaintiff took steps to procure homeowner's insurance. Additionally, Mr. Servin submitted a home loan application to Countrywide Financial Corporation on plaintiff's behalf and ordered an appraisal of the property.

In late August or early September of 2004, Mr. Servin placed a telephone call to Mr. Roberts to discuss the status of the escrow and to confirm the terms of the sale to plaintiff. Mr. Roberts confirmed that the agreement was to sell the property to plaintiff and his wife for the same amount of money that defendants had paid to purchase it. During the same conversation, Mr. Servin informed Mr. Roberts that an escrow had been opened at Stewart Title Company, a loan application had been submitted and it appeared the loan would be approved pending receipt of the appraisal. Mr. Servin attempted to set up a meeting with Mr. Roberts to review and sign a written purchase agreement that the lenders would require for the transaction. Mr. Roberts responded that he and Mrs. Roberts were just leaving for Europe on a vacation that would last about one month and said "'don't do anything until I get back.'"

Subsequently, an appraisal of the property was completed that showed a market value of $186,000. Additionally, sometime in October of 2004, Mr. Servin received word that a commercial lender had approved plaintiff's loan request and plaintiff was informed of this fact,*fn8 whereupon plaintiff made a deposit of approximately $10,000 into the escrow to cover anticipated lending fees and closing costs regarding the transaction.

After defendants returned from their vacation, plaintiff and Mr. Servin had a meeting with defendants at defendants' home to discuss the real estate purchase.

Mr. Servin thought the meeting was in late September of 2004; Mr. Roberts was certain it was on October 23, 2004. At the meeting, Mr. Servin presented a standard form purchase agreement to defendants that Mr. Servin had prepared in order to satisfy the lender's requirements. The proposed purchase agreement was backdated to September 21, 2002, which Mr. Servin said was either a mistake or perhaps was due to his understanding of the parties' original agreement. The proposed purchase agreement reflected that a $7,500 deposit was received toward a total $140,000 purchase price, with a balance due to "seller" of $132,500. It further stated that "buyer" had to obtain financing by October 31, 2004 and would continue to pay rent in an unspecified amount until the purchase was completed.*fn9

During the meeting, defendants excused themselves for a private conversation about the proposed purchase agreement. Mr. Roberts returned and told plaintiff and Mr. Servin that he would not sign the proposed purchase agreement at that time, but he would go to the title company to sign it. Defendants never asked plaintiff or Mr. Servin to make any changes or corrections to the proposed purchase agreement. Mr. Roberts did go to the title company the next day, but he never signed the proposed purchase agreement. In fact, he refused to do so. Plaintiff continued to call Mr. Roberts until October 26, 2004, demanding that Mr. Roberts sell the property to him, but Mr. Roberts simply told plaintiff he did not like the way the papers had been prepared. Mr. Roberts told plaintiff that he (plaintiff) had not fulfilled his obligations and that his "time was over"-he had lost his opportunity to purchase the property.

Sometime before defendants refused to sign the proposed purchase agreement, plaintiff told defendants that he had heard the property had appreciated and was worth $500,000. Mrs. Roberts thought at that time that plaintiff's estimate of $500,000 was perhaps a good one.

Relevant Procedural History

Plaintiff filed the present action against defendants on December 16, 2004. On December 14, 2005, plaintiff filed a third amended complaint alleging causes of action for, among other things, breach of oral contract, breach of implied covenant of good faith and fair dealing, and fraud.*fn10 The third amended complaint was the operative pleading at the time of trial on June 25, 2007. As with all prior versions of the complaint, the underlying contract was alleged to be an oral loan agreement. No written contract was alleged.

Defendants' responsive pleadings referred to the existence of the written lease-option agreement over two years prior to the commencement of trial. On March 30, 2005, defendants' answer to the second amended complaint expressly alleged the existence of a written contract as a defense to the oral agreement. In support of that defense, defendants attached a copy of the lease-option agreement to their answer. Later, in their answer to the third amended complaint, sometime after plaintiff's deposition testimony indicated his denial of the existence of a written agreement, defendants revised their defensive posture by simply asserting that there was "no valid or enforceable oral or written contract between [p]laintiff and [d]efendants." (Italics added.)

On February 7, 2007, plaintiff Johnny Garcia died. Plaintiff's wife was then substituted into the case to continue the litigation as plaintiff's successor-in-interest and personal representative.

Trial commenced on June 25, 2007. During discussion of several motions in limine, plaintiff's counsel announced his intention to move to amend the third amended complaint in order to allege a new cause of action for breach of written contract. Plaintiff's counsel proposed to add a claim against defendants based on the lease-option agreement entered on September 26, 2002. Defendants' counsel, while acknowledging that defendants were aware of the existence of the written contract, objected that it was prejudicial to allow plaintiff to make the proposed amendment during trial since plaintiff previously denied there was any agreement other than the alleged oral loan agreement and, in reliance on plaintiff's claims, defendants only prepared to defend the alleged oral agreement. The issue of whether plaintiff would be allowed to amend his complaint was then deferred until later in the trial proceedings.

Subsequently, plaintiff's counsel admitted to the trial court that plaintiff had previously known about the written contract but refused to allow plaintiff's counsel to refer to it in the lawsuit. Prior to closing arguments, plaintiff's motion to amend was formally presented along with a brief in support of the motion. The trial court heard extensive oral argument from both sides. Ultimately, the trial court granted the motion and plaintiff was permitted to file the proffered amendment to the third amended complaint adding a new cause of action for breach of written contract.

The jury found in favor of plaintiff on all causes of action. Specifically, plaintiff prevailed against both defendants on the causes of action for breach of written contract and breach of implied covenant of good faith and fair dealing. Plaintiff prevailed against Mr. Roberts on the breach of oral loan contract and fraud claims.*fn11 Damages of $366,973 were awarded to plaintiff. Judgment was entered in favor of plaintiff on August 13, 2007.

Defendants moved for JNOV and for new trial. The trial court granted a limited new trial on the issue of damages only, but otherwise denied the ...

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