>San
Leandro Land> v. Nicholas
K. Corp.























Filed 3/7/13 San Leandro Land v. Nicholas K. Corp. CA1/2

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>NOT TO BE PUBLISHED IN OFFICIAL REPORTS

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California
Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or
relying on opinions not certified for publication or ordered published, except
as specified by rule 8.1115(b). This
opinion has not been certified for publication or ordered published for
purposes of rule 8.1115.





IN
THE COURT OF APPEAL OF THE STATE OF CALIFORNIA



FIRST
APPELLATE DISTRICT



DIVISION
TWO




>

SAN LEANDRO LAND, LLC, Plaintiff and Respondent, v. NICHOLAS K. CORPORATION, Defendant and Appellant.

A131679 & A132045 (Alameda County Super. Ct. No. RG09440887)

Defendant
Nicholas K. Corporation (NKC), formerly Paulus Enterprises, Inc. (Paulus
Enterprises) doing business as The Ford Store San Leandro (The Ford Store),
appeals from a bench trial judgment,
and an amended judgment awarding costs and attorney fees (the fees award), each
in favor of plaintiff San Leandro Land, LLC (San Leandro Land) in this action
for breach of contract.href="#_ftn1" name="_ftnref1" title="">[1] The contract is a written “Side Agreement”
(side agreement) for rent increases executed along with an “Agreement for
Purchase and Sale of Stock” (stock purchase agreement). NKC attacks the judgment for claimed error in
summary judgment granted to San
Leandro Land on NKC’s amended cross-complaint for rescission, reformation and
declaratory relief, and the fees award by arguing that San Leandro Land is not
a prevailing party and, in any event, waived fees by failing to seek mediation
before bringing suit as required by the stock purchase agreement. We ordered the appeals consolidated, and now
reject all of the asserted bases for reversal.

Background

This
litigation is about a side agreement to a stock purchase agreement. The stock purchase agreement effected a sale
of a Ford dealership from one individual owner to another, and the side
agreement, between business entities, effectively added to the amount of rent
called for under a ground lease.

The
stock purchase agreement was not sued upon in this litigation, but provides
context for the side agreement. Tim
Paulus and Robert Knezevich executed the stock purchase agreement on February
7, 2008, in their individual capacities, effectuating a sale of all of Paulus’s
shares of stock in The Ford Store to Knezevich, as new owner, who also owned
and operated another Ford dealership, Hayward Ford. Paulus Enterprises held a 25-year lease of
The Ford Store premises and, in 2002, had secured a dealership sublease of the
premises from primary tenant Ford Leasing Development Company (Ford Leasing).

The
stock purchase agreement referenced exhibits that included, as Exhibit I, the
side agreement. One of many seller’s
conditions precedent to closing was that “Buyer shall have executed that
certain Side Agreement between Corporation [i.e., San Leandro Ford] and San
Leandro Land, LLC with respect to rent increases attached hereto as Exhibit
‘I’ ”; and one of buyer’s conditions was, similarly, that “San Leandro
Land, LLC shall have executed and delivered to Buyer that certain Side
Agreement re: Option to Purchase Land
attached hereto as Exhibit ‘I.’ ”
Each party also required delivery of the side agreement at closing, and
an integration clause provided: “This
Agreement and the exhibits referred to in it constitute the final, complete and
exclusive agreement between the parties pertaining to the Shares, including
their sale and any related matters, and any other subject matter contained
herein . . . . Exhibits
‘A’ through ‘K’ referred to herein are attached to and made a part of this
Agreement.” An attorney fee provision in
the stock purchase agreement provides for costs, expenses and attorney fees to
the prevailing party in any litigation over the agreement, but requires
mediation of disputes and states that a party’s failure to pursue mediation before
bringing suit waives attorney fees.

The
side agreement is a landlord-tenant agreement between entities San Leandro Land
and Paulus Enterprises. It was executed
on the same date as the stock purchase agreement, was signed by Knezevich as
President of subtenant Paulus Enterprises doing business as The Ford Store, and
by Paulus on behalf of landlord San Leandro Land. Recitals explain that there was a lease
agreement between landlord and Ford Leasing, that the dealership sublease of
December 2002 had been entered between tenant Ford Leasing and subtenant The
Ford Store when Paulus was sole shareholder of subtenant, and that now, through
the stock purchase agreement, Paulus sold all of his stock to Knezevich, the
new owner and operator of the subtenant.
Reciting further that tenant Ford Leasing had waived its right of first
refusal to purchase the premises, the document states: “The Parties desire to enter into this Side
Agreement to accommodate the interests of the Parties under the Stock Purchase
Agreement, and in consideration of: (i)
Landlord being able to directly collect from Subtenant Incremental Basic Rent
Adjustment to the Basic Rent due under the terms of the Lease Agreement and
(ii) Subtenant receiving from Landlord an option and right of first refusal to
purchase the Premises from Landlord.”
A seven-month option to purchase (for $13.5 million) and three-year
right of first refusal follow, and the rent adjustment states that subtenant
shall pay directly to landlord an incremental adjustment of $17,096 per month
which, combined with an amended lease amount of $87,904, brings the total
monthly rent to an agreed fair market value of $105,000.href="#_ftn2" name="_ftnref2" title="">[2] Further adjustments would be based on a
federal consumer price index (CPI) for indicated Bay Area cities, and a
prevailing party in any litigation over the side agreement would recover its
costs of suit and attorney fees. Unlike
the stock purchase agreement, the side agreement does not mention or require
mediation.

A
further recital particularly at issue in this case states in part, allegedly in
error (italics added): “>Tenant has consented to this Side Agreement
as provided in that certain Amendment and Restatement to Lease Agreement
. . . dated as of January 17, 2008.”

Performance
under the side agreement went smoothly for one year, until the dealership
notified San Leandro Land that, due to “ ‘the state of the
economy,’ ” only half of the $17,096 would be paid as of March 1.
2009. San Leandro Land filed its
complaint for damages in March 2009, against Paulus Enterprises doing business
as The Ford Store. -71)~ All payments ceased a few months after that.

>Amended Complaint and Answer

Allegations
in a first amended and supplemental complaint naming defendant NKC (dba The
Ford Store) are that NKC ceased making full payments of $17,096 in March 2009,
and made none at all starting in July 2009, despite demand, and thus breached
the side agreement. A second cause of
action alleged anticipatory breach based on NKC repudiating the side
agreement. The pleading sought attorney
fees under the agreement’s fee provision.

NKC
answered, raising an affirmative defense that the contract was void for
violating the sublease between NKC and Ford Leasing by not having the consent
of Ford Leasing for the direct payment to NKC.
The answer also raised, but without explanation, affirmative defenses of
failure of consideration, lack of privity of contract, estoppel, and unclean
hands.

>Cross-Complaint

In
a three-count amended cross-complaint (the cross-complaint), NKC sought rescission,
reformation, and declaratory relief.
Common to all causes of action are allegations that there was a “Side
Agreement #1” and a “Side Agreement #2,” each calling for an incremental basic
rent adjustment, but the first (from November 2007) based on just the CPI, and
the second (executed on January 18, 2008) based on the $17,096.00 figure >plus yearly CPI adjustments. There were also allegedly two versions of the
stock purchase agreement’s Exhibit “J,” a “Restatement and Amendment to Lease
Agreement” between tenant Ford Leasing and landlord San Leandro Land. The first, which was never executed, called
for basic rent to be $105,000.00, and the second, allegedly signed on January
18, called for the $87,904 figure.

Rescission
rested on a theory that both side agreements required Ford Leasing’s consent
but that Ford Leasing had consented only to the first, and that San Leandro
Land used “economic duress” to secure NKC’s agreement to the second side
agreement, i.e., by saying it had to be signed immediately for escrow to close,
and applying that pressure at a time when San Leandro Land knew NKC was closing
its other dealership, was transferring hundreds of cars to the new premises,
had a separate group of employees ready for the new location, and had negotiated
a new union contract and pension liability plan for the new location. This assertedly required rescinding the
second side agreement and restoring the first as the only one extant when the
stock purchase agreement was signed, allegedly on December 20, 2007. Reformation was based on an alleged need for
“Side Agreement #2” to be reformed to incorporate just the CPI adjustment—the
parties’ only extant agreement.
Declaratory relief was sought to determine whether the side agreement
for the $17,096.00 was “valid and effective, even if it was not part of [the]
Stock Purchase Agreement,” was not consented to by Ford Leasing, and was
obtained by economic duress.

>Summary Judgment

In
December 2010, after discovery, San Leandro Land moved for summary judgment on
the amended cross-complaint. Having
already explored the agreements in this case, we recite some basic undisputed
facts about the formation of the contract here, adding other evidence in the
discussions which follow.

Under
a 2002 agreement, San Leandro Land leased the property comprising the
dealership premises to Ford Leasing, and by an agreement of that same date,
Ford Leasing in turn subleased it to Paulus Enterprises. In negotiations for the 2008 side agreement
at issue here, San Leandro Land and NKC were represented by counsel, and after
the side agreement had been amended to reflect the final basic rent of $87,096,
the parties negotiated the addition of the option to buy and right of first
refusal for NKC, and the elimination of a personal guarantee initially proposed
for Knezevich.

At
the closing on February 7, 2008, Paulus and Knezevich executed the side
agreement for their companies, plus a closing memorandum that acknowledged and
agreed that the rent had recently increased to $105,000 per month.

The
Honorable George C. Hernandez, Jr., heard and granted the motion, writing: “There is no triable issue of material fact
as to any claim alleged in the Amended Cross-Complaint. San Leandro Land, LLC demonstrates that the
claims are without merit and Cross-Complainant ‘The Ford Store San Leandro’
fails to submit sufficient evidence that establishes that Third Party Ford
Leasing failed to consent to the Second Side Agreement, that the Second Side
Agreement was signed under duress, or that there was fraud or mistake such that
the Second Side Agreement is subject to reformation. . . . Thus, the claims in the Amended
Cross-Complaint appear to be without merit.”

>Court Trial

Bench
trial on San Leandro Land’s amended complaint proceeded also before Judge
Hernandez, with the court granting an in limine motion by San Leandro Land to
foreclose relitigating issues adjudicated in the summary judgment ruling. We acknowledge, as San Leandro Land
repeatedly stresses in its briefing, that the subsequent trial testimony
supported the earlier ruling in result, but we must confine our review of the
pretrial ruling to matters that were before the court at that time (>In re Zeth S. (2003) 31 Cal.4th 396,
405) and thus disregard the trial testimony to that extent.

NKC
does not challenge the trial judgment as to the issues actually adjudicated,
and so it is enough to state that the court found that NKC did breach the side
agreement, and issued a statement of decision resolving two issues that San
Leandro Land specified in a request for written statement of decision. One was whether to include a CPI increase as
damages, and the court allowed those damages.
The other, responding to a proposed judgment that would have declared
San Leandro Land the prevailing party, entitled to recover from NKC “the cost
of suit and disbursements, including any recoverable reasonable attorney’s
fees, in the amount of $________,” was whether reasonable costs and fees should
be awarded “before issues relating to whether Plaintiff is even entitled to
recover attorney’s fees can be resolved at the hearing on a motion to recover
attorney’s fees.” The court, in its
statement of decision, declared San Leandro Land the prevailing party for
purposes of costs (Code Civ. Proc., § 1033.5, subd. (b)(5)) and
contractual attorney fees generally (Civ. Code, § 1717),href="#_ftn3" name="_ftnref3" title="">[3]
but added: “Plaintiff’s right to recover
reasonable attorney’s fees and the amount of such fees shall be determined and
fixed by a motion filed and served under [section] 1717.” The court’s ultimate judgment altered the
wording to declare San Leandro Land the prevailing party, able to recover costs
and disbursements including “any recoverable reasonable attorney’s fees []
subject to a memorandum of costs.”

>Fees Award

In
March 2011, San Leandro Land moved for a determination of prevailing party
status and award of reasonable attorney fees, citing the judgment in its favor
for $439,569 in damages for breach of the side agreement (§ 1717; fn. 1, >ante) and prevailing-party provisions
for costs and fees under paragraphs 5.03 and 5.04 of the side agreement. NKC opposed any award, urging as it does now
on appeal, that the controlling provisions were not those in the side agreement
but those in the stock purchase agreement, which it contended was >part of the stock purchase agreement and
thus required resort to mediation before any party could bring suit. Since San Leandro Land had not sought
mediation first, it had assertedly waived any right to fees and costs. Replying with arguments that are also repeated
on appeal, including that the two agreements did not involve the same parties,
San Leandro Land prevailed. Judge
Hernandez granted the motion and, by an amended judgment, awarded San Leandro
Land a total of $162,983.81 in costs, disbursements and attorney fees (see fn.
1, ante).

Discussion

I. Summary
Judgment

A.>
Standards

“A
grant of summary judgment is proper where it appears no triable issues of
material fact exist, and judgment is warranted as a matter of law. [Citations.]
As the moving party, the defendant must show that the plaintiff ‘has not
established, and cannot reasonably expect to establish, a prima facie case’ on
one or more elements of the cause of action.
[Citations.] The reviewing court
independently examines the record and considers all of the evidence set forth
in the moving and opposing papers except that as to which objections have been
made and sustained. [Citations.]” (Hernandez
v. Hillsides, Inc. (2009) 47 Cal.4th 272, 285.) There were no evidentiary objections in this case.

The
search for triable issues of material
fact (Code Civ. Proc., § 437c, subd. (c)) is confined by >the pleadings. “[T]he pleadings define the issues; thus
‘ “[I]n the absence of some request for amendment there is no occasion to
inquire about possible issues not raised by the pleadings.” ’ [Citations.]”
(Metromedia, Inc. v. City of San
Diego (1980) 26 Cal.3d 848, 885.)
“A ‘moving party need not “. . . refute liability on some
theoretical possibility not included in the pleadings.” [Citation.]’
[Citation.] ‘ “[A] motion
for summary judgment must be directed to the issues raised by the
pleadings. The [papers] filed in
response to a defendant’s motion for summary judgment may not create issues
outside the pleadings and are not a substitute for an amendment to the
pleadings.” [Citation.]’ [Citations.]”
(Tsemetzin v. Coast Federal
Savings & Loan Assn. (1997) 57 Cal.App.4th 1334, 1342-1343 (>Tsemetzin).) Thus, “[a] motion for summary judgment
necessarily includes a test of the sufficiency of the complaint and as such is
in legal effect a motion for judgment on the pleadings. [Citations.]”
(Barnett v. Delta Lines, Inc.
(1982) 137 Cal.App.3d 674, 682.)

B. Fraud
and Mistake

Before
examining the cross-complaint’s causes of action for rescission, reformation,
and declaratory relief, we examine argument by NKC that the asserted >misstatement of Ford Leasing having
consented to the side agreement raised triable issues as to whether this
involved fraud by San Leandro Land, or mistake of fact by NKC. This argument raises three related hurdles
for NKC that occupy the parties’ briefing.
First, there having been no cause of action for fraud or mistake as such
and no effort by NKC to amend its pleading to state one, we have a threshold
problem that, even if there are triable issues of fact about fraud and mistake,
summary judgment is confined to a search for issues of material fact—i.e., facts material to the allegations in the pleading.
Second, if fraud or mistake is evident from the cross-complaint, or perhaps
an equitable defense, this raises the familiar rule that fraud must ordinarily
be pleaded with particularity, another test of pleading sufficiency inherent in
summary judgment. Third, pleading aside,
the parties debate an evidentiary question whether, under the statutory rule
that recitals in written instruments are conclusively presumed true as between
the parties to them (Evid. Code, § 622), evidence supported a case law exception
for recitals arising from bases for rescission.
(Bruni v. Didion (2008) 160
Cal.App.4th 1272, 1291.)

>1.
Pleading issues. “ ‘The
elements of fraud, which give rise to the tort action for deceit, are (a)
misrepresentation (false representation, concealment, or nondisclosure);
(b) knowledge of falsity (or “scienter”); (c) intent to defraud, i.e., to
induce reliance; (d) justifiable reliance; and (e) resulting damage.” (Lazar
v. Superior Court (1996) 12 Cal.4th 631, 638.) “In California, fraud must be pled
specifically; general and conclusory allegations do not suffice. [Citations.]
‘Thus “ ‘the policy of liberal construction of the pleadings
. . . will not ordinarily be invoked to sustain a pleading defective
in any material respect.’ ”
[Citation.] [¶] This
particularity requirement necessitates pleading facts which “show how, when, where, to whom, and by what means the
representations were tendered.” ’
[Citation.] A plaintiff’s burden
in asserting a fraud claim against a corporate entity is even greater. In such a case, the plaintiff must ‘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.‘
[Citation.]” (>Id. at p. 645.) And “[e]very element of the cause of action
for fraud must be alleged in the proper manner (i.e., factually and
specifically)” in order to survive challenge.
(Quelimane Co. v. Stewart Title
Guaranty Co. (1998) 19 Cal.4th 26, 47.)

NKC’s
cross-complaint is grossly deficient. It
alleges misstatement of consent as a basis for rescinding the side agreement,
albeit as failure of a condition precedent, but does not allege any intent to
defraud, i.e., intent to induce anyone’s reliance. It does not allege who caused the assertedly
false statement to be placed (or to remain) in the recitals. It does not allege that the person
responsible did so knowing the recital to be false or with intent to induce
NKC’s (or its representative’s) reliance—a key fact given that the inclusion
could have been the result of inadvertence or innocent error. It does not allege that NKC (or Knezevich on
its behalf) noticed the recital or relied on it. Knezevich’s declaration in opposition to
summary judgment, that he did rely on the recital, and was misled, and would
not have executed the side agreement had he known there was no consent, was no
substitute for an amendment of the pleading.
(Tsemetzin, >supra, 57 Cal.App.4th at p. 1343; >Bostrom v. County of San Bernardino
(1995) 35 Cal.App.4th 1654, 1664 (Bostrom).)

NKC
argues that it “preserved a potential claim of fraud or mistake about [Ford
Leasing’s] consent” by raising equitable theories of estoppel and unclean hands
in the answer to the breach-of-contract complaint filed by San Leandro Land in
the main action. We are cited no
authority for the startling proposition that this could somehow insulate NKC’s
deficient cross-complaint from attack by summary judgment, and we know of
none. Besides, NKC’s conclusory answer
presented its estoppel and unclean hands defenses without any factual allegations
whatsoever. “Summary judgment cannot be
granted on a ground not raised by the pleadings. [Citations.]
Conversely, summary judgment cannot be denied on a ground not raised by the pleadings. [Citations.]”
(Bostrom, supra, 35 Cal.App.4th at p. 1663.)

Next,
the particularity requirement unique to fraud is a short answer to NKC’s
citation to cases that, in some contexts, have allowed theories that were new
but within the reasonable purview of
existing pleadings. (>Nieto v. Blue Shield of California Life
& Health Ins. Co. (2010) 181 Cal.App.4th 60, 75 [new affirmative
defense]; Cruey v. Gannett Co. (1998)
64 Cal.App.4th 356, 367 [new defense].)
Those cases did not involve pleadings so divest of particularity as
NKC’s. Stated another way, fraud was not
within the reasonable purview of NKC’s pleadings—answer or
cross-complaint. “[T]he allegations in a
fraud action need not be liberally construed” (Wilhelm v. Pray, Price, Williams & Russell (1986) 186
Cal.App.3d 1324, 1331), and even if we were inclined to do so, no >reasonably liberal construction could
save these particular pleadings.

NKC
posits as an excuse for not seeking leave to amend that “Paulus deterred an
express fraud allegation by continuing to conceal the fact he knew about [Ford
Leasing’s lack of] consent [and thus] should not be allowed to benefit from
that concealment.” For this proposition,
NKC stresses that it did not take the deposition of Ford Leasing’s manager,
Lynch, until 12 days before NKC’s opposition was due, and thus assertedly
learned only then of a lack of consent.
Lynch did not recall ever seeing the final version of the side
agreement, could not find any evidence that Ford Leasing received it, and did
not think Ford Leasing approved or objected to it.href="#_ftn4" name="_ftnref4" title="">[4] NKC has not shown that seeking leave to amend
within two weeks of its opposition being due would have been futile or
statutorily prohibited. Any arguments
about delayed discovery surely could have been raised to the trial court on
such a request, yet no request was made.href="#_ftn5" name="_ftnref5" title="">[5] “Such requests are routinely and liberally
granted. However, ‘ “ ‘[I]n
the absence of some request for amendment there is no occasion to inquire about
possible issues not raised by the pleadings.’ ” ’ [Citations.]”
(Bostrom, supra, 35 Cal.App.4th at p. 1664.) Lack of a request means that we have no
ruling on the matter to review.

Nor
are we persuaded to go beyond the pleading deficiency because Judge Hernandez
implicitly did so by writing in his order adopting the tentative ruling that
San Leandro Land failed “to submit sufficient evidence that establishes that
[t]hird party Ford Leasing failed to consent . . . .” From the vigorous reply arguments from San
Leandro Land, Judge Hernandez was well aware of NKC’s pleading problem, and we
have no need to review his foray into the merits. His grant of summary judgment was correct as
a matter of law on the threshold issue of the pleading deficiency, whether or
not stated that way. “ ‘ “[I]f
the reviewing court finds the complaint [or cross-complaint] fails to state
facts sufficient to constitute a cause of action as a matter of law, it need
not reach the question whether [the] opposition to the summary judgment motion
raises a triable issue of fact.’ ”
[Citation.]” (>Bostrom, supra, 35 Cal.App.4th at p. 1663.) We review the ruling, not the reasons stated
for it. (O’Byrne v. Santa Monica-UCLA Medical
Center (2001) 94 Cal.App.4th 797, 804-805)

Similarly, NKC’s
reliance on Bostrom as a basis upon
which to reach the merits of a theory that is insufficiently pled is
unpersuasive. First, >Bostrom did not involve the
particularity requirement of fraud.
Second, on review of a summary judgment grant to defendant county, and
facing arguments that the complaint failed to state a cause of action, the >Bostrom court said it was “inclined to
agree,” but reasoned: “If we were to
hold [as much], we would have discretion (and might even be required) to remand
with directions to permit the Bostroms to move for leave to amend. [Citation.]
The net result could well be a new complaint and a new motion for
summary judgment, followed by a new appeal, which we would have to decide on
the merits. We therefore choose not to
resolve the appeal on this basis. [¶] Instead,
we look to whether the Bostroms raised a triable issue of fact [on any of their
opposition theories]. If not, then
summary judgment without leave to amend was properly granted regardless of
whether these theories were pleaded or unpleaded.” (Bostrom,
supra, 35 Cal.App.4th at
p. 1664.) As here, the trial judge
in Bostrom had reached just the
merits as well, but Bostrom is not
authority that we must do the same. >Bostrom simply found it expeditious to
do so given the record and arguments presented.
Here, by contrast, the deficiencies are clear, and we can expeditiously
resolve the matter on that basis. We
need go no further. (>Id. at p. 1663.)

That
leaves the question of mistake. One
basis for rescinding a contract is “[i]f the consent of the party rescinding
. . . was given by mistake . . .” (§ 1689, subd. (b)), but the entirety of the
cross-complaint’s allegations for rescission are, in effect, that consent by
Ford Leasing was required for the side agreement and that San Leandro Land had
never produced evidence that the consent was given. We do address the merits of that theory, >as an evidentiary matter, in the next
following section of this opinion, but hold here that mistake is not >pleaded, or within the >reasonable purview of NKC’s
pleading. The pleading does not allege
that either party was unaware at the time of signing that Ford Leasing had not
consented to the side agreement.

The
cross-complaint did not sufficiently allege causes of action for, or based on,
fraud or mistake.

>2.
Evidence Code section 662 presumption. The question remains whether, affirmative
pleading aside, there was evidence of
fraud or mistake such that the court, as
an evidentiary matter on summary judgment, could not rely on the conclusive
presumption of Evidence Code section 622 as to recitals between the parties in
written instruments.href="#_ftn6"
name="_ftnref6" title="">[6] The side agreement recites in part, referring
to Ford Leasing as tenant: “Tenant has
consented to this Side Agreement as provided in that certain Amendment and
Restatement to Lease Agreement (‘Amendment to Lease Agreement’) dated as of
January 17, 2008.”

We
review evidentiary questions on
summary judgment not for triable issues of fact, but deferentially, for abuse
of discretion (Jackson v. County of Los
Angeles (1997) 60 Cal.App.4th 171, 192, fn. 13), and we uphold in this
case Judge Hernandez’s implicit conclusion that the presumption had not been
vitiated. We say implicit because, while neither side pressed below for a ruling on
the evidentiary question (nor complains now of the lack of one), Judge
Hernandez did rule, as to fraud and mistake in the second cause of action, that
there was not “sufficient evidence that establishes . . . that there
was fraud or mistake such that the Second Side Agreement is subject to
reformation.”

For
many of the reasons expressed in the next two sections of this opinion, mistake
was not made out. Additionally, Judge
Hernandez could reasonably find that any misrepresentation about whether Ford
Leasing had consented to the side agreement was not sufficiently material. Knezevich was an experienced Ford dealer,
having owned and operated his dealership in Hayward since 1991, and having held
a minority interest in a Burlingame dealership for a decade before that. NKC argues that any reasonable person would
think it important that Ford Leasing had approved a rent increase, taking it as
an endorsement of their ability to carry out the business at that amount of
rent. The problem with that assumption,
however, is that there is no evidence that Ford Leasing had or reviewed any of
NKC’s dealership records to assess their past sales volume, ordinary costs of
operations, and other financial information.

Lack
of fraud to vitiate the presumption is also supported for much the same
reason. Judge Hernandez could reasonably
conclude that, for an experienced dealership owner like Knezevich, and given
the lack of evidence that Ford Leasing could usefully evaluate the financial
prospects of a new dealership at the higher rent, the presence of Ford
Leasing’s consent would not have been much of an inducement, and its absence
certainly not a deal breaker—regardless of Knezevich’s bald declaration to the
contrary.

C. Rescission

By
its first cause of action, NKC seeks rescission because “[b]oth side agreements
required the consent of Ford Leasing,” the consent is a “condition precedent,”
and San Leandro Land provided no “evidence that Ford Leasing consented to the
additional payment of $17,096.00 per month prior to the execution of” the
second side agreement. The shortest
answer is that the side agreement NKC seeks to rescind by its cross-complaint
did not make Ford Leasing’s consent a
condition precedent, and NKC conceded the point at oral argument before this
court. The stock purchase agreement
between Paulus and Knezevich does call Ford Leasing’s consent a “condition
precedent” to closing, for both buyer and seller, but this lawsuit between San
Leandro Land and NKC is about the side agreement for incremental increase in
basic rent, not breach or rescission of the stock purchase agreement. Also, as San Leandro Land noted below and repeats
without dispute on appeal, failure of a condition precedent may excuse
performance (§ 1436; 1 Witkin, Summary of Cal. Law (10th ed. 2005)
Contracts § 776, pp. 866-867), but is not a basis for rescission
(§ 1689, subd. (b)).

The
second basis for rescission is economic duress, a ground not limited to, but
often raised in, challenges to settlement agreements. “Economic duress can be a basis for
rescission of a settlement agreement, but only in circumstances where the
perpetrator commits ‘a wrongful act which
is sufficiently coercive to cause a
reasonably prudent person faced with no
reasonable alternative to succumb to the perpetrator’s pressure.’ [Citation.]
Examples of such ‘wrongful acts’ include ‘[t]he assertion of a claim
known to be false or a bad faith threat to breach a contract or to withhold a
payment . . . .’ [Citation.]” (Myerchin
v. Family Benefits, Inc. (2008) 162 Cal.App.4th 1526, 1539; >Perez v. Uline, Inc. (2007) 157
Cal.App.4th 953, 959-960.) An expansion
of common-law duress, the doctrine is not limited by early requirements of an
act in the nature of a tort or crime and “may come into play upon the doing of
a wrongful act which is sufficiently coercive to cause a reasonably prudent
person faced with no reasonable alternative to succumb to the perpetrator’s
pressure. [Citations.] The assertion of a claim known to be false or
a bad faith threat to breach a contract or to withhold a payment may constitute
a wrongful act for purposes of the economic duress doctrine. [Citations.]
Further, a reasonably prudent person subject to such an act may have no
reasonable alternative but to succumb when the only other alternative is
bankruptcy or financial ruin.
[Citations.]” (>Rich & Whillock, Inc. v. Ashton
Development, Inc. (1984) 157 Cal.App.3d 1154, 1158-1159 (>Rich & Whillock).)

Important
policy constraints circumscribe the doctrine.
“The underlying concern of the economic duress doctrine is the
enforcement in the marketplace of certain minimal standards of business ethics. Hard bargaining, ‘efficient’ breaches and
reasonable settlements of good faith disputes are all acceptable, even
desirable, in our economic system. That
system can be viewed as a game in which everybody wins, to one degree or another,
so long as everyone plays by the common rules.
Those rules are not limited to precepts of rationality and
self-interest. They include equitable
notions of fairness and propriety which preclude the wrongful exploitation of
business exigencies to obtain disproportionate exchanges of value. Such exchanges make a mockery of freedom of
contract and undermine the proper functioning of our economic system. The economic duress doctrine serves as a last
resort to correct these aberrations when conventional alternatives and remedies
are unavailing.” (Rich & Whillock, supra,
157 Cal.App.3d at p. 1159.)

The
circumstances NKC claims as actionable economic duress are that San Leandro
Land, after floating a draft version of the side agreement that would have had
an increase based only on the CPI, found itself unable to get Ford Leasing to
agree to prime lease amendment increase in basic rent from $87,904 to $105,000,
and so presented Knezevich with a new draft that switched the increase of
$17,096 to the side agreement, insisting that it was necessary for the deal to
close. This occurred two weeks prior to
signing, when Paulus, acting for San Leandro Land through counsel Sean Absher
(now San Leandro Land’s appellate counsel), knew Knezevich had financial
commitments from having negotiated union contracts, started the transfer of
hundreds of cars from his Hayward dealership to the San Leandro location,
changed utility accounts, had two parts inventories, and was using two sets of
union employees and management teams.

What
separates this case from the usual is that San Leandro Land had no contractual
relationship or other disproportionate clout over NKC preceding the signing,
and thus did not, for example, withhold some payment to ratchet up the pressure
before presenting NKC with a take-it-or-leave-it escape from turmoil it created
itself (typically an oppressive financial move followed by a low settlement
offer). So here, NKC essentially
collapses the usual two events into one, calling the rent increase (without divulging
lack of Ford Leasing consent) the oppressive wrong and the act of taking advantage of NKC. And the kind of economic pressures NKC
cites—from taking steps to transition his business to the prospective new
location—are surely common during end-stage negotiations, but they were
apparently not of San Leandro Land’s doing.
Nothing shows that the timing of NKC’s business transition was hastened
or otherwise made more onerous by San Leandro Land, and the record indicates
that San Leandro Land actually accommodated NKC twice by extending the closing
past the anticipated date of January 18.
Also, both parties were represented throughout the negotiations by
counsel. NKC’s counsel, during the
assertedly oppressive final two weeks before the signing of the new side
agreement, negotiated on NKC’s behalf and at Knezevich’s request an option to
purchase the land and a right of first refusal, and counsel negotiated on
Knezevich’s behalf the elimination of a personal guaranty. Notably, nothing indicates that Knezevich or
NKC raised any protest against the change in base rent adjustment. (Compare Rich
& Whillock, supra, 57
Cal.App.3d at pp. 1160-1161 [plaintiff strenuously protested coercive
tactics, before succumbing to them only to avoid economic disaster to
themselves and those affected by an ensuing bankruptcy].) Nor does the evidence show NKC’s financial
situation at that time, hence leaving Judge Hernandez to speculate whether NKC
faced financial ruin from a failed deal, or some far lesser degree of harm.

We
agree with Judge Hernandez’s decision that there were no triable issues of fact
that, on the total facts, would sustain extending the doctrine of economic
duress.

D. Reformation

“When,
through fraud or a mutual mistake of the parties, or a mistake of one party,
which the other at the time knew or suspected, a written contract does not
truly express the intention of the parties, it may be revised on the
application of a party aggrieved, so as to express that intention
. . . .” (§ 3399.)

The
cross-complaint’s second cause of action, incorporating provisions of the
first, is for reformation of the final side agreement to reflect the CPI-only
terms of the first, as the only true agreement reached by the parties. If NKC means to claim fraud as a reformation
basis, there is no express statement to that effect, but if we imply that basis
from provisions incorporated from the first cause of action, it is enough to
observe that we have already held that fraud was not properly before the court
through pleadings. We focus, then, on
mistake.

Two
flaws defeat the mistake theory. First,
reformation is available only to reflect preexisting agreement actually reached
by the parties (Bailard v. Marden
(1951) 36 Cal.2d 703, 708; Treadaway
v. Camellia Convalescent Hospitals, Inc. (1974) 43 Cal.App.3d 189, 197),
and while the cause of action here alleges that the true intentions of the
parties (to use just the CPI to adjust basic rent) were reached in a version of
the stock purchase agreement “entered into on December 20, 2007,” the evidence
did not show that the parties executed or otherwise reached mutual accord on
that date. Only an unexecuted copy
existed. Negotiations continued, with
drafts circulated, but no agreement was reached until the same-day signings of
the stock purchase and side agreements on February 7, 2008. Second, NKC cannot claim a triable issue of
its own mistake in the inclusion of the $17,096 increase in the final side
agreement. The amount appears on the document,
and Knezevich testified in deposition that his counsel reviewed it before he
signed, and that he (Knezevich) understood when signing that he was obligating
himself to pay $17,096 a month to Paulus.
It was an undisputed fact that he understood that he was requiring his
corporation to pay $17,906 directly to San Leandro Land.

E. Declaratory
Relief

There
were no new legal theories presented by the third cause of action, for
declaratory relief, and so it follows from our foregoing rejection of all
substantive claims in the other causes of action, that the court properly also found
no triable issue of material fact on this cause of action. (Dynamic
Ind. Co. v. City of Long Beach (1958) 159 Cal.App.2d 294, 300.)

II. Fees
and Costs

Our
foregoing analysis confirms that San Leandro Land was properly deemed the
prevailing party in the action, thus defeating NKC’s contrary argument as a
basis for reversing the fees award. This
leaves NKC’s argument that the award must be reversed because San Leandro Land
did not seek mediation before filing suit, and we reject at the threshold San
Leandro Land’s argument that the issue is waived by NKC’s failure to ask the
court to address it in its statement of decision (Code Civ. Proc., § 632) at trial.
In its proposed judgment, the court did seem poised to decide prevailing
party status as well as, perhaps, an award amount. But as already observed in the background
part of this opinion, the court responded to objections from NKC by
reconsidering and, beyond declaring the obvious—that San Leandro Land had prevailed
at trial—ultimately directed that the right to recovery, and amounts, would be
fixed upon filing a costs memorandum.
Thus no waiver occurred, even if, as NKC seems to assume, deciding which
fees provision applied posed factual issues, rather than a pure question of law
requiring no statement of decision at all.
(Kroupa v. Sunrise Ford (1999)
77 Cal.App.4th 835, 842; Enterprise
Ins. Co. v. Mulleague (1987) 196 Cal.App.3d 528, 539.)

This
action was brought for breach of the side agreement, which provides in
part: “5.03. Attorneys’
Fees. If any legal action,
arbitration or other proceeding is commenced to enforce or interpret any
provision of this Side Agreement, the prevailing party shall be entitled to an
award of its attorneys’ fees and expenses.
The phrase ‘prevailing party’ shall include a party who receives
substantially the relief desired whether by dismissal, summary judgment,
judgment or otherwise. [¶] 5.04. Cost
of Suit. In the event that any
action shall be instituted by either of the parties hereto for the enforcement
of any of its rights or remedies in and under this Side Agreement, or any facts
based upon or involving same, the prevailing party, whether in-court or by way
of out-of-court settlement, shall be entitled to recover from the nonprevailing
party or parties such prevailing party’s attorney’s fees, court costs, expert
witness fees, and/or other expenses relating to such controversy including
attorney’s fees, court costs and/or expenses on appeal, if any.” Neither provision requires a party to seek
mediation before bringing suit, and the very next paragraph provides: “5.05.
Entire Agreement. This Side Agreement contains the entire
agreement between the Parties regarding the payment of Incremental Basic Rent
Adjustment and Subtenant’s Option to Purchase the Premises and supersedes all
prior agreements, whether written or oral, between the Parties regarding the
same subject. This Side Agreement may
only be modified by subsequent written agreement signed by both Parties.”

NKC
urges that the foregoing provisions
of the side agreement are inapplicable because the fees issue is governed by
the mediation-first provision in the stock purchase agreement. Like the side agreement, the stock purchase
agreement allows a prevailing party to recover costs, expenses and attorney
fees incurred in any litigation by the parties to that agreement (¶ 12c),
but unlike the side agreement, it also requires that the parties try to
negotiate through mediation any disputes arising under the agreement
(¶ 12n), a provision ending, “Any party who initiates court action without
first agreeing to attempt resolution of the dispute by mediation shall thereby
waive his right to attorneys’ fees under paragraph 12c above.”href="#_ftn7" name="_ftnref7" title="">[7] It is undisputed that mediation was not sought before San
Leandro Land filed this action.

Familiar
principles govern our task: a contract
is interpreted so as to give effect to the mutual intention of the parties at
the time of contracting, to the extent ascertainable (§ 1636); the
contract language governs the interpretation if clear and not involving
absurdity (§ 1638); if the intention is uncertain, general rules of
interpretation are applied (§ 1637); if the contract is reduced to
writing, the parties’ intention is ascertained from the writing alone, if possible,
subject to other interpretive principles (§ 1639); a contract may be
explained by reference to the circumstances under which it was made and the
matter to which it relates (§ 1647); the whole of a contract is to be
taken together, so as to give effect to every part, if reasonably practicable,
each clause helping to interpret the other (§ 1641); and we may not insert
what has been omitted or omit what has been inserted, and where there are
several provisions, we adopt a construction that, if possible, gives effect to
all (Code Civ. Proc., § 1858).

Bearing
in mind that this lawsuit is for breach of the side agreement, we stress that nothing
in that agreement purports to incorporate the mediation or fees terms of the
stock purchase agreement. “A contract
may validly include the provisions of a document not physically a part of the
basic contract. . . . ‘It
is, of course, the law that the parties may incorporate by reference into their
contract the terms of some other document.
[Citations.] But each case must
turn on its facts.’ ” (>Williams Constr. Co. v. Standard-Pacific
Corp. (1967) 254 Cal.App.2d 442, 454.)
The side agreement’s own integration provision does not refer at all to
the stock purchase agreement; it states:
“5.05 Entire Agreement. This Side Agreement contains the entire
agreement between the Parties regarding the payment of Incremental Basic Rent
Adjustment and Subtenant’s Option to Purchase the Premises and supersedes all
prior agreements, whether written or oral, between the Parties regarding the
same subject. This Side Agreement may
only be modified by subsequent written agreement signed by both Parties.” This is not
a case where, for example, an agreement silent on a subject fills the gap by >attaching and incorporating by reference a provision from another writing. (Republic
Bank v. Marine Nat. Bank (1996) 45 Cal.App.4th 919, 921 [sublease
incorporating fees provision from attached master lease].) Rather, our case is far more like one which
distinguished Republic Bank where the
integration clause of a merger agreement referenced in part an affiliate
agreement as reflecting the parties’ full understanding (like our side
agreement) yet the affiliate agreement lacked an attorney fees provision and
did not expressly incorporate one
from the merger agreement. (>Amtower v. Photon Dynamics, Inc. (2008)
158 Cal.App.4th 1582, 1606-1607.)

NKC
relies on section 1642, the rule that “[s]everal contracts relating to the same
matters, between the same parties, and made as parts of substantially one
transaction, are to be taken together,” but we, like the trial court, reject
that as a basis for reading into the side agreement the mediation-first
provision found only in the stock purchase agreement. The two agreements did arise from one
“transaction” in the sense that they were executed the same day and Paulus
testified that he would not have entered into the stock purchase agreement
without the side agreement. He called
the side agreement “[a]n integral component” of the stock purchase agreement,
which had the side agreement attached as one of the exhibits related to the
stock purchase agreement.

The
integration clause in the stock purchase agreement did state that the exhibits
were “attached to and made a part of this Agreement” and that “[t]his Agreement
and the exhibits referred to in it constitute the final, complete and exclusive
agreement between the parties pertaining to the Shares, including their sale
and any related matters, and any other subject matter contained herein, and
supersedes all prior and contemporaneous agreements, representations and
understanding of the parties.” But it
does not follow that Paulus or Knezevich meant to incorporate into the side
agreement a mediation term found only in their stock purchase agreement. The integration language was, of course,
designed to prevent either party from later claiming that some collateral
agreement altered or added to the agreement set out in that writing. It does not suggest that they meant to have a
mediation-first clause from the purchase agreement engrafted as a limitation
onto the fees and costs provisions of the side agreement. And as has
been said of mere joint execution, in finding Civil Code section 1642
inapplicable: “ ‘[J]oint execution
would require the court to construe the two agreements in light of one another;
it would not merge them into a single written contract.’ ” (Pankow
Const. Co. v. Advance Mortg. Corp. (9th Cir. 1980) 618 F.2d 611, 616.) Also:
“While it is the rule that several contracts relating to the same
matters are to be construed together (Civ. Code, § 1642), it does not follow that for all
purposes they constitute one contract.”
(Malmstedt v. Stillwell (1930)
110 Cal.App. 393, 398.)

Finally
and dispositively, NKC’s highest hurdle in importing the mediation-first clause
from one agreement to the other is that the two contracts are not “between the
same parties,” an express requirement for section 1642 to apply. Knezevich and Paulus executed the stock
purchase agreement in their personal
capacities, as buyer and seller, in order to effect a transfer of Paulus’s
ownership in the dealership to Knezevich.
The side agreement was not between those men individually; it was
between San Leandro Land and Paulus Enterprises, as landlord and tenant for the
premises on which the dealership operated.
Throughout its briefing, NKC speaks of “the opposing parties as ‘Paulus’
and ‘Knezevich’ unless otherwise specified,” but that distorts matters in the
context of this issue. This lawsuit is
between the business entities for which
Paulus and Knezevich signed only in their representative
capacities at that time, and the agreement sued upon is not the stock purchase
agreement between those men individually, but the entities’ landlord enant
side agreement.

NKC
would have us abrogate the same-parties rule by following the lead of cases
that have relaxed it in unusual circumstances where mutually contingent stock
sales by three sellers, under separate contracts, were to a common buyer,
without inter-defendant contracts governing delivery of the stock (>Harm v. Frasher (1960)
181 Cal.App.2d 405, 415-417), and where an arbitration clause was applied
to defendants who were related companies that hired plaintiff at the same time
(Brookwood v. Bank of America (1996)
45 Cal.App.4th 1667, 1675). The
circumstances here are hardly comparable.
NKC might have a stronger argument had Knezevich accepted an early draft
proposal in the side agreement that he guarantee
the subtenant’s payments, but he did not agree.
He successfully secured elimination of the guarantee.

Disposition

The
judgment and modified judgment are affirmed.



_________________________

Kline,
P.J.



We concur:



_________________________

Haerle, J.



_________________________

Richman, J.