Wan v. Qiu

Filed 3/14/07 Wan v. Qiu CA2/7

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.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

SECOND APPELLATE DISTRICT

DIVISION SEVEN

APPEAL from a judgment of the Superior Court of Los Angeles County, Elizabeth A. Grimes, Judge. Affirmed.

Michael S. Magnuson, for Cross-Complainant and Appellant.

Law Offices of Sam X. J. Wu and Steven W. Hashimoto for Cross-Defendant and Respondent.

_______________________

Appellant Thomas Wan purchased an interest in a business that failed, losing his entire investment. He sued seller and respondent James Qiu for breach of contract and fraud. After a one day court trial, the court entered judgment for respondent. Finding no error, we affirm.

Factual and Procedural Background

In response to an advertisement in a Chinese language newspaper offering a restaurant for sale, Wan had a telephone conversation with the seller Qiu in late September or early October 2004. At that time, the restaurant had been in operation for less than two months. Wan visited the restaurant, and then met with Qiu on October 5, 2004. Advised that the restaurant was owned by a corporation, Wan asked for the corporate records. Qiu told him that the sales records for August and September had been destroyed, but that the business generated approximately $200,000 per month, with profits of $30,000 - $40,000 per month; Qiu also related that there had been a large one-time expenditure in September, reducing profits for that month, and that there was a limited amount of debt that was offset by inventory. The asking price was $680,000; after negotiation, Wan agreed to purchase one-third of the corporations shares for $210,000. The parties signed the contract, prepared at Qius direction, on October 7, 2004.

Shortly thereafter, Wan learned that the bank balance, as of the date of contract, was $17,931.39, with outstanding checks totaling $19,043.43. The payables totaled $117,455.88 as of October 6. On October 31, Qiu distributed approximately $15,000 in profits for that month to the shareholders, including Wan, but did not disclose $129,474.32 in debt. Without Wans knowledge, Qiu at that time disposed of his remaining interest in the corporate owner of the restaurant.

In November, vendors began demanding payments. Qius purchaser refused to contribute any additional funds beyond her payment to Qiu, asserting that in her agreement with Qiu, he had assumed responsibility for debts. During the same month, Wan learned that August sales had in fact been approximately $80,000, and Septembers $170,000, rather than the $200,000 represented. After subsequently loaning over $45,000 to the business, Wan sold his interest for $35,000 in December 2005.

This action began as a claim by a supplier against all of the shareholders for breach of contract. Wan and the corporation cross-complained against Qiu and the remaining shareholder; his claims against Qiu for breach of contract and fraud are the sole basis for this appeal. After a jury waiver, the case was tried to the court in a one day trial on February 15, 2006; the court ruled in favor of the plaintiff against the corporation on the complaint, and against Wan on the cross-complaint.[1] The court entered judgment on March 23, 2006 and this timely appeal followed.

Discussion

1. Standard of Review

On appeal, we presume the judgment to be correct; the burden is on appellant to affirmatively show the error claimed. (Winograd v. American Broadcasting Co. (1998) 68 Cal.App.4th 624, 631-632.)

In this case, no party requested, and the court did not prepare, a formal statement of decision. Moreover, the written ruling, issued on February 23, 2006, did not address specifically the breach of contract issues. Because the parties waived a statement of decision, all intendments favor the ruling below [citation], and we must assume that the trial court made whatever findings are necessary to sustain the judgment. (Michael U. v. Jamie B. (1985) 39 Cal.3d 787, 792-793 (superseded on other grounds by statute as noted in In re Zacharia D. (1993) 6 Cal.4th 435, 448).)

Where, as in the fraud claim here, the trial court necessarily resolves a disputed issue of fact, our review is in accordance with the substantial evidence rule, and we will affirm where there is substantial evidence to support the resolution. In doing so, we view the evidence in the light most favorable to the prevailing party, whether the findings under review are express or implied, and defer to any resolutions of credibility made below. (Escamilla v. California Dept. of Corrections & Rehabilitation (2006) 141 Cal.App.4th 498, 514-515.)

2. The Language of the Contract Supports the Judgment

The parties agree that the issue before us is one of contract interpretation. The language at the heart of the dispute over the contract in this matter is found in Paragraph 1: The Transferor agrees to sell to the Transferee and the Transferee agrees to buy the following described business: 33.33% (3,333 shares) of the ownership of the N SUPER KING BUFFET, INC. Chinese Restaurant Located at 10632 LOWER AZUSA ROAD, EL MONTE, CA 91731 Including the stock in trade, fixtures, equipment, accounts receivable, accounts payable, contract rights, lease, good will, licenses, right under any contract for telephone service or other rental, maintenance or use of equipment, machinery and fixtures at the said premises, more particularly described in Schedule A hereto attached, free and clear of any debts, mortgages, security interests or other liens or encumbrances except as herein stated. Title shall be closed on the OCTOBER 6, 2004.

The cross-complaint alleged, and Wan testified, that the business in fact had debts of approximately $122,000 at the time of the closing and that this constituted a breach of Paragraph 1. Wan presented no evidence that those debts consisted of anything other than the accounts payable. Wan testified that no discussion of the actual language of Paragraph 1 took place prior to the execution of the contract, but that Qiu had told him that any debt was washed out with the inventory and security deposit. Qiu did not testify to the contrary, and now argues that the reference in Paragraph 1 to accounts payable, read in conjunction with the except as herein stated language excluded such accounts from consideration as debt within the meaning of the contract. The testimony taken thus does not reflect extrinsic evidence that assists in the interpretation of the written agreement or reveals the mutual intent of the parties at the time of contracting.

As a result, we look to the language of the contract to resolve its meaning, which is a question of law where, as here, the extrinsic evidence is not in conflict. (City of Chino v. Jackson (2002) 97 Cal.App.4th 377, 383-384.) In doing so, we must interpret the language in a manner that makes the contract lawful, operative, definite, reasonable, and capable of being carried into effect, if it can be done without violating the intention of the parties. (Civil Code, 1643; Bank of the West v. Superior Court (1992) 2 Cal.4th 1254, 1264 [goal of contract interpretation is to give effect to the mutual intent of the parties; where language is clear and explicit, it governs.].) The relevant intent is objective - that is the objective intent as evidenced by the words of the instrument, not a partys subjective intent [citation]. (Shaw v. Regents of University of California (1997) 58 Cal.App.4th 44, 54-55.) We look at the actual language of the contract, and the ordinary meaning of the words used by the parties, unless there is evidence that the parties intended the words to have some other meaning. (Civil Code, 1644; Stewart Title Co. v. Herbert (1970) 6 Cal.App.3d 957, 962.)

The words of the instrument executed by the parties expressly include accounts payable as an item which, by its location in the agreement, modifies the language, free and clear of any debts . . . except as herein stated. The parties presented no evidence to the court below that they intended the term accounts payable, or the term debts, to have a unique meaning. The undisclosed intention of Qiu, and the unexpressed understanding of Wan, with respect to these terms, does not change this result. It is now a settled principle of the law of contract that the undisclosed intentions of the parties are . . . immaterial; and that the outward manifestation or expression of assent is controlling. (Brant v. California Dairies, Inc. (1935) 4 Cal.2d 128, 133.) Applying the ordinary meaning of those terms, we find no error.

Moreover, Wan presented no evidence as to the value of the inventory and security deposit at the time of closing that would allow the trial court to determine whether the accounts payable were in fact offset by those assets. Thus, even were the contract subject to the interpretation urged by Wan, there is no evidence of breach. Appellant has failed to meet his burden to show the claimed error. (Winograd v. American Broadcasting Co., supra, 68 Cal.App.4th, at pp. 631-632.)

3. Substantial Evidence Supports the Finding of No Justifiable Reliance

To prevail on his fraud claim, Wan was required to prove: false representation as to a material fact, knowledge of its falsity, intent to defraud, justifiable reliance, and resulting damage. [Citation] The absence of any one of these required elements will preclude recovery. [Citation] (Wilhelm v. Pray, Price, Williams & Russell (1986) 186 Cal.App.3d 1324, 1331.)

Wan alleged, and testified, that Qiu made specific, but inaccurate, representations concerning the monthly receipts and expenses for the restaurant, based on its two months of operations. Wans sole investigation consisted of his conversations with Qiu and observation of, and one meal at, the restaurant. Although he asked to review records, he accepted Qius statement that the records for the only two completed months of operations had been destroyed.

The trial court found that Qius statements to . . . Wan concerning monthly restaurant sales were estimates of the restaurants business in its first two months of operation and also Qius opinion concerning future estimated sales, but they were not representations or warranties of future income, and it was unreasonable for Wan to rely on Qius projections. The court finds that Wan did not rely on any records maintained by Qiu or Ni of head counts, sales, expenses or debts. Wan did not see any records of the restaurant business before deciding to buy his interest in it. Wan decided to invest on the basis of broad statements made to him by a virtual stranger about a highly risky business with a two-month operating history. Apparently, Wan believed he would realize an annual return on his investment of over 60%, if he expected to receive one-third of the monthly estimated profits of at least $30,000. It was not reasonable for Wan to rely on Qius statements, and they do not amount to actionable fraud.

To prevail, Wan was required not only to show actual reliance, but also that, under the circumstances, that reliance was reasonable. (Wilhelm v. Pray, Price, Williams & Russell, supra, 186 Cal.App.3d at p. 1332.) Whether that reliance was justified is ordinarily a question of fact; the question becomes one of law only if reasonable minds can come to only one conclusion based on the facts. (Alliance Mortgage Co. v. Rothwell (1995) 10 Cal.4th 1226, 1239.)

Wan argues, in reliance on Hartong v. Partake, Inc. (1968) 266 Cal.App.2d 942 that this case presents such an issue and that the trial judge erred as a matter of law in finding his reliance unjustified. We disagree. Partake involved a franchise business opportunity in which plaintiffs invested after being given information concerning minimum income based on past performance, the nature and level of support they would receive, and information concerning the franchisor; after plaintiffs invested, the performance was not as promised, the individuals with whom they had dealt were terminated by the franchisor, and the plaintiffs discovered that they had no actual business relationship with the franchisor. The representations made to plaintiffs were determined by the trial court to have been false, and made with the intent to induce reliance. On appeal, among other issues, the court faced the question whether the plaintiffs reliance was reasonable, despite the fact that they had made some independent investigation of the facts. (South Shore Land Co. v. Petersen 226 Cal.App.2d 725, 738.) Plaintiffs had no experience with the area, defendant held itself out as an expert, and provided materials that backed their statements, and the suspicions they raised were countered by plausible assertions of fact. (Ibid.) Under these circumstances, the court concluded there was no bar to their recovery.

Such is not the case here. Wan made no effort to determine the facts before investing a large sum in a new venture with a party he had met only days before. Rather than receiving plausible assertions of fact in the face of the limited requests for information he did make, he received no records at all and accepted at face value the assertion that the only records for the only two months of operation of a business being offered for sale had been destroyed. Unlike the plaintiffs in Partake, his conduct is manifestly unreasonable in the light of his own intelligence or information. . . . [H]e put faith in representations that were preposterous or shown by facts within his observation to be so patently and obviously false that he must have closed his eyes to avoid discovery of the truth. (See also Cortez v. Weymouth, 235 Cal.App.2d 140; 151-152.) . . . [H]is conduct, in the light of his own information and intelligence is preposterous and irrational Van Meter v. Bent Construction Co., 46 Cal.2d 588, 297 P.2d 644); (Hartong v. Partake, Inc., supra, 266 Cal.App.3d at p. 737). Closing ones eyes to glaring deficiencies in the records of a new and risky business is manifestly unreasonable; Qui also did not hold himself out as an expert, but only as the party anxious to sell a major portion of an untried business venture. Wan ignored the warning signs at his peril.

The trial courts findings that his reliance was not justified were supported by substantial evidence, and were not based on a legally erroneous standard.

Disposition

The judgment is affirmed. Respondent is to recover his costs on appeal.

ZELON, J.

We concur:

PERLUSS, P. J.

JOHNSON, J.

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[1] The disposition of the matter with respect to the other parties is not material to the resolution of this appeal and, accordingly, we will not discuss it.