Careau & Co. v. Security Pacific Business Credit, Inc.

• Decision Date: 17 August 1990
• Docket Number: No. B037626,B037626
• Citation: 272 Cal.Rptr. 387,222 Cal.App.3d 1371
• Parties: CAREAU & CO., etc., et al., Plaintiffs and Appellants, v. SECURITY PACIFIC BUSINESS CREDIT, INC., etc., et al., Defendants and Respondents. Civ.
• Court: California Court of Appeals Court of Appeals

Page 387

272 Cal.Rptr. 387

222 Cal.App.3d 1371

CAREAU & CO., etc., et al., Plaintiffs and Appellants, v. SECURITY PACIFIC BUSINESS CREDIT, INC., etc., et al., Defendants and Respondents.

Civ. No. B037626.

Court of Appeal, Second District, Division 3, California.

Aug. 17, 1990.

Certified For Partial Publication ^*

Kinsella, Boesch, Fujikawa & Towle, Philip W. Boesch, David Z. Vance and Jack G. Cairl, Jr., Los Angeles, for plaintiffs and appellants.

Sheppard, Mullin, Richter & Hampton, San Diego, John A. Sturgeon, Los Angeles, Edward D. Vogel, San Diego, for defendants and respondents.

CROSKEY, Associate Justice.

This appeal involves two consolidated actions, Careau & Co. and Richard Carrott v. Security Pacific Business Credit, Inc., Security Pacific National Bank, Security Pacific Corporation and Raymond C. Torres, ("the Carrott action"); and The Careau Group v. Raymond Torres, Security Pacific Business Credit, Inc., Security Pacific National Bank, and Security Pacific Corporation, ("the Careau Group action"). They arise out of a dispute as to (1) whether the bank defendants had made a binding commitment to provide debt financing to the plaintiffs for the leveraged (i.e., debt financed) buyout of a business and (2) whether the plaintiffs justifiably relied thereon. These two actions allege numerous parallel and nearly identical claims based upon both contract and tort. (See fn. 8, post.)

Plaintiffs appeal from a judgment which was based upon an order sustaining demurrers without leave to amend and an order granting defendants' motion for judgment on the pleadings. In this appeal we are asked to decide the propriety of such orders as well as the trial court's denial of a motion for reconsideration of the order sustaining the demurrers. For the reasons discussed below, we have determined that the trial court should have overruled the demurrers as to two causes of action pled in the second amended complaints and granted to plaintiffs the right to amend as to certain other causes of action. We therefore will affirm in part and reverse in part.

PROCEDURAL BACKGROUND

The Carrott action was filed in November of 1983. The Careau Group action was filed in October of 1985. First amended complaints were filed in both actions in August 1987. The parties engaged in discovery both before and after the first amended complaints were filed. Ultimately, the two cases were consolidated pursuant to a stipulation and order, dated September 4, 1987.

On October 6, 1987, the defendants filed demurrers to the first amended complaints. Specifically, defendants demurred to the first through fifth and the eighth, tenth and eleventh causes of action in the Carrott action and to the first through fifth and eighth, ninth, and tenth causes of action in the Careau Group action. On October 30, 1987, all the demurrers were sustained without leave to amend. On November 9, 1987, plaintiffs moved for reconsideration of the "without leave to amend" portion of the order sustaining the demurrers, submitting, with their motion for reconsideration, proposed second amended complaints for both of the actions. ¹ Their motion In November 1987, defendants had filed an answer to the remaining causes of action in the two cases. This was shortly followed by a motion for judgment on the pleadings as to all but one of those counts. The motion sought dismissal of the sixth (fraud) and seventh (negligent misrepresentation) causes of action in both of the first amended complaints, as well as the ninth (interference with prospective business advantage) cause of action in the Carrott action. The motion was granted on March 11, 1988.

was denied on December 4, 1987. A statement of the grounds for ruling upon the demurrers was signed and filed January 8, 1988.

A judgment, based on that motion and the orders sustaining the demurrers was entered on July 13, 1988. Pursuant to a stipulation, the twelfth cause of action in the Carrott first amended complaint (breach of oral contract not to disclose confidential information, which had not otherwise been specifically addressed by the trial court) was dismissed without prejudice in August 1988. The judgment was then amended nunc pro tunc on August 30, 1988, to reflect such voluntary dismissal. Plaintiffs filed a timely appeal from that judgment.

FACTUAL BACKGROUND

At the heart of these consolidated actions is the effort to finance the purchase of an egg production facility in Moorpark, California, known as Julius Goldman's Egg City ("Egg City"). Plaintiffs, or at least one of the plaintiffs, sought to purchase Egg City and sought funding of $13,000,000 from defendants. This financing never materialized and plaintiffs were allegedly unable to make the purchase until a new lender was found. They eventually obtained the necessary funding elsewhere, but on less desirable terms. Plaintiffs filed these actions, contending, inter alia, that defendants (1) breached oral and written contracts, (2) breached the implied covenant of good faith and fair dealing, (3) denied in bad faith the contract's existence, (4) engaged in fraud and negligent misrepresentations, and (5) interfered with plaintiffs' contractual and business relationships and prospective economic advantages.

This is an appeal from a judgment of dismissal entered after demurrers were sustained to plaintiffs' first amended complaints. ² 'Therefore, under settled law, we assume the truth of all properly pleaded material allegations of the complaint [citations] and give it a reasonable interpretation by reading it as a whole and its parts in their context. [Citation.]" (Phillips v. Desert Hospital Dist. (1989) 49 Cal.3d 699, 702, 263 Cal.Rptr. 119, 780 P.2d 349.) If the demurrer was sustained, as it was in this case, our function is to determine whether the complaint states sufficient facts to state a cause of action; and if it was sustained, as it was here, without leave to amend, "we decide whether there is a reasonable possibility that the defect can be cured by amendment: if it can be, the trial court has abused its discretion and we reverse; if not, there has been no abuse of discretion and we affirm. [Citations.] The burden of proving such reasonable possibility is squarely on the plaintiff. [Citation.]" (Blank v. Kirwan (1985) 39 Cal.3d 311, 318, 216 Cal.Rptr. 718, 703 P.2d 58; see also, Maheu v. CBS, Inc. (1988) 201 Cal.App.3d 662, 669-670, 247 Cal.Rptr. 304; Von Batsch v. American Dist. Telegraph Co. (1985) 175 Cal.App.3d 1111, 1117, 222 Cal.Rptr. 239.) In accordance with these rules, we set forth the following facts as disclosed by plaintiffs' second amended pleadings. ³

During the summer of 1983 the plaintiffs Richard Carrott ("Carrott") ⁴ and Careau & Co. ("Careau"), a California Corporation, negotiated a leveraged purchase of Egg City. It was then owned by the Kroger Company ("Kroger"), one of the largest grocery chain store owners in the United States. These negotiations led to the execution of a letter of intent between Careau and the defendant Security Pacific Business Credit, Inc. ("SPBC") ⁵ on July 19, 1983. By this letter, SPBC expressed an interest in lending to Careau the sum of $12,000,000 (to provide financing for the purchase of Egg City) upon certain terms and conditions and subject to certain specified contingencies. The letter was signed on behalf of SPBC by the defendant Raymond C. Torres ("Torres") who was a vice-president of SPBC and, at all times, "was acting in and within the scope of that capacity, and under the control and agency of" SPBC.

The terms of the letter of intent required Careau to make a good faith deposit of $10,000 which would be used by SPBC to cover the costs and expenses incurred by SPBC in reviewing and evaluating Careau's loan application. This sum was paid to SPBC on July 27, 1983, by a check apparently written on a personal account of Carrott.

The conditional and tentative nature of the letter was emphasized by several phrases which made clear that no loan commitment had been made. Specifically, (1) the terms of the proposed loan were introduced with the disclaimer that the letter should "in no way should be considered a commitment to provide financing"; (2) a list of "conditions precedent" was preceded by the sentence, "The following are some, but obviously not all of the conditions precedent to any loan approval...."; and finally, (3) the letter concluded with a further caution, "Since this letter is not a commitment to make a loan, it should not be relied upon by any third party."

Thereafter, SPBC had discussions with Kroger, the party from which Egg City would be purchased, and an audit of that property and business was completed by SPBC and distributed internally by August 10, 1983. Two weeks later, on August 25, Torres, on behalf of SPBC, and Carrott, on behalf of Careau, executed a revised letter relative to the proposed loan which the second amended complaints allege was "a written commitment contract for the acquisition of Egg City." ⁶

It was identical to the letter of July 19 except for four specific changes:

1. The total amount of the proposed loan was increased to $13,000,000 (including an increase, from $4 million to $5 million, of the advances to be secured by accounts receivable);

2. The conditional and tentative language quoted and underlined above in the next preceding paragraph was deleted 3. Three contingencies that had not been included in the July 19 letter (numbered as 8.4, 8.5 and 8.6) were added. The proposed loan, as described in the letter of August 25, was thus made subject to the eight specific conditions precedent; ⁷ and finally,

4. The letter concluded with the statement, "Since this letter is subject to all of the above conditions and specifically the receipt of the acceptable appraisal with a guarantee from an acceptable insurance company and the confirmed commitment from seller, it should not be relied upon by any third party as a final commitment to make a...