Lamor Res, Inc. v. Hovannesian

• Decision Date: 28 October 2022
• Docket Number: E074197
• Parties: LAMOR RES, INC., Plaintiff and Appellant, v. ARMENAK HOVANNESIAN, Defendant and Respondent.
• Court: California Court of Appeals Court of Appeals

LAMOR RES, INC., Plaintiff and Appellant,
v.
ARMENAK HOVANNESIAN, Defendant and Respondent.

E074197

California Court of Appeals, Fourth District, Second Division

October 28, 2022

NOT TO BE PUBLISHED

APPEAL from the Superior Court of San Bernardino County. No. CIVDS1611442, Janet M. Frangie, Judge. Reversed with directions.

Pope &Gentile and Daniel K. Gentile for Plaintiff and Appellant.

Law Offices of Diana Carloni and Diana J. Carloni for Defendant and Respondent.

OPINION

FIELDS J.

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I. INTRODUCTION

Plaintiff Lamor Res, Inc. filed a civil complaint against defendant Armenak Hovannesian, alleging a single cause of action for breach of a written lease agreement (the Lease) as the result of unpaid rent. The case was tried over two days in a court trial resulting in a judgment in favor of defendant. In its statement of decision, the trial court made a factual finding that defendant failed to pay the rent required under the written terms of the Lease between October 2014 and December 2015. Nevertheless, the trial court concluded that there was no breach because the Lease had been modified by oral agreement to provide for a reduced rental payment. The trial court further concluded that because defendant did not owe rent under the modified agreement, he was entitled to a return of his security deposit and included an award of compensatory damages in favor of defendant as part of the judgment.

Plaintiff appeals, arguing that the trial court erred (1) in concluding the Lease had been validly modified by oral agreement, and (2) in granting affirmative relief in favor of defendant in the absence of any pleading requesting such relief. We agree the trial court erred on both of these grounds and remand the matter for further proceedings.

II. PROCEDURAL HISTORY

A. Pleadings

On July 15, 2016, plaintiff filed a civil complaint against defendant seeking recovery of unpaid rent pursuant to the Lease. According to the complaint, in 2011,

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defendant entered into the Lease with the owner of a commercial property (Lessor) located in Apple Valley, California. In October 2014, defendant breached the agreement by failing to pay the rent due under the Lease. Plaintiff obtained an assignment of Lessor's claim for unpaid rent in 2016.

At some point in time, defendant also filed a small claims action against plaintiff. The small claims complaint purportedly alleged defendant had been forced to incur attorney fees as the result of wrongful eviction notices sent by plaintiff. The two actions were consolidated and tried together, but neither party has included the small claims complaint as part of the record on appeal.

B. Judgment and Statement of Decision

The case was tried in a two-day court trial. In a statement of decision, the trial court made the following findings of fact: defendant executed the Lease in 2011; defendant paid a security deposit in the amount of $8,000 pursuant to the terms of the Lease; and defendant experienced financial difficulties and fell behind in his lease payments. The trial court also found that in early 2014, defendant and Lessor orally agreed to reduce the future rental payments due under the Lease; the parties exchanged text messages memorializing this agreement; and the parties expressed their intent to enter into a new written lease agreement but never executed a new lease.

The trial court found that in May 2014, Lessor retained plaintiff to manage the property; the parties again unsuccessfully attempted to negotiate a new lease agreement; and that during these negotiations, defendant paid and Lessor continued to accept the reduced rent pursuant to their oral agreement. However, the trial court found that:

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Lessor expressly represented it would not continue to accept reduced rent through the entire lease term; in August 2014, Lessor gave written notice that the full rent due under the Lease would resume beginning October 2014; and beginning October 2014, Lessor sent written notices to pay rent or quit that expressly stated Lessor was not waiving its right to the full rent due under the Lease. Finally, the trial court found that defendant continued to pay rent at a reduced amount until he sold his business to a third party in December 2015; that other than its written notices, Lessor took no other legal action to evict defendant from the property; and that Lessor assigned its claims against defendant for past due rent to plaintiff in June 2016.

Based upon these factual findings, the trial court concluded that defendant and Lessor had entered into a valid oral agreement modifying the terms of the Lease. Specifically, the trial court concluded that the oral modification was enforceable because the modification had been "fully executed" as evidenced by the payment and acceptance of reduced rent through October 2014. Based upon this conclusion, the trial court entered judgment in favor of defendant. Additionally, the trial court awarded defendant compensatory damages. However, the award was not the result of any of the claims asserted by defendant in the consolidated small claims action but was rather based on plaintiff's complaint and represented compensation for defendant's unreturned security deposit.

C. Motion for New Trial

On October 7, 2019, plaintiff filed a notice of intent to move for a new trial. Among other arguments, plaintiff asserted that the trial court omitted a finding regarding

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the existence of consideration for the purported modification of the Lease, and that the trial court could not grant a monetary award in favor of defendant absent a pleading requesting such relief.

The trial court denied the motion. In its written order, the trial court expressed that a finding regarding consideration was not necessary given the theory upon which it relied to conclude the parties had entered into a valid modification of the Lease. The trial court also expressed its view that, even if the issue of consideration was relevant, defendant's promise to "remain a tenant and enter into a new lease" would have constituted consideration. The trial court acknowledged that defendant had never requested an award of monetary damages based upon the failure to return his security deposit in any pleading; but the trial court expressed the belief that it could make such an award because defendant had pled a defense of offset in its answer and because "[t]he legal doctrine of amendment to conform to proof is relevant to this discussion and there is no prejudice to [plaintiff] in applying this concept to the issue of the security deposit."

III. DISCUSSION

On appeal, plaintiff contends the judgment is erroneous for two, independent reasons: (1) it was error for the trial court to conclude defendant did not breach the Lease because the Lease had been modified by oral agreement, and (2) it was error for the trial court to award monetary damages to defendant. We agree that the trial court erred on both of these points, and that these errors require reversal of the judgment.

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A. The Trial Court's Factual Findings Do Not Support a Valid Modification

In this case, the trial court found, and the parties do not dispute, that the Lease was a written agreement between defendant and Lessor; that defendant was obligated to pay rent in a specified amount each month under the terms of the Lease; and that defendant paid a reduced amount from October 2014 through December 2015. Thus, as the trial court correctly identified, the "salient issue" in this case was whether the parties validly modified rent due under the Lease for this period.

On appeal, plaintiff argues the trial court's conclusion that the Lease had been modified was erroneous on numerous grounds, including: (1) any purported modification is per se unenforceable for lack of consideration; (2) any purported modification failed to meet the requirements of Civil Code section 1698; and (3) substantial evidence would not support a finding of waiver of the rent due under the written agreement. We conclude that, even assuming the trial court's factual findings are supported by substantial evidence in the record, these findings are not sufficient to show a valid modification under Civil Code section 1698. As a result, the judgment must be reversed, and the matter remanded for further proceedings.

1. General Legal Principles and Standard of Review

"The modification of a written contract is governed by Civil Code section 1698, which states in pertinent part: '(a) A contract in writing may be modified by a contract in writing. [¶] (b) A contract in writing may be modified by an oral agreement to the extent that the oral agreement is executed by the parties. [¶] (c) Unless the contract otherwise expressly provides, a contract in writing may be modified by an oral agreement supported

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by new consideration.'" (Wind Dancer Production Group v. Walt Disney Pictures (2017) 10 Cal.App.5th 56, 78.) "Proof of the modification must meet the test of Civil Code section 1698" (Coldwell Banker &Co. v. Pepper Tree Office Center Associates (1980) 106 Cal.App.3d 272, 279, disapproved on another ground by Barrett v. Bank of Am. (1986) 183 Cal.App.3d 1362, 1370), and "[t]he written contract remains in effect to the extent it has not been modified" (Conley v. Matthes (1997) 56 Cal.App.4th1453, 1465).

"While reviewing a judgment based upon a statement of decision following a bench trial, the appellate court reviews the trial court's findings of fact under a substantial evidence standard. [Citation.] In applying the substantial evidence standard, an appellate court defers to a trial court's findings of fact by 'liberally constru[ing] [them] to support the judgment.' [Citation.] The court considers the evidence in the light most favorable to the prevailing party and draws all reasonable inferences in support of the findings. [Citation.] However, questions of law-such as the interpretation...