GSF Enterprises v. Victorville Mediterranean Gardens CA4/1 (2013) · DecisionDepot
GSF Enterprises v. Victorville Mediterranean Gardens CA4/1
California Court of Appeal Jul 19, 2013 No. D060067Unpublished
Filed 7/19/13 GSF Enterprises v. Victorville Mediterranean Gardens CA4/1 NOT TO BE PUBLISHED IN OFFICIAL REPORTS California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.
COURT OF APPEAL, FOURTH APPELLATE DISTRICT
DIVISION ONE
STATE OF CALIFORNIA
GSF ENTERPRISES, INC., D060067
Plaintiff and Respondent,
v. (Super. Ct. No. 37-2010-52151-CU- BC-NC) VICTORVILLE MEDITERRANEAN GARDENS, LLC, et al.,
Defendants and Appellants.
APPEAL from a judgment of the Superior Court of San Diego County, Robert P.
Dahlquist, Judge. Affirmed.
Klinedinst; Gates, O'Doherty, Gonter & Guy and Amanda F. Benedict for
Defendant and Appellant.
Lanack & Hanna and Christopher M. Cullen for Plaintiff and Respondent.
Plaintiff and respondent, GSF Enterprises, Inc. (Plaintiff or GSF), sued Victorville
Mediterranean Gardens, LLC ("VMG"), Executive Information Services and Investment
Group, LLC ("EISIG"), and the majority owner of those companies, Larry D. Gonzales
(Gonzales; sometimes together, Defendants), over Defendants' defaults in repaying two
notes that were collateralized by two pledge agreements for stock in VMG and EISIG.
Plaintiff sought rescission and damages on fraud, breach of contract, and other theories.
(Civ. Code, § 1689, subd. (b)(1), (2); all further statutory references are to the Civil Code
After a bench trial, Plaintiff obtained judgment in its favor on the cause of action
for rescission of the notes and their related pledge agreements, due to fraud, and it also
prevailed on two causes of action for declaratory relief, to establish Gonzales was the
alter ego of VMG and EISIG. Judgment was entered for $250,000 collectively against
Defendants.
Defendants appeal, arguing there was insufficient evidence presented to establish
that Plaintiff "was actually deceived by the concealment or misrepresentation of any
material fact or that [Plaintiff] actually relied upon the fraudulent representation when it
consented to the funding agreements." The record is otherwise. The judgment is
affirmed.
FACTUAL AND PROCEDURAL BACKGROUND
A. Parties and Transactions
Gonzales is a real estate developer and the principal of several companies and
proprietorships. As relevant here, he is the president and chief executive officer of EISIG
(a Nevada corporation admitted to do business in California), and he owns 75 percent of
EISIG's shares. EISIG's assets are mainly $2.2 million in the form of receivables from
stockholders or two companies who owe it money. EISIG owns Topaz Capital and
2
Investments, Inc., a Nevada corporation (Topaz). Topaz held the title to 52 acres of real
property near Victorville, California.1
Since 2004, Gonzales has been working on a development project on the Topaz-
owned property, "Victorville Mediterranean Gardens," a projected 428-unit multifamily
complex (the project). EISIG, a holding company, also owns VMG, an entity to be used
for the development of the project. VMG's 2009 operating agreement lists Gonzales as
the sole member. At trial, Gonzales estimated the projected potential returns on the
project were between $60 million to $80 million.
In 2007, Gonzales, through his company EISIG, applied for a loan guarantee for
the project from the United States Department of Housing and Urban Development
(HUD). He planned to transfer title of the project property into VMG, once funding was
obtained. On January 2, 2008, Gonzales obtained a letter from HUD (letter of invitation)
authorizing the submission of an application to obtain a "firm commitment" of a HUD
loan guarantee. The letter of invitation was due to expire 180 days later, and could be
extended for another 90 days.
However, the letter of invitation expired in 2008 before Gonzales could complete
his application for a firm commitment. Gonzales kept trying to move the project forward
and to obtain a HUD loan guarantee, possibly by reapplying for another letter of
1 In March 2011, at the time of trial, Topaz was a debtor in a Chapter 11 bankruptcy proceeding. Topaz had sold off over 16 acres of the project by then. It is not a party to this litigation. 3
invitation. By 2009, the property was overleveraged and Topaz was behind on its
monthly mortgage payments.2
Plaintiff, a Delaware corporation, owns a framing business. Its president, John C.
Dunbar, has over 20 years of experience in construction and related industry financing.
In May of 2009, Dunbar was introduced to Gonzales by a mutual business associate, Rick
Cohen of Jaynes Construction (Jaynes, a general contractor). The three men met to
discuss a project that Gonzales was working on, along with Plaintiff's vice-president Gary
Viano, Gonzales's associate Roy Peterson and others. At the meeting, Gonzales
explained the VMG project concept, discussed the participating companies he controlled,
and stated that they needed a limited amount of funding to help move VMG's project
forward, by obtaining required permits and fees. Plaintiff was interested in bidding for
the framing portion of the project, through Jaynes, and later did so. Dunbar understood
from Gonzales that Jaynes was also a potential investor.
B. Documentation of Deal
After the meeting, in May 2009, Plaintiff agreed to pay VMG money, in return for
a security interest in one of Gonzales's companies as collateral. First, Plaintiff signed a
"Note Agreement" (the note) and a "Pledge Agreement," and paid $150,000 to VMG. In
the note, VMG warranted and pledged collateral of 600 shares of stock in VMG to
Plaintiff "with the understanding that said shares/stock will be repurchased/redeemed by
VMG when payment is returned for principal plus 15% interest with the note paid off in
2 As of the time of trial, the HUD application process had not been completed, no ground had been broken on the project, and Gonzales was planning to cut its size in half. 4
full in six months." In the note, VMG warranted that the funding was for "securing a
HUD loan guarantee to build a 428-unit multifamily complex in Victorville, California."
The due date on the note was November 22, 2009. Additionally, the note provided that in
the event of default, "both parties agree that pledged shares/stock of VMG in the amount
of this Agreement will become certificates of shares/stock in" VMG, and VMG would
have a right of redemption within six months.
The separate pledge agreement by VMG referenced the note and stated that the
pledge agreement supplied collateral and security for the payment and obligations under
the note.
In June 2009, Plaintiff signed a similar note and pledge agreement, this time in
favor of EISIG, and paid an additional $100,000 in funding towards the project. The due
date on this note was July 25, 2009. In the note, Plaintiff agreed to receive a security
interest in EISIG as collateral, and EISIG agreed "to warrant and to pledge as collateral
four hundred (400) shares/stock of EISIG" to Plaintiff, "with the understanding that said
shares/stock will be repurchased/redeemed by EISIG when payment is returned for
principal plus 15% interest with the note paid in full within thirty (30) days of the date of
execution (below)." Again, the note warranted that the funding was to be used for
"securing a HUD loan guarantee to build [the project]," and the pledged stock constituted
a security interest for the capital provided, and EISIG would be repurchasing the security
interest. Additionally, this note provided the same type of default provision as above,
which allowed the pledged stock to become certificates of stock in EISIG upon any
default, and EISIG would then have a right of redemption within six months.
5
The separate pledge agreement by EISIG included a stock issuance table,
referenced the note, and stated that the pledge agreement supplied collateral and security
for the payment and obligations under the note.
VMG, EISIG and Gonzales spent the money, stopped communicating with
Plaintiff in October 2009, did not pay the notes and did not transfer the stock.
C. Lawsuit, Trial and Judgment
In March 2010, Plaintiff filed a complaint seeking to rescind the notes and pledges
of stock based on (a) failure of consideration or (b) fraud, and sought restitution and
damages for breaches of contract, declaratory relief and an accounting.3 Copies of the
notes and pledges of stock were attached to the complaint. Defendants answered and
discovery ensued.
In February 2011, Plaintiff's motion to amend its complaint was denied and the
matter proceeded to trial in March 2011. Initially, Defendants sought dismissal on the
grounds that Plaintiff was doing business in California as "Golden State Framers," but
that was a suspended corporation. (Rev. & Tax. Code, § 23301 [suspended corporations
cannot exercise corporate powers].) However, the trial court denied dismissal, because
the body of the complaint made it clear that the plaintiff in the matter was GSF, not its
dba, and GSF was in good standing.
3 Subdivision (b)(2) of section 1689 allows for rescission of a contract when "the consideration for the obligation of the rescinding party fails, in whole or in part, through the fault of the party as to whom he rescinds." (1 Witkin, Summary of Cal. Law (10th ed. 2005) Contracts, § 935, pp. 1029-1030.) 6
At trial, the parties and their associates Viano and Peterson testified about their
understandings of the role of the HUD letter of invitation, the financial condition of
Gonzales's various companies, the identity of the title holder to the project's property, and
the planned use of the money from Plaintiff (as described in the discussion portion of this
opinion). Numerous exhibits were admitted, mostly by stipulation.
After taking the matter under submission, the court issued its ruling in the form of
a minute order and "Decision after Bench Trial" (the decision). The court first
determined that insufficient evidence had been presented to support the cause of action
for rescission due to failure of consideration. The court ruled that Plaintiff had
abandoned its fifth cause of action for an accounting.
After explaining its reasoning process in detail (to be summarized post), the trial
court ruled in favor of Plaintiff on its cause of action for rescission due to fraud, and on
the two causes of action declaring Gonzales the alter ego of VMG and EISIG. No ruling
was deemed necessary on the breach of contract claims. The court ordered VMG to pay
Plaintiff $150,000 and EISIG to pay it $100,000. Gonzales was held personally
responsible for payment of the same amounts, under the doctrine of alter ego, in the
combined amount of $250,000.4 Plaintiff was required to prepare a form of judgment,
which was entered.
The court denied Defendants' request for reconsideration on May 23, 2011.
Defendants appeal.
4 On appeal, Defendants have not made any specific arguments to attack the alter ego findings in the decision and judgment, and have waived any such claims. 7
DISCUSSION
I
APPLICABLE STANDARDS
A. Review on Appeal
This decision was issued after the trial court heard testimony and reviewed the
exhibits to resolve the issues identified in the pleadings and trial briefs, and it was duly
formalized into a judgment. In reviewing such a decision after trial, "any conflict in the
evidence or reasonable inferences to be drawn from the facts will be resolved in support
of the determination of the trial court decision." (In re Marriage of Hoffmeister (1987)
191 Cal.App.3d 351, 358.) The ultimate facts found in the court's decision, which is
equivalent in this case to a statement of decision, necessarily include findings on the
intermediate evidentiary facts that sustain them. (Muzquiz v. City of Emeryville (2000)
79 Cal.App.4th 1106, 1125.)
The appellate court will "consider all of the evidence in the light most favorable to
the prevailing party, giving it the benefit of every reasonable inference, and resolving
conflicts in support of the [findings]." (Howard v. Owens Corning (1999) 72
[and is] reasonable in nature, credible, and of solid value.' " (Bowers v. Bernards (1984)
150 Cal.App.3d 870, 873, italics omitted.) In determining its existence, we look at the
entire record on appeal rather than simply considering the evidence cited by a party.
(Ibid.) We may not reweigh the evidence and are bound by the trial court's credibility
8
determinations. (Ibid.; see Heller v. Pillsbury Madison & Sutro (1996) 50 Cal.App.4th
1367, 1384.)
B. Rescission for Fraud
Under section 1689, subdivision (b)(1), a contract may be rescinded: "If the
consent of the party rescinding, or of any party jointly contracting with him, was given by
mistake, or obtained through duress, menace, fraud, or undue influence, exercised by or
with the connivance of the party as to whom he rescinds, or of any other party to the
contract jointly interested with such party." (Italics added.) In Estate of Young (2008)
160 Cal.App.4th 62, 79, this court considered a substantial evidence challenge to an
adverse fraud judgment by first reviewing the required elements of a claim of fraud:
" ' "(a) 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." [Citations.]' "
"Actual fraud is always a question of fact." (§ 1574.) Within the definitions of
section 1572, fraud can take numerous forms: "Fraud is a generic term which embraces
all the multifarious means which human ingenuity can devise and are resorted to by one
individual to get an advantage over another. No definite and invariable rule can be laid
down as a general proposition defining fraud, and it includes all surprise, trick, cunning,
dissembling, and unfair ways by which another is deceived. [Citation.] The statutes of
California expressly provide that . . . any other act fitted to deceive is actual fraud."
(Wells v. Zenz (1927) 83 Cal.App. 137, 140; see 1 Witkin, Summary of Cal. Law, supra,
9
§ 286, p. 316.) A fraudulent representation is one made "with intent to deceive" the other
party to the contract. (§ 1572; 1 Witkin, Summary of Cal. Law, supra, § 290, p. 318.)
C. Materiality of a Misstatement or Concealment
A representation that is material, or goes to the heart of an agreement, is one of
" 'such a nature, weight, and force that the court can say, "without it the contract would
not have been made." ' " (Costello v. Roer (1946) 77 Cal.App.2d 174, 178, citing
Oppenheimer v. Clunie (1904) 142 Cal. 313, 319.)
Determining the materiality of a false representation presents a question of law
that is related to the concept of justifiable reliance. (5 Witkin, Cal. Procedure (5th ed.
2008) Pleading, § 718, pp. 134-135.) "The facts of materiality are shown by the specific
allegation of the representation contrasted with the true facts." (Id. at p. 135.) This
commentator explains that a plaintiff seeking redress for fraud must be able to prove that
there was actual, justifiable reliance on the false representations. (Id. at § 732, pp. 152-
154.) "This may in some cases require a showing of such matters as materiality of
representations of fact, circumstances warranting reliance on opinions, or the absence of a
duty to investigate or of the means of obtaining other information." (Ibid.)
As Defendants acknowledge in their reply brief, "the existence of a single material
misstatement or concealment of a material fact can be sufficient ground for rescission of
a contract. (Wilke v. Coinway, Inc. (1967) 257 Cal.App.2d 126[, 138]; Richard v. Baker
(1956) 141 Cal.App.2d 857, 861.)" We now turn to Defendants' specific claims that
under all the relevant circumstances, no "material" facts were misstated or concealed,
10
such as the topics identified by the trial court as critical to the Plaintiff's decision to enter
into these contractual arrangements.
II
SUFFICIENCY OF EVIDENCE: RESCISSION FOR FRAUD
A. HUD Letter of Invitation
1. Ruling
The trial court's decision characterized the testimony by Dunbar, on behalf of
Plaintiff, as showing that Gonzales failed to disclose that he had been unsuccessful in
obtaining a HUD loan guarantee, or that his letter of invitation to do so had already
expired. On the other hand, Gonzales had testified that all material information about the
project was disclosed, and that Plaintiff was only now complaining, after the fact, about
matters that were immaterial to it at the time.
In the decision's findings and analysis, the court observed that the testimony
offered for Plaintiff by Dunbar, concerning the disclosures and representations made by
Defendants, was generally credible and established that Plaintiff was misled in
connection with the funding it provided to them. The court then stated that Gonzales's
testimony about his disclosures and representations was "not entirely credible." The
totality of the evidence persuaded the court that Plaintiff should have been but was not
told that the HUD letter of invitation had lapsed many months before Plaintiff paid the
money to VMG or EISIG.
11
2. Contentions, Evidence and Analysis
Defendants contend that the evidence does not support the trial court's
determination that this factor was "material" and influenced Plaintiff's decision to enter
into the notes and pledge agreements. Defendants argue Plaintiff did not diligently
investigate the "investment," and that any misrepresentation was not an inducing cause of
the assent. (See 1 Witkin, Summary of Cal. Law, supra, § 300, p. 326.) Rather,
Defendants claim Plaintiff was investing in the project out of its own self-interest, in
seeking to supply a framing bid for it.
Plaintiff responds that the transactions were intended on its part to be loans that
would be repaid according to the terms specified on the notes, with collateral provided by
the pledge agreements. Plaintiff understood that the project was in the permitting stage
and that governmental entitlements had to be obtained and fees paid, and Dunbar testified
that he understood the transaction to be a bridge loan toward such expenses, rather than
an investment. Dunbar testified that Gonzales told him that the purpose of the second
loan was to tie up loose ends, such as paying for permits and fees. Later, Gonzales told
Plaintiff that he would be able to pay it back, once the next $1.5 million in investment he
was expecting came in, although it never did.
We are required to look at the entire record on appeal rather than simply
considering the evidence cited by a party. (Bowers v. Bernards, supra, 150 Cal.App.3d
870, 873.) We do not reweigh the evidence and are bound by the trial court's credibility
determinations. (Ibid.) From all of the testimony and evidence, the trial court had a
sufficient basis to determine that it was a material fact, important to Plaintiff's contractual
12
decisionmaking, whether the project was currently and actively underway, with respect to
pursuing eligibility for governmental funding approvals. Such information was withheld.
Without a viable project, Plaintiff could not have expected its planned bid for the framing
work to be accepted, and more probably than not, it would have declined to contribute
toward any hypothetical request for such approvals.
The record does not support Defendants' arguments that Plaintiff was given the
necessary information about the project but failed to investigate it adequately. The trial
court had an adequate basis to rule that there were material misrepresentations and
concealments in Defendants' presentation to Plaintiff, in this respect.
B. Financial Condition of Companies
1. Ruling
The trial court's decision characterized the testimony by Dunbar, on behalf of
Plaintiff, as credibly claiming that Gonzales failed to disclose, as of the time that Plaintiff
was deciding to advance money to the project, that the project was in financial distress.
Defendants owed money to their lender and to other creditors that they could not pay.
2. Contentions, Evidence and Analysis
Defendants argue that Plaintiff was made aware of all the relevant facts about the
transactions and proceeded to invest, for reasons of its own. Defendants argue that
further disclosures would not have made a difference because Plaintiff did not investigate
the current financial status of VMG or EISIG, instead relying on the business reputation
of Gonzales as conveyed by their mutual colleague, Rick Cohen of Jaynes. Dunbar
testified that Gonzales "pitched" the project to him and Dunbar had a "hunch" that this
13
would be a good deal for his company. He understood from the presentation that
Gonzales owned the property, which was unencumbered, and that Gonzales had several
of his own entities involved in the project, but there was no need to discuss the assets of
those entities. Dunbar did not believe it made any difference that one of the notes
involved VMG and the other involved EISIG, since EISIG owned VMG, and Gonzales
said they were moving forward with his HUD project on his property.
Gonzales testified that in addition to EISIG, which had been a defunct Nevada
corporation during 2008-2011 (but was still doing business in California), he also owned
a sole proprietorship/dba called EIS (Employee Insurance Services; not a party to this
action), and the stockholders of EISIG owed money to EIS. Gonzales transferred money
between his various entities for the purpose of making payments on behalf of Topaz or
the others, when they ran short of funds. He viewed the money received from Plaintiff
not as a loan, but as a capital contribution to VMG. As of trial time, neither VMG nor
EISIG had any assets.
Even if Plaintiff understood the general types of documents he was signing, if his
consent was induced by fraud, the resulting contracts are voidable. (See 1 Witkin,
Summary of Cal. Law, supra, Contracts, § 297, p. 324.) Defendants did not call
Plaintiff's attention to the known fact of serious financial problems with the project, nor
to similar facts about the relationship or status of the companies that provided the stock
for the supposed security for the note, or about any other companies they owned.
Plaintiff was not placed on notice that any of the documents it signed were other than
routine loan instruments with valuable collateral, as represented. (See Brown v. FSR
14
Brokerage, Inc. (1998) 62 Cal.App.4th 766, 777-778 [person signing an instrument may
not, in the absence of fraud, coercion or excusable neglect, avoid its terms on the ground
of failure to read before signing].) Plaintiff submitted substantial evidence that
Defendants failed to disclose specific information about the financial condition of the
participants that would have been material to a reasonable business person who was
considering whether to enter into these agreements. (Wilke v. Coinway, Inc., supra, 257
Cal.App.2d 126, 137-139.)
By citing only to their preferred evidence, Defendants would have us disregard the
remaining evidence and reasonable inferences that they intentionally defrauded Plaintiff
by soliciting and accepting Plaintiff's money for payments toward project entitlements,
when the entities responsible for pursuing the project were relatively low on assets and
unable to realistically proceed. Although Dunbar relied in part upon the referral to
Gonzales that he received from his Jaynes colleague, he did so because he believed
Gonzales had a reputation as a straight shooter in pursuing construction projects, and
such projects normally include expenditures toward necessary project entitlements.
However, the project was going nowhere, contrary to Gonzales's express and implied
representations. The record as a whole demonstrates that because of the materially
incomplete information conveyed on this subject, this transaction left plaintiff " 'in a
worse position than he otherwise would have been.' " (Costello v. Roer, supra, 77
Cal.App.2d 174, 179.)
15
C. Title Holder to Property
1. Ruling
The trial court's decision stated that Dunbar, on behalf of Plaintiff, had credibly
testified that Gonzales never informed him that the real property on which the project was
proposed was not owned by either VMG or EISIG, but by Topaz. Defendants failed to
disclose the nature and extent of Topaz's involvement in the project, as well as its
financial condition. Indeed, the court stated that Gonzales's testimony that all material
information about the project had been disclosed was not entirely credible.
2. Contentions, Evidence and Analysis
According to Defendants' view of the evidence, any representations they made
about the actual or apparent ownership of the project property were not material, and any
damage to Plaintiff was due to its own failure to investigate the deal. Gonzales testified
that he tried to be transparent about the participation of Topaz, the property owner, in the
deal, but maybe Dunbar did not understand his terminology concerning the HUD loan
guarantee process.
Dunbar testified that at the meeting, he got the impression from Gonzales that he
was the owner of the land and the project, that he needed "just a few dollars" to finalize
some permitting and loan fees, and that Plaintiff's contribution of money would enable
him to proceed with the project very soon, within a period of one to six months (as shown
by the due date of the two notes). Dunbar testified that he did not learn until depositions
were taken in this action that Topaz was the owner of the property, and that Topaz was
behind on its loans. Dunbar testified that if he had been told that Topaz was behind on
16
the mortgage, he would have laughed in Gonzales's face and not paid VMG or EISIG any
money.
"The essential element of causation is lacking unless the plaintiff sets forth facts to
show that his or her actual reliance on the representations was justifiable, so that the
cause of the damage was the defendant's wrong and not the plaintiff's fault." (5 Witkin,
Cal. Procedure, supra, § 732, p. 153, citing Lingsch v. Savage (1963) 213 Cal.App.2d
729, 739; Pulver v. Avco Financial Services (1986) 182 Cal.App.3d 622, 640.) Here, the
evidence suggested, and the judge believed, that Plaintiff's participation in the
transactions was based on the reasonable understanding that the entities in the notes and
pledge agreements owned the property and could provide valuable security for the
business loans Plaintiff thought it was making. This understanding was sufficiently
shown to be reached through the dissembling and deceptive way in which the deal about
the property was pitched. (Wells v. Zenz, supra, 83 Cal.App. 137, 140.) Ownership of
the property asset was a material fact in the context of these dealings, and substantial
evidence supports the trial court's conclusion that Defendants' failure to disclose it
justified rescission of the instruments.
D. Use of Proceeds of Investment
1. Ruling
The trial court's decision interpreted a handwritten accounting provided by
Gonzales as showing that the $250,000 paid by Plaintiff was used to reduce the
outstanding amounts that third parties were claiming against the Defendant entities, as
well as Topaz. Specifically, $130,000 was paid to the project lender, and smaller
17
amounts were paid to reduce bills by the project's lawyers, architects, engineers and other
professionals. $30,000 went to Gonzales to "reimburse" him for his expenses, and
Gonzales's business associate Peterson received about $17,000 for his expenses.
Based on that state of the evidence, the court concluded that Plaintiff was misled
concerning the proposed use of the funds it would be providing. The funds were not used
for the promised purpose, to obtain entitlements for the project and/or to secure the HUD
loan guarantee. Plaintiff was not told that the funds were to be used to pay down pre-
existing debts or to reimburse Gonzales and his associate for alleged project expenses.
2. Contentions, Evidence and Analysis
Dunbar testified that Plaintiff never anticipated that it would be obtaining an
ownership interest in the project, and instead Plaintiff was characterizing the money it
was advancing as "loans" to move a reasonably well-developed project along, by
obtaining required permits and entitlements. Gonzales's distribution of the money, for
purposes other than obtaining such required permits and entitlements (according to his
extremely broad and unreasonable definitions of what constituted "moving the project
along"), provides evidence in support of the court's conclusion that the alter ego
doctrine's requirements were satisfied: " '(1) that there be such unity of interest and
ownership that the separate personalities of the corporation and the individual no longer
exist and (2) that, if the acts are treated as those of the corporation alone, an inequitable
result will follow.' " (Mesler v. Bragg Management Co. (1985) 39 Cal.3d 290, 300
(Mesler).)
18
Although Defendants do not specifically challenge the trial court's ruling that
Gonzales is the alter ego of the two entity defendants, the evidence about the eventual
disposition of Plaintiff's funds also supports the finding that Plaintiff was materially
misled about the actual purpose of the transactions. The use of the money showed there
was no separate existence of the corporate entities, and it can be inferred that Plaintiff's
decisionmaking about entering into the agreements would have been materially affected
if the true purpose had been disclosed. (Mesler, supra, 39 Cal.3d at p. 300.) The trial
court's resolutions of these factual and legal questions are supported by substantial
evidence.
Overall, the grant of rescission for fraud is supported by substantial evidence that
the project was not moving forward, as represented, at the time the funds were solicited,
and the funds were not used in the manner represented. For all of the reasons stated
above, the judgment is affirmed.
DISPOSITION
The judgment is affirmed. Costs are awarded to Respondent.
HUFFMAN, Acting P. J.
WE CONCUR:
HALLER, J.
AARON, J.
19
AI Brief
AI-generated · verify before citing
Holding. The court affirmed the judgment rescinding the notes and pledge agreements due to fraud, finding substantial evidence that the defendants made material misrepresentations and concealments regarding the status of a HUD loan guarantee, the financial condition of the entities, and the ownership of the project property.
Issues
Whether there was sufficient evidence to support the trial court's finding that the plaintiff was deceived by material misrepresentations or concealments.
Whether the trial court's findings regarding the materiality of the defendants' omissions were supported by substantial evidence.
Disposition. Affirmed
Quotations verified verbatim against the opinion
“The existence of a single material misstatement or concealment of a material fact can be sufficient ground for rescission of a contract.”