Opinion
NOT TO BE PUBLISHED
APPEAL from a judgment of the Superior Court of Los Angeles County No. BC403653, Ralph W. Dau, Judge.
Lisitsa Law Corporation and Yevgeniya Lisitsa, for Plaintiff and Appellant.
Best Best & Krieger, Daniel S. Roberts and Lee Ann Meyer, for Defendant and Respondent.
RUBIN, J.
Maywood Club Tow (MCT) appeals from the judgment of dismissal of its Second Amended Complaint against the City of Maywood (the City) entered after the trial court sustained the city’s demurrer. MCT contends it was error to sustain the demurrer and to award attorney fees to the city. We affirm.
FACTUAL AND PROCEDURAL BACKGROUND
In July 1998, MCT and the city entered into a written contract, entitled “Agreement For Furnishing Of Towing And Storage Service And Designation As An Official Police Garage For The City Of Maywood.” That contract was amended several times over the next few years, most recently in June 2004. With exceptions not relevant here, the June 2004 amendment incorporated by reference “all of the terms and conditions contained” in the December 1999 version of the contract. Accordingly, the parties’ contractual rights and obligations are set forth in the December 1999 contract, as amended by the June 2004 amendment (the contract).
In relevant part the contract provides: “In consideration of the designation of [MCT] as an Official Police Garage for City, and for the use of [MCT]’s facilities in connection with the towing, impounding and storing of certain vehicles, it is agreed as follows: [¶] 1. Designation [¶] City hereby designates [MCT] as an Official Police Garage during such time as this Amended Agreement remains in effect.” (Italics added.) Most of the remaining provisions of the contract recite MCT’s duties under the agreement. Paragraph 23.E. is an attorney fees clause; paragraph 23.D. states that the amended agreement “sets forth the entire Amended Agreement between the parties hereto, and fully supersedes any and all prior Amended Agreements or understandings between the parties herein pertaining to the subject matter hereof.”
In October 2008, MCT initiated this action against the City. The trial court sustained the City’s demurrer to that complaint and to the first amended complaint (FAC). In summary, the operative second amended complaint (SAC) alleges that MCT and the City entered into a written contract; the original contract and all amended versions were attached as exhibits to the complaint and incorporated by reference. Pursuant to the contract, MCT promised to provide towing services to the city in exchange for which the City promised: (1) to exclusively use MCT’s towing services; (2) to “diligently enforce the laws of the State of California;” and (3) to “administer ‘check points.’ ” The first cause of action alleges the City breached the exclusivity term of the contract. The second cause of action alleges the City induced MCT to enter into the contract by promising to exclusively use MCT’s towing services, then breached that promise by using other towing services. The third cause of action alleges the City breached the covenant of good faith and fair dealing by failing to carry out the laws of the state and by creating a “safe haven.” The fourth cause of action, which sought reformation of the contract, alleges that, in reliance of the City’s knowingly false promise to continue enforcing the law, MCT “spent millions of dollars developing property and facilities that were needed by the City so that the City could obtain benefits from State and Federal agencies.” Finally, the fifth cause of action sought “a declaration of its right and duties to the City and vice versa. This would include whether or not [MCT] owes the duty of free tows to emergency vehicles, and the special rates and services that it must extend to the City under the terms of the contract; versus just a declaration of the City’s duties to [MCT] by the operative contract.”
The City demurred on the grounds that: (1) there was no provision in the written contract that the City would use MCT’s towing services exclusively; (2) the City cannot be bound to a contract by estoppel (First Street Plaza Partners v. City of Los Angeles (1998) 65 Cal.App.4th 650, 668 (First Street Plaza Partners)); (3) the breach of the covenant of good faith and fair dealing and contract revision causes of action were not distinguishable from identically named causes of action in the FAC; and (4) the declaratory relief cause of action did not set forth facts showing an actual controversy (Otay Land Co. v. Royal Indemnity Co. (2008) 169 Cal.App.4th 556, 563). On June 25, 2009, the trial court sustained the City’s demurrer to the SAC without leave to amend on the grounds that none of the claims stated facts sufficient to constitute a cause of action.
The City subsequently filed a motion for attorney fees based on paragraph 23.E of the contract. MCT opposed the motion on two grounds: (1) the gravamen of the action was a challenge to the City’s misuse of police powers, not an action arising out of the contract; and (2) the City did not sufficiently establish the amount or reasonableness of the fees. On October 20, 2009, the trial court awarded the City attorney fees in the amount of $30,636.
The order of dismissal was filed on December 8, 2009.
MCT filed a timely notice of appeal.
The notice of appeal was filed on November 6, 2009, after the demurrer was sustained but before the order of dismissal was filed. An order sustaining a demurrer is not appealable. (Code Civ. Proc., § 904.1.) Since the judgment of dismissal was subsequently entered and is a part of the record on appeal, we deem the appeal to be from that judgment. (Cal. Rules of Court, rule 8.104(e)(2); cf. Jackson v. Teachers Ins. Co. (1973) 30 Cal.App.3d 341, 343.)
DISCUSSION
1. Standard of Review
The standard of review from an order sustaining a demurrer without leave to amend is well established: we accept as true all well-pleaded facts and those subject to judicial notice, but not deductions, contentions, or conclusions of law or fact. Whether leave should have been granted is reviewed for abuse of discretion; denial of leave to amend is an abuse of discretion if there is any reasonable probability the defect can be cured by an amendment. (Fox v. JAMDAT Mobile, Inc. (2010) 185 Cal.App.4th 1068, 1078-1079.)
2. The SAC Does Not State a Cause of Action for Breach of Contract
MCT contends the trial court erred in sustaining the demurrer to the first cause of action, but the parties dispute the exact nature of the first cause of action. MCT insists it is for breach of the implied covenant of good faith and fair dealing; the City, however, maintains it is for breach of contract. We conclude that the first cause of action is for breach of contract but that it does not state facts sufficient to constitute such a cause of action.
A. The First Cause of Action is for Breach of Contract
The confusion as to the nature of the first cause of action stems from the fact that the caption page of the SAC identifies it as breach of contract and the third cause of action as breach of the implied covenant of good faith and fair dealing, but in the body of the SAC both the first and third causes of action are labeled “Breach of Implied Covenant of Good Faith And Fair Dealing.” MCT characterizes this as a “scrivener’s error, ” explaining that the first and third causes of action should have been “fused.”
The nature of a cause of action does not depend on the label the plaintiff gives it but must be determined from the primary right involved in the facts alleged. (Bird, Marella, Boxer & Wolpert v. Superior Court (2003) 106 Cal.App.4th 419, 427; Ananda Church of Self-Realization v. Massachusetts Bay Ins. Co. (2002) 95 Cal.App.4th 1273, 1281.) The elements of a cause of action for breach of contract and for breach of the implied covenant of good faith and fair dealing are similar. (Compare CACI No. 303 [factual elements of breach of contract] with CACI No. 325 [factual elements of breach of the implied covenant of good faith and fair dealing].) Both require proof that the parties entered into a contract and that the plaintiff performed under the contract. But the third element of a breach of contract cause of action requires proof that the defendant breached an express contractual covenant; i.e., “failed to do something that the contract required it to do” or did something that the contract prohibited it from doing. (CACI No. 303; see also Otworth v. Southern Pac. Transportation Co. (1985) 166 Cal.App.3d 452, 458; Acoustics, Inc. v. Trepte Constr. Co. (1971) 14 Cal.App.3d 887, 913.) By contrast, the third element of a breach of the implied covenant of good faith and fair dealing cause of action requires proof that the defendant “unfairly interfered with [the plaintiff’s] right to receive the benefits of the contract.” (CACI No. 325.) This reflects the principle that the implied covenant is supplemental to the express contractual covenants. (Racine & Laramie, Ltd. v. Department of Parks & Recreation (1992) 11 Cal.App.4th 1026, 1031-1032 (Racine).) It imposes upon each contracting party the duty to do everything that the contract presupposes that he or she will do to accomplish its purpose but cannot be used to create obligations not contemplated by the contract. (Pasadena Live v. City of Pasadena (2004) 114 Cal.App.4th 1089, 1093.)
Here, allegations in the SAC expressly identified as “Common to All Causes of Action, ” include the allegation that MCT entered into a written contract with the City, the various versions of which were attached to the complaint and incorporated by reference. In addition, the common allegations include the following: “Pursuant to the terms of the contracts, [MCT] was to be the sole provider of towing services to [the City]. [¶] [The City] in turn was obligated to solely use the services of [MCT] and to diligently enforce the laws of the State of California and additionally administer ‘check points.’ ” The first cause of action incorporates by reference the prior allegations and further alleges: “16. Though there is an ‘exclusive’ contract, the City has breached that term by promoting and advocating other tow companies to be used instead of the services of [MCT.] [¶] 17. The City has approved the use of and / or used the services of third party towing companies in violation of the express terms of the contract.” Thus, although labeled Breach of Implied Covenant of Good Faith and Fair Dealing, the first cause of action alleges a breach of an express term of the contract. As such, it is a claim for breach of contract, not breach of the implied covenant of good faith and fair dealing. We next turn to whether the trial court erred in sustaining the City’s demurrer to the first cause of action for breach of contract.
B. The Trial Court Properly Sustained the Demurrer to the Breach of Contract Cause of Action
It is solely a judicial function to interpret a written instrument unless the interpretation turns upon the credibility of extrinsic evidence. (Davies v. Sallie Mae, Inc. (2008) 168 Cal.App.4th 1086, 1091.) Where a written contract is attached and incorporated by reference in a complaint, and the complaint does not allege that the terms have any special meaning, the court must “ ‘construe the language of the contract on its face to determine whether, as a matter of law, the contract is reasonably subject to a construction sufficient to sustain a cause of action for breach.’ [Citation.]” (Ibid.) To the extent factual allegations in the complaint conflict with the written contracts attached as exhibits to the complaint, we accept as true the contents of the exhibits and treat as surplusage the allegation as to the legal effect of the written contracts. (Barnett v. Fireman’s Fund Ins. Co. (2001) 90 Cal.App.4th 500, 505.)
Here, because the original contract and all of the amendments are attached and incorporated by reference into the complaint, we look at the contract language to determine whether, as a matter of law, it can reasonably be construed to include a promise by the City to not use any tow company other than MCT. We conclude that it is not reasonably subject to such interpretation. No provision of the original contract or any amendment states that the City must use MCT’s towing services exclusively. The only provision that comes close is the City’s promise to designate MCT “an Official Police Garage for the City, ” in exchange for MCT’s promise to fulfill various obligations. According to the dictionary, the word “an” is an indefinite article that denotes a single but unspecified person or thing or, when used before a mass noun, to indicate a single type or example. (American Heritage Dict. (2d College ed. 1982) at pp. 66, 105.) Thus, the phrase “an Official Police Garage for the City” indicates a single example of a police garage; it cannot reasonably be interpreted to mean “the only Official Police Garage for the City.” Since there is no provision in the contract making MCT the City’s only provider of towing services, the complaint does not state a cause of action for breach of such an agreement.
3. The SAC Does Not State a Cause of Action for Breach of the Implied Covenant of Good Faith and Fair Dealing
MCT contends the trial court erred in sustaining the City’s demurrer to the third cause of action for breach of the implied covenant of good faith and fair dealing. It argues that the allegations that the City breached its promise that MCT would be the exclusive provider of towing services to the City and that the City would enforce the laws were sufficient to constitute a cause of action for breach of the implied covenant. We disagree.
In McClain v. Octagon Plaza, LLC (2008) 159 Cal.App.4th 784 (McClain), the court explained that the implied covenant is a supplement to the express contractual covenants, “ ‘ “to prevent a contracting party from engaging in conduct which (while not technically transgressing the express covenants) frustrates the other party’s rights to the benefits of the contract.” ’ [Citations.] Accordingly, it imposes ‘ “not only... upon each contracting party the duty to refrain from doing anything which would render performance of the contract impossible by any act of his own, but also the duty to do everything that the contract presupposes that he will do to accomplish its purpose.” ’ [Citations.] Nonetheless, because it protects only the express terms of the agreement, ‘[i]t cannot impose substantive duties or limits on the contracting parties beyond those incorporated in the specific terms of their agreement.’ [Citation.] The precise nature and extent of the duties imposed under the implied covenant thus depend upon the purposes of the contract. [Citation.]” (Id. at p. 806.) Allegations that a party negotiated in bad faith fail to state a claim for breach of the covenant of good faith and fair dealing because the covenant does not require parties to negotiate in good faith prior to any agreement. (Id. at p. 799, citing Racine, supra, 11 Cal.App.4th at pp. 1031-1035.)
Here, the SAC alleges that the City induced MCT to enter into the contract by promising to exclusively use MCT’s towing services and to carry out the laws of the state. The third cause of action alleges the City breached the implied covenant “without limitation, when it failed to carry out the laws of the State and contrary to what it promised [MCT] that it would do when inducing it into the contracts....” Thus, the gravamen of the third cause of action is a breach of promises made during negotiations. This is not sufficient to support a cause of action for breach of the implied covenant. (McClain, supra, 159 Cal.App.4th at p. 799.)
MCT contends that the City was contractually obligated to enforce illegal immigration laws and maintain certain levels of traffic checkpoints, all designed to augment MCT’s business. We have serious doubt whether a municipality can alter by contract with a private entity the municipality’s legal responsibility in these areas, and MCT has offered no authority for the proposition.
4. The SAC Does Not State a Cause of Action for Promissory Estoppel
MCT contends it was error to sustain the demurrer to the second cause of action for promissory estoppel. It argues that Los Angeles Unified School Dist. v. Great American Ins. Co. (2010) 49 Cal.4th 739 (Los Angeles), has abrogated the rule, stated in First Street Plaza Partners, supra, 65 Cal.App.4th at page 668, that a city cannot be estopped to deny the validity of a contract made in disregard of the city charter’s prescribed mode for making a contract. (See also Poway Royal Mobilehome Owners Assn. v. City of Poway (2007) 149 Cal.App.4th 1460, 1471; G. L. Mezzetta, Inc. v. City of American Canyon (2000) 78 Cal.App.4th 1087, 1093 (G. L. Mezzetta).) MCT is incorrect.
Under the doctrine of promissory estoppel, “ ‘a promisor is bound when he should reasonably expect a substantial change of position, either by act or forbearance, in reliance on his promise, if justice can be avoided only by its enforcement.’ [Citation.]” (Smith v. City and County of San Francisco (1990) 225 Cal.App.3d 38, 48.) There was no issue of promissory estoppel in Los Angeles, the case MCT argues abrogated First Street Plaza Partners. The issue in Los Angeles was whether a contractor of public works may recover from a public authority when the plans and specifications issued by the public authority are correct, but the public authority failed to disclose information in its possession that materially affected the cost of performance. (49 Cal.4th at p. 744.) Our Supreme Court answered the question in the affirmative, disapproving a line of authority that required an affirmative misrepresentation or concealment of material facts in the plans and specifications in order for the contractor to recover. (Id. at pp. 752-753.) Since Los Angeles does not discuss the doctrine of promissory estoppel, that case does not alter the rule that a city cannot be estopped to deny the validity of a contract made in disregard of the statutorily prescribed mode for making a contract.
MCT misses the mark with its argument that nothing in the Maywood Municipal Code precludes the City from entering into an agreement to use one tow truck company exclusively. The reason that the City cannot be estopped from denying this promise is not that the Maywood Municipal Code precludes this particular promise. It is that the Maywood Municipal Code requires that all contracts for services of an estimated value greater than $30,000 be in writing. (Maywood Mun. Code, § 3-4.08.) The alleged promise to use MCT exclusively is just one term of a contract which, as a whole, falls within section 3-4.08. Since any such promise, if made at all, must necessarily have been an oral promise, and an oral promise is precluded by the Municipal Code, the City cannot be estopped from denying that an oral promise was made.
At the City’s request, the trial court took judicial notice of the Maywood Municipal Code.
US Ecology, Inc. v. State of California (2001) 92 Cal.App.4th 113, does not compel a contrary result. In that case, the issue was whether the state could be estopped from denying promises contained in a written Memorandum of Understanding between the parties, which did not rise to the level of a written contract because it was not supported by adequate consideration. The court concluded that the state could be estopped because it had statutory authority to make the promises contained in the Memorandum of Understanding. (Id. at pp. 130-137.) US Ecology is inapposite because the promises in that case were contained in a writing, whereas in this case the alleged promises were oral and the City is statutorily prohibited from entering into an oral agreement.
5. The SAC Does Not State a Claim for Reformation of Contract
MCT contends the trial court erred in sustaining without leave to amend the City’s demurrer to the fourth cause of action for reformation of the contract. As we understand MCT’s argument, it is that the case on which the City relied in support of its demurrer, G. L. Mezzetta, supra, 78 Cal.App.4th 1087, has been implicitly overruled by Los Angeles, supra, 49 Cal.4th 739. We disagree.
“A written contract may be reformed when, through ‘a mutual mistake of the parties, or a mistake of one party, which the other at the time knew or suspected, ’ the contract fails to express the intention of the parties. (Civ. Code, § 3399.)... [Citations.]... [¶]... Reformation for unilateral mistake is not available unless the mistake of one party was known or suspected by the other party at the time of the execution of the document. [Citation.]” (Cedars-Sinai Medical Center v. Shewry (2006) 137 Cal.App.4th 964, 985.) In American Home Ins. Co. v. Travelers Indemnity Co. (1981) 122 Cal.App.3d 951, 961, the court explained that “the mistake may be the mutual error of both parties to the contract, or the oversight of one party which the other knew or suspected at the time of entering the agreement. The party seeking the revision of the writing must show how it is ‘aggrieved’ by the mistake, and define the actual intention of the contracting parties.” Although the court may reform the contract to reflect the intention of the parties, it does not have power to make a new contract for the parties, whether the mistake was mutual or unilateral. (Lemoge Electric v. County of San Mateo (1956) 46 Cal.2d 659, 663-664.)
Technically, reformation is a remedy, not a cause of action. (Landis v. Superior Court (1965) 232 Cal.App.2d 548, 555.) The essential elements of a claim for the remedy of reformation are: (1) the “real” agreement the parties intended to execute; (2) the agreement as it was reduced to writing; (3) the grounds for reformation, whether fraud or mistake, and how it came about. (See 5 Witkin, Cal. Procedure (5th ed. 2008) Pleading, § 807, pp. 222-223; see also Lane v. Davis (1959) 172 Cal.App.2d 302, 309.)
As we understand the fourth cause of action, it seeks reformation of the written contract to add a term obligating the City to enforce the laws of the State of California. The terms of the written agreement are adequately alleged by their attachment as exhibits to the SAC. The terms of the “real” agreement are alleged in paragraphs 42 and 43 of the SAC, which states that the City misled MCT into entering into the June 2004 amendment by falsely promising that it would continue enforcing the law. But there is no allegation in the SAC that MCT entered into the written contract under the mistaken belief that this was a term of the written contract. MCT cannot use the remedy of reformation to enforce the City’s oral promise that MCT did not mistakenly believe had been reduced to writing. G. L. Mezzetta, supra, 78 Cal.App.4th 1087 is instructive. In that case, the plaintiff sued the City of American Canyon for breach of an oral and written contract. In the published portion of the opinion, the appellate court affirmed the trial court order sustaining the city’s demurrer to the breach of oral contract cause of action without leave to amend. It reasoned that implicit in the relevant statutes (the Government Code and the city’s municipal code), was the requirement that all contracts with the city be in writing, approved by the city council, approved as to form by the city attorney, and signed by either the mayor or the city manager; any other method of contract formation was invalid. (Id. at pp. 1093-1094.) The court rejected the plaintiff’s estoppel and ratification claims, observing that neither doctrine could be invoked to enforce a void contract. (Id. at p. 1094.)
Here, as we have already discussed, the City’s Municipal Code requires contracts to be in writing. Accordingly, MCT cannot enforce an oral contract against the City using either promissory estoppel or reformation.
6. The Fifth Cause of Action Does Not State a Cause of Action for Declaratory Relief
MCT contends it stated a valid controversy worthy of declaratory relief. It argues that it was “entitled to know what its duties and rights are one way or the other and have a right to be heard on the issue.” MCT is incorrect.
The fundamental basis of declaratory relief is the existence of an actual, present controversy over a proper subject. (Levi v. O’Connell (2006) 144 Cal.App.4th 700, 706; DeLaura v. Beckett (2006) 137 Cal.App.4th 542, 545.) “The ‘actual controversy’ requirement concerns the existence of present controversy relating to the legal rights and duties of the respective parties pursuant to contract (Code Civ. Proc., § 1060), statute or order. [Citation.] Where the allegations of the complaint reveal the controversy to be conjectural, anticipated to occur in the future, or an attempt to obtain an advisory opinion from the court, the fundamental basis of declaratory relief is lacking. [Citations.]” (Brownfield v. Daniel Freeman Marina Hospital (1989) 208 Cal.App.3d 405, 410; see also American Meat Institute v. Leeman (2009) 180 Cal.App.4th 728, 741 [“In a complaint seeking declaratory relief, ‘ “an actual, present controversy must be pleaded specifically” and “the facts of the respective claims concerning the [underlying] subject must be given.” ’ [Citation.]”].) The court may sustain a demurrer on the grounds that the complaint fails to allege an actual or present controversy. (DeLaura, supra, at p. 545; see also Code Civ. Proc., § 1061.) We review the trial court’s determination of whether declaratory relief is necessary or proper for abuse of discretion. (DeLaura, supra, at p. 545.)
Here, the fifth cause of action alleges: “[MCT] wishes a declaration of its rights and duties to the City and vice versa. This would include whether or not [MCT] owes the duty of free tows to emergency vehicles, and the special rates and services that it must extend to the City under the terms of the contract; versus just a declaration of the City’s duties to [MCT] by the operative contract.” This is not adequate to allege an actual controversy. It does not allege, for example, that MCT has any wish to stop providing services to the City. On the contrary, the gravamen of the SAC is that MCT wants to be the exclusive provider of such services to the City. Under these circumstances, the trial court did not abuse its discretion in sustaining the City’s demurrer to the fifth cause of action for declaratory relief.
7. It Was Not an Abuse of Discretion to Sustain the Demurrer Without Leave to Amend
It is an abuse of discretion to sustain a demurrer without leave to amend if there is a reasonable possibility that the defect could be cured by amendment. The burden is on the plaintiff to show in what manner the pleading could be amended and how the amendment would change the legal effect of the pleading. (Las Lomas Land Co., LLC v. City of Los Angeles (2009) 177 Cal.App.4th 837, 861.) Where a plaintiff is granted leave to amend and then elects not to amend the pleading, “ ‘ “it must be presumed that the plaintiff has stated as strong a case as he can.” ’ [Citation.]” (Ibid.)
Here, since MCT maintains it did not intend to state a cause of action for breach of contract, it has not fulfilled its burden of showing how the complaint could be amended to state such a cause of action. And, in as much as the breach of the implied covenant and reformation of contract causes of action in the SAC are identical to those same causes of action in the FAC (compare FAC first and second causes of action with SAC third and fourth causes of action), it must be presumed that MCT has alleged as strong a case as it can on these two causes of action. Accordingly, there is no reason to allow it to amend as to those. Finally, MCT has not shown how it would amend the declaratory relief cause of action to allege an actual controversy. Accordingly, MCT has not shown that the trial court abused its discretion in denying MCT a third opportunity to amend its complaint.
8. The Award of Attorney Fees Was Proper
MCT contends the trial court erred in awarding attorney fees to the City. As we understand its argument, it is that the litigation did not arise from the contracts because the gravamen of the SAC was that the City was not appropriately enforcing its police powers. We disagree.
Paragraph 23.E. of the December 1999 contract states: “In the event of any litigation between the parties hereto concerning or arising from the negotiation, construction, performance, non-performance or any other aspect of this Amended Agreement, the prevailing party in such litigation shall be entitled to recover reasonable attorneys’ fees.” Paragraph 6 of the June 2004 amendment states: “All provisions of paragraph 23 of the December 28, 1999 Agreement shall remain in force and effect and shall apply to this Amendment.”
The gravamen of the SAC was that the City induced MCT to enter into the contracts by promising to exclusively use MCT’s towing services and that it would enforce the law; and the City breached those promises. Thus, the litigation clearly concerned the negotiations, construction, performance and non-performance of the terms of the Amended Agreements. As such, the City was entitled to contractual attorney fees as the prevailing party in the litigation.
DISPOSITION
The judgment is affirmed. The City shall recover its costs on appeal.
WE CONCUR: BIGELOW, P. J., FLIER, J.