Free Appendix - District Court of California - California

Case 5:07-cv-04808-JF

Document 60-3

Filed 07/25/2008

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EXHIBIT 4

1219457.1

Case 5:07-cv-04808-JF

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Wela
257 CaLApp.2d 71
Page 1

257 CaLApp.2d 71, 64 CaLRptr. 699
257 Cal.App.2d 71

CCalifornia State Auto. Ass'n Inter-Insurance Bureau v. Barrett Garages, Inc. CaLApp.l.Dist. CALIFORNIA STATE AUTOMOBILE ASSOCIA nON INTER-INSURANCE BUREAU

æ Bailments § 9--Rights and Liabilities of Parties-Limitation of Bailee's Liability.

Plaintiff and Respondent, ,
v.

The delivery of claim checks by the operator of an airport parking lot to three bailors who had parked their cars therein did not create a contract with each
embodying the matter printed thereon as a matter of

BARRTT GARAGES, INC., Defendant and Appellant. Civ. No. 24917.
Court of Appeal, First District, Division 2, California.
Dec. 18, 1967.

law; a question of fact was presented as to whether there was the necessary consent by the bailors to be b~und by such contractual provisions as required by

CiV. Code. & 1550, and the crucial question for determination by the trier of fact was whether the
particular circumstances were such that a prudent

man, acting reasonably, would or would not have
read the exculpatory provisions in question.
See CaI.Jur.2d, Bailments, § 15; Am.Jur.2d.

HEADNOTES
(( Appeal and Error § 1172( 6)--Review-Presumptions-- Find ings.

Bailments. & 43 et seq. æ Bailments § l--Contract of Bailment--Validity.

A contract of bailment is void and of no effect unless
each of the conditions specified in Civ. Code. & 1630,

E~ery intendment being in favor of a judgment, it will be presumed that the trial court in effect found all of the facts necessary to support such judgment
where written findings were waived by the parties.
See CaI.ur.2d, Appeal and Error, § 573; Am.Jur.2d. Appeal and Error. & 843.
il Pleading § 157(5)--Replication--Denial of Written

prescribing the conditions under which a bailment contract for parking or storage of vehicles is binding

on the owner or person leaving the vehicle, is
complied with.

(1 Bailments § 9--Rights and Liabilities of Parties-Limitation of

Instrment. Plaintiffs failure to fie an affdavit under former
Code Civ. Proc., § 448 (repealed September 17,
1965) denying the genuineness and due execution of
a written contract set forth in the answer admitted

Bailee's Liabilty.

One of the conditions provided by Civ. Code. & 1630,

relating to conditions under which a bailment

contract for parking of vehicles is binding on the owner or person leaving the vehicle, that a copy of
the contract of bailment, printed in large tye in an

only that the copy of the contract alleged in the

answer was a correct and genuine copy; it did not admit its legal effect or that it was a contract; and except for genuineness and due execution, plaintiff
could attack the contract on any other grounds.
See CaI.Jur.2d, Pleading, § 222.

area of at least 17 by 22 inches shall be posted in a
conspicuous place at each entrance of

the parking lot,

was not complied with and purported contracts of
bailment limiting the bailee's liability to patrons of an

airport parking facility were void and of no effect
where the distance from the place where the bailors

Q) Contracts § 12--Consent.

It is essential to the existence of a contract that there be mutual consent. (Civ. Code. ~ 1550, subd. 2.)
W Contracts § 34--Consent--Reality--Acceptance of

involved turned over their respective cars to bailee's

attendants was approximately one hundred to one hundred fift feet uom an attendant's station on each
si~e of which were signs of a size which complied with the statute, but which were below the eye level

Instrment in Ignorance of Contents.

A person is bound by the printed contractual
provisions of an instrment which he accepts delivery

of a motorist positioned behind the steering wheel of
his car.

of if, as an ordinarily prudent man, he could and
should have read such provisions.

CI Bailments § 7--Rights and Liabilities of Parties-Liability of Bailee. The Legislature did not contemplate that a car lot

(Ç 2008 Thomson Reuters/West. No Claim to Orig. U.S. Govt. Works.

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257 Cal.App.2d 71, 64 Cal.Rptr. 699
257 Cal.App.2d 71

operator's liability was to be limited to a compliance
with the provisions of Civ. Code. & 1630, prescribing

who left their cars at the San Francisco International
Airport parking lot in the care of "Parking Valet

conditions under which a bailment contract for
parking or storage of vehicles is binding on the owner
or person leaving the vehicle, nor did the Legislature

Service," operated by defendant, Barett Garages,

Inc.

intend that such compliance would ipso facto create a contract between the parties and afford the operator
of a public parking lot a complete defense to an
action by a motorist-bailor whose car was stolen

through the negligence of such operator.
(2 Bailments § 22--Actions--Evidence--Value.

Upon return uom their respective plane trips it was discovered that the cars had been stolen. After reimbursing each owner for his loss, as provided in its insurance policies issued to such owners, plaintiff
fied suit in municipal court against defendant to

recover the amounts so paid. The three actions,
numbered 11145, 13912, and 13930, were
consolidated for trial and plaintiff recovered

In an action against an airport parking lot operator by a bailor whose car was stolen while parked therein, the testimony of the owner as to the reasonable value of the automobile was competent to prove value.
(( Bailments § 25--Actions--Damages.

judgments of$I,335, $650, and $850, respectively.
These judgments were affrmed by the Appellate
Department of the Superior Court in San Mateo

In an action against an airport parking lot operator by the subrogee of automobile owners whose cars were stolen while parked therein, the amount of damages

County. We accepted certification under rules 62 and 63 of the California Rules of Court.
(1) Since written findings of fact by the municipal

proximately caused by the thefts was suffciently proven where it appeared that after the thefts there
was a thirt-day waiting period within which it was

court were waived by the parties (Code Civ. Proc.. &

632) and every intendment is in favor of the
judgments, it wil be presumed that the trial court in effect found all of the facts necessary to support such
judgments. (Annin v. Belridge Oil etc. Union. 119

hoped that the car would be found; that on the
expiration of such period a settlement was made by
the subrogee with the insured owner and the latter

executed a bil of sale of the car to the plaintiff subrogee; and that thereafter plaintiff salvaged
whatever it could if was left of

CaLApp.2d Supp. 900. 906 (260 P.2d 2951;

the stolen car in question, or what

74Mastrofini v. Swanson. 114 CaLApp.2d Supp. 848.849-850 (250 P.2d 7641.
*

it, was found.
SUMMARY

No contention is made on appeal that the evidence is

insufficient to support the implied finding of
defendant's negligence. Defendant bases its defense

APPEAL ITom judgments of the Municipal Court for

against liability on the provisions printed on the claim check given to each motorist at the time of
leaving his car, a facsimile of

the Northern Judicial District of San Mateo County. Charles Becker, Judge. Affrmed.

which is as follows:

Action by an insurer to recover amounts paid to
owners of vehicles stolen uom defendant's parking

CLAIM CHECK No. 00813

lot. Judgments granting recovery affrmed.
COUNSEL
Nicholas G. Schoon

S.F. International Airport
PARKING VALET SERVICE

brood for Defendant and

Appellant. H. Kelly Ogle and Keil & Connolly as Amici Curiae on behalf of Defendant and Appellant. Marquart & Bahre and M. G. Bahre for Plaintiff and Respondent. AGEE, J.

$1.25 PLUS STORAGE

THIS CONTRACT LIMITS OUR LIABILITY READ IT
No Cars Delivered Without This Check

Plaintiff is the subrogee of three automobile owners

(Ç 2008 Thomson Reuters/West. No Claim to Orig. U.S. Govt. Works.

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Customer and Company agree: All claimed damage
or loss must be reported and itemized by customer to

execution of such instrment are deemed admitted

manager in writing before vehicle is taken from the delivery area, after loss occurs and if not so made is waived. Company has option to make repairs of any claimed damage, at its own expense, such option to be exercised within 48 hours after fiing of claim. Court actions by customer for any claims must be fied within 90 days from date of parking, in court of jurisdiction where claimed loss occurred. In all court
actions burden of proof to establish claim remains

unless the plaintiff fie ... an affdavit denying th~
same. ..." No such affdavit was fied.
a) Defendant argues that plaintiff thereby became bound by the terms of the claim check. This is not the
law.

Except for genuineness and due execution, plaintiff
could attack the claim check on any other grounds.

with customer. Company not responsible for damage by fire, theft or defective brakes or parts, or for loss or theft of accessories or articles left in the vehicle. Total liabilty of Company limited to $250.00 for all
damages or loss to customer. Company not

(Miler v. McLaglen. 82 Cal.App.2d 219. 225 (186

P.2d 481; Wilson v. McCormick s.s. Co" 38

Cal.App.2d 726. 729-730 (102 P.2d 4121; Gaianich v. Gregorv. 116 Cal.App. 622. 630 (3 P.2d 3891.)

responsible for loss of use. Customer must set brake before leaving vehicle. This is the entire contract and

"He could controvert the instruments by evidence of
fraud, mistake, undue influence, mental incapacity,
want of consideration, failure of consideration

no employee can modify it. It is not assignable.
Customer waives all laws in conflct with the

foregoing.

compromise, estoppel, that they were void becaus~ not fairly made or fully comprehended; ..." (Miler v.
McLaglen. suvra. P. 225; Moore v. Copp. 119 Cal.

No Cars Delivered Without This Check
The facts in each case are essentially identicaL. The owner drove into the parking lot and left his car with

429.432 (51 P. 6301.)

an attendant to park and store for the duration of his

In the instant case plaintiff can challenge the creation of a contract containing the provisions printed on the claim check, although admitting that a replica of such

plane trip. He was given a claim check by the
attendant, which he put in his pocket and then headed

claim check was delivered to each of the three
motorists in question.

for the terminal building. There was no mention of t~e provisions printed on the claim check or of any signs posted on the lot. The motorist did not read or
know anything about any provisions restricting the

Defendant cites Ward v. System Auto etc. Garages.
Inc.: 149 Cal.App.2d Supp. 879 (309 P.2d 577L.

decided by the Appellate Department of the Superior

liabilty of the bailee. His understanding was that the only purose of the claim check was to identify his
car so that he could regain its possession upon his

Court in and for Los Angeles County.

In that case plaintiff recovered a money judgment
against defendant for damage to his automobile while it was parked with defendant. Defendant set forth in

retu.
Effect of Code of

Civil Procedure. Section 448

ha~c verba in its answer to plaintiffs complaint a wrrtten contract of bailment, which contained a
provision limiting the period for bringing an action to
three months.

This section was repealed, effective September 17,
1965 (Stats. 1965, ch. 105, p. 1046), and defendant's

contention thereunder is limited to action 1 I 145

wherein the defendant's answer was fied prior to th~

The trial court found that this purported contract"
'was never entered into by any of

effective date of such repeaL. The answers in the
other two actions were filed after said date.

the parties herein.' "

Said section provided: "When the defense to an action is founded upon a written instrment, and a
copy thereof is *75 contained in the answer (which it was), or is annexed thereto, the genuineness and due

The. majority opinion states that "We are reversing the Judgment because the trial court was not at libert to make any such finding; ..." (P. 880.)
This ruling is based entirely upon the majority's
erroneous interpretation of the legal effect of not

(Ç 2008 Thomson Reuters/West. No Claim to Orig. U.S. Govt. Works.

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fiing an affdavit under Code of Civil Procedure.

instrument which he accepts delivery of if as an

section 448. This is made doubly clear by the
majority's statement made upon denial of a rehearing.

ordinarily prudent man, he could and should have
read such provisions. (Hischemoeller v. National Ice etc. Storaf!e Co. (1956) 46 Cal.2d 318. 323 (294 P.2d
4331. Obviously, this presents a question of

This statement is as follows: "By failing to fie *76 affdavit, there was no issue of fact (that there was no
contract)." (P. 884.)

fact.

In Merril V. Pacific Transfèr Co" 131 Cal. 582 r63

The dissenting opinion of Judge Swain sets forth the rule correctly, as follows: "The failure of the plaintiff
to fie an affdavit under Code of Civil Procedure.

P. 9151. the holder of a baggage check obtained a

$950 judgment against the defendant transfer
company for the loss of a *77 trnk and its contents. The baggage check contained a provision limiting the transfer company's liability to $100. Plaintiff did not read this provision or have any actual knowledge of
it.

section 448, admits only that the copy of the parking ticket alleged in the answer is a correct and genuine

copy of the one issued to the plaintiff by the
defendant. It does not admit its legal effect or that it is a contract." (P. 882; italics added.)
"We should recognize the fact that a trier of the facts could hold that a prudent man may consider a parking ticket merely as a means of identifying his car when he claims it." (P. 884.)
Was a Contract Created As a Matter of Law?
Cd) It is essential to the existence of a contract that
there be mutual consent. (Civ. Code. S 1550, subd.

His conduct was described in the opinion as follows:

"He was familiar with the usual method of the
transaction of the business of the transfer company, had traveled a good deal, and had always been in the
habit of giving his checks to and taking a receipt

uom the agent of the transportation company. It was

2.) Here, there was no discussion with the motorist as

to the provisions on the claim check and he had no
knowledge of

light enough to read. There was time enough for him to have read the printed portion, but he could not with certainty have done so without using his eyeglasses. He did not, however, think to read it, nor attempt to read it. He put the receipt in his pocket. He does not recollect that he ever read the printed portion of any

them.

receipt. He read the printed portion of this one only after the trnk was lost. He did not know that there
were conditions on the receipt. He regarded it merely as a receipt, as the only thing he had to connect him

The situation is similar to that of one who deposits
his money with a bank and receives a passbook

which shows receipt of the money. He is not bound
by a form of agreement printed in the passbook
respecting non

with his baggage." (P. 586.)

liability of the bank as to forged or altered checks and endorsements when he did not
sign such agreement and its terms were not called to his attention. It was held that such a provision was a

It was held that if plaintiff had constructive notice or knowledge of the $100 limitation provision this was

suffcient to bind plaintiff and that the trial court
erred in refusing to so instrct the jury. The Supreme
Court cited and relied upon Civil Code. section 19,

"trap for the unwary" and unenforceable. (Los

Anf!eles Inv. Co. v. Home Sav. Bank. 180 Cal. 601. 612-613 (182 P. 293. 5 A.L.R. 11931.)

In this cited case, the Supreme Court stated, at page 613: "This statement (in the passbook) is not signed by the plaintiff, nor is there any showing that it was called to the plaintiffs attention or wittingly agreed to by it. It is just the character of thing that the average
man would not trouble to read, ..."

which provides: "Every person who has actual notice of circumstances suffcient to put a prudent man upon inquiry as to a particular fact, has constrctive notice of the fact itself in all cases in which, by prosecuting such inquiry, he might have learned such fact."

A new trial was ordered on the ground that "it was
with the jur (trier of fact) to say whether under all

the circumstances, as disclosed by the evidence, Mr.

Merril (plaintiff) had the actual or constrctive
notice or knowledge contemplated by the law." (P.
589.)

(Ð However, the general rule is that a person is bound by the printed contractual provisions of an

(Ç 2008 Thomson Reuters/West. No Claim to Orig. U.S. Govt. Works.

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Curtis v. United Transfer Co.. 167 Cal. 112 rl38 P. 7261. cites and follows Merril. That was an action against a transfer company to recover damages for
the loss of a trnk, in excess of the sum stated in the

(P.491.)
In the instant cases the trial court's implied finding of
defendant's negligence is not challenged and the

receipt given therefor limiting the liability of the
defendant. The opinion holds that it is a question of

fact for the jury, not one of law for the court, to

determine whether the plaintiff accepted the receipt with actual knowledge of its terms, or under such circumstances as constituted constrctive knowledge
in contemplation of law.

testimony is undisputed that the respective bailors did not read the provisions on the claim check and had no knowledge of them.

The Curtis opinion states: "The controllng question is, *78 Was there an acceptance (of the receipt) with knowledge of the terms of the limitation of liability? This is to be determined not merely from acceptance but uom a consideration of all of the circumstances, including acceptance, surrounding the transaction
between the parties at the time the receipt was given

Defendant cites an unpublished superior court appellate departent opinion, Reimer v. Jack Tar Hotel, San Francisco No. 2797, which holds that "a writing (auto claim check) appearing on its face to be

a contract, delivered by one part to another, and
accepted without objection, constitutes a contract."

Reimer cites and relies upon Ward, supra, saying that

it *79 "is practically on all fours with the instant case,

upholding the validity of the claim check as a
contract, as well as the 90 day limitation."
As we have seen, in Ward the majority opinion was

and taken. From these it is for the jury to determine whether the plaintiff had actual knowledge that the paper was a contract when she received it or if not, whether the circumstances under which she received it were such as put her on notice of the contents of

the instrment-constrctive notice or, as that term
imputes, knowledge implied by law." (l67 CaI. at
pp. 115-116.)

based upon an erroneous interpretation of section 448 of the Code of Civil Procedure, which issue was not involved in Reimer.
To the extent that these two decisions may be
inconsistent with or contrary to our opinion herein,

In the instant case defendant relies upon Cunningham v. International Committee ofYMC.A" 51 Cal.App. 487 (197 P. 1401. In that case the plaintiff left a
suitcase for storage with defendant, a charitable
organization acting in this instance as a gratuitous

they are disapproved.
(.2) We hold that the delivery of a claim check to the
respective bailors herein did not create a contract

bailee. Plaintiff was given a claim check bearing a
number and, among other things, the printed words:

embodying the matter printed thereon as a matter of law. Under the particular circumstances, a question of
fact was presented in each case as to whether there

"The aricle checked on this check is left with the Association at owner's risk. ..." The suitcase could
not be found when plaintiff returned for it.

was the necessary consent by said bailors to be bound by such contractual provisions, as required by Civil
Code. section 1550. FNI

Judgment for plaintiff was reversed by the appellate
court on the ground that "There is no testimony that

FN i In view of this holding, we believe that it is not necessary to discuss the application
of the rule applicable to standardized adhesion contracts of exculpation. (See

plaintiff did not read this receipt and have actual
knowledge of its contents." (P. 490.) It was therefore held that plaintiff "is presumed to have assented" to such contents. (P. 490; italics added.)
The court pointed out that "there is no evidence in the
record of any negligence on the part of the

Tunkl v. Ref!ents of University of California. 60 Cal.2d 92 r32 Cal.Rptr. 33.383 P.2d 441. 6 A.L.R.3d 6931; Steven v. Fidelity & Cas.
Co.. 58 Cal.2d 862 (27 Cal.Rptr. 172. 377
P.2d 2841.)

defendant" and that the public policy question as to

contracts by which a bailee seeks to release itself
from its own negligence was therefore not involved.

In other words, the crucial question to be determined
by the trier of fact in each case is whether the

(Ç 2008 Thomson Reuters/West. No Claim to Orig. U.S. Govt. Works.

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particular circumstances are such that a prudent man, acting reasonably, would or would not have read the
exculpatory provisions in question. (Hischemoeller v.

his car when he retus ûom his trip. (There is no contention these two signs have any bearing upon the issue under discussion.)

National Ice etc. Storage Co.. suvra. 46 Cal.2d. at p.
323.)
Efect of

The exact distance from the parking lot entrance to the sign on the side of the "station" booth nearest the
Civil Code. Section 1630

entrance was not testified to by any witness.
However, one of the three motorists involved herein

(§.) This section was enacted in 1957. The first
paragraph thereof provides as follows: "No printed

contract of bailment providing for the parking or
storage of a motor vehicle shall be binding, either in

testified that he stopped his car behind a line of cars
and that he was then 100 to 150 feet uom the station.

whole or in part, on the vehicle owner or on the
person who leaves the vehicle with another, unless the contract conforms to the following:" (Italics
added.)

His car remained in this position until the attendant appeared and gave him a claim check. He then got
out and walked to the terminal building. The other

two motorists departed uom their cars at about the
same point.

We regard this provision as meaning that any such purported contract is void and of no effect unless
each of the conditions specified in said section is complied with. (See 32 State Bar 1., p. 513.)

We know uom this testimony and the photographs in evidence that the distance from the place where the three motorists involved herein turned over their
respective cars to defendant's attendants is

approximately i 00 to 150 feet from said station.

(1) One of such conditions is as follows: "A copy of
the contract printed in large tye, in an area at least

17 by 22 inches, shall be posted in a conspicuous

place at each entrance of the parking lot." This
condition was not complied with.

suffciently complied with the condition as to the
believe that the Legislature intended that such

on Moreover, even if it be held that defendant

posting of a copy of the alleged contract, we do not

Upon entering the parking lot the motorist is required

compliance would ipso facto create a contract between the parties and afford the operator of a
public parking lot a complete defense to an action by a motorist-bailor, whose car was stolen through the
negligence of

to *80 drive upon a ramp until he reaches the point where he stops, which is usually behind the car stopped ahead of him. He then awaits the appearance of an attendant who comes to his car, gives him a
claim check, and drives the car away. The motorist then proceeds on foot to the nearby terminal building.

such operator. *81

This is evident from the concluding paragraph of

section 1630, which provides that cities may enact
ordinances on the same subject matter so long as such
ordinances are not less restrictive than section 1630.
Obviously, the Legislature did not contemplate that

Running parallel to this ramp is a cement platform raised approximately 6 to 8 inches above the level of

the ramp. Located on this platform is a structure described as a "valet station," about the size of a
telephone booth, where claim checks are kept and

the car lot operator's liability was to be limited to a
compliance with the provisions of section 1630.

obtained by the attendants as needed.

Damages

The opening to this station faces the ramp. On each
side of the booth are signs of a size which comply with the statute. They are attached to the lower halves of said sides and are below the eye level of a motorist

Defendant contends that the respective amounts of
the damages awarded herein are not supported by competent evidence, but are based upon "conjecture
and surmise." However, it concedes that such

positioned behind the steering wheel of his car.
Similar signs are posted near the cashier's booth on the lower ramp, where the motorist goes to reclaim

amounts should be suffcient to "compensate for all the detriment proximately caused" by its negligence.
(Civ. Code. ~ 3333.)

(Ç 2008 Thomson Reuters/West. No Claim to Orig. U.S. Govt. Works.

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(2) In the first action, number 11145, the owner
testified that the reasonable value of his 1959 Impala

its insureds was the same in each case. There was a 30-day waiting period within which it was hoped that
the car would be found. When that period expired a

sedan, on the date of the theft, March 20, 1963, was
$ I ,400. This testimony is competent to prove value.

(Witkin, Cal. Evidence (1958) p. 361.)Plaintiffs
expert witness agreed with the owner's valuation and
plaintiff

settlement was made with the insured and the latter executed a bil of sale of the car to the plaintiff. Thereafter, plaintiff salvaged whatever it could if the

stolen car in question, or what was left of it, was
found.
We conclude that the amount of damages

paid said amount to the owner.

Seven dismantled pieces of this car were later found and sold by plaintiff for $65. An expert testified that the amount so recovered for such salvage represented its reasonable value. The amount of the judgment was $1,400 less $65, or $1,335.

proximately caused by the thefts in question was
suffciently proven, as reflected in the three

judgments involved herein.
Judgments affrmed.

(lQ) In the second action, number 13912, the owner testified that the value of his 1961 Dodge Lancer, on the date of the theft, June 22, 1963, was "In the neighborhood of $2,000." Plaintiffs expert testified to a value of $1,675 and the owner accepted this sum from plaintiff on August 2, 1963 in full settlement.
On August 29, 1963, plaintiff was notified that the

Shoemaker, P. 1., and Taylor, 1., concurred.

A petition for a rehearing was denied Januar 17,
1968.

Lancer had been recovered. Plaintiff sold it to the highest bidder in its then condition for the sum of
$995. An expert established that this was the highest amount that could be obtained for it. The amount of the judgment was $650. It cannot be ascertained uom

CaI.App.l.Dist. California State Auto. Ass'n Inter-Insurance Bureau v. Barrett Garages, Inc. 257 Cal.App.2d 71, 64 Cal.Rptr. 699
END OF DOCUMENT

the record why this amount should not have been $680, but defendant was benefited by what was
probably a mathematical miscalculation by the court.

In the third action, number 13930, the owner testified

to a value of $1,200 for her 1959 MG sports coupe
and loss of use in the sum of $218.38 during the

period between the theft and her purchase of another car. Plaintiff paid her these amounts.

On February 14, 1964, over five months after the theft, the *82 car was located at San Bruno. It was towed to San Francisco, where it was repaired and
cleaned, at a total cost of$88.69.

The MG was then exhibited to potential buyers and sold for $650, which was the highest bid obtainable. Judgment of $850 was rendered in favor of plaintiff, which was less than the total amount of the damages
shown.

The procedure followed by plaintiff in dealing with

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Wela
222 Cal.App.3d 1371

222 Cal.App.3d 1371,272 Cal.Rptr. 387
222 Cal.App.3d 1371

Page i

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

Angeles County, Nos. NEC 37743 and NEC 44044, Melvin B. Grover, Judge.)
The Court of Appeal affrmed in part and reversed in
part. It held that the plaintiffs failed to adequately

CaI.App.2.Dist. CAREAU & CO., etc., et aI., Plaintiffs and Appellants,
v.

SECURITY PACIFIC BUSINESS CREDIT, INC., et aI., Defendants and Respondents. No. B037626.
Court of Appeal, Second District, Division 3, California. Aug. 17, 1990.
(Opinion certified for partial publication. FN.)

allege satisfaction of the conditions precedent to state a cause of action for breach of contract, but that they

were entitled to an opportnity to amend their
complaints to do so. It held that there was not a

suffcient relationship between the parties to state an action for a tortious breach of the implied covenant of
good faith and fair dealing. It also held that plaintiffs

did not state a cause of action for bad faith denial of
the contract, since the allegations of the complaint itself showed that there was probable cause to dispute

FN* Pursuant to California Rules of Court. rules 976(b) and 976.l(a), this opinion is certified for partial publication. The portion
to be published follows.

the existence of the contract, but that plaintiffs were entitled to an opportnity to amend their complaint. (Opinion by Croskey, 1., with Klein, P. 1., and Hinz, J., concurring.)
HEADNOTES

SUMMARY

Classified to California Digest of Offcial Reports

An individual and a corporation brought actions,
consolidated for trial, against a lending institution
(( Appellate Review § 128--Rulings on Demurrers.

and one of its offcers, alleging several parallel and nearly identical tort and contract causes of action predicated on defendants' alleged breach of a commitment to make a loan to plaintiffs. The
compiaints incorporated by reference two letters uom
defendants: the ffrst stated several conditions

On an appeal from a judgment of dismissal entered
after demurrers have been sustained, the appellate
court assumes the trth of all properly pleaded

material allegations of the complaint and gives it a
reasonable interpretation by reading it as a whole and by reading its parts in their context. When a demurrer

precedent that had to be satisfied before the loan

is sustained, the appellate cour's function is to
determine whether the complaint states suffcient

would be made and specifically stated it was not a
commitment to make a loan; the second added fuher
contingencies, but deleted the tentative language.

Plaintiffs alleged that the second letter constituted a
written commitment to make the loan and that the

facts to state a cause of action; if the demurrer was sustained without leave to amend, the appellate cour decides whether there is a reasonable possibilty that
the defect can be cured by amendment. If the defect

conditions precedent had been satisfied or excused.
The trial court sustained without leave to amend

defendants' demurrers to several causes of action and
denied plaintiffs' motion for reconsideration.

Defendants subsequently moved for judgment on the pleadings as to all but one remaining cause of action, which motion was granted. The trial court entered a

can be cured, the trial court has abused its discretion and the appellate court reverses; if not, there has been no abuse of discretion and the appellate court affirms. The burden of proving such reasonable possibility of amendment is squarely on the plaintiff.
il Pleading §
Plaintiffs Burden

30--Demurrer to Complaint--

judgment based on that motion, the voluntary
dismissal of the remaining count, and the orders

Amendment After General Demurrer Sustained--

sustaining the demurrers. (Superior Court of Los

of Showing Possibility of

Amendment.

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It is an abuse of discretion for the trial court to sustain demurers without leave to amend if there is a reasonable possibilty that the plaintiff can amend the complaint to cure its defects. To meet the plaintiffs burden of showing abuse of discretion, the plaintiff

Liberal Constrction of Rule Allowing Amendment.

An order sustaining a demurrer without leave to
amend wil constitute an abuse of discretion if there is any reasonable possibility that the defect can be cured by amendment. This rule is liberally applied to permit further amendment not only where the defect is one of form but also where it is one of substance,

must show how the complaint can be amended to
state a cause of action. However, such a showing

need not be made to the trial court so long as it is
made to the reviewing court.
Q) Pleading § 30--Demurrer to Complaint--

provided the pleader did not have a fair prior
opportnity to correct the substantive defect. On the
other hand, there is nothing in the general rule of

liberal allowance of pleading amendment which

Amendment After General Demurrer Sustained-Submission of

requires an appellate court to find an abuse of
discretion if on appeal the plaintiffs can suggest no legal theory or state of facts which they wish to add
by way of amendment. The burden is on the plaintiffs

Proposed Amended Complaint.

Where a demurer is sustained without leave to amend, a plaintiff is entitled to submit a proposed
amended complaint by way of a motion for

to demonstrate that the trial court abused its
discretion and to show in what manner the pleadings
can be amended and how such amendments wil
change the legal effect of

reconsideration. If the amended complaint states any causes of action, the trial court is obligated to vacate its order that sustained the demurrer without leave to amend and make a different order granting the plaintiff leave to fie an amended complaint, which would include the causes of action that the trial court,
in deciding the merits of the motion for reconsideration, determined were valid.

their pleadings.

(1 Contracts § 45--Action for Breach--Elements.

plaintiffs performance or excuse for
nonperformance, defendant's breach, and resulting damages to plaintiff.
Cf, 8b, ~ Contracts § 48--Actions--Pleadings--By

A cause of action for damages for breach of contract is comprised of the following elements: the contract,

W Pleading § 30--Demurer to Complaint-Amendment After General Demurer Sustained-Plaintiffs Motion for Reconsideration.
In a civil action, after sustaining without leave to

amend defendants' demurrer, the trial court erred in

denying plaintiffs' motion to reconsider without
specifically considering the changes plaintiffs made

in their proposed amended complaint. Code Civ. Proc.. & 1008, subd. (a) (subsequent application of motion), does not require that the support for a motion to reconsider be based upon "new facts." It is only necessary that the motion be based upon an alleged different state of facts than the original motion. Thus the trial cour should have specifically examined the proposed pleadings attached to the reconsideration motion to determine whether the added allegations were suffcient to state one or more
valid causes of action.
æ Pleading § 13--Complaint--Liberal Constrction.

Plaintiff-- Satisfaction of Conditions Precedent. In borrowers' action against a lending institution and one of its officers alleging breach of contract to make a loan, the borrowers failed to adequately allege the
due satisfaction of several conditions precedent

specified in defendants' commitment letter to
plaintiffs so as to allege the formation of a binding

contract. All the borrowers had alleged were
conclusory allegations such as that the conditions

"had been met and satisfied," but at least six of the
eight specified conditions were events that had to exist or occur, and such general allegations were not

adequate. The pleading of excuse or waiver of
performance of conditions precedent requires specific

allegations. Further, the plaintiffs could not rely on
allegations of the offcer's oral statement that a loan

commitment had been approved by the institution,

Allegations of a complaint are to be liberally
constred with a view to substantive justice between
the parties.

since this would not be the equivalent of finding that any of the conditions had been satisfied, excused, or

waived. Thus, the trial court properly sustained
defendants' demurer to the complaint, but erred in sustaining it without leave to amend, since it was not determined that there was no reasonable possibilty

æ Pleading § 30--Demurrer to Complaint--

Amendment After General Demurrer Sustained--

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that plaintiffs could amend their complaint to
suffciently state a cause of action. (See I Witkin, Summary of Cal. Law (9th ed. 1987)
Contracts, § 725 et seq.)
(2 Contracts § 4--Consent--Suffciency--Preliminary

il AppeIlate Review § 128--Rulings on Demurrers-

-Possibility of Amending Complaint to State Cause
of Action.

Negotiations. Preliminary negotiations or an agreement for future
negotiations are not the functional equivalent of a

On an appeal uom a judgment foIlowing the
sustainment of a demurrer without leave to amend, it
is not the appellate court's task to be concerned with
the possible diffculty or inability of proving
allegations to establish plaintiffs cause of action.

valid, subsisting agreement. A manifestation of wilingness to enter into a bargain is not an offer if

the person to whom it is addressed knows or has reason to know that the person making it does not intend to conclude a bargain until he has made a
further manifestation of assent.
(( Contracts § 48--Actions--Pleadings--By

(13a, 13b, 13e) Banks and Banking § 21--Action for

Breach of Good Faith and Fair Dealing--Lack of Special Relationship With Prospective Borrower.
In an action by borrowers against a lending
institution and one of its offcers alleging tortious

Plaintiff--Satisfaction of Cond itions Precedent.

Where contractual liabilty depends upon the
satisfaction or performance of one or more conditions

breach of the implied covenant of good faith and fair dealing in denying a loan for which plaintiffs alleged there was a contract, the trial court was correct in
sustaining without leave to amend defendants'

precedent, the aIlegation of such satisfaction or
performance is an essential part of the cause of

demurrer to the complaint. Even if there was a valid
contract, there was no special relationship between
the parties suffcient to support a tort recovery for

action. This requirement can be satisfied by
aIlegations in general terms. It is suffcient for a

plaintiff to simply aIlege that he has duly performed all the conditions on his part. However, this rule is

any breach of contract, since the parties were
involved in a common commercial banking

subject to two important caveats. First, if the
condition is an event as distinguished from an act to be performed by the plaintiff, a specific aIlegation of the happening of the condition is a necessary part of
pleading the defendant's breach. Second, general

transaction. Plaintiffs were seeking to make a profit and went into arms length negotiations with the lending institution. There were no indicia of unequal

bargaining, no adhesive agreements, and no
indications that one part had any paricular
advantage over the other. Moreover, it did not appear that plaintiffs were either in a particularly vulnerable position or in need of any special protection. Further,

pleadings are controIled by specific allegations. Thus,

a general allegation of due performance wil not
suffce if the plaintiff also sets forth what has actually occured if such specific facts do not constitute due performance. For example, when a plaintiff alleges a permissible conclusion of law such as the due performance of a condition precedent but also avers specific additional facts that either do not support
such conclusion, or are inconsistent therewith, such

ordinary contract damages were adequate to make plaintiffs whole for any compensable misconduct on
defendants' part.
(H Pleading § 26--General Demurrer; Failure to

State Cause of Action-- Alternate Theory--Breach of

specific allegations wil control and a complaint that might have been suffcient with general aIlegations
alone may be rendered defective.
(See 4 Witkin, Cal. Procedure (3d ed. 1985)

Implied Covenant of Good Faith and Fair
Dealing:Contracts § 48--Actions--Pleadings--By

Plaintiff--Breach of Implied Covenant of Good Faith
and Fair Dealing.

Pleading, §§ 404, 479.)
(i Pleading § 16--Complaint--Allegations of

Even though a plaintiff characterizes a count as the
tortious breach of the implied covenant of good faith

Ultimate Facts Necessary to State Action. A complaint must allege the ultimate facts necessary to the statement of an actionable claim. It is both

and fair dealing, it is possible to state a cause of action for breach of that covenant even though no
basis for a tort recovery exist. Thus, in resolving a demurrer, the court must consider if a cause of action has been stated on any theory, irrespective of the label attached by the pleader.

improper and insuffcient for a plaintiff to plead the
evidence by which he hopes to prove such ultimate facts.

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eM Contracts § 23--Constrction and Interpretation-Implied Covenant of

If

the allegations of

a complaint for breach of

implied

Good Faith and Fair Dealing.

covenant of good faith and fair dealing do not go
beyond the statement of a mere contract breach and,

Every contract imposes on each part a duty of good

faith and fair dealing in each performance and in its
enforcement. Simply stated, the burden imposed is

that neither part wil do anything that wil injure the
right of the other to receive the benefits of the

relying on the same alleged acts, simply seek the same damages or other relief already claimed in a companion contract cause of action, they may be
disregarded as superfluous as no additional claim is

agreement; the implied covenant imposes upon each
part the obligation to do everyhing that the contract
presupposes the part wil do to accomplish the

actually stated. Thus, absent those limited cases
where a breach of a consensual contract term is not

contract's purpose. This rule is aimed at making effective the agreement's promises. The precise
nature and extent of the duty imposed depends on the contractual purposes. Good faith performance or enforcement of a contract emphasizes faithfulness to an agreed common purpose and consistency with the
justified expectation of the other part; it excludes

claimed or alleged, the only justification for asserting
a separate cause of action for breach of the implied

covenant is to obtain a tort recovery.

QI Insurance Contracts and Coverage § 109--Duty
of Insurer to Act in Good Faith-- Tortious Breach of

uom consideration a variety of tyes of conduct
characterized in other contexts as involving "bad

Duty. In insurance cases, there is a well-developed history recognizing a tort remedy for a breach of the implied

faith" because they violate community standards of
decency, fairness, or reasonableness.
(See Cal.Jur.3d. Contracts. & 181.)

covenant of good faith and fair dealing. The existence of this remedy is justified by the special relationship

existing between insurer and insured, which is

characterized by elements of public interest,
adhesion, and fiduciary responsibilty. In addition, it
is essential to a recovery in tort that the insurer, in
breaching the implied covenant, have acted

(( Contracts § 44--Breach of Implied Covenant of

Good Faith and Fair Dealing.

A covenant of good faith and fair dealing is an
implied-in-Iaw term of any contract. The covenant of good faith is read into contracts in order to protect the express covenant or promises of the contract, not to

unreasonably or without proper cause.
(1 Contracts § 45--Actions--Bad Faith Denial of

protect some general public policy interest not
directly tied to the contract's purposes. Therefore, its breach wil always result in a breach of the contract, although a breach of a consensual (i.e., an express or

Contract.

The elements of the tort of bad faith denial of the
existence of a contract are: an underlying contract,

implied-in-fact) contract term wil not necessarily constitute a breach of the covenant. A breach of the implied covenant of good faith and fair dealing
involves something beyond the breach of the

that is breached by the defendant, who then denies
liability by asserting that the contract did not exist, in
bad faith, and without probable cause for such deniaL.

Of these five elements, the last two are the most
critical and diffcult to demonstrate. The requirement

contractual duty itself, and bad faith implies unfair
dealing rather than mistaken judgment. Thus,

that the defense be asserted in bad faith is a
subjective issue relating to the defendant's state of

allegations that assert such a claim must show that the defendant's conduct whether or not it constitutes a

breach of a consensual contract term, demonstrates a
failure or refusal to discharge contractual

mind. Stated in its simplest form, it means that the defendant does not have a good faith belief in the
facts relied upon to constitute or support a legally tenable defense. The fifth element means that on the
basis of the facts known to the defendant, the

responsibilities, prompted not by an honest mistake,

bad judgment, or negligence, but rather by a conscious and deliberate act that unfairly Uustrates
the agreed common purposes and disappoints the
other part's reasonable expectations thereby
depriving that part of the benefits of

assertion of the defense was not legally tenable; that
is, it was neither reasonable nor justified under

the agreement.

applicable law. This is an objective requirement and requires a consideration of all of the circumstances.
(20a, 20b, 20c) Contracts § 48--Actions--Pleadings--

(( Contracts § 48--Actions--Pleadings--By

Plaintiff-- Tortious Breach of Implied Covenant of
Good Faith and Fair Dealing.

By Plaintiff-- Defendant's Bad Faith Denial of
Existence of Contracts--Probable Cause to Dispute

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Existence of Contract.
In an action by borrowers against a lending

institution and one of its offcers alleging defendants' bad faith denial of the existence of a contract to lend money to plaintiffs, the trial court erred in sustaining without leave to amend defendants' demurrer to the complaint. Although plaintiffs failed to state a cause

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 (i) whether the bank

of action, they were entitled to an opportnity to
attempt to amend their complaint. They failed to state

defendants had made a binding commitment to

a cause of action since they failed to allege the
absence of probable cause for defendants' deniaL. The

provide debt financing to the plaintiffs for the
leveraged (Le., debt-financed) buyout of a business

and (2) whether the plaintiffs justifiably relied
thereon. These two actions allege numerous parallel

resolution of the issue of probable cause calls for an
objective test whether the defendant's action was

reasonable; depending on the allegations of the
complaint, and where the facts are undisputed, the
issue may be resolved on demurrer, since then this issue is a legal rather than a factual one. Plaintiffs merely alleged that defendants' letter containing
conditions precedent to the making of the loan established the contract, but plaintiffs did not
specifically plead satisfaction of

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

the conditions. Thus,

there was a reasonable basis to dispute the existence
of

as the trial court's denial of a motion for

the contract in plaintiffs' own pleadings.

reconsideration of the order sustaining the demurers.

For the reasons discussed below, we have determined

that the trial cour should have overrled the
em Pleading § 13--Constrction-- Written Instrument Incorporated Into Pleading.

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 wil affrm in part and reverse in part.
Procedural Background

Where a plaintiff attaches and incorporates a written instrument into a pleading, without alleging that it

was ambiguous or subject to some special
interpretation, the court is free on demurrer to
constre the language and draw its own conclusion as

to the legal effect of the instrment.
em Limitation of Actions § 71--Pleading--Negation in Complaint of Defense of Statute of Limitations. Where the allegations in a complaint indicate the existence of the defense of the statute of limitations, specific facts negating that defense must be alleged in the complaint. General or conclusionary allegations

The Carrott action was fied in November of 1983. The Careau Group action was fied in October of 1985. First amended complaints were fied in both actions in August 1987. The parties engaged in discovery both before and after the first amended
complaints were fied. Ultimately, the two cases were

consolidated pursuant to a stipulation and order,
dated September 4, 1987.

wil not suffice.
COUNSEL

On October 6, 1987, the defendants filed demurers
to the first amended complaints. Specifically,

Kinsella, Boesch, Fujikawa & Towle, Philp W.
Boesch, David Z. Vance and Jack G. Cairl, Jr., for
Plaintiffs and Appellants.

defendants demurred to the first through fifth and the

Sheppard, Mullin, Richter & Hampton, John A.
Sturgeon and Edward D. Vogel for Defendants and
Respondents. *1379

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

CROSKEY, J.

This appeal involves two consolidated actions:
Careau & Co. and Richard Carrott v. Security Pacific

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,

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submitting, with their motion for reconsideration,

necessary funding elsewhere, but on less desirable
terms. Plaintiffs fied these actions, contending, inter

*1380 proposed second amended complaints for both of the actions. FN1Their motion was denied on

December 4, 1987. A statement of the grounds for

alia, that defendants (1) breached oral and written
contracts, (2) breached the implied covenant of good

ruling upon the demurrers was signed and fied
January 8, 1988.

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. *1381

FNI In the second amended complaints,
plaintiffs included two additional causes of action that had not been included in the prior
pleadings: (1) breach of option contract
(count 13 in the Carrott action and count 11

(1) This is an appeal uom a judgment of dismissal
entered after demurrers were sustained to plaintiffs'
first amended complaints. FNZ"Therefore, under
settled law, we assume the trth of all properly

in the Careau Group action) and (2) bad
faith denial of existence of contract (count

14 in the Carrott action and count 12 in the Careau Group action).

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.

In November 1987, defendants had fied 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 (fTaud) and

(Citation.)" (Phillps v. Desert Hosvital Dist. (1989)
49 Ca1.3d 699. 702 (263 Ca1.Rptr. 119. 780 P.2d 3491.) If the demurrer was sustained, as it was in this
case, our function is to determine whether the

seventh (negligent misrepresentation) causes of action in both of the first amended complaints, as
well as the ninth (interference with prospective

complaint states suffcient 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 affrm. (Citations.) The

business advantage) cause of action in the Carrott
action. The motion was granted on March II, 1988.

A judgment, based on that motion and the orders
sustaining the demurrers was entered on July 13,

1988. Pursuant to a stipulation, the i 2th cause of
action in the Carrott first amended complaint (breach
of oral contract not to disclose confidential

burden of proving such reasonable possibility is squarely on the plaintiff. (Citation.)" (Blank v. Kirwan ((985) 39 Cal.d 311. 318 (216 Cal.Rptr.
7 i 8. 703 P.2d 581; see also, Maheu v. CBS. Inc. (1988) 201 Cal.App.3d 662. 669-670 (247 Cal.Rptr.

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.

3041; Von Batsch v. American Dist. Telegraph Co. (1985) 175 Ca1.App.3d 1111. 1117 (222 Ca1.Rptr. 2391. In accordance with these rules, we set forth the following facts as disclosed by plaintiffs' second
amended pleadings. FN3

Plaintiffs fied a timely appeal from that judgment.

FN2 To be precise, as we have already
Factual Background

noted, the demurrer was sustained as to 16 of the 22 counts alleged in these

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

consolidated amended complaints. A motion for judgment on the pleadings was granted
as to five additional counts and the last

remaining count was dismissed pursuant to

plaintiffs, sought to purchase Egg City and sought

stipulation in order to permit a final
judgment to be entered.

funding of $13 milion 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

FN3 As we explain in greater detail below, we wil treat the second amended complaints

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as the operative pleadings and examine them
to determine if a cause of action has been

SPBC on July 27, 1983, by a check apparently
written on a personal account of Carrott.

stated under any cognizable legal theory.

During the summer of 1983 the plaintiffs Richard
Carrott (Carrott) FN4 and Careau & Co. (Careau), a
California corporation, negotiated a leveraged

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

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) FN5 on July 19, 1983.

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

By this letter, SPBC expressed an interest in lending

to Careau the sum of $12 milion (to provide
financing for the purchase of Egg City) upon certain
terms and conditions and subject to certain specified

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. "

contingencies. *1382 The letter was signed on behalf
of SPBC by the defendant Raymond C. Torres

Thereafter, SPBC had discussions with Kroger, the
part from which Egg City would be purchased, and

(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.

an audit of that propert 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." FN6

FN4 Carrott was the founder, president and
sole shareholder of the corporate plaintiff, Careau & Co.
FN5 An examination of

the proposed second

FN6 Plaintiffs do not allege the specific
reason or purpose for the issuance of this
new letter, beyond the conclusionary

amended complaints demonstrates SPBC is the corporate defendant with whom

plaintiffs apparently exclusively dealt during
this entire matter. Two other corporate

defendants are also named, (1) Security

Pacific National Bank (SPNB), a national

assertion that it was SPBC's purose to move ÍÌom a "letter of intent" to a "commitment letter." However, in the
original complaint fied in the Carrott action,

banking association, doing business in
California and (2) Security Pacific

and which was verified by Carrott on
November 22, 1983, it is alleged that the
August 25 letter "was an amended financing plan which modified the July 19, 1983 letter

Corporation (SPC), a Delaware corporation, also doing business in California. However,

there are no allegations describing the
corporate or contractual relationships, if

of intention in such a way so that a
commitment and agreement would be made

any,

between SPBC on the one hand and these
additional corporate defendants. In any

by SPBC in accordance with terms and
conditions as expressed in (the August 25
letter) in the manner as alleged herein."
(Italics added.) In addition, this verified

event, these two defendants are charged only in counts eight, nine and ten.

pleading also specifically alleged that, by

The terms of the letter of intent required Careau to
make a good faith deposit of $1 0,000 which would be

the August 25 letter, SPBC had agreed to
provide financing according to "the terms

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

and conditions of (the August 25 letter)." (Italics added.)

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It was identical to the letter of July 19 except for four specific changes:
I. The total amount of the proposed loan was

"8.7 Lender's senior credit committee's

approvaL.

"8.8 Borrower and the principals of
Borrower shall have executed and delivered

increased to $13 milion (including an increase, from
$4 milion to $5 milion, of the advances to be

such documents, instrments, security
agreements, insurance financing statements, guarantees, verifications, non-offset letters,
tax lien and litigation searches, good standing certificate, copies of building

secured by accounts receivable); *1383

2. The conditional and tentative language quoted and italicized above in the next preceding paragraph was deleted;
3. Three contingencies that had not been included in

leases, landlord's waivers, trust deeds or
mortgages, opinion of counsel, and done

such other acts as Lender may request in
order to obtain Lender's Legal approval to

the July 19 letter (numbered as 8.4, 8.5 and 8.6) were
added. The proposed loan, as described in the letter

effect the completion of the financing
arrangements herein contemplated. All of

of August 25, was thus made subject to the eight
specific conditions precedent; FN7 and finally,

the foregoing must be in a form satisfactory to Lender and Lender's counseL. All loan and

advances shall be made pursuant to, and
subject to, the terms of the financing

FN7 Section 8 of the August 25 letter
spelled out the conditions:

"8. Conditions Precedent:

documents executed at the closing. If the transaction contemplated by this letter of
intent is not completed on or before

"8.1 Borrower shall be a California
corporation in good standing in the state, and qualified to do business in other states
where they have collateraL.

midnight, October 19, 1983, then the terms

and conditions set forth herein shall
thereafter expire, without further notice or
act of any kind by Lender or any other

"8.2 Borrower shall have a title to all of the

above collateral uee and clear of
encumbrances.

part."
4. The letter concluded with the statement, "Since
this letter is subject to all of

"8.3 Completion of a field survey by
Lender's examiners, which results are to be acceptable to Lender. "8.4 Lender's proposal is contingent upon an

the above conditions and

specifically the receipt of the acceptable appraisal

with a guarantee uom an acceptable insurance
company and the confired commitment from seller, it should not be relied upon by any third part as a final commitment to make a loan."
In order to demonstrate that the conditions were

initial cash equity of two hundred fift
thousand dollars uom Buyer and eight
milion dollars in debt from The Kroger

Company (Seller). This is based upon a
purchase price of eighteen milion dollars.
Terms and conditions on debt repayment

satisfied, excused or waived, plaintiffs alleged that:

subject to Lender's approval.
"8.5 Lender's proposal is subject to an
appraisal up to three millon five hundred

1. On September 7, 1983, Torres orally informed Carrott that "the loan commitment had been approved

thousand dollars on the machinery and

by SPBC" (apparently