Filed 1/3/22 CERTIFIED FOR PUBLICATION COURT OF APPEAL, FOURTH APPELLATE DISTRICT DIVISION ONE STATE OF CALIFORNIA LUIS MUNOZ et al., D078215 Plaintiffs and Appellants, v. (Super. Ct. No. 37-2019-00017904- CU-FR-CTL) PL HOTEL GROUP, LLC, et al., Defendants and Respondents. APPEAL from a judgment of the Superior Court of San Diego County, Timothy B. Taylor, Judge. Reversed. Spierer, Woodward, Corbalis & Goldberg and Stephen B. Goldberg for Plaintiffs and Appellants. Bradley L. Jacobs for Defendants and Respondents. This appeal involves a form of fraud rarely seen in day to day litigation. It goes by various names—fraud in the factum, fraud in the execution, fraud in the inception—but they all describe the same genre of deceit. It occurs where, after parties have agreed upon certain contract terms, one of them surreptitiously substitutes a document for signature that looks the same as the earlier draft but contains materially different terms. Fraud in the execution is distinct from promissory fraud, which involves false representations that induce one to enter into a contract containing agreed- upon terms. This case, on appeal after a demurrer was sustained without leave to amend, involves the purchase and leaseback of a vacant hotel and restaurant. The nub of the lawsuit is the buyers’/plaintiffs’ claim that the sellers/defendants surreptitiously substituted altered versions of the lease and financing instruments containing terms extremely adverse to the buyers, and which they allege were neither bargained for nor agreed to. As we explain, these allegations state, quite literally, a textbook cause of action for fraud in the execution, as this illustration from the Restatement Second of Contracts demonstrates: “A and B reach an understanding that they will execute a written contract containing terms on which they have agreed. It is properly prepared and is read by B, but A substitutes a writing containing essential terms that are different from those agreed upon and thereby induces B to sign it in the belief that it is the one he has read. B’s apparent manifestation of assent is not effective.” (Rest.2d, Contracts (1981) § 163, illus. 2.) But acting under the misapprehension that plaintiffs’ theory was promissory fraud, the superior court sustained a demurrer brought by defendants Inn Lending LLC (Inn Lending) and Rajesh Patel (Rajesh) on the grounds that “[i]nsufficient facts” were alleged showing they “made promises” upon which plaintiffs relied. The court also determined that related causes of action for breach of contract, breach of the implied covenant of good faith and fair dealing, and financial elder abuse also failed. We reverse the resulting judgment of dismissal. 2 FACTUAL AND PROCEDURAL BACKGROUND 1 Shivam Patel and his son, Rajesh (collectively, the Patels), owned a hotel and restaurant (Hotel). The Hotel had been closed for years and the property needed substantial repairs. When renovations were about half completed, the Patels determined the project was not viable because “there was no way to get conventional financing with a half-finished Hotel that had no financial history.” The Patels formed PL Hotel Group, LLC (PL) to hold title …
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