Li Guan v. Yongmei Hu

Defendant Yongmei Hu (Hu) appeals from a judgment entered in favor of plaintiff Li Guan (Guan). Guan initially sued Hu for breach of a contract. However, several months before trial, the trial court dismissed the breach of contract claim with prejudice. As a result, Guan proceeded to trial on various fraud-based claims (e.g., rescission, cancellation, and fraud in the inducement) that effectively disaffirmed the validity of the parties' contract.

Following a bench trial, the trial court found that Guan had failed to prevail on any of his claims because, while his evidence in support of those claims was "considerable," it was nonetheless "insufficient." However, because there was evidence showing that Hu had breached the parties' contract, the trial court awarded damages to Guan. The trial court justified its decision in favor of Guan on language in Civil Code section 1692, 1 which purportedly allowed it under these circumstances to " 'adjust the equities' " between the parties.

We hold that the trial court's interpretation of section 1692 was flawed and, as a result, we reverse the judgment and direct that judgment be entered in favor of Hu. We further hold that the trial court…