## Facts

- John and June Hulsey sold a mobilehome park to Judith P. Koehler under a purchase agreement requiring a $60,000 down payment and two additional $30,000 principal reductions 12 and 24 months after close of escrow.
- Escrow instructions and a promissory note were later prepared that did not include one of the agreed $30,000 principal reductions.
- The parties signed the escrow documents and note; after escrow closed, the Hulseys discovered the omission and requested corrected documents, which Koehler refused to sign.
- Koehler previously sued the Hulseys for fraud and misrepresentation related to the sale; the Hulseys cross-complained for intentional interference with business relations but did not seek reformation of the note in that action.
- Verdicts in the earlier action favored the Hulseys on Koehler’s complaint and favored Koehler on the Hulseys’ cross-complaint.
- After Koehler did not pay the disputed $30,000 amount, the Hulseys filed this action for declaratory relief, reformation, and specific performance.
- The trial court found the written instruments failed to reflect the parties’ true agreement due to mistake of fact and reformed the note.

## Issues

1. Whether the bar in California Code of Civil Procedure § 426.30 (compulsory cross-complaint statute) must be specially pleaded as an affirmative defense, such that failure to plead it waives the defense.
2. Whether the trial court abused its discretion by denying, as untimely, Koehler’s motion made at trial to amend her answer to add a § 426.30 defense.

## Decision

- The Court of Appeal affirmed the judgment reforming the promissory note in the Hulseys’ favor.
- The court held § 426.30 is analogous to res judicata and must be specifically pleaded as an affirmative defense; failure to plead it constitutes waiver.
- The court held the trial court did not abuse its discretion in denying Koehler leave to amend her answer at trial to assert § 426.30 due to lack of diligence and prejudice to the Hulseys.

## Legal Principles

- California Code of Civil Procedure § 426.30 operates as a claim-preclusion-type bar to later litigation of related claims that should have been raised by compulsory cross-complaint in an earlier action between the parties.
- Because § 426.30 functions like res judicata, it is a waivable affirmative defense that must be specially pleaded; generic defenses do not provide adequate notice.
- Trial courts have broad discretion to deny belated amendments to add new affirmative defenses, particularly when the party had earlier knowledge of the defense, delayed without diligence, and the amendment would prejudice the opposing party’s trial preparation.

## Conclusion

The court upheld reformation of the promissory note and clarified that the compulsory cross-complaint bar in CCP § 426.30 must be expressly pleaded or it is forfeited; it also approved denial of a last-minute amendment to add that defense where delay and prejudice supported the trial court’s ruling.


Hulsey v. Koehler, 218 Cal. App. 3d 1150, 267 Cal. Rptr. 523 (Ct. App. 1990)