notable court decisions re

8/2/2019 Notable Court Decisions Re

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NOTABLE COURT DECISIONS RE: REALTY ISSUES

** Easton v. Strassburger, (1984)

2. Facts: Easton purchased a home from Strassburger. The home was on anunstable landfill, and had several structural problems that should have been evidentto the real estate broker who inspected the land before Easton purchased it. Thereal estate agents did not have actual knowledge of any problems with the soil, anddid not disclose any of the soil problems to Easton.

3. Procedural Posture: Easton sued several defendants in the lower court. The realestate broker is the only one that appealed. The count was one of negligence.

4. Issue: Is a real estate broker, who is employed by the seller, under a duty todisclose facts materially affecting the value of the property which throughreasonable diligence should be known to him?

5. Holding: Yes.

6. Reasoning: The court reasoned that a broker had an already established duty todisclose facts actually known to him. Thus, if this rule were not extended toinclude facts that a reasonable broker should have known, then an ignorant brokercould be shielded from liability by his ignorance. This would encourage sloppy

inspections. Furthermore, even though the broker is employed by the seller, thebuyer typically expects the broker to protect his interests as well. Thus, there is arelationship of trust and confidence. Also, the burden on the brokers could beeasily borne.

7. Notes: 1. The same standard of care was rejected for non-residential sales ofland in Smith v. Rickard. 2. The Legislature codified the holding of Easton in anarrow manner, requiring the broker of a one to four-family dwelling to conduct areasonably competent and diligent visual inspection, but not to look in normallyinaccessible places. Also, there is a statute of limitations of 2 years to bring an

action.

** Drake v. Hosley, (1986)

2. Facts: Drake signed an exclusive listing agreement with Hosley, a broker, to sellsome land. The agreement provided for payment of a ten percent commission if,during the period of the listing agreement, 1) Hosley located a buyer "willing and


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2. Facts: Seck was a real estate broker who was an acquaintance of Foulks. Foulkswished to sell some property through Seck, but did not want to make a formallisting. Knowing that he could not collect a commission without a formal writing,Seck jotted down the acreage, price, financing terms, and commission terms on theback of one of his business cards, and then had Foulks initial and date it. Duringthe term of the listing, Foulks observed the work and expense that Seck wasexpending on the listing, and even referred a potential buyer to him. Seck produceda ready, willing, and able buyer. However, Foulks denies hiring Seck for acommission, and eventually sold to another buyer.

3. Procedural Posture: The lower court found that the business card wasinsufficient to overcome the statute of frauds writing requirement for the sale ofreal property.

4. Issue: May a real estate listing contract providing for the payment of acommission to the broker be sufficiently evidenced by the listing, in abbreviatedterms, on the back of a business card identifying the property, language ofemployment, and the initials of the party to be charged?

5. Holding: Yes.

6. Reasoning: The court reasoned that the writing on the back of the business cardrequired factual parol evidence to determine its meaning. Thus, they found thatsince Foulks had signed the business card and acquiesced in Seck's performance of

the listing, that there was sufficient evidence to determine that language ofemployment (6% comm.) existed on the business card. Seck found a buyer whowas ready, willing and able to buy.

** Buckaloo v. Johnson, 14 Cal. 3d 815 (1975);

2. Facts: Buckaloo is a real estate broker who had listed the D.'s property in thepast and was very familiar with it. The D. placed a sign saying "For Sale - Contactyour Local Broker" on her property. A group of buyers saw the sign and askedBuckaloo about it in his office. He explained the property to them, and asked them

to return the next day. When they did not return, Buckaloo sent a letter to the D.stating that he was the "procuring cause" of this particular group of buyers, and ifthey contacted her directly, to refer them to him. However, Buckaloo ignored theletter and sold to them anyway.

3. Procedural Posture: Buckaloo did not have sufficient evidence to show that hewas affirmatively employed by the D. under the statute of frauds in an implied


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contract, so he sued under intentional interference with prospective economic gain,a tort. The lower court sustained the D.'s demurrer.

4. Issue: When a broker is the procuring cause of a real estate transaction, and theseller intentionally induces the buyer to avoid the broker, may a cause of action forintentional interference with prospective economic advantage lie even if there is nocontract between any of the parties and the broker?

5. Holding: Yes. A cause of action exists when the following elements are pleaded:1) an economic relationship between the broker and seller or broker and buyercontaining the probability of future economic benefit to the broker, 2) knowledgeby the seller of the relationship, 3) intent by the seller to disrupt the relationship, 4)actual disruption of the relationship, and 5) damages proximately caused by theseller.

6. Reasoning: The court cited a long string of cases holding that a third party maystill be liable for the tort of intentional interference with prospective economicadvantage even if the relationship he was interfering with had not attained thestatus of a formal contract. Although the defense of privilege by the seller due tocompetition could be forwarded, there would be no policy reason to allow such adefense where the seller is taking advantage of the work already done by thebroker to expedite the sale. The sign, in combination with the custom of real estatebrokering in the area, established a colorable economic relationship between theseller and the broker with the opportunity to become a fully fledged contract. The

D. knew of the relationship between the broker and the buyer because of the letter,and the buyers knew of the relationship between the broker and the seller becauseof the sign indicating an open listing with all local brokers. Their sole purpose inexcluding the agent was to avoid paying of a commission.

** Schwinn v. Griffith, (1981)

2. Facts: An auction was held to sell a piece of property. The D. was the highestbidder. Before the auction was over, but after the gavel fell on his bid, the D. leftthe auction house, leaving a signed blank check with his daughter to pay for theearnest money. When the seller refused to accept the blank check as payment andcontacted the D., the D. refused to pay. The buyer never signed any memorandumof sale.

3. Procedural Posture: The district court dismissed the complaint under the statuteof frauds stating that the sale of real estate required a written acceptance by theparty to be charged.


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4. Issue: May the writing requirement of the statute of frauds be satisfied at anauction by the auctioneer acting as an agent on behalf of the buyer?

5. Holding: Yes.

6. Reasoning: The court held the majority view that the buyer must accept deliveryof the purchase agreement signed by the seller for the contract to be binding.However, although the writing was never delivered to or signed by the buyer, theauctioneer, if disinterested in the sale, could become the agent of the buyer at thetime the property is "struck off" for the purposes of binding the buyer to thepurchase contract.

7. Notes: 1. In some states, the memorandum of sale is prepared directly by theauctioneer, and the parties' signatures are unnecessary. 4. The statute of frauds in

the ULTA (uniform land transactions act) requires an 1) an identification of theland, 2) the price or a method of fixing price, 3) is sufficient to indicate withreasonable certainty that a contract to convey has been made between the parties,and 4) the signature of the party to be charged or that party's representative. Theserules do not apply if the conveyance is for one year or less, or the buyer has takenpossession and paid all or part of the contract price [partial performance], theybuyer has accepted a deed, there has been reasonable reliance by the seller, or theparty charged admits there is a contract.

** Roundy v. Waner, (1977)

2. Facts: The Roundys are the parents of the Waners. The Roundys executed awarranty deed to the Waners in 1964 so that they could refinance the property inthe Waners name. Thus, the Waners held the bare legal title to the property in trustfor the Roundys with the understanding that it would be conveyed back upondemand. In 1968, the Waners claim that the Roundys orally agreed to sell theproperty to them and transfer their beneficial interest in the property inconsideration for past kindness, payment of the mortgage and $500 in cash. Noformal writing was made. In 1969 the parties had a falling out and the Wanersrefused to reconvey the property.

3. Procedural Posture: The lower court found that there was an oral contract ofpurchase made.

4. Issue: May the statute of frauds in real estate transactions be avoided if there ispartial performance of the contract?


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5. Holding: Yes.

6. Reasoning: The court reasoned that there was substantial evidence of partialperformance of the contract. The past consideration included bookkeeping. TheWaners bought the Roundys a car for $500. Furthermore, they paid about $7,000of the mortgage over the years, and made substantial improvements to the house.Such evidence, although possibly arising out of familial affection in normal cases,was "clear and convincing" evidence of a contract in this case.

7. Notes: 5. The partial performance must be "unequivocally referable" to thecontract formation. Thus, acts which can be explained by other than contractualinducement are not sufficient to show a contract existed.

** Mahoney v. Tingley, (1975)

2. Facts: The P. and D. entered into an earnest money agreement whereby the D.was to pay a total of $200 of earnest money into escrow. When the time came forthe escrow to close, the D. decided not to go through with the deal. There was aclause in the earnest money contract that stated that if the buyer defaulted, theearnest money was to be forfeited as liquidated damages unless the seller elected toenforce the agreement. After the buyer breached, the seller sold to another buyerfor $1,250 less and sought to recover the difference from the breaching buyer.

3. Procedural Posture: Unknown.

4. Issue: Whether a seller may recover actual damages from a buyer who breachesan earnest money contract for the sale of real estate, when the earnest moneycontract allows the seller to elect between specific performance and the buyer'sforfeiture of the earnest money as liquidated damages, and when the sellersubsequently sells the property to another.

5. Holding: No.

6. Reasoning: The court reasoned that the parties' contract provided for the

appropriate remedy. Since the seller had already sold to another, he was precludedfrom pursuing specific performance. Thus, he was left with liquidated damagesonly. It must be assumed that the amount of the liquidated damages was negotiatedbetween the parties and that the breaching buyer relied upon the damages clause inassessing his risk of forfeiture. The court rejected the seller's argument that theliquidated damages clause was unenforceable as a penalty [reverse psychology].


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The seller may have been able to collect actual damages had the earnest moneycontract not limited him to liquidated damages.

7. Notes: 2. Although the courts sometimes consider the difficulty in estimation ofactual damages, whether a particular liquidated damages clause is enforceddepends on whether the contract's consideration contemplated such liquidateddamages to be a reasonable pre-estimate of the probable loss.

** Lingsch v. Savage, (1963);

2. Facts: Lingsch bought some real property from a seller who was represented bySavage, who was a real estate broker. Both the seller and Savage knew ofsubstantial problems with the property requiring repair, but did not tell the buyerabout them. The purchase contract that they signed included a clause that stated

that the buyer was buying the property in "as-is" condition, as well as a clausestating that no representations, guarantees or warranties of any kind were madeexcept what was expressly included in the purchase agreement.

3. Procedural Posture: The lower court sustained the demurrer without leave toamend.

4. Issue: Where a purchase contract for real property states that the property is tobe sold as is with no guarantees or representations outside of those expresslyindicated in the purchase contract, and both the seller and the seller's agent are

aware of material facts that affect the value or desirability of the land, and both areaware that the facts are beyond the ability of the buyer to discover, and neither theseller or his agent disclose such facts to the buyer, may the seller's agent be heldliable for fraud upon failure to disclose such facts?

5. Holding: Yes.

6. Reasoning: The court reasoned that fraud included the non-disclosure ofmaterial facts by a person under an obligation to disclose them. Furthermore, theagent's representations led the buyer to believe that the absence of disclosure of a

particular problem meant that problem was not present. This is true even thoughthe seller's agent has no contractual interest with the buyer because he is a party tothe transaction. Although the buyer's pleadings were technically deficient, the courtsupplemented them. The inclusion of an "as-is" provision does not prevent thecontract from being invalidated by fraudulent non- disclosure. Such a provisionmeans that the buyer takes subject to any defect observable to him by reasonablediligence.


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** Kriegler v. Eichler Homes, Inc., (1969);

2. Facts: Kriegler owned a residential home that was built by Eichler in 1951. Theheating system contained coated steel tubing encased in concrete, instead of thecopper tubing normally used due to a copper shortage during the Korean War.Steel tubing is subject to corrosion if not properly installed in the concrete. In1959, the heating system failed due to corrosion, causing approximately $5,000 ofdamage to Kriegler's property. The steel was manufactured by General Motors, andinstalled by Arro, the heating contractors.

3. Procedural Posture: The lower court found that Eichler was liable on anegligence theory of installing the steel tubing. Kriegler did not file a brief to thiscourt, so they reversed as to the negligence issue. Eichler filed a cross-complaintagainst the heating contractor and General Motors for breach of implied warranty.

The lower court found no breach of any warranty.

4. Issue: Is the manufacturer of mass-produced homes subject to strict liability forthe damages to property arising from the latent failure of a heating system?

5. Holding: Yes.

6. Reasoning: The court reasoned that the principles of strict products- liabilityapplied to home builders in the same way and for the same reasons that they applyto automobile manufacturers. When a home buyer buys a home, he does not have

professional advisors capable of discovering latent defects, nor is he in a positionto protect himself contractually against the bargaining power of the builder. It ismost efficient to put the loss on the builder who could most easily avoid it.

** Martinez v. Martinez, (1984)

2. Facts: In February 1970, the parents sold land to their son and daughter-in-lawunder a real estate contract. The children agreed to assume the mortgage, and theparents handed a warranty deed to the children with instructions to deposit the deedin escrow with the bank until the mortgage had been paid in full. However, before

delivering the deed to escrow, one of the children had the deed recorded. In 1980,the children defaulted on the mortgage. The parents cured the default and thenrequested the reconveyance of the property as allowed by the contract. Thedaughter-in-law refused to reconvey her interest, and the parents brought thisaction to recover title.


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3. Procedural Posture: The trial court found that the parents had intended thewarranty deed to be held in escrow until the mortgage had been paid in full.

4. Issue: When the seller hands the deed to the buyer with intent that the buyer putthe deed into escrow, and the buyer subsequently records the deed, does thisqualify as a legal delivery of the deed?

5. Holding: No. "There is no legal delivery, even where a deed has been physicallytransferred, when the evidence shows that there was no present intent on the part ofthe grantor to divest himself of title to the land."

6. Reasoning: The court reasoned that parol evidence was admissible to show thata deed delivered to the grantee was not intended to take effect according to itsterms. The intent to transfer title is an essential element of delivery and that intent

may be determined from the surrounding circumstances. The fact that the deed wasfirst recorded before deposit in escrow does not create an irrebuttable presumptionof delivery.

7. Notes: The physical act of delivery does not matter if the requisite intent is notpresent. 2. In most states, recording of the deed is not a conclusive presumption ofdelivery. 3. The rule in Whyddon's Case (1596) states that oral conditions stated bythe grantor at the time of delivery of the deed may be disregarded, and title vestimmediately in the grantee.

** Wiggill v. Cheney, (1979)

2. Facts: In 1958, Lillian Cheney signed a deed to real property where FloraCheney was named as the grantee. Thereafter, Lillian put the deed in a sealedenvelope and put it in a safe deposit box in the joint names of her and the plaintiffWiggill. Wiggill was never given the key to the box. Lillian instructed Wiggill thatupon her death, he was to go to the box, and deliver the envelope to the addressee,which he did.

3. Procedural Posture: The lower court found that the warranty deed was invalid

because of no valid delivery.

4. Issue: For a delivery to be valid, must the grantor divest himself of thepossession of the deed or the right to retain it?

5. Holding: Yes.


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6. Reasoning: The court reasoned that for the grantor's intent to be established, thedeed must "pass beyond the control or domain of the grantor." The grantor mayretain the deed if substantial evidence exists that there was a valid delivery with therequisite intention was made, but there were no such facts here. The grantor hadthe sole and exclusive possession of the deed because she had the only key to thesafe deposit box. It would have been easy for her to retract the grant, and that cannot be allowed for a valid delivery.

7. Notes: 2. If the grantor had put the deed in a safe deposit box under the jointnames of her and the grantee, there probably still would have been no delivery. 3.It is possible to make a present grant of a future interest by the grantor making aproperly delivered deed stating that he will retain possession for his life, but thecourt might interpret that as an intent to make no present grant of any interest. 4.Handing the deed to a third party to be delivered upon the grantor's death (a "death

escrow") has been held sufficient to be a proper delivery, with the delivery daterelating back to the time the grantor delivered to the third party. This is true even ifthe deed does not reserve a life estate for the grantor. This is different than the caseof delivering to a third party with no condition of death, or directly to the granteewith an oral condition of death.

I. Defective DeedsA. Two categories:1. Void - subsequent bona-fide purchaser loses because the grant wasnever given effect.

2. Voidable - subsequent bona-fide purchaser wins because the voidabletitle (acquired by fraud for example) is perfected by the subsequentbona-fide purchase.B. Examples of Void titles:1. Forgery - a false signature or and addition, deletion or alterationto the language after it has been signed. (The grantor could not havebeen more careful).2. "Fraud in factum" - unsuspecting or trusting grantor is told that heis signing something else, or it is slipped in among other papers.

3. Lack of delivery.C. Example of merely Voidable title:1. Grantee pays for the deed with a bad check or false statements toinduce granting.2. The contents or details of the deed are misrepresented to thegrantor.3. Duress or undue influence.


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II. Escrow ClosingA. Escrow agent must be a "third" party and not one of the principles.1. If he is the grantor, there is no delivery because he retainscontrol.2. If he is the grantee, the delivery is immediate because conditionsare ineffective.B. A "true" escrow requires the grantor to deposit the deed without anypower to recall it (short of breach by grantee or modification).1. In a "true" escrow, the delivery relates back to the opening ofescrow, and will be effective even if the grantor dies before escrowcloses.2. There must be an underlying enforceable contract of sale.C. Statute of Frauds does not apply to escrow instructions because theydo not constitute a contract for the sale of realty.

D. An escrow agent occupies a fiduciary responsibility to the partiesand will be held liable for negligence or breach of instructions.

I. Whitman, Optimizing Land Title Assurance Systems, 42 G. Wash. L. Rev. 40.A. The modern title assurance system consists of 4 subsystems:1. Data subsystem -a. exists to record, retrieve and aggregate data disclosing the legalinterests in the property.b. typically operated by lawyers, abstracters and title companiesworking with public records custodians.2. Interpretive subsystem -a. interprets the data and makes judgments about the current state ofthe title.b. Lawyers and title insurers usually make these judgments.3. Risk Allocation subsystem -a. allocates risks which result from the existence of legal interestsaffecting title that outside the data subsystem, as well as errors inthe recording and interpreting of the title.4. Indemnification subsystem -

a. indemnifies persons whose legal interests are impaired by the risksallocated to them.b. Includes, title insurance, recovery from negligent abstractors orattorneys, and Torrens indemnification funds.B. There are six distinct types of title covenants in deeds:1. Covenant of Seisin - a promise by the grantor that he owns the land,although not necessarily free from encumbrances.


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2. Right to convey - grantor has the right to convey.a. usually overlaps the covenant of seisin, but could be a power ofattorney to a third party agent.3. Against encumbrances - promise that the title is passing free ofmortgages, liens, easements, future interests in others, covenantsrunning with the land, etc.a. Since many buyers are willing to take subject to certain beneficialencumbrances, exceptions to this covenant should be spelled out in thedeed.4. Warranty - promise by the grantor to compensate the grantee forlosses if the title turns out to be defective or subject to anencumbrance.5. Quiet enjoyment - same as warranty if the grantee suffers eviction.6. Further assurances - promise by the grantor to execute such further

documents as may arise to perfect title in the grantee.C. Deed covenants vs. Implied covenant of marketability (contractualcovenants)1. Generally, the same sorts of title defects will breach both.2. Remedies are differenta. Deed covenant remedies are usually limited to damages unless thecovenant of further assurances can be used to compel specificperformance.b. Contract covenants - usual remedy is to rescind before closing,although sometimes can get damages or specific performance.3. Standard of quality is differenta. Implied covenant requires title not only to be good, but also to bemarketable, meaning not subject to an unreasonable risk of litigation.b. deed covenants are satisfied by mere good title, even if numerousquestions could reasonably be raised about it.D. Present and future covenants1. Breach of present covenants occurs at the time of deed delivery.a. unknown title defects could arise beyond the statute of limitations.2. Breach of future covenants occurs at the time of eviction.

a. unknown title defects don't start the statute of limitations runninguntil discovery.3. Future covenants "run with the land."

** Brown v. Lober, (1979)


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2. Facts: Brown purchased the land in 1957 from Lober. The deed containedcovenants of seisin, right to convey, against encumbrances, warranty and quietenjoyment. Apparently there was no title search of the mineral rights at the time ofconveyance. In 1974, Brown negotiated a contract with Consolidated Coal for thecoal rights to the land for $6,000. However, after completing a title search, theConsolidated Coal Company found that the Brown's only held 1/3 title to the coalrights because a prior owner had reserved a 2/3 interest. Thus, Consolidated Coalreduced their price to $2,000.

3. Procedural Posture: Brown brought an action of breach of the covenant of quietenjoyment against Lober, seeking $4,000 in damages representing the differencebetween the original sale price and the new sale price of the coal rights. The lowercourt held that the statute of limitations had run on his claim (wrongly).

4. Issue: Does the mere existence of superior title to unpossessed real propertyrights breach the covenant of quiet enjoyment?

5. Holding: No.

6. Reasoning: The court first rejected the lower court's holding that the statute oflimitations for the covenant of quiet enjoyment begins running at the time of deeddelivery. They reasoned that the covenant of quiet enjoyment was not breachedbecause it was merely a promise of uninterrupted possession of the land, not ofperfect title. Since no person had yet taken "possession" of the coal by mining it,

there had not yet been an eviction. Thus, "until such time as one holdingparamount title interferes with the plaintiff's right of possession (e.g. by beginningto mine the coal), there can be no constructive eviction and, therefore, no breach ofthe covenant of quiet enjoyment." The court refused to let the plaintiffs expand thescope of the covenant of quiet enjoyment to cover the case where it was likely thatthey would be evicted in the future.

7. Notes: 1. Physical interference by the holder of paramount title with thepossession of the grantee will be an actual eviction. However, when thegovernment is the paramount title holder, that fact alone will comprise an eviction,and no further action by the government is necessary. 2. The ULTA requires thevendor to give a deed containing all but the covenants of seisin and furtherassurances (and in fact implies them) unless the contract expressly providesotherwise. Furthermore, all of the seller's warranties of title run with the landunless expressly reserved.

** Hillsboro Cove, Inc. v. Archibald, (1975)


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2. Facts: In 1962, Archibald conveyed parcel B of property to one Weinstock. In1967, Archibald then conveyed adjacent parcel A to Hillsboro Cove. Hillsborowished to put condominiums on the parcel A. However, in 1970, it was discoveredthat a 30 foot strip of the land on parcel A under which Hillsboro wanted toconstruct condos, was actually owned by Weinstock. In order to secure title,Hillsboro paid out in excess of $52,000 [I assume some of it was to pay offWeinstock]. Parcel A was insured by a title policy issued by Lawyer's TitleGuarantee Fund, who were joined as defendants.

3. Procedural Posture: The lower court found that there had been a breach of thecovenant of siesin, and awarded Hillsboro $6,000, representing the proportionalcost of the disputed 30 foot strip to the amount paid for the whole parcel A[probably determined by simple division of square footage]. Hillsboro contendsthat it was error not to award him the full amount to his actual damages.

4. Issue: What is the proper measure of damages for breach of the covenant ofseizin as to a portion of a parcel of real property?

5. Holding: "The measure of damages is" the cost of clearing title, not to exceed"such fractional part of the whole consideration paid as the value at the time of thepurchase of the part to which the title failed bears to the whole block purchased."

6. Reasoning: The court reasoned that the rule was well settled that theproportionate value (not necessarily the square footage) of the disputed piece was

to be used in determining the damages. However, the trier of fact could find fromthe evidence that the value of the 30 ft strip of property at the time of sale was notof any greater value per square foot than the whole.

7. Notes: 1. There is nearly universal agreement that the recovery by the granteecan not exceed the amount of consideration paid. Thus, if the land has appreciated,or if the grantee has made considerable improvements, the grantor does not bearthe burden that such investments would not be profitable due to a failure of title. 5.It is usually said that damages for the breach of a covenant against encumbrancesare equal to the amount required to remove the encumbrance, if possible, andotherwise diminution in the value of the property. 8. The ULTA gives the buyerthe option to rescind the sale for the breach of title covenants up to two years afterdelivery of the deed. However, she must tender possession and title back to theseller, and pay fair market rent for the time in possession. 10. Estoppel by deed - adoctrine that holds that if A grants a warranty deed to B, but in fact as has no title,


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and then later A acquires title from the true owner, that it immediately passes to B.A is estopped from denying that there was a transfer.

** Transamerica Title Ins. Co. v. Green, 11 Cal. 3d 693,

2. Facts: Green was a lawyer and notary public in San Mateo. He notarized apromissory note in favor of Northern Construction, who was insured byTransamerica. The promissory note was secured by two pieces of land; one ownedby the Petrakis' as joint tenants, and one owned by the Von Harten's as jointtenants. The promissory note was signed by persons who were introduced to Greenas Mr. and Mrs. Petrakis and Von Harten by Green's attorney friend and formerpartner, Kilday. Kilday had witnessed the persons signing the note and had noreason to believe that they were not who they said they were. However, the personswho represented themselves to be the wives were actually imposters. Following

default on the note, Transamerica as trustee caused the two properties to be sold toNorthern at a trustee sale. One of the properties was later quitclaimed to Northernfor $1,500, and the other given a judgment of quiet title in a surviving spouse.Total damages were $9,600 and Transamerica paid Northern and brought thisprofessional negligence action against Green.

3. Procedural Posture: Transamerica brought an action against Green (and hissurety company, General Insurance) for professional negligence under statute infailing to affirmatively identify the signers of the promissory note before notarizingit. The trial court allowed evidence of common practice among local lawyers, in

"shortcutting" the statute by taking a lawyer friends word for the persons'identities, to go to the jury. The jury found Green non-liable and Transamericaappeals claiming that the lower court erred in allowing such evidence in a statutorynegligence per se action where the issue of negligence was irrebuttable.

4. Issue: Whether a notary public is liable for professional negligence under CalCivil Code 1185 and Cal Govt. Code 8214 for relying exclusively on theintroduction of clients by a trusted third party to determine the client's identitieswhen notarizing the client's signatures.

5. Holding: Yes. "To take an acknowledgment upon such introduction without theoath is negligence sufficient to render the notary liable in case the certificate turnsout to be untrue."

6. Reasoning: The court reasoned that the statutes required an affirmativedetermination by the notary as to the identities of the signers, not just the absenceof reason to suspect their identity. The notary has the statutory duty to do so, and


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violation of the statute is negligence per se. Although it may have been commonpractice to do so, the statute forbade relying exclusively upon the introduction by afellow attorney in determining the identity of the signer.

** McDonald v. Plumb, (1970)

2. Facts: Elizabeth Esterline owned certain real property in L.A. County. In 1960,unknown to Esterline, Singley caused a deed of Esterline's property to be recordedpurporting to convey title to Debbas. The grantor's signature was forged but falselynotarized by Plumb, a bonded notary public. Debbas reconveyed the property toSingley who sold it to McDonald. Later a conflict of title naturally arose betweenMcDonald and Esterline.

3. Procedural Posture: Title was quieted in Esterline. The McDonald's sued Singley

and Plumb for damages. Judgment for $21,000 plus costs was entered againstSingley, but Plumb was found not liable under the theory that the chain ofcausation was broken during subsequent conveyances, as well as the theory that theMcDonald's did not rely directly on Plumb's representations because they were nota party to that conveyance and because they bought title insurance.

4. Issue: Whether the false notarial acknowledgment by a notary public in thechain of title to a grant may be held liable for damages to the grantee when therewere intervening grants and when the grantee purchased title insurance.

5. Holding: Yes.

6. Reasoning: The notary was under a statutory duty to all subsequent purchasersto correctly notarize the deed. The court reasoned that the requirement of notarialacknowledgment in real estate transactions is fundamental in preventing fraud.Thus, the intervening fraudulent actions of the grantor did not serve to break thechain of causation, even though the official misconduct of a notary could never bethe sole proximate cause of a loss by the grantee. Even though the McDonalds didnot directly rely on the false acknowledgment in the original deed, they indirectlydid because a clear chain of title is required to establish the record title as of the

date of sale that they did actually rely on.

I. Theories of TitleA. Title theory states1. Immediately on signing the mortgage the mortgagee (creditor) hasright to take possession and collect rents.2. Rents are part of the security of the loan, but must be applied to


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the loan balance if collected by the creditor (on the debtor's behalf)until foreclosure.B. Lien Theory state1. Creditor has the right to possession only after foreclosure,meanwhile the mortgagor (debtor) has the right of possession and rents.2. Even here, the debtor may expressly give the mortgagee the right totake possession and collect rents as soon as a default occurs.3. If the debtor abandons, the creditor may take possession to protectthe security of the loan until foreclosure sale.a. In Wheeler v. Community Fed. S&L, the court affirmed punitive damagesin a case where the creditor changed the door locks during the winterwhen the debtor had gone away for a short time, with no intent toabandon.b. Furthermore, if the creditor takes possession, but then does not

protect the property from vandalism and waste, he could be held liablefor the loss to the debtor (New York and Suburban Fed. S&L v.Sanderman).C. Intermediate states1. Debtor has the right of possession until the first default, then thecreditor has the right of possession.

** Dover Mobile Estates v. Form Products, Inc., (1990)

2. Facts: Fiber Form was the tenant of Old Town properties under a 5 year lease

which stated that it was subordinate to any mortgage. Old Town subsequentlyentered into and defaulted on a second mortgage and the mortgage companyforeclosed. Dover bought the property at the foreclosure sale and continued tocollect rents from Fiber Form. As Fiber Form's business went bad, they sought toreduce the amount of their rent, and then eventually gave 30 day statutory noticeand then vacated the property and stopped paying rent. Fiber Form claimed that thesale terminated their lease and so they were under a month to month leasethereafter.

3. Procedural Posture: The trial court found for Fiber Form and awarded attorney'sfees.

4. Issue: Does the foreclosure of a superior mortgage terminate a junior lease to thesame property?

5. Holding: Yes.


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6. Reasoning: The court reasoned that the lease was made expressly junior to anymortgage by virtue of a subordination clause in the lease.

7. Notes: 1. Normally leases prior to the mortgage are senior and thus notextinguished by foreclosure. However, if the lease contains an option to purchase,it is necessarily junior because otherwise the mortgage would be in danger of beingextinguished. Furthermore, in title and intermediate theory mortgage states, themortgee can demand payment from the senior tenant of rents because of privity ofestate when the title passed to him.

** Taylor v. Brennan, (1981)

2. Facts: Taylor bought an apartment complex from Brennan. As part of the saletransaction, Taylor took the property "subject to" a first deed of trust to Brennan's

lender in which Brennan had assigned his rentals as security for the loan. Bothparties agreed that Taylor would have no personal liability on this first deed oftrust, but that he would have the obligation to pay the loan for Brennan. For theremainder of the purchase price, Taylor executed a second deed of trust andassignment of rents in favor of Brennan. The assignment of rents was "in further"security of the second deed of trust. Some time later, Taylor defaulted on twomonthly payments to Brennan's original lender, but he was still current withBrennan. Brennan foreclosed the second deed of trust, and took possession andbegan to collect rents. However, he was not able to collect enough to pay off thedefault on the first deed of trust and had to come up with an extra $20K. Taylor

had collected all the rents up to the point where Brennan foreclosed the secondmortgage, but had applied them to other concerns rather than the first mortgage.

3. Procedural Posture: The trial court found that the assignment of rents to Brennanwas a "pledge" as security, and found that Taylor was liable for waste of security.The court of appeal affirmed.

4. Issue: Does the assignment of rents as security for a loan give the mortgageepresent title to the rents and thus the right to collect rents from the date ofexecution of the assignment if the assignment states that it is a pledge in furthersecurity for the mortgage?

5. Holding: No.

6. Reasoning: The court reasoned that the assignment of rents from Taylor toBrennan was a pledge of future rents that did not give Brennan the right to collectrents and apply them to the mortgage balance until foreclosure. Thus, Taylor was


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not liable for waste of security. Quoting Hand in Prudential v. Liberdar for thepolicy, they stated that it would be contrary to policy to allow a mortgagee to havepresent title to all rents without taking some action to regain possession or exercisethe right to take the rents because the normal understanding is that the mortgagorcan collect and keep the rents and mingle them with his other property.

7. Notes: Some states take the position (as did this court) that the mortgagee's titleto the rents is perfected upon assignment, but that the right to begin collectionrequires subsequent action of some minimal kind. Other state that the right tocollect rents is perfected upon execution, but that the mortgagee must assign areceiver to collect the rents. A receivership may be assigned by the mortageeinstead of taking possession himself because 1) the action of ejectment to takepossession takes a long time, 2) the mortgagee doesn't have to deal with the burdenof collection of rents, 3) entry by the mortgagee may terminate some favorable

leases due to breach of the covenant of quiet enjoyment [resulting in no rent beingcollectable], and 4) the mortgagee does not submit to the liability.

** Dart v. Western Sav. & Loan Ass'n., (1968)

2. Facts: Dart is the beneficiary of a trust for profits on a trailer park. The trailerpark had two outstanding mortgage balances, the first to Western was in theamount of $250K, and the second to Inland was about $55K. Because the trustee,Union, had embezzled funds from the collection of rents on the property that weresupposed to have been applied to the mortgages, the first mortgage was about

$18,500 in arrears. There was also a $187K federal tax lien on the property. Thetax was accruing against the property at about $1700 a year, and interest on thefirst mortgage was accruing at $1600 a month. The fair market value of theproperty was somewhere between $500K and $800K. The property was in a stateof disrepair, and Dart risked losing the res of the trust. Dart took possession of theproperty, and collected rents which he used to make repairs, but he did not pay anyof the mortgage. Both Western and Inland brought a foreclosure action, andrequested the assignment of receivers as was provided by their mortgage contracts.

3. Procedural Posture: The lower court assigned receivers to take possession andcollect rents.

4. Issue: Is the assignment of an equitable receiver required when the securityinterest in the loan is sufficient and not subject to risk of waste?

5. Holding: No.


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6. Reasoning: The court reasoned that the fair market value of the property washigh enough to cover all of the outstanding obligations. Thus, there was no need toappoint an equitable receiver, even though the mortgage contracts called for itbecause there was no risk of waste. Since Arizona was a lien theory state, themortgagor was entitled to possession and rents after foreclosure until the time forredemption had expired. Thus, appointment of a receiver to take possession andcollect rents was erroneous.

7. Notes: In American Medical Services v. Mutual Fed. Sav. & Loan, the courtstated that a receiver could be appointed when there was a risk of failure to paytaxes and interest. However, the receiver would have limited scope. He could nottake possession and collect rents, only accept mortgage payments from themortgagor on behalf of the mortgagee. 1. In some title states, it is harder to get areceiver than in a lien state because the courts require a showing that the action for

ejectment would be insufficient. In most states, inadequacy of the security andinsolvency of the mortgagor are not enough to justify a receivership. There mustalso be some equitable ground such as waste. The broadness of the term "waste" isdifferent among states. 2. Generally, it has been held that where a mortgagedocument claims that it can cause the assignment of a receiver without regard tothe amount of security of the property, the clause has been held to be invalid asbeing contrary to the discretionary power of the court of equity, however, it mighthave some evidentiary weight as a prima facie showing that the mortgagee isentitled to a receiver in the absence of a rebuttal. 3. Loans secured by federal fundsare subject to receiverships more easily. 4. A receiver may be appointed ex parte,without notice to the mortgagor, pending a foreclosure action. 5. A receiver isgenerally subject to any special rent agreements that predate the foreclosure, andmay not collect higher rents even though they may have been prepaid or less thanfair market value. However, the court has the "broad power" to prevent frustrationof a receivership by disallowing agreements that were made in collusion with thefraudulent intent of defeating an anticipated receivership.

I. Restrictions on transfer by the mortgagorA. Introduction to "Due-on" clauses

1. The due on sale clause enables the mortgagee to accelarate themortgage debt when a transfer was made without their written consent.a. This prevented the bank from being subjected to more risk.b. Also enabled bank to shed low interest loans when the interest ratemarket was rising.c. Prevented buyer from qualifying for high rate loans and preventedsellers from offering an assumption of their loan.


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2. Due on encumbrance clauses accelerate the debt when the mortgagortakes out a second mortgage, thus reducing his capital interest in theproperty, and thereby increasing the mortgagee's risk of default.3. Inreased interest on transfer clauses has the same effect of a due onsale as far as interest rates go, but does not protect the bank fromtransfer to an uncreditworthy buyer.4. The triggering event does not need to be an outright sale of theentire property. The FNMA forms accelerate upon transfer of any part ofthe property or any interest in it.5. Some courts held these due on sale clauses to be unenforceable unlessthe lender could show that there was a material change in the risk ofthe security.B. Legislative response - Garn-St. Germain Depository Institutions Actof 1982 - broadly pre-empting State restrictions on enforcement on due-

on-sale clauses.1. A lender can enter into an enforce a due on sale contract, and allthe parties rights and liabilities shall be fixed by the contract.2. State prohibitions on enforcement on due on sale clauses (if theyexisted) would only be valid for three more years.3. For residential purposes, the lender could not enforce the due onsale clause for certain transactions including second mortgages,inheritance, leases, etc.4. Covers all lenders, all loans.C. Concealment of Transfers1. In order to avoid the acceleration, mortgagors may attempt to set upa hidden transaction where a buyer makes payments to a third party whopays the mortgage company directly on behalf of the mortgagor (like awrap-around except secret).2. This presents problems associated with hidden encumberances andfailure to record the transfer.3. The transferees may have a duty to the mortgagee to disclose atransfer because of the additional risks imposed, thus the lawyer shouldnot get involved in such a transfer because it may be fraudulent.

I. Power of Sale ForeclosureA. The deed of trust executed by the mortgagor/trustor and held by the trustee forthe benefit of the mortgagee/beneficiary contains a clause authorizing the trustee toexecute a foreclosure sale at public auction upon default.1. Notice requirements vary from state to state, some requiring only a newspaperad, others requiring mailings to the occupant, owner or personal delivery.


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a. Uniform Land Security Interest Act provides more substantial noticerequirements to owner-occupants.2. Normally, no opportunity for judicial proceedings or hearings is given to theowner or any other junior lien holders.a. Federal legislation requires 25 day notice to the government if a federal tax lienexists against the property.3. The Multifamily Mortgage Foreclosure Act authorizes a non-judicial power ofsale foreclosure for federally insured mortgages on other than 1-4 familydwellings, but requires fairly substantial notice and an opportunity for a hearing forthe mortgagor to present reasons why the mortgage should not be foreclosed.4. Avoiding a judicial foreclosure by power of sale has the advantage of less timeand money, with the same title result, except the resulting title is less firm becausethe lack of judicial proceedings may allow certain title defects to go unnoticed.

** Cox v. Helenius, (1985)

2. Facts: Cox owned a home and wanted to build a pool in the back lot. Cox hiredSan Juan pool company to install the pool, and signed a 10 year installmentcontract to pay for it. Cox further issued a deed of trust in San Juan's favor tosecure payment. Helenius, San Juan's lawyer, was named as trustee. Shortly afterinstallation, the pool pipes collapsed during a backfulsh cleaning, backing sewageup into Cox's home. The Cox's claimed that their damages exceeded the balancedue on the note, served notice on San Juan for reconveyance of the note plusdamages, and stopped paying the installments. Helenius notified the Cox's that they

were in default, scheduled a foreclosure sale, and responded to the Cox's action fordamages. After a motion hearing on the Cox's action, Helenius and Cox's attorneydiscussed settling the case, and Cox's attorney believed that Helenius would nothold the sale. However, the sale was held, and the property, which was worthbetween $200K and $300K and which had positive equity of at least $100K, wassold for one dollar over the amount outstanding on the San Juan pool contract.

3. Procedural Posture: The trial court entered summary judgment against Heleniusas trustee and set aside the deed of trust foreclosure sale.

4. Issue: Does a trustee have a fiduciary responsibility to the mortgagor upondefault and foreclosure?

5. Holding: Yes. A trustee is bound to present the sale under every possibleadvantage to both the debtor and the creditor.


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6. Reasoning: The court reasoned that although the Cox's did not comply with thestatutory requirement of obtaining an injunction against the sale after they hadlearned of it, there was still action pending on the obligation secured by the deed oftrust, which statutorily precluded foreclosure sale. Furthermore, since Helenius hadactual knowledge of the action, he breached his fiduciary responsibility to theCox's by proceeding with the sale, especially at such a grossy inadequate price.Also, Helenius' actions instilled a sense of reliance in the Cox's that the sale wasnot going to proceed. They believed that the sale was stayed by the action fordamages. The court pointed out the danger of having the trustee, who is supposedto be impartial, be the attorney for the payee.

7. Notes: 1. The trustee has no duty to make an affirmative determination of thestate of the debt before proceeding with the foreclosure sale if the payee instructsthe trustee that the debt is in default and to proceed. 2. The trustee has no duty to

investigate or disclose title defects to the purchaser if they are of record. 3.Normally there are three remedies available to the mortgagor upon foreclosure: 1)an injunction suit against a pending foreclosure, 2) a suit in equity to set aside thesale, and 3) an action for damages against the foreclosing mortgagee or trustee.4.Inadequacy of sale price alone is insufficient to set aside a foreclosure sale, allother things being proper. 5. Some defects of the sale are substantial enough torender it completely void. These include improper acceleration of the debt.However, other defects may only render the title gained in the sale voidable, suchas when the mortgagee himself successfully bids on the sale. Such a voidable titlecould be perfected in a bona fide purachaser without notice for value.

I. Anti-Deficiency LegislationA. Prior to 580d, a mortgagee could foreclose a property, then bid a very smallprice at the foreclosure sale, and then resell at a profit and still go after the debtorfor a deficiency judgment on the face value of the note, essentially getting a doublerecovery at the debtor's expense.B. After 580d, the mortgagee can only bring a deficiency action for the differencebetween the fair market value of the property and the face value of the debt, and ifhe does so, the debtor retains his right of redemption to the property. Otherwise, if

the mortgagee wants irredeemable title, he can forego the right to a deficiencyjudgment and sell at a foreclosure sale. Either way, the debtor is protected.

** Brown v. Jensen, (1953);

2. Facts: Brown was the owner of some real property which she sold to Jensen.Part of the purchase price was a secured first deed of trust to Glendale Federal, and


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the remainder was carried by Brown as a second. When Jensen defaulted on thefirst mortgage, Glendale Federal instituted a foreclosure sale at which Brown wasnot present to protect her interest, and so Glendale purchased the property for theamount outstanding on the first mortgage, thereby extinguishing the second.

3. Procedural Posture: The lower court found for the plaintiff.

4. Issue: Does Cal. Civ. Pro. Code Sec. 580b preclude a mortgagee from collectinga deficiency against a mortgagor in a purchase money mortgage when themortgagee's security interest in the property has been extinguished by a foreclosuresale of a senior mortgage?

5. Holding: Yes. Undre 580b, for a purchase money mortgage or deed of trust thesecurity alone can be looked to for recovery of the debt.

6. Reasoning: The court reasoned that although section 726 appeared to allow thistype of a deficiency action when the security had become valueless, since this wasa purchase money agreement, there was the additional obstacle of 580b which wasinterpreted to mean that in no event shall there be a deficiency judgment whetherthere is a sale of the property or not. Otherwise, 580b would be redundant with580d. A person taking a purchase money deed of trust takes the risk that theproperty will become valueless. This is especially true in second mortgages.

7. Dissent: The dissent reasoned that the majority was stretching the meaning of

580b far beyond its purpose, and that it only applied to deficiency judgments aftera foreclosure sale.

** Jones v. Kallman, (1988);

2. Facts: In 1980 Jones bought an apartment building and assumed a $100,000second mortgage due in Jan 1981. After being transferred overseas, Jones gaveBurridge, a licensed broker, power of attorney to refinance the second mortgage.After having trouble finding a willing lender, Burridge contacted another broker,whose salesman was Kallman, to find a lender. Kallman, who was a partner in the

brokerage firm, found a lender willing to refinance for an additional year at 21%,and charged a 10% commission, of which he kept 100%. A year later, the loan wasagain refinanced, and the salesman again kept all of a 10% commission. WhenJones returned from overseas, he sued Kallman for ususry claiming that it was nota "broker arranged" transaction as required by the California Constitution.

3. Procedural Posture: The lower court found for the defendant.


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4. Issue: Is a real estate loan transaction usurious if arranged by a salesman who isin partnership with a broker, thus giving both persons the benefit of thetransaction?

5. Holding: No.

6. Reasoning: The court reasoned that the broker's participation in the transacitonrose to the level of "arranging" the transactions, and that even if he did not receivethe commission payments directly, he had a partnership with the salesman and thusderived a benefit from them. Thus, the transaction was "broker arranged" and thusexempt from the usury laws.

** Donovan v. Bachstadt, (1982)

2. Facts: Plaintiff is the buyer of real estate from defendant seller. Seller offeredthe property at $58,900 with a seller carryback loan of $44,000 at 10 1/2% interest.A purchase agreement was signed, and the seller then could not sell because helacked marketable title. The buyer bought another house for an unknown price at13 1/4% interest, and brought suit to recover the difference between the twointerest rates as damages.

3. Procedural Posture: The trial court denied recovery stating that the interest ratewas only incidental to the purchase. The Court of Appeal reversed stating that thedifference in interest rates could be the basis for damages if the buyer entered into

a comparable transaction for another home.

4. Issue: What is the proper measure of damages for a seller's breach of a purchasemoney contract where the seller agreed to finance the buyer at a particular interestrate, and the buyer subsequently buys another house at a different interest rate?

5. Holding: The contract-market differential is the proper measure of damages in areal estate transaction.

6. Reasoning: The court reasoned that neither party was completely right.

Compensatory (benefit of the bargain) damages could (and do) apply to purchasesof real property where the seller breaches a condition of marketable title.Furthermore, the interest rate on the carry-back loan was in integral part of thebargain. However, when the buyer purchased a separate property, that did notautomatically entitle him to the difference in interest rates, because the value of thenew property could be different than that of the property involved in the breachedpurchase agreement. Thus, the proper measure of damages in this case (the


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contract market differential) was the difference between the fair market value of ahouse that could be acquired for a purchase money mortgage of $44,000 at 101/2% interest and the purchase price of the first home, $58,000.

** Centex Homes Corp. v. Boag, (1974)

2. Facts: Centex built a condominium complex. Boag signed a purchase agreementfor one of the condos, but then was transferred by his company. Boag stoppedpayment on the earnest money deposit check, and refused to buy the condo. Centexbrought this action to compel specific performance of the purchase contract or forliquidated damages in the amount of the deposit in the alternative.

3. Procedural Posture: Unknown.

4. Issue: Is specific performance of a condo purchase contract required uponbreach by the buyer when the damages at law are adequate and measureable?

5. Holding: No.

6. Reasoning: The court reasoned that since all the condos were the same, and thatthere were a fixed number of them, and that they were sold on the basis of apotential buyer viewing the model, then they were not such a special item thatmonetary damages upon breach could not be measured adequately. Thus, since theequitable remedy of specific performance was only applicable where damages at

law were impractical, or immeasureable, this sale had no compelling reason togrant specific performance.

** Century 21 All Western Real Estate and Inv., Inc. v. Webb, (1982)

2. Facts: A Century 21 broker listed Webb's property at $33,000. Subsequently, thesalesmen working for the broker made an offer, complete with a purchaseagreement to buy the property for $28,000 with seller carry-back financing. Afterthe purchase contract was signed by both parties, it was discovered that an"assignment" of the property had been made to Citicorp to secure a $5,000 loan to

Webb. The buyers insisted that Webb clear the Citicorp defect before the close ofescrow, apparently thinking that Webb had no right to sell the property (onlyCiticorp did). Webb insisted that she had previously dislcosed the title defect, andthat the buyers, since they insisted on it being cleared, should cure the defect.Apparently, between the downpayment that the buyers made and Webb's ownfinances, there would not be enough money upon the close of escrow to pay off theencumbrance. Buyers attorney sent a letter to Webb insisting that they were ready


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and willing to purchase and that she must immediately tender performance.Closing date of escrow passed at stalemate, and buyers brought this action forspecific performance.

3. Procedural Posture: The lower court dismissed the case finding a failure ofconsideration and a failure of a "meeting of the minds" as to the encumbrance.

4. Issue: May a buyer sue for specific performance of a purchase contract beingready and willing to tender performance himself?

5. Holding: No.

6. Reasoning: The court reasoned that the nature of the encumbrance was unknownto either party. Thus, since the purchase contract made no mention of itspecifically, it was not part of the contract. Thus, the buyer had no right to requirethe seller to clear the encumbrance before the close of escrow. Thus, when thebuyers refused to go through with the purchase until it was cleared, they did notperform and did not put Webb into default, especially since the contract did notstate that time was of the essence.

** Mattei v. Hopper, (1958);

2. Facts: Mattei was a developer who wished to build on a lot adjacent to Hopper'sland. After several attempts to purchase, each of which was refused because they

were not for enough money, the seller made an offer which was accepted byMattei. The offer was reduced to a purchase contract, which contained a clausestating that the purchase was subject to the buyer obtaining satisfactory leases onthe neighboring building. After some time, the seller repudiated. The buyerbrought this action for specific performance.

3. Procedural Posture: The lower court found that the contract was illusory andfailed for lack of mutuality.

4. Issue: Whether the clause making the buyer's performance subject to the

acquisition of satisfactory leases rendered the contract void as being illusory.

5. Holding: No. A contract provision making the performance of the buyer subjectto the judgment of the buyer is not automatically invalid for lack of mutuality orillusoriness, but rather is a binding contract requiring the buyer to exercise good-faith in his judgment.


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6. Reasoning: The court reasoned that although a reservation of power to one of theparties to determine whether he would perform or not had been held illusory in thepast, such reasoning was flawed. The standard of a reasonable person was theappropriate standard to use in determining whether the buyer had exercised good-faith judgment.

** Smith v. Mady, (1983);

2. Facts: Seller and buyer entered into a purchase contract for the amount of$205,000 for a home. The buyer subsequently breached, and the seller resold theproperty to a different buyer a few days later for $215,000. The seller brought thisaction to recover incidental and consequetial damages incurred in upkeep of theproperty between the time the original escrow was to close and the time of thesubsequent sale to the new purchaser.

3. Procedural Posture: The lower court found that the incidental damages wereawardable even though the seller had suffered no damage (in fact had a gain) fromthe second sale.

4. Issue: What is the proper measure of damages upon the breach of a buyer whenthe seller resells the property at a higher price (and is not a lost-volume seller)?

5. Holding: Contract-market differential.

6. Reasoning: The court reasoned that the seller had not suffered a loss because hewas in a better position as a result of the buyer's breach than he would have beenhad the buyer performed. The extra $10K made probably covered the incidentaland consequential damages plus attorney's fees. Thus, no damages were in order. Avendor of real property is not to be placed in a better position at the breachingbuyer's expense than he would have had the buyer performed.

** Askari v. R & R Land Co., (1986);

2. Facts: Askari (buyer) and R&R (seller) entered into negotiations through their

common broker for the purchase of land for $1.25 million dollars. Buyer offered toplace a downpayment, and have the rest financed by a seller's second deed of trustwhich had interest only payments for 1 year, and then principle and interestpayments amortized over 7 years, but due in 5 years. The seller counter offeredthat all of the P&I should be due in 5 years. Buyer accepted, interpreting thatlanguage to mean that no principle or interest was due until the 5 year balloonpayment, and then refused to execute escrow instructions that provided for


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quarterly P&I payments according to the sellers interpretation of his counter-offer.Shortly after the escrow failed, the buyer filed suit for breach of contract andrecorded a lis pendens on the property, which had the practical effect of preventingthe seller from mitigating damages in resale due to lack of marketable title. Duringthe ensuing litigation, the buyer claimed that the value of the property went up, andthe seller claimed it went down.

3. Procedural Posture: The trial court found that the buyer had breached thecontract, and awarded the seller consequential damages which included cost ofholding the property, as well as lost interest payments from the buyer. Buyerappeals claiming that he is entitled to offset for appreciation in the propertybetween the time of breach and the time of trial, or in the alternative that he is notliable for any depreciation because the filing of a lis pendens is not a wrongful act,even though it may have prevented resale. Seller appeals asking for additional

damages for depreciation during litigation.

4. Issue: What is the proper measure of seller's damages upon a buyer's breach of apurchase contract for real property when the buyer, after breaching, records a lispendens which prevents the seller from reselling the property to mitigate damages?

5. Holding: The measure of damages suffered by the seller of real property againsta defaulting buyer is the excess, if any, of the amount of the contractual sales priceover the fair market value at the time of breach, together with any incidental andconsequential damages if the seller resells the property, including depreciation of

the property caused by the buyer's interference with the resale.

6. Reasoning: The court noted that a seller is entitled to expenses incurred beyondthe point of breach to the extent that they were a natural consequence of the breachand that they were reasonably foreseeable at the time of contracting, but only if theseller makes diligent attempts to resell the property. The fact that the lis pendenswas absolutely privileged only made a difference in a tort action, not a contractaction. Thus, if the lis pendens prevented the buyer from reselling the property,then damages incurred during litigation were proper. These damages could includedepreciation of the property, if any. However, since the goal of the damages was toplace the seller in the position he would have been in had the buyer not breached,the buyer would be entitled to an offset for any appreciation. Since the trial courthad not made express findings of fact as to the seller's diligence, or the value of theproperty after breach, the case was remanded.

notable court decisions re

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