In the recent case of Bawa v. Terhune, the appellate division of the Los Angeles Superior Court held that a landlord who returns a tenant’s rent check without cashing it based on a de minimisshortage in the agreed-upon rent, enables the tenant to assert the landlord’s bad faith in rejecting the payment as a defense to an unlawful detainer action.
The California appellate court rejected the Landlord's argument that when a check is returned because it is one cent short and an eviction notice is served days later, the Tenant must re-tender payment following service of the notice and has no defense to the action after failure to re-tender.
The jury in the unlawful detainer action brought by the Landlord Bawa determined that Tenant Terhune did not fail to make at least one rental payment to Landlord as required by the rental agreement, and the court entered judgment for the Tenant.
However, because the tender of the check was rejected, Tenant failed to pay the rent, and thus the judgment was not supported by the evidence.
Because the jury determined (improperly) that Tenant paid the rent, it did not address whether there was a legitimate defense to the unlawful detainer cause of action. The appellate court reversed and remanded the case for a new trial.
The Landlord filed the unlawful detainer case against Tenant based on a failure to comply with a three-day notice to pay rent or quit. Landlord alleged the rental unit was subject to the City of Los Angeles Rent Stabilization Ordinance (LARSO) (L.A. Mun. Code, § 151.00 et seq.), and the action was warranted based of a failure to pay rent (see L.A. Mun. Code, § 151.09, subd. A. (evictions under LARSO must be supported by “good cause”)).
The three-day notice stated there was “unpaid and delinquent rent” of $507.61 for June 2017, consisting of the base $504 rent and a $3.61 City of Los Angeles Systematic Code Enforcement Program (SCEP) fee. Landlord stated that, unless tenant complied with the notice, he “does hereby elect to declare a forfeiture of the subject lease . . . and will institute legal proceedings for the unlawful detainer to recover possession of the premises.”
Tenant filed an answer, generally denying the allegations in the complaint, including that he was in default in paying the rent. Tenant also asserted affirmative defenses, including that plaintiff “[breached the] warranty of habitability,” “filed this lawsuit to retaliate against tenant for . . . asserting tenant’s legal rights,” and “violated the [i]mplied [c]ovenant of [g]ood [f]aith and [f]air [d]ealing.” Tenant additionally asserted his “[b]reach was not material and thus will not support a forfeiture.”
At the ensuing jury trial, Tariq Saeed, Landlord’s resident manager, testified defendant was obligated to pay $507.61 at the beginning of each month. In early June 2017, Saeed received a check drawn on defendant’s Wells Fargo bank account in the amount of $507.60.
On June 7, Saeed mailed back the check, uncashed, with a letter stating “we are returning your check . . . since the rent amount is incorrect. The correct amount of your rent portion including the SCEP fees is currently $507.61.”
Saeed served the three-day notice to pay rent or quit on Tenant on June 12 by posting the notice on Tenant’s apartment door and mailing a copy to him on June 13.
After expiration of the notice period, Tenant sent Landlord two checks, one dated June 20, 2017, in the amount of $507.61 and another for $519.86, dated June 25, 2017. The checks were not deposited into Landlord’s account, nor were they negotiated. Tenant's testimony confirmed none of his checks for June were paid by his bank.
The jury was instructed that, for Landlord to prevail, it had to find Tenant failed to pay the rent, a three-day notice was served on Tenant, and Tenant failed to comply with the notice. The jury was further instructed on Tenant’s affirmative defenses, including habitability and retaliation, but not “good faith and fair dealing” and that Tenant’s breach was immaterial.
The first question in the special verdict form asked, “Did [defendant] fail to make at least one rental payment to [plaintiff] as required by the rental agreement?” The jury answered “No.”
Per the instructions on the form, the jury did not answer any further verdict questions, including whether Landlord provided Tenant with a valid three-day notice, whether the notice stated the correct amount owed, and “Did J.S. Bawa waive the right to reject David Terhune’s tender of the rent check of $507.60?”
The court entered judgment in Tenant’s favor in accord with the jury’s verdict.
A landlord must serve a tenant with a valid three-day notice in order to prevail in an unlawful detainer action. (Code Civ. Proc., § 1161(2).) It has long been recognized that the unlawful detainer statutes are to be strictly construed and that relief not statutorily authorized may not be given due to the summary nature of the proceedings. The statutory requirements in such proceedings must be followed strictly. The remedy of unlawful detainer is a summary proceeding to determine the right to possession of real property. Since it is purely statutory in nature, it is essential that a party seeking the remedy bring himself clearly within the statute.
A tenant is guilty of an unlawful detainer and may be properly evicted only when the landlord proves the tenant falls within at least one of the enumerated circumstances. In the case of failure to pay rent, the elements of the action are set forth in Code of Civil Procedure section 1161(2).
The statute provides that the tenant may be evicted when he or she continues in possession, without the permission of his or her landlord, after default in the payment of rent, pursuant to the lease or agreement under which the property is held, and three days’ notice, in writing, requiring its payment, stating the amount which is due, shall have been served upon him or her.
Under the clear words of the statute, a three-day notice may only be served, “after default in the payment of rent.” But, given the context in which it is used, it is apparent the common definition, “failure to do something required by duty or law,” was intended. To ascertain the common meaning of a word, ‘a court typically looks to dictionaries'. A tenant has a duty to timely pay rent, and when the tenant fails to do so, the tenant defaults in the duty.
When, as here, the form of payment used is an uncertified check (personal check is an uncertified check), the California Uniform Commercial Code provides, that unless otherwise agreed, if an uncertified check is taken for an obligation, the obligation is suspendedto the same extent the obligation would be discharged if an amount of money equal to the amount of the instrument were taken, and the following rules apply. Suspension of the obligation continues until dishonor of the check or until it is paid or certified. Payment or certification of the check results in discharge of the obligation to the extent of the amount of the check.
While a debt or obligation is “suspended,” a debtor is not in default in the paying of the obligation. Suspended means to hold in an undetermined or undecided state awaiting further information. Once the tendered check is negotiated by the payee and honored by the bank, the obligation is discharged; if it is dishonored, the obligation is revived.
In order for California's Uniform Commercial Code to apply to suspend an obligation, there must be both a delivery by the debtor and an acceptance by the creditor, which then results in a surrender of the right to sue on the obligation until the instrument is due, but if the instrument is not paid on due presentment the right to sue on the obligation is “revived. Under the above principles, if a landlord does not accept a check, the duty to pay rent is not suspended, and thus the tenant is in default in paying rent.
Landlord argued “[a] refused tender prior to service of a notice to pay rent or quit is not a defense to an unlawful detainer based on a notice demanding the rent that had previously been refused.” The Appellate Court addressed this issue to provide guidance to the trial court and the parties upon remand.
Because an unlawful detainer involves forfeiture of the right to remain in a home, not only must the eviction statutes be construed with exactitude, but the right to evict must also be governed by equitable principles. Forfeitures are disfavored by courts, and contractual provisions must be strictly interpreted against the party for whose benefit it is created. (Civ. Code, § 1442.)
A ‘“trivial” or “de minimis” breach of a rental obligation is not sufficient ground for termination. Permitting landlords with superior bargaining power to forfeit leases based on minor or trivial breaches would allow them to strategically circumvent LARSO’s ‘good cause’ eviction requirements and disguise pretext evictions under the cloak of contract provisions.
It is true that the payment of the rent in accordance with the terms of the lease is one of the essential obligations of the lessee, and the failure of the lessee to properly discharge this obligation is a legal cause for dissolving the lease. But this presupposes that the lessor is desirous and willing that the lessee should pay his rent promptly, and will facilitate and not hinder him in doing so; that the lessor is not endeavoring merely to entrap his lessee into a technical breach of the lease.
Thus, when a landlord refuses to accept rent that is one penny short of the required amount, without any legitimate intent other than to manufacture a default in order to evict a tenant, a tenant may assert the landlord’s bad faith as an unlawful detainer defense. Frustration of purpose of a lease is also a legitimate defense to an unlawful detainer action which, if established, results in the tenant’s retention of the premises.
Even though a tenant defaults in the payment of rent, equity will not countenance forfeiture of a lease when the default is both de minimis and the product of the landlord’s unreasonable refusal to accept rent.
Because the jury failed to determine whether Landlord proved all the elements of the unlawful detainer action, Landlord is not entitled to have the court enter judgment in his favor on remand. Both Landlord and were given the opportunity to litigate the issues in a new trial.
LESSONS:
1. Sometimes you can lose an appeal with the case remanded for a second jury to consider a defense not decided in the first trial, and this is the type of case the landlord should settle, if possible.
2. Landlords must act in good faith and consistent with the contract, and trivial or de minimus breach of a rental obligation is not sufficient ground for termination.
3. Because an unlawful detainer involves forfeiture of the right to remain in a home, not only must the eviction statutes be construed with exactitude, but the right to evict must also be governed by equitable principles
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