Deed of Trust Must Sufficiently Describe the Property

In the recent case of MTC Financial, Inc. v. California Department of Tax and Fee Administration, the California Appellate Court confirmed the need for accuracy and sufficiency of the legal description of the property in a deed of trust in order for it to be enforceable.

In the underlying case, proceeds remaining after a home foreclosure sale were deposited with the trial court due to competing claims to the proceeds. A primary dispute between the claimants was whether a first in time deed of trust sufficiently described the foreclosed property. Among other things, the trial court found the description was insufficient, and the trust deed was therefore void. It entered judgment in favor of the next in time state tax lien. Finding no error in the result of the judgment, the Appellate Court affirmed. 

In 2017, a foreclosure sale for the home (the property) of Kamini and Anand Chopra (collectively, the Chopras) was conducted by MTC Financial Inc. (the trustee). Following an initial distribution of the sale proceeds, the trustee determined there was a conflict between outstanding claims to the remaining proceeds (the surplus fund). The trustee deposited the surplus fund with the trial court so it could determine the claimants’ respective priorities pursuant to California Civil Code section 2924j, subdivisions (c) and (d).

Among the claimants was appellant Rajindar Mehta, the grantee of a 2004 deed of trust signed by the Chopras (the trust deed). Mehta claimed his trust deed was senior in priority because it was created first in time relative to the outstanding claims to the fund. 

Respondent, the California Department of Tax and Fee Administration (the Tax Department), disputed Metha’s claim and contended that its 2008 tax lien against Kamini Chopra had senior priority as next in time because, among other things, the trust 

deed was void and unenforceable based upon its insufficient legal description of the property.

The trust deed’s legal description of the property contained multiple points of inaccuracy or ambiguity: 

(1) the lot number of “68” was incorrect (it should have been “88”); 

(2) the book page number of “810-11” was incorrect (it should have been “1-11”); 

(3) the city of the property was not identified; and 

(4) regarding the county where the property is located, the description only reads “said county,” although a preceding information field does state the correct “Orange County.” 

At the same time, the trust deed referenced an assessor’s parcel number, which matched the number identified for the property according to attachments to the trustee’s petition which was filed with the deposit of the surplus fund.

The attachments included two copies of a purported assessor’s map denoting information that could correspond to the trust deed’s legal description of the property. For example, the map purports to depict a “Tract No. 9268,” which is the tract described in the trust deed. 

Ambiguously, however, both numbers “68” and “88” (respectively, the incorrect lot number listed in the trust deed and the true lot number that should have been listed) appear at different locations on the map. Neither Mehta nor the Tax Department discussed this map in their briefs, either at the trial court level or on the appeal. 

An assessor’s parcel number, also referred to as an APN, is a numerical identifier associated with a particular piece of property for property tax assessment purposes.

After conducting two hearings, the trial court found in favor of the Tax Department.  Among other things, the court determined the Tax Department’s tax lien claim to have priority over Mehta’s claim because the trust deed contained a fatally defective legal description of the property and Mehta had failed to produce evidence of actually lending money to the Chopras, as the trust deed purported.

The order also stated: As for the assessor’s parcel number appearing on the face of the trust deed, there is no evidence that such number is the correct assessor’s parcel number assigned by the Orange County Assessor to the subject real property, especially given the other erroneous information appearing in the deed of trust. 

A judgment for the Tax Department was entered and was timely appealed by Mehta.   On appeal, Mehta argued the trial court erred in finding the trust deed void. Mehta, as the appellant, had the burden of demonstrating the trial court erred. 

Well-established principles for determining the relative priorities of property interests were implicated. California observes a “first in time, first in right” system of lien priorities where, generally, competing enforceable interests have priority among themselves according to the time of their creation. (Civil Code § 2897.) 

As to determining the enforceability of such interests, a trust deed must sufficiently describe the property securing it to be enforceable.  To be sufficient, the description must be such that the land can be identified or located on the ground by use of the description. A description that is equally applicable to two different parcels is fatally defective.

Mehta contended his trust deed sufficiently described the property because of the parcel number, address, and trustor names contained in it. 

The Appellate Court disagreed. First, it noted that the trustor names (the Chopras) and address contained in the trust deed do not provide grounds for a sufficient property description in that case. The names have no logical relationship to whether the property is sufficiently described and the subject address is only listed as the address of the trustors (not the property). Accordingly, the only potentially valid basis for finding the property description to be sufficient, of the three offered by Mehta, is the parcel number contained in the trust deed. 

While the Appellate Court found no reason to disagree that a parcel number could theoretically satisfy the law’s requirement for sufficient legal description of a property, it also found that a parcel number, by itself, does not necessarily demonstrate the actual, physical location of a property. Generally, such a number corresponds to an assessor’s map which is a type of map that does not have to necessarily correspond with the actual physical location of a property.  Parcel numbers assigned pursuant to Revenue & Tax Code section 327 need not correspond with actual subdivisions, lots, tracts or other legal divisions or boundaries of land.

Additionally, the trust deed’s legal description of the property refers to a “recorded” map in its legal description. That revealed another potential issue with respect to locating the property by its parcel number because a “recorded” map could mean a certified parcel map filed in the Orange County Clerk Recorder’s Office. (See Gov. Code § 66499.55.) 

Given that a parcel map and assessor’s map need not necessarily correspond to each other, even if the trust deed’s parcel number correctly corresponds to a property depicted in a tax assessor’s map (a fact that had not been demonstrated by Mehta), this would not necessarily establish what property the trust deed is describing in a certified parcel map. In sum, the parcel number in the case, by itself, did not necessarily describe the property’s actual, physical location so that it could be identified or located on the ground. 

Mehta offered no demonstration of how the parcel number could have been used to locate the property. He instead argued—as he did to the trial court—that no parol evidence is needed to confirm the trust deed is a lien on this property. Mehta’s argument was incorrect. 

The inaccuracies of the trust deed’s legal description of the property created an ambiguity, which implicated a need for clarification by extrinsic evidence. Indeed, in the relevant cases cited by the parties, courts based their determinations regarding sufficient description of a property upon examinations of extrinsic evidence. 

A parcel map is used to sell, lease, or finance property.  The Subdivision Map Act generally prohibits the sale, lease, or financing of any parcel of a subdivision until the recordation of an approved map in full compliance with the law. 

In contrast, no such extrinsic evidence was offered to the court in this matter. This left the trust deed’s ambiguity unresolved with no demonstration that the property could be identified or located by the legal description of the trust deed. 

As a result, Mehta failed to carry his independent burden at the trial court level to prove that the trust deed’s legal description of the property was sufficient to be enforceable. On appeal, with respect to the trial court’s factual finding that there was no evidence demonstrating the sufficiency of the parcel number, Mehta failed to meet his burden under substantial evidence review to demonstrate that the evidence was (1) “uncontradicted and unimpeached” and (2) “of such a character and weight as to leave no room for a judicial determination that it was insufficient to support a finding". 

Finally, the Appellate Court was not persuaded that Mehta’s assertions regarding notice of the trust deed should control the disposition of this appeal. Mehta asserted the indexing of the county recorder filing system provided effective notice of the trust deed to the Tax Department. However, Mehta did not say how this point, even if shown, would impact the dispositive issue of whether the trust deed sufficiently described the property. 

The absence of meaningful discussion existing within the context of case law supported a conclusion that if the trust deed was void, then notice of it achieved nothing for the purpose of determining the senior interest to the surplus fund.  The Appellate Court was not aware of any principle justifying it to hold that the recording of a deed, void as to any person, was notice to such person of anything, except, perhaps, of the existence of the void instrument.

A void thing is as no thing. In other words, Mehta did not persuade that any notice his trust deed may have imparted would outweigh the conclusion that the trust deed was void and unenforceable. 

In sum, Mehta failed to carry his independent burden at the trial court level to show the trust deed’s legal description of the property was sufficient to make it enforceable. (Evid. Code § 500.) 

On appeal, Mehta did not carry his burden to demonstrate the trial court committed reversible error. 

LESSONS:

1.         The legal description of the property is essential to have it enforced, and an insufficient legal description may render the trust deed void.

2.         Inaccuracies in a trust deed’s legal description of the property creates an ambiguity, which implicates a need for clarification by extrinsic evidence.

3.         The recording of a void instrument is only notice of a void and unenforceable instrument.

Risks of Robocalling

Recently a long standing client, a real estate broker in California, brought me a federal class action complaint that was based on the broker's salespersons alleged use of an auto-dialer and pre-recorded messages to offer services.

The complaint describes the type of conduct that supports a cause of action for willful violation of the Telephone Consumer Protection Act, 47 U.S.C. § 227, et seq. ("TCPA") and claim of invasion of plaintiff's privacy by causing the unsolicited phone calls.

The salesperson allegedly made one or more unauthorized phone calls, including to plaintiff's cellular phone, using an automatic telephone dialing system ("ATDS") for the purpose of soliciting business from plaintiff.

The plaintiff is a resident of New Jersey, and the lead attorney is a New Jersey law firm that has associated a Los Angeles law firm in order to file the complaint in the US District Court for the Central District of California. 

The TCPA was enacted in 1991 to protect consumers from unsolicited and unwanted telephone calls and text messages like those alleged to have been made by the salesperson.  Plaintiff sought an injunction requiring the broker to cease all unsolicited text messaging activities to consumers, or text messaging activities after a consumer requests that the texts stop, and an award of statutory damages to the members of the Class under the TCPA equal to $500 per violation, together with court costs, reasonable attorney's fees, and treble damages for knowing and willful violations.

Plaintiff alleges that naming the broker as the defendant includes the broker's officers, directors, vice-principals, agents servants, or employees involved in committing the violations with the full authorization, ratification or approval of the broker or done in the routine normal course and scope of such employment.

The federal court had subject matter jurisdiction as the action arose under the TCPA, a federal statute, and jurisdiction over the broker because it conducts significant business in the District where the complaint was filed, and the alleged unlawful conduct occurred in, was directed to, or emanated from the District.

The TCPA recognizes that unrestricted telemarketing can be an intrusive invasion of privacy.  The TCPA restricts telephone solicitations (i.e., telemarketing) and the use of automated telephone equipment, including automatic dialing systems, artificial or prerecorded voice messages, SMS text messages, and fax machines.

After October 16, 2013, unless the recipient has given prior express written consent, the TCPA and Federal Communications Commission ("FCC") rules under the TCPA:

-   prohibit solicitors from calling residencies before 8 am and after 9 pm local time, -  -   require solicitors to provide their name, the name of the person they are calling on behalf of, and a telephone number or address where the person or entity can be contact, 

-  prohibit solicitations to residences that use an artificial voice or a recording

-  prohibit calls or texts to a wireless device or cellular telephone using automated telephone equipment or artificial or prerecorded voice

-  prohibit unsolicitated advertising faxes

-  prohibit certain calls to members of the National Do Not Call Registry

An entity, such a brokerage firm, can be liable under the TCPA for a call made on its behalf, even if the entity did not directly place the call.

The complaint alleged that the defendant operates a real estate company, and it utilizes a sophisticated telephone dialing system to call consumers with pre-recorded messages and with text individuals en masse promoting its services.  The broker allegedly failed to get the requisite prior consent prior to sending the text messages.

The complaint alleged the broker not only invaded the personal privacy of the plaintiff and members of the Class, but also intentionally and repeatedly violated the TCPA.  It alleged that defendant called plaintiff on her cellular telephone number via an ATDS and with a pre-recorded message.

The complaint was brought on behalf of all individuals in the United States who received a phone call initiated by an ATDS or with the use of a pre-recorded message made by or on behalf of the broker to the individual's cellular telephone, without prior express consent.

The complaint alleges the exact size of the Class is presently unknown but can be ascertained through a review of the broker's records, and individual joinder is impracticable.

Common questions for the Class include whether the broker's conduct violated the TCPA, whether Class members are entitled to treble damages based on the willfulness of the broker's conduct, whether the broker made phone calls to consumers using an ATDS to a telephone number assigned to a cellular phone service, and whether the broker and its agents should be enjoined from engaging in such conduct in the future.

The complaint requests an order certifying the action as a class action with plaintiff as the Class Representative, and designating the New Jersey law firm as Class Counsel, an award of actual or statutory damages for each negligent violation of the TCPA to each member of the Class, an award of treble actual or statutory damages for each knowing or willful violation to each member of the Class, injunctive relief prohibiting defendant's conduct complained of, and pre-judgment and post-judgment interest on monetary relief. 

Possible defenses to a violation of TCPA lawsuit include:

- express written consent to the telephone call 

- statute of limitations that is four years

- calls were not made using an ATDS or were made via manual dial, and this may require call logs and testimony from company personnel demonstrating that the calls at issue were manually dialed

- lack of evidence ascertaining who is or is not a member of the proposed class, and this is more effective where the class definition is demonstrably overbroad and where ascertaining the class members is not administratively feasible because there is inadequate or insufficient documentation that could be used to identify the class members 

The insurance carrier for the served defendant should be put on notice and a claim for a defense and indemnification should be made promptly under any related insurance policy.

LESSONS:  

1.         Use of an auto-dialer and pre-recorded messages may be possible in this digital age, but their use may result in a complaint in a class action federal lawsuit.

2.         Brokers should institute office rules to prevent salespersons or employees from violating the TCPA.

3.         Telephone call logs and other records should be maintained to prove telemarketing calls were made via manual dialing, and not by use of a ATDS or pre-recorded message.

Date of Separation in California Divorce

In the recent case of Lee v. Lin, the California Court of Appeal clarified the rules regarding determining the paramount issue of date of separation of the spouses.

In the marital dissolution action, appellant challenged the trial court’s determination that the parties legally separated in May 2012 when respondent moved out of the family residence. Finding no error, the Court of Appeal affirmed.

After 26 years of marriage, Husband moved out of the family residence in May 2012. He rented an apartment in a neighboring city, and occasionally interacted with Wife with whom he maintained an amicable relationship. Husband filed a dissolution petition in August 2014. 

Husband maintained the date of separation was in May 2012 when he left the family home. Wife contended the legal separation occurred when Husband filed for dissolution 27 months later. After a two-day hearing in 2017, the court found that legal separation occurred when Husband moved from the family home in May 2012. 

Ruling from the bench and tracking the language of Family Code section 70 defining “date of separation,” the court found “Husband’s intention to end the marriage occurred on May 21, 2012 and his actions since then have been consistent with that.” 

The court found Husband’s intent to end the marriage was clearly expressed by leasing an apartment, his intent was reinforced by relinquishing the key to the family home and refusing to give Wife a key to the apartment, and his post-move conduct was consistent with that intent. The court found the parties’ limited interactions after Husband’s move did not show an intent to reconcile and did not “overcome any clear act of ending the marriage by moving out.” 

Family Code section 771 classifies property acquired after the date of separation as the acquiring spouse’s separate property.  This includes earnings, and the date of separation can be an important issue in determining which property is separate, or is community and has to be shared between the spouses.

In 2016, the Legislature in Family Code § 70(a) defined “date of separation” as the date that a complete and final break in the marital relationship has occurred, as evidenced by both of the following: 

(1) The spouse has expressed to the other spouse his or her intent to end the marriage, and 

(2) The conduct of the spouse is consistent with his or her intent to end the marriage. 

A separation under section 771 requires not only a parting of the ways with no present intention of resuming marital relations, but also, more importantly, conduct evidencing a complete and final break in the marital relationship. 

Marital separation for purposes of section 771 requires both the subjective intent to end the marriage, and objective conduct demonstrating such intent. The parties’ individual intents are objectively determined from all relevant evidence before the court. 

The ultimate question to be decided in determining the date of separation is whether either or both of the parties perceived the rift in their relationship as final. The best evidence of this is their words and actions.  In determining the date of separation, the court shall take into consideration all relevant evidence.

The date of separation is a factual issue established by a preponderance of the evidence. 

Wife contends that the trial court misapplied the law by presuming that Husband’s move to an apartment was sufficient to establish the date of separation, and by requiring Wife to rebut that presumption. But no such presumption appeared in the trial record. In fact, Husband argued in his trial brief that no presumption applied to either party’s proposed separation date.  

Husband presented evidence that in May 2012, he expressed his intent to end the marriage and that his conduct while the parties were living apart was consistent with that intent. 

Wife presented evidence not to rebut any presumption, but for the court to weigh against Husband’s evidence in determining whether the May 2012 separation date had been shown by a preponderance of the evidence. 

The trial court’s date of separation finding was based on the evidence presented, not on the application of a presumption.  

Citing the requirement in section 70 that the intent to end the marriage be communicated to the other party, Wife complains that the trial court did not find Husband had verbally informed her of his intent to end the marriage. 

The statute requires evidence that “[t]he spouse has expressed to the other spouse his or her intent to end the marriage” and also directs the court to “take into consideration all relevant evidence.” (§ 70, subds. (a)(1), (b).) The statute does not require express findings as to a declaration of intent or conforming conduct. 

In any event, Husband testified that he told Wife the marriage was over when he announced he was moving out, and the trial court found him credible. Husband’s testimony, even without an express finding, is evidence that supports the trial court’s decision and satisfies the statute. 

LESSONS:

1.         In establishing the date of separation, one spouse should move out of the shared residence, and express to the other spouse that the marriage was over and an intent to end the marriage. 

2.         Communications establishing the intent to end the marriage should be in writing, and confirm that both spouses received the communications.

3.         The conduct of the spouse seeking to end the marriage should be consistent with the intent to end the marriage, and filing a petition for dissolution can be an important factor.

Is "Time is of the Essence" Enforceable?

In the recent decision in Magic Carpet Ride LLC v. Rugger Investment Group, LLC, the California Court of Appeal clarified the application of the very common contractual provision "Time is of the essence."

Defendant Rugger Investment Group LLC (Rugger) entered into a contract to sell an airplane to Plaintiffs Magic Carpet Ride, LLC (MCR) and Kevin T. Jennings. Rugger deposited a lien release into escrow eight days after the expiration of a 90-day period in which it was required to make the deposit. 

The trial court found Rugger could not claim substantial performance because it had violated the plain language of the contract. For that reason, the court granted the motion of MCR and Jennings for summary adjudication of their breach of contract cause of action and for summary adjudication of Rugger’s rescission and breach of contract causes of action. 

The Court of Appeal reversed and remanded the case back to the trial court, ruling that whether Rugger substantially performed its contract obligations is a triable issue of material fact that defeats summary adjudication. 

It held that a provision in the parties’ contract making time of the essence does not automatically make Rugger’s untimely performance a breach of contract because there are triable issues regarding the scope of that provision, and whether its enforcement would result in a forfeiture to Rugger and a windfall to MCR. 

In 2015, Jennings and Rugger entered into a purchase and sale agreement (the Agreement) by which Jennings agreed to purchase from Rugger an aircraft for $610,000. Paragraph 6.14 of the Agreement states: “Unless specifically stated to the contrary herein, time shall be of the essence for all events contemplated hereunder.” 

Paragraph 2.6 of the Agreement required Rugger to transfer the Aircraft on the closing date free and clear of all liens and encumbrances. Rugger was not able to comply with this requirement due to a mechanic’s lien filed against the Aircraft. 

As a consequence, MCR and Rugger entered into an amendment to the that gave Rugger 90 days from the date of closing in which to provide one of three means of releasing the Cutter lien, including, “Lien Release fully executed by Cutter . . . in original form delivered to Escrow Agent, recognized and accepted by the FAA [Federal Aviation Administration ].” Rugger agreed to hold back $90,000 with escrow for a period of 90 days. 

Paragraph 3a. of the Amendment stated that if Rugger can obtain a lien release by any one of the three ways within the 90-day term, then the entire amount of the holdback would be released to Rugger on the 90th day. The Amendment stated that if Rugger cannot obtain a lien release by any one of the three ways identified in paragraph 2 within the 90-day term, then Rugger agreed to release entire amount of holdback to Buyer at the expiration of the 90-day term. 

Rugger did not obtain a lien release within the 90 days, and instead, Rugger obtained a lien release from Cutter eight days after the expiration of the 90-day period, and delivered the lien release to escrow. The lien release was on an FAA form entitled “Notice of Recordation—Aircraft Security Conveyance.” Rugger asked that $38,000 be released to it from escrow to cover the amount that Rugger’s managing member had paid to Cutter to get the lien released. Jennings did not agree to that request.

Jennings filed a complaint against Rugger for breach of contract and breach of the implied covenant of good faith and fair dealing alleging Rugger breached the Amendment by failing to obtain a release of the Cutter lien within the requisite 90-day time period and by refusing to release the $90,000 holdback. 

The issue for the summary judgment motion was which party breached the Amendment—Rugger, by not timely obtaining a lien release and depositing it into escrow, or MCR, by not allowing the $90,000 holdback to be released from escrow to Rugger. 

The trial court found that Rugger breached and as Rugger’s conduct violates the plain language of the Agreement, substantial compliance cannot be shown. Rugger argued it substantially performed because its delay of only eight days in depositing the lien release into escrow was immaterial. MCR and Jennings argue Rugger’s delay was a material breach because the Agreement and the Amendment required strict compliance. 

A. Delayed Performance as Substantial Performance

Substantial performance is sufficient, and justifies an action on the contract, although the other party is entitled to a reduction in the amount called for by the contract, to compensate for the defects. 

What constitutes substantial performance is a question of fact, but it is essential that there be no wilful departure from the terms of the contract, and that the defects be such as may be easily remedied or compensated, so that the promisee may get practically what the contract calls for.

The doctrine of substantial performance also applies when a party performs but misses a deadline.  Where time is not of the essence of a contract, payment made within a reasonable time after the due date stated in the contract constitutes compliance therewith. 

A substantial compliance meets the requirements of any obligation.

The evidence submitted in connection with the summary adjudication motion showed that Rugger did not willfully depart from the terms of the contract but diligently sought to obtain a lien release from Cutter. But Cutter resisted, and as a consequence Rugger was not able to deposit the lien release into escrow until eight days after the expiration of the 90-day period. MCR received what it contracted for—an aircraft free and clear of liens and encumbrances—the lien release just came eight days late.  

MCR and Jennings presented no evidence of damages caused by Rugger’s eight-day delay in depositing the lien release into escrow. 

The Restatement Second of Contracts analyzes substantial performance as a category of failure to render performance (Rest.2d Contracts, § 237, com. d., p. 220) and identifies five factors to consider in determining whether a failure to perform is material. 

Those factors are: (1) the extent to which the injured party will be deprived of the benefit which he reasonably expected; (2) the extent to which the injured party can be adequately compensated for the part of that benefit of which he will be deprived; (3) the extent to which the party failing to perform or to offer to perform will suffer forfeiture; (4) the likelihood that the party failing to perform or to offer to perform will cure his failure, taking account of all the circumstances including any reasonable assurances; and (5) the extent to which the behavior of the party failing to perform or to offer to perform comports with standards of good faith and fair dealing.  

The evidence showed that MCR and Jennings, the allegedly injured parties, received what they bargained for (an aircraft free and clear of liens and encumbrances), any damage suffered by MCR and Jennings due to the eight-day delay can be compensated, Rugger did in fact cure its failure to perform, and Rugger’s behavior comported with standards of good faith and fair dealing. 

B. Effect of the Time Is of the Essence Provision in the Agreement

The Agreement had a time is of the essence provision in Paragraph 6.14 that states: “Unless specifically stated to the contrary herein, time shall be of the essence for all events contemplated hereunder.” 

A leading treatise explains: “Merely putting into the contract the words ‘time is of the essence of this contract’ may be effective for the purpose, because the context may make clear what the intention is and what the expression means. 

What the court must know, however, in order to give effect to such a cryptic provision, is: What performance at what time is a condition of what party’s duty to do what?  In some cases, the answer to this question is simple and obvious. Often, however, it is not clear whether the provision is meant to limit the duties of both parties, or to limit the duty of one and not the other.

MCR took title to and possession of the Aircraft the day after the Amendment was signed; therefore, it was not clear the parties intended time to be of the essence with respect to Rugger’s obligation under the Amendment to provide clear title within the 90- day period. 

The traditional rule on the legal effect of a time is of the essence provision is that when time is made of the essence of a contract, a failure to perform within the time specified is a material breach of the contract. 

Where a purchaser of land has failed to make payment of the purchase price within the time specified and time is of the essence of the sale agreement, equity follows the law and does not disregard such provisions, but holds the buyer strictly to his obligation.

The traditional rule has been tempered so that including a time is of the essence provision in a contract does not always make untimely performance a breach. Courts have recognized that the inclusion of language such as ‘time is of the essence’ does not necessarily require a court to conclude that the buyer’s rights would be so strictly limited. 

A time is of the essence provision will not be enforced if doing so would work a forfeiture.  California courts generally dostrictly enforce time deadlines in real estate sales contracts, permitting the seller to cancel after the time specified where time is specifically made of the essence unless there has been a waiver or potential forfeiture.

In one case, a contract for the sale of a duplex made time of the essence; however, the court held the buyer’s delay in depositing the balance of the purchase price did not give the sellers the right to terminate the contract. The court concluded an unqualified rule enforcing time is of the essence provisions and permitting default is at odds with prior and subsequent developments in California law. 

Another case dealt with an installment land sale contract in which time was declared to be of the essence. The buyer made payments for over ten years and then stopped.  The seller terminated the buyer’s rights under the contract and sued to quiet title. The buyer then offered to pay the entire balance with interest and sought specific performance of the contract.  The California Supreme Court held “the anti-forfeiture policy justifies awarding even wilfully defaulting vendees specific performance in proper cases. When the default has not been serious and the vendee is willing and able to continue with his performance of the contract, the vendor suffers no damage by allowing the vendee to do so. In this situation, if there has been substantial part performance or if the vendee has made substantial improvements in reliance on his contract, permitting the vendor to terminate the vendee’s rights under the contract and keep the installments that have been paid can result only in the harshest sort of forfeitures. 

In sum, an express provision can make time of the essence. If the enforcement of an express provision causes an excessive penalty or an unjust forfeiture, equity will prevent enforcement. Thus equity limits the power to determine our own contractual rights and duties.

Rugger expended $38,000 to get the lien released. If strict compliance were required, and the $90,000 holdback released to MCR, then Rugger would lose not only the $90,000 holdback, in effect a price reduction, but it would not receive any compensation for the $38,000 it had to pay Cutter to get the lien released. 

MCR, which had possession of the Aircraft since the closing date would receive an aircraft free of liens and encumbrances and a $90,000 reduction in price. The Amendment contemplated MCR would get the Aircraft free and clear of liens and encumbrances or a $90,000 price reduction by means of the holdback, but not both. 

Because there was no evidence that MCR and Jennings suffered damages caused by the eight-day delay in depositing the lien release into escrow, those facts raised triable issues whether enforcement of paragraph 6.14 would result in an unjust forfeiture to Rugger and a windfall for MCR. 

LESSONS:

1.         California courts generally do strictly enforce time deadlines in real estate sales contracts.

2.         However, if the enforcement of an express provision causes an excessive penalty or an unjust forfeiture, equity will prevent enforcement.

3.         The anti-forfeiture policy justifies awarding even wilfully defaulting vendees specific performance in proper cases.

An ADU May Assist Sale of Single Family Residence

Some homebuyers struggle financially to purchase a home, and the ability to construct an Accessory Dwelling Unit ("ADU") may provide them an incentive to purchase the property because it can provide a source of rental income that can assist in the mortgage payment.

An ADU is an attached or a detached residential dwelling unit that provides complete independent living facilities for one or more persons.  It needs to include permanent provisions for living, sleeping, eating, cooking, and sanitation on the same parcel as the single-family residence ("SFR") is situated.  ADUs include efficiency units as defined in California Health and Safety Code section 17958.1, manufactured homes as defined in section 18007, and Movable Tiny Houses.

An ADU is allowed up to a maximum of 1,200 square feet, and detached ADUs cannot be greater than two stories.  Attached ADUs may not result in an increase in total floor area exceeding 50% of existing or proposed living area of the primary structure.  For this purpose, living area means interior habitable area of a dwelling unit including basements and attics but does not include a garage or any accessory structure.

The purpose of the Los Angeles proposed ADU Ordinance dated November 29, 2018 is to provide for the creation of ADUs in a manner consistent with California's Government Code section 65852.2 that became effective on January 1, 2017.

Except where specifically prohibited, an ADU is permitted in all zones where residential uses are permitted by right.  Only one ADU is permitted per lot that contains an existing SFR or where a new SFR is proposed.  The ADU must follow the same building code and residential code requirements as the existing or proposed SFR.

ADUs may be rented out, but cannot be sold separate from the existing or proposed SFR on the same lot.  Movable Tine Houses may be sold when removed from the lot.  

No passageway for the ADU, nor space between buildings, is required.  No additional setbacks are required for a lawfully existing garage or space above or abutting a garage that are converted to an ADU or portion of an ADU.  This facilitates the conversion of a garage into a ADU that can be rented by the owners of the SFR, and thereby provide income that can be used to pay the mortgage, taxes, and insurance for the SFR.  

An important requirement for the ADU is one parking space is required per ADU. However, no parking is required if the SFR is located within one-half mile of a public transportation stop along a prescribed route according to a fixed schedule, or within one block of a car share parking spot, or located in an architecturally and historically significant district.  Parking is allowed in setback areas, except in required front yards when parking must be located on an existing driveway.  Parking may be provides in tandem parking.

When a garage, carport, or covered parking structure is demolished in conjunction with the construction of an ADU or converted to an ADU, any lost off street parking spaces must be replaced. 

Conversions of lawfully pre-existing space is allowed if the ADU has an independent exterior access from the existing residence.   An ADU cannot be built between the front of the primary residence and the street.

Because the Los Angeles Rent Stabilization Ordinance provisions apply to properties with 2 or more single-family dwelling units on the same lot, it does not apply to dwelling units created after October 1, 1978 and to owner-occupied dwelling units.  However, these exemptions will normally exclude a newly created ADU.

LESSONS:

1          An ADU provides incentive to purchase because it can be a source of income that can be used to offset mortgage, taxes, and insurance payments.

2.         At lease one parking space is required, including tandem parking, unless the lot is within a certain distance of scheduled transportation, such as buses or rail.

Different Easements Have Different Elements

In the recent case of Ranch at the Falls v. O'Neal, the Court of Appeal reviewed a judgment in favor of a plaintiff who sought to quiet title to two claimed easements within residential gated communities in which plaintiff had no ownership interest. 

The judgment found plaintiff was entitled to an express easement (or in the alternative a prescriptive easement) and an equitable easement over all the private streets in a gated community (Indian Springs) in Chatsworth, and likewise was entitled to an express (or in the alternative, prescriptive) and equitable easements over a homeowner’s lot (the Lenope property) in an adjacent gated community (Indian Oaks). 

Together, the two claimed easements provided access, from the west, to the plaintiff’s ranch, which she or her lessee used to stable horses owned by them and by members of the public. Ranch operations required deliveries of supplies in large trucks, removal of manure, visits by veterinarians, and access by members of the public to ride or visit their horses. 

Plaintiff also had access to her ranch by a different route (from the east) that included an undisputed right to travel over one now-private street (Iverson Road) in Indian Springs and other now-private streets in a third gated community (Indian Falls). 

Plaintiff found this route to her ranch unacceptable because, after passing through Indian Springs and Indian Falls, the route requires use of an old and narrow bridge on Fern Ann Falls Road that she considers dangerous. This bridge is on private property, but not on property that is part of any of the three gated communities. 

The Court of Appeal concluded the trial court erred on several points.

First, the court found the individual homeowners in Indian Springs, who owned the private streets abutting their lots to the mid-line (subject to reciprocal easements with other homeowners), were not indispensable parties to plaintiff’s lawsuit, but nonetheless were bound by the judgment. This was found to be clear error. 

Second, the court erred when it found an express easement over all the private streets of Indian Springs. The declaration of easement plainly shows on its appended map the exact route of the easement, over only one private street (Iverson Road) in Indian Springs, and then over the private streets of Indian Falls. 

Third, the judgment provides an express easement “or, alternatively, a prescriptive easement,” but the court’s statement of decision did not mention or discuss a prescriptive easement.  Plaintiff did not establish the requirements for a prescriptive easement over the private streets of Indian Springs, or over the Lenope property. 

Fourth, the court failed to make the necessary findings to support an equitable easement, and the record did not contain evidence to support the factors that are necessary to impose an equitable easement over the private streets of Indian Springs, or over the Lenope property. 

Fifth, while a recorded easement exists over the Lenope property (granted by plaintiff when she owned the Lenope property), the easement by its terms does not benefit plaintiff’s ranch, and instead benefits a third property that plaintiff no longer owns. In any event, plaintiff cannot use that easement because it cannot be reached except through the private streets of Indian Springs, to which plaintiff has no right of access. 

The Appellate Court ruled that the Indian Springs homeowners should have been joined as parties, as required under the quiet title statutes. (Code of Civil Procedure § 762.010 - “The plaintiff shall name as defendants in the action the persons having adverse claims to the title of the plaintiff against which a determination is sought".)

A quiet title judgment cannot be entered in the absence of all parties with an interest in the property at issue. A person is an indispensable party to litigation if his or her rights must necessarily be affected by the judgment. 

The judgment entered by the trial court stated that “any third party individual homeowners who are affiliated in any way with Defendants [Indian Springs and Indian Oaks HOAs] are bound by this judgment.” That cannot be the case unless the owners of the private streets were parties, or unless, as a matter of law, Indian Springs HOA had the authority to bind its members to the grant of an easement over the streets owned by the members. 

The easement declaration unambiguously states it is confined to the private streets depicted on the map attached to the declaration. There is no getting around the fact that the private streets depicted on the map are only Iverson Road and the private streets in Indian Falls. So, even if Indian Springs HOA were the owner of all the private streets in Indian Springs (and it is not), it did not grant plaintiff an easement over all those streets. 

Where, the “written language of the easement” specifically uses the map to show the easement route. It has long been the law in California that plat maps may be used to precisely define an easement, and when an easement is defined by a map, it is decisive.  

Because the third party movants were, as they contended, necessary parties to plaintiff’s quiet title action, the judgment against the individual homeowners could not stand. And even if it could, the trial court’s grant of an express easement over the private streets of Indian Springs was erroneous, as the express easement is confined to the portions of Iverson Road depicted on the map.

As has been mentioned, plaintiff alleged a prescriptive easement “in the alternative” to her claims of an express easement.

A prescriptive easement requires use of the property that has been open, notorious, continuous and adverse for an uninterrupted period of five years.

The statement of decision does not discuss the elements of a prescriptive easement, or even mention the term “prescriptive easement".  The fact that a user claims a right to use the property adversely to the rights of the owner of the servient tenement must be communicated to the property owner, or the use of a claimed easement must be so obviously exercised as to constitute implied notice of the adverse claim; the owner must have notice that unless some action is taken to prevent the use it may ripen into a prescriptive easement.

Prescription cannot be gained if the use is permissive.  The existence of a prescriptive easement must be shown by a definite and certain line of travel for the statutory period. 

There are three requirements for an equitable easement, described in terms of the landowner and the trespasser. Judicial creation of an easement over a landowner’s property is permissible provided that the trespasser shows that (1) her trespass was ‘ “innocent” ’ rather than ‘ “willful or negligent",(2) the public or the property owner will not be irreparably injured by the easement, and (3) the hardship to the trespasser from having to cease the trespass is greatly disproportionate to the hardship caused the owner by the continuance of the encroachment.

Unless all three prerequisites are established, a court lacks the discretion to grant an equitable easement. Courts resolve all doubts against their issuance.

It is fundamental that the language of a grant of an easement determines the scope of the easement. Grants are to be interpreted like contracts in general. 

Because there are no enforceable easements over the private streets of Indian Springs (except over Iverson Road), or over the Lenope roadway (except in favor of the Friese property), there was no basis for an award of damages or an injunction against any of the defendants, and no basis for the award of attorney fees. Plaintiff’s claims for nuisance, declaratory relief, and intentional interference with contractual relations failed along with her easement claims. 

LESSONS:

1.      A quiet title issue requires all parties with an interest in the property at issue to be named as defendants.

2.      The different types of easements have different necessary elements to prove a cause of action.

3.      If the written language of the express easement specifically uses a map to show the easement route, the map is decisive. 

4.      Prescriptive easements require use of the property that has been open, notorious, continuous and adverse for an uninterrupted period of five years.

5.      Equitable easements require (1) a trespass that was ‘ “innocent” ’ rather than ‘ “willful or negligent", (2) the public or the property owner will not be irreparably injured by the easement, and (3) the hardship to the trespasser from having to cease the trespass is greatly disproportionate to the hardship caused the owner by the continuance of the encroachment.

Salespersons Need to Avoid Tortious Interference with Contracts

In the recent case of Jenni Rivera Enterprises v. Univision Communications, the California Court of Appeal clarified the elements of the tort for tortious interference with contractual relations.

Because listing agreements, buyer representation agreements, and purchase agreements are contracts that can be part of any standard sales transaction, prudent salespersons need to be aware of their obligation to avoid interfering with such contracts.

The appeal in Jennie Rivera Enterprises resulted from a dispute concerning a television production based on the life of the Mexican-American celebrity Jenni Rivera, who died in a plane crash in December 2012. The entity that controlled most of Rivera’s assets, Jenni Rivera Enterprises, LLC (JRE), entered into a nondisclosure agreement ("NDA") with Rivera’s former manager, Pete Salgado ("Salgado"), that restricted his disclosure and use of certain personal information about Rivera and her family. 

Alleging Salgado breached that agreement by disclosing information to the producers and the broadcaster of a television series based on Rivera’s life, JRE sued Salgado and the program’s producers for breach of contract, interference with contract, and inducing breach of contract. JRE also sued the program’s broadcaster for interference with contract and inducing breach of contract. 

The Appellate Court concluded that JRE satisfied its burden to demonstrate a prima facie case, with reasonable inferences from admissible evidence, that the producers had knowledge of the NDA before taking actions substantially certain to induce Salgado to breach the agreement. 

The elements of a cause of action for intentional interference with contractual relations are:

(1) the existence of a valid contract between the plaintiff and a third party; 

(2) the defendant’s knowledge of that contract; 

(3) the defendant’s intentional acts designed to induce a breach or disruption of the contractual relationship; 

(4) actual breach or disruption of the contractual relationship; and 

(5) resulting damage.

The defendant’s conduct need not be wrongful apart from the interference with the contract.  Furthermore, a plaintiff need not establish that the primary purpose of the defendant’s actions was to disrupt the contract. The tort is shown even where the actor does not act for the purpose of interfering with the contract or desire it, but knows that the interference is certain or substantially certain to occur as a result of his or her action.

The tort of inducing breach of contract requires proof of a breach, whereas the tort of interference with contractual relations requires only proof of interference.

1.         Valid Contract

JRE alleged the NDA between JRE and Salgado precluded Salgado from disclosing or using certain confidential information about Rivera. The trial court found JRE made a prima facie showing the agreement was valid and enforceable. 

2.         Knowledge of the Nondisclosure Agreement

To recover damages for inducing a breach of contract, the plaintiff need not establish that the defendant had full knowledge of the contract’s terms, but the defendant must have knowledge of the contract with which the defendant is interfering, and of the fact that the defendant is interfering with the performance of the contract.  

Knowledge of a contractual relationship is sufficient to show knowledge for the tort of inducing breach of contract.

JRE provided evidence the Producers knew of the NDA when JRE sent a cease and desist letter attaching the agreement. In addition, JRE submitted evidence the Producers knew of the NDA and its likely authenticity before or very soon after production of the Series. 

The NDA imposed a continuing obligation on Salgado not to disclose or use confidential information about Rivera without JRE’s consent. The Appellate Court ruled that JRE could state a cause of action based on Salgado’s continuing obligations under the agreement and his breaches of discrete obligations at different times. 

4.         Actual Breach or Disruption of the Contract 

The trial court recognized the Producers appeared to concede that, if they knew of the NDA when they signed the Co-producers Agreement, they could potentially face liability for the cause of action of intentional interference of the NDA.

The trial court found that Salgado undoubtedly made additional disclosures of the same information to others during the production of the Series, and Salgado undoubtedly “used” protected information without JRE’s authorization. 

Given the breadth of the NDA’s restrictions on Salgado’s use and disclosure of protected information, it was a reasonable inference of the trial court from the admissible evidence that Salgado breached the agreement after the Producers had knowledge of it. 

5.         Resulting Damage - Causation 

Determining whether a defendant’s misconduct was the cause in fact of a plaintiff’s injury involves essentially the same inquiry in both contract and tort cases. 

The test for causation in a breach of contract action is whether the breach was a substantial factor in causing the damages. 

Similarly, in tort cases, California has definitively adopted the substantial factor test for cause-in-fact determinations.  Under that standard, a cause in fact is something that is a substantial factor in bringing about the injury. 

The term ‘substantial factor’ has not been judicially defined with specificity, and indeed it has been observed that it is neither possible nor desirable to reduce it to any lower terms.  A force which plays only an ‘infinitesimal’ or ‘theoretical’ part in bringing about injury, damage, or loss is not a substantial factor. Undue emphasis should not be placed on the term ‘substantial. Further, a substantial factor need not be the only factor contributing to the plaintiff’s alleged harm.  

Causation is ordinarily a question of fact that may be decided as a question of law where the undisputed facts permit only one reasonable conclusion. 

The evidence in the record suggested the Producers agreed to many of the “enticements” to Salgado before they knew about the NDA. But once they knew of the agreement, the Producers’ continued payments to Salgado were a substantial factor in bringing about Salgado’s continued breaches. 

6.         Damages

JRE alleged the Producers’ interference with the NDA negatively affected the value of the information protected by the agreement and the ability of JRE to use the information for its purposes. JRE further alleged the Producers’ interference limited JRE’s economic opportunities to publish a book or produce or sell a television show or series about Rivera containing the information.   This was sufficient to state a cause of action.

LESSONS:

1.         Interfering with the contractual relations between other parties (e.g., a listing agreement between seller and a salesperson) can expose the offending salesperson to a lawsuit for intentional interference with contractual relations.

2.         Salespersons should always be alert to the contractual relations between other parties, and should be very careful before interacting with one of the parties in a manner that may cause that party to breach a contract.