Articles Posted in Contract

Electronic signatures are commonly used in California, especially with real estate contract documents, and are accepted by real estate brokers and escrow officers. But what happens when there is a dispute and the person who supposedly e-signed denies doing so, claiming that the signature was forged? That was the case in a recent decision out of San Diego where a homeowner claimed that they did not sign a financing contract for solar panels. The solar company never proved that the “docusigned” electronic signature was the plaintiff’s by explaining the process used to verify the signature.

In Rosa Fabian v. Renovate America, Inc., Renovate made an unsolicited phone call to Fabian about solar panel financing. Fabian was never presented with any documents to sign, claiming that all communications were over the phone.

The court found that Renovate met its initial burden to show an agreement to arbitrate by attaching a copy of the Contract to its petition, which purportedly bears Fabian’s electronic initials and signature. Because Fabian declared that she did not sign the Contract and the e-signature was forged, however, Renovate then had “the burden of proving by a preponderance of the evidence that the electronic signature was authentic.

Most Settlement Agreements require parties to dismiss existing lawsuits with prejudice. Ending litigation is the goal of settlement. The agreements also include provisions to recover attorney fees in the event someone has to go to court to enforce the settlement. Lastly, they include provision for the court to retain jurisdiction to enforce the agreement (by a CCP § 664.6 motion), which allows making a motion in the original action to enforce it. Another approach to enforcement would be to file an entirely new action, and seek attorney fees as damages. I am unaware of the benefit of such approach over the CCP 664.6 motion. In a recent case the plaintiff filed a new action and sought attorney fees as damages. The court might have awarded such damages, but the plaintiff never proved that he had incurred them.

In Copenbarger v. Morris Cerullo World Evangelism (“MCWE”), MCWE had a ground lease on property in Newport Beach. MCWE subleased the property and sold the improvements on the property. To finance the deal, the new tenant obtained a $3 million dollar loan from the Plaintiff, secured by a 1st deed of trust against the Sublease and Improvements. The tenant borrowed an additional $1 million from Plaza, secured by a second. The subtenant defaulted, and MCWE started an unlawful detainer. Plaintiff intervened, on the grounds that, if the Subtenant was evicted and the Sublease terminated, plaintiff would lose its security.

The parties entered a settlement agreement resolving the dispute. It included an attorney fee provision for any action to enforce the agreement. Importantly, it required MCWE to dismiss the unlawful detainer.

In an action for “specific performance” a party to a contract seeks the court order the other party to perform as required by the contract. One requirement for such an order is that the remedy at law is inadequate – that is, the plaintiff cannot be adequately compensated by the payment of money. In the case of contracts for the sale of real property it is presumed that property is unique and breach cannot be adequately compensated for with money. (Civil Code section 3387.) The problem Sacramento real estate attorneys usually see is a dispute as to the buyer’s performance – did the buyer perform every trivial step such that the seller was forced to convey the property. In a recent decision a buyer of a commercial property spent over $600,000 on the purchase and seeking entitlements, but did not take the last required step of paying $3 million dollars within 30 days of getting permits, and he lost the property.

In Tierney v Javaid, Tierney wanted to buy a gas station property at 376 Castro Street in San Francisco, and build condominiums. The parties entered a contract in 2004. The entitlement process was complicated and ended up taking Tierney eight years—until 2012—to secure the conditional use permit authorizing him to demolish the gas station and construct the residential units. At that point, however, the owner refused to sell, and the lawsuit followed.

The Purchase and Sale Agreement (PSA)

The award of attorney fees in California lawsuits is governed by the “American Rule,” in which ordinarily each party pays their own fees. However, parties may enter a contract that has an attorney fee provision which allocates attorney fees, usually to the prevailing party in a lawsuit. A recent Northern California decision involved such provisions in a complicated real estate transaction. The Seller & Buyer of property (Sundower Towers in Reno) also entered a “repurchase agreement,” which required the Seller to later buy the property back. Later, they entered a third agreement – an option, in which the Buyer granted the Seller the right to buy the property back. A lawsuit followed based on the Repurchase Agreement, but the court found this agreement unenforceable because it created an illegal subdivision. However, the defendant raised the Option agreement as an affirmative defense and sought attorney fees under the Option. In a lengthy opinion, the Supreme Court found that raising the affirmative defense did not trigger the option attorney fees provision, but it still found a way to award attorney fees.

In Mountain Aire Enterprises, LLC v. Sundowner Towers, LLC, the option agreement contained the following attorney fees provision:

“Litigation Costs. If any legal action or any other proceeding, including arbitration or an action for declaratory relief[,] is brought for the enforcement of this Agreement or because of an alleged dispute, breach, default, or misrepresentation in connection with any provision of this Agreement, the prevailing party shall be entitled to recover reasonable attorney fees, expert fees and other costs incurred in that action or proceeding, in addition to any other relief to which the prevailing party may be entitled.” (Italics added.)

In California real estate sales, a typical claim by disgruntled buyers is that the seller failed to disclose some problem with the property that the seller was aware of. The buyer’s cry is that, if the facts had been disclosed, they would have not bought the property, or would have paid less for it. Claims for fraud, intentional or negligent representation, and breach of contract arise. Sometimes it is clear that the seller knew about the problems. Often, however, there is no direct evidence of such knowledge, and Sacramento real estate attorneys are faced with the challenge of creating an inference that the seller must have known, or should have known about the issue. Complications arise when the defects are such that they are only obvious to an engineer – the buyer hopes to impute the specialist knowledge to the owner. In a recent decision from a sale in Healdsburg, the buyers were disappointed when the court ruled that the seller’s experts did not act as agents of the seller and thus their knowledge was not imputed to the seller, and besides, that they should have discovered the problem was not enough.

In RSB Vinyards LLC v. Orsi, the defendants hired an architect to design a remodel of a home and applied for a commercial use permit, which was issued for use as a winery and tasting room. Once the use permit issued, the defendants submitted the architect’s plans to the County of Sonoma, which approved the plans. Defendants, none of whom is a construction professional or possesses such skills, relied on their architect and county officials to ensure the plans conformed to applicable building codes, and they had no reason to believe the plans were non-conforming. The construction work was performed by a licensed contractor, in consultation with a structural engineering firm.

The defendants decided they did not want to be in the winery business and listed the property. The marketing materials stated that the property had a “vineyard-vested winery permit” and an “active tasting room” and attached a table describing the various permits issued for the property.

In a sales transaction, there is often included a guaranty, where one party guarantees to pay the debt of another. More accurately, a guarantor is “one who promises to answer for the debt, default, or miscarriage of another, or hypothecates property as security therefor.” (Civil.C. 2787). Thus if you buy a business or real estate, and the seller is concerned that you might not be able to pay for it, the seller may want someone with a stronger balance sheet to guaranty the debt. When a dispute arises, Sacramento business and real estate attorneys question what exactly was guaranteed, and if the guarantor was exonerated. Exoneration can occur if the creditor or seller does something that changes the terms of the deal without the guarantor’s approval. Both issues arose in a recent decision concerning the sale of a motorcycle dealership.

In G&W Warren’s Inc. v. Judson V. Dabney II, the Warrens sold their dealership to Dabney. The paperwork starts with a master “Asset Purchase Agreement.” This incorporated by reference …

– (1) a promissory note in the amount of $1,016,000 signed by Dabney as Maker;