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California recognizes a cause of action against noncontracting parties who interfere with the performance of a contract. If you and I have a contract, and John Doe (not part of our contract) tells you that I’m a bum and will never be able to perform the contract, and convinces you to terminate or breach our contract, Joe Doe may be liable. Sacramento attorneys see this issue arise where it comes down to whether there was merely competition – aggressive, but not wrongful, tortuous conduct. 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.” In a recent decision the court found that the stranger to the contract could have a financial interest in it but still be stranger enough to be liable for intentional interference.

Sacramento-intentional-interference-attorneyIn Wayne Redfearn v. Trader Joe’s Company, Redfearn owned a food brokerage business. It represented manufacturers of food products to place their goods in Trader Joe’s. When a Trader Joe’s rep met with one of Redfearn’s clients, and falsely accused Redfearn of spreading Rumors that paying bribes to Trader Joe’s employees was the only way to get their product in the stores, and that the client must terminate its relationship with Redfearn or Trader Joe’s would replace them with a different supplier. The clients split with Redfearn, and this interference lawsuit followed.

TJ’s argued that it was not a stranger to Redfearn’s contracts with its clients – performance of those contracts required TJ’s to buy products from these suppliers. TJ’s relied on a Supreme Court decision that the duty not to interfere falls only on interlopers who have “no legitimate in the scope or course of the contract’s performance.” In that case the issue was whether a party could be liable for conspiring with another to interfere in its own contract. (Applied Equipment)

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In larger commercial real estate leases, the tenant occasionally needs a loan to build the premises or finance major transactions. The tenant does not own the real property, but has the lease, which is both an interest in real property and a contract. This results in two sets of rights and obligations – those from the interest in the property (“privity of estate”), and those provided in the lease (“privity of contract”). If the tenant allows another party to take possession of the premises, that party has privity of estate with the landlord, but is not responsible for the obligations of the lease. This is why the lessor requires, in the lease, that any assignment be approved and the new tenant sign an acceptance of the assignment and the obligations of the lease contract. The Lessor will also require that any lender secured by the lease agrees to assume all the obligations of the Lease if it forecloses.

But what happens when the leasehold lender forecloses, but nobody makes sure that the Lender actually assumed all the lease obligations? That was the issue in a recent decision when the lender foreclosed on a lease in a shopping center

Sacramento-privity-of-estate-attorneyIn BRE DDR BR Whittwood Ca LLC v. Farmers & Merchants Bank of Long Beach, a shopping center tenant needed a loan to finance construction. The lease allowed the Tenant to encumber its leasehold interest through a mortgage, but presumed that a mortgage lender who succeeded to Tenant’s interest assumed Tenant’s obligations. The lease stated:

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It is common in a real estate transaction to have more than one loan providing the purchase money. In the residential situation, it usually involves the first mortgage and a second home equity line of credit (HELOC) for a lesser amount. The HELOC is a usually required if the buyer cannot provide a large enough down payment. The 1st mortgage deed of trust is usually recorded first in order and indexed that way. The lender wants this loan to have priority over the 2nd deed of trust. Multiple deeds of trust are also involved in some commercial transactions. If the first forecloses, the second will be wiped out, losing its security. Real estate attorneys sometimes see the holder of the second rushing to foreclose first so that it is not a “sold out junior.” In a recent decision in Contra Costa County, the deeds of trust were recorded in the opposite order – the HELOC first – and the HELOC foreclosed. The first lender believed it was entitled to the surplus from the trustee’s sale, but the court disagreed.

Sacramento-deed-of-trust-attorney-2In MTC Financial, Inc. v. Nationstar Mortgage, borrower Sparrow obtained a mortgage loan plus a $15,000 HELOC (home equity line of credit) 2nd on his property in Hercules. Both loans were from the same lender. Both deeds of trust were recorded at the same time, but the HELOC was indexed first in the recorder’s records. The mortgage was indexed as the very next document. Sparrow defaulted on the smaller HELOC, and the 2nd was foreclosed, with a surplus remaining of over $73,000. The trial court decided that the senior lienholder was not entitled to any surplus – as it was senior, the foreclosure sale buyer obtained the property subject to the senior loan. The lender appealed, arguing that, because the senior deed of trust was recorded 2nd, it was wiped out in the trustee’s sale.

The court determined that Nationstar, as a senior lienholder, was not entitled to any of the surplus proceeds of the trustee sale.

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People buy real estate in California through nominal or “straw” buyers for many reasons. Sometimes to hide assets, or to launder money. Maybe it’s for legitimate reasons. Nonetheless, California real estate attorneys usually encounter these situations where the agreement between the parties is oral, and there is no documentation. But a recent decision out of Malibu concerned a written agreement between the parties. That was not enough, and the plaintiff sought to rescind the contract. In a rescission of a real estate contract the party who was harmed is required to offer to return everything of value they received under the agreement. A party seeking rescission wants to undo the transaction in its entirety, restoring both parties to the status quo ante. If successful they are entitled to restitution, i.e., to recovery of the consideration that he or she gave and any other compensation necessary to make him or her whole. A claim for damages is not inconsistent with rescission – the aggrieved party shall be awarded complete relief, including restitution of benefits, if any, conferred by him as a result of the transaction and any consequential damages to which he is entitled. In this decision, the plaintiff was not entitled to rescission, but still received damages.

sacramento-real-estate-rescission-attorneyIn Li Guan v. Yongmei Hu, Hu was aromatically involved with Chen. Chen got his buddy, plaintiff Guan, to loan $2.55 million to Hu so that she could buy a house in Malibu. Hu was entitled to receive a percentage of the property’s fair market value. Specifically, Hu would “get 20%” if the house was “sold from January 1, 2012,” and her percentage would increase by 20 percent each year the house was not sold until January 1, 2016. Thereafter, Hu would receive “100%” of the house “as a gift from Mr. Guan.”

In July 2012, Chen emailed Hu telling her that “ ‘it is over! Don’t you re[a]lize it with normal sense?! S[ell] the house as instructed by [Guan] so that you could stil[l] be benefited from the deal.’ ”

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When a loan is secured by real property in California, a deed of trust is recorded, acting as a lien on the property. This reduces the equity in the property. If the owner defaults on the loan, the beneficiary (lender) may then conduct a trustee’s sale. But what if the beneficiary does not exist? A scam to hide equity from creditors would be to record a fictitious deed of trust so that a judgment would not attach to the property. If the creditor discovers the scam, they could take legal action to have the deed of trust determined to be void. However, in a recent decision, the owner of the property recorded a false deed of trust shortly after acquiring the property. The creditors did not discover the fraud until years later, after the statute of limitations for Fraudulent Transfer had expired. The scam worked.

Sacramento-fraudulent-transfer-lawyerIn PGA West Residential Association Inc. v. Hulven International Inc., defendant Mork bought a condo in La Quinta for cash. It was valued between $5 & $6 hundred thousand dollars. He then recorded a deed of trust against the property naming Hulven Inc. as the beneficiary. There was no such corporation. The deed of trust purported to secure a Note for $450,000, but Mork never made any payments.

Nine months after it was named as the beneficiary on the deed of trust, Hulven was incorporated in Montana. Just over two years later, Hulven was involuntarily dissolved. At all times, Mork was Hulven’s sole officer, director, and shareholder.

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A settlement agreement resulting in entry of a judgment results in a ‘stipulated’ or ‘consent’ judgment, which is not appealable. However, settlement agreements often include provisions for future enforcement – such as penalties, fines, and injunctive relief. But once a judgment is entered the trial court loses jurisdiction to consider the matter further. One recent decision involved a settlement that misfired on all procedural cylinders – the trial court had no jurisdiction, and the consent judgment (and the trial court’s order after it) could not be appealed because consent judgments are not appealable. I discuss the details of what went wrong, and suggest some possible solutions.

Sacramento-settlement-attorneyIn Joseph Howeth v. Tina Coffelt, the parties were neighbors in adjoining beachfront houses in Oceanside. They shared a common driveway on their property line which provided the only vehicle access to their two properties. They had reciprocal easements providing equal rights. Nonetheless, they could not get along, and argued over parking and access. Eventually this suit was filed by one to enjoin the other from parking. At the mandatory settlement conference they entered a settlement agreement (full language at the end of this post) agreeing to a specified parking regime. They also provided an enforcement procedure. For violation of the agreement there was a $500 fine, enforceable in contempt proceeding. Lastly, the settlement provided that it would be entered as a stipulated judgment.

Of course the problems did not end, and 6 months later one party filed a motion for “entry of interim money judgment.” The trial court denied the motion because it did not have jurisdiction – there had been a final judgment. The party was required to file a new breach of contract action to enforce the terms of the settlement agreement. The appellate court then said the trial court ruling was not appealable.

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In my prior post, I discussed a decision concerning a settlement that had had a large penalty for failing to make payments. The court found that it was an unenforceable illegal penalty, and not a legitimate liquidated damages provision. Liquidated damages are damages whose amount the parties agree during the formation of a contract (a settlement agreement is a contract) for the injured party to collect as compensation upon a breach. Sacramento business and real estate attorneys commonly see clients whom, in entering a settlement, want rigid penalties for failure to perform. In a recent decision the parties wisely tried, in a settlement agreement, to establish how their damages provision represented less than the total possible damages amount, and that the provision was to encourage the defendant to make the settlement payments. At the trial level, the defendant did not argue that an unenforceable penalty was involved, and the court ruled against him. On appeal, he tried to claim it was unenforceable. The appellate court, after a review of the law of unlawful penalty provisions, but did not decide whether this case involved a penalty – the defendant waived the argument by not making it in the trial court.

Sacramento-liqudated-damages-attorneyAisha A. Krechuniak v. Zia Jamal Noorzoy involved a brother and sister. The Sister owned property in Pebble Beach and entered a contract with her Brother for the Brother to develop it. He obtained money from investors, and she took out loans to fund the development. The Brother did not use any of the money for development or to pay the mortgages on the property. There was a default and foreclosure.

Sister sued, and at Mediation they entered a settlement that provided for Brother to pay $600,000 in installment payments (relevant settlement language at the end of this post). They also agreed that a stipulated judgment against the Brother in the amount of $850,000 would be executed and held unless and until there is a default in payment.

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Liquidated damages provisions in California Business and Real Estate contracts are an attempt to establish ahead of time what the damages for breach would be. Rather than have to prove to a judge what the damages are, the parties agree to what they would be. There are specific statutory restrictions for residential real estate contracts, but other agreements are governed by a more general rule that any penalty must bear a proportional relationship to the damages the might actually result from a breach. In addition, they must be reasonable under the circumstances that existed at the time the contract was entered. Any provision by which money or property is forfeited without regard to the actual damages would be an unenforceable penalty. Sacramento real estate and business attorneys see the issue pop up often in settlement agreements that require future performance – the plaintiff wants leverage to force the defendant to perform. In one decision it was clear that the plaintiff went too far, and the court found the leverage to be an unenforceable penalty provision.

Settlement-attorneyIn Greentree Financial Group, Inc. v. Execute Sports, Inc., Greentree Financial had a contract to provide financial advisory services to Execute Sports. Greentree sued because Execute failed to pay $45,000 in fees. Execute claimed prior breach of the contract by Greentree. On the day of trial they filed a notice of settlement.

The Stipulation for Settlement provides that Execute would pay Greentree a total of $20,000, in two installments. If Execute defaulted on either one of its installment payments, Greentree would be entitled to “immediately have Judgment entered against [Execute] for all amounts prayed as set forth in [Greentree]’s Complaint in the above-entitled action, including interest, attorney fees and costs, less any amounts already paid by [Execute]”

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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.

failure-to-disclose-lawyerIn 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.

failure-to-disclose-attorneyThe 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.

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Adverse possession is a way of acquiring title to real property through continuous possession or use for a specified period of time. One of the elements required to prove adverse possession is that the possession or use must be “hostile to the owner’s title.” This does not mean that there must be a dispute between the parties, but that the claimant’s possession is without recognition of any rights of the true owner. It also requires the use be adverse, not with the owner’s possession. A key problem is whether the owner of the property knew or should have known of the use. In a recent decision which concerned a deeded easement the supposedly adverse use had not changed through the succession of owners, and had not interfered with the owner’s use of the property. The court found that the use was not legally “hostile” to allow the adverse claim. This case is unusual because the adverse possessor had fenced out the other party, which is nearly always sufficient to establish an element of the claim.

Adverse-possession-hostility-attorney In Vieira Enterprises, Inc. v. John McCoy, the parties were owners of adjacent commercial properties. Vieira operated a mobile home park. The common boundary between the parcels was the centerline of Rosedale Avenue, and each owner had a 20 foot easement over the neighbor’s half of the road. However, at some time a 140-foot-long section of Rosedale Avenue had been fenced in by wire fences to the west of the private road, as well as by a wire gate across the road at the mobile home park’s northern boundary. Thus McCoy would appear to have been fenced out of his 20’ width of road plus the 20’ easement on the remainder of the road.

The problem arose when McCoy notified his neighbors that he was ready to begin a construction projection that would involve removal of the apparent boundary fences and the gate and his regular use of his right of way on Vieira’s property. The City of Capitola issued McCoy a zoning permit that stated conditions for his new building, including that “Rosedale Avenue shall be open to vehicular access for the proposed project and Cabrillo Estates Mobile Home Park at all times.

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