CONTRACTS: The Subdivision Map Act (Gov. Code Section 66410 et seq.) prohibits the sale of a parcel of real property until a final subdivision map or parcel map has been filed unless the contract to sell the property is "expressly conditioned" upon the approval and filing of a final map (66499.30(e)). Here, the contract satisfied neither requirement because it allowed the purchaser to complete the purchase if, at its election, the subject property was made into a legal parcel by recording a final map or if the purchaser "waived" the recording of a final map. Therefore the contract was void.

SPECIFIC PERFORMANCE: The material factors required for a  written contract are the seller, the buyer, the price to be paid, the time and manner of payment, and the property to be transferred, describing it so it may be identified. Here, specific performance of an option was granted even though it was not precise as to the time and manner of payment because where a contract for the sale of real property specifies no time of payment, a reasonable time is allowed. The manner of payment is also a term that may be supplied by implication.

COMMUNITY PROPERTY: The act of taking title to property in the name of one spouse during marriage with the consent of the other spouse effectively removes that property from the general presumption that the property is community property. Instead, there is a presumption that the parties intended title to be held as stated in the deed. This presumption can only be overcome by clear and convincing evidence of a contrary agreement, and not solely by tracing the funds used to purchase the property or by testimony of an intention not disclosed at the time of the execution of the conveyance. Because the court found that there was no agreement to hold title other than as the separate property of the spouse who acquired title in her own name, it did not reach the issue of whether a purchaser from that spouse was a BFP or would be charged with knowledge of that the seller's spouse had a community property interest in the property.

LIS PENDENS: A notice of litigation filed in another state is not authorized for recording under California's lis pendens statutes. An improperly filed notice of an action in another state is subject to expungement by a California court, but not under the authority of C.C.P. Section 405.30, and an order of expungement is given effect by being recorded in the chain of title to overcome the effect of the earlier filing.

CC&R's: A provision in CC&R's requiring all trees on a lot to be trimmed so as to not exceed the roof of the house on the lot, unless the tree does not obstruct views from other lots, applies to palm trees even though topping a palm tree will kill it. All trees means "all trees", so palm trees are not exempt from the requirement that offending trees be trimmed, topped, or removed.

HOME EQUITY SALES: The Home Equity Sales Contract Act applies even where the seller is in bankruptcy and even where the seller's Chapter 13 Bankruptcy Plan allows the seller to sell or refinance the subject property without further order of the court.

TRUSTEE'S SALES:
1. The statutorily required mailing, publication, and delivery of notices in nonjudicial foreclosure, and the performance of statutory nonjudicial foreclosure procedures, are privileged communications under the qualified, common-interest privilege, which means that the privilege applies as long as there is no malice. The absolute privilege for communications made in a judicial proceeding (the "litigation privilege") does not apply.
2. Actions seeking to enjoin nonjudicial foreclosure and clear title based on the provisions of a deed of trust are actions on a contract, so an award of attorney fees under Civil Code Section 1717 and provisions in the deed of trust is proper.
3. An owner is entitled to attorney fees against the trustee who conducted trustee's sale proceedings where the trustee did not merely act as a neutral stakeholder but rather aligned itself with the lender by denying that the trustor was entitled to relief.

EASEMENTS: [Not significant from a title insurance standpoint]. The underlying dispute concerns an easement but the case involves only civil procedure issues pertaining to the enforcement of a settlement agreement.

RIGHT OF FIRST REFUSAL: [Not significant from a title insurance standpoint]. The underlying dispute concerns a right of first refusal but the case involves only civil procedure issues pertaining to a party's waiver of its right to appeal where it has accepted the benefits of the favorable portion of judgment.

EASEMENTS: Exclusive easements are permitted under California law, but the use by the owner of the dominant tenement is limited to the purposes specified in the grant of easement, not all conceivable uses of the property.

CONTRACTS: [Not significant from a title insurance standpoint]. The case held that an estate had the right to retain the entire deposit upon a purchaser's breach of a sales contract even though the estate had only a 1/2 interest in the subject property.

LOAN MODIFICATION: Because a note and deed of trust come within the statute of frauds, a Forbearance Agreement also comes within the statute of frauds pursuant to Civil Code section 1698. Making the downpayment required by the Forbearance Agreement was not sufficient part performance to estop Defendants from asserting the statute of frauds because payment of money alone is not enough as a matter of law to take an agreement out of the statute, and the Plaintiffs have legal means to recover the downpayment if they are entitled to its return. In addition to part performance, the party seeking to enforce the contract must have changed position in reliance on the oral contract to such an extent that application of the statute of frauds would result in an unjust or unconscionable loss, amounting in effect to a fraud.

TRUST DEEDS: A lender who mistakenly reconveyed a deed of trust could not sue under the note because it would violate the one action rule. However, the lender prevailed on its unjust enrichment cause of action. The applicable statute of limitations was the 3-year statute for actions based on fraud or mistake, and not the 4-year statute for actions based on contract. Nevertheless, the action was timely because the statute did not begin to run until the lender reasonably discovered its mistake, and not from the date of recordation of the reconveyance. Finally, the court awarded defendant attorney's fees attributable to defending the contract cause of action because defendant prevailed on that particular cause of action even though he lost the lawsuit.

HOMESTEADS:
1. The assignees of a judgment properly established their rights as assignees by filing with the clerk of the court an acknowledgement of assignment of judgment.
2. The subject property was not subject to a homestead exemption because the debtor transferred the property to a corporation of which he was the sole shareholder. The homestead exemption only applies to the interest of a natural person in a dwelling.
3. The debtor could not claim that he was only temporarily absent from a dwelling in order to establish it as his homestead where he leased it for two years. This is true even though the debtor retained the right to occupy a single car section of the garage and the attic.

COMMUNITY PROPERTY: Transmutation of separate property to community property requires language which expressly states that the characterization or ownership of the property is being changed. Here, an effective transmutation occurred because the transmutation agreement clearly specified that a transmutation was occurring and was not negated by arguably confusing language in a trust regarding the parties' rights to terminate the trust. The court also stated that it was not aware of any authority for the proposition that a transmutation can be conditional or temporary. However, while questioning whether a transmutation can be conditional or temporary, the court did not specifically make that holding because the language used by the parties was not conditional.

CC&R's: Civil Code Section 1356 allows a court to reduce a super-majority voting requirement to amend CC&R's where the court finds that the amendment is reasonable. Here the court reduced the 2/3 majority requirement to a simple majority for an amendment to limit rentals of homes to 30 days or more.

EASEMENTS:
1. The doctrine of merger codified in Civil Code Sections 805 and 811 applies when "the right to the servitude," and "the right to the servient tenement" are not vested in a single individual, but in the same persons;

2. The doctrine of merger applies regardless of whether the owners held title as joint tenants or tenants in common. Also, the fact that one owner held his interest in one of the properties as trustee for his inter vivos revocable trust does not preclude merger because California law recognizes that when property is held in this type of trust the settlor has the equivalent of full ownership of the property. (If he had held title only in a representative capacity as a trustee for other beneficiaries under the terms of an irrevocable trust, then his ownership might not result in extinguishment by merger because he would only hold the legal title for the benefit of others.) The court cites Galdjie v. Darwish (2003) 113 Cal.App.4th 1331, stating that a revocable inter vivos trust is recognized as simply a probate avoidance device, but does not prevent creditors of the settlers from reaching trust property.

(3) After being extinguished by merger, an easement is not revived upon severance of the formerly dominant and servient parcels unless it is validly created once again.

HOMEOWNERS' ASSOCIATIONS: A member of a condominium homeowners' association can recover damages from the association which result from a dangerous condition negligently maintained by the association in the common area. However, the court found in favor of the individual directors because a greater degree of fault is necessary to hold unpaid individual board members liable, and such greater degree of fault was not present here.

NUISANCE: A private individual may bring an action against a municipality to abate a public nuisance when the individual suffers harm that is specially injurious to himself, or where the nuisance is a public nuisance per se, such as blocking a public sidewalk or road. The court held that plaintiff's assertions that neighbors' fences were erected upon city property, prevent access to plaintiff's sidewalk area, and block the sightlines upon entering and exiting their garage were sufficient to support both a public nuisance per se and specific injury.

SURVEYS: Determining the location of a boundary line shown on a plat recorded pursuant to the 1867 Townsite Acts requires an examination of both the plat and the surveyor's field notes. Here, the plat showed the boundary as a straight line, but the court held that the boundary followed the center line of a gulch because the field notes stated that the boundary was "down said gulch".

TIDELANDS / PUBLIC STREETS: A statute authorizing the City's lease of tidelands does not supersede other state laws establishing procedures for the abandonment of public streets. Because the City failed to follow the normal procedure for abandonment of the portion of the street upon which it granted a lease, the leasehold was not authorized and can therefore be deemed a nuisance.

NUISANCE: Plaintiff purchased from Defendant real property that was contaminated, and Defendant had begun the remediation process. The 3-year statute of limitations for suing under a permanent nuisance theory had expired. So Plaintiff sued for nuisance damages under a continuing nuisance theory, seeking interest rate differential damages based on the difference in the interest rate between an existing loan and a loan that plaintiff could have obtained if not for the contamination.

The court held that plaintiff's claim for interest rate differential damages is actually a claim for diminution in value, which may not be recovered under a continuing nuisance theory. Damages for diminution in value may only be recovered for permanent, not continuing, nuisances. When suing for a continuing nuisance, future or prospective damages are not allowed, such as damages for diminution in the value of the subject property. A nuisance can only be considered "continuing" if it can be abated, and therefore a plaintiff suing under this theory may only recover the costs of abating the nuisance.

If the nuisance has inflicted a permanent injury on the land, the plaintiff generally must bring a single lawsuit for all past, present, and future damages within three years of the creation of the nuisance. But if the nuisance is one which may be discontinued at any time, it is considered continuing in character and persons harmed by it may bring successive actions for damages until the nuisance is abated. Recovery is limited, however, to actual injury suffered prior to commencement of each action.

SUBDIVISION MAP ACT: This case contains a good history of California's Subdivision Map Act statutes. The court held that the laws governing subdivision maps in 1915 did not regulate the "design and improvement of subdivisions," as required by the grandfather clause of Government Code Section 66499.30. The subdivision map in this case was recorded in 1915 and no lots were subsequently conveyed, so the map does not create a valid subdivision.

MECHANIC'S LIENS: A mechanic's lien claimant recorded a mechanic's lien against each of the nine parcels in a project, each lien for the full amount due under the contract. The court held that defendant could record a single release bond under Civil Code Section 3143 to release all of the liens.

SPECIFIC PERFORMANCE: The trial court ordered Defendant to specifically perform his contract to sell real property to Plaintiff, and further issued a judgment ordering Defendant to pay Plaintiff for rents accruing during the time Defendant was able to perform the agreement but refused to do so. The court held that because the property was overencumbered, Defendant would have received nothing under the agreement and no offset was required.

The court explained that because execution of the judgment in a specific performance action will occur later than the date of performance provided by the contract, financial adjustments must be made to relate their performance back to the contract date, namely: 1) when a buyer is deprived of possession of the property pending resolution of the dispute and the seller receives rents and profits, the buyer is entitled to a credit against the purchase price for the rents and profits from the time the property should have been conveyed to him, 2) a seller also must be treated as if he had performed in a timely fashion and is entitled to receive the value of his lost use of the purchase money during the period performance was delayed, 3) if any part of the purchase price has been set aside by the buyer with notice to the seller, the seller may not receive credit for his lost use of those funds and 4) any award to the seller representing the value of his lost use of the purchase money cannot exceed the rents and profits awarded to the buyer, for otherwise the breaching seller would profit from his wrong.

PRESCRIPTIVE EASEMENTS: The plaintiff/owner of Parcel A sought to establish a prescriptive easement to a road over Parcel B. In order to establish the requisite 5-year period of open and notorious possession, the plaintiff needed to include the time that the son of the owner of Parcel B spent living in a mobile home on Parcel A. The court held that the son's use of Parcel A was not adverse but was instead a matter of "family accommodation" and, therefore, a prescriptive easement was not established. The court also discussed: 1) a party seeking to establish a prescriptive easement has the burden of proof by clear and convincing evidence and 2) once the owner of the dominant tenement shows that use of an easement has been continuous over a long period of time, the burden shifts to the owner of the servient tenement to show that the use was permissive, but the servient tenement owner's burden is a burden of producing evidence, and not a burden of proof.

HOMESTEADS: Under C.C.P. Section 704.710, a homestead exemption is not allowed on property acquired by the debtor after the judgment has been recorded unless it was purchased with exempt proceeds from the sale, damage or destruction of a homestead within the six-month safe harbor period.

EASEMENTS: Where parcels in a subdivision are resubdivided by a subsequent parcel map, the new parcel map amends the provisions of any previously recorded parcel map made in compliance with the Map Act. Here, although the deeds to plaintiffs referred to the original parcel map, since the intent of the parties was that the easement shown on the amended parcel map would be conveyed, the grantees acquired title to the easement shown on the amended map.

REAL ESTATE AGENTS: The clear language of the standard California real estate purchase agreement precludes an award of attorney's fees if a party does not attempt mediation before commencing litigation. Because plaintiff filed his lawsuit before offering mediation, there was no basis to award attorney's fees.

GUARANTEES:
1. C.C.P. 580a, which requires an appraisal of the real property security before the court may issue a deficiency judgment, does not apply to an action against a guarantor.
2. A lender cannot recover under a guaranty where there the debtor and guarantor already have identical liability, such as with general partners or trustees of a revocable trust in which the debtor is the settlor, trustee and primary beneficiary. Here, however, a  guarantee signed by the trustees of the debtors' trust is enforceable as a "true guarantee" because, although the debtors were the settlors, they were a) secondary, not primary, beneficiaries and b) were not the trustees.

TAX SALES: The one-year statute of limitations for attacking a tax sale does not begin to run against a property owner who is in "undisturbed possession" of the subject property until that owner has actual notice of the tax sale. Ordinarily, a property owner who has failed to pay property taxes has sufficient knowledge to put him on notice that a tax sale might result. However, in this case the property owners did not have notice because they purchased a single piece of commercial property and received a single yearly tax bill. They had no reason to suspect that due to errors committed by the tax assessor, a small portion of their property was being assessed separately and the tax bills were being sent to a previous owner.

NOTE: This creates a hazard for title companies insuring after a tax sale in reliance on the one-year statute of limitations in Revenue and Taxation Code Section 3725.

TRUSTEE'S SALES:
1. A bidder at a trustee's sale may not challenge the sale on the basis that the lender previously obtained a decree of judicial foreclosure because the doctrine of election of remedies benefits only the trustor or debtor.
2. A lender's remedies against a bidder who causes a bank to stop payment on cashier's checks based on a false affidavit asserting that the checks were lost is not limited to the remedies set forth in CC Section 2924h, and may pursue a cause of  action for fraud against the bidder.
(The case contains a good discussion (at pp. 25 - 26) of the procedure for stopping payment on a cashier's check by submitting an affidavit to the issuing bank.)

DEDICATION:
1. Acceptance of a dedication may be actual or implied. It is actual when formal acceptance is made by the proper authorities, and implied when a use has been made of the property by the public 1) of an  intensity that is reasonable for the nature of the road and 2) for such a length of time as will evidence an intention to accept the dedication. BUT the use in this case was not sufficient because the use was by neighbors whose use did not exceed what was permitted pursuant to a private easement over the same area.
2. A statutory offer of dedication can be revoked as to the public at large by use of the area that is inconsistent with the dedication, but the offer remains open for formal acceptance by the public entity to which the offer was made.

OPTIONS: A contract to sell real property where the buyer's performance was entirely conditioned on the buyer obtaining regulatory approval to subdivide the property is an option. An option must be supported by consideration, but was not here, where the buyer could back out at any time. Buyer's promise to deliver to seller copies "of all information, reports, tests, studies and other documentation" was not sufficient consideration to support the option.

MARRIAGE: The language of Family Code Section 300 limiting the designation of marriage to a union "between a man and a woman" is unconstitutional and must be stricken from the statute, and the remaining statutory language must be understood as making the designation of marriage available both to opposite-sex and same-sex couples.

HOMEOWNERS ASSOCIATIONS: The Board of Directors of an HOA has the authority to allow owners to exclusively use common area accessible only to those owners where the following provision of the CC&R's applied: "The Board shall have the right to allow an Owner to exclusively use portions of the otherwise nonexclusive Common Area, provided that such portions . . . are nominal in area and adjacent to the Owner's Exclusive Use Area(s) or Living Unit, and, provided further, that such use does not unreasonably interfere with any other Owner's use . . ." Also, this is allowed under Civil Code Section 1363.07(a)(3)(E).

HOME EQUITY SALES: A seller claimed he sold his house for far less than it was worth "due to the duress of an impending trustee's sale and the deceit of the purchasers". The case involves procedural issues that are not relevant to this web site. However, it is included here because it demonstrates the kind of mess that can occur when you are dealing with property that is in foreclosure. Be careful, folks.

LEASES / SUBORDINATION: A lease provision subordinating the lease to "mortgages" also applied to deeds of trust because the two instruments are functionally and legally the same. Therefore a foreclosure of a deed of trust wiped out the lease.

FORGERY: This criminal case involves a conviction for forgery of a deed of trust. [NOTE: The crime of forgery can occur even if the owner actually signed the deed of trust. The court pointed out that "forgery is committed when a defendant, by fraud or trickery, causes another to execute a document where the signer is unaware, by reason of such trickery, that he is executing a document of that nature."

CC&R's: Defendants built a gate and fence within the setback required by the CC&R's. 1) The court held that the 5-year statute of limitations of C.C.P. 336(b) applies to unrecorded as well as recorded restrictions, so that the shorter 4-year statute of limitations of C.C.P. 337 is inapplicable. 2) The court upheld the trial court's equitable remedy of requiring the HOA to pay 2/3 of the cost of relocation defendant's gate based upon the HOA's sloppiness in not pursuing its case more promptly. 

WATER RIGHTS: An appropriative water right established in a 1902 judgment applied to the entire 300 acre parcel so that when part of the parcel was foreclosed and subsequently re-sold, the water rights must be apportioned according to the acreage of each parcel, not according to the prior actual water usage attributable to each parcel. NOTE: This case contains a good explanation of California water rights law.

SPECIFIC PERFORMANCE: Specific performance is appropriate even where the buyer's sole purpose and entire intent in buying the property was to earn money for its investors and turn a profit as quickly as possible. The fact that plaintiff was motivated solely to make a profit from the purchase of the property does not overcome the strong statutory presumption that all land is unique and therefore damages were inadequate to make plaintiff whole for the defendant's breach.

CC&R's/HOMEOWNER'S ASSOCIATIONS: The court applied CC 1356(c)(2) and Corp. Code 7515, which allow a court to reduce the supermajority vote requirement for amending CC&R's and bylaw because the amendments were reasonable and the balloting requirements of the statutes were met.

SPECIFIC PERFORMANCE: 1) An assignment of a purchaser's rights under a purchase agreement prior to creation of the assignee as an LLC is valid because an organization can enforce pre-organization contracts if the organization adopts or ratifies them. 2) A purchaser does not need to prove that it already had the necessary funds, or already had binding commitments from third parties to provide the funds, when the other party anticipatorily repudiates the contract. All that plaintiff needed to prove was that it would have been able to obtain the necessary funding (or funding commitments) in order to close the transaction on time.

CC&R's / MUNICIPALITIES: An Agreement Imposing Restrictions ("AIR") and CC&R's did not properly lend themselves to an interpretation that would prohibit the City from changing the permitted use or zoning and, were they so construed, the AIR and CC&R's would be invalid as an attempt by the City to surrender its future right to exercise its police power respecting the property. Here, the AIR and CC&R's did not prohibit the City from issuing a new conditional use permit allowing the continued use of the subject property as a neighborhood market.

LEASES / RIGHT OF FIRST REFUSAL: A tenant's right of first refusal under a commercial lease is not triggered by the conveyance of an interest in the property between co-partners in a family limited partnership that owns the property and is the landlord.

EQUITY PURCHASERS:
1) The bonding requirement of the Home Equity Sales Contracts Act (Civil Code Section 1695.17) is void for vagueness under the due process clause and may not be enforced. Section 1695.17 is vague because it provides no guidance on the amount, the obligee, the beneficiaries, the terms or conditions of the bond, the delivery and acceptance requirements, or the enforcement mechanisms of the required bond.
2) Although the bond requirement may not be enforced, the remainder of the statutory scheme remains valid because the bond provisions are severable from the balance of the enactment.
3) The court refused to set aside the deed in favor of the equity purchaser because, first, the notice requirements of Civil Code Section 1695.5 appear to have been met and, second, the seller's right to rescind applies before the deed is recorded but the statute "does not specify that a violation of section 1695.5 provides grounds for rescinding a transaction after recordation of the deed".

CC&R's: Where a developer failed to convey title to two parking spaces as required by the CC&R's, the homeowner's association was able to quiet title even though more than 20 years had passed since the parking spaces should have been conveyed. The statute of limitations does not run against someone, such as the homeowner's association here, who is in exclusive and undisputed possession of the property.

TRUSTEE'S SALES: The foreclosing lender and trustee are indispensable parties to a lawsuit which seeks to set aside a trustee's sale. Therefore, a default judgment against only the purchaser at the trustee's sale is subject to collateral attack.

TRUSTEE'S SALES: A cause of action for wrongful foreclosure does not fall within the protection of Code of Civil Procedure section 425.16, commonly referred to as the anti-SLAPP statute (strategic lawsuit against public participation).

EASEMENT BY NECESSITY: An easement by necessity arises by operation of law when 1) there is a strict necessity as when a property is landlocked and 2) the dominant and servient tenements were under the same ownership at the time of the conveyance giving rise to the necessity. However, the second requirement is not met when the properties were owned by the federal government because the Government has the power of eminent domain, rendering it unnecessary to resort to the easement by necessity doctrine in order to acquire easements.

The court attempts to distinguish Kellogg v. Garcia, 102 Cal.App.4th 796, by pointing out that in that case the issue of eminent domain did not arise because the dominant tenement was owned by a private party and the servient tenements by the federal government. [Ed. Note: the court does not adequately address the fact that the government does not always have the power of eminent domain. It only has that power if a public purpose is involved. Also, I do not think the court adequately distinguishes Kellogg, which seems to hold that common ownership by the federal government satisfies the requirement of common ownership.]

SPECIFIC PERFORMANCE: Acts of a partner falling within Corp. Code 16301(1) (acts in ordinary course of business) are not subject to the statute of frauds. Acts of a partner falling within Corp. Code 16301(2) (acts not in the ordinary course of business) are subject to the statute of frauds. In this case, a sale of the partnership's real property was not in the ordinary course of business, so it fell within Corp. Code 16301(2) and plaintiff could not enforce a contract of sale signed by only one partner.

CHANGE OF OWNERSHIP: The statute that excludes transfers between domestic partners from property tax reassessment is constitutional.

DEEDS: The County brought an action against grantors' heirs to invalidate restrictions in a deed limiting the subject property to use as a county fair or similar public purposes. The court refused to apply the Marketable Record Title Act to eliminate the power of termination in favor of the grantors because the restrictions are enforceable under the public trust doctrine.

EASEMENTS: An easement that permits a use that is prohibited by a zoning ordinance is not void. It is a valid easement, but cannot be enforced unless the dominant owner obtains a variance. As is true with virtually all land use, whether a grantee can actually use the property for the purposes stated in the easement is subject to compliance with any applicable laws and ordinances, including zoning restrictions.

USURY: The trial court improperly granted a motion for summary judgment on the basis that the loan was exempt from the usury law.

1. The common law exception to the usury law known as the "interest contingency rule" provides that interest that exceeds the legal maximum is not usurious when its payment is subject to a contingency so that the lender's profit is wholly or partially put in hazard. The hazard in question must be something over and above the risk which exists with all loans - that the borrower will be unable to pay.
2. The court held that the interest contingency rule did not apply to additional interest based on a percentage of the sale price of completed condominium units because the lender was guaranteed additional interest regardless of whether the project generated rents or profits.
3. The loan did not qualify as a shared appreciation loan, permitted under Civil Code Sections 1917-1917.006, because the note guaranteed the additional interest regardless of whether the property appreciated in value or whether the project generated profits.
4. The usury defense may not be waived by guarantor of a loan. (No other published case has addressed this issue.)

INSURANCE: The case contains good discussions of 1) an insurer's liability for a judgment in excess of policy limits where it fails to accept a reasonable settlement offer within policy limits and 2) the applicable statutes of limitation.

REVERSED: SPECIFIC PERFORMANCE: Specific performance of an option was denied where the parties never reached agreement on the amount of  the deposit, the length of time of the escrow or payment of escrow expenses if there were a delay. One judge dissented on the basis that the option contract was sufficiently clear to be specifically enforced and the court should insert reasonable terms in place of the uncertain terms. 

RESULTING TRUST: A resulting trust was created where a daughter acquired property in her own name and the evidence showed that she was acquiring the property for her parents who had poor credit.

USURY: The exemption to the usury law for loans made or arranged by real estate brokers applies to a loan in which the broker who negotiated the loan was an employee of an affiliate of the lender, but nevertheless acted as a third party intermediary in negotiating the loan.

EASEMENTS: Former Civil Code Section 812 provided that

"[t]he vacation . . . of streets and highways shall extinguish all private easements therein claimed by reason of the purchase of any lot by reference to a map or plat upon which such streets or highways are shown, other than a private easement necessary for the purpose of ingress and egress to any such lot from or to a public street or highway, except as to any person claiming such easement who, within two years from the effective date of such vacation or abandonment . . . shall have recorded in the office of the recorder of the county in which such vacated or abandoned streets or highways are located a verified notice of his claim to such easement . . ." [Emphasis added.]

The court held that cross-complainant could not maintain an action against the person occupying the disputed abandoned parcel because it was not necessary for access and he did not record the notice required by C.C. Section 812. The court specifically did not address the state of title to the disputed parcel or what interest, if any, cross-defendant may have in the parcel.

LEASES / RIGHT OF FIRST REFUSAL: A right of first refusal in a lease was not triggered by a partnership's conveyance of property to the children and grandchildren of its partners for tax and estate planning purposes because it did not constitute a bona fide offer from any third party. The court considered three factors: 1) the contract terms must be reviewed closely to determine the conditions necessary to invoke the right, 2) where a right of first refusal is conditioned upon receipt of a bona fide third party offer to purchase the property, the right is not triggered by the mere conveyance of that property to a third party and 3) the formalities of the transaction must be reviewed to determine its true nature.

HOMEOWNER'S ASSOCIATIONS: Fees charged by a homeowner's association upon a transfer of title by a homeowner are limited by Civil Code Section 1368 to the association's actual costs. The court held that this limitation does not apply to fees charged by a management company hired by the association.

TRUSTEE'S SALES: After a trustee's sale, the trustee deposited the surplus proceeds into court under CC 2924j in order to determine who was entitled to the excess proceeds. The court held that:
(1) The distribution of surplus proceeds to satisfy child and spousal support arrearages was proper because the County had properly recorded an abstract of support judgment,
(2) The trial court erred in distributing proceeds to the debtor's former wife to satisfy her claims for a community property equalization payment and for attorney fees ordered in the dissolution proceeding, because no recorded lien or encumbrance secured those claims, which in any event were discharged in the debtor's bankruptcy proceeding (because child and spousal support obligations are not dischargeable, but property settlement payments are dischargeable), and
(3) The trial court erred in distributing proceeds to the debtor's former lawyer, who was retained to assist the debtor in the collection of proceeds from the trustee's sale, because an attorney's lien on the prospective recovery of a client must be enforced in a separate action.
(4) The debtor failed to produce sufficient evidence to support his claim that he was entitled to the $150,000 homestead exemption applicable when a debtor is physically disabled and unable to engage in substantial gainful employment (so he was entitled to only the standard $50,000 homestead exemption).

PROMISSORY NOTES: A penalty that applied to late payments of installments did not apply to a late payment of the final balloon payment of principal. The penalty was 10% of the amount due, which made sense for regular installments, but bore no reasonable relationship to actual damages if applied to the balloon payment.

QUIET TITLE: A quiet title judgment was set aside by defendant's heir four years after being entered because the heir was not named and served. The plaintiff believed the defendant to be deceased, but made no effort to locate and serve the defendant's heirs. [Even though this case contains some unique facts, the fact that a default judgment can be set aside four years after being entered demonstrates the danger of relying on default judgments and the need to closely examine the court file and surrounding circumstances before doing so.]

RESULTING TRUST: A decedent held title with her daughter for the purpose of facilitating financing and did not intend to acquire beneficial title. A probate court properly ordered the Special Administrator to convey title to the daughter based on the Resulting Trust Doctrine. It held that the four-year statute of limitations under C.C.P. 343 applied and not C.C.P. 366.2, which limits actions to collect on debts of the decedent to one year after the date of death.

SUBDIVISION MAP ACT: Plaintiff husband transferred title of a parcel to his wife in order to avoid merger under the Subdivision Map Act of a substandard parcel into their adjoining lot. The court held that plaintiffs could not evade the Map Act in this manner. It also held that the City had no authority to obtain an order canceling the deed, but that the wife also had no right to further transfer title to the substandard lot except back to her husband.

BAD FAITH: An insurance company acted in bad faith as a matter of law where a potential for coverage was apparent from the face of the complaint. The insured allegedly assaulted plaintiff and there was a potential for coverage because the insured may have acted in self defense. The case contains a thorough analysis of the duties of defense and indemnity.

EASEMENTS: An easement "for parking and garage purposes" includes the exclusive right to build and use a garage. Granting an exclusive easement may constitute a violation under the Subdivision Map act, but here there is no violation because the exclusive use of the garage covers only a small portion of the easement and is restricted to the uses described in the easement deed.

LIS PENDENS:
1. In deciding a writ petition from an order granting or denying a motion to expunge a lis pendens after judgment and pending appeal, an appellate court must assess whether the underlying real property claim has "probable validity". This is the same test that is used before judgment. "Probable validity" post-judgment means that it is more likely than not the real property claim will prevail at the end of the appellate process.
2. A judicial foreclosure sale to a third party is absolute, subject only to the right of redemption, and may not be set aside, except that under C.C.P. Section 701.680(c)(1) the judgment debtor may commence an action to set aside the sale within 90 days only if the purchaser at the sale was the judgment creditor. Here, a potential bidder who was stuck in traffic and arrived too late to the sale could not set it aside because only the judgment debtor can do that and because a third party purchased at the sale. 

TAX DEEDS: Because public property is exempt from taxation, tax deeds purporting to convey such property for nonpayment of taxes are void. Two parcels were inadvertently not included in a deed to the State (subsequently conveyed to the Housing Authority of Los Angeles). Accordingly, the tax collector thought that those parcels were still owned by the seller and sold them at a tax sale after real estate taxes were not paid on them. The court also points out that plaintiff was not a good faith purchaser because it had constructive and actual knowledge of the fact that the Housing Authority's low income housing was partially located on the two parcels sold at the tax sale.

STATUTE OF FRAUDS: The Statute of Frauds requires the authority of an agent who signs a sales agreement to be in writing if the agent signs on behalf of the party to be charged. However, a plaintiff purchaser whose agent signed her name with only verbal authorization is not precluded by the Statute of Frauds from bringing the action because the defendant is the party to be charged.

BAD FAITH: Where there is a genuine issue as to the insurer's liability under the policy, there can be no bad faith liability imposed on the insurer for advancing its side of that dispute. However, there can be bad faith liability where an insurer denies coverage but a reasonable investigation would have disclosed facts showing the claim was covered under other provisions of the policy. The court clarified that an insurer's failure to investigate can result in bad faith liability only if there is coverage. If there is no coverage, then any failure to properly investigate cannot cause the insured any damage.

LIS PENDENS: Plaintiffs could not appeal an order for attorney's fees awarded in a hearing of a motion to expunge a lis pendens. The only remedy is to challenge the award by way of a petition for writ of mandate. 

STATUTE OF FRAUDS: If a memorandum signed by the seller includes the essential terms of the parties' agreement (i.e. the buyer, seller, price, property and the time and manner of payment), but the meaning of those terms is unclear, the memorandum is sufficient under the statute of frauds if extrinsic evidence clarifies the terms with reasonable certainty. Because the memorandum itself must include the essential contractual terms, extrinsic evidence cannot supply those required terms, however, it can be used to explain essential terms that were understood by the parties but would otherwise be unintelligible to others. In this case, the memorandum did not set forth the price with sufficient clarity because it was uncertain whether it was to be determined by a multiplier applied to the actual rent role or whether the price specified was the agreed price even though it was based on the parties' incorrect estimate of the rent role.

PUNITIVE DAMAGES: Parts I, II, III and IV NOT certified for publication: Where the defendant's conduct only involves economic damage to a single plaintiff who is not particularly vulnerable, an award which exceeds the compensatory damages awarded is not consistent with due process.

RECORDING: A lis pendens that was recorded but not indexed does not impart constructive notice, so a bona fide purchaser for value takes free of the lis pendens. The party seeking recordation must ensure that all the statutory requirements are met and the recorder is deemed to be an agent of the recording party for this purpose.

SPECIFIC PERFORMANCE: In a specific performance action, a judgment for plaintiff's attorneys' fees cannot be offset against the purchase price that the successful plaintiff must pay defendant for the property. A judgment for attorneys' fees is not an incidental cost that can be included as part of the specific performance judgment, and it is not a lien that relates back to the filing of the lis pendens. Instead, it is an ordinary money judgment that does not relate back to the lis pendens. So, while plaintiff's title will be superior to defendant's liens that recorded subsequent to the lis pendens, those liens are nevertheless entitled to be paid to the extent of available proceeds from the full purchase price.

MOBILEHOME ESCROWS:
1) Health and Safety Code Section 18035(f) requires the escrow agent for a mobile home sale to hold funds in escrow upon receiving written notice of a dispute between the parties, even though the statute specifically states "unless otherwise specified in the escrow instructions" and even though the escrow instructions provided that escrow was to close unless "a written demand shall have been made upon you not to complete it".
2) Section 18035(f) does not require the written notice of dispute to cite the code section, or to be in any particular form, or that the notice be addressed directly to the escrow holder, or that the notice contain an express request not to close escrow. The subdivision requires nothing more than that the escrow agent receive notice in writing of a dispute between the parties. So receiving a copy of the buyer's attorney's letter to the seller was sufficient to notify the escrow agent that a dispute existed.

INSURANCE: An insurer's duty to accept reasonable settlement offers within policy limits applies only to third party actions and not to settlement offers from an insured. An insurer has a duty not to unreasonable withhold payments due under a policy. But withholding benefits under a policy is not unreasonable if there is a genuine dispute between the insurer and the insured as to coverage or the amount of payment due, which is what occurred in this case.

BANKRUPTCY/HOMESTEADS: Under California law, the homestead exemption rights of registered domestic partners are identical to those of people who are married. Therefore, domestic partners are limited to a single combined exemption, in the same manner as people who are married. In the absence of a domestic partnership or marriage, each cotenant is entitled to the full homestead exemption.

OPTIONS:
1. When the holder of an option to purchase real property exercises the option and thereby obtains title to the property, the optionee's title relates back to the date the option was given, as long as the optionee has the right to compel specific performance of the option. But where the optionee acquires title in a transaction unconnected with the option, such as where there has been a breach of the option agreement so that the optionee did not have the right to specific performance, the optionee takes subject to intervening interests just like any other purchaser.
2. Civil Code Section 2906 provides a safe harbor for a lender to avoid the rule against "clogging" the equity of redemption as long as the option is not dependent on the borrower's default. But even if the lender falls outside the safe harbor because the exercise of the option is dependent upon borrower's default, it does not automatically follow that the option is void. Instead, the court will analyze the circumstances surrounding the transaction and the intent of the parties to determine whether the option is either void or a disguised mortgage. Also, even if the transaction is a disguised mortgage the optionee (now mortgagee) has a right to judicially foreclose, which will wipe out intervening interests.

DEDICATION/ABANDONMENT: C.C.P. 771.010, which provides for termination of an offer of dedication if not accepted within 25 years, did not apply because 1) the statute cannot be applied retroactively to the City's acceptance occurring more than 25 years after the offer of dedication and 2) the area covered by the dedicated road has never been used by anyone, so the requirement that the property be "used as if free of the dedication" was not met.

The "superior equities rule" prevents an insurer, who is subrogated to the rights of the insured after paying a claim, from recovering against a party whose equities are equal or superior to those of the insurer. Thus, an insurer may not recover from an alleged tortfeasor where the tortfeasor's alleged negligence did not directly cause the insured's loss. The court questioned the continued vitality of the superior equities rule in California, but felt compelled to follow a 1938 Supreme Court case that applied the rule. The court suggests that the Supreme Court should re-address the issue in light of modern day fault principles.

UCC: A UCC-1 financing statement filed in the name of Armando Munoz is not effective where the debtor's true name was Armando Munoz Juarez.

QUIET TITLE: The Court quieted title in plaintiff where title was taken in the real estate agent's daughter's name as part of a fraudulent scheme perpetrated by the agent. This is not a significant title insurance case, but I posted it for reference since it involves quiet title.

RESPA: Washington Mutual (i) charged hundreds of dollars in "underwriting fees" when the underwriting fee charged by Fannie Mae and Freddie Mac to WAMU was only $20 and (ii) marked up the charges for real estate tax verifications and wire transfer fees. The court followed Kruse v. Wells Fargo Home Mortgage (2d Cir. 2004) 383 F.3d 49, holding that marking up costs, for which no additional services are performed, is a violation of RESPA. Such a violation of federal law constitutes an unlawful business practice under California's Unfair Competition Law ("UCL") and a breach of contract. Plaintiffs also stated a cause of action for an unfair business practice under the UCL based on the allegation that WAMU led them to believe they were being charged the actual cost of third-party services.

PROPERTY TAX: A change in ownership of real property held by a testamentary trust occurs when an income beneficiary of the trust dies and is succeeded by another income beneficiary. Also, for purposes of determining change in ownership, a life estate either in income from the property or in the property itself is an interest equivalent in value to the fee interest.

ESCROW: Civil Code Section 2941, which permits a title insurance company to record a release of a deed of trust if the lender fails to do so, does not impose an obligation on an escrow holder/title company to record the reconveyance on behalf of the trustee. Citing other authority, the Court states that an escrow holder has no general duty to police the affairs of its depositors; rather, an escrow holder's obligations are limited to faithful compliance with the parties' instructions, and absent clear evidence of fraud, an escrow holder's obligations are limited to compliance with the parties' instructions. The fact that the borrower had an interest in the loan escrow does not mean that he was a party to the escrow, or to the escrow instructions.

COVENANTS, CONDITIONS AND RESTRICTIONS: It is not unreasonable for CC&R's to allocate dues obligations differently for each unit, along with the same allocation of voting rights, even though each unit uses the common areas equally. Although the allocation does not make much sense, courts are disinclined to question the wisdom of agreed-to restrictions.

TESTAMENTARY TRANSFERS: Under Probate Code Section 21350, "care custodians" are presumptively disqualified from receiving testamentary transfers from dependent adults to whom they provide personal care, including health services. The Court held that the term "care custodian" includes unrelated persons, even where the service relationship arises out of a preexisting personal friendship rather than a professional or occupational connection. Accordingly, the Court set aside amendments to decedent's will that were made shortly before decedent's death, which would have given most of the estate to the care providers.

ABUTTER'S RIGHTS: There is no right to be seen from a public way, so the city is not liable for damages resulting from the view of plaintiff's billboard caused by planting trees along a city street. The court pointed out that a private party who blocks the view of someone's property by obstructing a public way would be liable to someone in plaintiff's position.

TITLE INSURANCE: An arbitration clause in a title policy is not enforceable where the preliminary report did not contain an arbitration clause and did not incorporate by reference the arbitration clause in the CLTA policy actually issued. (The preliminary report incorporated by reference the provisions of a Homeowner's Policy of Title Insurance with a somewhat different arbitration clause, but a CLTA policy was actually issued.)

INSURANCE: When an insured assigns a claim for bad faith against the insurer, the assignee may recover Brandt (attorney) fees. Although purely personal causes of action are not assignable, such as claims for emotional distress or punitive damages, Brandt fees constitute an economic loss and are not personal in nature.

HOMEOWNER'S ASSOCIATIONS: Where CC&R's require approval by more than 50 percent of owners in order to amend the Declaration, Civil Code Section 1356(a) allows a court, if certain conditions are met, to reduce the percentage of votes required, if it was approved by "owners having more than 50 percent of the votes in the association". The Court held that the quoted phrase means a majority of the total votes in the HOA, not merely a majority of those votes that are cast.

TRUSTEE'S SALES: The victim of an identity theft, whose name was used to obtain a loan secured by a purchase money deed of trust to acquire real property, may, as the only claimant, recover undistributed surplus proceeds that remained after a trustee sale of the property and the satisfaction of creditors. The Court pointed out that a victim of theft is entitled to recover the assets stolen or anything acquired with the stolen assets, even if the value of those assets exceeds the value of that which was stolen.

MARKETABLE RECORD TITLE ACT
1) Under Civil Code Section 882.020(a)(1), a deed of trust expires after 10 years where "the final maturity date or the last date fixed for payment of the debt or performance of the obligation is ascertainable from the record". Here, the October 1992 Notice of Default was recorded and contained the due date of the subject note; thus, the due date is "ascertainable from the record" and the 10-year limitations period of section 882.020(a)(1) applies.

2) Under C.C. Section 880.260, if an action is commenced and a lis pendens filed by the owner to quiet or clear title, the running of the 10-year limitations period is reset and a new 10-year limitations period commences on the date of the recording of the lis pendens. After the expiration of the recommenced 10-year period, the power of sale in the trust deed expires.

ADVERSE POSSESSION: Plaintiffs failed to establish adverse possession against defendant, with whom they held title as tenants in common. Before title may be acquired by adverse possession as between cotenants, the occupying tenant must impart notice to the tenant out of possession, by acts of ownership of the most open, notorious and unequivocal character, that he intends to oust the latter of his interest in the common property. Such evidence must be stronger than that which would be required to establish title by adverse possession in a stranger.

JUDGMENTS: A judgment lien against the settlor of a revocable trust attached to trust property where the identity of the settlor is reflected in the chain of title, so a purchaser takes subject to the judgment lien. NOTE: In other words, title companies need to check the names of the settlors in the General Index when title is held in trust.

PRESCRIPTIVE EASEMENTS: 1) Permission granted to an owner does not constitute permission to a successor. 2) Under Civil Code Section 1008, signs preventing prescriptive rights must be posted by an owner or his agent, so signs posted by a lessee without the knowledge of the owner, do not qualify.

EASEMENTS: The owner of the dominant tenement possessing over the servient tenement an access easement that includes the right to grant other easements for "like purposes" may convey to an owner of property adjoining the dominant tenement an enforceable easement for access over the servient tenement.

ASSESSMENT LIEN: After a tax sale, the holder of a bond secured by a 1911 Act assessment lien has priority as to surplus tax sale proceeds over a subsequently recorded deed of trust. This is true even though the bond holder purchased the property from the tax sale purchaser. The Court rejected defendant's argument that fee title had merged with the assessment lien.

LICENSES / WATER RIGHTS: The Plaintiff did not overburden a license to run water in a pipeline across defendant's property where he extended the pipeline to other property he owned because there was no increase in the burden on the servient tenement and no harm to defendants. A couple of interesting things pointed out by the Court are: 1) A person entitled to use water may use it elsewhere as long as others are not injured by the change, and 2) "An irrevocable license . . . is for all intents and purposes the equivalent of an easement." 

TAX SALES: The one-year statute of limitations for attacking a tax sale applies to preclude an action by a property owner who had actual notice of the tax sale, even where the tax collector's conduct was egregious. The Court did not reach the question of whether the tax collector satisfied its due process obligations, but refers to a Supreme Court case which held that the limitations period is enforceable even if the defect is constitutional in nature. That case recognized a limited exception where an owner is in "undisturbed possession" such that the owner lacked any reasonable means of alerting himself to the tax sale proceedings.

MECHANICS' LIENS: A mechanic's lien is premature and invalid under Civil Code Section 3115 if it is recorded before the contractor "completes his contract". A contract is complete for purposes of commencing the recordation period under section 3115 when all work under the contract has been performed, excused, or otherwise discharged. Here, because of the tenant's anticipatory breach of the contract, plaintiff had "complete[d] [its] contract" within the meaning of section 3115 the day before the claim of lien was recorded, so the claim of lien was not premature. In a previous writ proceeding, the Court held that the landlord's notice of nonresponsibility was invalid under the "participating owner doctrine" because the landlord caused the work of improvement to be performed by requiring the lessee to make improvements.

POWER OF ATTORNEY: 1) A statutory form power of attorney is not properly completed where the principal marks the lines specifying the powers with an "X" instead of initials, as required by the form. However, the form is not the exclusive means of creating a power of attorney, so even though it is not valid as a statutory form, it is valid as regular power of attorney. 2) Under Probate Code Section 4264, an attorney in fact may not make a gift of the principal's property unless specifically authorized to do so in the power of attorney. Here, the principal quitclaimed the property to himself, the other attorney in fact and the principal as joint tenants. However, the court refused to invalidate the conveyance because the plaintiff failed to produce any evidence that the conveyance was not supported by consideration. 

TRUSTEE'S SALES:
1. Expiration of the underlying obligation does not preclude enforcement of the power of sale under a deed of trust.
2. A power of sale expires after 60 years or, if the last date fixed for payment of the debt is ascertainable from the record, 10 years after that date.
3. In order to avoid a statutory absurdity, a notice of default that is recorded more than 10 years after "the last date fixed for payment of the debt" does not constitute a part of the "record" for purposes of Civil Code Section 882.020(a).

TRUSTEE'S SALES/ANTI-DEFICIENCY: An indemnification agreement is enforceable after a non-judicial foreclosure where the indemnitor is not the same person as the obligor. If the indemnitor and obligor were the same, the indemnity would be void as an attempt to circumvent antideficiency protections.

MARKETABLE RECORD TITLE ACT: (UNPUBLISHED OPINION) Under Civil Code Section 882.020(a)(1), a deed of trust becomes unenforceable 10 years after the final maturity date, or the last date fixed for payment of the debt or performance of the obligation, if that date is ascertainable from the record. Here, the record showed via an Order Confirming Sale of Real Property that the obligation was due five years after close of escrow. The Court held that since "close of escrow" is an event, and not a date certain, Section 882.020(a)(1) did not apply in spite of the fact that escrow must have closed in order for the deed of trust to have been recorded.

TRUSTEE'S SALES: The Court refused to set aside a trustee's sale where the lender foreclosed after the trustors tendered payment in the form of a "Bonded Bill of Exchange Order". The Court determined that "the Bill is a worthless piece of paper, consisting of nothing more than a string of words that sound as though they belong in a legal document, but which, in reality, are incomprehensible, signifying nothing."

DEEDS: The 3-year statute of limitations under C.C.P. 338(d) to seek relief on the ground of mistake does not begin to run until discovery of the mistake or receiving facts that would put a reasonable person on notice of the mistake. The fact that carefully reading the deed would have revealed the mistake is not sufficient to charge the plaintiff with notice, so the statute of limitations did not begin to run until plaintiff actually became aware of the error, and this action was therefore timely.

INDIANS: An employment agreement with an Indian tribe contained the following clause: "Any claim or controversy arising out of or relating to any provisions of this Agreement, or breach thereof, shall . . . be resolved by arbitration under the rules of the American Arbitration Association in San Francisco, California, and judgment on any award by the arbitrators may be entered in any court having such jurisdiction". The court held that the effect of the arbitration clause as limited to a consent to arbitrate and enforce any award in state court. But this clause was insufficient to waive the tribe's immunity from a breach of contract action brought in state court. So plaintiffs are apparently free to bring the same breach of contract claims in an arbitration proceeding.

STATUTE OF FRAUDS: A sales contract signed on the sellers' behalf by their real estate agent did not satisfy the Statute of Frauds because the agent did not have written authority to sign for the sellers. However, a contract which must be in writing can be ratified if the ratification is also in writing. Here the sellers ratified the contract by a sufficient written ratification where they subsequently signed disclosure documents that specifically referred to the contract signed by the real estate agent.

LIS PENDENS: (Related to Mix v. Superior Court, several cases below.) Having determined that the plaintiffs have at least a "probably valid" real property claim, the Court issued a peremptory writ of mandate directing the Superior Court to vacate its order expunging the lis pendens. The lis pendens will therefore protect plaintiff's claim until the time for appeal to the Supreme Court expires or unless the Supreme Court issues its own writ directing that the lis pendens be expunged.

EASEMENTS:
PUBLISHED PORTION: The Solar Shade Control Act provides that ". . . no person owning, or in control of a property shall allow a tree or shrub to be placed, or, if placed, to grow on such property, subsequent to the installation of a solar collector on the property of another so as to cast a shadow greater than 10 percent of the collector absorption area". The County is exempt from the Act because it adopted an ordinance pursuant to a statute allowing cities and counties to exempt themselves from the Act. The Court did not address the issue of whether the act applies where a tree is not "placed" by a property owner.

UNPUBLISHED PORTION: A common law easement for light and air generally may be created only by express written instrument. A statutory "solar easement" under Civil Code Section 801.5 may be created only by an instrument containing specified terms. The Court held that the County did not have an obligation to trim trees to avoid shading plaintiff's solar panels, rejecting several theories asserted by plaintiff.

SUBDIVISION MAP ACT: Under the 1937 and 1943 Subdivision Map Acts, "subdivision" was defined as "any land or portion thereof shown on the last preceding tax roll as a unit or as contiguous units which is divided for the purpose of sale . . . into five or more parcels within any one year period." The Court makes numerous points interpreting those statutes, some of the most significant being: 1) Once the fifth parcel is created within a one-year period, all the parcels created within that year constitute a subdivision; 2) Even though a unit of land is defined as a unit as shown on the last tax roll preceding the division, that does not mean the unit shown on the last preceding tax roll is a legal parcel, and legal parcels cannot be created by dividing that illegal parcel; and 3) If land is divided for the purpose of sale, it is irrelevant that the retained parcel is not held for the purpose of sale. Thus, for example, if the owner of a unit of land divides it in half, the unit is divided for the purpose of sale even if the owner intends to sell only one half and keep the other.

ASSESSOR'S RECORDS: County Assessors maintain parcel boundary map data, which is detailed geographic information used to describe and define the precise geographic boundaries of assessor's parcels. When maintained in electronic format, Assessors must make copies in electronic format available to the public. The fee charged for producing the copy is limited to the direct cost of producing the copy in electronic format, and may not include expenses associated with the county's initial gathering of the information, with initial conversion of the information into electronic format, or with maintaining the information.

ARBITRATION: Section 1298 requires that an arbitration provision in a real estate contract be accompanied by a statutory notice and that the parties indicate their assent by placing their initials on an adjacent space or line. The arbitration notice, standing alone, does not constitute an arbitration provision. So the Defendants could not compel arbitration where the contract contained only the notice, but did not contain a separate arbitration provision.

The Court has a good sense of humor. The opinion contains the following memorable quotes:

1. "If the first rule of medicine is 'Do no harm,' the first rule of contracting should be 'Read the documents'."

2. ". . . to paraphrase the immortal words of a former President of the United States, the applicability of this purported arbitration agreement to the instant dispute 'depends upon what the meaning of the word "it" is.'"

LIS PENDENS: A cause of action for a constructive trust or an equitable lien does not support a lis pendens where it is merely for the purpose of securing a judgment for money damages. [Ed. Note: The Court in this and similar cases make the absolute statement that "an equitable lien does not support a lis pendens", and explain that the lien is sought merely to secure a money judgment. But it is unclear whether the Court would reach the same conclusion in a pure equitable lien case. For example, where a loan is paid off with the proceeds of a new loan, but the new mortgage accidentally fails to be recorded, an action to impose an equitable lien seeks more than a mere money judgment. It seeks to allow the new lender to step into the shoes of the old lender and, in my opinion, a lis pendens should be allowed.]

BOUNDARIES / SURVEYS: A conveyance referring to a parcel map cannot convey more property than the creator of the parcel map owned. The Court rejected Defendant's claim that the recorded parcel map was a "government sanctioned survey" which precludes a showing that the boundaries established by the parcel map are erroneous. The court explained that the rule cited by Defendants applies only to official survey maps that create boundaries. Boundary lines cannot be questioned after the conveyance of public land to a private party, even if they are inaccurate.

HOMESTEADS: A declared homestead exemption applies to surplus proceeds from a trustee's sale. [Comment: Applying the declared homestead exemption to trustee's sales is fine. But the Court also seems to want to pay surplus proceeds to the debtor up to the amount of the exemption before paying the holder of a junior trust deed. This should be wrong since the homestead exemption does not apply to voluntary liens. I think the Court does not adequately address what appears to me to be a circuity of priority problem: The homestead exemption is senior to the judgment lien, which in this case happens to be senior to a junior TD, which is senior to the homestead exemption.]

COMMUNITY PROPERTY: The doctrine of partial performance, which is an exception to the Statute of Frauds, is not an exception to the requirement of Family Code Section 852 that an agreement to transmute property be in writing. The concurring opinion points out that the Court does not decide what statutory or equitable remedy would be available to make whole a spouse who has been disadvantaged by an illusory oral promise to transmute property, or what sanction may be employed against a spouse who has used section 852(a) as a means of breaching his or her fiduciary duty and gaining unjust enrichment.

JUDGMENTS: The Court dismissed an appeal as being moot where the debtor did not post a bond after a sheriff's sale of real property. C.C.P. Section 917.4 provides that an appeal of an order directing the sale of real property does not stay enforcement of the order. A sheriff's sale is final, except that the debtor can commence an action within 90 days to set aside the sale if the judgment creditor is the successful bidder. Here, the debtor failed to file an action within 90 days so the sale is final.

CONDOMINIUMS: The definition of "condominium" in Civil Code Section 1351(f) does not require that an actual structure has been built; rather it only requires that it be described in a recorded condominium plan. (Note, however, that under CC 1352 the condominium does not come into existence until a condominium unit has been conveyed.) The case also contains an extensive discussion of the procedural requirements for foreclosing on an assessment lien recorded by the homeowner's association.

CC&R's: A provision in CC&R's that prohibited construction of a permanent structure in an easement area applied to a deck because it was attached to the house and had supporting posts that were buried in the ground, such that it was designed to continue indefinitely without change and was constructed to last or endure.

EASEMENTS: California Civil Code Section 805 provides that a servitude cannot be held by the owner of the servient tenement. The Court held that the term "owner" under Section 805 means the owner of the full fee title, both legal and equitable, such that a property owner who owns less than full title may validly create easements in his own favor on his land. Here, the Court held that the grantor could reserve an easement over property conveyed to a time-share trustee where the grantor held all beneficial interest in the trust and the grantee held just bare legal title.

TRUSTEE'S SALES: A trustee's sale, which was accidentally held after the owner and lender agreed to reinstate the loan, is invalid. The conclusive presumptions in Civil Code Section 2924 pertain only to notice requirements, not to every defect or inadequacy. The Court points out that the advantages of being a bona fide purchaser are not limited to the presumptions set forth in Section 2924, but does not discuss it further because the defendant did not argue that its bona fide purchaser status supports its position in any way other than the statutory presumptions.

COVENANTS, CONDITIONS & RESTRICTIONS: The Court interpreted a provision in CC&R's to prohibit an addition to a house which would unreasonably obstruct a neighbor's view. The Court painstakingly nit-picked through the provisions of the CC&R's and compared the provisions and the facts to other cases where courts have done the same. The main conclusion I draw is that these cases are each unique and it is very difficult to determine in advance what a court will do. In fact, one judge dissented in this case. This means it can be very dangerous to issue endorsements such as CLTA Endorsement No. 100.6 or 100.28, insuring against this kind of provision in CC&R's.

***DECERTIFIED***
TRUSTEE'S SALES:
1. To be valid, a notice of default must contain at least one correct statement of a breach, and it must be substantial enough to authorize use of the drastic remedy of nonjudicial foreclosure.
2. An assertion in a notice of default of one or more breaches qualified with the words "if any" does not satisfy the requirements of section 2924 because it indicates that the lender has no clue as to the truth or falsity of the assertion.
3. It is not proper to declare a payment in default when the time for imposing a late fee on that payment has not expired because the default is not sufficiently substantial at that point.
4. Under Civil Code Section 2954, a lender cannot force impound payments for property taxes until the borrower has failed to pay two consecutive tax installments.

ESCROW: 1. Under Civil Code Section 1717, plaintiff can recover attorney's fees after prevailing in an action against the escrow holder, even though the escrow instructions limited attorney's fees to actions to collect escrow fees.
2. Under Business and Professions Code Section 10138, an escrow holder has a duty to obtain evidence that a real estate broker was regularly licensed before delivering compensation.

ESCROW: A provision for attorneys' fees in escrow instructions limited to fees incurred by the escrow company in collecting for escrow services does not apply to other disputes between the buyer and seller.

DOMESTIC PARTNERSHIPS: Family Code Section 308.5, enacted by Proposition 22, 3/7/00, states: "Only marriage between a man and a woman is valid or recognized in California." This statute did not prohibit the legislature from enacting California's Domestic Partnership Law, Family Code Section 297, et seq., because Section 308.5 pertains only to marriages, not to other relationships.

ADVERSE POSSESSION: A fiduciary, including an executor, may not acquire title by adverse possession against the heirs. Once the executor was appointed, the statutory period for his adverse possession of the subject property ceased to run.

TRUSTEE'S SALES: A trustee's sale cannot be set aside where the purchaser at the sale is a bona fide purchaser ("BFP"). The elements of being a BFP are that the buyer 1) purchase the property in good faith for value, and 2) have no knowledge or notice of the asserted rights of another. The value paid may be substantially below fair market value. Also, the buyer's sophistication and experience in purchasing at trustee's sales does not disqualify him from being a BFP, although in evaluating whether the buyer is a BFP, the buyer's foreclosure sale experience may be considered in making the factual determination of whether he had knowledge or notice of the conflicting claim.

TITLE INSURANCE: Radian's Lien Protection Policy constitutes title insurance pursuant to Insurance Code Section 12340.1. Because Radian does not possess a certificate of authority to transact title insurance, it is not authorized to sell the policy in California or anywhere else in the United States, pursuant to California's monoline statutes: Ins. Code Section 12360 (title insurance) and Ins. Code Section 12640.10 (mortgage guaranty insurance).

TRUSTS: A trust can be revoked by a will where the trust provided for revocation by "any writing" and the will expressed a present intent to revoke the trust. The Court pointed out that a will, which is inoperative during the testator's life, can nevertheless have a present and immediate effect upon delivery, such as notice of intent to revoke.

When a lender successfully defends an action to set aside or enjoin a foreclosure sale, the antideficiency provisions of C.C.P. Section 580d do not prohibit an award of attorney fees. In addition, Civil Code sections 2924c and 2924d do not limit the amount of fees the court may award.

HOMEOWNER'S ASSOCIATIONS: In a suit to enforce a judgment, the trial court properly appointed a receiver and levied a special emergency assessment when defendant-homeowners association failed to pay. The Court pointed out that regular assessments are exempt from execution, but not special assessments.

ESCHEAT: This is a qui tam action filed on behalf of the State Controller. The court held that unused reconveyance fees do not need to be escheated because the obligation to return a specific sum of money is neither certain nor liquidated under Civil Code Section 2941 or under the provisions of the deeds of trust. This case was against lenders and I believe it would not apply in the context of escrow and title insurance.

EASEMENTS: Where the grant of easement states that the right of way shall be "kept open" and "wholly unobstructed", the normal rule does not apply, which would otherwise allow the owner of the servient estate to erect a locked gate as long as the owner of the dominant estate is given a key and the gate does not unreasonably interfere with the use of the easement.

TITLE INSURANCE: Old Republic was found liable for 1) failing to escheat unclaimed funds in escrow accounts, 2) failing to return fees collected for reconveyances which were not used and 3) failing to pay interest collected on escrow funds to the depositing party.

Of particular interest, the Court stated:
"Insurance Code Section 12413.5 provides that interest on escrow funds must be paid to the depositing party 'unless the escrow is otherwise instructed by the depositing party . . . .' Any title company is free to draft escrow instructions that, with full disclosure to and agreement from the depositing party, direct that the arbitrage interest differential be paid to the company. It is a matter of disclosing the pertinent costs and benefits to the customer."

State of California v. PriceWaterhouseCoopers
39 Cal.4th 1220 - Cal. Supreme Court (S131807) 8/31/06

FALSE CLAIMS ACT: A political subdivision may not bring an action under Government Code section 12652, subdivision (c), to recover funds on behalf of the state or another political subdivision.

CONTRACTS: Under the most recent version of the CAR purchase contract, the prevailing party is barred from recovering attorney fees if he refused a request to mediate.

LIS PENDENS: (Related to Behniwal v. Superior Court, several cases above.) After the claimant loses at trial, the trial court must expunge a lis pendens pending appeal unless claimant can establish by a preponderance of the evidence the probable validity of the real property claim. Claimants will rarely be able to do this because it requires a trial court to determine that its own decision will probably be reversed on appeal. The court points out that this strict result is tempered by claimant's ability to petition the appellate court for a writ of mandate, so that the appellate court can make its own determination of the probability of the trial court's decision being reversed on appeal.

MECHANIC'S LIENS: The court ordered the release of a mechanic's lien because there was no actual visible work on the land or the delivery of construction materials. The criteria applicable to a design professional's lien do not apply where the claimant filed a mechanic's lien. The court specifically did not address the question of whether a contractor performing design services or employing design professionals may assert a design professionals' lien.

USURY: The usury exemption for loans arranged by real estate brokers does not apply where the broker functioned as an escrow whose involvement was limited to preparing loan documents on the terms provided by the parties, ordering title insurance, and dispersing funds, all in accordance with the parties' instructions. In order to "arrange a loan" the broker must act as a third party intermediary who causes a loan to be obtained or procured. Such conduct includes structuring the loan as the agent for the lender, setting the interest rate and points to be paid, drafting the terms of the loan, reviewing the loan documents, or conducting a title search.

TRUSTEE'S SALES:
1. Civil Code Section 2924 requires the trustee to give notice of sale only "after the lapse of the three months" following recordation of the notice of default. The Notice of Sale technically violated this requirement because it was served by mail on the property owner several days prior to the end of three months. However, this did not invalidate the sale because the owner did not suffer prejudice from the early notice.
2. Incorrectly stating the date of the default in the Notice of Default did not invalidate the sale because the discrepancy was not material.

TRUSTEE'S SALES:
1. Postponements of a trustee's sale during an appeal were reasonable, so they do not count toward the 3-postponement limit of Civil Code Section 2924g(c)(1). The postponements fall under the "stayed by operation of law" exception. However, the Court recognized that the better course would have been to re-notice the trustee's sale after the appeal.
2. The court indicated that an appeal from an action to quiet title against a deed of trust should stay the trustee's sale proceedings under Code of Civil Procedure Section 916 pending the appeal. However, the court did not formally make that holding because the owner did not appeal and the issues involving the appellants (escrow holder and bonding company) did not require a holding on that issue.

MECHANIC'S LIENS: A mechanic's lien release that waives lien rights up to the date stated in the release is effective to waive lien rights up to that date, even if the progress payments did not fully compensate the lien claimant.

LIS PENDENS / DIVORCE
1. The automatic stay contained in a divorce summons does not apply to the sale by the husband, as managing member of a family-owned management company, of real property vested in the management company.
2. A petition for dissolution of marriage which does not allege a community interest in specific real property does not support the filing of a lis pendens.

The court held that a transaction was a bona fide sale and not an equitable mortgage. The complicated facts provide little of interest to the title insurance business, other than to note the fact that a deed can be held to be a mortgage if the deed was given to secure a debt. The case contains a good discussion of the distinction between legal claims, for which there is a right to a jury trial, and equitable claims, for which there is no right to a jury trial.

SUBDIVISION MAP ACT: The enactment of an ordinance requiring the County to record notices of merger did not result in the unmerger of parcels that had previously merged under the County's previous automatic merger ordinance. The County properly sent a subsequent notice under Gov. Code Section 66451.302 notifying property owners of the possibility of a merger. Accordingly, plaintiff's parcels remain merged.

EASEMENTS: An easement by implication can be created when an owner of real property dies intestate and the property is then divided and distributed to the intestate's heirs by court decree.

PRESCRIPTIVE EASEMENTS: To establish a claim of right, which is one of the elements necessary to establish a prescriptive easement, the claimant does not need to believe he is entitled to use of the easement. The phrase "claim of right" has caused confusion because it suggests the need for an intent or state of mind. But it does not require a belief that the use is legally justified; it simply means that the property was used without permission of the owner of the land.

INSURANCE: A tort action for breach of the duty of good faith and fair dealing exists only in regard to the issues of bad faith payment of claims and unreasonable failure to settle. It does not pertain to the general administration of an insurance policy or to other contract settings. In this case, a tort cause of action does not lie for the insurer's bad faith conduct in setting an unfairly high insurance premium.

RIGHTS OF WAY: A grant of a public right of way includes uses made possible by future development or technology, which are not in existence at the time of the grant. Here, the Court held that a right of way included the right to install a pipeline to transport natural gas.

DEEDS OF TRUST: A bank holding a deed of trust holder was paid outside of escrow with a check. The bank sent a letter to escrow stating that it had "received payoff funds . . . it is our policy to issue the Full Reconveyance 10 days after receipt of the payoff check. Therefore, a Full Reconveyance will be sent to the County Recorder on or about August 5, 2002". The escrow relied on the letter and closed escrow without paying off the lender. The check bounced and the lender began foreclosure.

The Court reversed a summary judgment in favor of defendants, holding that the letter did not constitute a payoff demand statement binding on the bank under CC 2943. The Court determined that there was a triable issue of fact as to whether the parties could reasonably have relied on the letter. [Ed. note: The Court exhibited a scary lack of understanding of real estate transactions, and could not come to grips with the fact that reconveyances from institutional lenders never record at close of escrow.]

LIS PENDENS: An action to set aside a fraudulent conveyance supports the recording of a lis pendens. The court stated that "[b]y definition, the voiding of a transfer of real property will affect title to or possession of real property". (Ed. note: Several appellate court decisions have held that actions to impose equitable liens and constructive trusts do not support a lis pendens. The Supreme Court did not deal with those issues but it seems that, using the court's language, it could similarly be said that "by definition imposing an equitable lien or constructive trust will affect title to or possession of real property.")

TENANCY IN COMMON AGREEMENTS: In order to evade burdensome regulations for converting apartments to condominiums, it has become a common practice in San Francisco for a group of people to acquire a multi-unit residential building and enter into a tenancy in common agreement establishing an exclusive right of occupancy for each dwelling unit. Seeking to end this practice, the People's Republic of San Francisco enacted an ordinance prohibiting exclusive right of occupancy agreements. The Court held that the ordinance is unconstitutional because it violates the right of privacy set forth in Article I, section I of the California Constitution.

RECORDING: A memorandum of lease is a recordable instrument.

QUIET TITLE: A default judgment after service by publication is permissible in a quiet title action. However, the judgment may not be entered by the normal default prove-up methods; the court must require evidence of the plaintiff's title, including live witnesses and complete authentication of the underlying real property records. Nevertheless, the judgment is not rendered void because the default prove-up method was used rather than an evidentiary hearing.

RESTRICTIONS: Use restrictions in amended declarations are binding on owners who purchased prior to recordation of the amendment. They are also subject to the same presumption of validity as the original declaration.

BANKRUPTCY: A bankruptcy trustee's notice of abandonment of property was effective even though it was ambiguous because it did not specifically state that the trustee will be deemed to have abandoned the property 15 days from the date of mailing of the notice. The court also states that an abandonment is irrevocable even if the property later becomes more valuable.

DEEDS OF TRUST: Where a deed of trust secures both payment of a promissory note and performance of contractual obligations (CC&R's in this case), the trustor is not entitled to reconveyance of the deed of trust after the note is paid off, but before the contractual obligations are satisfied.

INSURANCE / PUNITIVE DAMAGES:
1. The amount of attorney's fees incurred by an insured in obtaining policy benefits and recoverable under Brandt v. Sup. Ct. are limited to the fees under the contingency fee agreement between the insured and its counsel, and not a higher figure based on the reasonable value of the attorney's services.
2. Punitive damages must be based on compensatory damages awarded for tortious conduct, including breach of the implied covenant of good faith and fair dealing, excluding the sum recovered on the breach of contract claim.
3. When compensatory damages are neither exceptionally high nor low, and the defendant's conduct is neither exceptionally extreme nor trivial, the outer constitutional limit on the amount of punitive damages is approximately four times the amount of compensatory damages.
4. The wealth of a defendant cannot justify an otherwise unconstitutional punitive damages award.

SPECIFIC PERFORMANCE: Specific performance is available even though the contract referred to lots which had not yet been subdivided. This violation of the Subdivision Map Act made the contract voidable at the option of the buyer, who chose to enforce the contract instead. The requirement in the standard CAR contract to mediate in order to collect attorney's fees does not apply where an action is filed in order to record a lis pendens and where mediation was conducted pursuant to the court's own practices.

ARBITRATION: The Federal Arbitration Act preempts C.C.P. Section 1298, which requires that an arbitration clause in a real estate contract contain a specified notice and be in a specified type size. Preemption requires that the transaction affect interstate commerce, which the court found existed because the anticipated financing involved an FHA loan, and the purchase agreement was on a copyrighted form that stated it could only be used by members of the National Association of Realtors. [Ed. note: the form does not say that!] However, in the unpublished portion of the opinion, the court held that the arbitration clause could not be enforced because it required that the parties initial it in order to acknowledge their agreement to arbitration, and they did not all do so. [Ed. note: the concurring opinion makes much more sense than the majority opinion!]

ADVERSE POSSESSION / PRESCRIPTIVE EASEMENTS: A prescriptive easement cannot be established where the encroacher's use is exclusive. The Court affirmed the trial court's order requiring the property owner to sign an encroachment agreement or remove the encroachment.

ADVERSE POSSESSION / PRESCRIPTIVE EASEMENTS:
1) In the uncertified Part I of the opinion, the court rejected Defendant's claim of adverse possession because real property taxes were not paid on any area outside of Defendant's lot. The court rejected defendant's creative argument that real property taxes were paid on all land within the setback area where defendant's house was 3-1/2 feet from the property line, and a zoning ordinance required a 5-foot setback.
2) A prescriptive easement cannot be established where the encroacher's use is exclusive. The opinion contains an excellent discussion of the case law on this issue.
3) The 5-year statute of limitations in C.C.P. Sections 318 and 321, within which a plaintiff must bring an action to recover real property, does not commence until the encroacher's use of the property has ripened into adverse possession.

INSURANCE: Where an insurance policy requires an insured who has filed a claim to submit to an examination under oath, that obligation is a condition precedent to obtaining benefits under the policy. The insurer is entitled to deny the claim without showing it was prejudiced by the insured's refusal.

PUBLIC STREETS: An offer of dedication of a public street that is not formally accepted may, nevertheless, be accepted by subsequent public use. This is known as common law dedication. However, counties have a duty to maintain only those roads that are "county roads", and a public road does not become a county road unless specifically accepted as such by the appropriate resolution of the Board of Supervisors.

LEASES / ESTOPPEL CERTIFICATES: A lease contained an option to renew for 5 years, but the tenant signed an estoppel certificate stating that the lease was in full force and effect, and that the tenant had no options except the following: (blank lines that followed were left blank). The Court held that the tenant was not bound by the estoppel certificate because it was ambiguous as to whether it referred only to options outside of the lease or whether the tenant had somehow given up his option rights.

GOOD FAITH IMPROVER: Attorney's fees and costs may be included in the calculation of damages awarded against a person bringing an action as a good faith improver under C.C.P. Section 871.3, regardless of whether the costs and fees were incurred in prosecuting a complaint or defending against a cross complaint, and even where the good faith improver issues are part of a quiet title action which would not ordinarily support an award of attorney's fees and costs.

JUDGMENTS / BANKRUPTCY: The time for renewing a judgment was 10 years from entry of the judgment, plus the amount of time between the debtor's filing of a bankruptcy petition and the date of the Bankruptcy Court's order of nondischargeability, plus an additional 30 days under Bankruptcy Code Section 108(c). The court reached this conclusion even though the judgment was entered before the bankruptcy petition was filed, and the 10-year period for renewing the judgment expired long after the bankruptcy was closed.

NOTE: I believe the judge misunderstood the automatic stay and Bankruptcy Code Section 108(c). I do not believe the automatic stay applies when a period of time for taking an action commences prior to bankruptcy, and expires after the bankruptcy case is closed.

HOMEOWNER'S ASSOCIATIONS: Regulations adopted and interpreted by a Homeowner's Association must be reasonable from the perspective of the entire development, not by determining on a case-by-case basis the effect on individual homeowners.

INSURANCE: Civil Code Section 2860(c) provides for the arbitration of disputes over the amount of legal fees or the hourly billing rate of Cumis counsel, but does not apply to other defense expenses.

REVERSED BY CALIFORNIA SUPREME COURT 8/11/05
COMMUNITY PROPERTY: The doctrine of partial performance exempts the couple's oral transmutation agreement from the writing requirement of section 852 because Section 852 does not expressly preclude application of the traditional exceptions to the statute of frauds.

MECHANIC'S LIENS: ERISA does not bar an action to foreclosure a mechanic's lien filed by workers and their union for unpaid pension trust fund benefits under Civil Code Section 3110. The Court distinguished its opinion in Carpenters So. Cal. Admin. Corp. v. El Capitan Development Co. (1991) 53 Cal.3d 1041, which held that ERISA preempts mechanic's lien claims by pension trust funds under CC Section 3111.

Section 3110 is not preempted because it is a general mechanic's lien statute giving laborers mechanic's lien rights for wages (which include sums the owner is supposed to pay to workers' pension funds). Section 3111, on the other hand, is preempted by ERISA because it specifically gives mechanic's lien rights to pension funds themselves.

INSURANCE / ATTORNEY-CLIENT PRIVILEGE: Factual claims investigations by an attorney are not protected by the attorney-client privilege. Only those communications that constitute the actual requesting or rendering of legal advice are protected. The Court must conduct a particularized review of each deposition question and document to determine which are protected by the attorney-client and/or work product privileges.

RIGHT OF FIRST REFUSAL: Unless the agreement provides otherwise, a transfer between cotenants does not trigger a right of first refusal, and the right of first refusal remains intact after such transfer. It would have been triggered if one of the cotenants had sold his interest to a third party.

ESCROW / SPECIFIC PERFORMANCE:
1. A "time is of the essence" clause was not enforced because the seller waived it by continuing to deal with respondent after the date specified in the contract.
2. A trust is not a legal entity, and title is held, not by the trust, but by the trustees in their representative capacities.
3. The plaintiff made the mistake of suing and obtaining a judgment for specific performance against the trustees in their individual capacities. Nevertheless, the Court held that the judgment ordering them to convey title was sufficient because the trust is a revocable inter vivos trust and the defendants had the power to direct the sale of property owned by the trust.

ESCROW / SPECIFIC PERFORMANCE: A seller cannot invoke a "time is of the essence" clause and unilaterally cancel an escrow where the escrow did not close on time due to the seller's failure to timely comply with its escrow obligations.

STATUTE OF FRAUDS: Even though parol evidence is necessary to interpret some terms of the agreement, a writing is sufficient to satisfy the statute of frauds even though it is signed by an agent on behalf of an unidentified principal/seller and the agent is identified as the seller. The writing met the requirements of setting forth the price, terms and manner of payment and description of the property.

SUBDIVISION MAP ACT: A subdivision map cannot effect a merger with adjoining property unless the owner of that property consents to the merger. Note that this case contains a good discussion of the history of the Subdivision Map Act.

HOMESTEADS: In a partition action, a party who wishes to assert a homestead interest must do so in the partition action, and a declaration of homestead recorded after judgment does not have priority over the judgment.

QUIET TITLE: A quiet title action is a form of declaratory relief. Since the compulsory cross-complaint rule does not apply to declaratory relief actions, it also does not apply to quiet title actions.

COMMUNITY PROPERTY: A husband successfully set aside a deed conveying his separate property to himself and his wife as joint tenants. The wife failed to overcome the burden, deriving from Family Code Section 721, requiring the advantaged spouse to demonstrate that the deed was not obtained through undue influence.

CONTRACTS: Code of Civil Procedure Section 12a extends to the next business day, the time for performing acts required by law when the last day for performance falls on a weekend or holiday. The Court held that this statute does not apply to acts governed solely by contract, so the time for exercising an option was not extended when the last day for performance fell on a weekend.

JUDGMENT LIENS: This case involves an execution sale of real property to enforce a money judgment.
1. The prohibition of Code Civil Procedure Section 704.740 against executing on a dwelling applies only to a dwelling in which the debtor resides on the date the judgment creditor's lien attaches to the property.
2. The Court points out that even if the execution sale occurred without obtaining a court order under C.C.P. Section 704.740, the sale could not be set aside if the purchaser is a 3rd party because the sale to a 3rd party is absolute under C.C.P. Section 701.680.

FRAUDULENT CONVEYANCE: The Uniform Fraudulent Transfer Act applies to transfers under marital settlement agreements. Gagan v. Gouyd (1999), 73 Cal.App.4th 835, which held to the contrary, is disapproved. However, in determining whether the debtor was rendered insolvent by the transfer, future child support obligations are not considered a debt under the UFTA because they are intended to be paid from future earnings, not present assets. This is different than other types of unmatured contingent debts, which are recognized as debts under the UFTA.

TITLE INSURANCE: An arbitration clause in a title insurance policy is binding on an insured where the policy is incorporated by reference into the preliminary report, even though the insured did not see the policy or the arbitration clause before approving the preliminary report.

INSURANCE: Where an insured tendered a defense and then negotiated a settlement on its own, the breach relieved the insurer of post-tender costs, including the cost of settlement. [Logically, this case should apply to title insurance policies, which contain the following, or a similar, provision: "The Company shall not be liable for loss or damage to any insured for liability voluntarily assumed by the insured in settling any claim or suit without the prior written consent of the Company."]

CONTRACTS: Delivery of a Transfer Disclosure Statement is a non-waivable condition precedent to a buyer's duty of performance in every sale of real estate covered by California Civil Code Section 1102 (one to four family residences), even when the buyer expresses an intention not to use the property as a personal residence.

TRUST DEEDS: A boilerplate dragnet clause in a deed of trust does not apply to a separate contemporaneous loan secured by other property, where the deed of trust does not specifically refer to the other loan. Therefore, the deed of trust does not secure payment of the other loan. The Court's ruling was based on the mutual intent of the parties, and it seems extremely difficult to establish such intent in the case of a contemporaneous or preexisting obligation, which is not specifically described in the deed of trust.

LIS PENDENS
1. A lis pendens may be the basis for an action for slander of title if the complaint in the underlying action does not allege a real property claim, or the alleged claim lacks evidentiary merit.
2. Even when a lis pendens is privileged, an action for malicious prosecution of the underlying lawsuit is not precluded.
3. The recordation of a notice of lis pendens is not a valid basis for a cause of action for abuse of process, even if done for an improper purpose, because the recordation of a lis pendens is not a "process".

SPECIFIC PERFORMANCE: 1. Defendant/seller made a motion for summary judgment in a specific performance action filed by plaintiff/buyer. Plaintiff had refused to answer a deposition question about his financial ability to perform, a necessary element of his specific performance cause of action. Defendant had no independent evidence of plaintiff's inability to perform. The Court held that a defendant who brings a motion for summary judgment must present actual evidence of plaintiff's inability to perform, and cannot simply point out that fact through argument. (Defendant should have sought to compel an answer to the deposition question or propounded interrogatories.)
2. A written contract to purchase real estate satisfied the Statute of Frauds even though the property was to be subject to CC&R's, the terms of which were to be negotiated by the parties prior to close of escrow.

TRUSTEE'S SALES: A trustee's sale was held without a trustee's knowledge of an agreement between the lender and trustor to postpone the sale; the error was discovered before delivery of a trustee's deed; the trustee refused to deliver a trustee's deed to the successful bidder; and the trustee returned the bid amount, plus interest, to the bidder. The court held that (1) the trustee's sale was not valid, (2) the trustee's acceptance of the bid did not constitute a contract between the trustee and the bidder and (3) the bidder is not entitled to damages, other than recovering interest on the bid amount.

The court avoided the quagmire of determining whether the sale was "void" or "voidable" by refusing to base its decision on common law contract principles of voidness and, instead, decided the case on principles of interpretation of the statutory scheme for nonjudicial foreclosure sales.

TITLE INSURANCE: Plaintiffs sought damages for financial benefits given by banks to title companies for plaintiffs' funds held in escrow accounts. The court held that plaintiffs did not state a cause of action because even if the conduct was illegal, there was no duty to pay interest to plaintiffs, so they suffered no damages. The court held that plaintiffs did state a cause of action on their additional claim for unjust enrichment for charging excessive fees for various services.

TRUSTEE'S SALES: Under the unique facts of this case, a trustee's sale is not invalid after a substitution of trustee was recorded replacing the trustee who was conducting pending trustee's sale proceedings. The Court ordered reformation of the substitution of trustee since, by agreement of the parties, it was intended to be used for only a partial release of a portion of the secured property. The Court pointed out that failure to record a proper substitution of trustee will not justify reformation in every case, but that this case involved a complex set of transactions that included multiple forbearances and a partial release of the trust deed.

CONTRACTS: The plaintiff homeowner prevailed in an action against a purchaser, establishing that the contract (a CAR Residential Purchase Agreement) was not validly created. In the only published portion of the opinion, the Court held that the plaintiff was not entitled to attorneys fees pursuant to the contract provision that precludes a prevailing party from recovering attorney's fees if that party files an action without first attempting to resolve the matter through mediation. Ordinarily, a party who establishes the invalidity of a contract can, nevertheless, take advantage of a mutual attorney's fees provision in the contract. However, in order to do so, the prevailing party must satisfy the condition precedent of first pursuing mediation.

MECHANIC'S LIENS: The court applied the "participating owner doctrine", which subjects property to a mechanic's lien, despite a notice of nonresponsibility, if the owner participates in the contract to make improvements. Four factors indicated the owner/lessor's participation in the construction: 1) The lease prohibited the present use of the premises, so the tenant was impliedly required to make improvements, 2) the lessee was required to obtain the lessor's approval of plans and specifications, 3) the lessor received a monthly administrative fee for overseeing the construction, and 4) the lessor stood to gain from the improvements and as able to charge higher rent than if the improvements were not made.

DEEDS OF TRUST: Civil Code Section 2911, which provides that a lien is extinguished by the lapse of time within which an action can be brought upon the principal obligation, does not apply to a power of sale conferred on a trustee by a deed of trust. However, the power of sale expires under section 882.020 either 1) 60 years after recordation of the deed of trust, if the maturity date of the debt is not ascertainable from the record, or 2) 10 years after the maturity date of the obligation if the maturity date is ascertainable from the record. The term "ascertainable from the record" does not include the contents of unrecorded documents referred to in a recorded document.

SUBDIVISIONS: Subdivision maps drawn and recorded before 1893 do not create legal parcels within the meaning of California's Subdivision Map Act. The exemption in Gov. Code Section 66499.30(d) applies only to parcels which were previously conveyed, and not to parcels merely shown on a pre-1893 recorded map, but not separately conveyed.

BANKRUPTCY: A state court does not have the power to dismiss a case that has been stayed by the automatic stay in a bankruptcy case.

FORECLOSURE: The 10-year time for renewing a deficiency judgment runs from the entry of the deficiency judgment, not from the earlier date of the foreclosure decree.

TRUSTEE'S SALES: A trustee's sale cannot be set aside where the lender received payment after foreclosure. A misunderstanding relating to an agreement to postpone the sale is not sufficient to set aside the sale because it does not constitute an irregularity in the sale proceeding itself.

TITLE INSURANCE: A title insurance policy does not cover the insured lender's loss resulting from overvaluation of the property due to a fraudulent scheme. The scheme involved strawman buyers coming into title who did not know their names were being used. Title was still marketable, even though the lender lost money when it foreclosed and re-sold the properties for less than the loan amounts.

TITLE INSURANCE: A recorded Notice of Substandard Structure does not constitute a "defect in or lien or encumbrance on title" or "unmarketability of title" within the meaning of those terms in a title insurance policy. Also, the insured cannot rely on the exception in the policy exclusion for "the effect of any violation of . . . governmental regulations, except to the extent that a notice of the enforcement thereof . . . has been recorded in the pubic records" because an exclusion cannot create coverage.

An insurer's failure to comply with its obligation by regulation (10 CCR 2695.7(f)), to notify a third party claimant of the statute of limitations pertaining to a claim, may estop the insured from relying on the statute of limitations as a defense to a third party claim against it.

INSURANCE: An insurer was not precluded by Insurance Code section 554 from denying liability for pre-tender expenses incurred to defend an underlying action, under a no-voluntary-payments provision of an insurance policy, and that provision precludes recovery of pre-tender expenses.

JUDGMENT LIENS: A judgment lien that attaches to the debtor's 1/2 tenancy in common interest in real property continues to encumber that 1/2 interest after the owners convey the property to themselves as joint tenants and the judgment debtor subsequently dies. The court acknowledged the rule that a lien that has attached to the interest of a joint tenant expires if that tenant dies before the other tenant. However, the rule does not apply where the lien attached prior to creation of the joint tenancy.

COTENANCY: A probate court does not have jurisdiction to order a cotenant to execute documents for a lot line adjustment. The only way to compel a cotenant to dispose of her interest is by way of a partition action.

TITLE INSURANCE: A title insurance policy's coverage for "[l]ack of a right of access to and from the land" does not cover lack of physical or practical access. However, the Court points out that it did not decide whether an insured lacks a right to access where a governmental entity has lawfully prohibited or failed to grant the insured access to its property from other property it owns.

COMMUNITY PROPERTY: The Moore/Marsden rule provides that when community property funds are used to reduce the principal balance of a mortgage on one spouse's separate property, the community acquires a pro tanto interest in the property.

This case extends the rule to improvements to separate property using community property funds. If the improvements do not enhance the property's value, the community's recovery will be limited to reimbursement of one-half of the community funds spent on improving the property. However, if the improvements contributed to an increase in the property's equity value, the community will be entitled to a pro tanto interest in the property.

INDIANS: Where an Indian Tribe and its majority-owned limited liability company assert sovereign immunity in a motion for summary judgment, a court may compel discovery limited to the issue of whether a proper waiver of sovereign immunity occurred. Here, the Tribal Constitution provided that sovereign immunity can be waived only by express resolution enacted by a majority vote of the Tribal Counsel. It is unclear without discovery whether such waiver occurred when the Tribal chairman signed a contract in the presence of 5 of 7 members of the Tribal Counsel. Also, discovery is needed, in connection with alter ego allegations, as to the issue of whether the chairman was acting in a corporate or governmental capacity.

INSURANCE: An offset for damages pled as an affirmative defense does not constitute a "suit" because an offset does not result in affirmative relief. The Court could not analyze the language of the policy because plaintiff alleged the provisions of the policy in general terms, without attaching a copy. The Court said that plaintiff will need to prove at trial that the insurance policy's defense and indemnity provisions are broad enough to include a setoff claim.

CONTRACTS:
1. The four-year statute of limitations of C.C.P. 343 applies to an action by a State agency to avoid a lease executed in violation of Government Code Section 1040. (Section 1040 prohibits governmental officers from having a financial interest in contracts they sign.) The Court did not reach the question of whether a shorter statute of limitations may apply.
2. The Court acknowledged that no statute of limitations applies to an action by a governmental entity regarding public-use property that cannot be alienated at all, and that title to public property cannot be acquired by adverse possession. But those principals do not apply to a lease which can legally be made, but which is made improperly.
3. The statute of limitations applies whether the document under challenge is "void" or "voidable".

INDIANS: Claims that fall within the preemptive scope of the Indian Gaming Regulation Act (IGRA) are considered to be federal questions. However, IGRA regulation is limited to management contracts and collateral agreements. Suit may be brought in State court where the breach of the contract claim is based on state law, as long as the Tribe has waived sovereign immunity. Also, the validity of the waiver of immunity is to be made by the trier of fact.

MECHANIC'S LIENS: A contractor does not necessarily lose his right to compensation and a mechanic's lien when he performs additional work after discovering that his contractor's license has been cancelled, as long as he did not have knowledge or notice of the cancellation before the start of the job. Factors relevant to the contractor's right to recover may include the reason the license was lost, the stage of construction at the time the contractor received actual or constructive knowledge of the loss and the desires of the property owner.

EASEMENTS: Previous common ownership by the federal government satisfies the requirement of common ownership under the doctrine of easements by necessity. The case contains a good discussion of the requirements and characteristics of easements by necessity.

INSURANCE: An insurance company can be liable for malicious prosecution of a frivolous declaratory relief action.

DEEDS OF TRUST: A note and deed of trust executed by a husband in favor of his wife, purportedly as reimbursement for the wife's separate property contributions, were invalid because the loan documents created an unfair advantage in favor of the wife. The transaction violated Family Code Section 721(b), which subjects transactions between spouses to general rules governing fiduciary relationships.

RAILROAD DEEDS / MARKETABLE RECORD TITLE ACT:
1. A deed to a railroad conveys a fee where the granting clause of the deed does not refer to a "right of way". The court acknowledges that some courts have held that an easement is created where the granting clause declares the purpose of the grant to be a right of way for railroad purposes, but that was not the situation in this case.
2. A subsequent paragraph in the deed created a condition subsequent providing for a reversion to the grantor if the land ceased to be operated as a railroad for six months. That reversionary interest expired under Civil Code Section 885.030 of the Marketable Record Title Act.
3. The Marketable Record Title Act does not violate the Contract or Due Process clauses of the State and Federal Constitutions.

RECORDING: Only two counties, San Bernardino County and Orange County, are authorized to accept documents containing electronic signatures for recording under Government Code Section 27279.1.

INSURANCE: Where an insurance policy is lost, an insured does not need to introduce evidence of the specific language of the policy, but rather only needs to prove the substance of the policy with sufficient evidence to show coverage. The court did not reach the issue of whether the standard of proof required of the insured is proof by clear and convincing evidence, or merely proof by a preponderance of the evidence, because in an earlier appeal the appellate court held that the standard was a preponderance of the evidence and that issue (from which an appeal was not taken) became the "law of the case".

ROADS: This is a long case holding that a public road was created by implied dedication where an owner of property acquiesced in public use of a road for a long period of time.

WILLIAMSON ACT / INDIANS: Federal law does not preempt prior contractual restrictions on land (in this case, a Williamson Act contract) agreed to before the land passes to the Federal government in trust for an Indian tribe. However, the Board of Supervisors properly exercised its discretion to approve a cancellation of the Williamson Act contract upon a determination that cancellation was in the public interest.

Note: The Court points out that in a prior unpublished opinion it held that the Tribe waived sovereign immunity in this case by making a general appearance and by entering into a contract with the County in which it waived sovereign immunity.

USURY: The usury exemption for loans arranged by real estate brokers applies where a broker arranged a loan for limited partnerships of which the broker was the general partner, even though the broker's only compensation was his share of each partnership's profits.

DEEDS: The court applies the "amanuensis rule" to validate a deed in which the grantee/daughter of the grantor signed the grantor's name at the direction of the grantor. The court held that the grantor does not need to be physically present when the deed is executed in his name, as long as the execution is being done at his direction. The fact that the amanuensis was also the grantee creates a presumption that the deed is invalid. However, the grantee overcame the presumption by evidence that the deed was not the result of fraud or duress.

The case also contains an interesting discussion regarding the rule that a power of attorney authorizing the attorney in fact to "sell, exchange, transfer or convey" does not authorize a conveyance as a gift or without substantial consideration.

DEEDS OF TRUST / PRIORITY: When the original owner's repurchase of property after a trustee's sale revives a junior deed of trust, that lien is junior to a new purchase-money deed of trust.

DEEDS OF TRUST: It is not an unfair business practice for a lender to add to the amount due on a loan the actual cost of monthly inspections of property between the time the loan goes into default and the recordation of a notice of default. The deed of trust in this case, which was apparently a standard Fannie Mae/Freddie Mac form, specifically allowed the lender to make property inspections if the loan is in default.

DEEDS OF TRUST / FORECLOSURE: A lender's tort damages (as well as contract damages) are limited to the difference between the amount secured by the deed of trust and the amount of the lender's credit bid at a foreclosure sale (the credit bid rule). Here, the lender's claim as a loss payee under an insurance policy was limited by the credit bid rule, but the lender could additionally recover prejudgment interest and attorney's fees expended to recover amounts due under the insurance policy (but not attorney's fees expended to recover damages for bad faith).

ESCROW: A lender's loan instructions created a contract with the escrow holder where the escrow holder signed and returned an acknowledgement and acceptance. Ed. note: the same reasoning should apply whenever an escrow holder acts on typical loan instructions that say that the lender's funds can be used only upon compliance with the instructions.

EASEMENTS: A water company that had an easement pertaining to water facilities could not lease the easement to cell phone companies to support cell phone equipment. Since the water company did not have the power of eminent domain for purposes other than water facilities, the defendant's actions constituted trespass and not inverse condemnation.

REAL PROPERTY: A row of trees planted along or near a property line to separate or mark the boundary is a "structure in the nature of a fence" and may be a spite fence under Civil Code §841.4 if the other elements of the statute - unnecessary height above 10 feet and dominant purpose of annoying the neighbor - are met.

INSURANCE: It is established law that the statute of limitations to bring an action against an insurer is tolled from the time the insured gives notice to the insurer until there is an unequivocal denial of the claim. Here, the question was whether a letter from the insurer was sufficient to start the running of the statute of limitations. The Court held that the letter was sufficient and was not rendered equivocal by the failure to specifically use the words "deny" or "denial" or by a statement of willingness to consider any additional information provided by the insured.

INSURANCE: A "no voluntary payments provision" in an insurance policy bars reimbursement for pre-tender expenses because until the defense is tendered, there is no duty to defend. However, this rule does not apply if the expenses are incurred involuntarily, such as where the urgency of time pressures requires the insured to expend money before tendering the defense. Regarding the duty to indemnity, the Court points out that if the policy covers the claim, the amount of reasonable, good faith settlement payments made by the insured are recoverable.

FORECLOSURE: A lender cannot escape the consequences of the full credit bid rule by rescinding the trustee's sale on the basis of a mistake in making the bid. A full credit bid precludes a lender's recovery as a loss payee under a fire insurance policy because the full credit bid extinguishes the debt.

EASEMENTS: Civil Code Section 1009 precludes the public from obtaining a prescriptive easement for recreational purposes. Furthermore, an individual cannot obtain a prescriptive easement for a network of trails. The Court notes that cases have limited prescriptive easements for traveling across the property of another to a single, defined right-of-way.

CONTRACTS: A contract to negotiate an agreement gives rise to a cause of action for damages, unlike an unenforceable "agreement to agree". However, the measure of damages is not the injured party's lost expectations under the prospective contract, but only reliance damages caused by the injured party's reliance on the agreement to negotiate. The contract to negotiate in this case was supported by $3,000.00 consideration.

INSURANCE: Where a defending insurer refuses a settlement offer within policy limits, it is not liable for a stipulated settlement between the insured and the claimant, even where the settlement has been approved under C.C.P. Section 877.6.

NEGOTIABLE INSTRUMENTS: Under Civil Code Section 1526, a creditor may cross out "payment in full" language on a check and cash the check without agreeing that the check represents a full payment. Under Commercial Code Section 3311, a creditor must either accept such a check in full settlement of the claim or reject the check. The Court held that these statutes hopelessly conflict and that Commercial Code Section 3311 controls because it was enacted later.

ESCROW: An escrow holder owes a duty of care only to parties to the escrow. Here, the escrow holder is not liable to the assignee of a note for paying the assignor, even where the assignment was recorded. The court disapproves Kirby v. Palos Verdes Escrow (1st Dist.)

EASEMENTS: An easement in favor of a tenant may be implied over adjacent property owned by the landlord if it is reasonable necessary for the tenant's use of the lease premises and if the lease does not expressly exclude the easement. However, the tenant was not able to establish an easement by either prescription or necessity.

LOANS
1. The Home Owner's Loan Act, which governs federally chartered savings and loan associations, preempts the restrictions in Civil Code Section 2948.5 to charging interest before close of escrow.
2. The Court also interpreted former CC 2948.5, reaching a conclusion contrary to Attorney General Opinion 99-307. The Attorney General concluded that Section 2948.5 prohibits a lender from charging a borrower interest on funds prior to close of escrow. The Court held that a lender can charge interest from the time the funds are "available" to the escrow, even if escrow has not yet disbursed the funds to the borrower.

INDIANS: Sovereign immunity is waived where the Tribal Council adopted a resolution approving a contract which provided that disputes would be decided by arbitration in accordance with the rules of the American Arbitration Association "in any court having jurisdiction thereof". The resolution approving the contract was sufficient to satisfy a tribal ordinance providing that sovereign immunity can only be waived by a resolution explicitly waiving immunity.

CONTRACTS: An agreement concerning the sale of residential property that required additional escrow money after satisfaction of contingent conditions is a contract for purchase rather than an option to buy, even if the additional money is labeled "non refundable purchase option monies." Accordingly, upon the buyer's breach, the seller was limited to collecting 3% of the sale price as liquidated damages, rather than the full amount of the deposit. The case contains a good explanation of the manner in which a properly drafted option agreement permits a seller to avoid limitations on the amount of liquidated damages.

DEEDS OF TRUST/ FORECLOSURES
Where senior and junior debts secured by the same property were once held by the same creditor, and the creditor thereafter sells the loans to two independent parties, C.C.P. 726 (the one-form-of-action rule) does not prohibit the junior lienholder from bringing a separate action to recover its debt following the senior lienholder's judicial foreclosure sale. Note: It seems that the court's reasoning should apply even if the senior lienholder had nonjudicially foreclosed.

The court acknowledges the general rule that where a creditor makes two successive loans secured by separate deeds of trust on the same real property and nonjudicially forecloses under its senior deed of trust, the creditor is barred from suing on the junior debt.

TITLE INSURANCE
1. PUBLISHED: In a claim under a title insurance policy, the determination of whether title is marketable is a question of fact for the jury because in this case there is a question of whether a reasonable purchaser would buy the property knowing about the title defect. The court points out that in other situations, such as where the defect in title is either very small or very large, marketability can be determined as a matter of law.
2. PUBLISHED: Exclusions in the title policy for rights, interests or claims of parties in possession not shown by the public records may apply, but in this case a jury needs to determine whether the defect is reflected in the public records because there was conflicting expert testimony as to whether the defect was reflected in the public records. (It seems to me that whether or not something is shown by the public records is a question of law. However, here the court first allows expert testimony on this legal issue, then since the experts disagree, the court refers the question to the jury. So the court manages to twist a question of law into a question of fact!)
3. UNPUBLISHED: Damages for covered title risks are the diminution in market value as of the date of discovery of the defect. The court said lost profits, holding costs and decline in market value might have been a correct measure of damages if title remained unmarketable or if the title insurer had invoked its right to clear title and not done so expeditiously.

Reese v. Wong     Docket
93 Cal.App.4th 51 (1st Dist. 10/24/01)     Review by Cal. Sup. Ct. DENIED 12/3/01

CONTRACTS: Pursuant to Civil Code Section 3306, damages for breach of a contract to sell real property include the difference between the price agreed to be paid and the value of the property. The Court held that the value is determined at the date of breach, not the date of trial.

CREDITORS' RIGHTS: A creditor cannot set aside a conveyance by the debtor as a fraudulent conveyance unless there is enough equity in the property for the creditor to enforce his judgment. The debtor's homestead exemption is taken into consideration in determining the amount equity because under C.C.P. Section 704.800 a homestead cannot be sold without a minimum bid equal to all encumbrances and senior liens, plus the homestead exemption.

INTESTATE SUCCESSION: For the most part, this case is not particularly significant for the title industry. However, it is worth noting that under some circumstances heirs may include children who were given up for adoption by the decedent.

DEEDS OF TRUST: A provision in a deed of trust is valid where a trustor is obligated to name the lender as loss payee of an earthquake insurance policy if such a policy is obtained, even though obtaining earthquake insurance is optional.

PROMISSORY NOTES: This is a 9th Circuit case interpreting California law. Even where a promissory note states that notice or demand is not necessary to accelerate the note, the holder of the note must still take affirmative action to notify the debtor that it intends to accelerate. Also, since penalty interest ran by the terms of the note only after acceleration, the default interest rate was not invoked.

MECHANIC'S LIENS: A mechanic's lien claimant is not precluded from enforcing the contractor's personal liability after foreclosing or releasing the lien.

INSURANCE
1. The duty of defense does not include a duty to prosecute counterclaims or cross-complaints.
2. An insurer's reservation of the right to seek reimbursement of defense costs allocable to noncovered claims does not create a conflict of interest requiring the insurer to pay for Cumis counsel.
3. Note that the insurer initially accepted the defense with a reservation of rights as to some causes if action, but subsequently withdrew the reservation of rights as to those claims (except that the reservation of rights continued to apply to punitive damages, which does not create a conflict). The Court treated this withdrawal the same as not asserting a reservation of rights in the first place.

RELATIVE HARDSHIP DOCTRINE: A Court has discretion to balance hardships and deny removal of an encroachment if it was innocently made, the cost of removal greatly exceeds the inconvenience to plaintiff, and the plaintiff is compensated for damages caused by the encroachment. Since the relative hardship doctrine is based on a Court's equity powers, and not on the law of prescriptive easements, cases prohibiting exclusive prescriptive easements in residential boundary disputes are inapplicable. The Court also notes in Footnote 11 that since the scope of a prescriptive easement is determined by its historical use and since exclusive easements, though rare, are possible, the holdings of those cases may be overbroad.

Curiously, the Court ruled that the easement awarded to defendants would terminate when they transferred the property or no longer lived there.

ESCROW / CONSTRUCTIVE NOTICE: Knowledge of an escrow holder is imputed to the parties to the escrow. (The court points out that knowledge of a title company is not imputed to the insured.) In this case, title to the subject property was held in the name of "Mike Cloney" and the lien named "James Michael Cloney". The escrow agent learned of Cloney's true name from Cloney's driver's license at the time the escrow officer notarized his signature on the grant deed. The court held that a judgment lien recorded against a judgment debtor under one name imparts constructive notice of the lien as to real property held under a different name, where the escrow agent gains actual knowledge of both of the names used by the seller.

MECHANIC'S LIENS: A mechanic's lien is invalid where the preliminary notice contains an estimate of the cost of work that is not "a derived figure, arrived at by rational analysis". Here the preliminary notice contained an estimate of $10,000 and the mechanic's lien was in the amount of $160,000.

BANKRUPTCY / TRUSTEE'S SALES: Additional actual notice of a trustee's sale is not required after a debtor's bankruptcy case is dismissed, when the sale was orally postponed during the pendency of the case. 

DEEDS / CAPACITY: A deed that is void due to lack of capacity of the grantor cannot be set aside after the statute of limitations in C.C.P. Sections 318 (5 years - possession), 319 (5 years - title) or 328 (20 years tolling for minority or insanity) expires. The court points out that the statute of limitations applies whether the document under challenge is "void" or "voidable". (Ed.: It seems to me that this court is actually saying that there is no such thing as a void deed. If the right to set aside a "void" deed can be lost, it must have been merely voidable all along. Note also that even if a deed is void, the grantee may be able to establish title under theories of adverse possession or ratification.)

CIRCUITY OF PRIORITY. The Court looked to the majority view in other states since this is a case of first impression in California. The situation is that A, B & C have liens on the subject property, and A then subordinates his lien to C's lien. The problem with this is that C appears to be senior to A, which is senior to B, which is senior to C, so that each lien is senior and junior to one of the other liens.

The Court held that the lien holders have the following priority: (1) C is paid up to the amount of A's lien, (2) if the amount of A's lien exceeds C's lien, A is paid the amount of his lien, less the amount paid so far to C, (3) B is then paid in full, (4) C is then paid any balance still owing to C, (5) A is then paid any balance still owing to A.

This is entirely fair because A loses priority as to the amount of C's lien, which conforms to the intent of the subordination agreement. B remains in the same position he would be in without the subordination agreement since his lien remains junior only to the amount of A's lien. C steps into A's shoes only up to the amount of A's lien.

INSURANCE: For title insurance purposes, the case is worth mentioning only because of its holding that when a lawsuit against the insured includes both covered and uncovered claims, the insurer must defend the entire action. This is not new since the California Supreme Court made this rule clear in Buss v. Superior Court (1997) 16 Cal.4th 35.

For real estate developers, however, this case is very significant. The underlying lawsuit was a construction defect action against the developer and two of its subcontractors. The subcontractors had obtained for the developer endorsements to the subcontractors' general liability policies. The endorsements added the developer as an insured with respect to liability arising out of the subcontractors' work. Apparently, the covered allegations were a small part of the lawsuit, and most causes of action were not covered. Nevertheless, the court held that the insurer was obligated to provide the developer with a defense to the entire action. The opinion was originally unpublished, but the court ordered it published after receiving a huge number of requests from developers and their trade association.

INSURANCE: The case discusses the "Genuine Dispute Doctrine", pursuant to which an insurer is not liable in bad faith for denying or delaying the payment of policy benefits due to the existence of a genuine dispute with its insured as to the existence of coverage liability or the amount of the insured's coverage claim. The Court held that the Doctrine applies to factual, as well as legal, issues, and that the Doctrine applies when an insurer's position with respect to disputed points is reasonable, including reasonable reliance on experts. Furthermore, summary judgment is available to the insurer where there is no dispute as to the underlying facts. NOTE: the insured was able to justify only 45% of its original claim and the insurer paid 80% of that sum before the insured filed suit. Clearly, the court was moved by the unreasonableness of the insured's claims.

DEEDS OF TRUST / BANKRUPTCY: Under B&P Code Section 10233.2, collateral assignees of a note secured by a deed of trust perfected their security interest even though the Real Estate Broker/Assignor was in possession of the note and deed of trust. This is an exception to the general rule in California that the secured party must take possession of the security instrument in order to perfect the security interest (Cal. Com. Code §9304(1). (Note: After 7/1/01, see Cal. Com. Code §9313.)

TRUSTEE'S SALES: The Full Credit Bid rule does not preclude an action for negligence against a third party by a lender who is contractually compelled to repurchase the loan. Since the repurchasing lender is not the one who made the full credit bid, the requirement in  Alliance Mortgage Co. v. Rothwell (1995) 10 Cal.4th 1226 that the full credit bid, itself, must be the proximate result of defendant's conduct, is inapplicable.

TRUSTEE'S SALES
1. Postponing a trustee's sale for numerous, successive periods of 5 or fewer days does not revive the right of reinstatement under Civil Code Section 2924c(e).
2. Publication of the third notice of sale one day after the debtor filed bankruptcy did not violate the automatic stay.

JUDGMENTS: Renewal of judgments. A defendant who was never served in an action is entitled to an order vacating a renewal of a judgment under C.C.P. Section 683.170 without establishing a meritorious defense.

REAL ESTATE FUND: A title insurance company, after paying a loss under its policy caused by the fraud of a real estate broker, cannot obtain payment from the California Department of Real Estate Recovery Account.

INSURANCE: An insured can reserve its right to assert noncoverage unilaterally merely by giving notice to the insured. An insurer defending a personal injury suit under a reservation of rights may recover settlement payments made over the objection of the insured when it is later determined that the underlying claims are not covered under the policy.

TRUSTEE'S SALES: Under Civil Code section 2924h(g), owners of real property may have a trustee's sale set aside where competitors agreed to collaborate to bid on foreclosed property at lower price.

LEASES
1. A tenant who takes an assignment of a mortgaged ground lease, expressly assuming its obligations, remains liable to the lessor after foreclosure of the mortgage.
2. Recording provides constructive notice of a transfer or encumbrance to subsequent purchasers or mortgagees, not to an existing lienholder.

INDIANS: Indian tribes and tribal corporations are immune from tort actions in state court, even where the alleged acts were committed outside of Indian country.

DEEDS OF TRUST / FORECLOSURE: The Full Credit Bid rule does not preclude an action for negligent misrepresentation against a third party (as it does against the borrower), as long as the bid itself was proximately caused by the defendant's negligence. The California Supreme Court's holding in Alliance Mortgage Co. v. Rothwell (1995) 10 Cal.4th 1226 is not limited to fraud actions. The court rejects Pacific Inland Bank v. Ainsworth (1995) 41 Cal.App.4th 277 (4th Dist.), which held that a full credit bid precludes any action against a third party. Research question: Does a non-assuming purchaser from the original borrower get the same protection as the original borrower?

FRAUDULENT CONVEYANCE / BANKRUPTCY: A spouse, who received a fraudulent conveyance of community property from husband who filed for bankruptcy, is still subject to suit even after husband's debt was discharged in bankruptcy. After a debtor spouse's discharge in bankruptcy, collection on a debt by a creditor of the nondebtor spouse is limited to the nondebtor spouse's separate property and any pre-bankruptcy community property not included in the bankruptcy estate.

DEEDS / TRANSMUTATION: A grant deed transferring a separate property interest to the grantor and his/her spouse as joint tenants satisfies the "express declaration" requirement of Family Code §852 for a transmutation of separate property into joint tenancy property. §852(a) contains two requirements: (1) a writing that satisfies the statute of frauds; and (2) an expression of intent to transfer a property interest.

DEEDS OF TRUST: The holder of a junior TD obtained a judgment for judicial foreclosure (and possible deficiency). Subsequent to the time the judgment was rendered and before the creditor proceeded with a foreclosure sale, a senior deed of trust foreclosed, wiping out the creditor's junior lien. The judgment creditor sought to amend the complaint to take advantage of the sold-out junior lienholder exception to the one-action rule, by converting the judgment into one for the entire amount of the debt. The Court refused to allow this, holding that under Code of Civil Procedure section 726, prosecution of a judicial foreclosure action to judgment constitutes an election of remedy, barring a modification of the judgment.

DEEDS OF TRUST: A lender can recover actual and punitive damages for waste when the lender's security is substantially impaired by the borrower's bad faith failure to pay real property taxes. The court was apparently disturbed that the borrower could have paid the taxes and refused to do so in order to gain leverage in negotiations with the bank.

INSURANCE: Damage to easement rights is not covered by a comprehensive liability policy because an easement is not "tangible property". But the Court says: "Grading and trespassing on the neighbors' land would certainly seem to be "property damage" under the terms of the liability policies and would, if true, probably have triggered coverage . . . at least as to the trespass and ejectment causes of action".

TRUSTEE'S SALES: Inadequacy of the sale price is not a sufficient ground for setting aside a trustee's sale of real property in the absence of any procedural errors. The unpaid balance of the subject deed of trust was $144,000. The beneficiary intended to open the bidding at $100,000 but, as a result of a mistake by the trustee, bid only $10,000. The court refused to set aside the sale because there were no procedural errors and the mistake was within the discretion and control of the lender and beneficiary.

ANTI-DEFICIENCY: What happens where the beneficiary sues directly on the note without objection from the trustor, thereby waiving the security, but the note is a purchase-money note? The Court held that Section 580b does not apply where the security has been lost due to the sanction effect of C.C.P. Section 726. The Court distinguished cases holding that Section 580b applies notwithstanding the absence of a prior foreclosure sale. This is a federal court opinion, but the case is similar to Scalese (Pegorare) v. Wong, 84 Cal.App.4th 863, Mod.86 Cal.App.4th 25a (2000) Rev. Den. 1/10/01., and addresses the 580b issue more directly than Pegorare.

NEGOTIABLE INSTRUMENTS: A portion of the purchase price of real property was the assignment of a note secured by a deed of trust on other real property. Under old California Commercial Code Section 3414(1), an endorsement stating that the endorser assigns all "right, title and interest" was the equivalent of an endorsement "without recourse".

Note 1: New Section 3415(b) reads differently. It reads: "If an indorsement states that it is made ‘without recourse' or otherwise disclaims liability of the indorser, the indorser is not liable under subdivision (a) to pay the instrument." Section 4.16 of the 1998 supplement to California Commercial Law says, "a question remains" whether using assignment language containing the words "right, title and interest" is sufficient to make the note non-recourse.

Note 2: Witkin, Summary of California Law, Section 104, states: "Where a note is secured by a mortgage, failure to enforce the lien against the property does not relieve the indorsers. C.C.P. 726 does not apply, for the indorsement is a collateral contract not secured by the mortgage."

DEEDS OF TRUST: The Court awarded damages and specific performance in an action for specific performance of a note secured by a deed of trust. The defendant owner of the property could have, but did not, demand at trial that plaintiff beneficiary exhaust the security pursuant to C.C.P. Section 726 and 580b.

The Court held that if a beneficiary sues directly on the note, the owner can raise C.C.P. 726 as a defense to require the beneficiary to first exhaust the security. If the owner does not raise this defense, it is waived and the beneficiary can obtain a judgment directly on the note; however, the security interest is extinguished.

This was a purchase-money TD, but C.C.P. 580b never comes into play because Appellants gave up their right to have the security exhausted before becoming (potentially) personally liable for any shortfall.

DEEDS OF TRUST
1. There is no requirement under C.C.P. 580a that a creditor, after foreclosing on one item of real property security, obtain a fair value hearing before resorting to additional security.
2 A lender does not violate the implied covenant of good faith and fair dealing by underbidding.

DEEDS OF TRUST: A reconveyance executed by the trustee under a deed of trust is valid as to a bona fide purchaser, even though the trustee relied on a forged request for reconveyance.

This is an important principal, but the case simply restates existing law. This case cites well-established cases holding that a trustee has the power to reconvey a deed of trust even when it does so without authority from the lender. Since the reconveyance is valid as to a bona fide purchaser, the lender's only remedy in such a situation is an action against the trustee for money damages.

INSURANCE: An exclusion is invalid if it is:
1. Not included under the exclusion section an placed on an over-crowded page,
2. Included in a "General Limitations" section, but in a dense pack format, OR
3. Hidden in fine print in a policy section bearing no clear relationship to the insuring clause.

PROBATE / COMMUNITY PROPERTY: Upon the wife's death, community property contributed to a trust became the separate property of each trustor, so that revocation of the trust by the survivor revoked the trust only as to that trustor's 1/2 of the property. This is confusing, but the lesson to be learned is that in the face of a revocation by a trustor who is not the trustee, a conveyance of the property would require the signatures of both the trustee of the trust and the trustor.

The court also points out that a deed is not necessary to convey the property into the trust, as long as the trust agreement declares that the property is in the trust. However, in footnote 5 the court states that in order to be effective as to third parties, either the trust or a deed must be recorded (citing Estate of Heggstad, 16 Cal.App.4th 943).

ANTI-DEFICIENCY
1. Trustee/settlor of a revocable trust who guarantees the trust's loan is protected by C.C.P. 580b.
2. C.C.P. 580b cannot be waived even at the time of a subsequent loan modification.

ANTI-DEFICIENCY: C.C.P. §580b precludes waiver of anti-deficiency protection where construction, which was to be financed by senior TD holder's loan, was never commenced. In other words, the Spangler v. Memel rule did not apply.

WATER: Good explanation of water law, starting at Discussion section on p.7.

INDIANS: Defines "Indian Country" and "Dependent Indian Community".

CORPORATIONS: Under Corporations Code Section 313 a contract is binding upon a corporation when an individual who in fact occupies the office of president, chief financial officer, and secretary of a corporation, executes a contract on behalf of the corporation, even when the contract expressly identifies the individual solely as its president.

DEEDS OF TRUST: A lender cannot satisfy its obligation to reconvey under CC 2941 by sending the reconveyance to the title company after close of escrow.

TRUSTEE'S SALES: After a Substitution of Trustee is recorded, a Trustee's Deed executed by the original trustee is void.

LANDLORD-TENANT: The facts recited in a tenant's estoppel certificate are conclusive between the parties, even if untrue. Detrimental reliance is not required. Here the termination date was not clear because it depended on when the original tenant occupied the premises. The tenant was estopped to deny that the lease terminated on 10/31/98, instead of the court-determined termination date of 6/30/99.

TRUSTEE'S SALES / BANKRUPTCY: Recordation of trustee's deed within 15 days after sale, pursuant to CC §2924h(c), operated to perfect prepetition foreclosure sale as of the date of sale notwithstanding trustor's intervening bankruptcy filing.

SUBDIVISION MAP ACT: Pre-Subdivision Map Act recording of map showing government survey lands dividing parcel did not create subdivision of land in absence of actual property transfer.

LIEN PRIORITY: Priority of an HOA lien dates from recordation of the notice of the assessment lien. It is junior to a previously recorded 2nd TD.

MECHANIC'S LIENS: The Court applied California's harsh contractor licensing statute. A subcontractor cannot maintain a mechanic's lien action due to 1) its failure to act reasonably to maintain its license and 2) its knowledge of non-licensure.

JUDGMENTS: Judgments for child, family or spousal support do not expire. This one was over 30 years old.

ESCROW
1. A provision for attorney's fees in escrow instructions applied to attorney's fees incurred by the escrow holder as a result of disputes between the principals or between the principals and third parties. The provision did not apply to an action by the seller against the escrow holder.
2. The underlying action involved a subordination agreement that was not at issue here.

TAX SALES: A tax sale was set aside by the beneficiary under a deed of trust where notice was not sent to the beneficiary's address shown on a Notice of Default in the chain of title. It was not reasonable for the County to rely on a Lot Book Guarantee (which did not show the NOD).

GION-DIETZ
1. Long term public recreational use of private road created an easement by implication under Gion-Dietz where the public easement ripened prior to effective date of CC §1009 on 3/4/72.
2. CC §1009 abrogates Gion-Dietz prospectively for land > 1000 yards from coastal waters.

TRUSTEE'S SALES: The purchaser at a trustee's sale of a junior TD takes subject to a senior TD held by the same lender. The NOS clearly referred only to the junior lien and the auctioneer warned that the property might be encumbered by senior lien.