Articles Posted in damages

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

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

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

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California law takes trees seriously and provides enhanced damages when someone harms them. There is provision for doubling the damages incurred for harm caused to timber, trees, and underwood, and trebling it if the harm is intentional. (Civil Code section 3346.) Another provision allows doubling the damages for harm to trees. (Civil Procedure section 733, set out below). Sacramento real estate attorneys commonly get asked about neighbor trees with overhanging branches and troublesome roots. However, in a recent decision where a landowner with an abundance of chutzpah went onto their neighbor’s property and cut trees to improve their view, they were surprised to learn that not only were they liable for three times the $40,000 to restore the property, but also three times the $30,000 awarded noneconomic damages for annoyance and loss of enjoyment of the property.

Sacramento-tree-damage-attorneyIn Jeanette E. Fulle v. Kaveh M. Kanani, the defendant lived uphill from the plaintiff. Plaintiff Fulle’s trees blocked the defendant’s view of the San Fernando Valley, so the defendant had workers go onto the plaintiff’s property and cut down the limbs and branches of six trees. Of course, he did not ask permission first. This lawsuit ensued.

The jury awarded $47,000 in damages, plus another $30,000 for noneconomic loss “including annoyance and discomfort, loss of enjoyment of the real property, inconvenience and emotional distress.” The trial judge trebled the economic damages per section 3346, but would not apply the multiplier to the noneconomic damages. It reasoned that use of the phrase “actual determinant” in 3346 intended to narrow the multiplier to economic damages. This appeal followed.

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In California, equitable indemnity applies when there are two wrongdoers (‘tortfeasors’) who are both jointly and severally liable for harm to someone. They are entitled to have their liability split between them based on their comparable fault. Joint and several liability can apply to acts that are concurrent or successive or are joint or several, as long as they create a detriment caused by several actors. Equitable indemnity often arises when a person who has been harmed sues one, or both, of the tortfeasors. The tortfeasors then file a cross-complaint for equitable indemnity. Or, if only one tortfeasor is named in the lawsuit, that person brings in the second. In a prior post I discussed a case in which a real estate Buyer learned of an undisclosed easement, and sued both the seller & buyer brokers. The brokers cross-complained against each other for equitable indemnity. Ordinarily their joint liability would be apportioned at trial, but if one party settled out with the plaintiff there would be no apportionment without the cross-complaint. In a more recent decision, a defendant cross-complained for equitable indemnity in a breach of contract case. They were disappointed that the court would not stretch the doctrine that far.

Sacramento equitable indemnity attorney State Ready Mix, Inc. v. Moffatt & Nickol involved construction of marine pier. Bellingham hired Major as general contractor, and Moffatt to prepare plans. Major hired State Ready Mix to plan the concrete. Major asked Moffett to review the State concrete plan, which was not part of Moffett’s job, but Moffett agreed and did so. On the day of the concrete pour, State had equipment failure and had to add a chemical into the mix manually in a non-precise way (can you picture the laborer dumping stuff into the truck, say about 2 and a half bags of this and a third of a sack of that?). The concrete was bad, and had to be torn out and the job started over. State was sued for the cost of the concrete, and State cross-complained against Moffett for equitable indemnity.

The problem for State was that it could not allege that Moffett committed a tort. No facts were alleged that Moffett owed State a duty of care. Nor can State say that Moffett negligently performed its contract with Bellingham – review of the concrete mix was not within the scope of that contract.

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Often a party to a lawsuit will have great success at trial, resulting in a money judgment. Then the judgment holder tries to collect the judgment, and finds that the debtor is judgment – proof, has no assets, or files bankruptcy to avoid liability for that judgment. Sacramento business attorneys are frequently presented with the problem of an uncollectible judgment. One solution – A judgment may be amended to add additional judgment debtors on the ground that a person or entity is the alter ego of the original judgment debtor; it is an equitable procedure based on the theory that the court is not amending the judgment to add a new defendant but is merely inserting the correct name of the real defendant. That happened to a plaintiff in a recent decision, and the court found that the creditor met the test to nail the parties responsible for the damages, who were not originally named defendants.

sacramento business lawyer -judgment debtor.jpgIn Relentless Air Racing, LLC v. Airborne Turbine Ltd. Partnership, Relentless sued Airborne concerning purchase of a French military jet that was not certified for flight. Relentless won a money judgment for damages of one dollar ($1.00), plus was awarded attorney fees of over $174,000 and costs of over $6,000. Airborne limited partnership was a deadbeat, with no assets, so Relentless could not collect its judgment. Relentless the sought to add the husband and wife team behind Airborne, plus their two corporations, as judgment debtors.

The court first reviewed the law concerning adding additional judgment debtors. The theory that the court is not amending the judgment to add a new defendant but is merely inserting the correct name of the real defendant. The three-part test requires the judgment holder show:

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Standard in most form real estate contracts are provisions for liquidated damages. Not so common is the non-refundable deposit. A “liquidated damages” provision stipulates an estimate of what the damages would be in the event of a breach of a contract. It is generally valid, unless it can be shown that it was unreasonable under the circumstances at the time the contract was entered. A non – refundable deposit is generally not valid in a falling market. But there is an alternative!

nonrefundable deposit.jpgIn Bradford Kuish v. William W. Smith, Jr. There was a purchase contact for plaintiff to buy defendant’s Laguna Beach house for $14 million dollars. The contract required a non-refundable deposit, initially of $800,000; after some amendments to the escrow instructions, the deposit was reduced to $620,000, which was paid by the buyer. The parties extended the escrow a couple of times. Finally the buyer asked that the escrow be cancelled; the seller agreed. They then turned to a backup up offer to sell the property for $15 million, one million more than the plaintiff would have paid. The seller refused to refund the buyer’s $620,000 deposit, claiming that it was “non-refundable.” The buyer sued to recover the deposit.

The court started with Civil Code 3307:

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How to determine damages in a California real estate purchase and sale fraud dispute is often as significant and as hard fought as the question of liability. The reason is that there are two possible ways of measuring damages for fraud claims (other than contract damages), based on two different sections of the Civil Code. One section is the “benefit of the bargain” rule – it satisfies the expectations of the plaintiffs by measuring the difference between the price paid, and the value of the property as represented. Even if the property turns out to be worth what the buyer paid, he still may recover damages for the value he was led to believe he was getting. The other, more objective “out of pocket” rule, provides for the difference in the price paid, and the fair market value at the time of sale, and is the exclusive standard except in the case of fraud by a fiduciary.

sacramento real estate fraud.jpgThe out of pocket rule satisfies the goal of tort claims, which is to restore the plaintiff to the financial position he was in before the fraudulent transaction, and thus awards the difference in actual value between what the plaintiff gave and what he received.

The benefit of the bargain rule is a more effective deterrent. Even if the value of the property received equals the price paid, there can still be an award of what the plaintiff was led to believe the value of the property was.

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California law provides double damages for harm caused to timber, trees, and underwood. Civil Code section 3346. Recently a Court applied it to harm caused by trimming a neighbor’s tree. It also found that the statute awarding attorney fees against an unlicensed contractor who causes harm (CCP 1029.8) cannot be applied to the landowner who hired him. Anyone faced with the problem of damage cause to aneighbor’s tree, or cause to their tree by a neighbor, should consult an experienced Sacramento or Yolo real estate attorney.

unlicensed laborer.jpgRona v. Costa starts with Paolo, the new home buyer in Tiberon, who wants to install a backyard pizza oven. The neighbor’s Monterey Cypress had limbs growing over the fence, so Paolo hired a day laborer to trim the limbs that would be hanging over the chimney. He paid the laborer under $500, so there was no need for a contractors license. The laborer went overboard, and whacked off limbs that were not overhanging the fence, but where on the neighbor’s side. The tree now had one denuded side, and was odd looking, an expert said it was now a hazard and needed to be removed. The neighbor was outraged, this lawsuit was the result.

The trial court judge found that Paolo was vicariously liable (superior responsible for conduct of his agent) for the damage the laborer caused to the Cypress. He found the damage to be the diminution in value of the tree, plus an additional $15,000. The complicated calculation is described in the opinion. Then the court doubled the amount under Civil Code section 3346. Everyone appealed.

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It is a general rule of California real estate law that the possessor of property, whether as owner (with a loan against the property), or tenant, not to commit waste. Waste is any act, omission, or neglect that materially reduces the market value of the property. When you take out a loan to buy property, the deed of trust requires that you do not commit waste, and provides that waste can be a default under the terms of the loan. An experienced Sacramento and El Dorado real estate attorney will advise that the reason is that the property secures the debt. Theoretically, the lender gave you an amount equal to or less than what the property is worth, and if you cause the property to become worth less than the loan, the lender is at risk. You seldom see this issue come up in real estate loans, but it did in a surprising way in a recent Sacramento decision.

real estate waste.jpg In Fait v. New Faze Development, Inc., a Sacramento developer purchased two lots containing a church and other small building in 2005. The plan was to redevelop it into a mixed use property. They evicted the tenants and demolished the property in 2006. The economy tanked and the developer defaulted, resulting in a foreclosure sale of the bare land. The lender then sued for bad faith waste and intentional impairment of security- demolishing the building reduced the value of the property, and thus what the lender got on the foreclosure sale.

The trial court threw out the bad faith waste claim, finding that there was no evidence of recklessness and intent to despoil the property. But the court of appeals reversed – evidence of recklessness and intent to despoil is not required, based on the 1975 California Supreme Court decision in Cornelison.

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In my previous post, I discussed a case where the parties had a “non- refundable” deposit in their real estate purchase contract, but the court refunded it anyway.

Liquidated damages are damages whose amount the parties agree during the formation of a contract for the injured party to collect as compensation upon a breach.

In addition to the forfeiture concern, the court also noted that to find that the seller was entitled to keep the deposit without regard to actual damages would essentially create a “liquidated damages provision. Among other problems with this view, the court noted that California Civil Code section 1677 requires a liquidated damages clause to be”separately signed or initialed by each party to the contract.” That was not the case here. But what does it take to enforce a clause liquidating damages in a real estate purchase contract?