Articles Posted in damages

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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?

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