Recent Developments in Real Estate Litigation

The California Court of Appeals issued three new opinions this summer relating to real estate litigation.

Anti-SLAPP: Wang v. Wal-Mart

In Wang v. Wal-Mart Real Estate Business Trust (July 25, 2007) the Court of Appeals held that a trial court had erred in applying the anti-SLAPP (Strategic Lawsuit Against Public Participation) statute to a suit resulting from a private real estate transaction because the alleged petitioning activity—applying for and receiving development permits from the city—was merely incidental.
strong(#in). In The Works

Analysis:

The Anti-SLAPP statute (Code Civ. Proc. section 425.16) is intended to curb lawsuits which are brought against parties for exercising their rights to public participation.

In this case the defendants brought an anti-SLAPP motion asking that the case be dismissed because, they allege, the allegations of the plaintiff arose from defendants’ “protected governmental petitioning activity”, namely applying for development permits from the city.

The plaintiffs opposed the motion, claiming that their complaint was based on ordinary breach of contract and fraud allegations.

In this case the court framed the issue as whether the allegations referring to arguably unprotected activity are only incidental or collateral to a cause of action based essentially on protected activity.

The court discussed what constitutes ‘protected activity’ but also noted that section 425.16 “does not accord anti-SLAPP protection to suits arising from any act having any connection, however remote, with an official proceeding” (i.e., ‘the ministerial event of a Sheriff’s sale or auction).

The court concluded that Wal-Mart’s activities, including “its conduct in carrying out its contractual duties, seeking to extend escrow, requesting the execution of documents, and other practices within the scope of the parties’ contractual relationship,” formed the gravamen of the complaint’s allegations, not simply their application for development permits.

“The overall thrust of the complaint challenges the manner in which the parties privately dealt with one another, on both contractual and tort theories, and does not principally challenge the collateral activity of pursuing governmental approvals.” The trial court’s decision was reversed.

Specific Performance: Patel v. Liebermensch

The court in Patel v. Liebermensch (Aug. 21, 2007) held that it was error for a trial court to order specific performance where the purported option agreement failed to specify such essential terms as length of escrow and the evidence did not support a conclusion that the parties would have agreed to the addditional terms added by the trial court as reasonable.

Analysis:

As a general rule, an option contract must contain all of the essential terms so that the court knows what to enforce.

However, courts often imply missing terms based on custom or the context of the contract. For example, when the term of escrow is missing a court will infer a ‘reasonable time’.

In this case the trial court inferred a 60 day escrow period. The appellate court, noting that the seller wanted to perform a section 1031 exchange, held that, because of the potential adverse tax consequences, an escrow period could not be inferred.

The dissent noted that no court had ever held an agreement to sell real estate invalid for lack of a specified time of payment because the law specifies a reasonable time. Furthermore, the parties never discussed, prior to entering into the deal, a section 1031 exchange or stated that taxes were an issue.

I would add that all sales of real property have tax consequences so it strikes me as odd that the appellate court would use this as an excuse for ignoring well established precedent.

Resulting Trust: Hernandez v. Ruelas

A husband and wife, whose home was in their daughter’s name because of their poor credit, were entitled to a resulting trust after a transfer of real property was made to one person but the consideration was paid by another. A trust is presumed to result in favor of the person by or for whom such payment is made. Hernandez v. Ruelas (August 20, 2007).

Analysis:

When a transfer of real property is made to one person, and the consideration is paid by or for another, a trust is presume to result in favor of the person by or for whom such payment is made—a ‘resulting trust.’

“A resulting trust differs from an express trust chiefly in that (1) it arises by operation of law, without an expressed intent, and (2) the resulting trustee ordinarily has no duty other than to transfer the property to the person entitled.”

In this case a daughter put her name on title to a condominium (as her separate property) which her parenths then lived in. Her parents put money into the bank to pay the mortgage. When the daughter went through a divorce, the husband claimed the condominium as community property.

The trial court quieted title in the name of the parents, finding a resulting trust. The appellate court affirmed, holding that this situation was “close to a paradigm of a resulting trust.”

New Articles from Wagenseller Law Firm

Mr. Wagenseller’s article entitled “Real Estate Tools: Rights of First Refusal” was in Stewart Title’s September newsletter. You can view the article on our website.

Mr. Wagenseller’s article “Real Estate Litigation: Specific Performance” will be published in 50+ Builder’s upcoming magazine issue.

All of our newsletters and published articles, along with more information on the firm, are available on our website.