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". It seems to me that there is, therefore, no such thing as a void deed. If the right to set aside a "void" deed can be lost, it must have only been voidable all along.

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.