A Breach by Any Name 

Under California law, the courts will typically award monetary damages for breach of a contract. However, specific performance—that is, forcing a breaching party to do something or to refrain from doing something—will be awarded if all of the following five conditions have been satisfied: (1) monetary damages will not be an adequate remedy, (2) the contract both is reasonable and is supported by adequate consideration, (3) the existence of mutuality of remedies (both parties have a remedy for breach), (4) the contractual provisions are sufficiently definite so that the court knows what should be enforced, and (5) the performance being requested by the injured party is substantially similar to the performance required under the contract.

The case, Real Estate Analytics, LLC v. Vallas (2008), involved the sale of a large parcel of coastal property used as a mobile home park. The buyer, Real Estate Analytics (REA), intended to subdivide the property and then sell the lots to the mobile home park residents. REA requested a one-month extension of escrow because of various remaining due diligence issues on both sides. There was an oral agreement to extend the escrow. Two weeks before escrow was to close, the seller, Vallas, cancelled the contract.

REA sued for specific performance. Although Vallas had breached the contract, the court refused to award specific performance and, instead, awarded damages in the amount of $500,000, reflecting the difference between the contract price and the value of the property on the date of the breach, plus interest on the deposit. The trial court explained that the purchase of “this property was nothing more than a vehicle to make money” and, therefore, monetary damages were adequate to compensate for the breach.

The 4th District Court of Appeal overturned the ruling. It is a familiar and “well ingrained” legal principle that a damages award is generally an inadequate remedy for a breach of a real estate contract and, therefore, courts routinely grant a plaintiff’s request for specific performance. The underlying rationale for this principle is that “each parcel of land is unique and, therefore, there can be no adequate replacement after a breach.”

However, according to California Civil Code Section 3387, the inadequacy of monetary damages is merely a presumption that is conclusive only in the case of a single-family home. It is possible for a defendant to rebut this presumption for other types of property, such as the commercial property in this case. The appellate court held that Vallas was unsuccessful in rebutting this presumption. Vallas did not provide sufficient evidence to assert that the damages were adequate to compensate REA for the breach, whereas REA produced strong evidence of the uniqueness of the property to generate the potential profits.

Condominium Vote Percentage Reduction Upheld 
 

Under Civil Code Section 1356, a trial court may order that the percentage of affirmative votes needed to amend the recorded declarations, i.e., covenants, conditions, and restrictions (CC&Rs), be reduced to a simple majority if the CC&Rs require a greater percentage vote. A court takes into consideration whether the notice was properly given; the balloting was properly conducted in accordance with the CC&Rs; reasonable efforts were made to permit eligible members to vote; owners having more than 50 percent of the votes voted in favor of the amendment; and the amendment is reasonable.

The Fourth La Costa Condominium Owners Association petitioned the court to reduce the percentage of affirmative votes it needed to amend its CC&Rs from 75 percent to a simple majority. Of the 48 units, 25 owners voted in favor of the amendment, 11 owners voted against it, and 12 owners did not return the mailed ballots. The court granted the petition, and the owner of two units, Seith, appealed.

In Fourth La Costa Condominium Owners Ass’n. v. Seith (2008), the 4th District Court of Appeal upheld the trial court’s ruling. One of Seith’s objections was that the voting was improperly conducted by mail ballots. She cited Civil Code Section 1363.03, which requires a secret ballot voting when amending the governing documents. Unfortunately, Section 1363.03 did not go into effect until after the vote at issue in this case had taken place. Another of Seith’s objections was that the association should have tried to contact the 12 non-voters by telephone. However, the appellate court held that the association’s efforts (two mailings and an informational meeting) were sufficiently reasonable.

Author’s Comment: Section 1363.03(e) does permit vote-by-mail with its secret ballot requirement but contains specific compliance rules.

Q&A

Ask an Attorney

Q. What is the definition of a “principal residence,” as used in IRC § 121, dealing with the exclusion of gain from the sale of a principal residence?

A. The determination of what constitutes a person’s “principal residence” under IRC § 121 depends on many various factors and not only on where the person lives. This becomes a complicated question if someone resides in two or more properties for successive periods of time. Only one residence can be the principal residence. In addition to the person’s use of the property, according to Treasury Regulation 1.121-1(b)(2), other relevant factors used to determine the principal residence include: (1) the place of employment; (2) the principal place of abode of the person’s family members; (3) the address listed on the person’s federal and state tax returns, driver’s license, auto registration, and voter registration card; (4) the person’s mailing address for bills and correspondence; (5) the location of the person’s banks; and (6) the location of any religious organizations and recreational clubs to which the person belongs.

Sonia M. Younglove, Esq., is C.A.R. senior counsel.