CASES FROM BOB BRUSS NEWSLETTER "CALIFORNIA REAL ESTATE LAW"
Bob Bruss has gratefully given us permission to reprint two
of his best cases from his outstanding March 2003 Bulletin.
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IMPORTANT RULING #1
U.S. SUPREME COURT RULES CORPORATE BROKER HAS NO STRICT
VICARIOUS LIABILITY FOR RACIAL DISCRIMINATION BY REALTY
SALESPERSON. Emma Mary Ellen Holley and David Holley, an
interracial couple, tried to buy a new house in Twenty-Nine
Palms listed for sale by real estate brokerage Triad, Inc.
Triad salesman, Grove Crank, allegedly prevented the Holleys
from buying the house for racially discriminatory reasons. In
U.S. District Court, the Holleys sued Crank and Triad,
claiming violations of the federal Fair Housing Act. Later,
they filed another lawsuit against David Meyer, Triad’s president,
sole shareholder, and Triad’s licensed "officer/broker."
They argued Meyer was vicariously liable for salesman Crank’s
unlawful discriminatory actions. The U.S. District Court
consolidated the two lawsuits. It dismissed the claims against
Meyer because it believed the Fair Housing Act did not impose
personal vicarious liability on a corporate officer for acts
of its employees and independent contractors. But the Ninth
Circuit U.S. Court of Appeals reversed, holding broker Meyer
personally viable in his capacity as Triad’s sole owner who
had the authority to control the acts of Triad’s salesperson
Crank. The Court of Appeals noted that under California law,
an employing real estate broker is responsible to supervise
his licensed salespeople. Meyer sought a writ of certiorari
from the U.S. Supreme Court, which granted his petition to
review the decision.
THE DECISION: In a 9-0 decision, the U.S. Supreme Court
vacated and remanded the Ninth Circuit Court of Appeals
decision. "It is well established that traditional vicarious
liability rules ordinarily make principals or employers vicariously
liable for acts of their agent or employees in the
scope of their authority or employment," the court began.
"And in the absence of special circumstances it is the corporation,
not its owner or officer, who is the principal or
employer, and thus subject to vicarious liability for torts
committed by its employees or agents," Justice Breyer wrote.
He added "A corporate employee typically acts on behalf of the
corporation, not its owner or officer." The decision then
explained there is nothing in the federal Fair Housing Act to
extend strict tort vicarious liability rules to corporate
officers for the acts of their employees or independent contractors.
WHY THIS DECISION IS EXTREMELY IMPORTANT: This very important
ruling says the federal Fair Housing Act does not extend tort
rules of vicarious liability under respondent superior (the
principal is liable for acts of the agent) to a corporate real
estate broker officer for illegal racial discrimination by a
corporate salesperson agent. In other words, the U.S. Supreme
Court said the real estate brokerage corporation can be held
liable, but not the designated broker personally even if that
broker is the sole corporate stockholder.
COMMENTS: (1) This decision is unusual because, instead
of reversing the lower court’s decision, it "vacated and
remanded" the case back to the Ninth Circuit U.S. Court of
Appeals which now must decide whether to hold a rehearing,
issue a new decision based on different criteria, and/or
possibly affirm the U.S. District Court decision.
(2) This U.S. Supreme Court decision makes sense if the
brokerage were a large corporation, such as Coldwell Banker,
but Triad was a one-person corporation.
(3) The decision barely mentioned the issue of "piercing of
the corporate veil" but refused to discuss the issue, which
was not raised by the Ninth Circuit’s decision. We will
probably hear more about this very important racial discrimination
case - MEYER v. HOLLEY, 537 U.S. _ _ _, 71 U.S. Law
Week 4081 (Jan. 22, 2003).
IMPORTANT RULING #2
SAME PROPERTY SOLD TO TWO DIFFERENT BYERS; PURCHASER AT
FORECLOSURE TRUSTEE’S SALE PREVAILS OVER BUYER WHO BROUGHT ON
THE SAME DAY FROM THE DEFAULTING HOMEOWNERS. In 1994,
Josephina Sabedra, Tony David Chavez, and Tina Chavez bought a
home in San Jose. They obtained a home loan, which was later
assigned to Harbor Financial Mortgage of Houston, Texas. In
December 1997, the homeowners stopped making loan payments.
The lender recorded a Notice of Default in March 1998. In
mid-April 1998, the home was listed for sale with Edgar
Rivera. A few weeks later, the owners contracted to sell the
house to Lo Nguyen. Rivera was a dual agent for buyer and
sellers. Escrow was opened with Financial Title Company.
Escrow was supposed to close by late May, but it didn’t close
on schedule. Harbor submitted a loan payoff demand, which was
good until July 9, 1998. Meanwhile, Harbor scheduled a
foreclosure trustee’s sale for July 9. Financial Title was aware
of the sale, which Harbor postponed one day to July 10, 1998
at Noon. Broker Rivera telephone Linda Kubricht at Harbor of
the pending sale. She orally agreed to postpone the sale if
Rivera provided proof the buyer’s new loan actually funded.
The new loan was funded by a wire transfer to escrow on July
9, 1998 at 1:30 PM. On Friday, July 10th, Financial Title
closed escrow on the sale and sent a $141,664.22 check to
Harbor via Federal Express to pay off the loan. A copy of the
closing statement was sent by fax to Harbor at 8:23 AM
California time, directed to a "Linda Cooper" at Harbor. Harbor
employed no one by that name. Harbor did not receive the
loan payoff check until July 13, 1998. The grant deed to Lo
Nguyen was recorded on July 10. Meanwhile, Harbor conducted
its foreclosure trustee’s sale at Noon on July 10 when the
property was sold for $141,631.27 to Richard Calhoun, a real
estate broker and foreclosure sale buyer and Toribio Valdiva.
Harbor cashed the payoff check received from Financial Title,
but issued a refund check three days later explaining why the
funds were being returned. Harbor refused Financial’s request
for a deed of reconveyance or rescission of the trustee’s
sale. The trustee’s deed was recorded on August 3, 1998.
Buyer Lo Nguyen sued buyers Richard Calhoun and Toribio
Valdiva for quiet title and declaratory relief. The Santa
Clara County Superior Court ruled for Nguyen. Foreclosure
trustee’s sale buyers Calhoun and Valdiva appealed.
THE DECISION: The Court of Appeal reversed, ruling Nguyen
bought the house subject to its existing Harbor loan, which
was foreclosed a few hours later so Calhoun and Valdiva became
the legal owners of the house. The appellate court mphasized,
"However, a mistake ‘dehors’ the sale proceedings will not
prevent issuance of a trustee’s deed." Dehors means out of,
without, beyond, foreign to, and unconnected with. The Court
of Appeal could find no reason to rescind the trustee’s sale,
which was properly conducted. Forwarding the loan payoff
check by Federal Express to the lender did not pay off that
loan until it was received, the court noted. Therefore,
Calhoun and Valdiva were bona fide purchasers without notice
of any adverse interest or any irregularities, the court
concluded.
WHY THIS DECISION IS IMPORTANT: The importance of this case
is when a debt is secured by a deed of trust recorded against
real property, and that lien debt is in default, the lender
can proceed with a foreclosure trustee’s sale even if the
lender knows the defaulting property owner has a sale
pending. The appellate court said the lender’s oral promise
to delay the sale if proof of funding for the pending sale was
received before the time of the trustee’s sale was an
unenforceable gratuitous oral promise without consideration.
COMMENTS: Although buyer Lo Nguyen didn’t get the house, his
owner’s title insurance policy from Financial Title Company
should make him whole. The home sellers did nothing wrong so
they should not be required to return the equity funds they
received upon close of escrow. This loss should fall squarely
on the shoulders of Financial Title, which knew of the pending
trustee’s sale, but failed to make 100% certain the lender
postponed the trustee’s sale - NGUYEN v. CALHOUN, 129
Cal.Rptr.2d 436.
