MEMO TO:
Alexsei Demo US
RESEARCH ID:
#400055703657c4
JURISDICTION:
State
STATE/FORUM:
California, United States of America
ANSWERED ON:
December 20, 2021
CLASSIFICATION:
Remedies
Real property

Issue:

Does the fact that a home is directly next to a close family member’s home make the home unique for the purpose of assessing whether to award specific performance?

Facts:

The plaintiff entered into a purchase agreement for the home next to her elderly mother’s home. The plaintiff wanted to live next door to her mother so that she could easily care for her in her final years. However, the seller changed their mind and did not close the sale. The plaintiff is seeking specific performance of the agreement.

Conclusion:

Pursuant to Cal. Civ. Code § 3384, specific performance of a contract obligation concerning real property may be compelled unless a statutory exception applies.

In general, to obtain specific performance after a breach of contract, a plaintiff must show: (1) the inadequacy of their legal remedy; (2) an underlying contract that is both reasonable and supported by adequate consideration; (3) the existence of a mutuality of remedies; (4) contractual terms which are sufficiently definite to enable the court to know what it is to enforce; and (5) a substantial similarity of the requested performance to that promised in the contract. (Real Estate Analytics, LLC v. Vallas)

With respect to the inadequacy of damages element, Cal. Civ. Code § 3387 establishes a conclusive presumption that the breach of an agreement to transfer a single-family dwelling cannot be adequately relieved by financial payment where the buyer intends to live in the single-family dwelling. (Cal. Civ. Code § 3387, Real Estate Analytics, LLC v. Vallas)

This presumption is "conclusive" when the property to be transferred by the real estate contract is a single-family dwelling that the party seeking performance intends to occupy. The "rebuttable presumption" in section 3387 applies only to other property, such as commercial property. (Real Estate Analytics, LLC v. Vallas)

The mere existence of similar properties is insufficient to rebut the presumption that a property is unique for the purposes of compelling specific performance. To rebut the general presumption that real property is unique, the defendant must demonstrate that another property is not only similar, but also reasonably interchangeable at terms within the buyer's means. (Real Estate Analytics, LLC v. Vallas)

In order to overcome this presumption, the defendant has the burden to prove that damages constitute an adequate remedy. (Kaufman v. Goldman)

Law:

Pursuant to Cal. Civ. Code § 3384, specific performance of a contractual obligation concerning real property may be compelled unless a statutory exception applies:

Except as otherwise provided in this Article, the specific performance of an obligation may be compelled.

Cal. Civ. Code § 3391 sets out the statutory exceptions to specific performance:

Specific performance cannot be enforced against a party to a contract in any of the following cases:

(1). If he has not received an adequate consideration for the contract;

(2). If it is not, as to him, just and reasonable;

(3). If his assent was obtained by the misrepresentation, concealment, circumvention, or unfair practices of any party to whom performance would become due under the contract, or by any promise of such party which has not been substantially fulfilled; or;

(4). If his assent was given under the influence of mistake, misapprehension, or surprise, except that where the contract provides for compensation in case of mistake, a mistake within the scope of such provision may be compensated for, and the contract specifically enforced in other respects, if proper to be so enforced.

Cal. Civ. Code § 3392 further provides that:

Specific performance cannot be enforced in favor of a party who has not fully and fairly performed all the conditions precedent on his part to the obligation of the other party, except where his failure to perform is only partial, and either entirely immaterial, or capable of being fully compensated, in which case specific performance may be compelled, upon full compensation being made for the default.

In Real Estate Analytics, LLC v. Vallas, 160 Cal.App.4th 463, 72 Cal.Rptr.3d 835 (Cal. Ct. App. 2008) ("Vallas"), the California Court of Appeal for the Fourth District explained that, in general, to obtain specific performance after a breach of contract, a plaintiff must show: (1) the inadequacy of their legal remedy; (2) an underlying contract that is both reasonable and supported by adequate consideration; (3) the existence of a mutuality of remedies; (4) contractual terms which are sufficiently definite to enable the court to know what it is to enforce; and (5) a substantial similarity of the requested performance to that promised in the contract (at 840-841):

To obtain specific performance after a breach of contract, a plaintiff must generally show: "(1) the inadequacy of his legal remedy; (2) an underlying contract that is both reasonable and supported by adequate consideration; (3) the existence of a mutuality of remedies; (4) contractual terms which are sufficiently definite to enable the court to know what it is to enforce; and (5) a substantial similarity of the requested performance to that promised in the contract. [Citations.]" (Tamarind Lithography Workshop, Inc. v. Sanders (1983) 143 Cal.App.3d 571, 575, 193 Cal.Rptr. 409; see Henderson v. Fisher (1965) 236 Cal.App.2d 468, 473, 46 Cal.

[72 Cal.Rptr.3d 841]

Rptr. 173; § 3384, 3386, 3390, 3391.) A grant or denial of specific performance is reviewed under an abuse of discretion standard. (Petersen v. Hartell (1985) 40 Cal.3d 102, 110, 219 Cal.Rptr. 170, 707 P.2d 232.)

With respect to the inadequacy of damages element, Cal. Civ. Code § 3387 establishes a conclusive presumption that the breach of an agreement to transfer a single-family dwelling cannot be adequately relieved by pecuniary compensation:

It is to be presumed that the breach of an agreement to transfer real property cannot be adequately relieved by pecuniary compensation. In the case of a single-family dwelling which the party seeking performance intends to occupy, this presumption is conclusive. In all other cases, this presumption is a presumption affecting the burden of proof.

In Vallassupra, the California Court of Appeal for the Fourth District explained that a legal presumption exists that damages are an inadequate remedy for a breach of a real estate contract and noted that the California legislature codified this presumption at Cal. Civ. Code § 3387. This presumption is "conclusive" when the property to be transferred by the real estate contract is a single-family dwelling that the party seeking performance intends to occupy. The "rebuttable presumption" in section 3387 applies only to other property, such as commercial property (at 841-842):

It is a familiar legal principle that a damage award is generally an inadequate remedy for a breach of real estate contract, and therefore courts routinely grant a plaintiffs request for specific performance. (See Thompson & Sebert, Remedies: Damages, Equity and Restitution (2d ed.1989) pp. 885-886.) This rule arose in medieval England where land ownership was a primary indicator of the owner's social status and voting rights. (See Kirwan, Appraising a Presumption: A Modern Look at the Doctrine of Specific Performance in Real Estate Contracts (2005) 47 Wm. & Mary L.Rev. 697, 703; Spyke, What's Land Got to Do With It?: Rhetoric and Indeterminacy in Land's Favored Legal Status (2004) 52 Buff. L.Rev. 387, 394, 420-421.) Specific performance was necessary because "[c]ourts of law simply could not value expectations" such as "`social status' or the right to vote for a representative in Parliament," and substitute performance was virtually impossible because of the unavailability of land for sale. (Kirwan, supra, 47 Wm. & Mary L.Rev. at p. 704.)

Although these historical reasons no longer apply, most jurisdictions have continued the rules requiring special treatment of land sale contracts, reflecting the enduring view that: (1) each parcel of land is unique and therefore there can be no adequate replacement after a breach; and (2) monetary damages are difficult to calculate after a party refuses to complete a land sales contract, particularly expectation damages. (See Rest.2d Contracts, § 360.) Some legal commentators have questioned the continued validity of these grounds for specific performance in every case (see Kirwan, supra, 47 Wm. & Mary L.Rev. 697; Berkovich, To Pay or to Convey?: A Theory of Remedies for Breach of Real Estate Contracts (1995) Ann. Surv. Am. L. 319, 347; 12 Miller & Starr, Cal. Real Estate (3d ed.2001) § 34.18, p. 72), but the concept has become "well ingrained" (12 Miller & Starr, Cal. Real Estate, supra, § 34.18, p. 72), and legislatures and the courts have largely adhered to the rule that specific performance is the appropriate remedy upon a breach of a real estate contract.

C. Section 3387

In California, these principles are embodied in section 3387. Section 3387 states: "It is to be presumed that the breach of an agreement to transfer real property cannot be adequately relieved by pecuniary compensation. In the case of a single-family dwelling which the party seeking performance intends to occupy, this presumption is conclusive. In all other cases, this presumption is a presumption affecting the burden of proof."

[72 Cal.Rptr.3d 842]

By imposing a conclusive presumption for certain residential transactions, the Legislature decided that monetary damages can never be satisfactory compensation for a buyer who intends to live at a single-family home, regardless of the circumstances. But by establishing a rebuttable presumption with respect to other property, the Legislature left open the possibility that damages can be an adequate remedy for a breach of a real estate contract. The rebuttable presumption shifts the burden of proof to the breaching party to prove the adequacy of the damages. By so doing, the Legislature intended that a damages remedy for a nonbreaching party to a commercial real estate contract is the exception rather than the rule.

The Court explained that the mere existence of similar properties is insufficient to rebut the presumption that a property is unique for the purposes of compelling specific performance. To rebut the general presumption that real property is unique, the defendant must demonstrate that another property is not only similar, but also reasonably interchangeable at terms within the buyer's means (at 843):

Given the statutory presumption that damages were inadequate and the largely undisputed evidence strongly supporting this presumption, Vallas had a high threshold to satisfy his burden to show damages would be an adequate remedy. In attempting to do so, Vallas relied primarily on the appraisal of the Lanikai Lane property by REA's expert who considered five recent mobilehome park sales. The sales prices for the comparable properties ranged from $5 million to $23 million. The parks were located in Los Angeles County, San Diego County and Ventura County. None of these sales was subject to a ground lease.

This evidence was insufficient to satisfy Vallas's burden. The fact that other mobilehome parks had sold within a recent period does not mean that damages would be adequate to compensate REA for the loss of this property and accompanying investment opportunity. As one commentator has pointed out, to disprove the presumption, "a seller, [must] show not only abstract replaceability but concrete availability of reasonably interchangeable property at terms within the buyer's means." (Bird, Toward Understanding California's Rebuttable Presumption that Land is Unique, 1 California Real Property Journal No. 3 (Summer 1983).) There was no information in the appraiser's testimony or his report showing that REA could purchase one of these identified mobilehome park properties on similar terms, or whether REA would be in a similarly situated investment position if it did complete a purchase. Because land is unique, different locations are not necessarily interchangeable, without evidence showing this to be the case.

In Kaufman v. Goldman, 195 Cal.App.4th 734, 124 Cal.Rptr.3d 555, 11 Cal. Daily Op. Serv. 5910, 2011 Daily Journal D.A.R. 7073 (Cal. Ct. App. 2011), the Court of Appeal for the First District noted that when an agreement to transfer real property is breached, it is presumed that the aggrieved party cannot be adequately satisfied by financial payment. In order to overcome this presumption, the defendant has the burden to prove that damages constitute an adequate remedy (at 742-743):

Defendant argues that the trial court erred in granting summary judgment on the claim for specific performance because there was a material issue of

[195 Cal.App.4th 743]

disputed fact as to whether the legal remedy of damages was inadequate to compensate for the breach of contract. She claims that “[i]n a city the size of San Francisco, where there are a large number of residential rental units, [plaintiff] has an adequate remedy of damages for Breach of Contract.” We are not persuaded.

It is presumed that the breach of an agreement to transfer real property cannot adequately be satisfied by financial payment. (Civ. Code, § 3387.) Specific performance regarding real property will be granted as a matter of course unless some other equitable reason for denial is shown. (See Civ. Code, § 3384.) The party seeking enforcement does not have to show inadequacy of the legal remedy. (Porporato v. Devincenzi (1968) 261 Cal.App.2d 670, 677, 68 Cal.Rptr. 210.) Instead, it is defendant's burden to prove damages constitute an adequate remedy. (Real Estate Analytics, LLC v. Vallas (2008) 160 Cal.App.4th 463, 474, 72 Cal.Rptr.3d 835.) After reviewing the record in this matter, and considering the contentions of defendant, we conclude there is no legal justification to preclude the application of specific performance as a proper remedy in this case.

Defendant has not cited to any authority for the proposition that these principles involving real property transactions do not apply to multi-unit apartment buildings. Nor has she presented any evidence to rebut the presumption that damages are an inadequate remedy. We find no error.

In Gallagher v. Wells, 2010 U.S. Dist. LEXIS 16223 (E.D. Cal. February 23, 2010), the United States District Court for the Eastern District of California explained that, as to the adequacy of consideration factor, the burden of showing that consideration is inadequate lies with the party seeking to invalidate the contract. In determining whether consideration is adequate, courts will assess whether the price received for the property was fair and reasonable under the circumstances at the time the contract was made (at 9-11):

The remedy for a breach of contract may be either in law or in equity. See Glock v. Howard & Wilson Colony Co., 123 Cal. 1, 55 P. 713, 715 (Cal. 1898). When, however, the contract purports to convey real property, California presumes that the breach "cannot be adequately relieved by pecuniary compensation." Cal. Civ. Code § 3387. Otherwise stated, California presumes that specific performance is the appropriate remedy in a breach of contract action concerning real property.

Here, then, specific performance may be ordered if (1) the contract's terms are sufficiently definite; (2) consideration is adequate; (3) there is substantial similarity of the requested performance to the contractual terms; (4) there is mutuality of remedies; and (5) plaintiff's legal remedy is inadequate. See Blackburn, 11 Cal. Rptr. 3d at 891.

As to the first requirement, the terms of a contract are "sufficiently definite" when the following are identifiable: (1) the seller; (2) the buyer; (3) the price; (4) the time and manner of payment; and (5) the description of the property. Blackburn, 11 Cal. Rptr. 3d at 891 [*16] As discussed above, the court finds these elements identifiable.

Per the second requirement, there must be adequate consideration in a contract for the sale of real property. Cal. Civ. Code § 3391; Blackburn, 11 Cal. Rptr. 3d at 891. Consideration is defined as "[a]ny benefit conferred, or agreed to be conferred, upon the promisor, by any other person, to which the promisor is not lawfully entitled, or any prejudice suffered, or agreed to be suffered, by such person . . . as an inducement to the promisor, is a good consideration for a promise." Cal. Civ. Code § 1605. Further, a written instrument is presumptive evidence of a consideration. Id. § 1614.

Consideration in a contract for real property, however, requires more than consideration on the face of a contract. See Cal. Civ. Code § 3391. Specific performance cannot be enforced against a party to a contract unless the consideration is adequate, just and reasonable. Id. The burden of showing a want of consideration sufficient to support a contract lies with the party seeking to invalidate it. Id. § 1615.

"[T]he proper way to plead adequacy of the consideration is to allege the fair and reasonable value of the property and the price  [*17] agreed to be paid therefor." Foley v. Cowan, 80 Cal. App. 2d 70, 181 P.2d 410, 413 (Cal. Ct. App. 1947). "In determining whether consideration was fair and adequate, all circumstances surrounding the transfer of the property as they existed at that time, must be considered." Lundgren v. Lundgren, 245 Cal. App. 2d 582, 54 Cal. Rptr. 30, 34 (Cal. Ct. App. 1966). "A consideration, to be adequate, need not amount to the full value of the property." Foley v. Cowan, 80 Cal. App. 2d 70, 181 P.2d 410, 413 (Cal. Ct. App. 1947). The test "is not whether the [defendants] received the highest price obtainable for [their] property, but whether the price [they] received is fair and reasonable under the circumstances." Henderson v. Fisher, 236 Cal. App. 2d 468, 46 Cal. Rptr. 173, 178 (Cal. Ct. App. 1965).

In Blackburn v. Charnley, 117 Cal.App.4th 758, 11 Cal. Rptr.3d 885 (Cal. Ct. App. 2004), the California Court of Appeal for the Fourth District held, with respect to the definiteness of terms element, that an assertion that the contract is unenforceable due to uncertainty will only be successful when the uncertainty of the contract prevents the court from knowing what to enforce. The Court also noted that parol evidence is admissible to help the court resolve ambiguities in the contract as long as the evidence does not contradict the terms of the contract (at 766):

Specific performance of a contract may be decreed whenever: (1) its terms are sufficiently definite; (2) consideration is adequate; (3) there is substantial similarity of the requested performance to the contractual terms; (4) there is mutuality of remedies; and (5) plaintiff's legal remedy is inadequate. (Civ. Code, § 3390, subd. 5 [court may not specifically enforce "[a]n agreement, the terms of which are not sufficiently certain to make the precise act which is to be done clearly ascertainable"]; Tamarind Lithography Workshop, Inc. v. Sanders (1983) 143 Cal.App.3d 571, 575, 193 Cal.Rptr. 409.)

The material factors to be ascertained to support a contract for the sale of real property are: (1) the seller; (2) the buyer; (3) the price; (4) time and manner of payment; and (5) description of the property sufficient to identify it. (King v. Stanley (1948) 32 Cal.2d 584, 589, 197 P.2d 321.) In determining whether the material factors in a contract are sufficiently certain for specific performance, "the modern trend of the law favors carrying out the parties' intention through the enforcement of contracts and disfavors holding them unenforceable because of uncertainty.... The defense of uncertainty has validity only when the uncertainty or incompleteness of the contract prevents the court from knowing what to enforce." (Hennefer v. Butcher (1986) 182 Cal.App.3d 492, 500, 227 Cal.Rptr. 318, citations & fn. omitted.) Parol evidence that does not vary or contradict the written terms of the contract is admissible to explain the ambiguities or give meaning and content to words used, provided it does not vary or contradict the terms of the contract. (Id. at p. 501, 227 Cal.Rptr. 318.)

Authorities:
Cal. Civ. Code § 3384
Cal. Civ. Code § 3391
Cal. Civ. Code § 3392
Real Estate Analytics, LLC v. Vallas, 160 Cal.App.4th 463, 72 Cal.Rptr.3d 835 (Cal. Ct. App. 2008)
Cal. Civ. Code § 3387
Kaufman v. Goldman, 195 Cal.App.4th 734, 124 Cal.Rptr.3d 555, 11 Cal. Daily Op. Serv. 5910, 2011 Daily Journal D.A.R. 7073 (Cal. Ct. App. 2011)
Gallagher v. Wells, 2010 U.S. Dist. LEXIS 16223 (E.D. Cal. February 23, 2010)
Blackburn v. Charnley, 117 Cal.App.4th 758, 11 Cal. Rptr.3d 885 (Cal. Ct. App. 2004)