Brown v. Critchfield

Decision Date09 January 1980
Citation161 Cal.Rptr. 342,100 Cal.App.3d 858
CourtCalifornia Court of Appeals Court of Appeals
PartiesErnest S. BROWN, Plaintiff and Appellant, v. James CRITCHFIELD and Leroy Broun, Defendants and Respondents. Civ. 42929.

Paul O. Lamphere, Cox, Cummins & Lamphere, Martinez, for plaintiff and appellant.

Miller, Starr & Regalia, Burch Fitzpatrick, Oakland, for Critchfield.

Robert T. Cresswell, Oakland, for Broun.

ROUSE, Associate Justice.

Plaintiff, Ernest Brown, appeals from summary judgments in favor of defendants, James Critchfield and Leroy Broun.

Plaintiff commenced this action in August 1974 to recover damages for the fraudulent or negligent breach of fiduciary duties allegedly owed to plaintiff by Critchfield, a real estate broker, and Broun, an attorney. The complaint alleged that plaintiff employed defendants, in their professional capacities, to counsel him in the sale of approximately 101 acres of land, and that plaintiff was damaged and his security interest impaired as a proximate result of their negligence, intentional nondisclosures and intentional misrepresentations.

In March 1975, plaintiff filed an amended complaint alleging additional damages. Specifically, he alleged that property taxes were delinquent in the amount of $41,389.21; that the purchasers sold property for $185,000 although they were in default in payment of taxes; that unreleased property declined in value by $600,000; that unreleased property suffered severance damage of $76,104; and that unreleased property declined in value by $30,000 by reason of the creation of a surface water easement. Plaintiff also seeks punitive damages in the sum of $250,000.

Critchfield successfully moved for summary judgment on the ground that plaintiff had alleged no legally recognizable damages and had therefore failed to state a cause of action. 1

Broun also moved for summary judgment and plaintiff moved for a new trial as to Critchfield. Initially, the court denied Broun's motion and announced its intention to reverse the summary judgment as to Critchfield and to grant plaintiff's motion for new trial. Broun then moved for reconsideration and Critchfield filed a notice of appeal.

Ultimately, the court reversed its position, denied plaintiff's motion for new trial, and granted summary judgment as to each defendant. Plaintiff has appealed from said judgments.

Plaintiff's amended complaint and papers filed in support of, and in opposition to, the motions for summary judgment, contain the following allegations:

In September 1963, plaintiff sold a 101 k/- acre parcel of land located in the cities of Fremont and Newark. Defendant Critchfield and Beatrice Broun, wife of defendant Leroy Broun, each purchased an interest in the property. 2 To finance the transaction, the purchasers paid $18,000 down 3 and executed a promissory note for $589,806, which note was secured by a first deed of trust in favor of plaintiff. The terms of the sale provided for nine consecutive annual payments, starting at $18,000 and increasing to $24,000 in 1970, and a balloon installment of $340,000 to be paid on September 3, 1973. As each annual payment was made, three acres were to be released from the lien of the deed of trust.

In September 1963, plaintiff hired Critchfield, a real estate broker, and Broun, an attorney, to negotiate the sales transaction and to represent his interests until the conclusion of the sale in 1973. For these services, plaintiff agreed to pay to each defendant a percentage of the annual payments received from the purchasers, and he ultimately paid $12,834.10 to Critchfield and $1,403.41 to Broun.

In September 1969, 15.526 acres were released from the lien of the deed of trust and sold to the State of California in a condemnation proceeding. Plaintiff received $94,682 of the $170,786 which the state paid for the taking. As a result of this sale, an additional 37.5 acres were left landlocked and 17.5 acres were left with access problems and in unusual shapes. In addition to the sale of the 15.526 acres, the purchasers also granted a surface water easement over property which was still subject to the lien of the first deed of trust.

In December 1969, the purchasers failed to pay real estate taxes on property which was still subject to the lien. Therefore, under the terms of the deed of trust, they were in default even though they continued to make annual payments to plaintiff in a timely manner. Plaintiff was advised by defendants that the purchasers had been in default on their payment of taxes but had subsequently cured that tax default. Plaintiff was never advised that he had the right to initiate foreclosure proceedings. Subsequent to this default, acreage was released from the lien and sold by the purchasers to third parties for $335,000. 4

In September 1973, the purchasers defaulted in payment of the final installment on the note. Plaintiff initiated foreclosure proceedings and on April 9, 1974, a foreclosure sale was held on the unreleased acreage still subject to the deed of trust. Plaintiff was the sole bidder and obtained some 57 acres on a credit bid of $345,457.09. At that time there was an outstanding principal balance on the note of $327,124 and accrued interest of $13,862.62. Costs incurred by plaintiff in foreclosure totaled $3,533.84. 5 No taxes or assessments were paid by plaintiff at the time of foreclosure.

The sole issue on appeal is whether plaintiff has alleged damages sufficient to support his causes of action for fraud and negligence. The gist of defendants' argument is that plaintiff is seeking damages for the impairment of his security, that there was no impairment of security because plaintiff made a full credit bid which extinguished the lien and the security interest, and that plaintiff has therefore suffered no damage. Plaintiff's position is that defendants, as fiduciaries, negligently or fraudulently concealed information from him, thereby causing him damage, and that the actions taken by him at the foreclosure sale are unrelated to his claim for restitution from his fiduciaries.

Each claim of damage must be analyzed in order to determine if the trial court was correct in granting summary judgment in favor of defendants.

Plaintiff claims that "Both Broun and Critchfield counseled (plaintiff) to release 15.526 acres to the State of California in a condemnation proceeding ( 6 ) yet failed to advise (him) that severance damages had resulted to 55 acres on which he still retained a deed of trust and to which he had the right to make a claim for such damages." Plaintiff contends that, as a proximate result of this negligence or fraud, his security was impaired to his damage in the sum of $76,104. This claim for damages has no merit.

For the acquisition of the 15.526 acres, the state paid $170,786, of which plaintiff received $94,682, or the equivalent of his contract price of $6,000 per acre. It is established that severance damage Did result to property secured by plaintiff's deed of trust, namely, the landlocking of 37.5 acres and the creation of access problems and unusual shapes in connection with some 17.5 acres.

In assessing whether damages were sustained by plaintiff, the question to be answered is what would have been the result had plaintiff been advised to make a claim for severance damages in 1969?

Section 1265.225 of the Code of Civil Procedure provides, in part, that "Where there is a partial taking of property encumbered by a lien, the lienholder may share in the award only to the extent determined by the court to be necessary to prevent an impairment of the security . . .." Although the statutory condemnation law was substantially revised in 1975 (Stats.1975, ch. 1275, § 2, p. 3455), the Law Revision Commission Comment states that section 1265.225 merely "codifies the case law principle that a lienholder is entitled to share in the award only to the extent of the impairment of his security. . . ."

This principle, and what constitutes an "impairment of security," was recently given extensive consideration in People ex rel. Dept. of Transportation v. Redwood Baseline, Ltd. (1978) 84 Cal.App.3d 662, 149 Cal.Rptr. 11 (hereafter Baseline ). In announcing which criteria should be used to determine how to apportion a condemnation award between a mortgagor and mortgagee, the court clearly distinguished the situation where foreclosure has already occurred from the situation where the security transaction is to continue in force. In the first situation, the mortgagee would be entitled to payment of no more than the obligation still owing. Thus, "if it turned out at the foreclosure sale that the value of the remaining mortgaged property was equal to the amount of the debt (plus costs of sale), the mortgagee would then be entitled to no part of the damage award." (Baseline, supra, at pp. 672-673, 149 Cal.Rptr. at p. 18.) When foreclosure is not imminent, the extent of "impairment of security" is to be determined by such factors, inter alia, as the posttake, pretake, and original ratios of value to debt owing, the amount of the debtor's equity, the nature and salability of the property, and the duration and terms of the loan.

If, in this case, plaintiff had pressed a claim for severance damages, he would have received more than his contract price only to the extent that the remaining security was impaired. Assuming that plaintiff's security was impaired and that he was awarded the $76,104 he is now seeking, such award would not have been in addition to the debt owed to him by the purchasers, but would have been applied to reduce the debt by an equivalent amount. The damaged property would then have been adequate security for this lesser debt. Any compensable diminution in value suffered by reason of the severance which did not impair plaintiff's security could only have been claimed by the purchasers.

It is impossible from the record to determine if, and to what extent, plai...

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