Court Opinion

ID: 2657430
Source: CourtListenerOpinion
Date Created: 2014-03-20 18:39:45.285225+00
Date Added: 2024-06-11T13:00:26.872411
License: Public Domain

Filed 3/20/14

                           CERTIFIED FOR PUBLICATION

          IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                           SECOND APPELLATE DISTRICT

                                     DIVISION SIX

RANDALL S. RICHMAN,                                         2d Civil No. B245052
                                                           (Super. Ct. No. 56-2011-
     Plaintiff and Appellant,                              00401599-CU-BC-VTA)
                                                              (Ventura County)
v.

MARK HARTLEY, as Trustee, etc.,

     Defendant and Respondent.

                In a sale of real property improved with one to four dwelling units, the
seller is required to deliver to the buyer a real estate Transfer Disclosure Statement
(TDS) pursuant to the Transfer Disclosure Law. (Civ. Code, § 1102, subd. (a) et
seq.)1 In this case the seller did not provide a TDS because the property is "mixed-
use," i.e., improved with both residential and commercial buildings. We conclude
that a TDS is required in any transfer of real property "improved with or consisting
of not less than one nor more than four dwelling units," even if the property also has
commercial uses. (§§ 1102, subd. (a); 1102.6.)
                This appeal is from a summary judgment in favor of the buyer,
respondent Mark Hartley, as trustee of the Mark Hartley Family Trust (Hartley),

1
    All statutory references are to the Civil Code unless stated otherwise.
and against the seller, appellant Randall S. Richman (Richman), who sued Hartley
for breach of a real estate purchase agreement. The trial court found that Richman
was required as a matter of law to deliver a TDS. Because he did not do so, he
failed to demonstrate his own performance under the purchase agreement and
Hartley was entitled to summary judgment. On appeal, Richman contends that the
disclosure requirement applies only to transfers of properties that are solely
residential in nature, and not to transfers of mixed-use properties. We affirm.
              I. FACTUAL AND PROCEDURAL BACKGROUND
              In April 2007, Hartley entered into a written agreement with Richman
to purchase Richman's real property on Oak Street in Ventura (the Oak Street
property). The property is a single parcel improved with two structures: one
commercial building and a residential duplex. The terms of the parties' agreement
were set forth in a form entitled "Standard Offer, Agreement and Escrow
Instructions for Purchase of Real Estate (Non-Residential)" (the Agreement).
              Paragraph 9.1 (a) of the Agreement provides that: "Seller shall make
to Buyer, through escrow, all the applicable disclosures required by law (See AIR
Commercial Real Estate Association ('AIR') standard form entitled 'Seller's
Mandatory Disclosure Statement') and provide Buyer with a completed Property
Information Sheet ('Property Information Sheet') concerning the property . . . ."
Paragraph 26 of the Agreement provides that "Sale will be non contingent and
property shall be sold in an 'AS IS CONDITION' with all [its] faults." Under a
simultaneously executed lease agreement, Hartley leased the property from
Richman for two years.
              Escrow was scheduled to close on or before April 14, 2009. Hartley
managed the property under the lease agreement from 2007 to 2009, but failed to
close escrow, citing Richman's failure to deliver the disclosure documents required
by Paragraph 9.1 (a) of the Agreement, including the TDS required by the Transfer
Disclosure Law for transfers "of real property . . . improved with or consisting of
not less than one nor more than four dwelling units." (§§ 1102, subd. (a) et seq.;

                                           2
1102.6.) It is undisputed that Richman did not provide any disclosures, including a
TDS.
              Richman sued Hartley for breach of the Agreement. Hartley moved
for summary judgment, asserting that Richman's failure to deliver the TDS and the
other disclosures required by Paragraph 9.l (a) of the Agreement negated his breach
of contract action against Hartley.
              The trial court granted Hartley's summary judgment motion. The trial
court found that the Transfer Disclosure Law applied to the transfer because of the
presence of the two dwelling units on the property and, therefore, that a TDS was
one of the "applicable disclosures required by law" within the meaning of Paragraph
9.1 (a) of the Agreement.
              The trial court also found that the statutory disclosure requirement
was nonwaivable. Because Richman failed to provide Hartley with a TDS (as well
as the two other disclosure forms required by Paragraph 9.1 (a)), Hartley
demonstrated that Richman could not establish one element of his breach of
contract cause of action – his own performance – and that Hartley was therefore
entitled to summary judgment. Judgment was entered on September 7, 2012. This
timely appeal followed.
                                   II. DISCUSSION
                                A. Standard of Review
              Summary judgment is properly granted if there is no question of fact
and the issues raised by the pleadings may be decided as a matter of law. (Code
Civ. Proc., § 437c, subd. (c); Aguilar v. Atlantic Richfield Co. (2001) 25 Cal. 4th
826, 843.) "On appeal, the reviewing court exercises its independent judgment,
deciding whether the moving party established undisputed facts that negate the
opposing party's claim or state a complete defense. [Citations.]" (Romano v.
Rockwell Internat., Inc. (1996) 14 Cal. 4th 479, 486-487.) Where interpretation of a
statute forms the basis of a ruling, the reviewing court will independently review the
statute to determine the validity of the ruling and reviews the trial court's ruling

                                            3
rather than its rationale. (County of Solano v. Handlery (2007) 155 Cal. App. 4th
566, 572.)
                  B. Richman's Breach of Contract Cause of Action
              Richman's complaint alleged a single cause of action against Hartley
for breach of contract. To prevail on a cause of action for breach of contract, the
plaintiff must prove (1) the contract, (2) the plaintiff's performance of the contract
or excuse for nonperformance, (3) the defendant's breach; and (4) the resulting
damage to the plaintiff. (Careau & Co. v. Security Pacific Business Credit, Inc.
(1990) 222 Cal. App. 3d 1371, 1388.) Hartley's summary judgment motion asserted
that Richman could not, as a matter of law, prove that he had performed under the
contract because he had not made "all the applicable disclosures required by law" as
required by Paragraph 9.1 (a) of the Agreement. Hartley contended that a TDS was
"required by law" in the transaction because the improvements on the property
included two dwelling units. Richman insisted that he was not required to comply
with the Transfer Disclosure Law, which, he contends, was intended to apply only
to transfers of residential real property, not to a mixed-use property such as the Oak
Street property. The trial court agreed with Hartley. The parties' dispute requires us
to construe section 1102, which defines the scope of the Transfer Disclosure Law. 2
                           C. The Transfer Disclosure Law
              The Transfer Disclosure Law applies, with enumerated exceptions, to
sales or other transfers of "real property . . . improved with or consisting of not less
than one nor more than four dwelling units." (§ 1102, subd. (a).) Section 1102.3
provides that "[t]he transferor of any real property subject to this article shall deliver
to the prospective transferee the written statement required by this article . . . ." The

2
  Although the trial court's grant of summary judgment was based on Richman's
failure to deliver any of the disclosures required by Paragraph 9.1 (a), we consider
only the failure to deliver the TDS required by section 1102 because Richman's
failure to comply with section 1102 moots his other claims.

                                            4
form of the required TDS is set forth in detail in section 1102.6. It was the
Legislature's purpose that the Transfer Disclosure Law "'reduce litigation and
disputes pertaining to certain real property sales transactions.'" (Realmuto v.
Gagnard (2003) 110 Cal. App. 4th 193, 203, quoting Sen. Com. on Judiciary,
Analysis of Sen. Bill No. 1406 (1985-1986 Reg. Sess.) as amended May 6, 1985, p.
2.)3
              It is undisputed that Richman did not deliver a TDS to Hartley. Our
task, then, is to determine whether the Richman/Hartley transfer was "subject to this
article," i.e., whether the Legislature intended that a seller of mixed-use property
provide the buyer with a TDS. (§ 1102.3.) In deciding this issue, we are guided by
settled principles of statutory interpretation. "'The fundamental purpose of statutory
construction is to ascertain the intent of the lawmakers so as to effectuate the
purpose of the law.' [Citation.]" (Realmuto v. Gagnard, supra, 110 Cal.App.4th at
p. 199.) "'We must select the construction that comports most closely with the
apparent intent of the Legislature, with a view to promoting rather than defeating
the general purpose of the statute, and avoid an interpretation that would lead to
absurd consequences.' [Citation.]" (Ibid.)
              We begin with the words of the statute. (Wilcox v. Birthwhistle
(1999) 21 Cal. 4th 973, 977.) "'. . . If the language is clear and unambiguous there is
no need for construction, nor is it necessary to resort to indicia of the intent of the
Legislature . . . .' [Citation.]" (Ibid.) Only if the language permits more than one
reasonable interpretation do we look to extrinsic aids, such as the "'. . . ostensible
objects to be achieved, the evils to be remedied, the legislative history, public

3
  On our own motion, we take judicial notice of the legislative history of Senate Bill
No. 1406 and the 1994 amendments enacted as Senate Bill No. 1377, which became
law in 1995. (Evid. Code §§ 452, subd. (c), 459; Kern v. County of Imperial (1990)
226 Cal. App. 3d 391, 400, fn. 8 [appellate court may take judicial notice of
legislative history materials on its own motion].)

                                            5
policy, contemporaneous administrative construction, and the statutory scheme of
which the statute is a part.' [Citation]" (Id., at pp. 977-978.)
               In 1985, the Legislature enacted Senate Bill No. 1406, which requires
a seller to deliver to a buyer a real estate TDS in "any transfer . . . of real property . .
. improved with or consisting of not less than one nor more than four dwelling
units."4 (§ 1102, subd. (a).) These words are clear and unambiguous. Even
Richman does not contend that the language of the statute is ambiguous. Neither
the original enactment of the Transfer Disclosure Law nor any subsequent
amendments has limited its application to transfers of real property that contain only
residential units, and no published decision of an appellate court has so limited it.
By its language, then, section 1102 applies to any transfer of real property on which
are located one to four residential units, regardless of whether the property also has
a commercial use.
               Although we need look no further than the unambiguous words of
section 1102, the statutory scheme of which it is a part also supports our conclusion.
Section 1102.2 lists 10 types of real property transfers to which the Transfer
Disclosure Law does not apply. These include transfers pursuant to court order
(§ 1102.2, subd. (b)), transfers by a fiduciary in the course of administering a
decedent's estate (id., at subd. (d)), transfers from one coowner to another coowner
(id., at subd. (e)) and transfers between spouses resulting from a marital dissolution
(id., at subd. (g)). Section 1102.2 does not exclude transfers of mixed-use property
from the Transfer Disclosure Law's coverage.
               Application of the Transfer Disclosure Law to mixed-use property
where the residential portion is four or fewer units is also supported by other
enactments of the Legislature which expressly defined "residential real property" to

4
 Senate Bill No. 1406 became law on January 1, 1987. It is codified at section
1102 et seq., "Disclosures Upon Transfer of Residential Property."

                                             6
exclude mixed-use properties. For instance, Business and Professions Code section
11423, adopted in 1992, defines "residential real property" to mean "real property
located in the State of California containing only a one- to four- family residence."
(Id., at subd. (a)(3).) The same language was used in section 2954.8, adopted in
1979, governing the handling of impound accounts by financial institutions. That
section limits its application to loans made upon the security of real property
"containing only a one- to four- family residence." (Id., at subd. (a).)
                 If the Legislature had intended the Transfer Disclosure Law not to
apply to a transfer of mixed-use property, it could have done so by adding the word
"residential" before "real property" in section 1102. It did not. Notwithstanding its
use of more specific words in other statutes, and despite the 1995 amendments to
the Transfer Disclosure Law discussed above, the Legislature has made no change
that limits the disclosure obligation to solely residential property or excludes its
application to mixed-use parcels. We therefore hold that section 1102 applies to
any transfer of real property "improved with or consisting of not less than one nor
more than four dwelling units," even if the property also has commercial uses. (Id.,
at subd. (a).)
                 Richman, nevertheless, contends that applying the Transfer Disclosure
Law to mixed-use properties is inconsistent with the Legislature's intent. He argues
that the parties' transaction was essentially a commercial property transaction and
that the Legislature did not intend to protect buyers engaged in commercial
transactions when it enacted the Transfer Disclosure Law. It is true that the
Legislature did not intend the Transfer Disclosure Law to apply to commercial real
estate transactions. (Smith v. Rickard (1988) 205 Cal. App. 3d 1354, 1361; 2 Miller
& Starr, Cal. Real Estate § 3:44 (3d ed.), pp. 261-262.) But this does not help us
resolve the question raised by this case, which is whether the Transfer Disclosure
Law applies to transfers of mixed-use property.
                 Richman urges us to consider the "essence of the transaction" to
determine whether it was residential in nature (disclosure required) or commercial

                                            7
in nature (disclosure not required).5 Richman would have us infer the essentially
commercial nature of the transaction from the parties' experience with commercial
property transactions and their use of preprinted forms used in commercial
transactions. The statute's unequivocal definition of the transfers that fall within its
ambit eliminates the need for such inferences, however. If a property is "improved
with or consist[s] of" one to four dwelling units, it is subject to the Transfer
Disclosure Law, regardless of whether it may also have a commercial use. (§ 1102,
subd. (a).) Moreover, requiring trial courts to determine the "essence" of a transfer
from the parties' evidentiary showings would lead to extensive litigation, as the
parties to a failed transfer would inevitably have conflicting views of its "essence."
This would defect the Legislature's stated intent "to reduce litigation and disputes
pertaining to certain real property sales transactions." (Realmuto v. Gagnard,
supra, 110 Cal.App.4th at p. 203.)
              In a similar vein, Richman contends that Hartley is not the "kind of
buyer" the Legislature intended to protect by enacting the Transfer Disclosure Law.
He argues that the law was intended to protect "unsophisticated" residential
purchasers, not buyers, like Hartley, who are well-versed in commercial real estate
transactions. The courts have recognized the Legislature's interest in protecting
unsophisticated residential home purchasers. (See, e.g., Smith v. Rickard, supra,

5
 The parties litigated this issue in the summary judgment motion. Both parties
offered evidence in support of their respective theories, including evidence of
custom and practice in the Ventura County real estate industry. Richman relied
primarily on his own declaration, which recounted his extensive experience as a real
estate developer and investor, and excerpts from the legislative history of section
1102, of which he asked the trial court to take judicial notice. Hartley submitted the
declaration of a Ventura real estate broker, Joseph Kapp. The trial court admitted
some parts of this evidence and rejected others. On appeal, each party challenges
the trial court's evidentiary rulings that did not favor his position. Because the
defining issue is one of statutory interpretation, there is no need to resolve these
evidentiary issues. (People ex rel. Lockyer v. Shamrock Foods Co. (2000) 24
Cal. 4th 415, 432.)

                                            8
205 Cal.App.3d at p. 1361 ["section 2079 et seq. is one of those statutory schemes
where the Legislature distinguishes between residential and commercial properties
in order to protect unsophisticated buyers and owners of residential property from
those with greater knowledge and bargaining power"]; Easton v. Strassburger
(1984) 152 Cal. App. 3d 90, 102, fn. 8 [distinguishing between the "residential home
buyer who is often unrepresented by a broker, or is effectively unrepresented
because of the problems of dual agency [and] a purchaser of commercial real estate
[who] is likely to be more experienced and sophisticated in his dealings in real
estate"].) The Legislature's purpose to protect residential, not commercial, buyers
does not, however, require the conclusion that it did not intend the Transfer
Disclosure Law to apply to transfers of mixed-use properties, which by definition
include residential units. Nothing in the statute or its legislative history supports an
exception to section 1102 based on the sophistication of the buyer.
              There is no need to consider Richman's theories for determining
whether a transaction is "in essence" commercial or residential because the
Legislature has provided a numeric means of determining whether the Transfer
Disclosure Law applies: it applies if the property is improved with one to four
residential units, regardless of how it is otherwise improved. Had the Legislature
wished the real estate industry to determine, through successive litigations, whether
a transaction is primarily commercial or residential, it would not have provided a
bright line for determining the applicability of the Transfer Disclosure Law.
Richman's construction would blur that bright line.
              Section 1102, subdivision (a) applies to property "improved with or
consisting of" one to four dwelling units. Richman urges us to focus on the term
"consisting of" and to interpret that term narrowly to mean "that the statute applies
exclusively to residential property transactions as defined by a property containing
one to four dwelling units." This contention is meritless. First, it ignores the
alternate qualifier "improved with." It is undisputed that the subject property is
"improved with" two residential units. Therefore, section 1102 applies to the

                                           9
transaction regardless of how we interpret the term "consisting of." Second,
Richman would have us read a new word – "residential" – into the statute.
Appellate courts may not rewrite unambiguous statutes. (Melissa R. v. Superior
Court (2012) 207 Cal. App. 4th 816, 822.) As explained above, if the Legislature
had intended to limit the application of section 1102 to solely residential properties,
it would have done so. For the sake of thoroughness, however, we address
Richman's argument, which is based on a misreading of our decision in Smith v.
Rickard, supra, 205 Cal. App. 3d 1354.
              In Smith, we analyzed section 2079, which requires a licensed real
estate broker who has a written contract with the seller of "residential real property
comprising one to four dwelling units" and who has listed that property for sale "to
disclose to [a] prospective purchaser[] all facts materially affecting the value or
desirability of the property that an investigation would reveal. . . ." (Smith v.
Rickard, supra, 205 Cal.App.3d at p. 1360.) In Smith, we did not have to read the
word "residential" into the statute because it was already there. Our task was to
determine whether the property was in fact "residential" for purposes of section
2079. The property at issue in Smith was a 50-acre commercial avocado and lemon
orchard improved with a residence. After the sale was completed the buyer
discovered that the avocado trees were infected with a fungus that was killing the
trees and sued the broker for negligence in failing to inspect and disclose material
defects in the avocado orchard. We held that the Legislature intended section 2079
to apply only to "brokers selling residential properties of four or fewer dwellings,
and not to commercial real estate transactions." (Smith v. Rickard, supra, at p.
1360.) We determined that the property was not residential: "The presence of a
residence on the commercial property does not transform the property into
residential property." (Id., at p. 1363.) Because section 2079 applies only to
"residential" property, we concluded that the "broker has no duty to inspect" the
commercial parts of the property. (Id., at pp. 1356-1357.)
              In the absence of any case law defining the scope of section 1102,

                                           10
Richman urges that Smith's construction of section 2079 is controlling here,
particularly our statement that "[t]he presence of a residence on the commercial
property does not transform the property into residential property."6 (Smith v.
Rickard, supra, 205 Cal.App.3d at p. 1360.) As explained above, however, that
comment was made in the context of determining whether the property was
"residential," as opposed to commercial, which is a critical distinction in the
application of section 2079, but not in the application of section 1102, which does
not specify that the property be "residential." Accordingly, Richman's argument
that we should read the word "residential" into section 1102 finds no support in
Smith. On the contrary, Smith supports our holding here. In Smith, we compared
section 2079 to several other statutes, including section 1102, and observed that
section 1102, unlike section 2079, does not "require that the property be used only
for residential purposes." (Smith v. Rickard, supra, at p. 1362.) Although we did
not construe section 1102 in Smith, our observation is consistent with our holding
here that section 1102 does not require that the property be used only for residential
purposes, but applies to all transfers of real property improved with or consisting of
one to four residential units, regardless of whether it also has a commercial use.
                     D. Waiver of the Transfer Disclosure Law
              Richman contends that Paragraph 26 of the Agreement constituted a
waiver of the disclosure requirements contained in Paragraph 9.1 (a). Paragraph 26
states: "Sale will be non contingent and property shall be sold in an 'AS IS
CONDITION' with all its faults." Although this provision may have created a
triable issue as to whether the parties intended to waive the non-statutory
disclosures of Paragraph 9.1 (a), it could not, as a matter of law, operate as a waiver

6
  Richman observes correctly that sections 1102 and 2079 are "complementary"
statutes. For example, both statutes were enacted as a response to Easton v.
Strassburger, supra, 152 Cal. App. 3d 90, and both statutes utilize the same
disclosure form.

                                          11
of the Transfer Disclosure Law.
               In 1994 the Legislature amended section 1102 to add the provision
that: "Any waiver of the requirements of this article is void as against public
policy." (§ 1102, subd. (c).) The Legislature's stated purpose in enacting this
change was to clarify "that the delivery of a real estate transfer disclosure statement
may not be waived in an 'as is' sale, as held in Loughrin v. Superior Court (1993)
15 Cal. App. 4th 1188." (§ 1102.1, subd. (a).) Section 1102 required Richman to
provide Hartley with a TDS, and public policy prohibited waiver of that
requirement.
               Richman's delivery of a TDS was a statutory condition precedent
to Hartley's duty to perform under the Agreement. (Realmuto v. Gagnard, supra,
110 Cal.App.4th at pp. 201-202.) Generally, a party's failure to perform a
condition precedent will preclude an action for breach of contract. (Id., at p. 205.)
Because Richman did not perform that condition precedent, Hartley was not
required to perform as a matter of law and summary judgment was properly
granted.
                          E. Extent of Disclosure Obligation
               The parties appear to agree that the disclosure obligation, if it exists,
applies to the dwelling units only and not to the entire property. That issue is not
properly before us, however. Richman did not deliver a TDS for any part of the
property and his contention on appeal is that he was not required to deliver a
TDS at all. The scope of any TDS he was required to deliver was not the subject
of an actual controversy between the parties. To be ripe for resolution, "'[t]he
controversy must be definite and concrete, touching the legal relations of
parties having adverse legal interests. . . .'" (Pacific Legal Foundation v.
California Coastal Com. (1982) 33 Cal.3d158, 169-171.) Because there is no
actual controversy concerning the extent of the disclosure obligation, we do not
decide it.

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                                 DISPOSITION
             The judgment is affirmed. Costs are awarded to respondent.
             CERTIFIED FOR PUBLICATION.

                                        O'DONNELL, J.*

We concur:

             GILBERT, P. J.

             PERREN, J.

*
 (Judge of the Superior Court of Los Angeles County, assigned by the Chief Justice
pursuant to art. 6, § 6 of the Cal. Const.)

                                       13
                                 Henry J. Walsh, Judge

                          Superior Court County of Ventura
                         ______________________________

             Goldenring & Prosser, Peter A. Goldenring and James E. Prosser for
Defendant and Respondent.
             Law Office of Richard L. Francis & Associates, Richard L. Francis,
Charles W. Oaks for Plaintiff and Appellant.