Salem Development Co. v. Ross

251 Cal. App. 2d 53, 59 Cal. Rptr. 548, 1967 Cal. App. LEXIS 1948
CourtCalifornia Court of Appeal
DecidedMay 16, 1967
DocketCiv. 8267
StatusPublished
Cited by2 cases

This text of 251 Cal. App. 2d 53 (Salem Development Co. v. Ross) is published on Counsel Stack Legal Research, covering California Court of Appeal primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Salem Development Co. v. Ross, 251 Cal. App. 2d 53, 59 Cal. Rptr. 548, 1967 Cal. App. LEXIS 1948 (Cal. Ct. App. 1967).

Opinion

LAZAR, J.

pro tem. * This action arises out of a real property transaction between plaintiff Salem Development Co., a corporation (Salem) and defendant Ardmore Development Co., a corporation (Ardmore). The other defendants participated not as principals, but in secondary capacities in the transaction between Salem and Ardmore. Defendants Apex Realty and Management Co., Inc. a corporation (Apex) and Mare Andrews (Andrews) were the real estate brokers; defendant Alan D. Ross (Ross) was attorney for Ardmore and its president defendant Leonard B. Schneider (Schneider) ; defendant John White (White) was attorney for Salem and its president Salem D. Caplan (Caplan); defendant Michael Lotery, sued as Doe I, was a real estate salesman for Apex. Reduced to elemental facts, Salem, by virtue of options, had in escrow for purchase three parcels of real property which together constituted one highly desirable parcel of real estate. Ardmore was willing to purchase the total property from Salem. Salem was unable to produce the money necessary to complete its purchase of the individual properties before the life of its options expired. Ardmore agreed to advance the necessary moneys and arranged financing for that purpose. Before the three Salem purchase escrows could be closed and the Salem sale escrow to Ardmore could be completed it was learned that an outstanding tax lien situation existed which would preclude Salem and Caplan from taking title to the real property if the tax lien was to be avoided. Thereupon the transaction was again changed for accommoda *55 tian. to the two contingencies which had developed, i.e., lack of funds and the tax lien.

Under the new arrangement Boss was individually designated to take title in the three purchase escrows and as seller in the Ardmore purchase escrow. The escrows were closed, resulting in the execution by Salem and Caplan of three promissory notes, one to Apex for $46,183; one to Marc Andrews for $16,200, both representing real estate commissions, and a third to Ardmore for $61,200, representing in the main two years interest and points on the loan negotiated by Ardmore for purchase of the property and secured by Ardmore’s note and first deed of trust to the lender. Ardmore also executed to Boss, individually, a note in the amount of $183,749.26 secured by a second deed of trust which represented the balance required from Ardmore for close of its escrow for purchase of the property.

Each of the commission notes was payable, with interest, in one year. The Salem and Caplan note to Ardmore for $61,200 was payable without interest in quarterly payments of $7,650 commencing four months after execution. This last mentioned note was in usual form with the recitation that it was secured by “a collateral trust agreement of even date.”

The so-called “Collateral Trust Agreement” (Agreement) 1 (set forth in full in the footnote) is the center of this appellate controversy. We point out that the Ardmore note mentioned therein, which was to secure the payment of the three Salem-Caplan notes, by its terms was not payable either as to principal or interest until its maturity five years after December 12, 1961. It is to be kept in mind that the payment called for by the Ardmore second deed of trust note would not become due until long after payments were required on the three Salem-Caplan notes and in no event could payment thereof be compelled as it was a purchase money obligation.

No payment was made by Salem-Caplan to Ardmore when the first quarterly payment became due. Events took their course; Ardmore required Boss to make demand upon Salem and Caplan; the demand was not met or answered; Boss caused the Ardmore note to be cancelled by the title insurance company trustee under the second deed of trust and the second deed of trust to be reconveyed to Ardmore; Ardmore made direct arrangements with Apex and Andrews for ultimate payment of the commissions owing to them.

A few days after Boss gave effect to the Agreement by *56 causing reconveyance of the second deed of trust to Ardmore, Ardmore transferred title to Stealax Investment Company, a partnership composed of Ross and his two law partners. Stealax paid $32,000 to Ardmore. Stealax thereafter “warehoused” the property for Ardmore until some 14 months later the property was again transferred to Ardmore. Ardmore executed in exchange a note and deed of trust for $175,000, of which $100,000 represented the amount invested during the intervening time by Stealax and $75,000 represented the apparent profit. (This post-Agreement course of action upon the part of Ross [through the partnership] is urged by Salem as a breach of fiduciary obligation, but we find the point to be immaterial in view of the views hereinafter expressed and, in any event, without merit.)

The complaint was framed in several alleged causes of action relating to rescission, fraud, specific performance, breach of trust and damages. Upon the conclusion of plaintiff’s case the court gave judgment in favor of all defendants except Ross, Ardmore and Schneider and further ruled as to the last named defendants that plaintiff had failed to make out a ease of fraud against them. The action proceeded as to the three remaining defendants upon the issues of breach of trust by Ross in performing under the Agreement and of illegal forfeiture within its terms. The trial court found in favor of the defendants on both issues and rendered judgment accordingly.

In spite of the involved and in certain aspects uncertain facts presented by the record, we view the case somewhat more simply than did the parties during the trial or in their briefs. In its simplest outline Salem contracted to sell a parcel of real property to Ardmore. For lack of funds Salem was unable to acquire title and Ardmore included in its payments into escrow the funds necessary. Salem in turn agreed to pay for two years the interest charges on the money borrowed by Ardmore (in substance, the $61,200 note). For strategic reasons (the tax lien) Salem could not have title pass in its name and Ross was designated Salem’s nominee. For the same reason, we assume, Ross took title individually and not as trustee, for the latter designation would have invited the question “For whom?” At the same time Ross did designate himself as “trustee” with respect to the Agreement.

We do not propose to consider at length the contentions of either side. We summarize them by saying plaintiff contends Ross was guilty of a breach of trust in the manner he performed under the Agreement; that the trial court erred in *57 admitting testimony designed to vary the terms of the Agreement and the fiduciary obligation to which Ross as “trustee” was subject; further that cancellation of the Ardmore note to Salem and of the deed of trust securing it was a forfeiture not allowed by law.

Defendants, on the other hand, contend that Salem had no interest in the property or the Ardmore note and second deed of trust once Ross was designated Salem’s nominee and that the Agreement should be likened to a conditional contract of sale whereby Salem had the privilege of purchasing the note and second deed of trust by paying off the three notes for which they purported to be security.

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Bluebook (online)
251 Cal. App. 2d 53, 59 Cal. Rptr. 548, 1967 Cal. App. LEXIS 1948, Counsel Stack Legal Research, https://law.counselstack.com/opinion/salem-development-co-v-ross-calctapp-1967.