Schellinger Brothers v. Cotter

Facts: A buyer enters into an agreement to purchase raw land to develop a large commercial project. Close of escrow is conditioned on approval of the project from the city and the recordation of a final subdivision map, for which the buyer incurs expenses. The approval process is stymied pending a lengthy environmental review. While the sale is pending, heavy rain causes extensive flooding to the property and the seller hires a contractor to install a drainage trench. The trench is constructed without permits and encroaches onto protected wetlands, causing significant ecological damage. Remediation of the damage is projected to take numerous years, during which time the buyer may not develop the property.

Claim: The buyer seeks money losses from the seller, claiming the seller breached the purchase agreement by committing waste to the property since the seller’s installation of the unpermitted drainage trench and the resulting damage rendered the property unusable by the buyer.

Counterclaim: The seller claims they are not liable for the buyer’s money losses since the evidence was insufficient to establish they breached the purchase agreement by committing waste.

Holding: A California appeals court holds the buyer is entitled to money losses from the seller since the damage caused by the unpermitted drainage trench constituted waste as it prevented the buyer from using the property as intended. [Schellinger Brothers v. Cotter (August 26, 2016)__CA4th__]

Editor’s note — The above case is but one facet of a long and tortured legal dispute involving this project. In a prior decision, the court noted, “…the history of this dispute would bring tears to the eyes of a brass mon­key.” Though not fundamental to the court’s ruling here, the seller exhibited a pattern of vindictive behavior. Years before the construction of the unpermitted trench, the seller stopped paying property taxes — they were paid instead by the buyer to avoid a forfeiture of the property. Further, the seller later attempted to sell the property to another buyer while still under contract with the original buyer. When this fell through, the seller tried to simply give the property to the city, though was rejected.

Related forms: Purchase Agreement – Land Acquisition Transaction. [See RPI Form 158]

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