Schellinger Brothers v. Cotter

Court Rules That Developer is Entitled to Recover

Against Land Owner Who Breached Contract to Sell His Land to Developer


            In Schellinger Brothers v. Cotter, a developer, Schellinger Brothers (“Developer”), entered into an agreement to buy a large tract of land in Sebastopol, California, from the land owner James Cotter (“Seller”).  Controversy surrounding the proposed commercial development eventually led to the Developer suing the City of Sebastopol, but Developer lost that case and its appeal.  Following that action, Seller sued Developer claiming that Developer had breached their contract due to the unreasonable amount of time it was taking to secure approval of the project.  The trial court denied the claim that Developer had breached the contract, but gave Developer a deadline of two years for it to obtain final approval of a subdivision Map from the City of Sebastopol.  That ruling was affirmed on appeal.  While that case was on appeal, Developer commenced a new action against Seller in which Developer claimed that Seller had breached their contract.  The trial court entered judgment in favor of Developer and awarded it damages against Seller in the amount of $2,855,431.77, in addition to attorneys’ fees and costs.  Seller appealed.

             On appeal, Seller raised three issues.  He argued that Developer could not unilaterally waive the condition that a final subdivision map be in place prior to transfer of the property.  The appeals court rejected this argument because Seller had not presented it at the trial court.  Seller argued that there was insufficient evidence to find that Seller had breached the contract.  The appeals court discussed the evidence presented at trial. In January 2012 (the month after the trial court had entered judgment in the first case between Developer and Seller), Seller had hired a contractor to ameliorate flooding and drainage problems on the property.  Not only did the contractor perform work without a permit, but his work caused substantial damage to sensitive wetlands areas, thereby putting the entire project in question.  Also, when the contractor was deposed, he confirmed that Seller had asked him to lie during the deposition and say that he knew nothing about the trench that he had dug at Seller’s request.  The contract with Developer had imposed an obligation on Seller not permit any act of waste on the Property, and the trial court had found the digging of the trench to be a material breach of the contract.  Seller also attacked the amount of damages awarded to Developer.  The court found that the controlling statute was Civil Code section 3306, which applies when there is a breach of an agreement to convey an estate in real property.  Under section 3306, the aggrieved party is entitled to consequential damages.  Seller knew that Developer was incurring expenses through its interaction with the City of Sebastopol.  Those expenses were foreseeable damages in the event that Seller breached.  Accordingly, the trial court properly awarded Developer the expenses it incurred in preparing to enter upon the land and its consequential damages.   

            This case presents a cautionary tale to both developers and landowners.  Under the terms of the contract involved in the case, Developer and Seller were subject to extremely long delays due to the local government’s refusal to approve the subdivision map.  The long wait became too much for Seller, who wanted either his money or the right to find a new buyer.  Seller needed a contract with a definitive term.  Seller also needed better advice on his rights while in possession of the property, as well as his risk of damages for breach.  Similarly, Developer needed express provisions providing options in the event the City dragged out the process of approving the subdivision map.  Eventually, though, Developer obtained a judgment for all of its damages.  

Mark V. Isola,