Bad Faith Leads to Voiding of Joint Tenancy Deed and Double Damages Award
California’s Civil Code and common law provide remedies for when someone has been deprived of real property rights under shady circumstances. If the wronged party dies, the Probate Code provides similar remedies to the heirs.
In a case recently filed by California’s First Appellate District — Abasolo v. Menasco — the court faced a troubling story of a man who, shortly before his death, signed away property rights to his “longtime friend” and real estate agent in a questionable transaction. While the case was not published and therefore not binding precedent, it still provides a useful guidepost.
Facts: friend and real estate agent gets joint tenancy deed shortly before “illiterate” man dies
The opinion recited the following facts based on witness testimony at trial:
Julian Abasolo was friends with James Kenneth Menasco, who was a licensed real estate agent.
According to testimony at trial, it was widely known that Abasolo “could not read, had limited comprehension, and suffered from debilitating medical issues that required him to rely on others for basic needs.” He was disabled from a back injury at the age of 18, became “morbidly obese,” and was an insulin-dependent diabetic. He had three strokes during the last three to four years of his life.
Abasolo’s property in the City of Alameda fell into disrepair and the city began issuing citations for code violations. At some point his friend Menasco proposed that Abasolo sell him a joint tenancy interest in the property and Menasco would help him abate the code violations. A joint tenancy includes the “right of survivorship” — a deceased owner’s share automatically transfers to the surviving owner. Abasolo asked his attorney to review the proposed transaction and his attorney said there was “no reason for a joint tenancy” and he wouldn’t touch the deal “with a 10-foot pole.”
Nonetheless, a purchase agreement was signed and a joint tenancy deed for the property was recorded, making Menasco a joint tenant owner of the property. The purchase agreement recited a purchase price of just over $1 million, but Menasco did not have that money. Instead of immediate payment, the deal stated that Menasco would pay for remodeling the property and then list it for sale as the listing agent, and the proceeds of the sale would be split according to various formulas depending on the sale price.
In his defense, Menasco testified that in order to get the required permits for the code abatement work, he needed to be a licensed contractor (which he was not) or an owner. His plan was to purchase a ten percent interest in the property to get on title, but his escrow officer told him he could not do a joint tenancy as a ten percent owner; it needed to be fifty-fifty.
About three months after signing the joint tenancy deed, Abasolo died. His younger brother, as trustee of his trust, filed a lawsuit against Menasco under Probate Code section 850, which provides a mechanism for court determination of rights in property claimed to belong to a decedent and aims to “prevent looting of estates.”
Trial court: judgment for Abasolo
The trial court found in the Abasolo estate’s favor on all issues.
The court found the presumption of undue influence or fraud as set forth in Probate Code section 21380 applied to Menasco because of his fiduciary relationship with Abasolo as his real estate agent and broker, and that Menasco “acted in bad faith when he unduly influenced decedent to remove the property from the trust and convey it in joint tenancy with Menasco….” The court also held that Menasco exerted undue influence over Abasolo by failing to perform under the purchase agreement by “failing to complete repairs to the property, failing to sell the property, and failing to pay the agreed upon purchase price.”
The court also held that the estate was entitled to double damages under Probate Code section 859 based on Abasolo’s status as a dependent adult who was unable to read, had limited comprehension, and had significant medical issues. Section 859 allows the court to award damages “for twice the value of the property recovered” in an action seeking recovery of property wrongfully taken in bad faith.
The court issued a judgment voiding the joint tenancy deed, restoring the property to Abasolo’s estate, and awarding damages against Menasco in the amount of over $1.7 million.
Menasco appealed.
Court of Appeal: affirmed
The Court of Appeal affirmed the trial court’s judgment.
Among the multiple arguments raised by Menasco in his appeal, he argued that the damage award was “speculative and excessive” because he did not act in bad faith and the trial court relied on a “hypothetical” sales price of the property instead of actual “market data.”
As to bad faith, the court held the trial court’s judgment was supported by substantial evidence, reciting the witness testimony at trial. The court held: “Menasco used his real estate expertise to prey on a long-term client and friend, who was overly trusting, functionally illiterate, suffering from serious medical conditions, and concerned about the city taking and demolishing his property.”
As to the quantification of damages, the court likewise held there was no error. The court acknowledged that in a conventional real estate damages case, principles of “contract damages” would apply (and are typically based on competent valuation evidence, which often includes market data, comparable sales, and expert appraiser opinion testimony). But here, the trial court awarded relief under Probate Code sections 850 and 859, which have an equitable purpose and operate under different standards. “Section 859 is a civil penalty imposed for enumerated misconduct; it is punitive in nature.” Here, the trial court assigned a property value of $950,000 based on Menasco’s deposition testimony that a verbal offer had been made in this amount, and that evidence was sufficient under section 859.
Lesson
Under the unpublished Abasolo opinion, a damage award under Probate Code section 859 for property wrongfully taken in bad faith need not be based on the same valuation evidence normally required in a real estate contract damages case.