A buyer was entitled
to rescind a real estate contract after the seller negotiated and executed a
power line easement without the buyer's knowledge, according to a recent
decision from 9th Circuit. Applying California law, the court held
that the easement, which continued to exist for more than five months after the
scheduled closing date, constituted a breach sufficient to permit the
Toll Brothers, Inc.
entered into a purchase and sale agreement (PSA) in which the Lins agreed to
sell Toll-a national homebuilder- parcels of land in Dublin, California. The land
in dispute was scheduled for closing on June 30, 2007.
Toll, the Lins negotiated and executed a temporary easement to Pacific Gas
& Electric Company (PG&E) for overhead power lines. Throughout 2007,
the Lins attempted to get the easement extinguished, but PG&E did not
quitclaim the power line easement back to the Lins prior to the scheduled
closing. With the easement still conveyed to PG&E, and no knowledge or reasonable
expectation of when it would be extinguished, Toll terminated the PSA in
December 2007, more than five months after the specified closing date.
In Toll Bros., Inc. v. Chang Su-O Lin,
615 F. Supp. 2d 1100 (N.D. Cal. 2009) [enhanced version], the district court found that the Lins'
grant of an easement did not constitute a breach of the PSA because it did not
interfere with Toll's planning for the area. However, the 9th
Circuit reversed in Toll Bros., Inc. v.
Chang Su-O Lin, 2011 U.S. App. LEXIS 2303 (9th Cir. Cal. Feb. 3, 2011) [enhanced version / unenhanced version available from lexisONE Free Case Law]. The
9th Circuit held that:
Our decision that the power
line easement constituted a breach of the PSA is not based solely on the
inability of the Lins to deliver unencumbered title on the scheduled closing
date. Indeed, Toll did not rescind because the Lins had not cured the defect in
title by the closing date specified in the PSA. Instead, Toll waited over five
months beyond the scheduled closing before rescinding the contract. Moreover,
despite the fact that the Purchase Sale Agreement gave the Lins the option to
extend closing in order to cure a breach of contract, the Lins made it clear
prior to the scheduled closing on June 30, 2007, that they would not extend
closing. . . .
Significantly, the dispute
created by the power line easement was of the Lins own making because they
chose to violate the Purchase Sale Agreement by conveying an easement to
PG&E without Toll's knowledge or consent and without requiring a
termination date on the conveyed easement. Moreover, the breach created by the
power line easement was . . . "of uncertain and unspecified
duration." . . . [T]he Lins were unsuccessful in extinguishing the
easement and could not provide a date-certain as to when the easement would be
extinguished. While the dissent argues, with the benefit of hindsight, that the
easement had "no practical impact," it ignores the fact that, when
Toll rescinded the contract, it did not know when or if the easement would be
extinguished, or if doing so would require legal action.
10-104 California Real Estate Guide: Litigation and
Transactions § 104.23 Rescission (Purchase this treatise at the LexisNexis Store) (lexis.com customers can access this
For more information about LexisNexis products and
solutions connect with us through our corporate