Black Hills Investments, Inc. v. Albertson’s, Inc. – January 12, 2007

By Thomas B. Snyder

On November 22, 2004, Black Hills entered into a contract to purchase two parcels of real property in a retail shopping center.  At the time of the contract, the two parcels had not yet been created through subdivision of the property.  Black Hills deposited earnest money of $133,000 which was described as non-refundable.  The contracts contained a provision which permitted the seller, Albertson’s, to terminate the contract if it failed to obtain the proper governmental approvals for creation of the two parcels.  Black Hills was given no such right.

As required and expected, Albertson’s recorded a Parcel Map on December 10, 2004.  On January 26, 2005, just one day before the scheduled close of escrow, counsel for Black Hills sent a letter to Albertson’s objecting to a number of issues and claiming that they could not close due to various conduct by Albertson’s.  Notably, compliance with the Subdivision Map Act ("SMA") was not mentioned as an issue at the time.  Black Hills refused to close and Albertson’s refused to return the deposit.  Black Hills then initiated a lawsuit seeking recovery of its earnest money.  The trial court granted summary judgment in favor of Black Hills and Albertson’s appealed.

California Government Code Section 66499.30(b) generally prohibits the sale or lease of real property for which a parcel map is required by the SMA until a parcel map is recorded in compliance with the SMA and local law.  Section 66499.30(e) contains an exception which permits such a sale or lease if the sale or lease is expressly conditioned upon the approval and filing of a final subdivision map or parcel map prior to the close of escrow.

Albertson’s first claimed that it came within the exception of Section 66499.30(e).  However, in examining the contract language, the Court found that the operative contracts only gave Albertson’s a unilateral right to either terminate the contract if the parcel map was not recorded prior to the scheduled close of escrow and/or waive that condition.  The Court found that this language did not make the sale "expressly conditioned" on the filing of the parcel map and therefore it did not comply with Section 66499.30(e).  The contracts therefore, violated the SMA and were illegal and void.

Albertson’s next claimed that its recordation of a parcel map on December 10, 2004 terminated any right Black Hills may have had to avoid the contracts.  This argument was based on Section 66499.32(a) which gives a buyer the right to void a contract for the sale of property that has been divided in violation of the SMA.  Section 66499.32(b) limits the buyer’s right to void the contract after a parcel map has been recorded.  Albertson’s argued that its recorded of the parcel map on December 10, 2004 cut off any right to avoid the contract.  However, the Court found that in this case, the contracts did not involve property that had been illegally subdivided at the time of the contract.  Rather, the two parcels at issue had not been subdivided.  Accordingly, the Court found that Section 66499.32 was not applicable.

Finally, Albertson’s argued that Black Hills had ratified the contract after the recording of the parcel map by taking actions which were consistent with the existence of the agreement.  In particular, Albertson’s cited Black Hills’ January 26th letter which objected to Albertson’s actions as inconsistent with the contract provision and seemed to be premised on the existence of the contract.  However, because the Court had determined that the contract was void, rather than voidable, as a matter of law it could not be ratified by any subsequent acts of either party.

The Court affirmed the grant of summary judgment in favor of Black Hills, including an award of attorneys’ fees in their favor.

For more information please contact Thomas Snyder.  Thomas Snyder is an associate in the Construction, Environmental, Real Estate & Land Use Litigation Practice Group in the firm’s Del Mar Heights Office.