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Johnny R. Ribeiro v. County of El Dorado

May 10, 2011


APPEAL from a judgment of the Superior Court of El Dorado County, Nelson Keith Brooks, Judge. (Super. Ct. No. PC20050591)

The opinion of the court was delivered by: Hoch , J.


Reversed with directions.

A jury found in favor of Johnny R. Ribeiro against the County of El Dorado (County), finding Ribeiro had the right to rescind a tax-sale contract and recover his deposit, due to a unilateral mistake of fact caused by the County. The County timely appealed.

On appeal, the County contends the trial court should have granted its motion for a non-suit because the doctrine of caveat emptor (buyer beware) applies at tax sales, except where displaced by statute, and no statute authorizes Ribeiro's claim.

This appeal requires us to decide whether a purchaser of tax-defaulted property from a public entity at a tax sale is limited to the remedies provided by Revenue and Taxation Code section 3725 et seq.*fn1 or may also pursue traditional contract remedies.

This issue was debated in three cases. Two cases explain that, according to precedent, caveat emptor applies at tax sales, and absent an explicit statutory remedy, the buyer has no remedy. (Van Petten v. County of San Diego (1995) 38 Cal.App.4th 43 (Van Petten); Craland, Inc. v. State of California (1989) 214 Cal.App.3d 1400 (Craland).) One case, in a split decision, concluded that because the Revenue and Taxation Code does not state its remedies are exclusive, the contractual remedy of rescission is available. (Schultz v. County of Contra Costa (1984) 157 Cal.App.3d 242 (Schultz).) The trial court overruled a demurrer and denied a summary judgment motion, concluding that Schultz was correctly decided. The trial court denied the County's motion for non-suit for the same reason.

We hold that the statutory remedies are exclusive at tax sales and reject Schultz. We reverse with directions to the trial court to enter judgment for the County.


Because the County seeks review of the denial of its motion for a non-suit, we must resolve all factual disputes in favor of Ribeiro. (Nally v. Grace Community Church (1988) 47 Cal.3d 278, 291.)

We grant Ribeiro's unopposed motion for judicial notice of legislative history documents. However, taking judicial notice of such documents does not mean they will be helpful in resolving a given interpretive question. (Kaufman & Broad Communities, Inc. v. Performance Plastering, Inc. (2005) 133 Cal.App.4th 26, 29-30.)

Ribeiro, an experienced real estate investor, placed the winning bid at a tax sale on "Parcel 32," which was subject to assessments authorized by the Improvement Bond Act of 1915. (Sts. & Hy. Code, § 8500, et seq. (1915 bonds).) Ribeiro did not know the amount of 1915 bond arrearages, but assumed it was "most likely" around $250,000. When he learned the amount of bond arrearages was $2.7 million, he refused to complete the sale and sued the County to recover his deposit.

The defense theory at trial was that Ribeiro did not conduct a thorough title search, which would have revealed the 1915 bond amounts, and Ribeiro's theory was that the County's failure to record notice of stripping the 1915 bonds from the tax roll, and the County's failure to provide information about the 1915 bonds on request, concealed those assessments from the diligent title search he conducted.

The County had previously billed 1915 bond assessments separately from property taxes, but in the 1990's combined them into one bill. Ribeiro knew that the procedure for collecting delinquencies differed: Delinquent property taxes would lead to a tax sale, but delinquent 1915 bond assessments would be stripped from the tax roll and collected by a foreclosure action.

According to a legislative report tendered by Ribeiro, Streets and Highways Code section 8833 was amended in 1996 to require recorded notice when 1915 bonds or other assessments are stripped from the tax roll, to reduce litigation against title companies over unknown assessments. (Stats. 1996, ch. 625, § 3, pp. 3459-3461; see Sen. Rules Comm. Off. of Sen. Floor Analyses, Rep. on Sen. Bill No. 1471 (1995-1996 Reg. Sess.) Aug. 21, 1996, pp. 2-3.) It was undisputed at trial that County officials were ignorant of this duty and failed to record such notice. However, the notice would not have included the amount of the 1915 bonds stripped, only the "specific tax year and installment intended to be removed" and other general information about the property. (See Sts. & Hy. Code, § 8833, subd. (b)(1)-(5).)

Taxes and 1915 bond assessments for Parcel 32, in the El Dorado Hills Business Park, were delinquent. Ribeiro testified he knew the El Dorado Hills Business Park "was an assessment district that had 1915 bonds on it," some of which were paid up and some of which were not, and he owned four or five parcels in that district. In 2004, he learned Parcel 32 was for sale and "had not had its taxes paid for quite some time and the owners were in default."

Parcel 32 was on a tax-sale list dated October 8, 2004, with an "opening price" of $814,000, and a document from the tax collector showed about $560,000 was owed for property taxes. Ribeiro wanted to know the reason for this discrepancy, but the assessor's office and the auditor-controller's office referred him back to the tax collector, and would not confirm whether the 1915 bond arrearages explained the discrepancy between the tax arrearages and the opening bid price. Ribeiro researched recorded documents and obtained a preliminary title report, but these documents did not explain the discrepancy.

On October 21, 2004, Ribeiro obtained an online tax printout for Parcel 32, showing a total of $583,626.60 in taxes due, divided into a "Redemption" or "Default" amount of $564,531.14, and a "Secured" current-year amount of $19,095.46. The first page states at the bottom, partly in bold type: "There is a 1915 [bond] Special Assessment or Mello-Roos CFD Special Tax included on the Secured Tax bill on this parcel. [¶] Tax Class 20570 . . . 1915-EDH BUSINESS PARK PHASE I." Ribeiro testified he thought this meant 1915 bond assessments were included in the secured tax amount. His employee, Angela Gholar, spoke with someone at the title company who confirmed this belief, which she conveyed to Ribeiro. However, the document did not indicate that 1915 bond arrearages were included.

The title report had an exception for a lawsuit that Ribeiro knew was an action to foreclose on 1915 bonds. Ribeiro's attorney found the action had been dismissed without prejudice in 1995, and Ribeiro knew this meant the 1915 bonds were in arrears and that the foreclosure action could be refiled. At the tax sale, the auctioneer said the property was in foreclosure, but Ribeiro did not believe it was.

Gholar obtained a copy of the auction rules online. They provided for delivery of clear title with several exceptions, including exception (f), for "[u]npaid assessments under [1915 bonds] that are not satisfied as a result of the sale proceeds being applied." "[B]asically identical" rules were distributed at the auction. The exceptions were taken verbatim from the Revenue and Taxation Code. (See § 3712, subd. (f).) An employee of the tax collector testified she understood exception (f) to mean that there might or might not be 1915 bonds not satisfied by the sale proceeds. Thus, contrary to an assertion by Ribeiro on appeal, she did not confirm his explanation for the discrepancy between the opening price and the unpaid taxes. At trial, Ribeiro testified he thought the rules meant "the special assessments would not be cleared due to the tax sale. It would still be an encumbrance if there's any outstanding amount still owing."

The evidence was in conflict about whether the auditor-controller's office was closed during the auction and whether County employees answered questions about 1915 bond arrearages before the auction. The County repeatedly states on appeal that the 1915 bond arrearages were available through the auditor-controller's office, but in reviewing the denial of a non-suit, we must presume County employees did not reveal those arrearages on request.

Ribeiro testified he knew there were unpaid 1915 bonds, but not the amount, and he assumed the amount was the difference between the auction price of $814,000 and the tax owed of about $560,000. He conceded that no County employee ever told him this was so. He knew he was bidding based on incomplete information.

Ribeiro testified that at the November 5, 2004, tax sale, the auctioneer "stated it was buyer beware and . . . this property was subject to 1915 bonds." He was the successful bidder, and he signed a credit sale agreement that day. It stated a price of $834,917.40, called for a 10-percent deposit, rounded to $83,400, and required the balance to be paid by December 6. It also provided that failure to pay the balance "will result in the forfeiture of the deposit and all rights I may have with respect to the subject property." Ribeiro paid the deposit.

On December 2, 2004, Ribeiro received an auditor-controller document dated October 18, 2004, showing 1915 bond arrearages of $2.7 million for Parcel 32. Had he known this amount, he would not have bid on Parcel 32, because it "made the property economically unviable."

The trial court instructed on fraud and unilateral mistake of fact. For mistake, Ribeiro had to prove he was not grossly negligent and the County knew or caused the mistake to its own advantage or that enforcement of the contract would be unconscionable. The County unsuccessfully objected to an instruction on its duty to record notice of stripping 1915 bonds from the tax roll. We note the jury was instructed on section 3692.3, providing for "as is" tax sales, and the County mentions this statute on appeal. But this statute took effect on January 1, 2005, after the sale in question (Stats. 2004, ch. 194, ยง ...

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