12 Cal.App.4th 415, 15 Cal.Rptr.2d 632
Cal.App. 1 Dist.,1993.
In 1983, Arlene Warner inherited a one-third interest in a home at 101 Molimo
Street in San Francisco, and in a second property located in the Russian River area of
California. She and her husband, Donald Warner, had no interest in retaining the Molimo
Street property. They did, however, desire to retain the Russian River property. In order
to obtain full title to both properties, the Warners bought out the other heirs, which
required them to obtain a loan for $170,000. The Molimo Street property, having a value
of approximately $185,000, could not support a loan in that amount by itself. Therefore,
the Warners intended to pledge both properties as collateral for the $170,000 loan. They
could not afford the payments on that mortgage and therefore sought assistance from
Donald Warner and Kenneth Sutton were friends. Warner suggested to Sutton in October
of 1983 that the Suttons rent the Molimo Street property. The Suttons became tenants and
made all rent payments in cash.
In January 1984, Donald Warner proposed that the Suttons purchase the residence so that
the estate could be settled. His proposal included a $15,000 down payment towards the
purchase price of $185,000. According to the Suttons, they were to have five years to
purchase the home after the Warners obtained a loan necessary to acquire the two
properties. In addition, under the terms of this agreement, the Suttons were required to
make all mortgage payments and real estate tax payments. In sum, the Warners were not
to have to make any payments on the Molimo Street property. The property was
transferred out of the estate to Arlene Warner after April 1984.
John Murphy, a long-time acquaintance of Kenneth Sutton and Donald Warner, testified
that he overheard discussions between the two which supported Sutton's version of the
contract. In fact, he testified that Warner had created a jingle, “4-9-89,” which Warner
told him was the ending date of the Suttons' option to purchase the Molimo Street
property. Murphy testified that he recalled Warner reciting this jingle on multiple
occasions over the years.
Donald Warner confirmed that, but for the sale of the Molimo Street property to the
Suttons, he and his wife would not have acquired the remaining interests in that property.
He admitted receipt of the $15,000, but testified that the Suttons had only six months in
which to exercise their option, or they would lose their interest in the property. He
testified that he extended that option on two occasions until he finally told them, in
January of 1986, that he would not extend it again. This would have required an increase
in the value of the property from $185,000 to in excess of $200,000 to support a
conventional loan of $170,000 in six months' time. Further, it would have required the
Suttons to pay points and closing costs twice in a six-month period. The court found the
Warners' version of the contract neither credible nor reasonable.
Colin Fleming – BUSE 140