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 others.
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 [12 Cal. App. 4th 419]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.
Kenneth Sutton testified that he and his wife had made a number
of improvements to the property in reliance upon the oral
purchase agreement. Sutton also testified that he was concerned
about proof of payment of the down payment, since the Warners
were frequently traveling to and from the Russian River property.
He requested a receipt for the $15,000 so he would have proof of
payment should the Warners die. Sutton testified that Warner
gave him a previously prepared one-page memorandum, exhibit
2, dated April 4, 1984. This document acknowledged the receipt
of the $15,000, identified the property, and evidenced the
obligation of the Warners to sell the property to the Suttons. fn. 2
The Suttons maintained that this document was not the contract
and that they intended to have a formal contract prepared.
Shortly after execution of the receipt, the Warners began the
process to obtain the $170,000 loan. The loan transaction closed
in late summer or fall of 1984. Up to that time, the Suttons had
paid $1,000 per month in rent. Upon consummation of the
financing, they began paying an increased amount. The Suttons
contended that they paid the sum of $1,881 per month in cash
commencing in September 1984. This was equal to the full
amount of the new loan’s monthly mortgage payment. The
Suttons continued to pay the full amount of the mortgage payment
each and every month in cash until 1987, when they began using
checks to be able to evidence their ability to pay to a potential
lender. The Suttons contended they paid $100 per month toward
reimbursement of the $8,000 in closing costs on the original
$170,000 loan. The Warners denied this. The Suttons further
contended that the Warners had not been damaged because the
$8,000 came out of the purchase money loan, which they were
repaying. [12 Cal. App. 4th 420]
Kenneth Sutton testified that the variable rate mortgage declined
to $1,654 in 1985. He produced evidence of cash deposits to the
Warners’ checking account in exactly that amount. In September
of 1986, the mortgage amount was fixed at $1,544. Although
there were numerous checks after that date for the sum of
$1,500, Warner confirmed that he received $44 in cash on
multiple occasions from the Suttons in addition to the monthly rent
check for $1,500.
Sutton testified that in late 1986, he, his wife, and Warner traveled
to Santa Rosa to meet with Susan Cohen to explore creative
financing for the house. She suggested that they either put money
in the bank to get a loan or that the Warners obtain a separate
loan on the Russian River property. Warner claimed they
discussed financing for a purchase at the current market value.
Cohen was not called to testify.
Thereafter, in January 1987, a meeting occurred at the Molimo
Street property with the Suttons, the Warners, and Attorney
Garrett Checcini representing the Suttons. According to Checcini,
the purpose of the meeting was to formalize the arrangement
between the parties. Checcini testified that he was willing to
cosign a loan to enable the Suttons to obtain financing. Kenneth
Sutton summarized the terms of the agreement, to the effect that
the original purchase price was $185,000, that a down payment of
$15,000 had been made, along with additional paydowns on the
principal balance. No objection to these facts was voiced by either
Donald or Arlene Warner. Checcini testified that no agreement
was consummated at that meeting because Donald Warner
consumed a six-pack of beer during the forty-five-minute meeting
and became inebriated. According to Checcini, Arlene Warner
ended the meeting by telling Checcini that she would have her
lawyer contact him. He waited a period of time and then wrote
them, seeking to consummate the transaction.
During this period, the Suttons continued to pay rent in the
amount of the mortgage payments, which Donald Warner testified
was, coincidentally, the fair rental value of the property.
Meanwhile, the value of the property rose to somewhere between
$250,000 and $320,000.
Witness Carol Chapman testified that in the spring of 1987, she
and the Suttons were at the Suttons’ home when Warner arrived
unexpectedly. They discussed the purchase and sale of the house
and, in an attempt to put the matter to rest, Chapman prepared a
written memorandum of the parties’ agreement. Chapman’s
testimony was consistent with the version of the contract proffered
by the Suttons. Additionally, at this time Warner offered to obtain a
separate loan for the Russian River property, in return for [12 Cal.
App. 4th 421]payment of $12,500. Donald Warner denied any
recollection of the meeting. He testified at deposition that he was
not present at the meeting because it was Memorial Day and he
was at the Russian River home. When confronted with the fact
that it was not Memorial Day, he testified that he was so
intoxicated that he had no recollection of the meeting.

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