BILL ANALYSIS �
AB 2317
Page 1
Date of Hearing: May 6, 2014
ASSEMBLY COMMITTEE ON JUDICIARY
Bob Wieckowski, Chair
AB 2317 (Maienschein) - As Introduced: February 21, 2014
PROPOSED CONSENT
SUBJECT : Sale of Property: EQUITABLE RIGHT OF REDEMPTION
KEY ISSUE : SHOULD THE EQUITABLE RIGHT OF REDEMPTION BE
AVAILABLE TO THE COURT AS A REMEDY TO AVOID A GRAVE INJUSTICE
WHEN PROPERTY IS SOLD TO SATISFY A JUDGMENT, BUT THE JUDGMENT
WAS VOID AS A MATTER OF LAW?
SYNOPSIS
A legal judgment may be enforced in many ways, including by
forcing sale of the judgment debtor's property through a writ of
execution. After the property has been sold, California used to
provide a statutory right of redemption that allowed the
judgment debtor to set aside the sale if the purchaser was the
judgment creditor. In 1982 the Legislature, following a
proposal by the California Law Revision Commission (CLRC),
enacted the Enforcement of Judgments Law, which eliminated the
statutory right of redemption. According to the CLRC report on
which the legislation was based, the new law was not intended to
affect the equitable right of redemption and a 2011 appellate
court case agreed that the equitable right of redemption still
exists. This bill, sponsored by the Business Law Section of the
State Bar, codifies that by explicitly writing the equitable
right of redemption into statute.
SUMMARY : Provides that a judgment debtor's equitable right of
redemption is not affected by the statutory provision that the
sale of property to satisfy a judgment is absolute.
Specifically, this bill provides that although a sale of
property to satisfy a judgment is absolute and may not be set
aside for any reason, except as provided, this does not affect,
limit or eliminate a judgment debtor's equitable right of
redemption.
EXISTING LAW :
1)Provides that a sale of property to satisfy a judgment is
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absolute and may not be set aside for any reason, except as
provided in #2), below. Permits the judgment debtor, if the
judgment is reversed, vacated or otherwise set aside, to
recover the proceeds of the sale from the judgment creditor,
with interest. (Code of Civil Procedure Section 701.680.
Unless stated otherwise, all further statutory references are
to that code.)
2)Allows a judgment debtor whose property was sold in a sale to
satisfy a judgment, but that sale was improper because of
irregularities in the proceedings, the property sold was not
subject to execution or for any other reason, to bring an
action within 90 days of the sale to set the sale aside.
(Id.)
FISCAL EFFECT : As currently in print this bill is keyed
non-fiscal.
COMMENTS : A legal judgment may be enforced in many ways,
including by garnishing the judgment debtor's wages or bank
account and by placing a lien on the debtor's property. If the
judgment is not satisfied, the judgment creditor can force the
sale of the debtor's property to pay the debt through a writ of
execution. After the property has been sold, California used to
provide a statutory right of redemption that allowed the
judgment debtor to set aside the sale if the purchaser was the
judgment creditor. In 1982 the Legislature, following a
proposal by the California Law Revision Commission (CLRC),
enacted the Enforcement of Judgments Law (EJL), which eliminated
the statutory right of redemption. According to the CLRC,
however, enactment of the EJL was not intended to affect the
equitable right of redemption. This bill explicitly codifies
the equitable right of redemption.
California Law Revision Commission Study in Support of 1982 Law
Makes Clear That Equitable Right of Redemption Still Exists : In
1982, the Legislature enacted the Enforcement of Judgments Law
(Chap. 1364, Stats. 1982), which, among other things, clarified
the procedures for enforcing a judgment through a writ of
execution. Prior to that law, the judgment debtor could set
aside the sale of his or her property, used to satisfy the
underlying judgment, if the purchaser was the plaintiff in the
underlying action. This was designed to prevent the plaintiff
from getting an unfair deal on the sale of the property.
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The 1982 law eliminated this statutory right of redemption.
Instead, the statute now holds that a sale of property pursuant
to a writ of execution "is absolute and may not be set aside for
any reason." (Section 701.680(a).) The only statutory
exception is that a judgment debtor may, within 90 days of the
sale, set aside the sale if it "was improper because of
irregularities in the proceedings, because the property sold was
not subject to execution, or for any other reason." (Section
701.680(c).) After 90 days, there is no recourse in law.
The statute, however, is silent as to the existence of an
equitable right of redemption. The equitable right of
redemption allows a court to order redemption of a property sold
to satisfy a judgment if necessary to prevent an injustice. In
the seminal case on the equitable right of redemption, Odell v.
Cox (1907) 151 Cal. 70, the California Supreme Court held: "We
think there can be no doubt under the authorities that where, in
addition to gross inadequacy of price, the purchaser has, in the
language of the United States supreme court, 'been guilty of any
unfairness or has taken any undue advantage,' resulting in such
gross inadequacy and consequent injury to the owner of the
property, he will be deemed guilty of fraud warranting the
interposition of a court of equity in favor of the owner who is
himself without fault." (Id. at 75 (citations omitted).)
The CLRC report on the EJL, on which the statute was based, very
clearly stated that the elimination of the statutory right of
redemption "would not affect the equitable right of a judgment
debtor to redeem from a sale at a grossly inadequate price where
the purchaser is guilty of unfairness or has taken undue
advantage." (CLRC, 1982 Creditors' Remedies Legislation: The
Enforcement of Judgments Law 1119-20 (footnote omitted) (Sept.
1982).) However that statement did not make it into statute.
Court of Appeals Case Confirms the Continued Existence of the
Equitable Right of Redemption : A recent court of appeals case,
Lang v. Roch� (2011) 201 Cal.App.4th 254, confirms the continued
existence of the equitable right of redemption, even after
elimination of the statutory right of redemption. In that case,
which involved long-feuding neighbors, one of the neighbors
brought a defamation action against the other. The plaintiff,
who brought the suit, misspelled his neighbor's name in the
complaint and told the court that defendant could not be found.
As a result, the court allowed him to serve by publication,
despite the fact that the defendant had been the plaintiff's
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neighbor for years. After securing a default judgment, the
plaintiff, eight years later, obtained a writ of execution to
force the sale of the defendant's property. The defendant, who
only then learned of the underlying action, failed to prevent
the plaintiff from purchasing his property for a greatly
undervalued amount. The defendant ultimately got the original
judgment thrown out, and then sought to set aside the property
sale.
In ruling in the defendant's favor, the court of appeals found:
We believe that the "absolute" bar to redemption in section
701.680 of the EJL does not apply to execution on a
judgment that is void ab initio [void from the beginning]
for lack of personal jurisdiction over the defendant. In
such cases, courts must be able to apply principles of
equity. A citizen who was never served with a lawsuit-and
was thereby deprived of notice and an opportunity to
defend-may not lose his or her property permanently at an
invalid execution sale based on a void judgment. Though
the word "absolute" seems to brook no exceptions, we cannot
apply a statute as written when it "leads to an absurd
result contrary to the legislative intent."
The burden cannot be placed on an innocent citizen to
timely assert statutory rights afforded by the EJL, when a
void judgment underlies the purported execution sale. At
best, section 701.680 allows a judgment debtor to recover
the proceeds of a sale of property, after the judgment is
reversed, vacated, or otherwise set aside, or damages if
there were "irregularities in the proceedings." Giving a
wronged individual the proceeds of an invalid execution
sale (in this case, $100) or money damages is not an
adequate remedy for a due process violation. Only the
return of the innocent individual's property satisfies the
constitutional guarantee that no state may "deprive any
person of life, liberty, or property, without due process
of law."
(Id. at 264-65 (citations omitted).)
This bill explicitly codifies that equitable right of
redemption. Like all rights in equity, the court has very broad
discretion to determine if the equitable right of redemption is
appropriate in any given case.
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REGISTERED SUPPORT / OPPOSITION :
Support
Business Law Section of the State Bar
Opposition
None on file
Analysis Prepared by : Leora Gershenzon / JUD. / (916) 319-2334