Code of Civil Procedure (CCP) Section 873.770 – Taking Setoff from Party Purchaser

Code of Civil Procedure section 873.770 addresses the unique situation in a partition sale where one of the parties to the lawsuit is themselves the purchaser. In that case, they are entitled to a receipt for their share of the sales proceeds, to be acknowledged by the partition referee.

Code of Civil Procedure section 873.770 states:

Where the purchaser is a party or lienholder entitled to a share of the proceeds of sale, the referee may:

(a) Take the purchaser’s receipt for so much of the proceeds of sale as belongs to the purchaser.

(b) Take security, or other arrangement satisfactory to the referee, for payment of amounts which are or may become due from the purchaser on account of the expenses of sale, general costs of the action, and costs of the reference.

“Shawn” and “Julie” are an unmarried couple who want to start a life together. They find a nice home in Los Angeles and buy it as joint tenants. They move in and start their new life together.

Unfortunately, Shawn and Julie’s relationship doesn’t work out, and they break up. They cannot agree on what to do with the property. Shawn wants to sell all the property and move on with his life, so he sues for partition by sale.

Eventually, the court orders the property sold and the sale proceeds distributed. The court concludes that the property will be sold at a private sale. During the course of the private sale, Shawn comes up with enough money to pay for the entire home. Shawn submits his bid for the property, which is accepted by the referee.

After the sale, the partition referee prepares a receipt for Shawn to setoff the amount of sales proceeds that would have gone to him had the property been sold to a third party on the open market.

1976 Addition.

Section 873.770 continues the substance of former section 786 with the addition of subdivision (b), which provides for assurances of payment of a share of the costs which may not be determined at the time of sale.

Like with many of the partition statutes, section 873.770 does not include an “official” Assembly Committee Comment from the California Legislature. But this is not unusual. And this is because the Legislature endorsed an overall adoption of the Law Revision Commission suggestions when it passed the new partition statutes in 1976.

In fact, the introduction to Assembly Bill 1671 (the bill that contained the new partition laws) states that the Revision Commission’s recommendations “reflect the intent of the Assembly Committee… in approving the various provisions of Assembly Bill 1671.” This demonstrates that the intent of the Legislature was essentially in line with that of the Revision Commission.

As to the comment here, it makes mention that it continues former section 786, which was repealed in 1976. The relevant portion of that statute previously read:

“When a party entitled to a share of the property, or an incumbrancer entitled to have his lien paid out of the sale, becomes a purchaser, the referees may take his receipt for so much of the proceeds of sale as belong to him.”

As one can see, the repealed statute is quite similar to its modern-day equivalent. Regardless, neither version has much case law as both versions of the statute were and are already unambiguous. If the purchaser at the partition sale is a party, then the referee shall prepare a receipt to setoff that portion of the proceeds which would have gone to the party had the home been sold to a third party.

The extent of discussion on this topic is reserved to an unpublished decision out of the Second District Court of Appeal in 2022, called Dilonell v. Chandler.

There, two owners of a property began feuding over management of the property, including issues related to payment of property taxes and maintenance of the building. One of the owners sued for partition, but in the middle of the lawsuit, transferred his interest to Dionell.

Dionell and Chandler agreed to list the property on the market, but that either could purchase the property if they so chose. After feuding over the listing price, the Court eventually ordered that the highest outstanding offer be accepted by a certain date. Dionell submitted an offer to purchase Chandler’s interest. But a third party seller offered to buy the entire property.

Dionell’s offer was obviously lower because it an offer to buy Chandler’s 50% interest, as opposed to the entire property. As such, the court mandated a sale to the third party. Dionell appealed.

One point of contention was focused on CCP § 873.770. Namely, Dionell appeared to argue that her offer should have been credited double its amount. The Court disagreed. It stated, “This sale was not conducted by a partition referee. Further, we understand the section as contemplating a sale at the full price for the entire property, but only requiring a "receipt" from the party purchaser for her share. Otherwise the reference to a share of the sales proceeds makes no sense.”

As such, this provision appears to apply only where the party who purchases the subject property pays the entire purchase price.

Here at Underwood Law Firm, our knowledgeable attorneys are here to help navigate the complex web of case law and statutes surrounding partitions. If you are thinking of filing a partition, are already in the midst of a partition suit, or just have any questions, please do not hesitate to reach out to our office to learn more about Partition Law.