An important new case came down last December, Kruger v. Reyes, 232 Cal.App.4th Supp. 10, 181 Cal. Rptr. 3d 521 (2014), covering several rules: timely service of the notice for non-payment rent, proper calculations in that notice of the rent due and the time when it is due. None of those concepts are new, but the case contains rare findings due to its fact pattern, including the issue of tenants paying rent by depositing funds directly to the landlord's account.
The short version of Kruger facts is the following story: parties entered into a lease, which provided that only if the rent remains "unpaid after four days after the date it is due," the landlord can issue a 3-day notice. Tenants were paying rent directly to the landlord's bank account. Parties had been previously involved in another eviction proceeding (on breach of lease grounds), during which tenants continued to deposit the rent and the landlord kept returning it. Once that prior action was dismissed, the landlord on the same day issued a 3-day notice to pay or quit for the entire time parties were in court (6 months' worth of back rent). Tenants paid one portion of the demand during the three days under the notice, and the remaining part on the fourth day. The landlord accepted the first installment, rejected the second one, and proceeded with the second eviction lawsuit, this time for non-payment of rent.
The trial court sided with the landlord, and the appellate court reversed. Several issues were covered in the decision:
The landlord dismissed the prior action and immediately served tenants with the demand for all back rent due, accumulated during the pendency of that prior action. The court held that the notice was premature and the tenants were not in default on that day. "Appellants were entitled to notice that rent was again “due” and a demand for payment before they could be deemed in default for nonpayment of rent for this period." (Id. at 527) This was first reason why the court held that tenants were not in default on the day of prior eviction's dismissal and issuance of a new notice.
For the second reason, the court cited Cal. Civ. Code § 1500, holding that tenants' payment by direct deposit (not just tendering a check), "has been not a mere tender but actual performance of an obligation to pay money." (Id., italics in the original). "Because of the direct deposits, which under Civil Code section 1500 extinguished [tenants'] obligation to pay the rent due by the due dates as provided in the lease, they had actually performed and were not in default on [the date the notice was issued.]" (Id., at 527-528).
Court held that tenants' direct deposits to the landlord's account were transferring funds to the landlord, putting those funds under the landlord's actual possession and control. Even if the landlord was returning those rents back [there was a doubt expressed if that particular landlord returned them all], the tenants still performed and could not be in default on the day when notice was issued.
Based on the case's record, the court concluded that landlord's returning of the rents during the first eviction case was an indication that the landlord was not considering those rents due [this does not appear to be a universal holding, but more a discovery of this particular landlord's mental state at the time she was returning the rents]. Because the rents only then became due (not on the 1st day of the month, but on the day when the landlord dismissed the case and demanded the rent), the landlord had to wait for four days (per their lease clause) before issuing her notice, or, if accepting the argument that the notice was itself a notification of the rents due, then the landlord had to be obligated to accept rent payments for four days.
While the court did "not suggest that payment of rent through direct deposit would fully extinguish the obligation to pay rent at all under the lease, if those deposits were returned," (Id., at 529), the court held that "[a]t a minimum, [the landlord] was required to provide notice and demand payment of rent due, i.e., that previously paid by deposit but returned, once she reinstated the lease and became open to accepting rent payments. She was further obliged under the lease to give [tenants] a four-day window to pay the rent after notice that it was once again “due.” It was only after passage of these four days that [the landlord] would have been in a position to initiate unlawful detainer proceedings by service of a three-day notice to pay rent or quit." (Id.)
The important part of this case is that it distinguished on the grounds of CC § 1500 "Occidental Co. v. Gantner & Mattern (1908) 7 Cal.App. 727 ... and Webb v. Jones (1927) 88 Cal.App. 20 ... for the proposition that a landlord is entitled to serve a three-day notice after having previously rejected tendered rental payments, and that the tenant must then pay the rent due within the notice period to prevent eviction." (Id., at 529) The difference here in Kruger was that the tenant had already paid (by direct deposit), not just tendered a check. The fact of direct deposit triggered CC 1500. This practice, allowing tenants to deposit their rent directly to landlord's bank account was always risky, and now becomes even more so under Kruger. The danger, however, has been lurking in the eviction statute itself.
Consider the first paragraph of the Cal. Code of Civ. Proc. § 1161(2). In the notice to pay or quit, if it does indicate that the payment may be made personally, the issuing person either provides "the usual days and hours that person will be available to receive the payment, ... or the number of an account in a financial institution into which the rental payment may be made, and the name and street address of the institution (provided that the institution is located within five miles of the rental property), or if an electronic funds transfer procedure has been previously established, that payment may be made pursuant to that procedure." This one clause thus establishes two ways for direct rent payment deposits: one new for a deposit, set in the notice if the information for meeting in person is omitted, and one preexisting for a wire transfer or alternative "electronic funds transfer," if such procedure was previously established. In my opinion, this would include services like Paypal, Google Waller, or Apple Pay [tenants just have to make sure no commission cut was taken on the recipient's end, because the rent has to be paid in full]. An exact applicable definition is given in CC § 1947.3(c).
Electronic payments are instantaneous, can be performed in odd hours and (true for at least some services) even on weekends or holidays. In the situation where acceptance of rent may be used against the accepting party as a waiver of party's position, electronic payments are dangerous, although the march of progress will probably make them the de facto standard in very short while. At least for today, the landlord "shall allow a tenant to pay rent and deposit of security by at least one form of payment that is neither cash nor electronic funds transfer." CC § 1947.3(a)(1)*.
Another recent reflection on technology affecting ancient rules of demands for possession, was analyzed in Foster v. Williams, 229 Cal.App.4th Supp. 9 (2014). There, a 3-day notice contained a URL for an online payment, which was (a) found insufficient by the court, yet (b) was so found insufficient because no previous procedure for such electronic payment was established.
The court affirmed such apparent facts as that "[p]ayment of rent through a Web site is not made personally; it is done through the Internet," and that "[m]ailing of rent is done to the address of a physical place; a tenant does not mail rent to a Web site." This holding, although brand new, will probably be obsolete in a few years, because it reasoned "[a] notice with a URL address does not inform the tenant where he or she can physically go to pay the rent or where to mail the rent. Lack of an address to a physical place could lead to confusion, cause the tenant to delay paying rent..." In how many years it would be odd to assume that a URL may lead to a confusion of where to go to pay rent is unknown, but I sense it is a single-digit number.
What may hold is the second portion of the decision in Foster, whether a "statement regarding a previously established electronic funds transfer procedure" was required. (Id. at 16) The court held that it is just one of the three alternatives (paying in person or mailing, direct deposit, electronic transfer), and "[i]f the third alternative is used, there is no need to also state the information in the first alternative." (Id. at 17) Yet if the third alternative is used, "[u]nder the third alternative, the three-day notice must contain instructive language “stating … that payment may be made pursuant to” “an electronic funds transfer procedure [which] has been previously established. ... expressly referring to the previously established procedure ensures that the tenant receives the necessary instruction on how to pay rent.” (Id., italics in original).
What may hold is the second portion of the decision in Foster, whether a "statement regarding a previously established electronic funds transfer procedure" was required. (Id. at 16) The court held that it is just one of the three alternatives (paying in person or mailing, direct deposit, electronic transfer), and "[i]f the third alternative is used, there is no need to also state the information in the first alternative." (Id. at 17) Yet if the third alternative is used, "[u]nder the third alternative, the three-day notice must contain instructive language “stating … that payment may be made pursuant to” “an electronic funds transfer procedure [which] has been previously established. ... expressly referring to the previously established procedure ensures that the tenant receives the necessary instruction on how to pay rent.” (Id., italics in original).
And here is another attempt to reconcile the worlds of realty and digits, a case where the issue was, whether an emailed eviction notice can be deemed delivered at a certain physical address. Culver Center Partners East #1 v. Baja Fresh Westlake Village, 185 Cal.App.4th 744 (2010). The court held that an eviction notice emailed to the tenant could not be established with certainty as received at a physical address designated in the lease for receipt of notice. Therefore, even though the actual receipt was confirmed, even though the email communication was contemplated by the lease, and even though this was a commercial lease, the court faulted landlords for having an ambiguous lease and held that the notice was defective.
The court acknowledged that in a commercial lease parties may agree to waive strict requirements of CCP §§ 1161, 1162 (Id. at 750), and that they in fact agreed to receipt of notice via "electronic transmission" in the lease, but still held it invalid, because the language of the lease did not say that acceptance via email, except at a designated physical address, would constitute valid service. The analogy was made to the Cal. Rules of Court, Rule 2.260(a)(2)(A), which is no longer around (talking about how fast technology rules change). Rule 2.251 now covers what constitutes electronic service and how parties consent to it. The analogy back then was stronger, as the person consenting to service was required to affirmatively confirm the consent and provide the email address. Today it is only one of the alternatives. Consent today can be also presumed by party's conduct, such as party's use of electronic filing. Rule 2.251(b)(1)(B). May be the Center Partners case would be resolved differently today, but it is what it is and its holding is still a good law. Check your lease language re: service of notice by electronic means before utilizing those means.
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