Wednesday, July 25, 2001
Church Held Not Liable in Real Estate Deal With Surgeon
By ROBERT GREENE, Staff Writer
A South Los Angeles Church is not liable for the soured real estate deals into which its pastor entered, using the church’s name, this district’s Court of Appeal has ruled.
The Monday ruling turns aside an attempt by plastic surgeon Lawrence Saks to recoup his investments in Figueroa Street property in a deal that involved the late Rev. Sam Steel Jr., the Charity Mission Baptist Church and the City of Los Angeles.
Saks sued the church for fraud and breach of contract, alleging Steel had signed the notes in the name of the church and induced Saks to pay thousands of dollars into escrow by promising that the church would repay it.
In an opinion by Justice Daniel A. Curry of Div. Four, the court said there was no consideration to bind the church to a contract. The evidence showed that Steel was using the church’s name to benefit himself in a deal through which the church itself was to get nothing.
“We believe that where an officer of a corporation is openly using the corporation to obtain a benefit for himself and his cohorts in a transaction, in which the corporation ultimately will not benefit, the other parties to the transaction cannot later seek to hold the corporation liable for his actions,” Curry said.
The ruling hands a defeat to Saks, who was a young, celebrated Rolling Hills cosmetic surgeon and aggressive real estate investor when federal prosecutors charged him with income tax evasion in 1990. Saks pled guilty and later faced bankruptcy.
The deal giving rise to the latest ruling developed just months short of Saks’ guilty plea. At the urging of developer Craig Caldwell, Saks in May 1990 invested $810,000 in a property and took back two promissory notes signed by Steel in the name of his church.
It was just one of numerous real estate deals in which Saks and Caldwell became involved in the months before Saks was charged in the tax case. One of their earliest deals included Caldwell’s purchase from Saks of an interest in the Peninsula Athletic Club after Saks told the developer he was having tax problems.
In the Figueroa deal, the church was to obtain a loan from the city and use that money to repay Saks, then transfer the property to a partnership owned by Caldwell, Saks and perhaps Steel. The city’s Community Redevelopment Agency purportedly had earmarked funding to develop the property for senior citizen housing.
Caldwell said the church’s name was needed because the deal required a nonprofit to be involved in the initial phase to get the money from the city.
But the deal fell through and the church retained title to the property. The land was transferred to Saks after a non-judicial foreclosure, but he did not recoup the money lent on the notes.
Throughout the negotiations, Saks met Steel only once or at most twice—when he signed the notes.
Saks alleged that he had the right to enforce those notes against the church. In trial before Los Angeles Superior Court Judge William E. Burby Jr., a jury agreed.
Saks apparently believed, Curry said, that since the parties ultimate plan to transfer the property from the church to the partnership fell through when the city failed to fund the project, the church should be held liable on the notes as if it were a straightforward loan transaction.
“This line of reasoning has a certain superficial appeal,” Curry said. “The Church did end up with title to valuable property paid for by Dr. Saks’ money.”
Still, the justice said, there was no contract with the church—-because there was no consideration. The church ultimately was supposed to get nothing out of the deal, and the land it did get, it then lost through foreclosure.
“There was no discussion of what would occur if the City failed to fund, and certainly no agreement that, if that turn of events came to pass, the Church would keep the property and pay off the notes from its meager resources,” the justice said. “Given the nature of the discussions between the parties, no one involved in the transaction had any grounds for believing that the Church was bargaining for an interest in the ownership or a right to develop the Figueroa property on its own.”
Caldwell may well have fraudulently induced Saks to enter into the deal with false assurance that city funding was a sure thing, Curry said.
“But his remedy for this wrong is to recover from the party who induced him to part with his money by virtue of an overly optimistic prediction of the future,” he said. “He cannot force the Church to pay for property it never sought to own.”
The case is Saks v. Charity Mission Baptist Church, B082512.
Copyright 2001, Metropolitan News Company