LA HUE v. DOUGHERTY

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District Court of Appeal, Second District, Division 1, California.

LA HUE et al. v. DOUGHERTY et al.

Civ. 16394.

Decided: November 18, 1948

Gibson, Dunn & Crutcher and Bert A. Lewis, all of Los Angeles, for appellants. John K. Ford, of Los Angeles, for respondents.

This is an action instituted by plaintiffs against defendants for declaratory relief, asking that the court determine and declare that plaintiffs had a vendor's lien against certain described real property to secure the payment of a note for $3,500.00 executed by defendants to plaintiffs.

A general demurrer to the complaint was sustained without leave to amend. From the judgment entered thereon, plaintiffs prosecute this appeal.

The complaint alleged that for some time prior to February, 1947, plaintiffs and defendants had engaged in the ranch business at Lancaster, in Los Angeles County, under an agreement of partnership; that certain real estate therein specifically described was utilized in the operation of said partnership. That on February 1, 1947, and for some time prior thereto, said real estate was owned in undivided one-half interests by plaintiffs and defendants. That on February 1, 1947, the parties executed an ‘agreement of dissolution of partnership and settlement of all accounts'. Said agreement was attached to the complaint as an exhibit, and provided for: (a) a dissolution of the partnership. (b) The settlement of the accounts of the partners. (c) An assumption of partnership obligations by defendants and an agreement to save plaintiffs harmless therefrom. (d) Transfer by deed from plaintiffs to defendants of plaintiffs' interest in the aforesaid real property. (e) The payment by defendants to plaintiffs of $1,500 in cash and the execution by defendants to plaintiff of a promissory note in the amount of $3,500, payable five years from date, bearing five per cent interest.

The complaint further alleged that at the time of the execution of said agreement, defendants had incurred considerable expense in remodeling the barn on said ranch premises so that it could be used for the operation of a dairy. That at the time of the execution of said agreement, defendants had represented to plaintiffs that they intended to engage in the dairy business at said location and that there would be ‘such expenses in getting started that it would be very difficult for them to make any payments on the $3,500 obligation above mentioned for several years. Because of such facts and representations, plaintiffs, agreed to defer the maturity date of the said $3,500 obligation for five years as indicated in the attached exhibit ‘A’.'

It is further alleged in the complaint that at the time of the execution of the aforesaid agreement, the only asset of the aforesaid partnership consisted of the real estate described in the complaint, that the $1,500 in cash and the $3,500 note mentioned above were intended to compensate plaintiffs for their interest in said real property. That on February 10, 1947, the obligations set forth in the aforesaid agreement were performed, and in pursuance thereof, plaintiffs executed to defendants a quitclaim deed for their interest in the real property involved, and the defendants delivered to plaintiffs $1,500 in cash and their promissory note for $3,500.00. It is then alleged that shortly after February 10, 1947, the defendants sold a substantial portion of said real estate for approximately $8,500; that the defendants were then negotiating for the sale of the remainder of said real property, and if the same was sold, plaintiffs would be left with no security whatsoever for the aforesaid $3,500.00 note.

It is further alleged in the complaint that the plaintiffs had, as the result of the aforementioned facts, a vendor's lien on the real property to secure the payment of the $3,500 note; that the defendants refused to recognize said lien and that an actual controversy existed between the parties concerning that question.

The prayer of the complaint was that the court determine and declare that the plaintiffs had a vendor's lien against said property to secure the payment of the aforesaid note.

In urging a reversal of the judgment, appellants contend that the foregoing facts establish a vendor's lien on the real property in question in plaintiffs' favor pursuant to the provisions of section 3046 of the Civil Code.

The cited code section provides:

‘One who sells real property has a vendor's lien thereon, independent of possession, for so much of the price as remains unpaid and unsecured otherwise than by the personal obligation of the buyer.’

At the outset it is to be observed that the code section provides a lien for ‘so much of the price as remains unpaid’. Manifestly, the lien arises from a sale of real property, and pursuant to the principles of natural justice which dictate that a vendor should be permitted to subject the property with which he has parted, to the satisfaction of the debt which constitutes the consideration for the transfer.

The question therefore arises, do the facts present in the instant transaction constitute a sale of real property, and does not $3,500 note constitute the consideration for the transfer of title to such property?

To arrive at an answer to this question we must concern ourselves with the intention of the parties as manifested by a study and examination of the foregoing agreement of dissolution. Is it an agreement for the sale of an interest in real property? The document itself is entitled, ‘An Agreement of Settlement of Partnership’. It then recites that the parties were operating a ranch business ‘under a partnership agreement’, and ‘are this day dissolving said partnership and desire to set forth in writing the terms pursuant to which said partnership is dissolved’. The agreement sets forth a statement of debts which shows that there was due on obligations of the partnership a sum approximating $18,000.00, from all of which obligations appellants have been relieved and all of which respondents have assumed. The consideration for the agreement in question, which resulted in respondents receiving title to appellants' undivided interest in the real property, and appellants receiving a cash payment of $1,500.00 and a promissory note for $3,500.00, as reflected by the language of the instrument, may be epitomized as follows:

1. Assumption by respondents of all of the partnership obligations.

2. Indemnification of the appellants by the respondents against such obligations.

3. Warranty by the respondents as to the partnership obligations.

4. Warranty by the respondents that their outstanding obligations are not partnership obligations, and that appellants are not liable thereon.

5. Warranty by the appellants that their outstanding obligations are not partnership obligations and that respondents are not liable thereon.

6. Release of appellants from liability under a Trust Deed covering the real property.

7. Assumption by the respondents of the Trust Deed.

8. Payment of $1,500.00 to the appellants.

9. Dismissal with prejudice of a pending Superior Court action brought by the respondents against the appellants.

10. Agreement not to record the dissolution agreement.

11. Execution of a non-negotiable promissory note payable five years after date, which date has not yet arrived.

It can not, therefore, be determined with any degree of certainty, or without recourse to conjecture and speculation, how much, if any, of the money due under the note is the consideration for the transfer of real property, or how much, if any, of the money due under the note constitutes consideration for the other benefits accruing to appellants.

A vendor's lien arises under section 3046 of the Civil Code only ‘for so much of the price as remains unpaid’, and that means the price which constitutes the consideration for the transfer of the real property. The lien does not reach out to cover collateral obligations or duties imposed by the agreement of transfer between the parties.

The agreement with which we are here concerned is one for dissolution of the existing partnership, an accounting between the partners showing what is due in the way of partnership obligations, what is available to meet these obligations and for a distribution between the partners of the assets of the partnership. It does not impress us as an agreement for the sale of an interest in real property. There is here no ascertained fixed consideration for the transfer of appellants' undivided interest in the real property in question.

The situation in which a vendor's lien arises under section 3046 of our Civil Code is thus described in Womble v. Womble, 14 Cal.App. 739, 745, 113 P. 353, 355:

‘* * * As will be observed, the lien is for ‘so much of the purchase price as remains unpaid.’ It does not reach any personal service to be performed by the vendee. The cases cited by appellant bear out this view. In Sparks v. Hess, 15 Cal. [186], 192, it is said by the court, through Chief Justice Field, that ‘the doctrine that the vendor of real property, after an absolute conveyance, retains a lien for the unpaid purchase money, is well established in England, and prevails, with some exceptions, in the several states of the Union. This lien is not, however, a specific and absolute charge upon the property, but a mere equitable right to resort to it upon failure of payment by the vendee. It is a right founded upon the natural justice of allowing the vendor to subject the property, with which he has parted, to the satisfaction of the debt which constitutes the consideration of the transfer.’ In order that the lien may exist, it is fundamental that there should be an ascertained fixed consideration, either or money or its equivalent, whereby there arises a certain absolute debt of the vendee to the vendor in consideration of the transfer of the land. 29 Am. & Eng. Ency. of Law, p. 744. Thus it has been held that the consideration cannot be extended to cover collateral obligations or duties. Parrish v. Hastings, 102 Ala. 414, 14 So. 783, 48 Am.St.Rep. 50. By many of the authorities the rule is stated substantially as follows: ‘The lien lies only for a debt, which may be either for money for a debt, which may be either for other valuable consideration definite and ascertained and stipulated as the equivalent of the amount of the purchase price and arising out of the sale of land against which the lien is sought to be enforced. Where the agreement is complicated and the vendee convenanted to do other things besides pay the purchase price, as to build a house on the land and the like, and the sum total of all his promises represents the consideration for the conveyance, there is a confusion so that it is difficult to separate the purchase money and the lien will not exist. Parrish v. Hastings [102 Ala. 414, 14 So. 783, 48 Am.St.Rep. 50], supra; Hiscock v. Norton, 42 Mich. 320, 3 N.W. 868.’'

Appellants cite cases from other jurisdictions and the Seventh Federal Circuit Court in support of their claim that allocation of the consideration may be proved, but if we are to follow the mandate of the case of Womble v. Womble, supra, 14 Cal.App. at page 745, 113 P. at page 355, which has never been overruled, then the established rule in this state is as set forth in the cited case, ‘Where the agreement is complicated and the vendee covenanted to do other things besides pay the purchase price * * * and the sum total of all his promises represents the consideration for the conveyance, there is a confusion so that it is difficult to separate the purchase money and the lien will not exist.’

Appellants refer us to the recent case of Stilgenbaur v. United States, 9 Cir., 1940, 115 F.2d 283, wherein the court gave consideration to what constituted a ‘sale’ under federal income tax statutes. But, as appellants observe in their brief, ‘It is true, of course, that the interpretation of the word ‘sale’ as used in an income tax statute might be prompted by reasons not applicable in interpretin such words as used in a vendor's lien statute'. In the Womble case, supra, the court had under consideration the applicable California statute providing for vendor's liens. In further support of their claim that a vendor's lien exists in transactions which under ordinary terminology would be described as something other than a sale, appellants cite the case of Rogers Development Co. v. Southern California Real Estate Investment Co., 159 Cal. 735, 115 P. 934, 35 L.R.A.,N.S., 543, but the facts therein are not at all analogous to the factual background with which we are here confronted. In the cited case, the transaction involved a sale of land for a definite and fixed price which had not been paid. There was no collateral obligations or duties develoving upon the vendee such as are present in the case at bar, involving assumption by the vendee of all partnership obligations, indemnification of the vendors by the vendees against such obligations, release of the vendors from the liability under a trust deed, dismissal with prejudice of a pending court action brought by the vendees against the vendors, and other collateral obligations and duties hereinbefore narrated and which need not here be repeated.

Applying the principles enunciated in the Womble case, supra, to the facts of the instant case, we are satisfied that te transaction here in question was not one which comes within the purview of section 3046 of the Civil Code.

No other questions are raised by appellants, and the foregoing conclusion at which we have arrived renders it unnecessary to consider or decide respondents' contention that the court was justified in refusing to exercise its power to grant declaratory relief under the provisions of section 1061 of the Code of Civil Procedure where its declaration or determination is not necessary or proper at the time under all the circumstances.

The record discloses no error and the judgment appealed from is affirmed.

WHITE, Justice.

YORK, P. J., and DORAN, J., concur.