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District Court of Appeal, First District, Division 2, California.

Arthur LUZ and Lillian Luz, his wife, Plaintiffs and Respondents, v. Ralph LOPES and Vern Lopes, his wife, Defendants and Appellants.*

Civ. 18210.

Decided: July 18, 1960

Reeser, Farrow, Barton & Barton, Oakland, for appellant Lopes. Edward M. Fellows, Lawrence T. Sutton, San Jose, for respondent Luz.

Plaintiffs, Arthur Luz and Lillian Luz, his wife, brought this action to quiet title, alleging default by defendants, Ralph Lopes and Vern Lopes, his wife, in making monthly payments of the purchase price for certain real property. Defendants were served on September 17, 1957, and November 16, 1957. Demand for entry of their default was filed on December 6, 1957. On December 10, 1957, a decree quieting title was filed. On December 30, 1957, defendants noticed a motion for January 7, 1958, to set aside the default and the judgment on the grounds of the defendants' mistake, inadvertence, surprise, excusable neglect and reliance on certain oral stipulations of Arthur Luz. On January 28, 1958, this motion was denied by an order from which the defendants have appealed.

At the hearing on the motion, both oral and documentary evidence was introduced. On January 4, 1956, the parties entered into a written agreement of sale, whereby the defendants agreed to purchase from the plaintiffs an unimproved parcel of real estate in San Jose. The purchase price was $13,000, payable in monthly installments of $100 a month, including interest on all unpaid principal at the rate of 6% per annum, beginning February 15, 1956. No downpayment was required and the first payment was due on February 15, 1956. The contract provided that payments were to be made promptly each month and declared time to be of the essence. The buyers were to enter into possession immediately and pay all taxes and assessments from the date of the agreement.

The agreement further provided that if the buyers failed to make the payments or comply with the other conditions and covenants, the sellers could retain the amounts paid as consideration, and would thereupon be released from their obligations. The following was handwritten in ink into the standard form agreement: ‘When building is erected, Seller has right to amend all or any part of balance due on this contract.’

Defendants entered into possession, and made first payment on February 15, 1956, as well as a portion of the taxes due for 1956. Thereafter, the defendants, pursuant to oral conversations with Arthur Luz, made no further monthly payments, but constructed a building on the property. The building was constructed in March, 1956, and notice of completion filed in March, 1957. The plaintiffs made no further demand until July 26 and 29, 1957, when notices of termination and cancellation of the contract were served on both of the defendants. The complaint to quiet title in this action was filed on September 11, 1957, and served on the defendant, Ralph Lopes, on September 17, 1957.

Thereupon, the parties agreed to a settlement. The terms of the settlement are set forth in a letter to the defendants as follows, dated September 20, 1957, from Mr. Sutton, the plaintiffs' attorney: The defendants were to: 1) Immediately clear the lien of one R. V. Bressani against the property; 2) Pay $500 a month until the arrearage was paid in full, beginning October 15, 1957, and resume the monthy payments of $100 required by the contract; 3) Immediately pay attorney's fees of $150. The letter concluded: ‘In the event you fail to comply with the above, we will proceed against you for the relief demanded in our complaint served upon you September 17, 1957.’

On October 15, the defendants were unable to make the $500 payment provided by the settlement. Therefore, Mr. Sutton wrote the defendants October 21, 1957, and advised them ‘to file an answer to our complaint * * * within ten (10) days from the date hereof, otherwise we will proceed on our legal remedies.’ On receipt of this letter, Ralph Lopes talked to Arthur Luz and Mr. Sutton and requested a further extension of time and proposed to sell the property in order to meet his obligations with the proceeds. Mr. Sutton said he would not object if Lopes further discussed these proposals with Arthur Luz. Lopes testified that he did so by telephone the very next day and that Arthur Luz told him not to worry about the ten-day ultimatum for answering the complaint mentioned in the letter of October 21. Arthur Luz, however, could not remember this conversation and stated that after the filing of the complaint in September, he always referred Ralph Lopes to Mr. Sutton. Mr. Sutton indicated by affidavit that he did not learn that the defendants were trying to sell the property until their letter of November 11, 1957.

On November 11, 1957, the defendant, Ralph Lopes, wrote to Mr. Sutton apologizing for his failure to make the October 15 payment and continued: ‘I spoke to Art Luz today, and told him that I was going out of the Real Estate Business, it is no use to go on like this. I had some plans drawn showing the improvements that can be made on this property, which I showed to Mr. Luz. I am selling the property and I have given a copy of the plans to all the brokers on Alum Rock Ave., which you may verify if you wish. I have one offer of $19,000.00 but I think I can get at least $22,000. Please bear with me just a little longer and I will have the property sold so I can realize a little out of my improvements. Mr. Luz has been very patience, and I hope this meets with your approval, please work with me, and the least I can do is pay all the fees involved so far, I will keep you informed every week as to what is happened. Thanks for your cooperation.’

On November 14, 1957, Mr. Sutton replied as follows:

‘Receipt of your letter of November 11, 1957 is hereby acknowledged.

‘You are hereby advised on behalf of Mr. Luz that we cannot cooperate any further with you. The complaint was served upon you on September 17, 1957, and you have failed to follow out the conditions of settlement set forth in my letter of September 20, 1957. On October 21, 1957 you were advised that we would look to our legal remedies and such will now be done.

‘You are further advised that you have no right to sell the property in question as you no longer have any interest in same.’

On November 16, 1957, Mrs. Lopes was personally served with a copy of the complaint and summons by Mr. Sutton who informed her that the complaint was a copy of the one served on her husband on September 17, and that the plaintiffs would seek the relief against both. Mrs. Lopes denied the above and testified only that Mr. Sutton had told her the matter had to be straightened out right away; that she told him they were selling the property and that he said he would talk to her husband in a few days.

Ralph Lopes testified that immediately on receiving Mr. Sutton's letter of November 14, he talked to Mr. Sutton about selling the property and Mr. Sutton then informed him that he had no right to sell the property and instructed him to bring in any further offers. As indicated above, the default was entered on December 6. The defendant further testified that on December 16, after hearing that he was to be dispossessed, he again telephoned Mr. Luz who told him not to worry. This conversation also was denied by Mr. Luz.

On appeal, the defendants contend that the trial court erred in its concluding that the defendants had not shown excusable neglect; that the plaintiffs wrongfully recovered both the property and the unpaid installments of the purchase price; that strict foreclosure is contrary to law, and that because all of the facts were not before the trial court, the judgment was erroneous and should have been vacated pursuant to section 663 of the Code of Civil Procedure.

There is no merit in any of these contentions. The application for relief from default having been made under the provisions of section 473 of the Code of Civil Procedure, was addressed to the sound discretion of the trial court, and its ruling will not be interfered with by an appellate tribunal in the absence of a clear showing of abuse of such discretion. Proulx v. De Moti, 106 Cal.App.2d 265, 234 P.2d 1009. It is the policy of the law that every case should be heard on its merits and the discretion of the trial court is to be exercised in conformity with the law and in a manner to subserve and not to impede or defeat the ends of substantial justice. Section 473 of the Code of Civil Procedure is a remedial provision and is to be liberally construed so that trials on the merits may be had. Miller v. Republic Grocery, Inc., 110 Cal.App.2d 187, 242 P.2d 396.

However, there are certain rules for the application of this section, which have been well stated in Elms v. Elms, 72 Cal.App.2d 508, 513, 164 P.2d 936, 939, as follows:

‘* * * One may not be relieved from his default unless he makes a showing that he has acted in good faith and demonstrates that his excusable neglect was the actual cause of his failure to attend the trial. Neither one's change of mind nor his inexcusable negligence is ground for vacating a judgment. To warrant relief under section 473 a litigant's neglect must have been such as might have been the act of a reasonably prudent person under the same circumstances. The inadvertence contemplated by the statute does not mean mere inadvertence in the abstract. If it is wholly inexcusable it does not justify relief. Freeman on Judgments, 5th Ed., Vol. 1, p. 482; Shearman v. Jorgenson, 106 Cal. 483, 485, 39 P. 863. It is the duty of every party desiring to resist an action or to participate in a judicial proceeding to take timely and adequate steps to retain counsel or to act in his own person to avoid an undesirable judgment. Unless in arranging for his defense he shows that he has exercised such reasonable diligence as a man of ordinary prudence usually bestows upon important business his motion for relief under section 473 will be denied. Freeman, 483, 5th Ed. Courts neither act as guardians for incompetent parties nor for those who are grossly careless of their own affairs. All must be governed by the rules in force, universally applied according to the showing made. Gillingham v. Lawrence, 11 Cal.App. 231, 232, 104 P. 584. The law frowns upon setting aside default judgments resulting from inexcusable neglect of the complainant. The only occasion for the application of section 473 is where a party is unexpectedly placed in a situation to his injury without fault or negligence of his own and against which ordinary prudence could not have guarded. Neither inadvertence nor neglect will warrant judicial relief unless it may reasonably be classified as of the excusable variety upon a sufficient showing. Hughes v. Wright, 64 Cal.App.2d 897, 149 P.2d 392.’

The only question on this appeal is whether there is substantial evidence to support the implied finding of the trial court that the defendants here had not made a sufficient showing of excusable neglect. This court must keep in mind that ‘* * * (1) when conflicting evidence is presented at a hearing of a motion to set aside a judgment, the weight and sufficiency of the evidence, its construction and the inferences to be drawn therefrom are for the their of facts' (Wyoming Pacific Oil Co. v. Preston, 171 Cal.App.2d 735, 741, 341 P.2d 732, 735). See Gomes v. Bragg, 201 Cal. 70, 255 P. 499; Pacific Tel. & Tel. Co. v. Fink, 141 Cal.App.2d 332, 296 P.2d 843; Goodrich v. Tulare Ice Co., 140 Cal.App.2d 224, 294 P.2d 1037; Stahler v. Seaboard Mortgage Corp., 9 Cal.App.2d 115, 48 P.2d 993; Cole v. Roebling Construction Co., 156 Cal. 443, 105 P. 255.

Here, there was no question that the defendants were duly served and repeatedly notified of plaintiffs' intended action by letter. Defendants rely on Baxter v. Prescott, 158 Cal.App.2d 531, 322 P.2d 1008 and Stephens v. Baker & Baker Roofing Co., 130 Cal.App.2d 765, 280 P.2d 39, wherein the importance of pending settlement negotiations were stressed by the appellate court in approving orders vacating defaults. In the instant case, however, the evidence as to any negotiations was conflicting; its proper evaluation was a matter for the trial court. As pointed out in Stephens v. Baker & Baker Roofing Co., 130 Cal.App.2d 765, 722, 280 P.2d 39, 43: ‘* * * In many instances the facts might justify either a granting of the motion or a denial if it, in which event the reviewing court invariably sustains the action of the lower court * * *.’

Furthermore, a trial court may find excusable neglect or surprise when settlement negotiations are being had between counsel and where there is an oral or implied understanding that no default will be taken without notice, and counsel takes such default. Such cases, however, are predicated upon the fact that opposing counsel acted so as to deceive the other side (Yarbrough v. Yarbrough, 144 Cal.App.2d 610, 616, 301 P.2d 426), a fact which is clearly not present here.

Defendants also seek to bring themselves under the rule of Gore v. Witt, 146 Cal.App.2d 681, 308 P.2d 770; Hover v. MacKenzie, 122 Cal.App.2d 852, 266 P.2d 60. These authorities and others cited by the defendants have no application here, as this is not like these more usual cases where one party is misled by another because of his lack of knowledge or unfamiliarity with business or the law, or where a party in good faith mistakes the date set for trial, or other details, as in Gore v. Witt and Hover v. MacKenzie, supra.

Defendants also argue that they are entitled to consideration because they were acting without legal counsel. However, the record indicates that one of the reasons for the trial court's conclusions was that Ralph Lopes was in the real estate business and familiar with general forms of business affairs so that the standard applied to his acts as those of a reasonably prudent person is markedly different from that applied to the defendants in some of the above mentioned cases.

The record further indicates that the defendants' affidavit in support of their motion set forth only Mr. Sutton's letter of October 21, 1957, and failed to mention their letter of November 11, Mr. Sutton's reply of November 14, and the service of process on Mrs. Lopes. This might well have instilled in the trial court some doubts as to whether the defendants had met the requirement of good faith. We agree with the trial court that in the instant case, the default occurred as the result of a deliberate refusal to act and the relief sought is clearly inappropriate. Weinberger v. Manning, 50 Cal.App.2d 494, 123 P.2d 531; Paulekas v. Paulekas, 117 Cal.App.2d 73, 254 P.2d 941. The burden of showing that the default was entered through mistake, inadvertence, surprise or excusable neglect is on defendants and in the absence of such showing the default may not be set aside. Elms v. Elms, 72 Cal.App.2d 508, 164 P.2d 936; Bailey v. Taaffe, 29 Cal. 423. There is no question that here, the defendants had full knowledge of the proceedings, were not misled by the plaintiffs, and yet did not take action to protect their interests until after the default. In such circumstances, it would be an abuse of discretion to set the default aside. Yarbrough v. Yarbrough, 144 Cal.App.2d 610, 615, 301 P.2d 426.

The next argument is that defendants' motion should have been granted because the judgment is erroneous in declaring a forfeiture and awarding the excessive damages under the contract and should have been vacated pursuant to section 663 of the Code of Civil Procedure. That section provides, as far as relevant here:

‘A judgment or decree, when based upon findings of fact made by the court, or the special verdict of a jury, nay, upon motion of the party aggrieved, be set aside and vacated by the same court, and another and different judgment entered, for either of the following causes, materially affecting the substantial rights of such party and entitling him to a different judgment:

‘1. Incorrect or erroneous conclusions of law not consistent with or not supported by the findings of fact * * *.’

The complaint alleged default in the payments due; that a written notice of termination and cancellation had been served on the defendants; that at the time said notice was served, defendants were in default of monthly installments for a period of 17 months; that by reason of defendants' detention of the property, plaintiffs had been deprived of rents and profits in the sum of $250 a month. The prayer of the complaint was for a decree declaring forfeiture of the contract, quieting plaintiffs' title, damages in the sum of $1,700, together with additional damages sustained from the loss of the value of the rents, issues and profits from July 29, 1957 The decree granted the relief prayed for, including $2,700 in damages computed as follows: $1,700 as the total rent due and $250 a month for the loss of the value of rents from July 29, 1957, to the date of judgment, December 9, 1957. Defendants argue that the award of damages is in excess of the court's jurisdiction as the contract provided only that the seller could retain the amounts paid, and because the value of the building constructed was $7,000. On this matter, however, there was conflicting evidence as the plaintiffs valued the building at $4,000. Defendants argue that the award of $2,700 constitutes a strict forfeiture and seek to bring themselves under the protective umbrella of Barkis v. Scott, 34 Cal.2d 116, 208 P.2d 367. That case, however, dealt with a situation where to allow the seller to terminate the buyer's rights under the contract and keep the many installments paid or keep the deposit paid, would have unjustly enriched the vendor. As indicated above, the plaintiffs have here only received one monthly installment of $100 and a portion of the taxes for 1956. The defendants were in possession of the property from January 4, 1956, until December 26, 1957, a period of two years. The agreement provided that on default of the buyer, his tenancy was at the pleasure of the seller (supra). On cancellation of the agreement only so much of it as remained unperformed was abrogated. Sanborn v. Ballanfonte, 98 Cal.App. 482, 277 P. 152. Therefore, the award of the $1,700 which accrued before termination was proper. The award of the additional $1,000 was also proper as plaintiffs were entitled to damages for unlawful detention. Stockton Morris Plan Co. v. Carpenter, 18 Cal.App.2d 205, 63 P.2d 859. Defendants here did not show to the satisfaction of the court below that plaintiffs' damages were less than the amount they paid. Cf. Baffa v. Johnson, 35 Cal.2d 36, 216 P.2d 13. As indicated above, we think the trial court properly exercised its discretion in denying defendants' motion. It is not necessary, therefore, to discuss the remaining contentions raised.

Order affirmed.

KAUFMAN, Presiding Justice.

DRAPER and SHOEMAKER, JJ., concur.

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