HENRY FRANCHISE LEASING CORPORATION OF AMERICA v. HONEY

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District Court of Appeal, First District, Division 3, California.

HENRY'S FRANCHISE LEASING CORPORATION OF AMERICA, a corporation, Cross-Complainant and Appellant, v. Clarence HONEY, Cross-Defendant and Respondent.

Civ. 22507.

Decided: November 26, 1965

John P. Borgwardt, M. Laurence Popofsky, Heller, Ehrman, White & McAuliffe, San Francisco, for appellant. McCloskey, Wilson, Mosher & Martin, Palo Alto, for respondent.

This appeal comes to us upon a clerk's transcript. The trial court's judgment quieted appellant's title to real and personal property sold by appellant to respondent, but the judgment was conditioned upon return by appellant to respondent of the sum of $16,575 received under the contract of sale.

In March 1962 appellant and respondent entered into a contract of sale covering both real and personal property. The total price agreed to be paid by respondent was $135,000. Respondent paid $25,000 as a down payment and agreed to pay $845 per month until the remaining balance was paid. Respondent made total payments of $33,450, and then defaulted. After default, respondent filed an action to rescind the contract and to recover his payments. Appellant filed a cross-complaint seeking to establish and foreclose a vendor's lien, to recover damages, and to quiet title. Prior to trial appellant repossessed a portion of the personal property. The trial court denied relief to respondent on his complaint, but found that he had paid $33,450 under the contract; that the use value of the property while in respondent's possession was the sum of $16,875, and by its judgment granted appellant possession of the property and quieted appellant's title, subject, however, to payment into court by appellant for the benefit of respondent of the sum of $16,575, the latter sum being the difference between respondent's payments under the contract of sale and the use value of the property while in respondent's possession.

Appellant challenges that portion of the judgment which directs return of a portion of the payments received under the contract, contending that the refund ordered should be cancelled and the judgment affirmed. Appellant urges that, in addition to recovery of the use value of the property it is also entitled to damages measured by the loss of the benefit of its bargain. (Civil Code § 3307.)1 Appellant points to the fact that the contract price was $135,000; that the market value of the property at time of trial was found to be $90,000 and the use value $16,875. Thus appellant calculates its damages to be $61,575 and hence greatly in excess of all payments made by respondent under the contract. As noted, however, appellant does not seek an affirmative award of such excess but contents itself with the request that the ordered refund be stricken. We reject appellant's contentions on grounds hereafter stated.

The rights of parties upon breach of an installment land purchase contract have been the subject of extensive litigation in this state. In Glock v. Howard & Wilson Colony Co., 123 Cal. 1, 55 P. 713, 43 L.R.A. 199, it was held that when the contract made time for the vendee's performance of the essence, in the absence of special circumstances, the defaulting vendee forfeited the payments he had made under his contract. In Barkis v. Scott, 34 Cal.2d 116, 208 P.2d 367, the Supreme Court, departing from the harsh consequences of the rule of Glock, held that Civil Code section 32752 was sufficient to preclude a forfeiture, even though in that case a time of the essence clause was not waived, and the vendor was not estopped to assert it. Yet under the rule of Barkis, only the non-wilful defaulting vendee was entitled to protection. In Freedman v. Rector, etc., 37 Cal.2d 16, 230 P.2d 629, 31 A.L.R.2d 1, however, the court decided that even a wilful defaulting vendee was entitled to restitution of sums paid under his contract in excess of damages suffered by the vendor. The decision in Freedman was not grounded entirely upon the law's natural abhorrence of penalties and forfeitures, but rested also upon an alternative basis for relief stemming from those provisions of the Civil Code limiting the right to exemplary damages (Civil Code § 3294)3 , as well as those provisions dealing with liquidated damages. (Civil Code §§ 1670, 1671.)4 (Freedman v. Rector etc., supra,37 Cal.2d 16 at 21, 230 P.2d 629.) The underlying purpose of the Freedman doctrine is to prevent unjust enrichment of the seller at the expense of the buyer, and this purpose is accomplished by requiring the seller to refund to the buyer payments made under the contract in excess of damages suffered by the seller. The guilding principles of Freedman are applicable and controlling here. As we have seen, appellant has terminated the contract of sale because of respondent's default, and has repossessed a portion of the property. Appellant asked the court to quiet its title to all of the property covered by the contract, and seeks to retain all payments made by respondent. On facts here present, however, respondent is clearly entitled to restitution, and appellant must refund all payments made under the contract in excess of appellant's actual damages.

The critical question is whether appellant's damages are to be measured by the loss of the benefit of its bargain (Civil Code § 3307) plus the use value of the property while in respondent's possession, or merely by the use value of the property. We think the trial court correctly measured appellant's damages by the use value of the property. (Bird v. Kenworthy, 43 Cal.2d 656, 660, 277 P.2d 1; Heintzsch v. La France, 3 Cal.2d 180, 183, 44 P.2d 358; Roberts v. Lebrain, 113 Cal.App.2d 712, 716–717, 248 P.2d 810; Nelson v. Dangerfield, 125 Cal.App.2d 146, 150, 269 P.2d 953; see also, Rest., Contracts, § 354, illus. 2; Hetland, California Land Contract, 48 Cal.L.Rev. 729, 768; California Land Security and Development, Cont. Ed. Bar 218.) As we have noted, appellant elected to terminate the contract with respondent, to recover possession of the property, and to have its title quieted. In Luz v. Lopes, 55 Cal.2d 54, 10 Cal.Rptr. 161, 358 P.2d 289, the vendor of real property cancelled the contract of sale because of the vendee's default, and sought both damages for breach of the agreement and for rental accruing after the contract's termination. The trial court awarded damages for breach of the agreement and also for rental value of the property. In reversing the judgment the court declared that the seller could not have both a forfeiture and enforcement of the contract at the same time. Here, to permit appellant to retain all sums paid by respondent under the contract in excess of rental value would be inconsistent with the rule of Luz and contrary to the principles of Freedman.

Appellant further contends that the refund ordered should be stricken because respondent did not allege and prove that his payments made under the contract exceeded appellant's damages. This contention cannot be supported.

It is the rule that a defaulting vendee seeking restitution has the burden of proving that his payments exceeded the vendor's damages. (Major-Blakeney Corp. v. Jenkins, 121 Cal.App.2d 325, 332–333, 263 P.2d 655; Petersen v. Ridenour, 135 Cal.App.2d 720, 287 P.2d 848.) The question here is whether respondent has satisfied that burden. Respondent's second amended complaint contains no allegation concerning appellant's damages. But our case comes to us on a limited record. We do not have a transcript of the oral proceedings before the trial court. We must presume that the evidence is sufficient to support the findings (Arruda v. Arruda, 218 Cal.App.2d 410.414, 32 Cal.Rptr. 257). Appellant has the burden of establishing error, and hence must demonstrate error on the face of the record itself. (Hearst Publishing Co. v. Abounader, 196 Cal.App.2d 49, 54, 16 Cal.Rptr. 244.) From the limited record we have, we must presume that respondent established the nature and extent of appellant's damages. We note in the record that the court filed a memorandum of decision before signing the findings and judgment. We may properly look to that document for aid in understanding the court's findings and conclusions (Trans-Oceanic Oil Corp. v. City of Santa Barbara, 85 Cal.App.2d 776, 790, 194 P.2d 148) and the process by which the judgment was reached. (Union Sugar Co. v. Hollister Estate Co., 3 Cal.2d 740, 750–51, 47 P.2d 273; Cothran v. Town Council, 209 Cal.App.2d 647, 652, 26 Cal.Rptr. 319.) The memorandum of decision recites that the issue of damages sutained by appellant was considered at trial and that both parties offered evidence upon that issue. Thus, since the court had before it evidence of appellant's damages as well as respondent's payments, and upon all of the evidence, including, of course, evidence not in our record, ordered a refund, it must necessarily have concluded that respondent's payments exceeded appellant's damages.

The portion of the judgment appealed from is affirmed.

FOOTNOTES

1.  Civil Code section 3307 reads: ‘The detriment caused by the breach of an agreement to purchase an estate in real property, is deemed to be the excess, if any, of the amount which would have been due to the seller, under the contract, over the value of the property to him.’

2.  Civil Code section 3275 reads: ‘Whenever, by the terms of an obligation, a party thereto incurs a forfeiture, or a loss in the nature of a forfeiture, by reason of his failure to comply with its provisions, he may be relieved therefrom, upon making full compensation to the other party, except in case of a grossly negligent, willful, or fraudulent breach of duty.’

3.  Civil Code section 3294 reads: ‘In an action for the breach of an obligation not arising from contract, where the defendant has been guilty of oppression, fraud, or malice, express or implied, the plaintiff, in addition to the actual damages, may recover damages for the sake of example and by way of punishing the defendant.’

4.  Civil Code section 1670 reads: ‘Every contract by which the amount of damage to be paid, or other compensation to be made, for a breach of an obligation, is determined in anticipation thereof, is to that extent void, except as expressly provided in the next section.’Civil Code section 1671 reads: ‘The parties to a contract may agree therein upon an amount which shall be presumed to be the amount of damages sustained by a breach thereof, when, from the nature of the case, it would be impracticable or extremely difficult to fix the actual damage.’

SALSMAN, Justice.

DRAPER, P. J., and DEVINE, J., concur.