MacFADDEN v. WALKER (1971)

Plaintiff and cross-defendant MacFadden (hereinafter, ‘seller’) appeals from a judgment quieting title in defendant and cross-complainant Walker (hereinafter, ‘buyer’) to 80 acres of real property in Placer County, and directing seller to convey that property to buyer by grant deed upon (1) payment by buyer to seller of $71.12 for 1964 taxes advanced by seller, and (2) release to seller of $1,429.29 previously deposited in court by buyer as the balance due on the purchase price, including compound interest.¹

In 1950, buyer went into possession of the property under a verbal agreement with seller which provided that buyer would commence paying the taxes at that time and that the parties would later execute a written contract setting forth a purchase price of $2,500. From 1950 until April 1953—and with seller's acquiescence—buyer paid only a $10 deposit on the purchase price in addition to paying the annual taxes. Sometime during those three years, with buyer's knowledge, a third party cut and removed trees from the property and, at a time not shown by the record, that person paid seller about $600 for the timber.

Thereafter, on or about April 23, 1953, the parties entered into a written contract for the sale of the 80 acres. The agreed price was $2,484.50, payable as follows: $20 upon execution of the agreement and the balance in installments of $20 per month (including interest) on the first day of every month commencing June 1, 1953. The contract also provided that time was of the essence; that taxes subsequently assessed were to be paid by buyer; that title would not pass to buyer until all sums due under the contract had been paid; that seller could repossess the property and retain prior payments upon buyer's default; that buyer would pay attorney's fees reasonably incurred by seller in enforcing the contract; and that no timber could be cut or removed without seller's written permission.

In 1962 or 1963, timber was stolen from the property by parties unknown either to seller or buyer. In December 1963, having improved the property and having made monthly payments on the contract faithfully for the preceding ten years, buyer defaulted. In May 1964, seller mailed to buyer's Oakland address notice of his election to terminate the contract, to retake the property, and to retain all payments previously made. At trial, buyer denied having received such notice.

It is undisputed, however, that buyer made no monthly payments² from December 1963 until December 1966. During the latter month, buyer deposited in court the sum of $1,379.29, which was the balance required to pay off the $2,484.50, including compound interest (except for $50 additional interest deposited after pretrial conference). By that time, she had been served with seller's complaint (filed in May 1966) for a decree declaring her contract rights forfeited and quieting title in seller. When she deposited the $1,379.29, buyer cross-complained for specific performance.³

TRIAL COURT'S FINDING OF GOOD FAITH DISPUTE AS TO WHETHER BUYER WAS ENTITLED TO A CREDIT OF $600

Section 3275 of the Civil Code provides that ‘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.’ (Emphasis ours.)

In Finding No. 3, the trial court found that ‘prior to and in December of 1963 a dispute arose between [seller and buyer] * * * as to whether or not the [buyer] * * * was entitled to a credit of $600.00 against future payments on the contract of sale because of removal of timber by or for the benefit of seller from the subject real property, whereupon, and commencing December 1963 the buyer ceased making further monthly payments.’ The court further found (Finding No. 3) that, although buyer had been ‘in error,’ she had ‘acted in good faith in reference to the disputed $600.00 credit or offset,’ and that ‘her cessation of monthly payments as a result thereof did not constitute a grossly negligent, willful, or fraudulent act, or breach of duty. * * *’

Seller contends that these findings are not supported by the evidence. He likewise objected to the findings in the trial court. His contention must be sustained.

The record contains no evidence either that the parties had a dispute about whether buyer was entitled to a credit for removed timber or that buyer ceased her monthly payments as a result of a dispute between the parties. Seller testified that buyer never told him why she stopped paying after November 1963. Buyer's only testimony on the subject was given on direct examination as follows:

‘Q: As I understand, after the November, 1963, payment, that you stopped paying Mr. MacFadden, is that correct?

‘A: Yes.

‘Q: Why did you stop?

‘A: Because there was a lot of timber cut off of the place and I couldn't find head nor tail to it. I wrote to him about it, and he said there were timber thieves all over and you couldn't do anything about it. I wrote to the Forest Reserve and they said they could not anything about it because it was private property, but they did go there and order the debris cleaned up after the trees were taken.

‘Q: After that point did you have any discussion with Mr. MacFadden about this timber that was removed or who took it or what happended to it?

‘A: No. I got an attorney, but he didn't seem to be able to do anything about it. He wanted me to pay $1,500 to have the property surveyed, and I couldn't afford that.’

Buyer's quoted testimony demonstrates that her default was willful. In support of the findings to the contrary, she refers to the $600 which seller received for the timber cut between 1950 and 1953. But buyer's own testimony was that she had consented to that earlier logging, that it had occurred before she signed the contract, and that the timber theft which prompted her default was one which occurred ten years later (in 1962 or 1963). Nowhere does the evidence reflect that buyer ever believed or asserted that the timber removed in 1962 or 1963⁴ had been taken by or for the benefit of seller—or even that she and seller had ever had a dispute about the $600 which seller received for the timber cut before the contract was signed.

Buyer's appellate brief also suggests that seller's five-month delay (until May 1964) in mailing notice, and his 29-month delay (until May 1966) in filing suit, were evidence that there was in fact ‘a dispute as to who did or did not remove timber, or whether some credit may have been allowed. * * *’ The suggested inference is too speculative, absent other evidence, and there was none.

BUYER'S RELIEF INDEPENDENT OF SECTION 3275

As a willfully defaulting vendee, buyer is thus barred by the express provisions of section 3275 from relief under that statute. Nevertheless, we are required to consider whether this case is an appropriate one for application of the rule that, independent of section 3275, certain damage provisions of the Civil Code (§§ 1670, 1671, and 3294)⁵ permit a willfully defaulting purchaser to recover the excess of his part payments over the damages caused by his breach of a land sale contract. (Freedman v. Rector, etc. (1951) 37 Cal.2d 16, 230 P.2d 629; see Gantner v. Johnson (1969) 274 C.A.2d 869, 874–875, 79 Cal.Rptr. 381; 4 Witkin, Summary of California Law, (7th ed.), Equity, §§ 49–50, pp. 2828–2830.)

The suggestion of Freedman that the vendee may be entitled to restitution even where his default was willful has been expressly confirmed: ‘A court may not quiet a vendor's title where he has accepted part payment of the purchase price unless he refunds the excess of the part payments over the damage caused by the vendee's breach, and this rule is applicable where the vendee has willfully defaulted. In the quiet title action the vendee may recover the amount which constitutes unjust enrichment of the vendor by reason of the termination of the contract. [Citations.]’ (Behrendt v. Abraham (1966) 64 Cal.2d 182, 187, 49 Cal.Rptr. 292, 295.)

The issue of unjust enrichment, and the amount thereof if any is found, are typically and properly for determination by the trial court, and particularly so in the case at bench because of the positions taken by the parties and because of certain of the findings which we will mention. The judgment must be reversed and the case remanded to the trial court on the issue of possible forfeiture of the payments made by buyer.

At trial, no contention was made by buyer that her payments exceeded the reasonable rental value of the subject property during her occupancy; the relief she sought was specific performance of the sales contract, and the case was tried on that ‘main issue’ and the ‘main defense’ of adequacy of consideration, as we have shown. Conversely, despite the fact that seller's uncontradicted testimony established $25 per month as the rental value of the property from the time buyer took possession, the trial court found that seller was not damaged by buyer's cessation of monthly payments, or at all (Finding No. 10).⁶ The evidence discloses—also without contradiction—that the property was occupied by buyer at various times, and for substantial periods, from the time she took possession in 1950. Although buyer made improvements to the property during her occupancy, and there is evidence of the costs thereof, no finding was made as to the total disbursement by buyer for improvements made. The issue of seller's unjust enrichment, if any, and the question of potential forfeiture are questions of fact which, to all appearances, have not yet been determined.

BUYER IS NOT ENTITLED TO SPECIFIC PERFORMANCE

The question remains whether buyer, on the evidence adduced, is entitled to specific performance and possession of the property. Buyer urges us to follow Ward v. Union Bond & Trust Company (9th Cir. 1957) 243 F.2d 476, where the federal court was of the view that, if presented with the question, the California Supreme Court would permit a willfully defaulting vendee to compel specific performance of the land sale contract upon payment of the vendor's damages resulting from the breach.

Intermediate appellate courts in California have not passed upon the question examined in the Ward Case. In Crofoot v. Weger (1952) 109 Cal.App.2d 839, 241 P.2d 1017, Nelson v. Dangerfield (1954) 125 Cal.App.2d 146, 269 P.2d 953, and Petersen v. Ridenour (1955) 135 Cal.App.2d 720, 287 P.2d 848, the vendees' willful, and nothing in those decisions suggests extending the relief afforded by Civil Code sections 1670, 1671, and 3294 beyond that allowed in Freedman v. Rector, etc., supra, 37 Cal.2d 16, 230 P.2d 629.

The Ward case has been criticized as involving an erroneous interpretation of Freedman v. Rector, etc., supra, 37 Cal.2d 16, 230 P.2d 629. (See 10 Stan.L.Rev. 355 (1958).) More importantly, it does not appear that Ward correctly forecast California law. In Honey v. Henry's Franchise Leasing Corp. (1966) 64 Cal.2d 801, 52 Cal.Rptr. 18, 415 P.2d 833, where the vendee's default was apparently willful, the court said by was of dictum at page 804, 52 Cal.Rptr. at page 20: ‘When’ a vendee has materially breached his contract, the vendor has an election to rescind or to enforce the contract. [Citations.] The defaulting vendee, however, has no such election. Otherwise, the contract of sale would in effect be a lease with an option to purchase. The vendee would receive the benefit of any increase in the value of the property, and the vendor would bear the entire risk of any decrease in its value. Such protection to a defaulting vendee would go beyond that provided by anti-deficiency legislation, which places the risk of depreciation in value on the vendor only to the extent that the value of the property may decrease below the amount still owing on the contract.' (Emphasis ours.)⁷

Our foregoing conclusions render it unnecessary to discuss other contentions raised by seller.

The judgment is reversed and remanded to the trial court with directions that the court make findings adequate to settle the issue of unjust enrichment, and render conclusions and judgment quieting seller's title to the subject property conditional upon his making restitution to buyer of such sum, if any, as is necessary to prevent seller's unjust enrichment. Said findings and conclusions shall be made by the judge who heretofore tried the case, and shall be based upon the evidence heretofore taken and upon any additional evidence which for good cause said judge may permit the parties to introduce upon that issue. If any lawful cause precludes said judge from complying herewith, the case shall be at large only on the issue of unjust enrichment. Seller will recover his costs on appeal.

FOOTNOTES

1.  The judgment ordered the clerk to release the $1,429.29 to seller. It also awarded seller $215.20 for his attorney's fees and costs in filing his complaint, and awarded buyer her costs in prosecuting her cross-complaint. The judgment is inconsistent, in form, with the facts recited in the parties' appellate briefs, wherein both parties agree that, five months before trial, buyer repaid seller the $71.12 for taxes.

2.  Apparently buyer did not default on her payment of taxes, except for 1964.

3.  By stipulation at the pretrial conference and at trial, the ‘main issue’ was whether buyer was entitled to specific performance under her cross-complaint, and the ‘main defense’ was the question posed as to adequacy or reasonableness of the consideration for the contract. (Civ. Code, § 3391, subds. (1) and (2).) Accordingly, the action was tried as though buyer were plaintiff and seller the defendant. However, there is no support either in the pretrial conference order or elsewhere in the record for the elaim in seller's appellate brief that ‘[a]t the pretrial conference, it was agreed that MacFadden [seller] would be entitled to judgment of foreclosure * * * unless Mrs. Walker [buyer] should prevail on her cross-complaint. * * *’

4.  Neither seller nor buyer ever learned who cut the timber in 1962 or 1963.

5.  Civil Code Section 1670 provides: ‘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 states: ‘The parties to a contract may agree therein upon an amount which shall be presumed to be the amount of damage sustained by a breach thereof, when, from the nature of the case, it would be impracticable or extremely difficult to fix the actual damage.’Civil Code section 3294 provides: ‘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.’

6.  The precise finding is: ‘10. That plaintiff and cross-defendant [seller] has not been damaged in the sum of $25.00 per month from May 18, 1964 [the date notice of forfeiture was mailed by seller], or in any other sum or amount, or at all.’

7.  Specific performance was not sought in Behrendt v. Abraham, supra, 64 Cal.2d 182, 49 Cal.Rptr. 292. There the buyers took the position—and testified—that they did not seek reinstatement of the contract and an opportunity to perform it, but wished the return of their payments.

JANES, Associate Justice.

PIERCE, P. J., and FRIEDMAN, J., concur.