HAIME v. DE BEAULIEU (1942)

This is an appeal by plaintiff from a decree in favor of the defendants de Beaulieu by which title to certain real property was quieted in them as against plaintiff.

The record shows the following factual situation: In August, 1939, plaintiff owned a residence in San Marino, California, on which she had given a trust deed to the Mortgage Guarantee Company. She had also given a chattel mortgage to Carlton Finance Company on certain furniture which she owned. The trust deed was foreclosed in August, 1939, and the mortgage company became the purchaser at the sale. Thereafter, and on September 28, 1939, plaintiff entered into an oral agreement with the defendants Louis de Beaulieu and his wife, whereby they agreed to purchase the real property for the benefit of plaintiff, on the understanding that plaintiff was to be permitted to repurchase the property at any time prior to March 1, 1940. Pursuant thereto the de Beaulieus paid the mortgage company $1,000 on the purchase price of the realty and executed a promissory note for the balance thereof, together with a deed of trust as security therefor, in the sum of $5,115.98. It was further agreed between plaintiff and the de Beaulieus that, prior to March 1, 1940, plaintiff was to effect a release of such trust deed and pay them all moneys which they had expended in connection with their purchase of the property.

Pursuant to the purchase of the real property by the de Beaulieus a deed to them from a mortgage company was placed in escrow, but it appears that plaintiff advised the title company she claimed an interest in the property and as a result thereof no deed was delivered to the defendants.

At the time plaintiff entered into the agreement with the de Beaulieus respecting the real property, it was understood between them that plaintiff would make certain improvements and repairs to the realty, which obligation was subsequently carried out; also, that the property was to be rented and the rentals were to be applied toward the payment of interest on plaintiff's loan from the de Beaulieus, and for taxes, However, plaintiff contended the rentals were also to be applied toward the cost of repairs to the real property—if, after payment of the said interest and taxes, any funds remained for such purpose.

On December 5, 1939, at plaintiff's request, the de Beaulieus paid the amount due on the chattel mortgage and the furniture was moved into the residence. Plaintiff contended it was understood between the parties that on or before March 1, 1940, she was to reimburse them for that expenditure, whereupon she was to regain possession of the furniture.

On January 16, 1940, and in violation of the understanding between plaintiff and Mrs. de Beaulieu, the latter went into possession of the property, citing as her reason therefor that the mortgage company—under threat of foreclosing the trust deed, which would mature on April 1, 1940—had demanded that she do so. Except for the difference in the asserted understanding between the parties as to how the rentals were to be applied, the facts as heretofore related are not in dispute.

However, it is further alleged in the complaint that between the time plaintiff entered into the aforementioned agreement with the de Beaulieus respecting the real property and March 1, 1940, plaintiff attempted to effect a loan from a loan company in order to meet her obligation of March 1st, but was unsuccessful in doing so. In that connection she alleged that Mrs. de Beaulieu not only went into possession of the property, in violation of the agreement, and refused to move therefrom on plaintiff's demand,—thereby precluding the possibility of renting the property,—but that while she was in possession thereof and on an occasion when two appraisers visited the residence with respect to plaintiff's efforts to secure the loan, Mrs. de Beaulieu made certain statements in their presence which were derogatory to plaintiff's credit standing, and which, plaintiff alleged, were made for the purpose of preventing her from effecting a loan with which to make repayment to the de Beaulieus.

On March 1, 1940, plaintiff defaulted on her obligation. Thereafter, and on March 12th, she brought the present action on the theory that the agreement between the de Beaulieus and herself with respect to the real property created a resulting trust, but that, due to the alleged bad faith on their part, as heretofore referred to, a constructive trust was implied by law, as a result of which she asserted the right to compel specific performance of the agreement. The defendants de Beaulieu answered and filed a cross-complaint, asserting they possessed title to the property and asking for a decree quieting title in themselves. Thereafter trial was had and, on August 7, 1940, the court made an interlocutory order in which it was recited that as a condition of having title quieted in plaintiff's favor she would be allowed a period of thirty days in which to pay to the defendants the sum of $2,002.90, which was found to be the amount that the de Beaulieus had expended in connection with the property, with interest thereon at 7 per cent. Prior to the lapse of the thirty-day period plaintiff made a motion for a new trial and modification of the decree, and on October 4th the trial court modified its former decree by reducing the amount to be paid by plaintiff to $1,662, with interest at 7 per cent, and granted plaintiff an extension of time to October 12th in which to pay such sum. Plaintiff failed to make the payment and, on November 4th, the court rendered its final decree quieting title to the real property in the defendants as against plaintiff, but adjudging plaintiff to be the owner of the personal property, on the showing that she had reimbursed the defendants for the sums expended by them, together with interest, in discharging the chattel mortgage. Thereafter the court denied a motion for a new trial, and this appeal is taken from the interlocutory decrees and final decree quieting title to the real property in favor of the defendants as against plaintiff.

Plaintiff contends that, in view of the asserted bad faith evidenced by the defendants de Beaulieu in the respects heretofore mentioned, the interlocutory decrees were excessive and erroneous in that no interest should have been allowed on the sums found by the court to have been expended by them—which plaintiff was directed to repay as a condition to having title quieted in her favor; and, in any event, that interest in excess of 6 per cent should not have been allowed, that being the rate which, as stipulated by the parties at the trial, was originally agreed on between them with respect to the moneys to be repaid to the defendants.

However, those contentions are grounded on the principal claim that the trial court erred in rendering its decree quieting title to the property in favor of the defendants. The rule is that in the case of a resulting trust, where the purchase money is advanced by the person taking title, as a loan to the purchaser, the conveyance being made to the lender as security, the purchaser cannot demand the conveyance until he has paid the money advanced and for which the land is held as security. Hughes v. Korntved, 218 Cal. 3, 6, 21 P.2d 417; Lamberson v. Bashore, 167 Cal. 387, 139 P. 817; Woodard v. Hennegan, 128 Cal. 293, 60 P.769; 25 Cal.Jur. 185, 186; 17 Cal.Jur. 753. By the terms of the agreement here in issue, the date on which plaintiff was to repay the de Beaulieus was fixed as March 1, 1940, and, as heretofore indicated, the trial court allowed her additional time in which to effectuate a loan or otherwise to secure the moneys with which to pay the defendants—the final decree not having been rendered until about eight months after plaintiff's default. While she remained in default, and until her obligation to the defendants had been met, the court could not have rendered a decree of specific performance in her favor. § 3391, Civ.Code.

However, plaintiff contends that in view of the fraudulent acts and conduct of the de Beaulieus, which were inconsistent with and violative of the duties owed by a trustee to a beneficiary, she should have been allowed as a credit in her favor the reasonable rental value of the premises during the period in which Mrs. de Beaulieu was wrongfully in possession and, in addition, that she should have had credit for the amount of money expended by her in making the repairs and improvements on the property.

Before proceeding to a discussion of the contentions last referred to, comment should here be made with respect to the evidence pertaining to the relationship of the parties subsequent to the time they entered into the agreement. Although after hearing the evidence adduced by the respective parties the trial judge stated it had not been established to the court's satisfaction that the defendants de Beaulieu were responsible for plaintiff's failure to meet her obligation to them, and there was no direct evidence to show that plaintiff's failure in that regard was due to any act or statement of Mrs. de Beaulieu,—nevertheless there was evidence presented which showed that both prior to and at the time she wrongfully took possession of the premises, Mrs. de Beaulieu evinced an attitude of hostility toward plaintiff. As summarized in the bill of exceptions, her testimony, in part, was as follows: that ‘on an occasion when she was talking on the telephone two gentlemen came to appraise the real property and overheard her telephone conversation, and what she said over the telephone was not complimentary towards the plaintiff’; that ‘she did not make any comments to the appraisers concerning Mrs. Haime's credit standing, but on other occasions might have said something to other persons concerning Mrs. Haime's credit standing.’ The import of such statements, disclosing an attitude of open hostility harbored by Mrs. de Beaulieu against plaintiff, is wholly inconsistent with the duty of a trustee to ‘act in the highest good faith toward his beneficiary.’ § 2228, Civ.

Moreover, the action of Mrs. de Beaulieu in wrongfully taking possession of the premises without the knowledge or consent of plaintiff, thus precluding the renting of the property, and her refusal to move therefrom at the request of the latter, were in direct violation of the duty she owed to plaintiff. The situation thereby presented is analogous to that of a mortgagee wrongfully in possession. In Mahoney v. Bostwick, 96 Cal. 53, 59, 30 P. 1020, 1021, 31 Am.St.Rep. 175, the court said: ‘In this case the appellant's mortgage gave him no right to the possession of the mortgaged premises, and he did not take possession with the consent of the plaintiff. * * * [A]ppellant wrongfully entered upon the premises and ousted the plaintiff from the possession thereof, and in such a case it is very clear to us that the appellant is liable to be charged for rents and profits, precisely the same as any other disseisor would be, and he is not entitled to any accounting to determine how much he may have actually realized from this wrongful occupation, after deducting the necessary expenses of carrying on the farm.’ See, also, Bradley Co. v. Bradley, 37 Cal.App. 268, 173 P. 1013; Estate of Piercy, 168 Cal. 750, 145 P. 88; Fricker v. Americus Mfg. & Imp. Co., 124 Ga. 165, 52 S.E. 65; Lawley v. Hickenlooper, 64 Utah 543, 231 P. 821, A.L.R. 1327; Candelaria v. Miera, 18 N.M. 107, 134 P. 829, 831.

Furthermore, contrary to the defendants' contention, we do not agree that plaintiff should be precluded from now asserting a claim to reimbursement for the value of the improvements because such claim was not specifically urged by her in the court below, where, as disclosed by the record, the parties stipulated in open court that, the proceeding being one in equity, the trial court should have jurisdiction and authority to dispose of all issues which were shown by the evidence to exist between the parties. The facts adduced by the evidence disclosed that plaintiff had performed her covenant under the agreement by making improvements and repairs to the property to the extent of a substantial sum of money, as they also showed that the defendants had violated their covenant by wrongfully entering and taking possession of the property. But the defendants further contend that by the terms of a written agreement—a copy of which was introduced in evidence—which purportedly contained the covenants originally agreed on orally by the parties, it was contemplated that if plaintiff failed to meet her obligation of March 1 to the de Beaulieus, she should lose all interest in the property, including the value of the improvements. However, the record shows that although a copy of the agreement was received in evidence, the defendants had never signed such agreement, and in view of their refusal in that regard and the further fact that by their own admission they had violated one of the covenants of the written agreement, they are not now in a position to insist that all of its provisions are legally binding on plaintiff. With respect to her claim to reimbursement for the value of the improvements, in the Bostwick case heretofore referred to, where the facts showed that the defendant mortgagee had wrongfully seized possession of the property there involved, the court said: ‘The possession of defendant, and all that he did upon the land, were acts hostile to the title of plaintiff, and plaintiff is not required in this action, upon any principle of law or equity, to account to defendant for the value of the improvements thus made by him.’ Notwithstanding the factual difference between the two cases, we think the equities which were allowed to prevail in the cited case should be applied here, where the defendants have been guilty of similar wrongful and hostile acts, but who, because of plaintiff's inability to repay the moneys advanced by them on her behalf, and despite their dereliction, ultimately will receive the benefit of the improvements placed on the property by plaintiff. Under the facts of this case, to thus permit the defendants to take the property, enhanced in value by substantial improvements, toward the cost of which they contributed nothing, would be contrary to well-settled equitable principles.

Here the defendants, as cross-complainants, have applied to a court of equity for a decree quieting title as against plaintiff. The rule is that a cross-complainant seeking affirmative relief is an actor and must do equity if he would have equity. Chapman v. Hicks, 41 Cal.App. 158, 182 P. 336; Agmar v. Solomon, 87 Cal.App. 127, 141, 261 P. 1029; 10 Cal.Jur. 511; 27 Am.Jur. 279. With reference to the maxim just referred to, in O'Brien v. O'Brien, 197 Cal. 577, 584, 241 P. 861, 864, this court said: ‘It means that the court will not confer its equitable relief upon one seeking its interposition and aid—‘unless the has acknowledged or conceded, or will admit and provide for, all the equitable rights, claims, and demands justly belonging to the adverse party, and growing out of or necessarily involved in the subject-matter of the controversy.” The underlying theory on which equity grants compensation for improvements is that an unjust enrichment should be prevented. 27 Am.Jur. 276. Having acted in violation of their own promises and obligations under the contract, the defendants herein are estopped from claiming a right to receive the property, enhanced in value by plaintiff's act in placing the improvements on the real property in good faith and in performance of her covenants under the agreement. See 10 Cal.Jur. 515–517.

From the foregoing we conclude that as a condition of quieting title in favor of the defendants de Beaulieu as against plaintiff, the latter is entitled to have awarded to her the reasonable rental value of the premises during the time the defendants were in wrongful occupation and possession thereof, together with an allowance for the reasonable value of the improvements made by her.

The judgment is therefore reversed in order that evidence may be adduced with respect to the who issues last referred to, and thereafter the trial court is directed to proceed in accordance with the views herein expressed, and to render its judgment accordingly.

HOUSER, Justice.

GIBSON, C. J., and SHENK, CURTIS, EDMONDS CARTER, and TRAYNOR, JJ., concurred.