Eastwood Homes, Inc. v. Hudson

Defendants Lafayette Land Company, a partnership, and K. P. Hudson appeal from a judgment in favor of plaintiff in the sum of $20,500.

Questions Presented

1. Sufficiency of the evidence. This depends primarily upon whether or not plaintiff was guilty of an anticipatory breach.

2. Was the contract void for uncertainty and lack of mutuality ?

3. Was the measure of damages incorrect?

1. Evidence.

Plaintiff was engaged in the business of constructing and selling houses and was developing a small subdivision in Lafayette. It was interested in the subject property in order to expand its subdivision. Defendant Lafayette Land Company was a partnership in which defendant Hudson was the sole general partner and Shahbazian and Cleverdon were

Plaintiff’s secretary-treasurer, Monson, represented plaintiff in the transaction. He was informed that the tentative map had béen presented to the planning commission and that the final map was ready for filing. After the contract was executed, he frequently informed Lafayette Company of the necessity of filing the final map, since plaintiff could not go through the requisites of building on the subdivision until the map was filed. Plaintiff paid the $1,500 required by the contract. In July Monson saw that Cleverdon Company was grading on the property. He objected to its being done until the map was filed. Defendant Hudson promised to have the map filed as fast as possible.

Toward the end of July, Cleverdon Company needed money to meet its payroll. Cleverdon and defendant Hudson told one Koepke, bookkeeper for Cleverdon Company, to get $4,000 from plaintiff. Koepke advised Monson of the necessity for this money. Monson asked where the map was. Koepke said they were working on it and unless Cleverdon got some financial help work would have to stop and plaintiff would never get the map. Monson told Koepke to stop the work: Actually, at this time, while Lafayette Company owed Clever-don approximately $4,000, only $2,000 of the indebtedness was due for work on the subject property. Monson then notified Hudson that plaintiff did not feel safe in paying for grading work until the map was filed and asked Hudson to give a deed of trust on the property. Hudson refused. However, plaintiff paid the $4,000 when a deed of trust arrangement on adjacent property owned by Cleverdon and Shahbazian was made, which deed of trust was to be reconveyed upon Lafayette’s crediting the $4,000 and the $1,500 on plaintiff’s agreement. When plaintiff paid the $4,000 he again asked that the map be recorded.

Cleverdon continued work on the property. Plaintiff was not asked for more money. The final map was approved by the board of supervisors November 3rd and recorded No? vember 5th. At that time the title company man who had worked out the deed of trust arrangement, prepared, on his own initiative, a holding agreement which he sent to the parties. It provided that Lafayette would transfer title to the title company and then the property could be conveyed

The main difference between the parties is whether the agreement contemplated that the title to the property should be deeded to plaintiff so that it could obtain a construction loan on it. Plaintiff did not default. Under the contract it paid $2,000 and advanced $4,000. Its further advances were only to be made “weekly based upon the work accomplished.” At the time it advanced $4,000 the work accomplished came to approximately $2,000 only. At no time thereafter was it presented with estimates of the work accomplished nor a demand made for any further advances. As to the mention of $2,775 as the lot price in the proposed holding agreement, the evidence supports the conclusion that this was the error of the title company man and that at no time was plaintiff claiming that as the purchase price.

The court found, in effect, that plaintiff’s version that it was intended that the plaintiff be allowed to borrow on the property for the moneys with which to construct the contemplated homes, that the title be held by the title company subject to such loan, and then to be deeded lot by lot to plaintiff’s order upon receipt of the $2,800 less moneys advanced

Defendants discuss at some length their contention that subjecting the property to a construction loan would have deprived them of a vendor’s lien as a first lien upon the property. While this is true, the evidence shows that the parties so intended it. Moreover, even upon defendants’ theory that there was to be no construction loan their vendor’s lien would have been subject to mechanics’ liens arising from the construction of houses upon the property. Any discussion of vendor’s lien is out of place under the circumstances of this case. Under the theory of both parties the title company was to hold the title and not convey it to plaintiff until the purchase price was paid, the only difference being that under plaintiff’s theory the title was to be subject to a lien for the construction money. Either way the title company would be holding the title in trust for Lafayette Company until the purchase price was paid and hence there could be no vendor’s lien. A vendor’s lien does not arise until the seller transfers the legal title to the vendee. (Maltby v. Conklin (1920), 50 Cal.App. 201 , 204 [ 195 P. 280 ].)

Defendants cite authorities on anticipatory breach of a contract. They are not in point for the reason that the evidence here supports a finding that there was no such breach and that defendants did not treat the presentment of the proposed holding agreement as a repudiation by plaintiff but still considered the contract in effect. Under plaintiff’s evidence, found to be true by the trial court, the November conference was for the purpose of proceeding under the contract with the substitution of plaintiff as the one to do the grading work instead of defendants. Such evidence is also susceptible of the finding that plaintiff was always willing to perform and pay the $2,800 per lot, and that the holding agreement was not its but that of the title company man which, although signed by plaintiff after it was explained to Monson, was not insisted upon by plaintiff. It is significant that although defendants, concede that there was to be a holding agreement they at no time suggested that the proposed one be modified in accord

Defendants contend that the contract lacks mutuality because, say they, there is no time limit fixed for payment, the price is not to be paid absolutely and in all events but only “out of escrow” and “ [a]s each lot and house is sold” and there is no promise by plaintiff to build any houses, nor is the type of house or its cost expressed.

Clarey v. Security Portland C. Co., Inc. (1929), 99 Cal.App. 783 , 786-787 [ 279 P. 483 ], states, quoting from Williston: “ ‘It is often stated as if it were a requisite in the formation of contracts that there must be mutuality. This form of statement is likely to cause confusion, and, however limited, is at best an unnecessary way of stating that there must be a valid consideration. In unilateral contracts there is never mutuality of obligation; and in bilateral agreements, though it- is necessary that there shall be such a promise on each side as will furnish valid consideration, to express the idea by saying that mutuality is necessary is sure to cause confusion with the use of the same word by courts of equity. . . . The particular

A proper interpretation of the contract would make it reasonable to imply that plaintiff, by agreeing to pay from a certain fund, obligated itself to do those acts which would bring the fund into existence.

It is said in section 1643, Civil Code, that a contract must receive such an interpretation as will make it lawful, operative, definite, reasonable, and capable of being carried into effect, if it can be done without violating the intention of the parties. And “All things that in law or usage are considered as incidental to a contract, or as necessary to carry it into effect, are implied therefrom. ...” (Civ. Code, § 1656.) Under these sections courts are not empowered under the guise of construction to depart from the plain meaning of the contract and insert a term or limitation not found therein, but implied covenants are justified when they are not inconsistent with some express term of the contract and, in the absence of such implied terms, the contract could not be effectively performed. (Tanner v. Title Ins. & Trust Co. (1942), 20 Cal.2d 814 , 824 [ 129 P.2d 383 ].) And it has also been said that “Each party to a contract has a duty to do everything that the contract presupposes that he will do to accomplish its purpose.” (Bewick v. Mecham (1945), 26 Cal. 2d 92 , 99 [ 156 P.2d 757 , 157 A.L.R. 1277 ].) Taking the contract in the instant ease as a whole, it involved more than just the transfer of title for a price. It also contemplated the full development of the subdivision. Defendants had subdivided it and had promised to do the grading and sewer work for plaintiff and plaintiff was to build on the lots and sell them using the proceeds to complete the payment of the full price. Therefore in order that the contract could be completely performed it was necessary that plaintiff build houses on the lots and sell them in that improved condition.

It cannot be disputed that the plaintiff was obliged to pay $2,800 per lot but the promise to pay the balance was out of a fund to be realized a certain way. In such cases there is an implied obligation to use reasonable diligence in performing the act upon which payment was contingent, and in default of due diligence, payment becomes due without performance of the condition. (Van Buskirk v. Kuhns (1913),

We are not, as defendants contend, dealing with a modification of the contract sued upon in the complaint. We are interpreting the original contract (as amended on its face) in the light of the understanding of the parties as shown by the evidence found true by the trial court. Hence authorities to the effect that modification of a contract must be pleaded are not in point.

3. Damages.

Defendants contend that the measure of damages used by the trial court was incorrect. It awarded plaintiff the $6,000 paid by plaintiff plus $14,500 which it found was the difference between the price agreed to be paid in said agreement for the property, and the value of the property at the time of defendants’ refusal to convey.

' Section 3306, Civil Code, provides: “The detriment caused by the breach of an agreement to convey an estate in real property, is deemed to be the price paid, and the expenses properly incurred in examining the title and preparing the necessary papers, with interest thereon; but adding thereto, in case of bad faith, the difference between the price agreed to be paid and the value of the estate agreed to be conveyed, at the time of the breach ...”

Plaintiff’s right to the $14,500 assessed by the trial court depends upon whether the evidence supports the implied finding of bad faith. We think it does. Defendants contend that they could not have conveyed the property prior to the time when in November the final map was recorded because of sections 11538 and 11541 of the Business and Professions Code which make it unlawful for a vendor to sell any subdivision until a final map is recorded, and hence there could have been

The test of bad faith is merely whether the party deliberately or without just cause or excuse refused to perform the contract. See Nelson v. Fernando Nelson & Sons (1936), 5 Cal.2d 511 , 518 [ 55 P.2d 859 ] ; Johnson v. Goldberg (1955), 130 Cal.App.2d 571 , 578 [ 279 P.2d 131 ] holding also that “The question of bad faith is a factual one”; Pixley v. First Federal Sav. & Loan Assn. (1952), 110 Cal.App.2d 427 , 432 [ 243 P.2d 100 ].

Defendants offered no excuse for refusing to perform the contract other than those hereinbefore mentioned, all of which have been shown to be not well founded. Thus, the evidence sufficiently supports the finding that they refused to convey without just cause or excuse.

The judgment is affirmed.

Peters, P. J., and Wood (Fred B.), J., concurred.

A petition for a rehearing was denied July 23, 1958, and appellants’ petition for a hearing by the Supreme Court was denied August 21, 1958.