Ellis v. Mihelis

• Decision Date: 05 November 1962
• Citation: 26 Cal.Rptr. 71
• Court: California Court of Appeals Court of Appeals
• Parties: Herbert E. ELLIS, Jr., Plaintiff and Appellant, v. Pericles MIHELIS, Ellas Mihelis, et al., Defendants and Appellants. George MORENO, Plaintiff and Respondent, v. Pericles MIHELIS, Defendant and Appellant. Civ. 98.

Page 71

26 Cal.Rptr. 71

Herbert E. ELLIS, Jr., Plaintiff and Appellant, v. Pericles MIHELIS, Ellas Mihelis, et al., Defendants and Appellants.

George MORENO, Plaintiff and Respondent, v. Pericles MIHELIS, Defendant and Appellant.

Civ. 98.

District Court of Appeal, Fifth District, California.

Nov. 5, 1962.

Rehearing Denied Dec. 4, 1962.

Orr, Heuring & Wendel and Victor D. Rosen, Oakland, for plaintiff and appellant Herbert E. Ellis, Jr.

Alfred Nelson, Oakland, and Jerome R. Waldie, Antioch, for defendants and appellants Pericles Mihelis and Elias Mihelis.

Cardozo, Trimbur & Nickerson and R. L. Nickerson, Modesto, for plaintiff and respondent George Moreno.

STONE, Justice.

There are two appeals before us by reason of consolidation of two cases for trial in the court below. One case, Ellis v. Mihelis, is an action for specific performance; the other, Moreno v. Mihelis, is an action for a real estate commission. Although the cases were, for the sake of convenience, consolidated for trial, the questions presented on appeal differ so greatly that each action will be considered separately in this opinion.

Ellis v. Mihelis

This appeal is from a judgment decreeing specific performance of a contract for the sale of real property and for damages resulting from seller's failure to perform the contract.

The real property consists of 160 acres of improved farming land in Stanislaus County owned by defendants Pericles Mihelis and Elias Mihelis as joint tenants. The two brothers owned another ranch in Santa Cruz County as joint tenants. The court found that although Elias farmed the Santa Cruz ranch and Pericles the one in Stanislaus County, the brothers farmed the two ranches under a partnership arrangement. The brothers orally agreed with one another to sell the Stanislaus County ranch. Pursuant to the parol agreement, Elias listed the property with several real estate brokers in the Santa Cruz area, which listings were signed only by him; Pericles listed the property with real estate brokers in the Stanislaus County area, and he alone signed these listings.

Plaintiff Ellis operates a construction business in Alameda County. He wished to buy a parcel of real property in that County owned by the Ratto family. The Rattos did not want to sell for cash because of the capital gains tax, but they were willing to exchange their Alameda County property for farm land in the Stanislaus County area. Plaintiff Ellis suggested that the Rattos find a suitable ranch which he, plaintiff, would buy and then exchange for their Alameda property, thus avoiding capital gains tax. Plaintiff orally authorized Antone L. Ratto, Jr., to act as his agent in locating and arranging for the purchase of such a ranch. Ratto learned of the Mihelis property through Farmer George Moreno, one of the brokers with whom Pericles Mihelis had listed it. Ratto liked the property, and after some preliminary negotiations, Moreno, as seller's broker, prepared an Agent's Deposit Receipt.

Antone L. Ratto, Jr., approved and signed the agreement as agent for Plaintiff Ellis, the buyer. Pericles Mihelis approved and signed the agreement as seller. Pericles did not disclose that Elias was a co-owner of the real property at the time he listed it with his broker, Moreno, nor during any of the negotiations; nor did he make such disclosure at the time he alone signed the agreement as seller. The court found that Pericles Mihelis advised his broker, Moreno, that he, Pericles, was the sole owner of the property; that Moreno, relying upon said representation, in turn represented to Antone Ratto, Jr., the plaintiff's agent, that Pericles was the sole owner of the property. The court also found that plaintiff buyer had no knowledge that Elias was, or claimed to be, an owner of the property until Pericles made an attempt, on May 2, 1958, to rescind the agreement dated April 17, 1958.

The Deposit Receipt agreement provided for a $5,000 deposit in escrow on the part of the buyer. This sum was to be applied on the purchase price if the buyer completed the sale within 30 days, otherwise it was to be forfeited to the seller at his option. From Plaintiff Ellis, Ratto secured a check for $5,000 to cover the deposit. He delivered the check to Moreno, the seller's broker, who, in turn, delivered it to the escrow agent, Stanislaus County Title Company. The check was cashed by the escrow agent and the $5,000 was held on deposit subject to the terms of the agreement.

On May 2, prior to the expiration of the 30-day period allowed buyer to perform, Pericles Mihelis gave notice of rescission, contending that his brother, Elias, was co-owner of the land and that he had not consented to the terms of the sale. Pericles stated that Elias demanded $100,000 as a down payment, rather than $35,000 as provided in the agreement. Pericles also notified Ratto, the buyer's agent, that since his brother Elias had not signed the agreement, they were not going to sell the property. The court found, however, that the Mihelis brothers elected not to perform the agreement because just prior to their notice of rescission a severe frost that heavily damaged some vineyards in the area, left the Mihelis grapes untouched. There was testimony that Pericles said that his grape crop had become too valuable as a result of the frost for him to sell the ranch at that time.

Plaintiff-buyer refused to accept the Mihelis brothers' attempted rescission of the agreement and, prior to the expiration of the 30-day period provided for buyer's performance, paid the additional $30,000 into escrow and executed a note for deferred payments and interest, together with a first deed of trust and crop mortgage. The Mihelis brothers, upon demand by plaintiff, still refused to perform the agreement, so plaintiff-buyer filed this action for specific performance and for damages.

A judgment decreeing specific performance of the agreement was entered in favor of plaintiff-buyer and against defendants-sellers, together with damages consisting of profits for the period May 15, 1958, to December 31, 1958, and for the crop year January 1, 1959, to December 31, 1959. Profits were computed on the basis of gross sales of crops less production costs. The court allowed as an item of production cost the sum of $500 per month for the personal services of Pericles Mihelis, who farmed the property during the period in question. Defendants were also allowed an offset for interest equal to that which would have accrued to them under the terms of the note and deed of trust had the contract been performed. Defendants were changed with rent at the rate of $75 per month for the dwelling on the premises occupied by Pericles.

Preliminarily, we should like to dispose of defendants' argument that the contract is not within the scope of equity because the arrangement between Ellis and the Rattos to trade property was a scheme to avoid taxes. In the first place, the tax arrangement between Plaintiff Ellis and the Rattos in no way affected the relationship between plaintiff and defendants, a prerequisite to invoking the doctrine of 'unclean hands.' (Bradley Co. v. Bradley, 165 Cal. 237, 242, 131 P. 750; Jordan v. Warnke, 205 A.C.A. 688, 698, 23 Cal.Rptr. 300.) Secondly, it has not been shown that the scheme or plan was tainted by illegality in any respect. At most it was a business device to avoid taxes. That no moral stigma attaches in such a circumstance was made clear by Mr. Justice Learned Hand in Helvering, Commissioner of Internal Revenue v. Gregory, 2 Cir., 69 F.2d 809, wherein he said, at page 810:

'We agree with the Board and the taxpayer that a transaction, otherwise within an exception of the tax law, does not lose its immunity, because it is actuated by a desire to avoid, or, if one choose, to evade, taxation. Any one may so arrange his affairs that his taxes shall be as low as possible; he is not bound to choose that pattern which will best pay the Treasury; there is not even a patriotic duty to increase one's taxes. U. S. v. Isham, 17 Wall. 496, 506, 21 L.Ed. 728; Bullen v. Wisconsin, 240 U.S. 625, 630, 36 S.Ct 473, 60 L.Ed. 830. Therefore, if what was done here, was what was intended by section 112(i)(1)(B), it is of no consequence that it was all an elaborate scheme to get rid of income taxes, as it certainly was.'

In support of their major contention that the agreement is not specifically enforceable, defendants present two principal arguments, each comprised of three subdivisions. They are: (1) The real property was held in joint tenancy by Elias and Pericles Mihelis, while (a) Pericles and only Pericles signed the agreement, (b) Pericles had no written authority to act as agent of Elias, as required by the statute of frauds, (c) the agreement was signed by Pericles subject to owner's approval and Elias as an owner did not approve in writing; (2) The agreement lacked mutuality of remedy because (a) Ellis, the buyer, did not sign the agreement, (b) Ratto, agent for Ellis, had no written authority to sign the agreement, as required by the statute of frauds, (c) Ellis performed the agreement after Pericles gave notice of rescission, so that performance by Ellis came too late to lend mutuality of remedy.

We shall take up, first, the various questions which arise from the fact that Pericles Mihelis alone signed the agreement, whereas the property stood in the names of Pericles and Elias as joint tenants. The court found that at all times pertinent to this action Pericles and Elias were conducting a partnership farming business. Further, it found that Elias, acting as a partner, authorized Pericles to sell the Stanislaus County ranch. Whether a partnership relationship existed between the brothers, and whether the ranch was an asset of the partnership used as an integral part of the business, were primarily questions of fact for the trial court to determine from the evidence and from inferences to be drawn therefrom. (Spier v. Lang, 4...