Freedman v. Rector, Wardens & Vestrymen of St. Mathias Parish

• Decision Date: 27 April 1951
• Citation: 31 A.L.R.2d 1,37 Cal.2d 16,230 P.2d 629
• Court: California Supreme Court
• Parties: , 31 A.L.R.2d 1 FREEDMAN v. RECTOR, WARDENS & VESTRYMEN OF ST. MATHIAS PARISH et al. L. A. 21344.

Page 629

230 P.2d 629

37 Cal.2d 16, 31 A.L.R.2d 1

FREEDMAN v. RECTOR, WARDENS & VESTRYMEN OF ST. MATHIAS PARISH et al.

L. A. 21344.

Supreme Court of California.

April 27, 1951.

Rehearing Denied May 24, 1951.

Blase A. Bonpane and L. H. Phillips, Los Angeles, for appellant.

Steiner A. Larsen, Los Angeles, for respondent.

TRAYNOR, Justice.

On October 8, 1947 plaintiff signed a deposit agreement with Clarence Urban, a real estate broker, for the purchase of two lots owned by defendant. He paid $2,000 down and agreed to pay the balance of $16,000 into escrow within thirty days. Both parties signed the escrow instructions a few days later. Although the deposit agreement was ambiguous with respect to title requirements, the escrow instructions provided that the property should be free of encumbrances except 'covenants, conditions, restrictions, reservations, rights, rights of way, (and) easements * * * now of record.' There was evidence that at the time plaintiff signed the escrow instructions he was informed of all covenants and easements affecting the property, but he took the position thereafter that he was under no obligation to purchase the property until the title had been cleared. On November 20th the escrow agent informed plaintiff that the title was clear except for an easement held by the Water and Power Department across the rear five feet of one of the lots. This easement was abandoned the following April. On November 28th plaintiff wrote defendant and the escrow agent repudiating the contract and demanding the return of his deposit. He stated that the property had been misrepresented to him and that defendant had failed to clear the title as required by the contract. On December 19th plaintiff wrote defendant that he would take title and pay the balance of the purchase price as soon as the easement had been cleared. Defendant, however, on December 27th cancelled the escrow and thereafter sold the property to a third party for $20,000. Early in January plaintiff indicated his willingness to purchase the property and shortly thereafter brought this suit for specific performance. The trial court entered judgment for defendant and plaintiff appeals.

Plaintiff's main contention is that the contract was still in effect when he sought to perform in January after defendant had cancelled the escrow and arranged for the sale of the property to a third party. He bases this contention on the theory that time was not of the essence of the contract and that therefore defendant could not terminate his rights under it without giving him notice to perform within a reasonable time after the closing date, November 10th, fixed in the escrow instructions. This contention overlooks the fact, however, that plaintiff unconditionally repudiated the contract by his letters of November 28th. Even if it is assumed that under the terms of the escrow instructions plaintiff had a reasonable time to perform after November 28th, his repudiation on that date if acted upon by defendant before it was retracted, would excuse performance on defendant's part and make plaintiff's repudiation a total breach of contract. Gold Min. & Water Co. v. Swinerton, 23 Cal.2d 19, 29, 142 P.2d 22; see Restatement, Contracts §§ 280, 318, 319; Civil Code, § 1440.

Although plaintiff made various oral proposals to continue with the purchase on terms other than those provided in the contract, he did not unconditionally withdraw his repudiation until after defendant, in reliance thereon, had sold the property to another. Plaintiff's letter of December 19th expressed willingness to perform the contract only after the easement held by the Water and Power Department had been abandoned. The escrow instructions provided, however, that the title should be subject to easements of record. There was evidence that plaintiff read the instructions and was informed of the easement at the time he signed them. Since his letter of December 19th contained a condition with respect to the clearance of the easement that he had no right to impose, it did not constitute a withdrawal of the earlier repudiation. Steelduct v. Henger-Seltzer Co., 26 Cal.2d 634, 646, 160 P.2d 804; Alderson v. Houston, 154 Cal. 1, 14, 96 P. 884. Accordingly, the judgment must be affirmed insofar as it denies plaintiff specific performance or damages for breach of contract.

The question remains whether plaintiff is entitled to the return of any part of his down payment. Since defendant resold the property for $2,000 more than plaintiff had agreed to pay for it, it is clear that defendant suffered no damage as a result of plaintiff's breach. If defendant is allowed to retain the amount of the down payment in excess of its expenses in connection with the contract it will be enriched and plaintiff will suffer a penalty in excess of any damages he caused. Under our recent holdings in Barkis v. Scott, 34 Cal.2d 116, 208 P.2d 367, and Baffa v. Johnson, 35 Cal.2d 36, 216 P.2d 13, plaintiff could recover that excess under section 3275 of the Civil Code, if his breach was neither wilful, fraudulent, nor grossly negligent. The trial court found, however, on substantial evidence, that plaintiff's breach was wilful. It is necessary to consider, therefore, the question left open in the Baffa case, namely, whether a vendee under such circumstances may recover the excess of his part payment over the damage he caused the vendor.

As was pointed out in the Baffa case, if the right to restitution rests solely on the provisions of section 3275, a vendee who has been guilty of a wilful default must be denied relief. We have concluded, however, that the damage provisions of the Civil Code together with the policy of the law against penalties and forfeitures provide an alternative basis for relief independent of section 3275.

'Few questions in the law have given rise to more discussion and difference of opinion than that concerning the right of one who has materially broken his contract without legal excuse to recover for such benefits as he may have conferred on the other party by part performance * * *. A satisfactory solution is not easy, for two fundamental legal policies seem here to come in conflict. On the one hand, it seems a violation of the terms of a contract to allow a plaintiff in default to recover to allow a party to stop when he pleases and sell his part performance at a value fixed by the jury to the defendant who has agreed only to pay for full performance. On the other hand, to deny recovery often gives the defendant more than fair compensation for the injury he has sustained and imposes a forfeiture on the plaintiff. The mores of the time and place will often determine which policy will be followed. But the second of these opposing policies has steadily increased in favor in recent years.' (5 Williston on Contracts (Rev. ed.) § 1473, p. 4118.)

In adopting a rule allowing restitution to the defaulting vendee the Supreme Court of Utah stated:

'The vital question to be determined is: What is the correct measure of damages in a case of this kind? Shall we apply the rule of compensatory damages, or is it a case in which punitive damages should be allowed? Upon what principle can punitive damages or damages in excess of compensation for the injury done be justified in the case at bar? These are questions that appeal both to the judgment and conscience of the court. * * *

'The rule contended for by respondent, carried to its logical sequence, would forfeit every dollar paid by appellant and still leave respondent in possession of the land even if appellants had paid the last installment but one, and then defaulted. In answer to this, it may be said that such is not the case at bar. But where are we going to draw the line?' Malmberg v. Baugh, 62 Utah 331, 340, 345, 218 P. 975, 978; see also, McCormick on Damages, § 153, p. 616; Corbin, The Right of a Defaulting Vendee to the Restitution of Installments Paid, 40 Yale L.J. 1013.

The failure of courts adopting a contrary viewpoint to recognize that they are permitting unjustifiable penalties for breach of contract has led to the comment that 'The law, while looking with righteous abhorrence on forfeitures, and washing its hands of their enforcement, after the manner of Pontius Pilate, yet has been reluctant to intervene with affirmative relief or to formulate any consistent principle condemning the validity of cut-throat provisions which in their essence involve...