Kosloff v. Castle

• Decision Date: 28 January 1981
• Citation: Kosloff v. Castle, 171 Cal.Rptr. 308, 115 Cal.App.3d 369 (Cal. App. 1981)
• Court: California Court of Appeals
• Parties: Eileen M. KOSLOFF, Plaintiff, Cross-Defendant and Respondent, v. Cathryn A. CASTLE et al., Defendants, Cross-Complainants and Appellants. Civ. 45832.

Page 308

171 Cal.Rptr. 308

115 Cal.App.3d 369

Eileen M. KOSLOFF, Plaintiff, Cross-Defendant and Respondent, v.Cathryn A. CASTLE et al., Defendants, Cross-Complainants and Appellants.

Civ. 45832.

Court of Appeal, First District, Division 3, California.

Jan. 28, 1981.

Rehearing Denied Feb. 27, 1981.

Hearing Denied May 27, 1981.

Maxwell, Allen & Cooper, Santa Rosa, for defendants, cross-complainants and appellants.

Alexander Thiele, Inc., Santa Rosa, for plaintiff, cross-defendant and respondent.

DEAL, Associate Justice.

This appeal arises out of a dispute over real property in Sonoma County.After a nonjury trial, the court granted recovery to respondent on her complaint to quiet title and recover possession and denied recovery to appellant on her cross-complaint for specific performance.

Appellant contends that a willfully defaulting vendee under an installment land contract is legally entitled to an equity of redemption, i. e., that she should have been allowed to reinstate the contract and tender full performance.She also maintains that an installment land contract is in fact a mortgage under Civil Code section 2924, giving a right of redemption to mortgagors.(Civ.Code, § 2924c.)

THE FACTS

For the most part the facts are not disputed.In 1966, respondent purchased a home in Sonoma County for $15,000 which she rented to appellant in 1970 for $150 per month.Appellant continued to rent the house at that rate for the next three years.On July 1, 1973, the parties entered into a written agreement for the sale of the property to appellant for $15,000.The purchase price was payable in installments of $150 per month for two years, and the balance of $11,400 in a single balloon payment was due on or before July 1, 1975.There was no provision for interest.The respondent would retain title to the property until the final payment was made, and appellant would forfeit her interest in the property if she breached the contract.In the event of a breach appellant's monthly payments would be deemed rental payments for the use of the property.Time was of the essence.

From July 1, 1973, until April 1976, appellant paid $114 per month directly to the lending institution for the monthly loan installment and impound account and remitted the balance of $36 to respondent.Appellant failed to tender the balloon payment of $11,400 on July 1, 1975, when due.From May 1976 through January 1977, she paid a reduced monthly amount of $98.77 to the lending institution and continued to remit $36 to respondent.From February 1977 through September 1977appellant paid only the $98.77 and failed to make any payments to respondent; after suit was filed, appellant paid to respondent $288, representing the $36 per month for this latter eight-month period.From December 1976 through February 1978, appellant paid directly to the county treasurer three installments totalling $808 on property taxes.

Respondent took no steps to enforce payment of the $11,400 until December 15, 1976, at which time respondent's attorney informed appellant by letter that her rights under the contract had terminated.Respondent served appellant with a notice to quit in April 1977 and filed an action for unlawful detainer and to quiet title in August 1977.

In September of 1977, appellant tendered the amount of $9,372.72 which sum represented the $11,400 minus the payments made from July 1975 to September 1977, with an allowance for interest on the $11,400.The offer was refused.

Over appellant's objections, the court found that respondent believed, following the breach of contract, that appellant had once again assumed the role of tenant.The court also found that the value of the property at the time of the contract was $20,000 to $22,000 and that the reasonable rental in April 1977 was $200 per month.

Appellant's Right to Specific Performance

It is agreed that the parties to this dispute entered into a form of sales agreement known as an installment land contract.¹Commentators have pointed out that the installment land contract, where used to secure the price of property, is functionally similar to a deed of trust or a mortgage.(Hetland, California Real Estate Secured Transactions(1970)§ 3.42, p. 80;Miller and Starr, 1 Current Law of California Real Estate (1975) part 2, § 5.15, p. 116.)

Along with the mortgage and deed of trust, the Legislature has categorized the installment land contract as a security instrument in the subordination legislation(Civ.Code, § 2953.1), and as a security device within the purchase-money anti-deficiency limitation of Code of Civil Procedure section 580b.It is appellant's contention that an installment land contract used as a security device is a "mortgage" under Civil Code section 2924 and that she should have the relief available to a mortgagee.

The trend has been toward judicial recognition that where the installment land contract is used as a security device, it is for all intents and purposes a mortgage; the total judicial equation of the two, however, has never been completed.(Hetland, Secured Real Estate Transactions(1974)§§ 2.1-2.2.)Nevertheless, it is upon this trend in the California cases that appellant relies in arguing that she should have been afforded the same equity of redemption guaranteed the mortgagor (Civ.Code, § 2924c) and been allowed to reinstate the contract and tender full performance.

Until 1949, the courts, in the absence of waiver or estoppel, applied a fairly harsh forfeiture rule to land contracts by quieting the seller's title without restitution or the right of reinstatement (specific performance) for the buyer.In Barkis v. Scott(1949)34 Cal.2d 116, 208 P.2d 367, the California Supreme Court initiated reform in this area with its finding that the anti-forfeiture provision of Civil Code section 3275 applied to protect a nonwillfully defaulting vendee, despite the fact that the contract provided that time was of the essence.Barkis v. Scott established the innocently defaulting buyer's entitlement to his choice of restitution or reinstatement.

Shortly thereafter, the court held that relief from forfeiture was available not only under Civil Code section 3275, but also under those sections of the Civil Code prohibiting punitive and limiting liquidated damages, for the first time granting relief in the form of restitution to a willfully defaulting vendee.(Freedman v. The Rector(1951)37 Cal.2d 16, 230 P.2d 629.)As the property in that case had been sold to a third party, specific performance was not an available remedy.(MacFadden v. Walker(1971)5 Cal.3d 809, 814, 97 Cal.Rptr. 537, 488 P.2d 1353.)

In MacFadden v. Walker, supra, the remedy of specific performance was extended to a willfully defaulting vendee.As articulated by the court, the question presented was "whether failure to qualify for relief from forfeiture under section 3275 precludes the right to specific performance."(MacFadden, supra at 813, 97 Cal.Rptr. 537, 488 P.2d 1353.)The court thought not."We believe that the anti-forfeiture policy recognized in the Freedman case also justifies awarding even wilfully defaulting vendees specific performance in proper cases."(Id. at 814, 97 Cal.Rptr. 537, 488 P.2d 1353, emphasis added.)In arriving at its decision the court took note of "Professor Hetland's (Hetland, Cal.Real Estate Secured Transactions(1970)§§ 3.58-3.61, pp. 100-134) persuasive arguments that installment land contracts should be treated as security devices substantially on a par with mortgages and deeds of trust, and that therefore 'the law governing those security devices should be adopted with appropriate modifications in determining the remedies for breaches of installment contracts.'(Citations.)That law affords even the willfully defaulting debtor an opportunity to cure his default before losing his interest in the security.(Citations.)"(Id. at 816, 97 Cal.Rptr. 537, 488 P.2d 1353.)The court declined, however, to decide whether the law governing security transactions was applicable.(Id. at 816, 97 Cal.Rptr. 537, 488 P.2d 1353.)

Although a few cases have endorsed the implication of the MacFadden case that an installment land contract in California would be afforded the same legal treatment as a mortgage, no case has officially completed the judicial reform embarked upon in Barkis and so held.(SeeNash v. Superior Court(1978)86 Cal.App.3d 690, 697, 150 Cal.Rptr. 394;Kudokas v. Balkus(1972)26 Cal.App.3d 744, 756, 103 Cal.Rptr. 318;Newhouse v. Upchurch(1971)22 Cal.App.3d 204, 212, 99 Cal.Rptr. 436.)Notable writers in the area continue to urge the need for reform.(SeeHetland(1974), supra, at § 2.12, pp. 59-61;Miller and Starr, supra, part 2, § 5.15, fn. 2, pp. 116-117.)

Contrary to appellant's assertion, the cases have stopped short of affording the defaulting land purchaser an absolute right of redemption.An exhaustive annotation to the MacFadden case examines decisions from numerous jurisdictions and indicates some of the equities to be weighed on both sides: the duration or recurrent nature of the defaults, substantial part performance or improvements made by the purchaser, acceptance of late payments and failure on the part of the vendor to act promptly in declaring a forfeiture.(Annotation(1974)55 A.L.R.3d 10.)In most cases, in spite of forfeiture and time-of-essence clauses in the contract, courts will grant specific performance to the defaulting vendee where the equities are in his or her favor and where tender of full performance by the purchaser gives the vendor the benefit of his or her bargain.(Id. at 16-17.)

It should be noted that waiver as urged by appellant as a defense, while perhaps once grasped at by courts to avoid the harsh forfeiture rule prior to Barkis v. Scott, supra, 34 Cal.2d 116, 208 P.2d 367(seeBoone v. Templeman(1910)158 Cal. 290, 110 P. 947), seems now to be only one of many factors to be considered in weighing the...