Opinion
8-18-1953
HAUGER et ux. v. GATES et al. * Civ. 8292. Sac. 6326.
Joseph E. Isaacs, Alan H. Critcher, and Donald M. Haet, San Francisco, for appellant. Edward T. Koford, Santa Rosa, for respondents Gates. Bryce Swartfager, Santa Rosa, for respondent Chalmers.
HAUGER et ux.
v.
GATES et al. *
Aug. 18, 1953.
Rehearing Denied Sept. 15, 1953.
Hearing Granted Oct. 15, 1953.
Joseph E. Isaacs, Alan H. Critcher, and Donald M. Haet, San Francisco, for appellant.
Edward T. Koford, Santa Rosa, for respondents Gates.
Bryce Swartfager, Santa Rosa, for respondent Chalmers.
SCHOTTEY, Justice.
Appellants commenced an action against respondents to set aside an extrajudicial sale under and by virtue of a claimed default of an obligation secured by a deed of trust, and for damages and an accounting. After sustaining demurrers to the first complaint and amended complaint, and granting a motion to strike certain allegations from the amended complaint, the trial court sustained demurrers without leave to amend to the second amended complaint. The trial court in so sustaining the demurrers without leave to amend stated, 'It appears from the subject matter of said second amended complaint and from the failure of counsel for plaintiffs to cure the defects of his pleadings that to allow further amendments would be fruitless.' This appeal is from the judgment entered after the demurrer was sustained.
The second amended complaint alleges, in substance, as follows: That the plaintiffs are husband and wife and that the defendants Charles E. Gates and Ruby J. Gates are husband and wife and that Sonoma County Abstract Bureau is a California corporation; that the defendants Gates owned certain described real property in the County of Sonoma, and that the plaintiff, Carson J. Hauger, agreed to purchase for the sum of $16,000 the real property mentioned and described, together with the improvements thereon and certain personal property, namely, lug boxes, fruit trays, ladders and chicken equipment and that in pursuance of such agreement and not otherwise the defendants Gates made, executed and delivered to plaintiffs a deed conveying the real property; that the deed was recorded and so forth and that plaintiffs made, executed and delivered a promissory note and second deed of trust to secure the unpaid portion of the purchase price of $16,000; that plaintiffs were the first parties and trustors under the deed of trust, that defendant, Sonoma County Abstract Bureau, was second party-trustee, and defendants Gates were third parties-beneficiaries, and that the deed of trust was duly recorded. That thereafter, a notice of breach and election to sell was recorded by the defendants Gates and defendant, Sonoma County Abstract Bureau. This notice of breach and election to sell was recorded on the 11th day of December, 1950.
Paragraph VIII alleges that the plaintiffs were not indebted to defendants Charles E. Gates and/or Ruby J. Gates in any sum of money whatsoever on the 11th day of December, 1950, i. e., at the time of filing the notice of breach by reason of the fact that the defendants Gates in breach of their contract had failed to deliver to plaintiffs personal property of the reasonable value of $987.50 and that the said sum, to wit: $987.50, exceeded the amount of installments due and unpaid under and by virtue of said promissory note and deed of trust.
Paragraph IX sets forth in detail and particular the property which was not delivered, including some gas pipe which was removed from the premises by the defendants and some roof sheeting which was removed from the pear dryer.
Paragraph X states that this failure to deliver was in breach of the contract.
Paragraph XI alleges that because of the failure and refusal of defendants Gates to perform their said contract and by reason of the breaches thereof the plaintiffs refused to make the payments becoming due under the deed of trust and that they frequently told the defendants Gates they would make said payments if the personal property was returned to them but the defendants Gates did not return the same or any part thereof and proceeded to cause notice of default to be filed and to sell the real property for an alleged breach of the terms of said note and that the defendant Sonoma County Abstract Bureau sold the property to defendant Chalmers and upon information and belief allege that defendant Chalmers was the dummy of defendants Gates and that defendant Chalmers had full knowledge of all matters and facts set forth and that defendant Chalmers was not a purchaser in good faith or for value and that she holds the property in trust for defendants Gates and that an alleged and purported sale of said property was held on the 15th day of April, 1951.
Paragraph XIII alleges that the highest price bid was $5,025 bid by defendant Chalmers and that the defendant Sonoma County Abstract Bureau caused a deed to be made purporting to convey the property to defendant Chalmers and that the deed is recorded; that the Exchange Bank of Santa Rosa has held and does now hold a first deed of trust on said property upon which payments in the sum of $65 per month are due and that defendants have made certain of said payments to the Exchange Bank, for which they are entitled to credit, and that plaintiffs are ready, willing and able in the event said sale is set aside to pay to defendants Gates such sums as may in justice, right and equity be owing from plaintiffs to these defendants.
Paragraph XIV alleges the illness of plaintiff, Carson J. Hauger, contracted while serving in the army in World War I and that by reason of this condition he was handicapped in attending to his business.
Paragraph XV alleges that the notice of breach and intention to sell was given at a time when plaintiffs were not indebted to defendants Gates, as the defendants well knew, and that plaintiffs ask for exemplary damages.
Respondents Gates and Sonoma County Abstract Company filed a general and special demurrer to the said second amended complaint, setting forth various particulars in which the complaint was claimed to be uncertain, unintelligible and ambiguous, and also setting up laches and that plaintiffs were estopped to assert any claim of illegality of the sale. Respondent Chalmers demurred on the grounds, (1) that the complaint did not state a cause of action against her; (2) that a cause of action to set aside a foreclosure sale under a deed of trust was improperly united with a cause of action for damages for breach of contract of sale of personal property; and, (3) that a cause of action to set aside a trustee's sale of real property and a cause of action for damages for breach of contract for sale of personal property have been united and not separately stated.
Appellants contend that the court erred in sustaining the demurrers without leave to amend and that the judgment should be reversed. They contend first that a trustor under a deed of trust is entitled to offset money owing to him by the beneficiary under the deed of trust against the amounts secured by the deed of trust, and that a sale under a deed of trust cannot be upheld where there was not in fact any indebtedness due from the trustor to the beneficiary under the note secured by the deed of trust. They argue that the sale involved in the instant case was invalid because appellants were not indebted to respondents Gates at the time of the sale or at the time of the notice of default for the reason that the amount due from respondents Gates to appellants by reason of the failure of respondents Gates to perform their contract of sale exceeded the amount due under the note secured by the deed of trust. They assert that according to the allegations of the complaint, which for the purpose of demurrer must be taken as true, respondents Gates were indebted to appellants in the sum of $987.50 which exceeded the amount due from appellants to respondents Gates upon the promissory note at the time of notice of default and at the time of sale.
Appellants quote the following from 59 C.J.S., Mortgages, § 619, page 1086: 'As a general rule, where an action to foreclose a mortgage is, in effect, one to recover money on contract and the amount of the mortgage debt is in issue and plaintiff seeks to enforce defendant's personal liability by a deficiency judgment, defendant may counterclaim or set off a claim or demand against plaintiff which is connected with the mortgage transaction and affects the consideration thereof, and it has been held that all just set-offs may be allowed in ascertaining the amount due to the same extent and the same manner as like set-offs are allowed in actions at law. Any matter or demand which will defeat recovery by plaintiff in whole or in part, whether legal or equitable, or whether in the nature of a set-off, recoupment, cross bill in equity or otherwise, has been held available to defendant as a counterclaim, and a credit or claim which the parties have agreed shall be applied in reduction of the mortgage debt may be set off. * * * * * * 'Defendant has been permitted to set up various matters by way of counterclaim, set-off, or recoupment, as being connected with, or arising out of, or incident to, the mortgage transaction or plaintiff's cause of action, such as a partial failure of consideration, or damages for breach of agreement, of covenant, or warranty, or of condition. * * *'
They also cite Woodland Cooperative Rice Growers v. Smith, 91 Cal.App.2d 926, 206 P.2d 73, where this Court held that: 'In an action to foreclose a deed of trust on property given by defendant as security for a note after he had received from plaintiff payment for a tractor and failed to deliver the tractor or return the payment, the court properly awarded plaintiff the amount of the note and costs and allowed defendant an offset for the rental value of a tractor furnished by him to plaintiff only on the condition that his debt to plaintiff be fully discharged by a sale of the property under the trust deed, where the security under the trust deed appeared to be inadequate and defendant was in financial straits, since, the action being equitable, the court had broad power to grant appropriate relief without being bound by the strict legal rights of the parties, and to allow defendant the offset unconditionally might have left plaintiff dependent on a deficiency judgment of dubious value for the amount represented thereby.' (Syllabus.)
The foregoing authorities indicate that in a foreclosure action there may be a counterclaim or set-off if it is connected with the general sale transaction and affects the consideration thereof. This rule, however, applies to foreclosure actions filed in court where the plaintiff seeks to enforce the defendant's personal liability by a deficiency judgment, and we do not believe that it can be applied to an extrajudicial sale under a deed of trust as was the sale in the instant case.
In the case of Woodland Cooperative Rice Growers v. Smith, supra, there was a court action to foreclose a deed of trust and this court in affirming the judgment stated that a counterclaim was proper in such a case, and that the conditional nature of the allowance of the counterclaim was also proper under the broad powers of a court of equity. So it is clear that in that case a counterclaim was allowed in a foreclsure action against the secured party only after his secured obligation was fully satisfied.
We do not believe that either reason or authority supports the contention of appellants that, even though they admittedly failed and refused to make an installment payment on the note secured by the deed of trust, for which notice of breach and election to sell was declared, they are entitled to set aside the sale because respondents Gates did not deliver to them certain personal property to which they were entitled under the agreement of sale, the value of which was greater than the amount of the installment due. Appellants had at best an unliquidated claim for damages for breach of the contract of sale. They were aware that the installment was due on the note and they had demanded the delivery to them of the personal property and had informed respondents Gates that they would pay the installment if the personal property were delivered. They were aware that notice of election to sell for failure to pay such installment was recorded and that notice of sale was given. If they desired to prevent the sale under the deed of trust upon the ground that there was no default they should have commenced an action to enjoin the sale and then asserted their claims in court. The respondent Sonoma County Abstract Bureau was entitled to proceed with the sale in accordance with the law and the provisions of the deed of trust, and there is no contention that they did not so proceed and respondent Chalmers was entitled to become a purchaser at such sale. Appellants have set forth no facts that would justify the setting aside of the sale under the deed of trust in the instant case, and if their contention upon this point should be sustained it would have a tendency to cast a cloud on sales under deeds of trust.
We therefore hold that the court properly concluded that appellants had not alleged facts sufficient to set aside the sale and that they could not allege such facts. It follows that the demurrers of respondents Sonoma County Abstract Bureau and Edna S. Chalmers were properly sustained without leave to amend.
However, it appears from the complaint that appellants prayed for alternative relief in the form of damages. Appellants sought damages in the amount of $987.50 for the breach of the original contract of sale by respondents Gates in failing and refusing to deliver certain personal property called for by the contract. It appears that appellants properly pleaded a contract to deliver this personal property, a breach by failure to deliver same, and damages. This is sufficient to withstand a general demurrer. 6 Cal.Jur., Contracts, sec. 285. We believe, therefore, that in so far as a cause of action for damages against respondents Gates is concerned the court erred in sustaining the demurrer without leave to amend.
The judgment is affirmed as to respondents Sonoma County Abstract Bureau and Edna S. Chalmers and reversed as to respondents Charles E. Gates and Ruby J. Gates.
VAN DYKE, P. J., and PEEK, J., concur. --------------- * Subsequent opinion 269 P.2d 609.