Opinion
COUNSEL
Marks & Pedersen for Appellants. Young & Young for Respondents
OPINION
LEDWICH, J.
This case was submitted to the trial court and is submitted to this court pursuant to a stipulated set of facts under Code of Civil Procedure, section 1138, and an agreement of sale between appellants and respondents, which is Exhibit A to the complaint, dated June 18, 1956, wherein appellants are the sellers and respondents are the buyers. The property covered by the agreement is a summer resort in Plumas County.
The escrow was closed August 15, 1956, but respondents, pursuant to the agreement, entered into possession of the property on June 18, 1956, and received all of the rents and profits therefrom from June 18, 1956. The sole question presented to this court is whether or not appellants are entitled to interest on the unpaid balance of the purchase price, namely, $123,000, from June 18, 1956, or only from August 15, 1956. No date for the commencement of interest was specified in the agreement.
The trial court held that interest ran only from August 15, 1956, the date of closing the escrow. In so holding we think the trial court was in error.
The agreement was not silent on interest. Paragraph E, page five of the agreement, provides for interest as follows:
"E. The sellers agree to deliver their property free and clear of all encumbrances. Sellers agree to carry a note and first deed of trust secured by property at Bucks Lake. Above described in the amount of $123,000.00, payable as follows (interest at 5% per annum)--$12,000.00 on or before September 15, 1956, the balance of approximately $111,000.00 to be paid in 15 equal installments of $7,400.00 each."
Paragraph E of the agreement definitely shows the intent of the parties that the unpaid balance of the purchase price was to draw interest at 5 per cent per annum. There is nothing in the agreement that interest was to commence only at the time the escrow was closed, which could have been a matter of several months. In the meantime the buyers would be enjoying the rents and profits of the sellers' property and the sellers receiving no return whatever upon the balance of purchase price unpaid.
The total purchase price was $155,000 for the real and personal property, and approximately $10,000 for the inventory of stock in trade. The unpaid balance of the purchase price, $123,000, was in excess of 70 per cent of the total purchase price. It would be most inequitable for the buyer to receive all the rents and profits from the property purchased, while the seller received no income on over 70 per cent of the consideration that he was to receive, until some indefinite date in the future when the escrow might be closed. The language of Paragraph E, which provides for interest on the unpaid purchase price, should not be so construed in the absence of anything to that effect in the agreement.
The trial court, in its "Memorandum Opinion" cites cases to the effect that where no interest is reserved none can be claimed, and cites the following authorities: Upton v. Gould, 64 Cal.App.2d 814, 817 ; Gibbs v. Mendoza, 103 Cal.App. 183, 186 ; 75 A.L.R. 316; 25 A.L.R.2d 953; 55 Am.Jur. 773.
The holding of these authorities may be summarized by the following statement from Upton v. Gould, page 817: "It is the generally well settled rule that where a contract makes no provision for the payment of interest, no interest can be charged or collected prior to the time that payment falls due."
After citing several California cases, the court continues: "The contract here is silent on the subject of interest." (Italics ours.)
It cannot be said, in view of Paragraph E of the agreement, that this contract makes "no provision for" or "is silent on the subject of interest." It clearly shows an intent to pay interest on the unpaid purchase price but simply fails to specifically state the time at which interest is to commence. Under such circumstances the rule in equity is that the purchaser in possession and enjoying the benefits thereof shall pay interest on the unpaid purchase price from the date of his possession. The law implies such an agreement in the absence of anything in the contract to indicate a contrary intention. The well considered case of Volk v. Atlantic A. & R. Co., 142 N.J.Eq. 67 [59 A.2d 387], declares the rule we deem applicable to this case as follows:
"... Where the purchaser is in possession, equity will in general require him to pay interest on the unpaid purchase-money. The parties may, indeed, control the matter by their stipulations, but so strongly does equity hold to the principle that a purchaser in possession shall pay interest, that it will look at any agreement which appears to prevent the application of the rule, in the light of the general principle, and since it interposes only according to conscience, will refuse to compel execution of it where it grossly violates the rule."
And on page 392:
"And so, in the absence of some incompatible equity, it seems to be the predominant weight of judicial opinion in courts of equitable jurisdiction that in the ordinary case to accord the purchaser the beneficial enjoyment of the possession of the property without liability for any interest on the retained purchase money is inequitable."
The above rule is the generally prevailing rule. See 25 American Law Reports 2d 953 and 75 American Law Reports 316, at page 343.
The judgment is reversed, and the municipal court is directed to enter judgment in favor of plaintiffs and appellants and against defendants and respondents for interest on the sum of $123,000 from June 18, 1956, to August 15, 1956.
Wagler, P. J., concurred.
HOYT, J.
I dissent. Paragraph E of the contract clearly means that sellers agree to accept a note secured by a first deed of trust on the property at Bucks Lake, that this note will be in the amount of $123,000, bear interest at 5 per cent per annum, and be payable in installments as stated in Paragraph E. In my opinion this paragraph not only does not show an intent to pay interest prior to the date of the note, but in fact negatives any such intent.
Upton v. Gould, 64 Cal.App.2d 814 , establishes the principle that where no interest is reserved, none can be claimed. Under the contract in question no interest was reserved for the period of time prior to the execution of the note. It would therefore seem to follow under this case that the courts of this state should not require the payment of interest in situations where it is not reserved in the agreement.
Volk v. Atlantic A. & R. Co., 142 N.J.Eq. 67 [59 A.2d 387], holds that equity in ordering specific performance of an agreement of purchase and sale which does not provide that the purchaser in possession shall pay interest on the unpaid purchase money will, "in the absence of some incompatible equity" require the purchaser to pay interest on the retained purchase money. In the instant case, under the facts before us, in my opinion it cannot be said that there is no incompatible equity.