Opinion
2-28-1951
BANKS et al. v. PUMA et al. * Civ. 17630.
Michael F. Shannon and Thomas A. Wood, Los Angeles, for appellants. Don Lake, Los Angeles, for respondents.
BANKS et al.
v.
PUMA et al. *
Feb. 28, 1951.
Rehearing Denied March 13, 1951.
Hearing Granted April 26, 1951.
Michael F. Shannon and Thomas A. Wood, Los Angeles, for appellants.
Don Lake, Los Angeles, for respondents.
SHINN, Presiding Justice.
Action to recover share of profits in an alleged joint adventure. Defendants appeal from judgment in favor of plaintiffs. They contend that the purpose of the venture failed completely because of impossibility of performance and that the judgment, in effect, creates an entirely new contract and obligations which they never assumed. The facts were established by stipulations in open Court.
One of the plaintiffs, Mrs. Baker, who was a stockholder in the firm of Mullen & Bluett, learned that said firm contemplated the construction of a building on certain land on which there were five occupied buildings that were to be moved. She and plaintiff, Mr. Banks, obtained an option from Mullen & Bluett for the purchase of those buildings by Mrs. Baker or her nominee. They made an arrangement with Mr. and Mrs. Royden whereby the Roydens were to furnish the money required under the option. Plaintiff Banks negotiated for the purchase of real property to which the buildings were to be moved. On October 12, 1945, Mullen & Bluett and Mr. Royden as nominee of Mrs. Baker, entered into a written agreement whereby the former agreed to sell said buildings to the latter for $19,000 to be paid as follows: $5,000 upon the execution of the agreement, and the balance prior to removal of any of the buildings but not later than June 12, 1946. The $5,000 was paid pursuant to that agreement.
On November 1, 1945, the Roydens, as parties of the first part, and Mrs. Baker and Mr. Banks, as parties of the second part, entered into an agreement which recited that on October 1, 1945, the second parties entered into an escrow to purchase seven city lots for $17,500; that Mrs. Baker, by reason of her connection with Mullen & Bluett, had learned of its intention to sell the said five buildings, and she had discussed the purchase of said buildings, their removal to a new site, and the subsequent resale of them with Mr. Banks; that Mrs. Baker had negotiated with Mullen & Bluett for the purchase of the buildings, and her offer of $19,000 had been accepted by that company; that Mr. Banks had negotiated a purchase for a new site for said buildings at a price considerably under the market value, and he had obtained permission from the city of Los Angeles to move the buildings to the new site, and that the second parties would need further money to complete the project. The parties thereto agreed that the project was the idea of the second parties; that the first parties would furnish the money to complete the buildings in the new location; that the time, effort and commissions contributed by the second parties offset, more or less, the interest on funds invested by the first parties, and therefore the first parties waived any interest charge on the funds; the title to all property in the transaction would be vested in the first parties, that the first parties assumed all financial responsibility in the undertaking and the second parties would not be held responsible for any loss or damage resulting from the enterprise; that before any of the property should be sold an agreement to sell must be confirmed by no less than three of the parties; that all proceeds from the property sold would accrue to the first parties until their investment had been paid, and thereafter all profit from the sale of the property would be divided as follows: 50% to the first parties, 25% each to the second parties; that if it should not be deemed advisable to sell said buildings and it was decided to rent them the net profit would be divided on the same basis.
In February, 1946, Mr. Royden transferred all his rights in the Mullen & Bluett option agreement to defendants Puma, who reimbursed the Roydens for the $5,000 which had been deposited with Mullen & Bluett, and entered into a written agreement with Mrs. Baker and Mr. Banks by which they assumed the obligations of the Roydens and also agreed to furnish all funds for the purchase, moving and reconstruction of the buildings in the new location; that title to all property in the transaction was to be vested in the Pumas; that after all expenses had been repaid to the Pumas all profits would be divided as follows: 37- 1/2% to Pumas, 25% to Baker, 37- 1/2% to Banks.
Defendants then deposited in escrow the full purchase price of the real property and acquired title. The Office of Price Administration had permitted notices to vacate to be given to the tenants of the houses that were to be moved. The day after such notices had been given to tenants, the Federal Agency which had the supervision of the permit which was necessary for Mullen & Bluett to erect its building, cancelled the permission that had been given to Mullen & Bluett; upon hearing this, the Housing Administration cancelled the notices to the tenants and removal of the buildings was thereby prevented. On May 14, 1947, plaintiffs gave a letter to Mr. Puma whereby they authorized him to cancel all negotiations with Mullen & Bluett pertaining to the purchase of the buildings, which was done, and the $5,000 on deposit with that company was paid to defendants. At that time the title to the seven lots stood in the names of defendants Puma, who had advanced $19,171.85 as the purchase price and incidental costs. Banks and Puma, in an attempt to sell the property, placed thereon a sign with the names, addresses, and telephone numbers of Mr. Puma and Mrs. Baker. Thereafter defendants sold the property for $25,000 without the knowledge or consent of plaintiffs. In the present action plaintiffs sought to recover their alleged pro-rata shares of the profits received by the defendants from that sale. The court found there was a profit of $4,276.69 from the sale and that plaintiff Baker should receive $1,069.17 and plaintiff Banks $1,603.76.
Defendants contend that when it became impossible to buy the houses, and move them, the purpose of the venture failed completely and that they held title to the lots they had purchased free from obligation to sell them, or to account to plaintiffs if they should sell them. We must agree with this contention. It was indispensable to performance by any of the parties that they acquire title to the buildings. Their ability to acquire title was the very thing which induced them to undertake the enterprise. They expected to exercise that right and did not expect that it would be destroyed by some supervening agency which was beyond their control. It is altogether clear that except for the right they had under the option there would have been no contract and no joint undertaking. They were prevented by law from obtaining possession of the buildings through eviction of the tenants. It became legally impossible for them to perform their mutual obligations. The law on the subject is clear. It was stated in Gibbs v. Hersman, 73 Cal.App. 732 at page 739, 239 P. 350 at page 352, as follows: 'It is a fundamental rule of contracts that where, from the nature of the contract, it is evident that the parties contracted on the basis of the continued existence of the thing to which it relates, the subsequent perishing or destruction of the thing will excuse the performance; and, consequently, when the contract relates to any dealing with specific things, in which the performance necessarily depends on the existence of the particular things, the condition is implied by law that the impossibility arising from the destruction of the things, without fault in the party, shall excuse the performance, because, from the nature of the contract, it is apparent that the parties contracted on the basis of the continued existence of the subject of the contract. 9 Cyc. 631, quoted approvingly in Potts Drug Co. v. Benedict, 156 Cal. 322, 104 P. 432, 25 L.R.A.,N.S., 609; 6 Cal.Jur., p. 443; 5 Page on Contracts (2d Ed.) § 2709.' The only question as to the applicability of this rule is whether it is evident from the agreement that the contracting parties were relying upon their ability to purchase and move the buildings. We do not think it is open to doubt that they did so rely. The purpose and scope of the joint venture were clearly defined by the contracts. The land and the buildings were to be acquired, the buildings removed and reconditioned, the lots, thus improved, sold, and the profits divided. Title to the land and the buildings was vested in the defendants. They bore all financial responsibility. If any loss or damage should be suffered it would fall upon them. The relation of the parties was not that of partners. The only interest plaintiffs had in the enterprise was the right to share in the profits from sales of the lots after the buildings had been moved to them and placed in marketable condition. Through no fault of the parties this became impossible of accomplishment, and the sole purpose of the enterprise was defeated. The conditions under which plaintiffs were to share in any profits earned never came to pass. Defendants did not agree to share with plaintiffs any profits that might result from sales of the lots, unimproved with the buildings. The parties did not contract at all with relation to the situation that developed through their inability to acquire title to the buildings. The scope of the joint venture and the rights of the parties thereunder are limited by the terms of the agreement. The court could not broaden the agreement or create a new one. The effect of the judgment appealed from is to create a new contract by which defendants would be bound to share with plaintiffs profits earned in the sale of the lots when it has become impossible to acquire and install the buildings thereon. It is clear from the entire contract that the parties did not have in mind any such contingency. It is not reasonable to believe that defendants, who were running all the risk, would have agreed to divide with plaintiffs and profits made from the sale of the lots in the event that plaintiffs failed utterly to accomplish the purchase of the buildings, under their option, which was their principal contribution to the project. However this may be, there was no such agreement. The single, entire purpose of the joint venture having failed, there were no profits to be divided and it was error to award judgment in favor of plaintiffs.
The judgment is reversed, and the facts having been stipulated to, the court isdirected to render judgment in favor of defendants.
VALLEE, J., concurs.
PARKER WOOD, Justice.
I dissent. Appellants contend that governmental orders revoking the permit to construct the Mullen & Bluett building and revoking the authority to evict the tenants resulted in economic frustration and destroyed in toto the object and purpose of the contracting parties (appellants and respondents) and that such frustration terminated the whole contract and relieved the parties of all obligations one to another. The contract between defendants and Mullen & Bluett, regarding the purchase of the houses by defendants, was terminated by reason of the governmental orders, and under the doctrine of commercial frustration, Mullen & Bluett could not have been held liable for damages for breach of that contract. In the present case, the contract between plaintiffs and defendants was a contract entered into by joint adventurers. Plaintiff Baker's contribution to the enterprise was the information regarding the proposed sale of the houses by Mullen & Bluett and removal of the houses to a new location. Plaintiff Banks contributed the information that the vacant lots involved here were available for purchase as a place to which the houses could be moved, and he negotiated the purchase of the lots at a price which, according to the agreement of all the parties, was considerably under the market value. The defendants advanced the money for the purchase of the lots. Plaintiffs had done all that was required of them up to the time the Government made the order which prevented the moving of the houses, and it appears that they had done all that would have been required of them if such order had not been made, except the general matter of assisting in negotiations pertaining to moving and reconstructing the houses. Defendants had done all that was required of them up to the time the order was made, and by reason of that order they were relieved of their further obligation to provide additional money for purchasing, moving, and reconstructing the houses. It is to be noted that the written contract between the parties recited that Banks had negotiated the purchase of the lots involved here at a price which was considerably under the market value. It must be concluded that the profit realized from the sale of the lots was attributable only to the combination of contributions which each party made to the venture. All the parties acted in good faith, and it was not the fault of any of them that the joint enterprise could not proceed further. When they could not proceed further, the defendants then held the title to the lots which had been purchased, through the efforts of Banks, at a price considerably under the market value.
This is not an action against the defendants to recover damages for a breach of their contract to furnish the additional money which would be required to purchase, move and reconstruct the houses. (The written option to purchase the houses for $19,000 stood in the name of defendants.) They had been relieved of those obligations by the governmental order. The action here is for an accounting as to profits which had resulted from the combined efforts of the joint adventurers. The object of plaintiffs and defendants in entering into the joint adventure agreement was to make a profit from the transaction. A profit was realized, even though the transaction was not completed, because Banks had located the lots and negotiated a good bargain in the purchase of them, and the defendants had advanced the money to buy them. Presumably if the houses could have been moved and reconstructed a greater profit would have been realized. The fact, however, that the governmental order prevented the completion of the project, and the profits realized were smaller than the anticipated profits, does not constitute economic frustration of the obligation of defendants to account for profits which they received only as a result of having been parties to the joint adventure agreement. In my opinion, the fact that a project of joint adventurers is not completed as originally planned should not be a defense by a coadventurer in an action for an accounting as to profits. Many joint adventures are not completed as originally planned, and profits result therefrom. If in the present case the project had been completed except as to the removal of one or two of the five houses, could it be said properly that the defendants should not be required to account for profits? The defendants reaped a benefit from the joint efforts and work of the coadventurers. It is true, of course, that the title to the lots involved here stood of record in the name of defendants. Those lots were obtained and held by defendants as trustees for the benefit of the coadventurers. 'Where the evidence clearly shows the parties' intention to engage in a joint enterprise for profit it has been held that the principles governing joint venture apply irrespective of how title to the property is taken. [Citations.] Each co-adventurer or partner is a trustee for the other and neither may reap a personal pecuniary advantage from the use of the partnership property.' Larson v. Thoresen, 36 Cal.2d 666, 226 P.2d 571, 573. In my opinion the doctrine of economic frustration is not applicable herein, and the judgment should be affirmed.
Rehearing denied; WOOD, J., dissenting. --------------- * Subsequent opinion 236 P.2d 369.