Opinion
Hearing Granted by Supreme Court July 3, 1929
Appeal from Superior Court, Marin County; Edward I. Butler, Judge.
Action by Charles O. Wellock against the Marin Municipal Water District. From a judgment for plaintiff, and from an order denying defendant’s motion for a new trial, defendant appeals. Jessie Haight, as administratrix of the estate of Charles O. Wellock, deceased, was substituted as plaintiff after plaintiff’s death. Judgment modified, and, as modified, affirmed.
COUNSEL
George H. Harlan, of San Rafael, for appellant.
William Kehoe, of San Francisco, for respondent.
OPINION
GOODELL, Justice pro tem.
This appeal was taken from a judgment for $10,500 in favor of the plaintiff, Charles O. Wellock, and from an order denying the defendant’s motion for a new trial. The plaintiff died after the appeal was perfected, and his administratrix was substituted herein as respondent.
The action was for the recovery of consequential damages, namely, a prospective profit of $10,000 which plaintiff failed to make because the district did not enter into a contract of sale with plaintiff after he had exercised an option to purchase from the district a tract of land for $50,000 at a time when he had third parties under contract to buy the same land from him for $60,000; also to recover $500 paid by plaintiff when the option was obtained.
The facts are that the district owned 459 acres of land at Deer Park, near Fairfax, in Marin county, for which it had no further need, and which it desired to sell. Its board of directors had, by resolution, authorized the payment of a commission of 5 per cent. of the selling price of any of its lands. By a later resolution, dealing only with this tract, the board set $50,000 as the lowest figure at which it would sell, and authorized its general manager to give an option at that price for not longer than 60 days, the consideration for such option to be $500 for each 15-day period, and the option money to be applicable to the purchase price in case of consummation.
On April 3, 1925, Mr. Wellock obtained a writing, signed in the name of the district by its general manager, granting him a 15-day option to purchase the tract for $50,000, for which option he paid $500. The option was silent as to terms of payment. On the next day, the 4th, a letter, signed in the name of the district by its general manager, was sent to the optionee, "confirming" the option of the day before, and setting out the terms as follows: 25 per cent. of the purchase price to be paid "upon delivery of an agreement of sale," and the balance in three equal installments, one, two, and three years after date, with the privilege of paying off before maturity, and the deferred payments bearing 6 per cent. interest. This letter of the 4th amplified the provisions of the option, containing, on the one hand, terms more favorable and workable for the optionee, and, on the other, reservations favorable to the district, not made in the option. Both letters had been drafted by the attorney for the district, and about three days later he drew up a proposed agreement of sale (with the date and names of purchasers left blank), designed for use in case the option was exercised, which draft was submitted to the optionee. This draft contained mutual promises and covenants usually found in such writings, and expressed in legal and formal style the terms and provisions found in the letter of April 4, but, just as the letter of April 4 had enlarged upon the option of the 3d, the draft of agreement enlarged somewhat upon both letters.
On or about the 14th the district’s board learned that the optionee had negotiated a contract to resell the land in question to Messrs. Rice and Greisen for $60,000, and a special meeting of the board was called for the 15th to consider the revocation of the option. The meeting was attended by 10 of the 15 members, and the attorney for the district reported that the resale contract had been made, and that the optionee would thereby enjoy a profit of $10,000, while at the same time claiming a commission of $2,500 from the district under the 5 per cent. resolution. A resolution to cancel and revoke the option was then introduced, but failed of adoption on a 5 to 5 vote (8 votes being requisite for affirmative action). The optionee on the same day expressly waived any commission that might accrue to him, and stood only upon his rights under the option, in which he claimed to be dealing in his own right, as a principal.
The resale contract between the optionee and Rice and Greisen was made on the 6th, and called for consummation by the 17th of April, and a cashier’s check for $22,500 was escrowed by Rice and Greisen with a title company in San Rafael, deliverable only upon the assignment to them of a contract of sale signed by the district. The proposed form of contract had been submitted to them by the optionee and had had their approval. The district never concerned itself with, or became a party to, this Wellock-Rice-Greisen escrow.
With matters in this condition the optionee, on the last day of the life of his option, April 18, gave written notice to the district of his acceptance of the offer contained in the letters of April 3 and 4. The board met on April 21, when its attention was for the first time called to the acceptance of the 18th, and, after discussion, adopted a resolution, by an 8 to 5 vote, expressly confirming the option and directing the executive committee to take up the matter of the agreement of sale between the district and the purchaser and report back at the next meeting three weeks later. Mr. Wellock was present with his counsel, and protested that a delay greater than one week would be fatal to his resale, and would cause him, consequently, the loss of the $10,000 profit. Rice and Greisen were present with their counsel and joined in the protest. The board nevertheless adjourned for three weeks. On April 23 Rice and Greisen withdrew from escrow the $22,500 check. This action was commenced a few days thereafter.
The appellant presents a number of points in urging a reversal, chiefly: (1) That Wellock was the agent of the district, and could not, therefore, realize any secret profits from the sale of his principal’s property; (2) that the manager of the district had no authority to execute the option, such authority being committed by law to the president and secretary, and, therefore, that there was no valid offer or option for Wellock to accept; (3) that Wellock did not accept the option; (4) that there was no meeting of the minds of the parties as to any contract whatsoever; (5) that there was no tender either made, or waived, nor any showing that plaintiff was ready and able to perform; (6) that there was no breach; and (7) that there was no showing that plaintiff suffered any damage. Other points might be added, but they are subsidiary to those mentioned. The conclusion at which we have arrived renders it unnecessary to discuss at any length any of these, other than the question of damages.
The judgment awards $10,500 on the theory that the plaintiff is entitled to recover the $500 paid when the option was given and the $10,000 profit which he would have made if the resale contract had been carried through to a successful conclusion. On the resale the plaintiff’s $10,000 profit would have come out of the pockets of the plaintiff’s vendees who had contracted, voluntarily, of course, to pay him $60,000 for land costing him but $50,000. The judgment, however, takes it out of the treasury of the district as consequential damages, and this measure, we are satisfied, is not justifiable in the circumstances of this case.
Normally the measure of damages for breach of contract "is the amount which will compensate the party aggrieved for all the detriment proximately caused thereby, or which, in the ordinary course of things, would be likely to result therefrom." Civ.Code, § 3300. The breach which gives rise to this action was the defendant’s failure or refusal to enter into a formal contract of sale at the price of $50,000. Had such contract been entered into and then breached by failure to convey, the amount ordinarily recoverable would have been "the difference between the price agreed to be paid and the value of the estate agreed to be conveyed, at the time of the breach," etc. Civ.Code, § 3306.
In the case at bar there was no proof upon which to base a finding of the market value of the land, which finding in turn would form the basis, under section 3306 of the Civil Code, for an award of the ordinary measure of damages. Indeed, the theory of the plaintiff, as shown by his complaint, was that the resale contract, and it alone, advanced the market value to $60,000 for the time being, and that when the resale was lost the value of the land was no more than the original contract price of $50,000. The allegation in that respect is as follows: "That the market value of said property on said 21st day of April, 1925, and at the time of said breach by defendant was, because of said ability and willingness of said proposed purchasers to buy the same for sixty thousand ($60,000) dollars, the sum of sixty thousand ($60,000) dollars; *** that when said offer of said proposed purchasers was withdrawn, as aforesaid, the market value of said property ceased to be more than fifty thousand ($50,000) dollars." This is only another way of saying that the plaintiff relies upon the resale price, rather than the market value, to establish his measure of damages, which means, in short, that consequential damages are claimed.
The rule with respect to consequential damages is well settled in this state. In Hunt Bros. Co. v. San Lorenzo Water Co., 150 Cal. 51, 56, 87 P. 1093, 1095 (7 L.R.A.[N.S.] 913), it is said: "It is the well-settled general rule of damages for any breach of contract that the damages that can be recovered for a breach are only such as may reasonably be supposed to have been within the contemplation of the parties at the time of the making of the contract, as the probable result of a breach. Other damages are too remote." (Italics ours.) "*** Such, as we understand it, is the rule declared by section 3300 of the Civil Code, as that section has always been construed by this court, and it is the rule enunciated in the leading case of Hadley v. Baxendale, 9 Exch. 341, which has been universally accepted and followed. See Mitchell v. Clarke, 71 Cal. 165, 11 P. 882, 60 Am.Rep. 529."
In the Mitchell Case the rule referred to is quoted as follows: "Now, if the special circumstances under which the contract was actually made were communicated by the plaintiffs to defendant, and thus known to both parties, the damages resulting from a breach of such contract which they would reasonably contemplate would be the amount of injury which would ordinarily follow from a breach of contract under the special circumstances known and communicated. But, on the other hand, if these special circumstances were wholly unknown to the party breaking the contract, he at most could only be supposed to have had in contemplation the amount of injury which would arise generally, and in the great multitude of cases not affected by any special circumstances from such a breach of contract." See, also, Wallace v. Ah Sam, 71 Cal. 197, 200, 12 P. 46, 60 Am.Rep. 534. And in Fraser v. Bentel, 161 Cal. 390, 396, 119 P. 509, 512 (Ann.Cas.1913B, 1062), the following is quoted from 1 Sutherland on Damages, § 47: "In awarding damages for the nonperformance of an existing contract the gains or profits of collateral enterprises in which the party claiming them has been induced to engage by relying upon the performance of such a contract, and of which no notice has been given the other party, cannot be included." (Italics ours.) Other cases to the same effect are Schumann v. Karrer, 184 Cal. 50, 192 P. 849; Friend & Terry Lumber Co. v. Miller, 67 Cal. 464, 8 P. 40; Schnierow v. Boutagy, 33 Cal.App. 336, 164 P. 1132.
The contract upon which the respondent relies was concluded on April 18, 1925, being made up of an offer of the district, dated April 3, and an acceptance thereof by Wellock, dated April 18. When the offer was made, the offeree paid the offerer $500 as a consideration for the fifteen-day option, which, of course, rendered the offer irrevocable, and bound the district as effectively as if a bilateral contract had been then signed, for there was nothing it could do thereafter to retract or revoke. The acceptance which would convert this irrevocable offer into a contract, binding on both sides, was wholly in the power of the offeree. The district’s hands were tied for 15 days without the offeree being bound in that interval, but such is the nature of an offer for which a consideration is paid. When, therefore, on the last day of the option period, the offeree accepted, the contract automatically came into existence.
There is nothing in the option of the 3d, or the modifying letter of the 4th, to show— or even to hint or suggest— that a resale was contemplated by Wellock to Rice and Greisen, or anybody else, and there was no oral testimony to that effect. From all that appears in the record, the officers of the district had no knowledge that Wellock had any resale in mind until, as alleged, the 7th, and as found by the court, the 14th, of April. By no possibility could the district have learned of the resale before the 6th, for the resale contract was not made until that day, as alleged by plaintiff. Whether the knowledge of the resale came to the district on the 7th, as alleged, or on the 14th, as found, can make no difference, for it certainly knew nothing about it on the 3d, when it bound itself irrevocably to sell.
Professor Williston in his work on Contracts, vol. 3, § § 1356, 1357, in discussing the Hadley v. Baxendale rule and the basis for it, quotes the following from the decision in Globe Refining Co. v. Landa Cotton Oil Co., 190 U.S. 540, 543, 23 S.Ct. 754, 755, 47 L.Ed. 1171, where Justice Holmes says: "It is true that as people when contracting contemplate performance, not breach, they commonly say little or nothing as to what shall happen in the latter event, and the common rules have been worked out by common sense, which has established what the parties probably would have said if they had spoken about the matter. But a man never can be absolutely certain of performing any contract when the time of performance arrives, and in many cases he obviously is taking the risk of an event which is wholly or to an appreciable extent beyond his control. The extent of liability in such cases is likely to be within his contemplation, and whether it is or not, should be worked out on terms which it fairly may be presumed he would have assented to if they had been presented to his mind." (Italics ours.)
We are satisfied that, before the defendant district can be charged with the plaintiff’s resale profit, knowledge of such resale contract must be brought home to its officers before they bind the defendant. The district became bound, as indicated in the discussion above, not when the contract was technically concluded, on April 18, but when the irrevocable offer was made on April 3. The resale contract was not made until three days later, which would indicate that it was made because the irrevocable offer had been first definitely secured, and not that the offer was made with it in contemplation. When the facts in the instant case, particularly the time element, and the chronological order of events, are considered in the light of Justice Holmes’ lucid exposition of the rule, can it be thought that the district would have bound itself (as it did on April 3) if its officers had known anything about a $60,000 resale contract?
In the case of Wallace v. Ah Sam, supra, the contract relied upon in the claim for consequential damages was made after the contract sued upon, just as the resale contract here was made after the District became bound. Commissioner Searls there says: "The rule adopted in the court below, if applied to contracts of this character, would tend largely to place it in the power of parties entitled to recover damages to regulate the amount of recovery to suit themselves." He adds: "We have no reason to believe that plaintiffs acted in bad faith in executing the leases specified in the record, and we only refer to the possibility of such conduct for the purpose of showing that the rule under which such a course may be pursued is inherently vicious." To the same general effect are the remarks of Justice Angellotti in the Hunt Bros. Case, supra, where, after discussing the rule of Hadley v. Baxendale, he says: "As has often been suggested by writers upon this subject, the remote effects of slight causes are so beyond all possible conception of the parties to a contract, both in character and extent, that any other rule would practically preclude the making of contracts altogether, for no sane person could be expected to assume such uncertain and limitless liability." Williston, at section 1357, says: "*** No doubt notice subsequent to the formation of the contract though prior to the breach is insufficient. A suggestion was indeed made by Baron Bramwell that perhaps notice after the contract was made, and before breach, would be enough. This, however, has been rejected by later cases. *** The true reason why notice to the defendant of the plaintiff’s special circumstances is important is because just as a court of equity under circumstances of hardship arising after the formation of a contract may deny specific performance, so a court of law may deny damages for unusual consequences where the defendant was not aware when he entered into the contract how serious damage would flow from its breach."
The respondent argues that when the directors of the district, at their meeting on April 21, "confirmed" the letters of April 3 and 4, they had knowledge of the resale contract, and that such knowledge is sufficient to satisfy the rule we have discussed. But we are satisfied that this is answered by the authorities cited herein. The contractual obligation of the district was settled and crystallized by its offer of April 3, for which it received a consideration, and a contract either was or was not concluded by its acceptance. The plaintiff’s suit was brought upon the theory that it was. Anything that was done thereafter would not matter, as we see it. If the letters of April 3 and 4 had been disaffirmed, such action would not have unmade the contract; and, if once made, the "confirmation" of the 21st would not change or alter the contractual situation.
Respondent is not entitled under the evidence and pleadings to recover consequential damages, and the judgment is therefore modified by striking therefrom the sum of $10,000, and, as so modified, the judgment is affirmed; appellant to recover costs of this appeal.
We concur: KOFORD, P.J.; NOURSE, J.