Opinion
Rehearing Denied Feb. 9, 1929
Hearing Granted by Supreme Court March 11, 1929
Appeals from Superior Court, City and County of San Francisco; Louis H. Ward, Judge.
Action by Marie A. Musto against Ellen S.M. Grosjean, as administratrix with the will annexed of the estate of C.E. Grosjean, deceased, and others, in which defendant named and another filed a counterclaim. From the judgment, plaintiff and defendants appeal. Affirmed in part, and in part modified and affirmed. COUNSEL
Alexander McCulloch and C.J. Goodell, both of San Francisco, for plaintiff.
Robert H. Borland, of San Francisco, for defendants Newell.
George Clark Sargent, of San Francisco, (Aaron M. Sargent, of San Francisco, of counsel), for appellants C.E. Grosjean and others.
OPINION
PER CURIAM.
An action to foreclose a purchase-money mortgage for $65,000 upon certain land situated in the Islais creek district, in San Francisco.
The mortgage was executed on May 7, 1919, by C.E. Grosjean, now deceased, and Ellen S.M. Grosjean, his wife, to E.W. Newell, the plaintiff’s assignor, and was junior to another mortgage for a like sum executed on the same date. The mortgage was duly recorded, and secured the payment of a promissory note executed by the deceased alone; the note being payable five years after its date, with interest at the rate of 6 per cent. per annum, interest payable monthly.
On March 8, 1919, a contract for the sale of the property by Newell, as first party, to C.E. Grosjean, as second party, was entered into, the purchase price being $135,000, of which $15,000 was paid and the balance evidenced by the notes and mortgages mentioned above. The contract provided, among other things, that certain conditions precedent to the purchase of the property should be fulfilled or caused to be fulfilled by the first party not later than May 10, 1919. These referred to the extension of Tulare street, which the property adjoined, and the conveyance to the state of California of certain land in order to enable the state to enlarge the shipping facilities at the westerly end of Islais channel, and were performed according to the agreement.
The contract further provided that, in the event the second party purchased the property, the first party should make certain improvements thereon; these being specified therein as follows: (1) Grade or cause to be graded the streets on three sides of the property to the official grade; (2) pave these streets and construct sidewalks according to the ordinances of the city; (3) grade and fill the block (the property mortgaged) with earth and rock to a plane one foot above the city base; and (4) obtain a permit for and construct a railway spur track from the easterly line of the block to the westerly terminus of an existing spur track on the state wharf situated on the southerly side of Islais creek. All of the improvements specified in the four paragraphs above were to be made at the expense of the first party, who agreed that work thereon should commence not later than June 15, 1919, and the improvements be fully completed not later than December 15, 1919.
It was further provided that, if the first party failed to fulfill the contract in these respects, the second party should have the right to do or cause the same to be done, and to apply the cost thereof as payment on account of the indebtedness secured by the second mortgage, this being the indebtedness and mortgage involved in the present action; or otherwise to recover the cost of the work from the first party.
On December 15, 1919, none of the work specified had been commenced, and none of the work was subsequently done except that in January, 1920, the land was partially filled with rock and earth. The contract provided that reference should be made in the second mortgage to the above promises of the first party and the rights of the second party, so that, in the event the same should not be fulfilled, any owner of the mortgage and note secured thereby might be charged with knowledge thereof. This reference appears both in the mortgage, which was executed pursuant to the contract, and in the note thereby secured.
Newell, the mortgagee, assigned the note and mortgage to S.W. Newell, by whom, on the same day, the instruments were assigned to Marie A. Musto, the plaintiff, and both instruments were recorded.
As defenses to the action, the mortgagors alleged that, due to the failure of the vendor to perform the contract as above, the consideration for the mortgage failed, further alleging as a counterclaim that, by reason of the vendor’s default, they have suffered damage. As one of her defenses to this counterclaim, the plaintiff alleged that the same was barred by the provisions of subdivision 1 of section 337 of the Code of Civil Procedure.
The trial court entered judgment foreclosing the mortgage, with interest on the principal sum and attorneys’ fees as provided in the mortgage, but deducted therefrom the sum of $21,753.63 as the damage suffered by the mortgagors by reason of the failure of the vendor to make the promised improvements.
Pending the trial, the defendant and mortgagor, C.E. Grosjean, died, and Ellen S.M. Grosjean, as administratrix with the will annexed of his estate, and on her own behalf as a defendant, has appealed from an order denying a motion to vacate the judgment entered and to enter a different judgment, and also from the judgment. Plaintiff Musto, with defendants E.W. Newell and Allene B. Newell, his wife, have appealed from that portion of the judgment allowing the counterclaim or set-off from the amount of the mortgage.
Appellant Grosjean claims that the vendor, having made default under the contract, the same was a bar to a foreclosure; that the plaintiff was not entitled to interest or attorneys’ fees; that the mortgagors should have been allowed as a part of their damage the rental value of the land from the date of the vendor’s default, as well as the cost of making the improvements thereon; and, further, that the court erred in its rulings that the burden of proving the damage was on the mortgagors, and that the vendor was not incompetent to testify as a witness at the trial.
As grounds for the appeal by the other appellants named, it is contended that the set-off or counterclaim pleaded by the mortgagors was barred by the statute; and that under the terms of the contract the counterclaim could not be maintained against the vendor or the assignee of the mortgagee.
As stated, the purchase price of the land was $135,000, and the title thereto was conveyed to Grosjean, the mortgagor, who paid thereon in cash the sum of $15,000. The title to the property is still retained by the estate; no offer to rescind was made, and it is not claimed that the consideration for the mortgage, other than to the extent of the damage caused by the failure of the vendor to construct the improvements, has failed. It is contended, however, that, the default of the vendor being shown, no action to foreclose the mortgage could be maintained. In support of this, reliance is placed upon the case of Meyer v. Weber, 133 Cal. 681, 65 P. 1110, and other cases in which that decision was followed; but an examination thereof shows either that there was a total failure of consideration for the mortgage sought to be foreclosed, a partial failure followed by rescission, or an allowance for such partial failure of consideration by way of set-off. It is also claimed that the contract of sale, with the notes and mortgages executed pursuant thereto, being, as found by the court, parts of one transaction, the promise to pay the note involved in this action was dependent upon the promise of the vendor to make the improvements, and that, before the vendor or the holder of the note with notice could enforce the same, it was necessary to allege and prove compliance with the contract in that respect.
Where mutual covenants go to the entire consideration on both sides, they are mutual conditions and dependent (13 Corp.Jur. "Contracts," p. 571, § 540, and cases cited); but in the present case it appears without dispute that the covenant in question was not the sole consideration for the mortgage, and the default of the vendor in this respect constituted but a partial failure of consideration, for which the mortgagors could be adequately compensated in damages. When a covenant goes only to a part of the consideration, and a breach may be compensated in damages, it is to be regarded as an independent covenant. Ernst v. Cummings, 55 Cal. 184; 13 Corp.Jur. "Contracts," p. 571, § 540, and cases cited. As the court said in Union Pacific R. Co. v. Travelers’ Ins. Co. (C.C.A.) 83 F. 676, 678, "The approved test for the determination of this question is found in the rule which Lord Mansfield stated in Boone v. Eyre, 1 H.Bl. 273; [126 Eng.Rep. (reprint), 160] in these words: ‘Where mutual covenants go to the whole of the consideration on both sides, they are mutual conditions, the one precedent to the other. But where they only go to a part, where a breach may be paid for in damages, there the defendant has a remedy on his covenant, and shall not plead it as a condition precedent.’ "
It is claimed further that the plaintiff was not entitled to a judgment for interest on the mortgage or for attorneys’ fees. On March 31, 1921, the vendor, then being in default with respect to the improvements promised, made a supplemental agreement with Grosjean, this being in the form of a letter, which was as follows:
"C.E. Grosjean, Esq., San Francisco, Cal. Dear Sir: Referring to the provision in my agreement with you dated March 8, 1919, respecting the grading and filling of the land described in that agreement, I hereby agree that the payment of the interest now unpaid and the interest accruing on your promissory note to me dated May 7, 1919, for the sum of $60,000, pending the completion of the work, shall be postponed and not be payable by you until this work is completed by me; that the nonpayment of said interest by you pending the completion of the work shall not constitute a default on your part in respect to the interest provided in said note to be paid. ***
"Nothing herein shall be construed to deprive you of your right under the agreement dated March 8, 1919, to do or cause said work to be done at any time, and to exercise all other rights in regard thereto given to you in said agreement.
"Yours truly, E.W. Newell."
According to this agreement, interest was not to be payable pending the making of the improvements, and its nonpayment was not to constitute a default under the mortgage. It may be conceded that, other things being equal, no action to collect the interest would lie before the improvements were completed; but the action to foreclose was brought after the principal sum of the debt had matured, and the mortgagors sought to recover, as against the claim for principal and interest, the cost of making the improvements, and this amount as found by the court was allowed them in the judgment. Having sought and obtained what was in effect a judgment for the cost of making the improvements, they are in no position to assert that, because the vendor was in default in this respect, the obligation to pay interest had not matured. As stated by counsel, the plaintiff should not be charged with the cost of doing the work, the equivalent of doing it, and at the same time be deprived of interest because the work was not done.
Following the death of C.E. Grosjean and the appointment of defendant Ellen S.M. Grosjean as administratrix with the will annexed of his estate, a supplemental complaint was filed by plaintiff, alleging these facts, and expressly waiving all recourse against any property of the estate except that described in the mortgage. No claim was filed by the plaintiff against the estate, but the trial court nevertheless allowed as a part of its judgment an attorneys’ fee of $600, which sum, by the terms of the mortgage, was declared to be a lien upon the property therein described.
No counsel fees could be allowed in the decree unless a claim based upon the mortgage had first been presented to the administratrix of the estate. Code Civ.Proc. § 1500; Hibernia Sav. & Loan Society v. Wackenreuder, 99 Cal. 503, 34 P. 219.
The trial court ruled that the burden of proving the cost of making the improvements as a part of the damage claimed by the mortgagors rested upon them. In their briefs many cases are cited holding that, where the plaintiff as a condition precedent to his right to recover must prove substantial performance, the burden of showing the cost of remedying defects is upon him. The present, however, is not such a case; the making of the improvements for the reasons stated not being a condition precedent to the right of maintaining an action to foreclose the mortgage.
We find no merit in the claim that Newell, the vendor, who was the assignor of plaintiff, was not competent to testify as a witness, as a claim within the meaning of subdivision 3 of section 1880, Code of Civil Procedure, has been held not to include a mortgage or other lien where no deficiency judgment is sought against the estate of a decedent. Fallon v. Butler, 21 Cal. 24, 81 Am.Dec. 140; Booth v. Pendola, 88 Cal. 36, 23 P. 200, 25 P. 1101.
In addition to the cost of making the improvements, the mortgagors claimed an amount for the loss of rent which they might have received had the property been improved. This the court disallowed, and we think properly, as it is clear from the supplemental agreement that an extension of time for making the improvements was thereby granted, and that the parties intended that any loss due to the delay in this respect was to be compensated by deferring the interest payments on the mortgage.
It is suggested that interest on the amount of the damage suffered by the mortgagors as found by the court should have been allowed. These damages, however, were unliquidated and uncertain and not capable of being made certain by calculation within the meaning of section 3287 of the Civil Code, and interest thereon could not be recovered prior to judgment. Ferrea v. Chabot, 121 Cal. 233, 53 P. 689, 1092; Burnett v. Glas, 154 Cal. 249, 97 P. 423; McNutt v. City of Los Angeles, 187 Cal. 245, 201 P. 592.
The plaintiff and her coappellants, as grounds for their appeal, contend that, under the original contract between Newell and Grosjean, the latter, in the event of Newell’s default, was bound to make the improvements, and either apply the cost as payment to that extent on the mortgage debt, or recover the same by suit. We find no merit in this; such action by the vendee under the provisions of the contract being wholly optional.
It is further claimed that Newell, having obligated himself to complete the improvements by December 15, 1919, a cause of action based upon his default then arose, which was barred by statute; the present action having been brought some time before October 8, 1924, but more than four years after the default. As to this it will be sufficient to say that the supplemental agreement, dated March 31, 1921, contains a distinct and unequivocal acknowledgment by the vendor of his obligation to complete and pay for the improvements. This acknowledgment was sufficient evidence of a continuing contract to take the case out of the operation of the statute. Southern Pacific Co. v. Prosser, 122 Cal. 413, 52 P. 836, 55 P. 145.
The note secured by the mortgage was not a negotiable instrument, and both it and the mortgage by express terms referred to the contract and its provisions respecting the improvements. As the trial court properly found, these instruments were parts of one agreement, and the assignment of the note and mortgage to the plaintiff was without prejudice to any set-off or other defense existing at the time and before notice of the assignment. Civ.Code, § 1459; St. Louis Nat. Bank v. Gay, 101 Cal. 286, 35 P. 876; Briggs v. Crawford, 162 Cal. 124, 121 P. 381; McKenney v. Ellsworth, 165 Cal. 326, 132 P. 75.
The findings of the court are fully supported by the evidence, and the record, with the one exception noted, contains no error which would justify this court in disturbing the judgment. The portion of the judgment appealed from by plaintiff Marie A. Musto and defendants E.W. Newell and Allene B. Newell is accordingly affirmed. The order appealed from by defendant Ellen S.M. Grosjean, individually and as administratrix with the will annexed of the estate of C.E. Grosjean, deceased, is also affirmed. The judgment entered in favor of plaintiff Marie A. Musto is modified by deducting therefrom the sum of $600 allowed by the trial court as attorneys’ fees, and, as so modified, is affirmed. It is further ordered that appellant Ellen S.M. Grosjean, individually and as administratrix, recover her costs on appeal.