Opinion
As Modified on Denial of Rehearing March 22, 1933.
Hearing Granted by Supreme Court April 20, 1933.
Appeal from Superior Court, Sutter County; Eugene P. McDaniel, Judge.
Action by the Nevada Land & Investment Corporation against Z. R. Sistrunk and wife. From a judgment in favor of plaintiff, defendants appeal.
Affirmed.
COUNSEL
A. G. Bailey, of Woodland, for appellants.
Rich, Weis & Carlin, of Marysville, for respondent.
OPINION
Mr. R. L. THOMPSON, Justice
The defendants have appealed from a judgment of ejectment which was rendered against them pursuant to the terms of an executory contract for the purchase of real property, for failure to pay stipulated installments of the purchase price thereof. In an answer and cross-complaint the defendants sought to justify their default by claiming damages sufficient to offset the unpaid installments resulting from fraud alleged to have been exercised in procuring the execution of the contract. A demurrer to the allegations of fraud which were contained in the answer was sustained. The cross-complaint was stricken from the cause. A written stipulation was then filed acknowledging the truth of all the allegations of the complaint, except the claim for damages for detention of the property, and consenting to a judgment for restitution of the premises.
The complaint alleges: That Garden Highway Orchard Company, a corporation, entered into a written contract with the defendants on April 23, 1925, to sell ten acres of farm land in Sutter county, for the sum of $4,700; that the defendants immediately took and still retain possession thereof; that at the time of the execution of the contract the sum of $940 was paid on account of the purchase price; that the balance was to be paid in seven equal annual installments, beginning April 23, 1930, and continuing thereafter each year until the entire consideration, together with taxes and 6 per cent. interest per annum on all deferred payments, are fully satisfied; that by the terms of the agreement, title to the real property remained in the seller, who reserved an option to declare all payments forfeited, to terminate the contract, and to repossess the premises, after written notice thereof, for default in payment of any installment of the purchase price or interest; that for a valuable consideration the land and contract for sale thereof were sold and conveyed November 16, 1927, to the plaintiff, Nevada Land & Investment Corporation, which thereupon became and now is the owner thereof; that on January 8, 1932, the defendants were in default in the payment of two annual installments of the purchase price of the land, together with taxes and accrued interest aggregating the sum of $1,775.81; that on account of said default the plaintiff exercised its option and notified the defendants in writing on the last-mentioned date that their payments were forfeited and the contract terminated, and thereupon demanded immediate possession of the property, which was refused. The complaint prays for restitution of the premises, an adjudication of a forfeiture of the payments which were made, cancellation of the contract, and a decree quieting title to the land in plaintiff.
The answer denies the essential allegations of the complaint, except that the execution of the contract, the terms thereof, defendants’ possession of the premises, and the nonpayment of delinquent installments, were admitted. A cross-complaint was also filed. The answer and cross-complaint allege facts constituting fraud with which the defendants are charged with exercising in procuring the execution of the contract, resulting in damages aggregating the entire amount of unpaid installments. The cross-complaint prays for damages as alleged, and for a decree satisfying all unpaid installments and quieting title to the land in the defendants. A demurrer to the answer was sustained. The cross-complaint was stricken from the record. A stipulation signed by respective counsel was filed, in which it is conceded that all of the allegations of the complaint are true, except the claim for damages for detaining the property, and in which it is further agreed: "Plaintiff may have judgment against the defendants for the restitution of the lands and premises described in plaintiff’s complaint, for the cancellation of the agreement for the sale of said lands and premises to defendants, and that the title to plaintiff’s lands be quieted in plaintiff." Judgment was rendered accordingly. From this judgment the defendants have appealed.
The appellants contend that one "who has been induced to execute a contract by reason of plaintiff’s fraud (may) set up that fraud and its resultant damages as a defense and also as a counterclaim, in an action of ejectment to recover the possession of the premises described in the contract, when the damages caused by the alleged fraud are equal to, or greater than, all of the balance alleged to be unpaid on the contract."
When an executory contract for sale of real property provides for the termination thereof and for recovery of possession of the land by the seller in the event of failure to pay installments on the purchase price as stipulated, the buyer in possession, who is in default of the express provisions of the contract, may not defeat the seller’s action in ejectment by a claim for damages alleged in an answer or cross-complaint to be the result of fraud in procuring the execution of the contract. Verbeck v. Clymer, 202 Cal. 557, 261 P. 1017, 1018; Hincksman v. Delacour, 47 Cal.App. 416, 190 P. 832; Watkins v. Warren, 122 Cal.App. 617, 10 P.2d 500. A defense to the possessory action of ejectment, when the delinquent installments are not sought to be recovered, may not be based upon unliquidated damages resulting from alleged fraud in procuring the execution of the contract. Under such circumstances, an equitable defense to an action for ejectment may not be founded on a contract which the defendant has failed to perform. Gervaise v. Brookins, 156 Cal. 103, 103 P. 329; Mayer v. West, 96 Cal.App. 31, 273 P. 849; Haile v. Smith, 128 Cal. 415, 60 P. 1032; Los Molinos Land Co. v. MacKay, 175 Cal. 305, 165 P. 926.
The cases of Verbeck v. Clymer, Hincksman v. Delacour and Watkins v. Warren, supra, were suits in ejectment, to recover possession of real property after breach and cancellation of the contract. The circumstances in those cases were exactly like the situation in this case. Those cases, therefore, appear to be determinative of the present action.
In the case of Verbeck v. Clymer, supra, a contract for sale of real property was executed which acknowledged an initial payment of $5,000 on the purchase price of the land. It provided for the payment of further installments. The defendant held possession premises, but defaulted in the payment of installments. The plaintiff brought suit for ejectment. The defendant filed an answer and cross-complaint admitting his failure to pay two installments of the purchase price when they were due, but alleging damages as a result of fraud exercised by the plaintiff in procuring the contract exacting usurious interest in a sum equal to the amount of all delinquent installments. Upon motion, a judgment on the pleadings was awarded plaintiff ejecting the defendant from the premises. The court said:
"The action of the court in granting judgment for plaintiffs on the pleadings is clearly correct. We find no equity on the face of the answer.
* * *
"Where a vendee in possession under a contract of purchase has failed to perform his part of the contract and is in default with respect thereto, without excuse he cannot maintain an equitable defense in an action of ejectment by the vendor. Connolly v. Hingley, 82 Cal. 642, 23 P. 273; Howard v. Hewitt, 139 Cal. 614, 73 P. 414. ‘A purchaser cannot remain in possession of lands under a contract and at the same time refuse to pay the purchase price. * * *’ Rhorer v. Bila, 83 Cal. 54, 23 P. 274, 275; Gates v. McLean, 70 Cal. 49, 11 P. 489; Gervaise v. Brookins, 156 Cal. 106, 103 P. 329. The essence of the rule is that, where the legal title to the property is in the plaintiff and that fact is admitted by the defendants, defendants cannot successfully defend against an action in ejectment unless they make out a complete equitable title in themselves with the right of possession thereunder. Wallace v. Maples, 79 Cal. 433, 21 P. 860; Flint v. Conner, 53 Cal.App. 279, 200 P. 37."
The appellants in the present case contend that the grounds of defense which are authorized by the provisions of section 438 of the Code of Civil Procedure to be pleaded by means of a counterclaim, are greatly enlarged since the decision in the case of Hincksman v. Delacour, supra, was rendered. That section was amended in 1927 (St. 1927, p. 1620) by eliminating the requirement that the cause of action must arise from the same "transaction set forth in the complaint." The statute now authorizes the counterclaim to be filed when the cause merely tends "to diminish or defeat the plaintiff’s recovery." Both the case of Verbeck v. Clymer and Watkins v. Warren, supra, were decided after the amendment became effective. We may not assume that the amendment to the section was overlooked by the court.
In the present case the purchaser of land seeks to satisfy delinquent installments under the contract, with an unliquidated claim for damages. Defendants stipulate in the contract that it may be canceled for failure to pay installments at specified times. For this default the contract was canceled, as provided by the terms of the agreement. This suit in ejectment is not based upon the contract, nor upon the assumption that it is valid. There is no effort in this suit, or otherwise, to collect delinquent installments under the contract. There may be good reason to hold it is too late after a contract has been canceled pursuant to agreement for a purchaser to claim an offset for delinquent installments by setting up damages which might be recovered on account of fraud.
In the case of Paolini v. Sulprizio, 201 Cal. 683, 258 P. 380, upon which the appellants rely, the seller of land brought suit to collect delinquent installments. By the very nature of that action the plaintiff affirmed the validity of the contract. It was not rescinded. Both parties affirmed the contract. In a cross-complaint the defendant admitted his failure to pay one final installment of $2,000, but affirmatively alleged that payment was satisfied by damages sustained as a result of fraud with respect to representations regarding the nature and adaptability of the soil. The trial court refused to receive evidence of that fraud, and rendered judgment in favor of the plaintiff for the balance of the stipulated purchase price. The Supreme Court held that the defendant was not required to disaffirm or rescind the contract before he could maintain an action for fraud. The case was decided on that point. That was not a possessory action. In effect the defendant denied the asserted indebtedness by his allegations in the cross-complaint, which amounted to partial failure of consideration or a decrease of the represented valuation of the land. The authorities support that procedure in a suit upon contract for unpaid installments. In the present case the contract has been rescinded. The delinquent installments are waived. The suit is not founded on the contract. It is a mere suit of ejectment for possession of the premises. This furnishes a clear distinction between these cases.
Other cases relied upon by the appellants may be likewise distinguished.
Finally, we are cited by the appellants to the case of Elm v. Sacramento Suburban Fruit Lands Co. (Cal. Sup.) 17 P.2d 1003. This is a suit by the purchaser of land for specific performance of the contract. It was alleged that the entire purchase price had been paid. The answer asserted that $640 of the purchase price was not paid. A judgment for $1,940, which was previously recovered by the plaintiff in a different action between the same parties for damages for fraud exercised by the land company in the sale of the same real property was received in evidence upon the trial of this case. Judgment was rendered in favor of the plaintiff, requiring specific performance of the contract. The judgment in the fraud case was competent evidence in the suit for specific performance, as an offset to show satisfaction of the alleged unpaid installment, entitling the purchaser of the property to a deed of conveyance pursuant to the contract. It tended to prove he was not indebted to the defendant for unpaid installments, or otherwise. The Supreme Court does say that defendants’ failure to plead the unpaid installment on the purchase price of the land as a counterdemand in the other suit for damages for fraud, constitutes a waiver of that claim, on the principle that "the judgment operates as res judicata, not only in regard to the existence of the plaintiff’s cause of action, but as to the nonexistence of the defense which was not pleaded." This is not in conflict with the foregoing determination that prospective damages for fraud in procuring a contract for sale of real property may not properly be pleaded as a defense to a suit for ejectment after the contract has been rescinded. The Elm Case, supra, is based upon an affirmance of the contract by all the parties concerned. The present case is based upon a cancellation of the contract for default in the performance of its terms, and an independent suit of ejectment for mere possession of the premises.
For the reasons that the fraud alleged in the answer and cross-complaint furnishes no defense to the suit for ejectment in this case, the judgment must be affirmed. It is so ordered.
We concur: PULLEN, P. J.; PLUMMER, J.
On Application for Rehearing.
PER CURIAM.
On petition for rehearing it is conceded by respective counsel that it was their intention that the stipulation of facts upon which this appeal was heard and determined was not to bar the right of appeal on its merits. Pursuant to this stipulation the opinion is hereby modified by striking therefrom the paragraphs beginning with the language: "The stipulation of facts" found in line 10 from the bottom of page 880, volume 72, California Appellate Decisions, to and including line 15 from the top of page 881 thereof. The following language is also stricken from the succeeding paragraph, to-wit: "and because the right of appeal was waived by consenting to the decree."
With this modification the petition for rehearing is denied.