Smith v. Bangham , 156 Cal. 359 ( 1909 )

The plaintiff appeals on the judgment-roll alone from a judgment in his favor for one dollar. The action was based upon an alleged contract for the purchase of real estate, and the complaint contained two counts, one averring facts upon which plaintiff asserted his right to a specific performance of the contract, and the other seeking damages for its breach.

The court found that on December 26, 1905, the plaintiff and the defendant Joseph T. Bangham entered into a written contract whereby Bangham, in consideration of the sum of one dollar, granted to plaintiff or his assigns, "the right and privilege of exercising an option to purchase" the property in dispute "for the sum and purchase price of $17,000 dollars, . . . provided that the said W. Scott Smith, or his assigns, shall exercise said option to purchase on or before February 26, 1906, by notifying me in writing of such exercise of option. Upon such notification within such time I agree assigns, a reasonable time after said delivery to examine said W. Scott Smith, or his assigns, on the above terms, and agree to furnish and deliver within ten days after such notification, to said W. Scott Smith, or his assigns, an unlimited certificate of title to said real estate . . . showing good marketable title of record to said real estate to be in me free and clear of all encumbrances and allowing the said W. Scott Smith, or his assigns, a reasonable time after said delivery to examine said certificate of title. Said notification and the furnishing of said certificate of title within said reasonable time showing title as aforesaid, shall bind the said W. Scott Smith, or his assigns, to purchase said real estate on said terms." The property referred to in the above instrument was the separate property of the defendant Joseph T. Bangham. On February 26, 1906, the plaintiff elected to exercise the option provided for and to purchase the land in accordance with the terms and conditions named in the writing, and notified Bangham of his election. Bangham refused and ever since has refused and neglected to make, execute, and deliver a deed, or to furnish the certificate of title as provided in said contract.

The court finds that, in response to plaintiff's notification of his election to purchase, Bangham informed the plaintiff that he was unable to give title to the land for the reason that his wife (the defendant Rowena Bangham) held a homestead on the property and "positively refuses to release it." It is found that the consideration to be paid for the said land was adequate, just, and reasonable and that "the price for the land at the time when plaintiff notified defendant Joseph T. Bangham that he elected to buy was a fair and adequate price for said land." It is further found that the contract was unjust and unreasonable in this, "that the only consideration paid therefor was the sum of one dollar" and that said sum of one dollar was grossly inadequate and unjust for said option; that the said contract is also unfair and unjust in this, that plaintiff was thereby enabled to postpone indefinitely performance on his part. It is found that the defendant Rowena Bangham, the wife of Joseph T., had actual notice and knowledge of the entering into said contract by her husband, and that she did, after the date of said contract, make and file a separate declaration of homestead on said premises; that said declaration was made by her without the knowledge or connivance of her husband. The contract referred to in the complaint has never been recorded. It is further found that the defendant Joseph T. Bangham did not act in bad faith in his failure to perform the contract; that the land had increased in value to the amount of five thousand dollars, as alleged in the complaint, but that plaintiff had not been damaged in any sum other than the sum of one dollar on account of such failure. As conclusions of law the court found, with respect to the first count, that plaintiff was not entitled to recover and that the declaration of homestead filed by defendant Rowena Bangham is valid and is not subject and inferior to the contract relied on. On the second count the conclusion of law was that plaintiff was entitled to recover of defendant Joseph T. Bangham the sum of one dollar and interest thereon from the twenty-sixth day of December, 1905.

On these findings the plaintiff contends that he was entitled to a decree specifically enforcing the contract, and that if, for any reason, such contract should not be enforced, he should recover a judgment for five thousand dollars, the increase in the value of the land.

The agreement signed by the parties on December 26, 1905, was a unilateral agreement, of the kind usually known as an option. By its terms Smith was under no obligation to purchase the land or to pay for it. He was granted the right or privilege of purchasing upon certain terms within a given time. Until he should have exercised this option he was in no way bound by the agreement. His election to accept and exercise the option within the time limited was, however, sufficient to bind him and to remove any objection to the enforcement of the contract on the ground of want of mutuality. (Hall v. Center, 40 Cal. 63; Ballard v. Carr, 48 Cal. 74; Calanchini v. Branstetter, 84 Cal. 249, [24 P. 149]; Thurber v. Meves, 119 Cal. 35, [50 P. 1063, 51 P. 536]; Sayward v. Houghton, 119 Cal. 545, [51 P. 853, 52 P. 44]; House v. Jackson, 24 Or. 89, [32 P. 1027].) The option had at least the force of an offer to sell, and the acceptance of this offer before it had expired or had been revoked constituted a valid and binding contract from which neither party could recede. (29 Am. Eng. Ency. of Law, 2d ed., p. 601; Vassault v.Edwards, 43 Cal. 458; Benson v. Shotwell, 87 Cal. 49, [25 P. 249].)

We think the finding of the court that the contract is unfair in that plaintiff was thereby enabled to postpone indefinitely performance on his part, is based upon an erroneous construction of the terms of the agreement. The contract reads that upon notification of acceptance Bangham agrees "on demand to grant, sell, and convey said real estate to said W. Scott Smith, or his assigns, on the above terms." It is argued that since the obligation is only to convey upon demand by Smith, the latter may indefinitely postpone the making of his demand, and thereby compel the defendant to be ready to convey to him at all times, without making himself liable for the purchase price. But the contract, reasonably interpreted, does not give him any such right of indefinite postponement. It is provided in the agreement that the notification of acceptance and the furnishing of a certificate of title shall bind him to purchase the real estate "on the above terms." If, under the agreement, the exact time of conveyance and payment were to be fixed by the purchaser's demand, there can be no question that such demand would have to be made by him within a reasonable time. What would be a reasonable time is a question of fact to be determined upon all of the circumstances of the case. So construed, the provision is in no wise inequitable or unfair.

It is found by the court that the consideration agreed to be paid for the land, i.e. the sum of seventeen thousand dollars, was fair and adequate. The plaintiff having bound himself by the acceptance of the option to pay this sum, we think the question whether or not one dollar was an adequate consideration for the option is a false quantity. The plaintiff is not seeking in this action to enforce the option, but to compel compliance with the contract which resulted from his exercise of the option. That contract was one whereby Bangham bound himself to sell the land, and Smith agreed to buy it, for the sum of seventeen thousand dollars. This is found by the court to be an adequate and fair consideration for the conveyance, and on an action by the vendee for specific performance of such contract the adequacy of the price paid for the option is not a material consideration. InGuyer v. Warren, 175 Ill. 328, [51 N.E. 580], the court said: "The consideration named in the written agreement is one dollar. As the parties agree to sell an option to buy for the sum of one dollar, there is no reason why such an express consideration is not an adequate one." (See, also, Ross v. Parks, 93 Ala. 153, [30 Am. St. Rep. 47, 8 So. 368].) Inadequacy of consideration alone (without fraud or something in the nature of fraud) is never considered, even in equity, except as bearing upon the right to specifically enforce an executory agreement. It affords no ground for setting aside an executed sale. Here there had been such executed sale of the option, which passed by the writing of December 26, 1905, and the payment of the agreed consideration.

The real question then is whether the fact that the vendor's wife declared a homestead upon the property is a sufficient answer to plaintiff's demand for a conveyance. Specific performance will not be decreed against a vendor who is unable for want of title to comply with his contract. (Bell v. Bank ofCalifornia, 153 Cal. 234, 239, [94 P. 889], and cases cited.) If the homestead was valid as against a prior agreement to sell, the refusal of the wife to join in a conveyance fully justified the judgment denying specific relief. It may be remarked that neither the pleadings nor the findings disclose the time when the homestead was declared. It is found to have been after the execution of the contract (of option) but whether before or after plaintiff had notified Bangham of his election to purchase is not shown. We think, however, that the rights of the parties would be the same in either event. It has been said that an option to purchase land does not before acceptance vest in the holder of the option an interest in the land. (Richardson v. Hardwick, 106 U.S. 252, [1 Sup. Ct. 213];Gustin v. Union School District, 94 Mich. 502, [34 Am. St. Rep. 361, 54 N.W. 156]; Phœnix Ins. Co. v. Kerr, 129 Fed. 723, [64 C.C.A. 251].) On the other hand, there are cases holding that the grant, on a valuable consideration, of an option to purchase, constitutes the grantee the equitable owner of an interest in the property. (House v. Jackson, 24 Or. 89, [32 P. 1027]; Kerr v.Day, 14 Pa. St. 112, [53 Am. Dec. 526]; Telford v. Frost,76 Wis. 172, [44 N.W. 825]; Wall v. Minneapolis etc. Ry. Co., 86 Wis. 48, [56 N.W. 367].) At any rate the option vests in the grantee the right or privilege of acquiring an interest in the land, and, when accepted, entitles him to call for specific performance.(Hawralty v. Warren, 18 N.J. Eq. 124, [90 Am. Dec. 613]; Kerr v.Day, 14 Pa. St. 112, [53 Am. Dec. 526]; People Street Ry. Co. v.Spencer, 156 Pa. St. 85, [36 Am. St. Rep. 22, 27 A. 113]; Guyer v. Warren, 175 Ill. 328, [51 N.E. 580].) Such right, when exercised, must necessarily relate back to the time of giving the option (People St. Ry. Co. v. Spencer, 156 Pa. St. 85, [36 Am. St. Rep. 22, 27 A. 113]), so as to cut off intervening rights acquired with knowledge of the existence of the option. A subsequent purchaser with notice of a valid and irrevocable option would certainly take subject to the right of the option holder to complete his purchase (Barrett v. McAllister, 33 W. Va. 738, [11 S.E. 220]; Sizer v. Clark, 116 Wis. 534, [93 N.W. 539];Kerr v. Day, 14 Pa. St. 112, [53 Am Dec. 526]), and we see no reason why the declarant of a homestead should stand in any better position.

A declaration of homestead creates no new or additional title. It attaches certain privileges and immunities to such title as may at the time be held. If the husband, for example, owns a title subject to an outstanding equity, a declaration of homestead by the wife, at least where she has knowledge of this equity, does not destroy it. Her homestead claim is impressed upon the title that her husband had, i.e. the title subject to such rights against it as were known to her to be held by third parties. These conclusions seem to follow from the former adjudications of this court. In Gilbert v.Sleeper, 71 Cal. 290, [12 P. 172], the plaintiff's husband had entered into an agreement with the defendant Sleeper to exchange two tracts of land and each entered into possession of the tract which he was to receive. Subsequently, Gilbert conveyed to his wife all of his property, including the land which he had agreed to convey to Sleeper and plaintiff filed a homestead upon all the land so conveyed to her. It was held that plaintiff's rights in the tract agreed to be conveyed to Sleeper were subject to the rights created by the agreement. "There was no error," says the court, "in refusing to admit in evidence plaintiff's declaration of homestead. Obviously, she could not, by filing it, defeat or impair the previously existing rights of defendant." In Snodgrass v. Parks, 79 Cal. 55, [21 P. 429], action was brought to quiet title to land which one of the plaintiffs had agreed to convey to some of the defendants, such defendants having wholly failed to pay the purchase money or to comply with any of the conditions of their contract. The defendants relied upon a declaration of homestead filed by one of them upon the land while in possession under this contract. This was held to constitute no defense to the action. The court said: "It is further urged that because a homestead was declared upon the property by Mrs. Dunlap the action cannot be maintained. This cannot be so. Conceding, as claimed by the appellants, that a homestead may be declared upon land held under a mere contract to convey, such declaration did not give any new title, or tend in any way to strengthen or enlarge the one then existing. Therefore, when the equitable title created by the contract, and possession under it, was lost in the manner stated, the homestead fell with it. It would be a marvelous doctrine that the filing of a declaration of homestead could create a new title, or render a bad title good." In Hayford v. Kocher, 65 Cal. 389, [4 P. 350], certain premises were by mistake excluded from a conveyance of lands. The wife of the grantor with knowledge of the mistake filed a declaration of homestead upon the lands so omitted. This was held not to affect the pre-existing right of the grantee to have the conveyance reformed so as to carry title to such premises.

The fundamental basis upon which all these decisions must rest is the proposition that (except where the contrary is expressly declared by statute), a declaration of homestead is subject to all rights in the property known by the person filing the declaration to exist. And this principle, applied to the facts of the present case, requires the holding that the declaration of homestead made by Mrs. Bangham with knowledge of the contract theretofore entered into with the plaintiff was subject to his right to demand a conveyance of the land in accordance with his contract.

The authorities principally relied on by the respondent,Fitzell v. Leaky, 72 Cal. 477, [14 P. 198]; Ontario Bank v.Gerry, 91 Cal. 94, [27 P. 531]; Lee v. Murphy, 119 Cal. 364, [51 P. 549, 955], are not in point. These cases hold that a declaration of homestead by the wife is good as against a prior unrecorded mortgage executed by the husband, although the wife had knowledge of the existence of the mortgage. But this conclusion is based upon the express provisions of sections 1240 and 1241 of the Civil Code, which provide that the homestead is exempt from execution or forced sale "except . . . 3. On debts secured by mortgages on the premises, executed and acknowledged by husband and wife, or by an unmarried claimant; 4. On debts secured by mortgages on the premises, executed and recorded before the declaration of homestead was filed for record." Here is an express statutory declaration that certain mortgages only shall be superior to the rights created by a declaration of homestead. As the mortgages in the cases cited did not come within the terms of the statute, they necessarily were inferior to the homestead. Here, however, we have no question of an attempt to subject the land to execution or forced sale from which it is specifically exempted. The question is merely whether antecedent rights in the property shall be cut off by a declaration of homestead, or, otherwise stated, whether such declaration shall enlarge the title owned at the time of its filing. For the reasons stated, we think this question must be answered in the negative.

On the facts as hereinbefore stated, the plaintiff was entitled to a decree specifically enforcing the contract of conveyance made by the defendant Bangham. But the record discloses further facts bearing on the appropriateness of this remedy. It is found that the American Avenue Building Company, a corporation, claims and has an interest in the said premises, "by virtue of a written agreement to convey by defendant Joseph T. Bangham, made in good faith and for value." If this interest is superior to that of plaintiff it would make it impossible for Bangham to comply with his contract to convey a good marketable title free and clear of encumbrances. But the court does not find the interest of the building company to be superior to that of plaintiff, nor does it find facts from which the respective priorities may be determined. A purchase for value, without notice of plaintiff's unrecorded contract, would not, under our statute, protect the subsequent purchaser unless his conveyance was "first duly recorded." (Civ. Code, sec. 1214) For all that appears, the building company's contract was never recorded. The facts as found, do not, therefore, offer any impediment to a decree of specific performance.

But the American Avenue Building Company is not a party to this action, and obviously its rights cannot be affected by any decree that might be rendered herein. A reversal of the judgment, with directions to the court below to enter a decree of specific performance, might result in plaintiff's obtaining a conveyance which would be valueless to him. Unless the plaintiff is willing to take and pay for Bangham's title without regard to the validity of the building company's claim, the question whether an effective decree for specific relief can be made should be determined in an action in which every party having an interest in the property is represented. To this end, a new trial should be ordered. If, upon such new trial, it should appear that specific performance cannot be decreed, the question of plaintiff's right to damages, as prayed by the second count of the complaint, will arise. The measure of damages in such cases is clearly defined by section 3306 of the Civil Code. The difference between the price agreed to be paid and the value of the estate may be recovered only where there has been bad faith on the part of the vendor. Here the court came to the conclusion that the defendant Bangham did not act in bad faith. On this appeal on the judgment-roll, we cannot, therefore, direct the allowance of damages for any greater sum than that recovered. But the question of good or bad faith should be considered anew by the trial court in the light of our views on the main question discussed in this opinion. Accordingly, the issue of damages, as well as the issues arising on the prayer for specific performance, should be retried.

The judgment is reversed, and the cause remanded for a new trial. The plaintiff should have leave to amend his complaint, and to bring in new parties if so advised.

Shaw, J., Angellotti, J., and Henshaw, J., concurred.