Arguello v. Edinger

Field, J., delivered the opinion of the Court

Terry, C. J., concurring.

Upon the admission by the demurrer of the contract and acts set forth in the answer, two questions arise : first, whether, under the Statute of Frauds of this State, Courts of Equity possess any power to decree a specific performance of a verbal contract for the sale of land in case of part performance; and, second, if they possess the power, whether the acts detailed constitute such part performance as to justify its exercise.

The plaintiffs rely, in support of the demurrer, upon the opinion of this Court in Abell v. Calderwood, (4 Cal., 90.) From the statement of the reporter, it does not appear that there were any acts of part performance alleged in that case to take the verbal contract from the operation of the statute. The opinion, however, goes beyond the facts of the case, and denies in general language the authority of a Court of Equity to decree a specific performance of a verbal contract in any case. So far as the opinion passes out of the facts of the case, it can not be regarded as authority, and we do not feel any embarrassment in departing from its conclusions.

The jurisdiction of Courts of Equity to decree a specific execution of verbal contracts, in certain cases, was asserted very soon after the passage of the English statute of 29 Charles II. That statute was intended as a protection against the perpetration of fraud by the assertion of pretended agreements and attempts to support them by perjury; and Courts of Equity, in enforcing contracts not made in conformity with its provisions, acted not upon any assumed authority to dispense with the statute, but with a view to carry out its true spirit and policy. Thus, where a verbal contract was alleged in the bill, and admitted in the answer, without the defendants’ insisting upon the statute, a specific performance was decreed, upon the obvious grounds that the admission of the contract took the case out of the mischiefs against which the statute was intended to guard; and the failure to insist upon the statute, was a waiver of its protection. (Fonb. Eq. I, ch. 3, § 8; Att. Gen. v. Day, 1 Ves., 221; Gunter v. Halsey. Ambler, 586; Newland on Conts., 201; Spurrier v. Fitzgerald, 6 Ves., 548; Story’s Equity, § 755.) So, where a verbal contract had been so far performed, by one of the parties, relying upon the good faith of the other, that he could have no adequate remedy except by complete performance, Courts of Equity decreed its execution, upon the ground that the refusal to execute the same under such circumstances was a fraud, and that a statute, having for its object the prevention of fraud, could not be used as an instrument for its perpetration. (Fonb. Eq., chap 3, § 8; Foxcroft v. Lester, 2 Vern., 456; Newland on Cont., 181; Morphett v. Jones, 1 Swanst., 181; Story’s Eq., § 759.)

The jurisdiction of Courts of Equity thus early asserted to enforce a specific execution of verbal contracts, notwithstanding the Statute of Frauds, has been uniformly maintained in England ever since, and is now too firmly established to admit of question. And in almost every State of the Union, which has adopted the general provisions of the English statute, the jurisdiction is unquestioned. The statute of this State contains a legislative recognition of its existence, in cases of part performance, when, in the tenth section of the first chapter it provides that “ nothing contained in this chapter shall be construed to abridge the powers of Courts to compel the specific performance of agreements in case of part performance of such agreements.”

It is true that eminent Judges have, at different times, questioned the wisdom of allowing exceptions to the statute, and have declared their intention not to extend them beyond the established precedents; but none have gone so far as to deny the power of a Court of Equity to grant relief in a clear case where the refusal to complete the contract would operate as a fraud upon the purchaser. 'The statute of this State is almost literally copied from the statute of Hew York, and in that State the equity powers of the Court are on few subjects more frequently exorcised than in the enforcement of the specific execution of verbal contracts for the sale of land in cases of part performance.

What acts shall be deemed a part performance, is a matter upon which there has been much discussion, and some conflict of opinion. The true rule, gathered from the adjudged cases is, that nothing can be regarded as a part performance, to take the case out of the operation of the statute, which docs not place the party in a situation which is a fraud upon him, unless the contract be executed. Taking possession, is held such act of part performance, as the party might be treated as a trespasser if he could not invoke the protection of the contract. And if, upon the faith of the contract, the purchaser should proceed to make valuable improvements, the most palpable fraud would be perpetrated if the vendor were permitted to withdraw from its execution. (Clinan v. Cooke, 1 Sch. & Lef., 41; Parkhurst v. Van Cortlandt, 1 Johns. Ch., 284; Lowry v. Tew, 3 Barb. Ch., 413; Story’s Equity, 761.)^*

In the present case, the contract is admitted. There is no doubt in regard to its terms. The purchaser received possession under the contract, made permanent improvements, of the value of fifteen thousand dollars, with the knowledge and encouragement of the vendors, and paid fifteen hundred dollars of the consideration of the purchase; and such was his confidence in the good faith of the vendors that by his will he made one of them his executor, who took out letters testamentary, and, as executor, treated the land sold as the property of the deceased, and endeavored to lease the same for the benefit of his estate. There would be a great defect in the administration of justice if, under these circumstances, the defendants could have no relief.

The defence arising from a verbal contract for the sale of land, accompanied with acts of part performance, taking the contract from the operation of the statute, is permissible, under our system of practice, to an action of ejectment for the recovery of the premises. The only effect of this mode of asserting the rights of the defendant, instead of by a bill in equity, is to require the Court to pass upon the questions raised by the answer in the first instance. If, upon hearing the evidence, the Court should determine there was ground for relief, it would enjoin the further prosecution of the action with its decree for a specific performance ; and, on the other hand, if it should refuse the relief, it would call a jury to determine the issue upon the general denial. (Thayer v. White, 3 Cal., 228; Chary v. Goodman, 2 Kirnan, 266; Tibeau v. Tibeau, 19 Missouri, 78.)

The answer disclosed the fact that the contract was not in writing, but it also averred acts of part performance, which took the contract out of the operation of the statute; and it was not, therefore, demurrable. (Story’s Equity Plead., § 764; Cozine v. Graham et al., 2 Paige, 177; Harris v. Knickerbocker, 5 Wend., 638.)

The judgment is reversed, and the cause remanded for further proceedings.

Burnett, J.

think that the decision of this Court in the case of Abell v. Calderwood, is an authority in point for the plaintiffs. The case was regarded by this Court as one of part performance. The payment of the entire purchase-money had been made by the plaintiff, and this has been regarded by many authorities as a part performance. (2 Parsons on Contracts, 552; Williard’s E., 284.)

The plaintiff also relies upon the leading principle announced in the decision of this Court in the case of Lee v. Evans, (8 Cal. Rep., 424.) As there has been a renewed discussion of this question, especially in the late dissenting opinion of Judge Field, in the case of Johnson v. Sherman, it is proper to state some further reasons in support of the conclusion to which a patient and anxious consideration of the whole question has led us.

It will readily be seen that many of the instances put by my associate, in illustration of his view, have no application to the precise point in question. For example, the admission of parol evidence, on the part of innocent and injured third parties, to contradict or vary the terms or legal effect of a written instrument, rests upon a very different ground. It is no violation of the statute, for the simple reason that the statute itself makes such instruments void as against third parties, and, of course, allows parol testimony to show the fraud. (§§ 1, 20.) It is no violation of the rule of the common law excluding parol testimony, because written instruments estop only parties and privies. “ The rule under consideration is applied, only to suits between the parties to the instrument-, as they alone are to blame if the writing contains what was not intended, or omits that which it should have contable.1.” (1 Greenl. Ev., § 379.) So, in the case of resulting and implied trusts, the statute expressly excepts them from its operation, and the person seeking to enforce them i-. no party to the instrument. (§ 7; 4 Kent, 305; 1 Greenl. Ev., § 266.)

The rule which permits a party to the instrument itself to show that it was obtained by force, fraud, accident, or mistake, also rests upon a different principle. The theory of this rule proceeds upon the ground that tlio instrument never had a legal existence. The proper delivery of an instrument is necessary to give it vitality, and is a part of its execution; and when that delivery is induced, under circumstances which do not leave the-party free to net adoisedly, there is no proper delivery. True, the party lias signed and delivered the instrument; hut in doing this, lie has not done that which he would have done freely, with a full knowledge of the existing circumstances. He has been guilty of no force or fraud himself, and no negligence can be imputed to him. Ho has acted under duress, or unadvisedly, without fault on his part; and, therefore, the instrument is not regarded as his proper act, end the Courts will not enforce it as such.

But the case is very different when there is no force, fraud, accident, or mistake, in the creation of the instrument. Here, the parties know the law and the facts, just as they are, and they act freely and advisedly. There is no imposition, no surprise-, no ignorance; and the instrument contains precisely that which tlio parties have deliberately agreed it should contain. Yet the party comes into Court, and asks the privilege of showing that his most solemn deed contains a deliberately false history of the transaction it assumes to relate truly. And while he insists upon showing that his own deliberate and voluntary statements are untrue, lie lias no excuse to plead but his own willful negligence in violating the law.

It is most cheerfully conceded, that my associate has stated the rule for which ho contends, in language as clear and accurate as the nature of the case will permit. He says : “ The rule which refuses the admission of parol evidence, to contradict or vary written instruments, is directed to the language employed by the parties. That language can not be qualified, but must be left to speak for itself.” Again: “The parol evidence is admitted, as I have already observed, not for the purpose of contradicting or varying the written instrument, but to show facts dehors the instrument, creating an equity superior to its terms.”

But with all due deference for the opinion of my learned associate, I can not perceive any substantial distinction between contradicting or varying the terms of an instrument, and creating an equity superior to its terms. In both cases, the ultimate effect is precisely the same. The legal effect of the instrument, as drawn from a correct construction of its terms, is equally defeated in both. The same end is attained, whether you call it contradicting the instrument, or creating an equity superior to its terms. It is very true, that the object of the Court is to ascertain the true intention of the parties. But the Court having no intuitive knowledge of this intention, must, of necessity, resort to evidence to ascertain it. The language of the instrument is but the medium through which the parties have mutually agreed to convey their intention to the Court. Therefore, the legal effect of the instrument is only the legitimate result of a true construction of its terms. And if you contradict the terms of the instrument, you defeat its legal effect; and if you control or defeat its legal effect, you impair its terms; because you keep those terms from producing their legitimate result. “ Courts can not adopt a construction of any legal instrument which shall do violence to the rules of language, or to the rules of law.” (2 Parsons on Contracts, 7.) A valid, existing agreement, is one that the Courts will enforce. If it can not be enforced, it is no contract, because it does not attain the only end contemplated by its terms. The performance of the contract is the end sought by the parties who make it. (Robinson v. Magee, 9 Cal. Rep., 83.) If the Court tells the party who seeks to enforce his written contract that its terms can not be contradicted or varied by parol evidence, but that such testimony will be admitted to show an equity dehors the instrument, superior to its terms, and that this superior equity must defeat his deed, what consolation is this to him? This alleged superior equity rests upon parol testimony, and this testimony rests upon the doubtful credibility and the fallible memory of witnesses. In vain has the party relied upon the written evidence mutually created by both. True, he is told that the terms of the instrument will not be contradicted or varied; but still he can obtain no enforcement of the rights clearly shown by those terms to exist. Of what greater protection is the deed in the one case than in the other ? It is equally overcome by parol testimony in both. In one, it is called a contradiction ; in the other, by another name, meaning the same thing. The superiority of parol over the written evidence is admitted, and enforced alike in both cases.

The Constitution-of Kentucky created the Court of Appeals, defined its jurisdiction, designated the number of Judges, the tenure of their offices, and prescribed the mode of their appointment. The Court was filled by Judges appointed in the manner pointed out by the Constitution; but their decisions did not meet the views of the Legislature. It was conceded that the Legislature had no power to abolish the Court, and no power to remove the Judges. But it was contended by many distinguished men that the Legislature had the power to re-organize the Court, and thus obtain other Judges, who would decide certain acts of that body to be constitutional. The Judges could not be removed from an office created by the Constitution, but they could be re-organized, out of office.

The contradiction between a deed absolute upon its face, and the parol testimony which goes to show it was only intended as a mortgage, would seem to be plain. The language of the deed is clear, definite and certain. Its terms are so plain that it can not, upon its face, bo distinguished from any other absolute deed conceded to have been intended as such. Its terms say the land was sold, but the parol testimony says the same land, at the same time, by the same transaction between the same parties, was not sold, but onlj mortgaged. The deed places the legal title in the grantee; but the verbal agreement places it in the grant- or. Under the terms of the deed, the grantee is the owner, and entitled to the possession ; while under the terms of the parol agreement, the case is precisely reversed, and it is the grantor who is the owner, and entitled to the possession. And when we look to those cases in which the Courts have excluded the parol testimony, because it contradicted or varied the written instrument, we shall see that the contradiction was no greater than in the case of an absolute deed being shown to be a mortgage. (Greenleaf's Ev., § 281.)

The ground that parol testimony should be admitted to vary the written instrument, because a violation of the verbal agreement would be a fraud, is well stated by Professor Parsons “ to be somewhat inconclusive.” (2 Par. on Con., 553.) A party can not be guilty of a fraud for insisting upon his contract; and the only question is, what is the contract? The writing says one thing, and the parol testimony another. Which is the better evidence, and which shall we believe ? The Court can only know from the testimony what the contract is, and what are the rights of the parties under it. Before you can reach the conclusion that the party will be guilty of a fraud, you must determine what was the contract. And to do this, you must decide between two conflicting classes of testimony, and prefer one to the other.

And the question “resolves itself into this: that a Court of Equity will set aside the Statute of Frauds, when, if applied, it would work or protect a fraud.” (2 Par. on Con., 553.) And if we set it aside in one ease, because one of the parties will not perform, a secret parol condition left out of the instrument, it is difficult to see why it should not bo done in other cases. If a fraud in one case, it is equally so in others. The cases may differ in degree, but not in principle. The difference in degree may well be addressed to the Legislature, but not to the Courts. And when parties deliberately rely upon tlio mere verbal promises of each other, and willingly disregard the means the law affords for their protection, why should they afterwards call upon the Courts? If one man chooses to trust to the honor of another, should he not abide the event? He had the right to trust, and he should be bound to suffer the consequences. The Courts have no right to assume a guardianship over men, free and competent to contract, unless the law confers this power.

But it seems to me that the different provisions of our statutes, when taken together, settle this question. The Code provides “that a mortgage of real property shall not be deemed a conveyance, whatever its terms, so as to enable the owner of the mortgage to recover possession of the real property without a foreclosure and sale.” (§ 260.)

Under this provision, the question whether the instrument be a mortgage or not, must be determined by the terms of the instrument as construed by the Courts at the time the Code was adopted. If a mortgage, then the right of possession is in the mortgagor until foreclosure and sale. By positive statute, the whole question as to the effect of mortgages is settled. If, therefore, the terms of the instrument he contradicted, the contradiction is the consequence of the statute itself. The terms of the law enter into and form a part of the mortgage ; and effect is given to the instrument as thus modified by the law.

It will be seen that our Statute of Frauds differs in one very important respect from the English statute, as well as from the statutes of our sister States. The tenth section of our act specially excepts from its operation parol agreements that have been partly performed, leaving the power in the Courts to enforce a specific performance of such agreements.

It must bo conceded that the framers of onr statute were well acquainted with the whole current of decisions upon the English statute, as re-enacted in the different States of the Union. They put into the act the different exceptions found in the English statute; and, in addition to these, the tenth section. Why, then, did they not put in the exception in regard to mortgages ? If any such exception was intended, then was the proper time to make it. The framers of our statute deliberately added one express exception, not found in the former statute; and we must presume they intended to leave their work complete. The act is carefully and ably drawn, and must have been maturely considered; and the very fact that no exception was made as to parol mortgages, shows that no such exception was intended. And if no such exception was in fact intended, it is difficult to see how-the statute could have been framed to exclude such exception, in terms more plain, without resorting to useless tautology. The framers of the act first lay down the general rule in very explicit terms; and then, in terms equally explicit, specifically state certain exceptions to that rule. Their atten tion was called to the matter of exceptions, and they exercised their judgment upon that question; and, as a result of that examination and decision, they distinctly state certain specified exceptions. How, then, can we say they intended others not thus stated ? What right have we to add exceptions that they chose to omit?

And there would seem to have been the best reasons for the exception in the one case and not in the other. In the case of part performance, the plaintiff does not ask to be allowed to contradict his own deliberate and solemn deed; and the proof of his contract is much more certain, from the fact that his performance of the contract is open and notorious, and “ the evidence of the bargain does not lie merely upon the words, but upon the fact performed.” (Fonb. Eq., 170.) There has been a performance on his part; and if the contract be held void, he would lose not only the purchase-money, (the full value of the land,) but also ail his improvements, and be liable in damages as a trespasser. But, in ease of an absolute deed being intended as a mortgage, the party executing the instrument is not only guilty of negligence, but of falsehood; and the only loss he can sustain, by a rejection of his parol testimony, is the difference between the sum ho received and the value of the land. Besides, there having been no open and notorious part performance of the contract, the difficulty of proof and danger of perjury are much greater.

At the time our statute was passed, the State was in its infancy; and the rapid advance in the value of real estate was antieipatod by the Legislature. It was foreseen that if parol testimony should he admitted to show that a deed, absolute upon its face, was intended as a mortgage, the greatest possible inducements would he held out for perjury. A party selling a lot in any of our cities, would, in a short period, find the value increased many fold; and if ho could bo permitted to show by a foreign element, dehors the instrument, that it was no sale, but a mere mortgage, he would be under the greatest temptation to do so. A fortune might he the result of a single successful effort. The Legislature liad, therefore, the best reasons for requiring parties to state the exact truth when they assume to state anything. It was intended to settle these vexatious questions, in relation to which there had boon so great a conflict of opinion among jurists. It was wise in the Legislature to cut off that fruitful source of perjury and vexatious litigation. The Legislature intended, 1 think, that henceforth the Courts should not be placed in the anomalous predicament of violating a plain statute to prevent a fraud.

But I take this view of the present case : A contract being a voluntary agreement between competent parties, upon a good consideration, to do or not to do some particular thing, which may be lawfully done or omitted, it makes no difference whether the subject-matter of the contract be real or personal estate, the contract is still good, whether verbal or written; unless some positive law provide otherwise. There being nothing in the statute declaring void a verbal contract for the sale of lands, when there has been a part performance, such a contract must be held good.

The provision of the tenth section is an express recognition of the validity of such contracts. If that section still left the Courts without power to enforce them, then it was idle, because the exception did no good. The Legislature intended to accomplish something by that section; but if the Courts possessed as little power with, as without the exception, then it was useless labor to put it into the statute.

There is no inconsistency between the principle laid down and the decision made in the case of Lee v. Evans. (Williard’s E., 282; 2 Par. on Con., 548; Story’s E. Jur., §§ 755-’56-’57.) The question was one solely relating to evidence. A party can waive the production of the written evidence if he pleases, because it is a personal privilege. The defendant, in that case, chose to put the result upon the parol testimony, and did not avail himself of the statute in his pleadings. Under our Code, if a defendant submits to answer, he must answer fully, or the facts are admitted. The admissions of a party upon the record are solemn admissions. (Greenl. Ev., 27, 186.) They are always regarded as equivalent to admissions by deed.

For the reasons stated, I concur in the judgment of reversal.

* Note.—“It seems formerly to have been thought that a deposit or security, or payment of the purchase-money, or of a part of it, or at least of a considerable part of it, was such a part performance as took the case out of the statute. But that doorine was open to much controversy, and is now finally overthrown.” (2 Story’s Eq., § 760.)

“ Whether a mere payment is a part performance, sufficient to sustain the application in equity, was more uncertain. At first, the Court seemed to think that if but little money was paid, it was not a sufficient part performance ; but if much, it was. This distinction has not been made in modern times, and certainly would be of difficult application, if not in itself unreasonable. And now it seems to be quite well settled that no mere payment of money will take the case out of the statute.” (2 Parsons on Contracts, 551.)