Young Et Ux. v. Hansen Et Ux.

LATIMER, Justice.

Plaintiffs appeal from an adverse judgment entered in the court below in a suit to recover certain sums of money-paid to the defendants.

The facts out of which this controversy arises are these: On or about the 14th day of May, 1948, the plaintiffs and defendants orally agreed that plaintiffs would pay to the defendants the sum of $9,000 for an undivided one-half interest in certain real and personal property then owned by the defendants, with the understanding that a partnership would be formed and a partnership agreement drafted and executed, the terms of which would be agreed upon at a future date. The plaintiffs claim the parties agreed that the sum of $9,000 was to be paid when plaintiffs sold their home, and, that if a sale was not made by November 15, 1948, then the defendants were to complete the transfers and conveyances and the plaintiffs were to pay to the defendants the sum of $50 per month between November and the time when the home was sold, the remaining balance to be paid upon the sale. Defendants, on the other hand, contend that time was of the essence and the $9,000 was to be paid in full by November 15, 1948, without regard to the sale of plaintiffs’ premises.

The oral agreement contemplated that plaintiffs were to occupy a certain portion of the premises owned by the defendants and that prior to the execution of the written partnership agreement and the payment of the full purchase price, the parties were to operate the farm and raise and sell certain farm animals, chickens and rabbits, on a profit or loss arrangement whereby each would pay one-half the costs and divide in equal parts the profits or losses.

Plaintiffs contend that during the month of July, 1948, defendants who had a mortgage on their home, importuned the plaintiffs not to await a sale but to mortgage the home and make a part payment on the $9,000; that they mortgaged their home, obtained $4,000 and paid that sum to defendants, and that the oral contract was modified to the extent that the documents conveying title and the partnership agreement would be executed forthwith. It was defendants’ contention that the $4,000 was a part payment on the $9,000 and that there was no modification of the original oral agreement.

It is undisputed that plaintiffs paid to defendants the sum of $4,000 and in addition sold certain household furniture and equipment for which they received a credit of $60; and it is further undisputed that the plaintiffs moved into the premises and that they together with the defendants worked in unison for a short while in accordance with their understanding of the oral agreement. As is not unusual when families try to work and live together, frictions soon developed and difficulties were encountered. Plaintiffs claim that defendants breached the contract by refusing to execute the necessary documents for the transfer of title to a one-half interest in the property after payment of the $4,000 and by refusing to discuss or consider the terms of the contemplated written partnership agreement. On the other hand, defendants assert that the plaintiffs breached the contract in not making full payment within the time agreed upon.

We are not disposed to reconcile the inconsistencies in the testimony of the parties and determine whether or not the plaintiffs carried the burden of proving defendants’ default. The trial judge apparently treated the suit as being .one strictly in contract in which plaintiffs were not entitled to any relief unless they established by a preponderance of the evidence that defendants had breached the contract and that they were without fault. In certain types of actions on contracts this is a salutary rule of law, but in the present instance it has little, if any, application.

If we consider the issues as framed by the pleadings then defendants do not deny an oral contract, the receipt of the money or the partial performance by plaintiffs. They, the defendants, do not ask for affirmative relief, they do not offer to perform, they allege no damage, they acknowledged a partnership is now undesirable, and they do not offer to execute the legal document necessary to perform their part of the agreement. All they attempt to do is to thwart plaintiffs’ attempt to recover by alleging plaintiffs breached the contract and are without remedy because of their default. The trial court apparently adopted this theory.

We believe that in adopting respondents’ theory, the trial judge overlooked the principle that under certain circumstances a plaintiff who fails to fully perform his contract is entitled to a judgment for the amount he contributes to the defendant over and above the amount of harm he has caused to the defendant by his own breach. In this connection, we quote from paragraph 857, Restatement of the Law of Contracts, page 623:

“(1) Where the defendant fails or refuses to perform his contract and is justified therein by the plaintiff’s own breach of duty or nonperformance of a condition, but the plaintiff has rendered a part performance under the contract that is a net benefit to the defendant, the plaintiff can get judgment, except as stated in Subsection (2), for the amount of such benefit in excess of the harm that he has caused to the defendant by his own breach, in no case exceeding a ratable proportion of the agreed compensation, if

“(a) the plaintiff’s breach or non-performance is not wilful and deliberate; or

“(b) the defendant, with knowledge that the plaintiff’s breach of duty or non-performance of condition has occurred or will thereafter occur, assents to the rendition of the part performance, or accepts, the benefit of it, or retains property received although its return in specie is still not unreasonably difficult or injurious.

“(2) The plaintiff has no right to compensation for his part performance if it is merely a payment of earnest money, or if the contract provides that it may he retained and it is not so greatly in excess of the defendant’s harm that the provision is rejectéd as imposing a penalty.

“(3) The measure of the defendant’s benefit from the plaintiff’s part performance is the amount by which he has been enriched as a result of such performance unless the facts are those stated in Subsection (lb), in which case it is the price fixed by the contract for such part performance, or, if no price is so fixed, a ratable proportion of the total contract price.” (Emphasis added.)

In the comments on the subsection the principle is limited to those cases where the defendant refuses to perform as he agreed. Subsection (b) is as follows:

“The rules stated in the present Section are applicable only in those cases where the defendant refuses to perform as he promised and is justified in so doing by the plaintiff’s breach or non-performance. The contract may be such that the defendant still has a right to specific performance in full by the plaintiff; and if he insists thereon, remaining able and willing to perform his part, he may keep whatever he has received and maintain suit for the balance that is unpaid.”

The defendants in this case admit only a token performance on their part, and this only in connection with a short term operation of the joint venture. They do not allege or prove a willingness to perform their part of the contract. Their testimony substantiates a finding that com ditions arose which made a partnership agreement between the parties impossible and a further finding that they would not convey a one-half interest in the property to plaintiffs. The principal reason for defendants not complying with their agreement to furnish deeds and bills of sale and to enter into a partnership contract is because, as they claim, Plaintiffs first breached the oral contract. In view of the manner in which the difficulties arose, it is difficult to place the blame on either of the parties. But conceding for the purpose of this decision that plaintiffs’ non-performance is the first breach of the oral contract for which the defendants have a right to claim damages, we see no reason why defendants should retain both the property and the money. Plaintiffs’ predicament is illustrative of the injustice that could be imposed if courts permitted the defendants to retain the benefits acquired from part performance on the part of the plaintiffs. Certainly, the benefits received by the defendants in this case are greatly in excess of any damages they have suffered, and to let them retain the property and the $4,000 payment would, in effect, give defendants this latter amount for nothing. Moreover, it would exact from plaintiffs a sum far in excess of any monetary damage suffered by the defendants.

We cast out the exception mentioned in sub-paragraph 2 of paragraph 357, Restatement of the Law, supra. We are not here dealing with a small token payment, which is given pursuant to the terms of a contract permitting the payment to be forfeited upon non-compliance with the terms. We are dealing with a substantial sum of money, which paid for almost fifty per cent of the interest the plaintiffs were to receive in land and property of an agreed value of $9,000. The payment was not an earnest money payment as the parties did not so contemplate. The contract did not provide for retention of the money and even if it did, it is questionable that such a provision could be enforced, as defendants would acquire an unconscionable advantage and be unjustly enriched at the expense of plaintiffs as there is no showing that defendants have suffered any damage. While admittedly the parties operated either a partnership or joint venture for a short period of time, the evidence indicates that a fair share of the expenses were paid by plaintiffs; that a certain amount of work or services were performed by them; that the defendants obtained certain permanent improvements on their premises because of the efforts of the plaintiffs; and, that for the most part, any profits or losses arising out of the venture were shared equally. This is far from a showing that defendants suffered any substantial damage as a result of the venture or of the breach.

We need not consider plaintiffs’ breach as being without semblance of excuse. It is unreasonable to insist that a person perform more fully than did plaintiffs without some degree of security. A payment of $4,000 was made without a receipt being given. No security was offered by defendants and no written partnership agreement was prepared. When friction began to develop and it became apparent that the partnership venture would not succeed, there appears good reason why the plaintiffs should not be called upon to pay the remaining $5,000 until written documents were prepared and the terms of the partnership agreement determined. Accepting defendants’ version of the agreement, the payment of the remaining balance should have been contemporaneous with the execution of the documents, and until the terms of the partnership were agreed upon, and a contract prepared for execution final payment could not be expected. Defendants have apparently treated the arrangement as placing all burdens on the plaintiffs and none on themselves.

Even were we to go one step further and assume that the breach was without reasonable justification, the plaintiffs are not entirely without remedy. Referring again to the same paragraph of Restatement of the Law of Contracts, (paragraph 357, page 623, supra) under Comments, Subsection f, the following rule is announced:

“Even though the plaintiif’s breach is wilful and without semblance of excuse, the defendant must restore the excess of benefit over harm if, with knowledge that the breach has occurred or is impending, he assents to the part performance, or retains it or accepts the benefit of it unreasonably. If the part performance is received without such knowledge and is of such a character that it cannot be returned in specie without unreasonable difficulty or sacrifice, it may be retained without making restitution, even though it exceeds the injury. Such is sometimes the case when the part performance has been incorporated with the defendant’s land or goods. Doubts in cases of this kind are resolved in favor of the plaintiff, in order to avoid a forfeiture in excess of harm suffered.” (Emphasis added.)

In Williston on Contracts, Revised Edition, Vol. 5, Section 1473, we find discussed the right of recovery by one who has broken his contract. In that paragraph we find the following statement of the law:

“Few questions in the law have given rise to more discussion and difference of opinion than that concerning the right of one who has materially broken his contract without legal excuse to recover for such benefit as he may have conferred on the other party by part performance of an indivisible contract or by the performance of an indivisible fraction of a divisible portion of a contract. A satisfactory solution is not easy, for two fundamental legal policies seem here to come in conflict. On the one hand, it seems a violation of the terms of a contract to allow a plaintiff in default to recover — to allow a party to stop when he pleases and sell his part performance at a value fixed by the jury to the defendant who has agreed only to pay for full performance. On the other hand, to deny recovery often gives the defendant more than fair compensation for the injury he has sustained and imposes a forfeiture on the plaintiff. The mores of the time and place will often determine which policy will be followed. But the second of these opposing policies has steadily increased in favor in recent years. Except where the obliquity of the defective performance is of a sort that indicates moral obliquity, and where, therefore, the courts feel that the one who is in default may properly be penalized, the tendency is to grant him restitution if a substantial net benefit has accrued to the defendant by partial performance.” (Emphasis added.)

Defendants rely to a great extent upon their contention that the plaintiffs alleged a contract, a breach, and sought damages for their recovery; and, that by so doing, the issues necessarily confined plaintiffs to establish their cause of action by proving a breach on the part of the defendants. This is too narrow a construction of the law and of the pleadings. In this instance, the allegations of and admission in the pleadings are sufficient to establish a contract and the only elements remaining which must be alleged and proven are either a breach on the part of defendants or their refusal to perform and the damages suffered. If plaintiffs fail to establish a breach by defendants but do establish a refusal to perform by them, under the principles of law announced, plaintiffs are not precluded from recovering the amount paid. The action is in contract and the damages are determined by the amount paid or the reasonable value of part performance, less the damages suffered by defendants. Defendants might allege and establish that they did not default first so as to permit them to establish and offset their damages against plaintiffs’ claim, but this would not foreclose plaintiffs from recovering on the theory that defendants’ refusal to perform had unjustly damaged plaintiffs and unjustly enriched defendants.

The judgment is reversed with directions to grant a new trial. Costs to appellant.

WADE, J., concurs.