California Real Property Damages Case

In Ellis v. Mihelis (1963) 60 Cal.2d 206, two brothers owned two ranches, one in Stanislaus County operated by Pericles Mihelis and the other in Santa Clara County operated by Elias Mihelis. "In 1957 the brothers decided to sell the Stanislaus County ranch and agreed that Pericles should handle negotiations for the sale and submit any prospective deals to Elias. Pericles listed the property with a real estate broker in Stanislaus County, George Moreno, telling him that he was the owner." (Ellis, supra, 60 Cal.2d at p. 211.) "On April 17, 1958, Pericles and Moreno ... prepared an instrument using a printed form denominated 'Agent's Deposit Receipt.' The instrument, bearing the above date, acknowledged receipt of $ 5,000 as a deposit on account of the purchase price of the described property and provided for a total purchase price of $ 165,000, the balance to be paid $ 30,000 within 30 days from date and $ 130,000 by note bearing interest at 5 per cent per annum, payable in specified installments, and secured by a deed of trust and crop mortgage." (Ellis, supra, 60 Cal.2d at pp. 211-212.) "On May 2, 1958, Pericles, Elias, the buyer, and Moreno met at the ranch. Until then, neither the buyer nor Moreno knew that Elias had an interest in the property. Pericles stated that he had changed his mind and did not want to sell, that he was not 'going through with the deal,' that as a result of a frost occurring a few days earlier which had damaged some vineyards in the area but left his grapes unharmed his crop had become too valuable for him to sell the ranch, and that he could get the same price after the harvest." (Ellis, supra, 60 Cal.2d at p. 212.) "The trial court found among other things that Pericles and Elias operated the ranch as partners, that the ranch was an asset of the partnership, and that each orally authorized the other to sell the ranch for the partnership. The court also found that ... the agreement was fair and equitable, and that plaintiff offered to perform all its conditions, but that defendants without just cause refused to perform." (Ellis, supra, 60 Cal.2d at p. 213.) As the California Supreme Court stated in Ellis: "The Uniform Partnership Act makes it clear that, unless it is otherwise provided therein, the usual rules of law and equity, including the law of agency, apply. As a provision overriding the statute of frauds plaintiff relies on Corporations Code section 15009, which reads in part: '(1) Every partner is an agent of the partnership for the purpose of its business, and the act of every partner, including the execution in the partnership name of any instrument, for apparently carrying on in the usual way the business of the partnership of which he is a member binds the partnership, unless the partner so acting has in fact no authority to act for the partnership in the particular matter, and the person with whom he is dealing has knowledge of the fact that he has no such authority. (2) An act of a partner which is not apparently for carrying on of the business of the partnership in the usual way does not bind the partnership unless authorized by the other partners. (3) Unless authorized by the other partners ... , one or more but less than all the partners have no authority to: (a) Assign the partnership property in trust for creditors or on the assignee's promise to pay the debts of the partnership. (b) Dispose of the good will of the business. (c) Do any other act which would make it impossible to carry on the ordinary business of a partnership. ...' " (Ellis, supra, 60 Cal.2d at p. 217.) As the Supreme Court explained, "These provisions distinguish between acts of a partner which bind the partnership because of his status as a partner without any express authority being required and acts binding on the partnership only after express authorization by all partners. Under the express terms of subdivision (1) of the section all acts of a partner which are apparently within the usual course of the particular business bind the partnership. The effect of the provision is that the status of a partner, without more, serves as complete authority with respect to such acts, obviating the necessity of any express authority, either oral or written, from the other members of the firm. It necessarily follows that insofar as a partner limits his conduct to matters apparently within the partnership business, he can bind the other partners without obtaining their written consent. Subdivision (2), however, provides that there must be express authority for acts of a partner which do not appear to be in the usual course of the business. This subdivision does not concern the form of the required express authority, and, unlike the broad provision in subdivision (1), it contains no language which would justify a conclusion that written authority is not necessary in situations where the statute of frauds would ordinarily be applicable." (Ellis, supra, 60 Cal.2d at pp. 217-218.) In other words, acts of a partner falling under former section 15009, subdivision (1) are not subject to the statute of frauds, while acts falling under subdivision (2) are. The Ellis court concluded: "Since it does not appear that the sale of the ranch was in the usual course of the partnership business, a contract to sell it would come within subdivision (2) of section 15009, not subdivision (1), even if the ranch were a partnership asset as found by the trial court. Accordingly, the statute of frauds would be applicable and Pericles could not bind Elias without authority in writing." (Ellis, supra, 60 Cal.2d at p. 218.) The Court stated as follows: "The following general rules are applicable where damages are awarded incident to a decree of specific performance: A party to a contract for the purchase or exchange of land who is entitled to a decree of specific performance is also ordinarily entitled to a judgment for the rents and profits from the time he was entitled to a conveyance. The compensation awarded as incident to a decree for specific performance is not for breach of contract and is therefore not legal damages. The complainant affirms the contract as being still in force and asks that it be performed. If the court orders it to be performed, the decree should as nearly as possible require performance in accordance with its terms. One of the terms is the date fixed by it for completion, and since that date is past, the court, in order to relate the performance back to it, gives the complainant credit for any losses occasioned by the delay and permits the defendant to offset such amounts as may be appropriate. The result is more like an accounting between the parties than like an assessment of damages." (Id. at pp. 219-220.) The Court explained that, when a contract for the purchase of land is specifically enforced, the purchaser is entitled to a judgment for the net rents and profits from the time that he was entitled to a conveyance of the property, and the seller is entitled to an offset for the interest on the purchase money that he would have received had the contract been performed. ( Ellis, supra, 60 Cal.2d at p. 219.) These incidental damages are not designed to give the buyer damages for the seller's breach of contract; they are intended to relate the performance back to the contract date of performance and to adjust the equities between the parties because of the delay in the seller's performance. (Ellis, supra, 60 Cal.2d at pp. 219-220.) "The result is more like an accounting between the parties than like an assessment of damages." (Id. at p. 220.) In Ellis, the Supreme Court stated as follows: "The guiding principle with respect to the calculation of the damages incident to the decree of specific performance, as we have seen, is to relate the performance back to the date set in the contract. Timely performance of the contract would result in the purchaser's receiving the rents and profits of the land but being denied the use of the purchase money, and a purchaser who seeks to recover rents and profits must permit an offset for his use of the purchase funds during the period that performance was delayed. In an early case this court held that a defendant in a situation like the one before us should be permitted to offset against the profits interest on the entire purchase price. This holding is the overwhelming weight of authority. . . . . . . An exception to the rule permitting an offset of interest against profits is made insofar as the purchaser has, with notice to the seller, set aside money toward the purchase price in such a manner as to realize no use or benefit therefrom. In this situation there is, of course, no danger that the purchaser will be able to obtain both the profits and the use of the purchase money." (Ellis v. Mihelis, supra, 60 Cal.2d at pp. 220-221.) The Court held that a purchaser of real property is entitled, as damages, to the rents and profits he or she would have earned had the contract been performed, but the buyer's use of the purchase funds during the delay (the interest on the purchase price) must be offset. (Id. at pp. 220-221.) The court allowed the interest offset only because the plaintiff sought to recover profits.