Hauger v. Gates

SPENCE, J.

Plaintiffs brought this action to set aside an extrajudicial sale made under a deed of trust. Defendants’ demurrers to plaintiffs’ second amended complaint were sustained without leave to amend. From the judgment accordingly entered for defendants, plaintiffs appeal. They maintain that the allegations of their second amended complaint were sufficient to state a cause of action for the setting aside of the sale, as such allegations showed that plaintiffs were entitled to a setoff or counterclaim in an amount exceeding the amount due on the note, and that therefore they were not in default on their obligation. (Code Civ. Proc., §440.) We have concluded that their position is well taken.

As alleged, plaintiff Carson J. Hanger agreed to purchase from defendants Charles E. Gates and his wife for $16,000 certain real property in the county of Sonoma, together with the improvements thereon and certain specified ranch equipment. Pursuant to the agreement, defendants Gates executed and delivered to plaintiffs a deed to the realty; and plaintiffs executed and delivered a promissory note and second deed of trust as security for the unpaid portion of the purchase price.

[754]

In the deed of trust plaintiffs were the first parties-trustors, defendant Sonoma County Abstract Bureau was second party-trustee, and defendants Gates were third parties-beneficiaries.

Plaintiffs failed to make certain payments under the deed of trust and defendants Gates failed to make the agreed delivery of certain personal property. Thereafter and on December 11, 1950, defendants Gates and the Sonoma County Abstract Bureau recorded a notice of breach and election to sell under the deed of trust. Plaintiffs claim that they were not then indebted to defendants Gates because the latter, in breach of their contract, had failed to deliver to plaintiffs the agreed personal property, valued at $987.50, which sum exceeded the amount of the installments then due under the promissory note and deed of trust; that plaintiffs repeatedly told defendants Gates that they would pay the overdue installments if the Gateses would return the personal property but the latter refused. On April 12, 1951, the property was sold by the Sonoma County Abstract Bureau, the trustee under the deed of trust, to defendant Chalmers, who allegedly had full knowledge of the above-recited facts and was “not a purchaser in good faith or for value” but holds the property “in trust” for defendants Gates. The property was sold for $5,025 to defendant Chalmers, and the deed therefor was accordingly made and recorded. The Exchange Bank of Santa Rosa holds a first deed of trust on the property, calling for monthly payments of $65. Defendants have made certain of these payments to the bank and in the event the sale is set aside, plaintiffs are willing to pay to defendants Gates and “all other- defendants . . . who may be entitled thereto such sums as may in right, justice and equity b'e owing from . . . plaintiffs to defendants.”