Legal Research - meaning of Time is of the Essence
Nash v. Superior Court (Emminger) (1978) 86 Cal.App.3d 690 , 150 Cal.Rptr. 394
[Civ. No. 53181. Second Dist., Div. Four. Nov. 27, 1978.]
This is a mandate proceeding under Code of Civil Procedure section 409.4 to review a
superior court order expunging a notice of lis pendens pursuant to Code of Civil Procedure
section 409.1. The underlying superior court action was brought by petitioners to obtain specific
performance of an agreement whereby the real parties in interest (hereinafter sellers) had agreed
to sell residential real property to the petitioners (hereinafter buyers). The buyers, as plaintiffs in
the superior court, had filed a notice of lis pendens. The superior court, after a hearing, ordered
the notice expunged upon both of the statutory grounds specified in section 409.1, which are that
the buyers failed to show to the satisfaction of the court, by a preponderance of the evidence, that
(a) the action does affect the title to or right of possession of the real property, and (b) the action
was commenced and prosecuted for a proper purpose and in good faith.
We interpret the first ground as indicating the trial court's finding that the buyers had not
shown any right to the real property. The complaint unquestionably asserts that buyers have such
a right. The issue for our review is whether the buyers sustained their burden of showing that the
action was prosecuted for a proper purpose and in good faith, within the meaning of section
409.1, subdivision (b).
The petition for a writ of mandate contains certain documents from the superior court file
and a narrative recital of the buyers' version of the facts. The sellers have supplied a more
extensive collection of the papers which were before the trial court, including the writings which
reflect the agreement of the parties. This evidence supports findings which vary substantially
from the overview presented by the buyers.
The superior court heard the motion upon evidence consisting of documents, declarations
under penalty of perjury, and portions of depositions. We first summarize that evidence. [86
Cal.App.3d 693]
On July 18, 1977, Laura Phillips (one of the parties here identified as buyers) signed a
written "real estate purchase contract and receipt for deposit" whereby sellers agreed to sell to
Phillips a described residence for a price of $200,000, contingent upon Phillips obtaining within
30 days a $160,000 loan at not more than 9 1/4 percent interest and for not less than 30 years. No
money was paid as a deposit or otherwise. The sellers accepted the offer by signing the contract
July 19.
The printed language in the contract included the following: "Escrow instructions signed
by Buyer and Seller shall be delivered to the escrow holder within 3 days from the Seller's
acceptance hereof and shall provide for closing within 45 days from the Seller's acceptance
hereof, subject to written extensions signed by Buyer and Seller."
The printed contract also provided: "If Buyer fails to complete said purchase as herein
provided by reason of any default of Buyer, Seller shall be released from his obligation to sell the
property to Buyer ..."
On July 20, 1977, an escrow was opened at the Malibu Escrow Corporation, at which
time Phillips paid into the escrow $1,000, and signed escrow instructions whereby she agreed to
pay into escrow prior to September 5, 1977, $39,000 additional cash and $160,000 to come from
a new loan, but subject to the contingency specified in the purchase contract. Sellers joined in the
escrow instructions.
On August 24, 1977, an amendment to the escrow instructions was executed by
petitioners Phillips and Nash, and by the sellers, agreeing that the title to the property was to be
conveyed to Phillips and Nash, as tenants in common. An additional $4,000 was paid into the
escrow by Phillips, to be credited to the purchase price.
On September 6, 1977, the parties entered into another written agreement which was
addressed to the escrow holder as a modification of the previous instructions. This writing stated:
"It is mutually agreed and you are hereby instructed by undersigned seller and buyer that the
closing of this escrow is herewith extended to September 20, 1977 5 P.M. In the event escrow is
not closed by that time, escrow is to be immediately cancelled without any further instructions
from any party and funds deposited herein by buyer are to be returned to buyer less all
cancellation charges incurred herein." [86 Cal.App.3d 694]
The sellers deposited their deed in escrow and otherwise complied with all of the terms of
their agreement.
On September 20, the buyers deposited $38,428 in the escrow, but no funds from a lender
were paid in.
On September 21, the escrow holder sent a letter to the buyers stating that the escrow had
been canceled in accordance with the September 6 agreement. Enclosed was a check to the
buyers in the amount of $43,263, which was the full amount they had paid in less $165 retained
for the escrow company's charges.
There is no competent evidence as to the reason for the failure of a lender to deposit the
required $160,000. The buyers testified that they had made the necessary arrangements with
Great Western Savings and Loan Company. In their complaint, they allege that a real estate
broker owned the property adjacent to the subject property and desired to buy the subject
property; that this broker owned and controlled Malibu Escrow Corporation; and that he
conspired with the sellers and others to cause the escrow corporation to handle the escrow
negligently "by failing to expeditiously obtain the necessary documents to consummate the
transaction, where said documents were available to defendant Malibu."
Nash testified in his deposition that he believed the failure was due to "delay in getting
the paperwork from the lender to the escrow," which Nash said was the responsibility of the
escrow company.
Phillips' declaration stated that on September 21, 1977, "Great Western Savings and Loan
was contacted and it was determined that they were unable to fund the loan by September 20,
1977 due to the fact that they had not received from the escrow company a title report on the
subject property, an item which is necessary for the funding of any loan, until September 20,
1977."
No competent evidence was offered in support of this assertion, which is no more than a
characterization of a hearsay report from an unidentified person.
The record reflects that the deposition of an officer of the escrow company was taken,
and a portion of it was offered in evidence. That testimony contains nothing which would
support the theory that the escrow company was either negligent or guilty of any other
impropriety. [86 Cal.App.3d 695] It does not appear that the escrow officer was asked when the
title report was sent to Great Western. No document or other testimony from any one connected
with Great Western was offered. Neither Nash nor Phillips claimed that they had ever signed a
loan application, note, or other document pertaining to their claimed arrangement with Great
Western.
Upon this record the trial court was not required to give credence or weight to the buyers'
speculation that they would have completed the purchase but for some fault of the escrow
company.
The Phillips declaration states that subsequent to September 20, she "attempted to
complete the purchase," but there is no evidence that any one did anything resembling a tender of
the missing $160,000. Nor was any evidence offered to indicate that any lending institution was
then or ever willing to lend $160,000 to the buyers for payment over 30 years at 9 1/4 percent
interest.
The buyers' attorney submitted a declaration attaching a Mailgram which he received
from Malibu Escrow on September 22 which included the statement "Lorna Normandy of Great
Western Savings and Loan has advised us this date that loan documents are ready for signature."
Apart from the hearsay character of this Mailgram, it is no indication that the loan
referred to would be for the amount of $160,000 on terms and conditions which the buyers could
and would meet. The trial court was not required to accept it as proof of matters not stated.
In Pothast v. Kind (1933) 218 Cal. 192 [24 P.2d 771], the Supreme Court affirmed a
judgment quieting title of an owner against the claim of an intended buyer who had failed to
deposit the full amount of the purchase price in the escrow. The court said at page 195: "It is well
settled that performance must be made within the time limit of the escrow agreement. The failure
to have the cash deposited with the escrow agent within the time limit provided by the agreement
therefore entitled respondent to the relief given him by both judgments."
(Accord: Evarts v. Johnston (1949) 34 Cal.2d 6 [206 P.2d 633]; Davy v. Ogier (1948) 87
Cal.App.2d 835 , 843 [198 P.2d 92]; Major-Blakeney Co. v. Jenkins (1953) 121 Cal.App.2d 325
, 332, 337 [263 P.2d 655]; Pitt v. Mallalieu (1948) 85 Cal.App.2d 77 , 86 [192 P.2d 24]; see
Barkis v. Scott (1949) 34 Cal.2d 116 , 122-123 [208 P.2d 367]; 7 Witkin, Summary of Cal. Law
(8th ed. 1974) Equity, § 63, p. 5286.) [86 Cal.App.3d 696]
[1] Whether or not the parties have agreed that a buyer's right is conditioned upon
performance on a specified date requires an interpretation of the contract between buyer and
seller. Courts have recognized that the inclusion of language such as "time is of the essence"
does not necessarily require a court to conclude that the buyer's rights would be so strictly
limited. (See, e.g., Katemis v. Westerlind (1953) 120 Cal.App.2d 537 [261 P.2d 553].)
We are therefore obliged to construe the entire agreement of the parties here, as reflected
in the three written instruments which they signed. Our duty is to determine what the parties
intended as expressed in what they said. In so doing, we may consider the surrounding
circumstances insofar as they are shown by the record. (See Pacific Gas & E. Co. v. G. W.
Thomas Drayage etc. Co. (1968) 69 Cal.2d 33 , 38-39 [69 Cal.Rptr. 561, 442 P.2d 641, 40
A.L.R.3d 1373].)
In the first writing, Phillips agreed to buy the property only if she could borrow $160,000
at not more than 9 1/4 percent interest to be repaid over a 30-year period. The agreement itself
reflected uncertainty as to whether she could obtain such a loan. Buyer's escrow instructions
contained the promise that payment would be made prior to September 5, 1977.
On August 24, Phillips brought in Nash as a buyer of an undivided half interest. Her
declaration explains that she did so because Great Western had refused to lend her more than
$140,000 on the property, and "the arrangement with plaintiff Nash was made to facilitate the
80% financing of the property."
On September 6, the buyers' performance was overdue. They had deposited only $5,000
in the escrow. On that date the parties entered into a written agreement giving the buyers until
September 20 to perform, and expressly providing that if they did not perform by that date, their
right to purchase would terminate.
The literal reading of the September 6 agreement is as clear as words can make it that
performance by the buyers on or before September 20 was a condition precedent to any duty on
the part of the sellers to convey the property. The reason for such an arrangement is apparent,
and its purpose is manifestly reasonable. The sellers did not want their property encumbered
indefinitely by a contingent agreement with parties whose ability to perform was at best
questionable; and who, as a practical matter, were under no enforceable obligation to buy. As of
September 6, [86 Cal.App.3d 697] the buyers had what was in effect an option on the property,
at no cost to themselves except a nominal escrow cancellation fee. Sellers reasonably did not
want to continue in a situation in which Phillips and Nash could speculate on the market at the
sellers' risk.
If it is legally possible for parties to make a binding agreement that the duty to convey
will terminate on a day certain, such an agreement was made in this case. This kind of agreement
is recognized as proper and effective in the cases cited above.
The buyers rely upon MacFadden v. Walker (1971) 5 Cal.3d 809 [97 Cal.Rptr. 537, 488
P.2d 1353, 55 A.L.R.3d 1], and Williams Plumbing Co. v. Sinsley (1975) 53 Cal.App.3d 1027
[126 Cal.Rptr. 345], for their contrary argument. Both of these cases deal with factual situations
different from what is involved here, and their holdings do not apply to the facts of this cases.
The MacFadden case was an action by a buyer for specific performance of an installment
land sale contract. Under that contract, the buyer took possession, made improvements, paid
taxes and paid installments for several months. After that the buyer discontinued making
payments claiming that she was entitled to a credit because some timber had been cut. The seller
declared the buyer's rights terminated, and commenced the action to quiet title. The buyer
tendered the entire balance due with interest, and cross-complained for specific performance of
the sale contract. The Supreme Court held that although the contract declared that time was of
the essence, and the buyer's default was wilful, she was entitled to relief. The trial court's
judgment for specific performance of the sales contract was affirmed.
The reasoning of the MacFadden decision is grounded in the fact that the court was
enforcing what is commonly referred to as a "land sale contract" which, typically, is a transaction
wherein the buyer takes possession of the property and promises to pay the consideration by
installments, but the seller withholds delivery of the deed until a substantial part or all of the
payments have been received. fn. 1 The MacFadden opinion acknowledges that this kind of land
sale contract is functionally similar to a security device, such as a mortgage; and that the law
gives a wilfully defaulting mortgagor an opportunity to cure his default. [86 Cal.App.3d 698]
The MacFadden opinion rests upon the decision in Barkis v. Scott, supra, 34 Cal.2d 116 ,
where (in the words of the MacFadden opinion at p. 813), "[W]e reevaluated the long line of
precedents dealing with the question of when the vendee's interest may be forfeited because of
his default in the performance of a land sale contract in which time is declared to be of the
essence."
The Barkis opinion makes clear that the court recognized the distinction between a
partially performed land sale contract, under which the buyer takes possession without a deed,
and a purely executory agreement to exchange a deed for money. The Barkis court said (at p.
122): "In Henck v. Lake Hemet Water Co., 9 Cal.2d 136 [69 P.2d 849], the only forfeiture that
was involved was a loss of the benefit of the bargain, and the situation was therefore analogous
to that where the contract is still wholly executory and no substantial expenditures have been
made in reliance on it. It is settled that in such situations relief from default cannot be granted,
when time has been made of the essence of the contract and there has been no waiver of or
estoppel to assert the time provision."
[2] In the light of this history, we cannot read MacFadden as overruling the established
law that if the parties so agree, the buyer's timely tender of the purchase money is a condition
precedent to the seller's duty to convey under a wholly executory agreement.
Williams Plumbing Co. v. Sinsley, supra, 53 Cal.App.3d 1027 , was an action by a buyer
for specific performance of a contract made September 16, 1973. The total price was $120,000.
The buyer paid $12,000 in advance, and agreed to pay $15,000 on January 4, 1974, and the
balance by March 1, 1974.
The deposit receipt provided that if the buyer failed to complete the purchase as therein
provided, time being of the essence, the deposit might "be forfeited as liquidated damages" at the
option of the seller.
During the month preceding January 4, the seller and the buyer's principal owner,
Crosslin, had at least two conversations concerning the [86 Cal.App.3d 699] manner in which
the purchase would be financed. The seller expressed a preference for closing the deal as soon
after January 1 as possible, and Crosslin said he would not wait until March, but "'would close
out the whole thing right away.'" (53 Cal.App.3d at p. 1029.)
The $15,000 installment was not paid on January 4. On January 5, there was another
conversation in which the seller mentioned that he was "in the driver's seat," holding the $12,000
deposit. Crosslin said he did not think the January installment was important, and the seller said
he would let Crosslin know his final decision on the 7th. That afternoon Crosslin consulted an
attorney, after which he mailed a check for $15,000 to the escrow holder. On January 7, before
delivery of the letter notifying the seller of that payment, the seller mailed a letter to the buyer
declaring the contract terminated and returning the $12,000 deposit. The opinion does not state
when the escrow holder received the $15,000.
The buyer commenced its action for specific performance on February 4. The trial court
found the delay in payment of the January 4 installment was a material breach by reason of the
provision in the deposit receipt, and denied relief. The Court of Appeal reversed in an opinion
which relied principally upon MacFadden v. Walker, supra.
Although the facts are not fully stated in the Williams opinion, it does not appear that the
contract there was a land sale agreement, as in MacFadden, under which the buyer had gone into
possession. The Williams court appears not to have recognized that the MacFadden opinion was
discussing a partially performed installment sales contract and not an executory agreement to
deliver a deed for cash through an escrow.
On its facts, the Williams decision is fully consistent with the prior law relating to escrow
transactions. The written agreement of the parties, interpreted in the light of the subsequent
discussions, could not reasonably be interpreted as providing for an automatic termination upon
failure to make the January 4 payment on time; nor does the evidence support a finding that the
short delay was a material breach. (See, e.g., Weneda Corp. v. Dispalatro (1964) 225 Cal.App.2d
187 , 191 [37 Cal.Rptr. 267]; Katemis v. Westerlind, supra, 120 Cal.App.2d 537 ; Lifton v.
Harshman (1947) 80 Cal.App.2d 422 , 433 [182 P.2d 222] (waiver by conduct).) The seller's
statement on January 5 was a clear acknowledgment that the agreement was still open for
performance. [86 Cal.App.3d 700]
The facts in Williams bear no resemblance to the controlling facts of the present case.
Instead of a continuing discussion between the parties, as in Williams, the last word between the
parties at bar was an unambiguous written agreement that the seller's duty would expire on
September 20.
The ultimate question to be decided in this court at this time is not whether the buyers, as
plaintiffs, will ever be entitled to a judgment against some or all of the defendants, including the
sellers. The issue is whether the superior court abused its discretion in granting the motion to
expunge the notice of lis pendens.
Prior to 1968, Code of Civil Procedure section 409 permitted a plaintiff seeking to
establish an interest in real property to record a notice of lis pendens, the effect of which was to
cloud the record title to the property so long as the action remained pending. The oppressive
quality of a notice of any lis pendens is obvious. A plaintiff may make a parcel of real property
unmarketable for a period of two to five years, or more, while a civil action works its way
through the courts. That procedure was subject to serious abuse, as a lever to force the property
owner to settle with the plaintiff for reasons having no relationship to the merits of the plaintiff's
claim. (See Comment, Abuses of the California Lis Pendens: An Appeal for Legislative Remedy
(1966) 39 So.Cal.L.Rev. 108.) The 1968 Legislature enacted Code of Civil Procedure section
409.1 et seq., which established a motion procedure whereby the property owner might move for
an order expunging the notice of lis pendens, upon an appropriate showing. The adequacy of this
remedy was questioned, and, in 1976, the Legislature amended section 409.1 to place the burden
of proof upon the party who had recorded the notice. (For background see Review of Selected
1976 California Legislation (1977) 8 Pacific L.J. 165, 453.)
This current statute requires that the court "shall, upon motion ... order that the notice be
expunged, unless the party filing the notice shows to the satisfaction of the court, by a
preponderance of the evidence, that ... the party recording the notice has commenced or
prosecuted the action for a proper purpose and in good faith."
[3] The ruling of the trial court indicates a finding that the plaintiffs failed to make a
satisfactory showing. In reviewing this ruling, we must regard the trial court as the fact finder,
and assume in favor of the trial court's ruling, every inference which can reasonably be drawn
from the evidence presented to it. (See Trapasso v. Superior Court (1977) 73 Cal.App.3d 561 ,
567 [140 Cal.Rptr. 821].) [86 Cal.App.3d 701]
[4] Upon this record we cannot say that the trial court abused its discretion. At the outset,
there was a contract entered into with a buyer whose ability to perform was in doubt. Along the
way she found she could not borrow a sufficient amount, and brought in another party to assist
her. Time was extended by an agreement which contained a firm and legally effective deadline.
The purchase money was neither paid nor tendered. The buyers then sued for specific
performance and damages, accusing the sellers and others of a conspiracy to hinder the buyers'
performance. When the buyers were called upon to advance proof of their good faith and proper
purpose, their evidence gave the trial court good reason to be skeptical. Although they had the
opportunity to take depositions, and did depose an officer of the escrow company, the buyers
have produced no evidence in support of their theory that the escrow was mishandled. Finally,
the buyers have not come forward with any evidence that any lending institution had been
willing to lend them $160,000 on the terms the buyers could and would accept, although there
should have been no difficulty in proving the fact if it was a fact.
The petition for a writ of mandate is denied.
Kingsley, J., concurred.
JEFFERSON (Bernard), J.
I dissent.
The majority reaches the result that the trial court was correct in issuing its "Order
Expunging Lis Pendens" resulting from the filing by petitioners (hereinafter buyers) of a notice
of pendency of the underlying action to require specific performance by real parties in interest
(hereinafter sellers) of a contract to sell to buyers residential real property. fn. 1 I disagree.
I am not in full accord with the majority's posing of the issue before us: that the ultimate
question before this court is not whether the buyers, as plaintiffs, would ever be entitled to a
judgment on the merits against the sellers or other defendants, but whether the superior court
abused its discretion in granting the sellers' motion to expunge the notice of lis pendens. The
majority concludes that it cannot hold that the trial court abused its discretion upon the record
before us. It is my view that the [86 Cal.App.3d 702] record demonstrates beyond any
reasonable doubt that the trial court's order of expungement constitutes an abuse of discretion.
In spite of the majority's posing of the issue as one not involving a question of whether
the buyers as plaintiffs would be entitled to a judgment of specific performance against the
sellers as defendants, the majority's opinion reaches the result that there was no abuse of
discretion by the trial court by finding that the buyers as plaintiffs would not be entitled to
recover a judgment of specific performance against the sellers in a trial on the merits. But as I
shall point out below, one decisive issue before the trial court was whether the buyers believed
that their claim against the sellers might be held valid--not whether their claim would in fact be
held valid.
The majority reaches its result without an adequate discussion of the guiding principles
set forth in Code of Civil Procedure section 409.1. That section, as applicable to the proceedings
herein, provides that, on motion, an order shall be made that a notice of lis pendens be expunged
unless the party who filed the notice makes a showing, to the satisfaction of the court, by a
"preponderance of the evidence," that "the party recording the notice has commenced or
prosecuted the action for a proper purpose and in good faith." (Italics added.)
My reading of the record is substantially different from the reading made by the majority.
I find no support in the record for the trial court's finding that the buyers failed to establish, by a
preponderance of the evidence, that their action against the sellers for specific performance of a
contract for the sale of residential real property was for a proper purpose and made in good faith.
The crux of the majority's view is that the buyers did not comply with the contract
provisions that all of the purchase funds of $200,000, made up of a down payment and the
proceeds of a first trust deed loan, be deposited in the escrow by September 20, 1977. Since this
was not done, the majority concludes that the buyers could not prevail in the action on the merits
and, therefore, the trial court acted within its discretion in issuing an order expunging the notice
of lis pendens on a theory that the buyers had failed to carry the burden of proof as set forth in
Code of Civil Procedure section 409.1.
It is to be noted that Code of Civil Procedure section 409.1 provides for a hearing "upon
motion of a party to the action supported by affidavit" [86 Cal.App.3d 703] and that "[t]he court
shall determine the matter on the affidavits and counteraffidavits on file and upon such other
proof as the court may permit." The hearing upon affidavits or declarations in support of and in
opposition to a motion to expunge a notice of lis pendens, provided by section 409.1, is
obviously not designed to be a trial on the merits. If the Legislature had intended for the trial
court to issue an order expunging a lis pendens notice based upon whether a party instituting an
action and filing such a notice could make a showing that he was clearly entitled to ultimate
victory in his action in a trial on the merits, Code of Civil Procedure section 409.1 would have
contained entirely different language from that which actually appears in the section.
The issue of whether a plaintiff in a specific performance action for the sale of residential
property makes a showing that the action was commenced or prosecuted for "a proper purpose
and in good faith" is a far cry from the issue of whether a plaintiff is able to make a showing, by
affidavits or declarations, that he will surely recover when the action is tried on the merits. The
procedure set forth in section 409.1 is not a procedure for a summary judgment of the underlying
action between the parties.
I now turn to the question of what constitutes "a proper purpose and in good faith"--the
showing required by section 409.1 to preclude an order for expunging of the notice of lis
pendens. In Albertson v. Raboff (1956) 46 Cal.2d 375 [295 P.2d 405], the court had occasion to
define what constitutes an "improper purpose" (the reverse of a "proper purpose") with respect to
the question of determining malice in an action for malicious prosecution, since "[t]he malice
required in an action for malicious prosecution is not limited to actual hostility or ill will toward
plaintiff but exists when the proceedings are instituted primarily for an improper purpose."
(Albertson, supra, 46 Cal.2d 375 , 383.) (Italics added.)
In defining the term "improper purpose" with respect to an action for malicious
prosecution, the Albertson court observed: "It has been pointed out that the 'principal situations
in which the civil proceedings are initiated for an improper purpose are those in which (1) the
person initiating them does not believe that his claim may be held valid; (2) the proceedings are
begun primarily because of hostility or ill will; (3) the proceedings are initiated solely for the
purpose of depriving the person against whom they are initiated of a beneficial use of his
property; (4) the proceedings are initiated for the purpose of forcing a settlement which has no
relation to the merits of the claim.' (Rest., Torts, § 676, com. b; see also § 668, com. e.)" (Id, at p.
383.) [86 Cal.App.3d 704]
In United Professional Planning, Inc. v. Superior Court (1970) 9 Cal.App.3d 377 [88
Cal.Rptr. 551], the court had before it the question of the meaning of the terms "improper
purpose" and "not in good faith" as those terms were used in Code of Civil Procedure section
409.1, prior to the amendment of section 409.1 in 1976. In the pre-1976 version of Code of Civil
Procedure section 409.1, an order to expunge a notice of lis pendens had to be supported by
"clear and convincing proof" that the party recording the notice had commenced or prosecuted
the action "for an improper purpose and not in good faith." (Italics added.)
The United Professional Planning court held that the Albertson definition of "improper
purpose" for proof of malice in an action for malicious prosecution of a civil proceeding was
appropriate for the meaning to be given to the same term in the pre-1976 Code of Civil
Procedure section 409.1. Thus, the United Professional Planning court stated that an "improper
purpose" would refer to the following situations: (1) where "'"the proceedings are begun
primarily because of hostility or ill will"'"; (2) where "'"the proceedings are initiated solely for
the purpose of depriving the person against whom they are initiated of a beneficial use of his
property"'"; or (3) where "'"the proceedings are initiated for the purpose of forcing a settlement
which has no relation to the merits of the claim."'" (United Professional Planning, Inc., supra, 9
Cal.App.3d 377 , 388.)
The United Professional Planning court also held that the term "not in good faith" used in
the pre-1976 version of Code of Civil Procedure section 409.1 should have the same meaning
referred to in Albertson, namely, that the person initiating the underlying action "does not
believe that his claim may be held valid." (Id, at p. 388.)
In the 1976 version of Code of Civil Procedure section 409.1, fn. 2 the pre-1976
provisions were changed to impose the burden upon the party filing a notice of lis pendens to
make a showing to preclude an order that the notice be expunged. This change was effectuated
by requiring such party to establish, by a preponderance of the evidence, that he has commenced
or prosecuted the action "for a proper purpose and in good faith." I consider it reasonable and
appropriate to interpret the terms "in good faith" and "a proper purpose," as used in Code of Civil
Procedure section 409.1, after the 1976 amendment, as constituting the very reverse of the terms
"an improper purpose" and "not in good faith" as those latter terms are interpreted by the United
Professional Planning court. [86 Cal.App.3d 705]
It is my view that the trial court in the case before us unquestionably abused its discretion
in issuing an order expunging the notice of lis pendens because the record demonstrates, with no
room for reasonable dispute, that the buyers established, by more than a preponderance of the
evidence, that the specific performance action against the sellers was commenced and prosecuted
"in good faith" because they believed that their action for specific performance would be held
valid, and was commenced and prosecuted "for a proper purpose" because such action was not
begun out of any hostility or ill will, nor initiated for the purpose of depriving the sellers of a
beneficial use of their property, nor initiated for the purpose of forcing a settlement which had no
relation to the merits of the action.
I consider much of the majority's opinion to be extraneous to the issue before us--that of
the appropriate interpretation of Code of Civil Procedure section 409.1. Thus, the majority
emphasizes that the escrow instructions made it clear that full performance by the buyers on or
before September 20 was a condition precedent to their right to require the sellers to convey the
property to them. But this interpretation of the contract between the parties does not begin to
answer the question of whether, under section 409.1, the buyers have made the necessary
showing to preclude the issuance of an order expunging the notice of lis pendens.
The majority seeks to distinguish Williams Plumbing Co. v. Sinsley (1975) 53
Cal.App.3d 1027 [126 Cal.Rptr. 345], and MacFadden v. Walker (1971) 5 Cal.3d 809 [97
Cal.Rptr. 537, 488 P.2d 1353, 55 A.L.R.3d 1], and thus find that they are not controlling in the
case at bench. It is my view that the Williams Plumbing Co. and MacFadden cases are
dispositive of the issue before us and mandate a finding that the trial court abused its discretion
in issuing an order expunging the notice of lis pendens.
The majority points out that the MacFadden and Williams Plumbing Co. cases have
factual situations different from that involved in the case at bench. But this is an irrelevant
consideration. As I shall explain, although the factual situations of these two cases may be
different in some respects from that involved in the case at bench, the significant point is that
Williams Plumbing Co. and MacFadden enunciated principles of law which are controlling here.
The Williams Plumbing Co. case involved an executory contract for the purchase of real
property which was not a single family residence, but [86 Cal.App.3d 706] consisted of two
duplexes. The issue involved was whether the buyer had lost its right of specific performance
against the seller for failure to fulfill a condition precedent where time was made of the essence
of the contract. Although the court recognized that time was of the essence, the court
nevertheless held that a delay in performance by the buyer did not preclude the buyer from
obtaining specific performance against the seller. The basic teaching of Williams Plumbing Co.
is the rejection of the principle set forth in Major-Blakeney Corp. v. Jenkins (1953) 121
Cal.App.2d 325 [263 P.2d 655] "'that a failure of a party to comply with the terms of his
contract, time being of the essence, entitles the other party to terminate the contract.'" (Williams
Plumbing Co., supra, 53 Cal.App.3d 1027 , 1032.)
In rejecting the principle set forth in Major-Blakeney Corp., the Williams Plumbing Co.
court relies upon MacFadden v. Walker (1971) supra, 5 Cal.3d 809 , in which the court stated
that "[i]n Barkis v. Scott, supra, 34 Cal.2d 116 , we reevaluated the long line of precedents
dealing with the question of when the vendee's interest may be forfeited because of his default in
the performance of a land sale contract in which time is declared to be of the essence. We
concluded that when a forfeiture would otherwise result, the vendee can be relieved therefrom if
he proves facts justifying relief under section 3275 of the Civil Code ..." (MacFadden, supra, 34
Cal.3d 809, 813.)
Civil Code section 3275 provides: "Whenever, by the terms of an obligation, a party
thereto incurs a forfeiture, or a loss in the nature of a forfeiture, by reason of his failure to
comply with its provisions, he may be relieved therefrom, upon making full compensation to the
other party, except in case of a grossly negligent, willful, or fraudulent breach of duty." With
further reference to Barkis, the MacFadden court made this observation: "Since it appeared as a
matter of law that the vendees' breach in Barkis was neither grossly negligent, wilful, nor
fraudulent, but was at most the result of simple negligence in the management of their checking
account, we had no occasion to consider whether section 3275 [of the Civil Code] was the
exclusive source of their right to be relieved from forfeiture by keeping their contract in force."
(MacFadden, supra, 5 Cal.3d 809 , 813.)
In Williams Plumbing Co., a contract for the sale of two duplexes fixed the purchase
price at $120,000, with a deposit of $12,000 paid on September 16, 1973. The contract provided
for the buyer to deposit an additional sum of $15,000 on January 4, 1974, with the balance due
by [86 Cal.App.3d 707] March 1, 1974. It was understood between the parties that the balance
of $93,000 would be financed by the buyer securing a loan from a lending institution. The
contract contained the provision that "'in the event said purchaser shall fail to pay the balance of
said purchase price or complete said purchase as herein provided, time being of the essence of
this contract, the amount of said deposit shall at the option of the seller, be forfeited as liquidated
damages.'" (53 Cal.App.3d 1027, 1029.) The buyer did not make the January 4 payment of
$15,000. On January 7, the seller declared the contract terminated and refunded the $12,000
deposit to the buyer. On February 4, approximately one month later, the buyer filed an action for
specific performance.
The question presented in Williams Plumbing Co. was whether, under Civil Code section
3275, a buyer is entitled to a relief from forfeiture and to specific performance of a real estate
sales contract, if the only forfeiture involved is a loss of benefit of the bargain, since the seller
refunded to the buyer the deposit of $12,000 made by it. The Williams Plumbing Co. case
interprets MacFadden as recognizing the principle that a relief from default is available to a
buyer, even though time is made of the essence of the contract, and even though the only
forfeiture involved is the buyer's loss of benefit of the bargain of obtaining the property which is
the subject of the contract. Thus, the Williams Plumbing Co. court observed that "[t]he opinion
[in MacFadden] appears to recognize that loss of the benefit of the buyer's bargain is the
equivalent of a penalty or forfeiture within the meaning of the code sections relied on in
Freedman, supra." fn. 3 (Williams Plumbing Co., supra, 53 Cal.App.3d 1027 , 1033.)
In Williams Plumbing Co., the court concluded that, even though the contract provided
that time was of the essence of the contract, the buyer's failure to pay the $15,000 required on
the date specified in the contract--January 4--did not give the sellers the right to terminate the
contract because there was no showing that the buyer was precluded from being relieved of a
forfeiture under Civil Code section 3275 either [86 Cal.App.3d 708] because of being "grossly
negligent" in failing to make the payment or because the failure to make the payment was
"intentional."
In MacFadden, a defaulting purchaser was held entitled to specific performance of an
installment land sale contract, even though the default was willful or intentional. "We believe
that the anti-forfeiture policy recognized in the Freedman case also justifies awarding even
wilfully defaulting vendees specific performance in proper cases." (MacFadden, supra, 5 Cal.3d
809 , 814.) In Williams Plumbing Co., the buyer's breach was not intentional and the court
remarked: "It would be illogical to afford appellant less relief than that given to the defaulting
vendee in MacFadden." (Williams Plumbing Co., supra, 53 Cal.App.3d 1027 , 1034.) The
Williams Plumbing Co., court reversed the trial court's judgment denying the buyer specific
performance against the sellers with instructions that the defaulting buyer should be given a
reasonable time required to complete its financing.
Contrary to the view of the majority, the principles set forth in Macfadden and Williams
Plumbing Co. are controlling in the case before us. Hence, we should issue a writ of mandate
requiring the trial court to vacate its order expunging the buyers' notice of lis pendens. The
buyers are entitled to have their specific performance action tried on the merits, free from the
possibility that the sellers may thwart the buyers' right to specific relief by selling the property to
another prior to trial.
The record establishes that, in the case before us, the parties to the contract had agreed
upon a sales price of $200,000 for this single-family residence located in Malibu. The contract
called for a down payment of $40,000 with the buyers to obtain a loan secured by a first trust
deed in the amount of $160,000. Upon the execution of the contract in July, the buyers made a
deposit of $1,000 into escrow. In August, an additional $4,000 was deposited into escrow by the
buyers. On September 20, 1977, the buyers deposited an additional $38,428 into the escrow. This
odd sum of $38,428 was deposited in escrow because the buyers were informed that such amount
would be the balance needed to complete the purchase. On September 21, the very next day after
the date specified for the closing of the escrow, the buyers received a letter from Malibu Escrow
stating that the escrow had been cancelled and returning to the buyers the sum of $43,268. On
the same date of September 21, Great Western Savings and Loan was contacted and the buyers
were advised that the reason the loan was not funded as of September 20 was because the
lending institution had not received from Malibu Escrow a title report on [86 Cal.App.3d 709]
the subject property. The following day, September 22, the buyers' attorney delivered a letter to
Malibu Escrow wherein the buyers stated they were prepared to close the escrow forthwith. On
this same date of September 22, the buyers' attorney received a Western Union Mailgram from
the Malibu Escrow which stated: "1. Lorna Normandy of Great Western Savings and Loan has
advised us this date that loan documents are ready for signature. 2. We have received a letter,
dated this date, from Mr. Altagen, who represents the buyers stating that buyers take the position
that the escrow is still pending and that the funds returned to them by our office will be placed in
Mr. Altagen's office trust account on behalf of the sellers. As of this date we have not received
any instructions from the sellers to proceed with the close of escrow and therefore require mutual
instructions in this matter. Otherwise we must abide by present terms and conditions of escrow
instructions and ammend [sic] there to."
The buyers' complaint for specific performance was filed on September 23, 1977, three
days after the date the escrow was cancelled. On September 28, 1977, the buyers' attorney wrote
to the sellers' attorney stating that his clients, the buyers, were ready, willing and able to perform
the contract for the purchase of the Malibu residence and that Great Western Savings and Loan
had committed themselves to the loan of $160,000, and that the balance of the funds to complete
the purchase price was being held in the attorney's trust account.
The record thus amply demonstrates that the buyers were ready, willing and able to
complete their part of the contract within two or three days following the date specified in the
contract for full performance by the buyers.
The majority takes the position that the evidence presented by the record is not competent
evidence. This view seems to be predicated on the fact that the buyers presented no testimony or
an affidavit or declaration from an employee of Great Western Savings regarding the reason for
not funding the loan to the buyers as of September 20, 1977. In holding that the buyers presented
no competent evidence, the majority simply overlooks the fact that Code of Civil Procedure
section 409.1 specifically sets up a hearing-on-a-motion procedure for determining whether a
notice of lis pendens should be expunged, with the matter to be decided on affidavits and
declarations and counteraffidavits and declarations. [86 Cal.App.3d 710]
The majority refuses to concede any relevant significance to the Western Union
Mailgram from Malibu Escrow which was received by the buyers' attorney. This Mailgram
contains a statement by Malibu Escrow that it had been advised by Lorna Normandy of Great
Western Savings and Loan on September 22, just two days after the performance date of
September 20, that loan documents were ready for signature. The majority seeks to cast doubt on
the genuineness of this Mailgram document which names a specific employee of Great Western
as having given this advice to Malibu Escrow. To show the unsoundness and unsubstantial
character of the majority's position, I need only pose the question: If this Western Union
Mailgram was not genuine, why is it that the record does not reflect any counteraffidavit from
any employee of Malibu Escrow or Great Western Savings, presented by the sellers, that no such
Mailgram from Malibu Escrow was sent to the buyers' attorney, Robert Altagen?
The majority even suggests that this Mailgram is lacking in relevancy because it does not
set forth whether the loan commitment from Great Western Savings was in accord with the
provisions of the contract. To reject the relevancy of the Mailgram on this basis is to repudiate
the universally accepted evidentiary principle of the circumstantial evidence reasoning process
that permits the finding of a fact by drawing reasonable inferences from evidence or from other
facts. (See Evid. Code, §§ 210 and 600, subd. (b).)
The approach by the majority represents faulty analysis in reaching the result that the
buyers should be denied relief in this writ of mandate proceeding. I view the affidavit and
declaration evidence that was before the trial judge in the instant case as proving, far beyond the
preponderance-of-the-evidence standard, that the buyers commenced and prosecuted the specific
performance action "in good faith" because the buyers believed that their "claim may be held
valid"--applying inversely the test set forth in United Professional Planning. I fail to see one iota
of evidence in this record that would support the trial judge's finding that the buyers did not
believe that their claim would be held valid.
Similarly, the evidence demonstrates, beyond the preponderance-of-the-evidence
standard, that the buyers commenced and prosecuted the specific performance action "for a
proper purpose" in that there is no shred of evidence that would justify any finding that the
buyers either (1) started the proceeding primarily because of hostility or ill will, or (2) that [86
Cal.App.3d 711] the specific performance action was initiated by the buyers solely for the
purpose of depriving the sellers of a beneficial use of their property, or (3) that the specific
performance action was initiated by the buyers for any purpose of forcing a settlement which had
no relation to the merits of the claim--again applying inversely the test of what is an "improper
purpose" set forth in United Professional Planning.
Even though time was made of the essence of the bargain between the parties and
performance by the buyers by September 20 was made the last performance date, the buyers
cannot be barred from obtaining specific performance of the sales agreement simply because
they were not in a position to comply with all of the terms and conditions of the contract until
two or three days subsequent to the performance date of September 20.
The cases of MacFadden v. Walker, supra, 5 Cal.3d 809 , and Williams Plumbing Co. v.
Sinsley, supra, 53 Cal.App.3d 1027 , unequivocally set forth the principle that a buyer in a saleof-real-property contract cannot be precluded from obtaining specific performance by reason of a
failure to perform his part of the bargain on a date specified--even though time is made of the
essence of the contract, and even though the only "forfeiture" involved is that the buyer will lose
the benefit of his bargain.
It bears repeating that in MacFadden, the court pointed out that in Barkis v. Scott, supra,
the defaulting buyers in a sale-of-land contract in which time was declared to be of the essence,
were held entitled to be relieved of their default and to be granted specific performance "[s]ince
it appeared as a matter of law that the vendees' breach in Barkis was neither grossly negligent,
wilful, nor fraudulent, but was at most the result of simple negligence in the management of their
checking account, ..." (MacFadden, supra, 5 Cal.3d 809 , 813.) The situation in the instant case is
not unlike that of Barkis. I consider that the record before us demonstrates, as a matter of law,
that the buyers' breach was neither grossly negligent, wilful, nor fraudulent, but was at most the
result of simple negligence in believing that Malibu Escrow would keep in contact with Great
Western Savings and notify the buyers if the loan feature of the sales transaction was not
progressing with sufficient dispatch to enable the loan funds to be deposited in escrow by
September 20.
The majority seems to think that the MacFadden court was limiting the application of its
statement of legal principles to a partially performed installment land sales contract and not to an
executory agreement to [86 Cal.App.3d 712] deliver a deed for cash through an escrow. I can
see no basis for any such interpretation of MacFadden. Nor do I see any logic in the majority's
view that, if time is made of the essence in an executory contract, a buyer's breach automatically
precludes the buyer from being relieved of forfeiture and from obtaining specific performance.
Neither Barkis, Freedman, MacFadden, nor Williams Plumbing Co. is capable of offering
support to this astonishing and devastatingly punitive principle advanced by the majority which
would limit the application of Civil Code section 3275 to the partially performed land sales
contract and would limit the meaning of "forfeiture," as that term is used in section 3275, to
preclude a loss to the buyer of the benefit of the bargain from constituting a "forfeiture." The
majority's view is simply contrary to the holding of Williams Plumbing Co., which specifically
rejected the theory that relief from forfeiture and the right to specific performance may be
granted only if there has been substantial part performance in a land sales installment contract,
which would have the consequence of denying to a buyer relief from default in an executory
contract providing that time is of the essence of the contract and where the only forfeiture is a
loss of the benefit of the bargain.
The forfeiture of a loss of the benefit of the bargain is of real significance in the case at
bench because we are dealing with single family residential property and not income investment
property. Nor do the sellers suffer any inequity since they will receive the purchase price in
return for their surrender of the property.
Finally, it is to be noted that Barkis, Freedman, MacFadden and Williams Plumbing Co.
are all cases in which the decisions were rendered in a buyer's action for specific performance
against the seller. The decisions, therefore, were decisions on the merits. But in the case at
bench, we are not dealing with a specific performance action that has been tried on the merits
below. The principles of these cases become applicable here only insofar as they relate to the
issue of whether the buyers before us, in a hearing-on-a-motion proceeding, established that their
specific performance action was initiated and prosecuted "for a proper purpose and in good faith"
as required by Code of Civil Procedure section 409.1. The showing required is certainly less than
that required in the specific performance action itself. But the principles set forth in Barkis,
Freedman, MacFadden, and Williams Plumbing Co. are relevant to the determination which
must be made in a section 409.1 proceeding and lead inexorably to the conclusion that the
buyers' specific performance action was commenced and prosecuted "for a proper [86
Cal.App.3d 713] purpose and in good faith." (See United Professional Planning, supra, 9
Cal.App.3d 377 .) In light of the principles set forth in Barkis, Freedman, MacFadden and
Williams Plumbing Co., the buyers reasonably could believe that their claim to specific
performance might be held valid.
I would therefore issue the writ of mandate as prayed for by the buyers--requiring the
trial judge to vacate and set aside his order expunging the notice of lis pendens.
FN 1. The 1961 Legislature enacted legislation for the purpose of providing special
protection for purchasers under "land sale contracts." (See Civ. Code, § 2985 et seq.)
Section 2985 contains this definition: "A real property sales contract is an agreement
wherein one party agrees to convey title to real property to another party upon the satisfaction of
specified conditions set forth in the contract and which does not require conveyance of title
within one year from the date of formation of the contract."
FN 1. On April 11, 1978, this court issued its order denying the petition for writ of
mandate sought by petitioners. On May 25, 1978, the California Supreme Court granted a
petition for hearing and then ordered the matter retransferred to this court with directions to issue
an alternative writ of mandamus and calendar the matter for hearing, with the notation: "(See
Williams Plumbing Co. v. Sinsley (1976) 53 Cal.App.3d 1027 .)"
FN 2. Amended by Statutes 1976, chapter 27, section 1, page 42.
FN 3. The Freedman case referred to is Freedman v. The Rector (1951) 37 Cal.2d 16
[230 P.2d 629], and the code sections relied on in Freedman are Civil Code section 3275 and
Civil Code sections 3294, 1670, 1671 and 3369. The MacFadden court explained that in
Freedman, the court had "held that section 3275 is not the exclusive source of the right to relief
from forfeiture. We concluded that the prohibition of punitive damages for breach of contract
(Civ. Code, § 3294), the strict limitations on the right to provide for liquidated damages (Civ.
Code, §§ 1670, 1671), and the provision that 'Neither specific nor preventive relief can be
granted to enforce a penalty or forfeiture in any case ...' (Civ. Code, § 3369) together established
a policy that precludes any forfeiture having no reasonable relation to the damage caused by the
vendee's breach even when that breach is wilful." (MacFadden, supra, 5 Cal.3d 809 , 813-814.)
Malcolm v. Superior Court , 29 Cal.3d 518
[S.F. No. 24162. Supreme Court of California. June 18, 1981.]
SIMONE MALCOLM, as Executrix, etc., et al., Petitioners, v. THE SUPERIOR COURT
OF SANTA CLARA COUNTY, Respondent; JAN GREEN, Real Party in Interest
(Opinion by Tobriner, J., expressing the unanimous view of the court.)
COUNSEL
Boone, Fox & Jones, David A. Boone, Thompson & Thompson and Kathleen T.
Thompson for Petitioners.
No appearance for Respondent.
Elton F. Martin for Real Party in Interest.
OPINION
TOBRINER, J.
In this writ proceeding, petitioners, defendants in the underlying action (hereafter
defendants), seek review of a trial court order denying their pretrial motion to expunge a notice
of lis pendens pursuant to Code of Civil Procedure section 409.1. fn. 1 Defendants contend that
the trial court applied the wrong legal standard in passing upon their motion to expunge, and
assert that on the basis of the affidavits and the other evidence presented, the court abused its
discretion in denying their motion.
[1a] For the reasons discussed below, we have concluded that the order of the trial court
should be sustained. Although defendants correctly observe that under section 409.1 it is the
party attempting to sustain a lis pendens, rather than the party seeking expungement, who bears
the burden of proving the propriety of the lis pendens under the applicable statutory standard, as
we shall see the trial court could properly find that real party in interest (hereafter plaintiff) had
met that burden in this case by presenting a verified declaration setting forth facts indicating,
inter alia, that the underlying action was commenced for a "proper purpose" and "in good faith,"
as required by section 409.1. [29 Cal.3d 522]
Defendants further maintain, however, that the alleged weakness of plaintiff's claim and
the ostensible likelihood that defendants, rather than plaintiff, would prevail after trial should
have led the trial court to expunge the lis pendens. As we shall explain, defendants' contention
rests upon a misinterpretation of the explicit language of section 409.1 and misconceives the
nature of the judicial inquiry contemplated by the statute. [2a] As we point out, both the plain
language and legislative history of section 409.1 indicate that the Legislature did not intend to
transform the pretrial lis pendens expungement procedure into a "minitrial" on the merits of the
case, but rather intended to require expungement only when the party who has filed the lis
pendens fails to persuade the trial court that the action was commenced for a proper purpose and
in good faith.
We recognize that in some cases the patent frivolousness of a claim may provide
persuasive evidence that the action was not commenced for a proper purpose or in good faith.
When, however, the party who has instituted the suit presents affidavits or declarations which
establish a prima facie case in support of the action, we conclude that section 409.1 does not
contemplate that a trial court will order expungement solely upon its view of the likely outcome
of the lawsuit. [1b] Because the declarations in this case constitute substantial evidence to
support the trial court's implied finding that the action was commenced for a proper purpose and
in good faith, we conclude that the challenged order should be upheld.
1. The facts and proceedings below.
On August 16, 1979, plaintiff Jan Green filed the underlying action against defendants,
executrix and beneficiaries of the estate of Mrs. Jeanne H. Mazeris, seeking specific performance
of an alleged oral agreement between plaintiff and Mrs. Mazeris. The complaint alleged that
Mrs. Mazeris had agreed to sell certain property to the plaintiff for $20,000 in return for the
plaintiff's continued payment of rent on the property and plaintiff's performance of all the
renovation, repairs and maintenance of the property at plaintiff's own expense; the complaint
further alleged that in reliance upon this agreement plaintiff expended in excess of $17,000 on
the property. Finally, the complaint stated that after Mrs. Mazeris' death, the executrix of her
estate refused to fulfill the terms of the agreement. [29 Cal.3d 523]
Two weeks after filing the complaint, plaintiff recorded a lis pendens on the real property
which is the subject of the underlying action. fn. 2 In December 1979, defendants, seeking to sell
the property to others, moved to expunge the notice of lis pendens that had been filed by
plaintiff. In support of the motion to expunge, defendants filed numerous verified declarations,
stating facts which defendants claimed demonstrated the invalidity of plaintiff's claim. In
response, plaintiff filed a verified declaration setting forth the substance of her oral agreement
with the decedent and other facts within her personal knowledge which supported the allegations
of her complaint. After receiving the opposing declarations and hearing oral argument, the trial
court, while acknowledging that "[t]he plaintiff's case may sound pretty thin," denied the motion
to expunge.
Thereafter, defendants filed the instant mandate proceeding, as authorized by section
409.4, seeking review of the order denying the motion to expunge.
[2b] In their petition, defendants contend that the trial court acted improperly in denying
the motion without delving more deeply into the merits of the underlying action. They assert that
in light of the alleged weakness of plaintiff's claim, the trial court erred in refusing to expunge
the lis pendens in this case. Plaintiff, on the other hand, contends that the trial court acted
properly in refusing to base its ruling on an attempted resolution of the merits of the underlying
controversy. She asserts that under section 409.1, the crucial inquiry is simply whether plaintiff's
action was commenced for a proper purpose and in good faith, and that in this case there is
substantial evidence to support the trial court's implied finding that plaintiff had met this burden.
As we shall explain, we conclude that plaintiff's interpretation of the statute is correct. [29
Cal.3d 524]
2. In passing upon the motion to expunge under section 409.1, the trial court properly
considered whether plaintiff had commenced the action for a proper purpose and in good faith
rather than whether plaintiff was likely to prevail on the merits of the action.
Section 409.1, the principal statute at issue in this case, currently provides in pertinent
part: "At any time after notice of pendency of an action has been recorded pursuant to section
409 or other law, the court in which the action is pending shall, upon motion of a party to the
action supported by affidavit, order that the notice be expunged, unless the party filing the notice
shows to the satisfaction of the court, by a preponderance of the evidence, that:
"(a) The action does affect title to or right of possession of the real property described in
the notice; and
"(b) Insofar as the action affects title to or right of possession of the real property
described in the notice, the party recording the notice has commenced or prosecuted the action
for a proper purpose and in good faith. Notice of motion to expunge shall be served not less than
20 days prior to the hearing. The court shall determine the matter on the affidavits and
counteraffidavits on file and upon such other proof as the court may permit."
The background and legislative history of the provision provide useful insight into the
proper interpretation of the statute. The Legislature enacted section 409.1 in 1968 in an attempt
to alleviate problems which had arisen from the misuse of notices of lis pendens. (Review of
Selected 1968 Code Legislation (Cont.Ed.Bar) pp. 60-61.) Prior to 1968, as now, section 409
permitted any plaintiff who had filed a lawsuit claiming an interest in real property to record a
notice of lis pendens without prior court approval or supervision. Because the recording of a lis
pendens placed a cloud upon the title of real property until the pending action was ultimately
resolved, a time period frequently encompassing several years, the lis pendens procedure was
susceptible to serious abuse, providing unscrupulous plaintiffs with a powerful lever to force the
settlement of groundless or malicious suits. (Ibid.; Note, Abuse of the California Lis Pendens,
supra, 39 So.Cal.L.Rev. 108.)
Before the enactment of the expungement legislation in 1968 there was no meaningful
prejudgment procedure either to identify those instances [29 Cal.3d 525] in which the lis
pendens remedy was being abused or to alleviate the potential harm caused by such abuse. The
Legislature adopted section 409.1 et seq. to afford such a remedy.
As originally enacted in 1968, section 409.1 provided for the prejudgment expungement
of a lis pendens if the party seeking expungement could demonstrate "by clear and convincing
proof" that, inter alia, the person recording the lis pendens had commenced the action "for an
improper purpose and not in good faith." (Stats. 1968, ch. 815, § 1, p. 1572.) Although this initial
version of the statute provided some relief from the problems that had engendered the provision's
enactment, after several years the provision began to draw serious criticism as commentators
noted that the statute placed on the party seeking expungement a burden of proof which was so
difficult to carry that a motion to expunge could succeed in only the most flagrant cases of abuse.
(See Comment, Does California's Statutory Lis Pendens Violate Procedural Due Process? (1975)
6 Pacific L.J. 62, 70.)
In response to such criticism, the Legislature in 1976 amended section 409.1 in two
significant respects. (Stats. 1976, ch. 27, § 1, pp. 42-43.) First, the Legislature transferred the
burden of proof or persuasion from the party seeking to expunge the lis pendens to the party
opposing the motion to expunge; thus, whereas the 1968 statute placed the burden on the party
seeking expungement to demonstrate that the underlying action had been brought for an
improper purpose and not in good faith, the present provision requires the party who has filed the
lis pendens to show to the satisfaction of the court that he has commenced or prosecuted the
action for a proper purpose and in good faith. Second, the Legislature altered the quantum of
proof necessary to justify the expungement of the lis pendens; whereas the 1968 statute had
authorized expungement only when the court was satisfied by "clear and convincing proof" that
the action had been brought, inter alia, for an improper purpose or not in good faith, the 1976
amendment lowered the threshold of proof that is needed to support a ruling in favor of
expungement, providing for expungement whenever the trial court is not convinced by a
"preponderance of the evidence" that the action has been commenced for a proper purpose and in
good faith.
As this review of the legislative history suggests, and, indeed, as the explicit language of
the current version of section 409.1 makes plain, defendants are entirely correct in asserting that
under the current statutory provision it is the party who opposes the expungement of a notice [29
Cal.3d 526] of lis pendens, rather than the party seeking expungement, who bears the burden of
proof at the expungement hearing. Contrary to defendants' contention, however, the record
before us does not demonstrate that the trial court acted inconsistently with the plain language of
the statute in this respect. The record reveals that plaintiff presented a verified declaration setting
forth facts from which the trial court could properly have found that plaintiff had met the burden
established by section 409.1. In the absence of an affirmative showing that the trial court in fact
applied an incorrect rule of law, we must presume that the court properly allocated the burden of
proof. (See, e.g., Denham v. Superior Court (1970) 2 Cal.3d 557, 564 [86 Cal.Rptr. 65, 468 P.2d
193]; 6 Witkin, Cal. Procedure (2d ed. 1971) Appeal, § 235, pp. 4225-4226.)
Defendants additionally maintain, however, that even if the record does not reveal that
the trial court placed the burden of proof on the wrong party, the record does demonstrate that
the trial court failed to adequately consider the alleged weakness of plaintiff's cause of action in
refusing to expunge the lis pendens. Defendant apparently takes the position that in passing upon
a motion to expunge under section 409.1, a trial court is generally obligated to consider the
relative merits of the opposing parties' cases as revealed by the conflicting affidavits, and that the
court should grant the expungement motion when the court is of the opinion from such affidavits
or declarations that the party who has recorded the lis pendens is unlikely to prevail on the
merits.
In our view, defendants' contention flies in the face of the plain language of section
409.1. As we have seen, although the present version of section 409.1 places the burden of proof
upon the party opposing expungement, the statute specifies that the critical issues to which the
plaintiff's burden of proof attaches are simply (1) whether "the action ... affect[s] title to or the
right of possession of the real property described in the notice," and (2) whether "the party
recording the notice has commenced or prosecuted the action for a proper purpose and in good
faith." fn. 3 There is nothing in the language of the statute to suggest that the Legislature
intended to require a plaintiff to demonstrate the likelihood of its success at trial in order to avoid
the expungement of a lis pendens; likewise, there is nothing in the language of the statute to
indicate that the Legislature intended to transform the pretrial expungement [29 Cal.3d 527]
procedure into any type of minitrial on the merits of the case. By contrast, in other, somewhat
analogous contexts, the Legislature has had no difficulty in explicitly directing a trial court to
engage in a pretrial consideration of the merits of an action when it deems such a determination
appropriate. (Cf., e.g., § 484.050, subd. (b); Corp. Code, § 800, subd. (c)(1).) fn. 4
The legislative history of the statute likewise provides no support for defendant's
position. As the review of the history of the statute set out above demonstrates, from the
inception of section 409.1 in 1968 the statute has provided that the issue of expungement should
generally turn on whether or not the plaintiff's action was commenced for a proper purpose and
in good faith, rather than upon the probable merit of plaintiff's claim. In its pre-1976 form, the
statute placed the burden of proof on this issue on the party seeking expungement, and phrased
the crucial question as whether that party had demonstrated that the action was commenced for
an "improper purpose" and "not in good faith."
In interpreting this statutory language in United Professional Planning, Inc. v. Superior
Court (1970) 9 Cal.App.3d 377, 387-389 [88 Cal.Rptr. 551], the Court of Appeal noted initially
that the terms "a proper purpose" and "not in good faith" are overlapping concepts and that the
existence of one may tend to establish the other. Drawing upon this court's interpretation of
similar language in Albertson v. Raboff, supra, 46 Cal.2d 375, 383, the United Professional court
held (1) that the term "improper purpose" generally refers to situations in which proceedings are
commenced (a) "primarily because of hostility or ill will," (b) "solely for the purpose of
depriving the person against whom they are initiated of a beneficial use of his property" or (c)
"for the purpose of forcing a settlement which has no relation to the merits of the claim," and (2)
that the term "not in good faith" generally means that the person initiating the underlying action
"does not believe that his claim may be held valid." (9 Cal.App.3d at p. 388.) [29 Cal.3d 528]
The Legislature presumably was aware of this judicial interpretation of the terms
"improper purpose" and "not in good faith" when it amended section 409.1 in 1976 and retained
parallel language in the revised statute. (Estate of McDill (1975) 14 Cal.3d 831, 837-838 [122
Cal.Rptr. 754, 537 P.2d 874]; Enyeart v. Board of Supervisors (1967) 66 Cal.2d 728, 735 [58
Cal.Rptr. 733, 427 P.2d 509].) Accordingly, under well-settled principles of statutory
construction, we must construe the present provision of section 409.1 in conformity with the
established judicial interpretation. (Ibid.) Thus, this legislative history makes it clear that under
section 409.1 the propriety of expungement does not depend upon the likely outcome of
plaintiff's lawsuit, but rather upon the plaintiff's state of mind or motive in filing or prosecuting
the action. (See, e.g., California-Hawaii Development, Inc. v. Superior Court (1980) 102
Cal.App.3d 293, 298 [162 Cal.Rptr. 365].) fn. 5
[3] This is not to suggest, however, that evidence relating to the apparent merit or lack of
merit of the plaintiff's action may never be considered by a trial court in determining the "good
faith" or "proper purpose" issues. Because the question of a person's motive in filing a lawsuit
relates primarily to his subjective state of mind, the issues of proper purpose and good faith must
often be determined by inference from a variety of circumstantial evidence and we recognize that
in some instances the patent lack of merit of a lawsuit may strongly suggest that the plaintiff has
not filed the action for a proper purpose or in good faith.
As a consequence, we conclude that if a plaintiff in response to a motion to expunge fails
to present by affidavit or other means even a "prima facie" case on the merits of his claim, fn. 6 a
trial court could appropriately conclude that the plaintiff has failed to meet his burden to
demonstrate that the action is being prosecuted with the requisite good faith. Moreover, even
when such a prima facie case is presented, if the party seeking expungement introduces evidence
of the plaintiff's bad [29 Cal.3d 529] faith or improper purpose independent of the alleged
weakness of the plaintiff's case, a trial court may properly consider the evidence relating to the
merits of the action in determining whether or not to credit the independent evidence of bad
faith.
On the other hand, however, when -- as in the instant case -- a plaintiff has filed a verified
complaint and a verified declaration stating that the action has been brought for a proper purpose
and in good faith and setting forth a prima facie case in support of the action, we do not believe
that a defendant may rebut the plaintiff's showing simply by presenting counteraffidavits which
controvert the plaintiff's evidence and raise triable issues of fact on the merits of the case. As we
have discussed above, the provisions of section 409.1 clearly indicate that the Legislature did not
intend to transform the expungement procedure into a minitrial on the merits of the lawsuit and
such a transformation would inevitably result if the "good faith" or "proper purpose" issues were
to be resolved solely by the trial court's pretrial assessment of the relative weakness or strength
of a plaintiff's prima facie case. If there is no independent evidence of bad faith or improper
purpose, we conclude that section 409.1 does not contemplate the expungement of the lis
pendens in such a situation. fn. 7
Contrary to defendants' apprehension, this interpretation of section 409.1 -- mandated in
our view by the plain language and legislative history of the statute -- does not leave a defendant
whose property has been rendered unmarketable by the filing of a lis pendens totally without
remedy whenever a plaintiff's declarations raise factual conflicts that cannot ultimately be
resolved until trial. In its 1976 amendment of section 409.1, the Legislature -- in addition to the
revisions discussed above -- added a separate passage explicitly affording the trial court
discretion to require whichever party prevails on the expungement motion to provide an
undertaking so as to protect the opposing party from potential loss. The relevant portion of
section 409.1 provides in this regard: "The court, as a condition of granting or denying the
motion to [29 Cal.3d 530] expunge, may require that the party prevailing upon such motion give
the other party an undertaking of such nature, and in such amount as shall be fixed by the court,
such undertaking to be to the effect that such prevailing party will indemnify the other party for
all damages which he may incur if he ultimately prevails in the action." Thus, however the trial
court resolves the "good faith" and "proper purpose" issues, this additional provision affords the
court considerable latitude in protecting the respective parties' interests during the pendency of
the action. fn. 8
[1c] In sum, we conclude that defendants have failed to demonstrate that the trial court
erred in refusing to expunge the lis pendens in this case. From the conflicting affidavits before it,
the trial court could properly determine that plaintiff had met her burden of demonstrating that
the action was commenced and prosecuted for a proper purpose and in good faith.
Accordingly, the petition for a peremptory writ of mandate is denied.
Bird, C. J., Mosk, J., Richardson, J., Newman, J., Regan, J., and Hopper, J., concurred.
FN 1. Unless otherwise indicated, all statutory references are to the Code of Civil
Procedure.
FN 2. A lis pendens is a recorded document giving notice that an action has been
commenced which affects title to the land in question. (§ 409.) Absent the filing of a lis pendens,
"[a]nyone with actual notice of the pendency of the [action] who acquires an interest in the
property takes subject to any judgment that may be rendered therein .... The sole purpose of
recording a notice of lis pendens is to secure the same result by giving constructive notice of the
pendency of the proceeding." (Albertson v. Raboff (1956) 46 Cal.2d 375, 379 [295 P.2d 405].)
As a practical matter, the filing of a lis pendens usually clouds the title to the property
and prevents its transfer until the litigation is resolved or the lis pendens is expunged. (See
generally Note, Abuses of the California Lis Pendens: An Appeal for Legislative Remedy (1966)
39 So.Cal.L.Rev. 108.)
FN 3. In this case, the underlying action involves an alleged contract to sell the property
in question and thus clearly potentially affects the title to or the right of possession of the
property described in the notice of lis pendens.
FN 4. Section 484.050, subdivision (b) provides: "The order [for a writ of attachment]
will be issued if the court finds that the plaintiff's claim is probably valid and the other
requirements for issuing the order are established ..." (Italics added.)
Corporations Code section 800, subdivision (c)(1) provides that in a shareholder
derivative action, a plaintiff may be required to post adequate security if the trial court finds after
a pretrial motion that "there is no reasonable possibility that the prosecution of the cause of
action alleged in the complaint against the moving party will benefit the corporation or its
shareholders."
FN 5. To the extent that it is inconsistent with this conclusion, the case of Nash v.
Superior Court (1978) 86 Cal.App.3d 690 [150 Cal.Rptr. 394] is disapproved.
FN 6. In this context, a "prima facie" case is an evidentiary showing, by affidavit or such
other evidence as the court may permit, that plaintiff would be entitled to relief if his evidence is
credited. In providing that the "court shall determine the matter on the affidavits and counteraffidavits on file and such other proof as the court may permit," section 409.1 makes it clear that
the court may decide the matter solely on the basis of affidavits and declarations and that it need
not take testimony unless it chooses in its discretion to do so.
FN 7. Because the present case involves a pretrial motion to expunge a lis pendens, we
have no occasion at this time to determine whether the application of the statutory "good faith"
and "proper purpose" standards may vary when a motion to expunge is made after trial while a
case is pending on appeal. (Compare United Professional Planning, Inc. v. Superior Court, supra,
9 Cal.App.3d 377, 394 with California-Hawaii Development, Inc. v. Superior Court, supra, 102
Cal.App.3d 293, 299-300.) The issues posed by a posttrial motion to expunge a lis pendens are
presently pending before our court in the case of Peery v. Superior Court (S.F. 24266, hg.
granted Mar. 27, 1980), in which oral argument is scheduled for a future calendar.
FN 8. We also note that since 1968, section 409.2 has afforded the trial court authority to
expunge a lis pendens upon the giving of an undertaking whenever "the court finds that adequate
relief can be secured to the party recording the notice by the giving of such undertaking." Thus,
when a plaintiff can be adequately protected, a defendant can free property from the cloud of a
lis pendens by posting a sufficient undertaking.
Kossler v. Palm Springs Developments, Ltd. (1980) 101
Cal.App.3d 88 , 161 Cal.Rptr. 423
[Civ. No. 20798. Court of Appeals of California, Fourth Appellate District, Division Two.
January 15, 1980.]
GEORGE F. KOSSLER et al., Plaintiffs and Appellants, v. PALM SPRINGS
DEVELOPMENTS, LTD., et al., Defendants and Respondents.
(Opinion by Kaufman, Acting P. J., with McDaniel and Morris, JJ., concurring.)
COUNSEL
George F. Kossler, in pro. per., for Plaintiffs and Appellants.
Stephens, Martin, Berg & Lasater and R. Wicks Stephens II for Defendants and Respondents.
OPINION
Kaufman, Acting P. J.,
Defendant Palm Springs Developments, Ltd., fn. 1 a general contractor, owned real property in
the City of Palm [101 Cal.App.3d 91] Springs which it was developing as a 13-home tract.
Plaintiffs George F. Kossler and Jeri L. Kossler, husband and wife, agreed to purchase one of the
homes under construction. When construction was purportedly completed, a dispute arose
between the parties as to whether or not the house was, in fact, completed in good and
workmanlike fashion and in accordance with the floor plan diagram shown plaintiffs. Defendant
informed plaintiffs that inasmuch as they were unwilling to accept the house as completed, it was
terminating its agreement to sell the property to plaintiffs. Plaintiffs thereupon instituted this
action for specific performance and/or damages for breach of contract, and fraud. Defendant
cross-complained for quiet title. Trial was to the court. Judgment was for defendant, fn. 2 and
plaintiffs appeal.
Facts
Mr. Kossler is an attorney and was considering moving his practice from Orange County to Palm
Springs. In November 1976 plaintiffs responded to a newspaper advertisement concerning the
homes under construction by defendant. They were shown the property by a real estate broker
and given a copy of a floor plan diagram for the four-bedroom, three-bath home they
subsequently agreed to purchase. The home was to adjoin the fairway of a public golf course and
one wall of the master bathroom was planned to be all glass which would give passing golfers an
unobstructed view into the bathroom. The floor plan shown to plaintiffs depicted a grape stake
fence around the glass wall of the master bath as well as a medicine cabinet in the master
bathroom and another medicine cabinet in a bathroom designated bathroom number two.
On November 7, 1976, plaintiffs deposited $500 toward the purchase of the house which they
had been told would be completed by about the third week in December. Thereafter plaintiffs
visited the construction site frequently to observe the progress being made in the construction of
the house. On January 20, 1977, the parties executed a written contract for the purchase and sale
of the property on a California Real Estate Association form. Among the provisions were two of
potential significance to this appeal. Provision 5 called for the execution of escrow [101
Cal.App.3d 92] instructions within 7 days from the seller's acceptance and for the closing of
escrow within 60 days from the seller's acceptance, "subject to written extensions signed by
Buyer and Seller." Provision 10 read: "Time is of the essence of this contract."
The next day the parties opened an escrow and executed escrow instructions. Plaintiff deposited
in the escrow $4,350. The total sales price was specified to be $86,950. Plaintiffs were to receive
a $2,000 credit as a carpeting allowance. These original instructions contemplated that plaintiffs
would obtain a conventional first trust deed loan and that a second trust deed would be carried
back by defendant at the same rate of interest and amortized over the same period as the first
trust deed.
The instructions contained several provisions pertinent to the times for performance and closing.
First, the instructions provided that "[p]rior to March 20, 1977,... Buyer, will hand you
$78,255.00... and any funds and instruments necessary for [buyer] to comply with these
instructions, which you [the escrow holder] are to use provided you can have issued through
Safeco Title Insurance Company a CTLA standard coverage policy of title insurance" for the
described property. Next, at the bottom of the same page, the instructions provided: "I, Seller,
agree to the foregoing instructions and prior to the said date will hand you any funds and
instruments necessary for me to comply therewith provided you hold the funds and instruments
deliverable to me."
On page 3 of the instructions it was provided: "The entire sum of money paid or advanced by the
Purchaser and deposited herein shall be held in escrow until you hold either (1) proper release of
the subject property from blanket encumbrance thereon, if any; (2) the Seller or Buyer defaults
under the terms of this escrow and there is a determination as to the deposition [sic] of such
monies, or (3) Seller orders the return of such monies of Buyer. [¶] The undersigned Buyer
understands that a building and/or improvements are to be erected, are under course of
constructions [sic], or have recently been completed on the property described.... You are
authorized to hold all papers and monies in escrow until the Notice of Completion has been
recorded on said lot and the title company will write its title policy eliminating said Notice of
Completion. [para.] This escrow shall close only upon filing of Notice of Completion in
connection with subject property and at such time as Seller is able to deliver to Buyer a policy of
title insurance insuring [101 Cal.App.3d 93] title...to be free of Mechanic[']s Liens. Seller shall
promptly notify Escrow Holder as to the date of filing of said Notice."
Under "General Provisions" on page 2 there was the customary instruction "If the conditions of
this escrow have not been complied with prior to the date stated on Line 1, or any extension
thereof, you are nevertheless to complete the escrow as soon as the conditions, except as to time
have been complied with, unless written demand shall have been made upon you not to complete
it."
On February 9, 1977, the original escrow instructions were amended to delete the provisions
concerning the first and second deeds of trust and to provide, in essence, that plaintiffs would
pay the entire purchase price in cash and the amount to be deposited by buyers on or before
March 20, 1977, was changed to $86,950.
Having moved to Palm Springs and rented a condominium, plaintiffs visited the construction site
daily after January 20. They made arrangements with the construction superintendent for the
installation of upgraded kitchen appliances. They were permitted to trade in the appliances
supplied by defendant, purchase upgraded appliances, and deliver them to the jobsite for
installation by defendant. Accordingly, plaintiffs purchased a microwave oven, a ceramic-top,
self-cleaning oven range unit, a dishwasher and a garbage disposal at a net cost of $1,150.69
over and above the credit received by them for the appliances traded in. Plaintiffs also made
special requests with respect to such items as paint and decorating, in which defendant attempted
to accommodate them at no additional cost.
In addition, plaintiffs testified that they purchased custom-measured carpeting for the house at a
cost of $3,835 as well as $1,120 worth of custom-measured shutters and $200 worth of redwood
paneling for a bathroom.
On March 11 the house was still not completed and plaintiffs moved their household furniture
and furnishings from their residence in Irvine, which was being sold, to a public storage facility
in Palm Springs.
On March 14, six days before the closing date mentioned in the purchase contract and escrow
instructions, plaintiffs visited the construction site and noted that the medicine chests depicted on
the [101 Cal.App.3d 94] floor plan diagram as being in the master bath and the number two bath
had not been installed, that the fence around the glass wall in the master bathroom had not been
constructed and installed and that there were a myriad of other more or less minor deficiencies
including a number of things not yet done and a number of things incorrectly or improperly
done.
March 20, the date specified on line 1 of the escrow instructions, was a Sunday. Plaintiffs did not
deposit the balance of the purchase price in escrow prior to that date, nor as it turned out,
subsequently.
On March 28, defendant caused to be recorded a notice of completion with respect to the
property in question which recited that "[a] work of improvement on the property hereinafter
described was completed on March 22, 1977."
On March 27, plaintiffs visited the construction site to measure for wallpaper and placement of
furniture, and asked the salesperson when the home would be completed and when plaintiffs
would have a "walk through." The salesperson indicated he would find out and telephone
plaintiffs. On April 6 the salesperson got in touch with plaintiffs and asked if the walk through
could be had on April 9. Plaintiffs were unavailable on that date, so on April 12 the walk through
was finally scheduled for April 14. At the walk through defendant's representatives had already
prepared a "pick up" sheet consisting of two and a half typewritten pages of listed items to be
repaired, corrected or completed. However, when plaintiffs asked about the two medicine chests
depicted on the floor plan diagram as installed in the master bathroom and bathroom number two
and the fence depicted on the floor plan as installed in front of the glass wall in the master
bathroom, they were informed by defendant's representative that these items would not be
provided. Apparently there was some discussion between plaintiff's and defendant's
representative which upset the latter and she placed a telephone call to defendant Appel, one of
the managers of the limited partnership. There ensued a conversation between Mr. Kossler and
Mr. Appel in which Mr. Appel stated among other things that he was "getting sick and tired of
all your complaining out there, and I'm not going to do one more thing to that house"; "I don't
care what the plans provide. You didn't buy the house, based on the plans"; "I'm not going to do
another thing to that house. If you want your money back, you can have it." [101 Cal.App.3d
95]
When Mr. Kossler told Mr. Appel that plaintiffs did not want their money back but they wanted
defendant to finish the house, Mr. Appel responded in part: "I told you, I'm not doing another
thing to that house.... [para.] [S]o sue me.... [¶] You either take the house the way it is, or I'm
going to cancel you out."
Mr. Kossler then stated: "Well, we want the house, but we want it completed." Mr. Appel
responded: "Okay. I'm not going to sell you the house. I'm breaching the contract." Mr. Kossler
asked: "You are refusing to sell the house?" Mr. Appel replied: "That's right, I'm breaching the
contract, right now."
The following day plaintiffs received from defendant a telegram informing them that pursuant to
the telephone conversation between Mr. Kossler and Mr. Appel, defendant was forwarding
cancellation instructions to the escrow, and the same day defendant sent a letter to the escrow
authorizing the escrow officer to cancel the escrow and refund all sums on deposit to the buyer
charging any accrued costs to the seller.
The same day plaintiffs filed their complaint in this action and notified the escrow holder,
requesting that the escrow not be cancelled. The escrow was apparently not cancelled, and
plaintiff's $4,350 remains on deposit in the escrow.
The trial court found that time was of the essence of the transaction; that the date for plaintiffs'
payment into escrow, March 20, 1977, was not extended by defendant either expressly or by
implication; that defendant performed each and every condition required to be performed by it
under the purchase contract and the escrow instructions and that defendant was ready, willing
and able at all times to close the escrow in accordance with its terms and to transfer title to "lot
18" to plaintiffs in accordance with the terms of the contract and escrow instructions; that
plaintiffs failed to pay the balance of the purchase price into escrow on or before March 20,
1977, or at any time thereafter; that plaintiffs were not excused from their obligation to pay the
balance of the purchase price on or before March 20, 1977, and that their failure to tender or pay
that sum as required was a material breach of the purchase agreement and the escrow
instructions; that on April 15, 1977, "the dwelling having been completed" and the plaintiffs
being in breach due to their wilful failure timely to tender or pay the balance of the purchase
price, [101 Cal.App.3d 96] defendant cancelled and terminated the escrow and ordered the
return of plaintiffs' deposit to them with all expenses to be charged to defendant; that the escrow
was cancelled by defendant in accordance with the terms of the purchase agreement and escrow
instructions; that "[p]laintiffs failed to establish that they had the ability to perform the
requirement of the Escrow Instruction that they pay the balance of the purchase price into
escrow. Indeed, the testimony of plaintiffs established that they were unable to so perform";
"plaintiffs sustained no damage as alleged in ... the Complaint or otherwise"; and that there was
no misrepresentation to plaintiffs by any of the defendants or their representatives.
Discussion of Contentions
Although plaintiffs' contentions are not always phrased in precisely these terms, their attack on
the judgment is based on their conclusions that the essential findings of the trial court are not
supported by substantial evidence and are contrary to law. We agree.
The court's findings that time was of the essence of the transaction and that the date by which
plaintiffs were to deposit in escrow the balance of the purchase price, March 20, 1977, was not
extended by defendant expressly or by implication are both contrary to the applicable law and
inconsistent with the uncontradicted evidence. The purchase agreement did contain the provision
that time was of the essence, but there were several times to which that provision could have
reference. The seller was given only three days to accept the offer of the buyer, and we have little
doubt that the time of the essence provision was meant to apply to that time limitation. Another
time limitation specified in the agreement was that an escrow should be opened within seven
days after the seller's acceptance of the buyer's offer. Perhaps the time of the essence provision
was also meant to apply to that time limitation. If so, it was satisfied, because the escrow was
opened on the next day following the seller's acceptance. The other time limitation found in the
purchase agreement is that the escrow to be opened should provide for a closing date within 60
days from the seller's acceptance, "subject to written extensions." [1] But the time of the essence
provision could not conceivably have been intended by the parties to apply to that time
limitation. What was being purchased was a house under construction with respect to which the
date of completion was unknown, and the escrow was not intended by either party to close prior
to completion of [101 Cal.App.3d 97] the home under construction as evidenced by the express
provision to that effect in the escrow instructions executed one day after execution of the
purchase agreement.
Moreover, it is fundamental that where an agreement is expressed through a series of writings,
they must be construed collectively in ascertaining the whole agreement between the parties
(Civ. Code, § 1642; Katemis v. Westerlind, 120 Cal.App.2d 537 , 542 [261 P.2d 553]) and that
this rule applies where an agreement for the purchase and sale of real property is elucidated by
the provisions contained in escrow instructions executed for the purpose of consummating the
purchase and sale transaction (Katemis v. Westerlind, supra, and cases there cited). Here, in the
escrow instructions both parties agreed to deposit the funds and documents necessary to close
the escrow prior to March 20, 1977, the recited closing date. However, it is manifest that that
date was not considered to be of the essence, for the escrow instructions contained the customary
provision authorizing the escrow holder to complete the escrow at a later date if not closed on
the date specified unless one of the parties has theretofore demanded cancellation. Moreover, the
escrow instructions expressly provided that escrow was not to close until a notice of completion
with respect to the home under construction had been filed for recordation.
The applicable law was admirably summarized in Katemis v. Westerlind, supra, 120 Cal.App.2d
at page 543: "Professor Pomeroy, in his treatise on Specific Performance, states, 'the prescribing
a day at or before which, or a period within which, an act must be done, even with a stipulation
that it shall be done at or before the day named,...does not render the time essential with respect
to such an act.' [Citation.] The general rule in equity is that time is not of the essence unless it
has been made so by...express terms or is necessarily so from the nature of the contract.
[Citation.] (See also Lifton v. Harshman, 80 Cal.App.2d 422 , 425-426, 433 [182 P.2d 222]
(disapproved on other grounds insofar as contrary in Pao Ch'en Lee v. Gregoriou, 50 Cal.2d 502
, 506 [326 P.2d 135]); Weneda Corp. v. Dispalatro, 225 Cal.App.2d 187 , 191 [37 Cal.Rptr.
267].)
Defendant urges that even if time was not of the essence, the language of the escrow instructions
by which plaintiffs agreed to deposit the balance of the purchase price on or before March 20,
1977, established such deposit by plaintiffs as a condition precedent to its duty to [101
Cal.App.3d 98] perform. Not so. Defendant also promised to deposit into escrow prior to March
20, 1977, all funds and documents it was obligated to supply. [2] It is universally held that the
reciprocal promises of the buyer and seller to deposit funds and documents into escrow on or
before the same date constitutes the performance of each a condition concurrent. (Weneda Corp.
v. Dispalatro,, supra 225 Cal.App.2d at pp. 191-192; Diamond v. Huenergardt, 175 Cal.App.2d
214 , 220 [346 P.2d 37]; Groobm an v. Kirk, 159 Cal.App.2d 117 , 123 [323 P.2d 867]; Katemis
v. Westerlind, supra, 120 Cal.App.2d at pp. 545-546;see also Civ. Code, § 1437.)
Defendant's reliance on the provisions in the escrow instructions authorizing the escrow holder
to retain all moneys and documents in escrow until the recordation of a notice of completion is
entirely misplaced. Manifestly, those provisions were included in the escrow for the benefit of
the buyer. Defendant's argument that whether or not the home was completed by March 20,
1977, plaintiffs were required to deposit the balance of the purchase price by that date because
defendant had invested a great deal of money in constructing the home and was entitled to be
certain plaintiffs had the ability to complete the purchase is unpersuasive. There is no evidence
that defendant questioned the financial ability of plaintiffs to complete the purchase at any time
during this entire unhappy episode prior to the institution of litigation. Moreover, it would not
accord with commercial reality to expect a purchaser to deposit into a noninterest-bearing
escrow account more than $86,000 substantially in advance of the event upon which escrow was
to close, namely, the recordation of the notice of completion and elimination of the possibility of
mechanic's liens.
Even if it could be somehow concluded that payment by plaintiffs of the balance of the purchase
price into escrow on or before March 20 was a condition precedent, the uncontradicted evidence
of the conduct of defendant establishes as a matter of law that strict compliance by plaintiffs on
or before March 20 was waived by defendant. Defendant arranged a walk through of the property
first for April 12 and then for April 14, 1977, and conducted the walk through on April 14,
unequivocally evidencing that plaintiffs' performance on that date or shortly thereafter would be
considered timely. Indeed, when Mr. Appel informed Mr. Kossler that defendant would not sell
plaintiffs the property, his language expressly recognized the vitality of the contract to that time,
and no assertion was made that plaintiffs had breached the [101 Cal.App.3d 99] contract by
failing to deposit into escrow the balance of the purchase price by March 20. While waiver is
ordinarily a question of fact, where only one reasonable inference can be drawn from the
evidence, the existence of a waiver becomes a question of law. (Loughan v. Harger-Haldeman,
184 Cal.App.2d 495 , 503 [7 Cal.Rptr. 581]; see also Silva v. National American Life Ins. Co.,
58 Cal.App.3d 609 , 615 [130 Cal.Rptr. 211], and cases there cited.)
Where a specified time for performance has been waived by a party, "he must, in order to put the
other in default, not only give notice that strict compliance will thereafter be required but must
allow the other party a reasonable time within which to perform. [Citations.]" (Lifton v.
Harshman, supra, 80 Cal.App.2d at p. 433; see also Chin Ott Wong v. Title Ins. & Trust Co., 89
Cal.App.2d 183 , 188 [200 P.2d 541], and cases there cited.) Here, no demand was ever made by
defendant that plaintiff deposit the balance of the purchase price in escrow on any particular
date, unless Mr. Appel's ultimatum to Mr. Kossler on April 14 that plaintiffs must accept the
house as it was or suffer cancellation may be construed as a demand for plaintiffs' performance
on that date. Even if such a construction is possible, however, as we shall see defendant had no
right to demand full performance by plaintiffs on April 14.
We return to our conclusion that pursuant to the numerous cases earlier cited, the obligations of
plaintiffs and defendant to perform were concurrently conditional. In a contract for the purchase
and sale of real property calling for concurrent performance, neither party can place the other in
default without first performing or tendering his own performance with the ability to perform.
(Weneda Corp. v. Dispalatro, supra, 225 Cal.App.2d at p. 192; Diamond v. Huenergardt, supra,
175 Cal.App.2d at p. 220; Katemis v. Westerlind, supra, 120 Cal.App.2d at p. 546.) Thus,
plaintiffs could not be found to be in breach of contract unless defendant first performed or
offered to perform. Although the trial court found that defendant performed each and every
obligation it was bound to perform under the purchase agreement and escrow instructions, that
finding is contrary to the uncontradicted evidence.
The trial court did not specify the date upon which it found that defendant had completed
construction of the house. The finding as to completion is contained in another finding as a
recital, referring to "the dwelling having been completed" by April 15, 1977. In its appellate brief
defendant asserts that the evidence established that it had completed [101 Cal.App.3d 100] the
house at least as early as March 22, the date recited as the date of completion in the notice of
completion recorded March 28. The critical date, however, at least initially, was March 20, 1977,
for it was plaintiff's failure to perform on or before that date that the trial court found to
constitute a material breach of the purchase agreement and escrow instructions. There is no
evidence whatever that construction had been completed by March 20. Defendant's own notice of
completion stated that the work was not completed until March 22. Thus, defendant had neither
performed or tendered performance on or before March 20, 1977, and since its duty to do so was
a condition concurrent with plaintiffs' duty to perform on that date, plaintiffs' failure to pay into
escrow the balance of the purchase price on or before that date was not a breach of contract. The
finding of the trial court that it was is contrary to law.
If the court's findings are to be interpreted as indicating that defendant had fully performed by
April 14 or April 15 that finding, too, is contrary to the uncontradicted evidence. Even if the
myriad more or less minor deficiencies listed by defendant's representative in connection with
the walk through are ignored, fn. 3 the uncontradicted evidence establishes that the fence
depicted on the floor plan diagram outside the glass wall of the master bathroom had not been
constructed and that the medicine cabinets depicted as a part of the master bathroom and
bathroom number two had not been installed.
Defendant asserts that it eliminated the medicine cabinets because a plumbing problem was
encountered during construction and that it did not erect the fence outside the glass wall because
of aesthetic considerations. It further asserts that in lieu of these features, defendant included in
the house a number of items and features that were not depicted on the floor plan diagram such
as tile counters, hardwood cabinets, air conditioning in one room not originally planned and a
fence surrounding the entire property. However, these assertions disclose a fundamental
misconception of the relationship between the parties and defendant's duties under the purchase
agreement and escrow instructions. [101 Cal.App.3d 101]
[3] When a contractor who is both owner and builder contracts to sell a home under construction
on the basis of a floor plan diagram or other plans or graphic representations, the obligation
incurred is not to build and deliver whatever house the contractor chooses but, rather, to build
and deliver a particular house in conformity with the plans or other graphic material shown to the
buyer. fn. 4 The relationship between the parties in such a situation is dual. The contractorowner-builder is to the buyer both a seller of real property and a contractor who has agreed to
build a specific structure. A contractor-owner-builder may retain the right to make changes at his
whim during construction by not selling the home until after construction has been completed.
However, when he contracts to sell a home to be constructed or a home under construction he
may no longer make whatever changes he chooses during the course of construction without the
agreement of the buyer. Thus, even ignoring the items on defendant's "pick up" list, it is clear
that defendant had not fully completed the home it contracted to build even by April 14, 1977,
and the court's finding that defendant fully performed the contract is contrary to the evidence.
Next, defendant invokes the doctrine of substantial performance and asserts that the trial court's
determination must be upheld on that theory. Citing several cases, plaintiffs claim that the
doctrine of substantial performance does not apply to escrows. The cited cases stand for the well
accepted proposition that full performance is required to satisfy conditions to the closing of an
escrow. However, again the dual relationship between the parties in a situation such as this
comes into play. The problem at hand relates primarily if not exclusively to that aspect of the
transaction that might be identified as the construction contract were the contractor not also the
owner-seller. As the Supreme Court stated inPosner v. Grunwald-Marx, Inc., 56 Cal.2d 169 ,
186-187 [14 Cal.Rptr. 297, 363 P.2d 313], quoting from Witkin: "'The prevailing doctrine today,
which finds its application chiefly in building contracts, is that substantial performance is
sufficient, and justifies an action on the contract, although the other party is entitled to a
reduction in the amount called for by the contract, to compensate for the defects.'" (See [101
Cal.App.3d 102] 1 Witkin, Summary of Cal. Law (8th ed. 1973) Contracts, § 588, p. 503; italics
deleted.) We agree with defendant that the doctrine of substantial performance is applicable in
this situation.
However, the doctrine of substantial performance was developed to alleviate the injustice that
resulted from the rule that a contractor could not recover at all on the contract unless he fully
performed. (See Thomas Haverty Co. v. Jones, 185 Cal. 285, 288-290 [197 P. 105]; 3A Corbin
on Contracts (1960) §§ 659, 660, pp. 157-165.) Application of the doctrine does not give the
contractor the right to demand full performance from the other party; the other party is entitled to
a reduction in the contract price to compensate for whatever deficiencies exist. (SeePosner v.
Grunwald-Marx, Inc., supra, 56 Cal.2d at p. 187; Thomas Haverty Co. v. Jones, supra; 3A
Corbin on Contracts, supra.)
So, having substantially performed, defendant did not have the right to insist that plaintiffs fully
perform, i.e., take the house as it was and pay the full contract price therefor. It may be as
defendant asserts that other features were added to the house that made its value equal to what it
would have been if constructed in accordance with the floor plan shown to plaintiffs, but in order
to rely on any such offsetting changes, defendant should have reserved in the contract the right to
make such substitutions or changes or obtained plaintiffs' consent to such substitutions and
changes prior to their being made.
Defendant might have demanded that plaintiff deposit into escrow the balance of the purchase
price had defendant also offered to amend the escrow instructions so that there would be retained
in escrow pending correction of the deficiencies an amount equal to the cost of doing the
necessary work to complete the home in workmanlike fashion. But it did not do that. It
demanded in substance that plaintiffs take the house as it was and pay the full contract price
therefor. When plaintiffs refused to do that, as was clearly their right, defendant repudiated the
contract by unequivocally stating that it would not sell the property to plaintiffs, confirming the
repudiation by telegram and notice of cancellation to the escrow holder the following day.
It is well settled that an unequivocal repudiation of the contract by one party prior to material
breach of the contract by the other party excuses the other party from tendering performance of
his concurrently conditional obligations. (Civ. Code, § 1440; Beverage v. Canton Placer [101
Cal.App.3d 103] Mining Co., 43 Cal.2d 769 , 777 [278 P.2d 694].) Thus plaintiffs were relieved
by defendant's repudiation of the contract from tendering performance. However, in order to
obtain specific performance, plaintiffs were still required to show that they were willing and able
to pay the purchase price. (Am-Cal Investment Co. v. Sharlyn Estates, Inc., 255 Cal.App.2d 526 ,
539 [63 Cal.Rptr. 518].) While plaintiffs' complaint contained no specific allegation that
plaintiffs were ready, willing and able to purchase the property, their filing suit for specific
performance certainly made plain their position in that regard, and their ability to perform was
tried without objection. The court, of course, found that "[p]laintiffs failed to establish that they
had the ability to perform the requirement of the Escrow Instruction that they pay the balance of
the purchase price into escrow. Indeed, the testimony of plaintiffs established that they were
unable to so perform."
Plaintiffs assert with considerable persuasion that this finding of the trial court is not supported
by substantial evidence. However, we do not reach that question. From the court's express
language in the finding about plaintiffs' "ability to perform the requirement of the Escrow
Instruction" and paying "the balance of the purchase price into escrow," together with its finding
that time was of the essence of the contract, the court's finding with respect to plaintiffs' ability
necessarily had reference to the date of March 20, 1977, the date by which the escrow
instructions required the balance of the purchase price to be deposited. But as we have seen, time
was not of the essence, and the crucial date was April 14, 1977. The court made no finding as to
plaintiffs' ability to perform on that date, and the state of the evidence with respect to that date is
unsatisfactory, due no doubt to the emphasis in the trial court on the date called for in the escrow
instructions. When jurisdiction is restored to the trial court, this issue may be retried, and
appropriate findings made.
It appears therefore that contrary to the court's findings, plaintiffs were not in default of their
obligations under the contract. Unless the trial court's finding that plaintiffs suffered no damages
was based on its conclusion that it was they who breached the contract, that finding, too, is
contrary to the uncontradicted evidence of the expenses incurred by plaintiffs in reliance on the
contract, some of them in purchasing items now installed in the home. [101 Cal.App.3d 104]
Disposition
Reversal of the judgment with directions is required. However, by reference to a matter outside
the record defendant has raised an issue that might affect the content of the appellate judgment.
Defendant informs us that following rendition of judgment in the trial court and pending appeal
it has sold the property to a third person whom it asserts is a bona fide purchaser for value
without notice. It asserts that, therefore, specific performance can no longer be decreed since
defendant no longer has the ability to comply with such a decree. Even if such voluntary
disablement to comply with a decree of specific performance might foreclose that remedy, a
matter we do not decide, this court cannot resolve the factual question whether the person to
whom defendant has conveyed the property is a bona fide purchaser for value without notice (see
Code Civ. Proc., § 1908, subd. (a)(2)). We note that plaintiffs recorded a lis pendens when they
filed this action, and although the court below purported to expunge the lis pendens in
conjunction with its judgment for defendant, the questions that might be raised as to the authority
of the court to make that order as a part of the judgment and whether or not that order might have
been stayed by plaintiffs' appeal are not properly before us and, of course, have not been briefed
or argued.
Accordingly, the judgment is reversed with directions to the trial court to try the issue of whether
or not plaintiffs on April 14, 1977, were willing and able to pay the balance of the purchase price
less any amount required to complete the house in good and workmanlike fashion in accordance
with the floor plan diagram shown to plaintiffs. Thereupon the court is directed to make and
enter appropriate findings of fact and conclusions of law consistent with this opinion and to
render judgment accordingly. In addition to the foregoing, the court may engage in such
evidentiary or other proceedings as it deems appropriate, limited, however, to the question of the
nature of the remedy to be afforded plaintiffs, if any, and, if damages are to be awarded, the
amount thereof.
Smith v. Hill , 237 Cal.App.2d 374
[Civ. No. 7564. Fourth Dist. Sept. 30, 1965.]
J. CLARKE SMITH et al., Plaintiffs, Cross-defendants and Appellants, v. EDWIN E. HILL,
Defendant, Cross-complainant and Respondent.
COUNSEL
Wilson & Wilson and Fred A. Wilson for Plaintiffs, Cross-defendants and Appellants.
Holcomb, Kassel & Ward, Surr & Hellyer, James W. Dilworth and Joe Sax for Defendant,
Cross-complainant and Respondent.
OPINION
WHELAN, J.
Plaintiffs (Smith) were the owners of real property described in part as lots 14 and 15 situated in
San Bernardino County and of certain equipment used in the operation on said real property of a
rock-crushing plant and the preparation of sand and gravel for sale; the material so processed
was obtained from other property under lease from Lytle Creek Water and Improvement
Company (Lytle). Plaintiffs also were the owners of an easement upon two other lots described
as lots 16 and 17 for the purpose of stockpiling sand and gravel, which easement was a residual
interest in said lots left after their condemnation for flood control purposes by the federal
government. The easement had no value except as used with lots 14 and 15 and was necessary
for use with a rock, sand and gravel processing plant on those lots. [237 Cal.App.2d 379]
On March 1, 1952, Smith entered into a written contract for the sale to Hill of lots 14 and 15
together with all the equipment used in connection with the business for the sum of $102,875,
payable at the rate of $1,000 per month including interest at 6 per cent on the balance remaining
from time to time unpaid, and at the same time entered into a sub- lease with Hill of the property
from which the crude material was obtained. That property was the only source of such material
of good quality convenient to lots 14 and 15.
The agreement provided that time was of the essence; that should default be made the balance of
the principal sum together with interest should become immediately due and payable at the
option of Smith. Hill also gave as additional security a chattel mortgage upon the personal
property covered by the contract.
In January of 1953, Hill leased the batch plant fn. 1 to Tri-City Concrete Company (Tri-City) for
$300 per month. In 1958, the lease from Lytle expired and a new lease for five years with an
option to renew for five years additional at a rent to be negotiated was given to Smith who again
sub-leased to Hill for five years but without an option for renewal.
In 1959, under threat that the rock-crushing plant and other operations might be treated as a
nuisance, Hill spent about $13,000 to eliminate the conditions complained of. He also renovated
and enlarged the plant over the years so that from a capacity of 50 tons per hour in March 1952,
it had, in June of 1961, a capacity of about 200 tons per hour. In all, the investment of Hill in the
real property, including the original amount of the contract, betterments and new equipment, was
about $400,000 in June of 1961. Its fair market value on June 2, 1961, was $322,706.
Commencing in 1957, Hill borrowed from the plaintiffs $25,750, evidenced by six promissory
notes which, with one exception, bore interest at the rate of 8 per cent per annum. The latest
maturity date of any of the notes was December 7, 1960. On February 4, 1957, to secure the
payment of the notes that had then been executed and the payment of any further sums that might
be lent by Smith, Hill assigned to Smith all of the rights under the agreement for the purchase of
the real and personal property. The assignment provided that in the event default should be made
in any of the provisions of the agreement for the purchase or in the payment of any of the notes
or indebtedness, the rights of Hill under [237 Cal.App.2d 380] the purchase agreement "shall at
the option of the said first parties [plaintiffs] forthwith terminate."
In January of 1961, Hill owed income tax and other federal taxes for which liens were recorded
in the amount of $14,318.77; and property taxes of the County of San Bernardino on the subject
property were delinquent in the sum of $3,078.58. Hill was also delinquent in the payment of
principal and interest on the various notes, of which only one had been paid in full, and was
beginning to fall behind in the payments of the monthly instalments under the purchase contract.
On January 26, 1961, Smith served upon Hill a notice of default based upon the failure to make
payments and perform unspecified covenants under the purchase agreement, and which declared
an election that the unpaid balance of the purchase price, together with interest thereon, be
immediately due and payable and demanded the surrender of the real and personal property.
Smith told Hill that the notice was given only for the purpose of protecting Smith against the
federal tax liens and that Hill should ignore it; Smith told Hill's bookkeeper that the notice could
be ignored. Thereafter, Smith accepted three payments of $500 each, the last in April of 1961.
Smith, from the time of the contract of sale, continued to occupy and use a small office building
on the property sold to Hill; when he requested it he was given information of the financial
condition of the business by Hill's bookkeeper; he was in frequent contact with Hill after the
serving of the notice. He did not indicate to Hill, prior to June 2, 1961, when this action was
commenced, any intention of attempting to enforce the demands contained in the notice of
January 26.
Smith's complaint asked for termination of all of Hill's rights in the agreement and in the sublease, for restoration of possession of the real and personal property, including the property
covered in the lease, and a decree quieting Smith's title to all of said property, for the amount due
on the notes evidencing the various loans, for attorney's fees of $5,000 and for the appointment
of a receiver. The receiver was appointed ex parte upon Smith's furnishing a bond in the sum of
$15,000 under the provisions of section 566, Code of Civil Procedure. The receiver, Johnson,
qualified upon posting a bond in the sum of $2,000 for the performance of his duties and took
possession of the property on June 2, 1961.
An answer to the complaint and a cross-complaint were filed on July 24. During the interval,
both oral and written [237 Cal.App.2d 381] negotiations were carried on between counsel for
Smith and Hill, looking toward a solution of the controversy. The first written communication
was the letter of June 8, 1961, from Smith's counsel (Wilson) to Hill's counsel (Holcomb), which
contained among other conditions reduction of Hill's total indebtedness to Smith to the sum of
$40,000, to be paid in monthly instalments of $1,000 including 6 per cent interest.
Meanwhile, Hill was negotiating a sale of the property to one Johnson and one McCook for the
sum of $227,000. On June 19, two escrows were opened, one for the sale of real property for
$25,000 cash to be deposited before July 5, 1961; and one for $202,000 for the personal
property, good will, inventory and leasehold interest. In this second escrow, $50,000 cash was
deposited and additional cash in the sum of $77,000 was to be deposited prior to July 5, 1961.
The balance of the $75,000 in the second escrow was to be evidenced by a promissory note. The
prospective purchasers were ready, willing and had the ability to perform the terms of the escrow
agreement. Information as to those arrangements which required from Smith a deed to the real
property and an assignment of the lease, was conveyed to Wilson. On June 26, 1961, Wilson
submitted a demand as to the items that Smith would require paid, which were restricted to
payment of the balances on the contract price and of the various notes with accrued interest
thereon, the premiums on the bonds in connection with the receivership, some items of costs not
exceeding $75, attorney's fees of $5,000, and payment of any deficiencies between assets of the
receivership and its liabilities which included two loans of $5,000 each authorized by the court
and obtained by the receiver from Smith. That demand, which in fact constituted an offer, had
not been accepted by June 29 when Wilson wrote that Smith demanded $10,000 for an
assignment of his interest in the lease from Lytle inasmuch as the sub-lease to Hill did not
contain any option for a renewal; and extra compensation for Smith's interest in lots 16 and 17.
The letter stated the writer's opinion that the closing of the escrow by July 5 was out of the
question. On July 7, 1961, Wilson wrote that Smith demanded $20,000 for transfer of his
leasehold interest, his rights to lots 16 and 17, his office building on lots 14 and 15, and for
indemnification against increase in income taxes (by reason of receiving the total payment in a
lump sum), and an additional $20,000 for the cost of the receivership, other than the bond
premiums, but including any deficit arising from the operation [237 Cal.App.2d 382] of the
receivership; Hill would have the right to collect and retain accounts receivable of the
receivership. Within a day or two thereafter, Wilson by telephone informed Holcomb that the
demand for the assignment of the leasehold interest and of the easement interest in lots 16 and 17
would be $10,000 rather than $20,000.
The negotiations not having been concluded before the date for the closing of the escrow, Hill
filed a motion for the dissolution of the receivership which was denied on September 25, 1961,
and on that date Hill filed a petition in the U.S. District Court under the provisions of chapter 11
of the Bankruptcy Act.
Hill's answer set up the fact that Smith had told Hill that the notice of January 26, 1961, was
served only to protect Smith against any tax claims, and the acceptance of payments by Smith
after that date. The cross-complaint alleged oral representations made by Smith during the
negotiations for the sale and purchase of the business and property that all rights in connection
with the business were to be sold; and the expenditure by Hill of over $200,000, for
improvements to the business in reliance upon such representations; a second cause of action
alleged a malicious interference on the part of Smith in the sale of the business by Hill; a third
cause of action asked for a declaration of the rights of the parties with reference to the easement
for stockpiling on lots 16 and 17.
On October 25, 1961, the referee in bankruptcy made his order that the receiver deliver
possession of the property and business to Hill.
After Hill obtained repossession of the business on October 25, 1961, he entered into some
arrangement with Tri-City, which thereafter operated the business and was doing so at the time
of trial, paying Hill $1,000 per month for his services. Under the terms of the agreement, which
was not introduced into evidence, Tri-City had paid into a trust account for Hill's benefit the sum
of $89,748.15 from October 25, 1961, to October 31, 1962, to be held pending the outcome of
the litigation.
On November 21, 1961, a petition was filed with the referee in bankruptcy that the receiver be
allowed to reclaim possession, which was denied on January 16, 1962. A petition for review of
the referee's order denying the petition of the receiver to reclaim was filed on January 23, 1962,
and was denied on March 14, 1962. On April 12, 1962, a notice of appeal from that order of
denial was filed with the Court of [237 Cal.App.2d 383] Appeals for the Ninth Circuit; on April
29, 1963, the Circuit Court of Appeals reversed the order of the District Court and on May 28,
1963, denied a petition for rehearing. The appellant's brief states that these various petitions and
the appeal to the Circuit Court of Appeals were filed by Smith.
The receiver filed an account and report on June 6, 1962, to which Hill filed objections.
The hearing of the receiver's account and report was ordered consolidated with the trial of the
action which commenced on October 22, 1962, and concluded on November 21, 1962. Findings
and judgment were signed and filed on July 16, 1963. Separate findings were made on the
receiver's report from those made on the complaint and cross-complaint. The findings and
judgment with respect to the receiver's account will be considered first.
In the findings on the receiver's report, the court treated the report as being a final report and
relieved the receiver of all responsibility for events occurring subsequent to October 25, 1961,
when Hill retook possession. (Receiver had on June 14, 1963, filed a petition that he be restored
to possession, which was denied on June 23, 1963.)
The court charged the receiver for expenditures held to have been made improperly, for others
held to have been of no value to the receiver or Hill, for materials purchased which were of no
benefit to the business and had no salvage value, for replacing equipment parts held to have been
unnecessary, for loss on an account receivable of $14,173.49 representing material negligently
sold on credit, for damage to equipment held to have been caused by the receiver's failure to use
ordinary care in hiring and in supervising employees incompetent to operate the equipment and
held to have been avoidable had the receiver used ordinary care in hiring and in supervising
employees.
There was a finding that there were accounts receivable of $5,539.11 representing proper credit
sales which the receiver was ordered to turn over to Hill; that there were accounts payable in the
amount of $8,432.22 properly incurred.
The court concluded that the receiver was chargeable with $33,773.49 against which he was
allowed credits for the accounts payable, and for two items totaling $2,031.62 representing debts
of Hill existing at the commencement of the receivership which had been paid by the receiver;
that the receiver personally and the plaintiffs should pay all the accounts payable. [237
Cal.App.2d 384]
There was a finding as follows:
"VIII With respect to the Receiver's actions, as found in Paragraphs I through VII hereinabove,
the Court finds that at all times during the operation of the business that the Plaintiff J. Clarke
Smith was, in fact, acting in concert with the Receiver, and that the Plaintiff Smith was, in fact,
operating said business from June 2, 1961 to October 25, 1961, with the knowledge and consent
of the Receiver, and that, therefore, the acts and conduct chargeable to the Receiver from June 2,
1961, shall also be chargeable to J. Clarke Smith, Plaintiffs."
The court found that the receiver was not entitled to any fees and that the costs of the
receivership should be assessed against the plaintiffs; that the receiver was not entitled to
attorney's fees paid or incurred during the course of the receivership to the plaintiffs' attorneys;
that in connection with the employment of said attorneys, rule 240(b) of the California Rules of
Court had not been complied with.
Smith and the receiver contend that no personal judgment against the receiver is proper, but that
a judgment against him is payable only from the funds in his hands. They dispute each of the
separate amounts with which the receiver is charged and the finding imposing liability upon
Smith for the acts and conduct of the receiver as well as the denial of attorney's fees, receiver's
fees and costs of the receivership.
[1a] Before considering the propriety of the various items for which the receiver was charged,
consideration will be given to finding VIII heretofore quoted in full and to the following
provisions in the judgment:
"That the Receiver ... and the Plaintiffs, J. Clarke Smith and Margaret D. Smith, are indebted to
the Defendant, Edwin E. Hill, for the following:
[Tabular Material Omitted]
[237 Cal.App.2d 385]
"That from said sum of $33,773.49, for which the Receiver and Plaintiffs are chargeable, they
are entitled to deduct the following:
[Tabular Material Omitted]
"* * *
"That the Receiver and Plaintiffs shall be ordered and instructed to personally pay all accounts
payable as set forth in the Receiver's Report."; and the further provision that the amounts to be
paid by defendants as the condition of specific performance should be "less the sums of
$23,309.65."
The imposition of liability upon the Smiths in this fashion has not been based upon any
precedent cited by defendants. It must be classed as an unusual procedure.
[2] No such relief was asked in the pleadings; the pretrial order is silent as to any such issue.
Evidence was received tending to show activity by Smith amounting to interference in the
receiver's operation of the business. Such evidence should not be held to have been received
upon an issue of vicarious liability of the plaintiffs, but was admissible upon the issue presented
by the pleadings as to the necessity of the receivership, and issues as to the allowance and
amount of compensation for the receiver.
[3] Smith would be held responsible under section 566, Code of Civil Procedure, if he procured
the appointment of the receiver wrongfully, maliciously or without probable cause. Such
liability, being contractual, would be limited to the amount of the bond, which was $15,000.
(Jones v. Richardson, 9 Cal.App.2d 657 [50 P.2d 810].)
[4] "The liability on the bond is based on the error of the plaintiff in obtaining the appointment,
however innocent of intentional wrong the error was. Whether or not the plaintiff has committed
error cannot be determined until a trial [237 Cal.App.2d 386] on the merits." (45 Am.Jur. § 97,
p. 86.)
[5] Liability upon the bond is enforced in a separate action. (Heim v. Mooney, 23 Cal.App. 233
[137 P. 616]; Cook v. Terry, 19 Cal.App. 765 [127 P. 816].)
[6] The right of action against a party wrongfully procuring the appointment of a receiver
accrues on the adjudication that the appointment was improper. (Warren v. De Long, 59 Nev.
481 [97 P.2d 792]; 45 Am.Jur. § 123, p. 104.)
[7] If Smith had acted maliciously and without probable cause, he could be held liable for
malicious prosecution, independent of the statutory liability. [8] Such cause of action may accrue
as the result of a civil as well as a criminal action brought without probable cause and
maliciously. (Hurgren v. Union Mutual Life Ins. Co., 141 Cal. 585 [75 P. 168]; Jones v.
Richardson, supra, 9 Cal.App.2d 657 .)
[9] A cause of action for malicious prosecution does not accrue until there has been a favorable
termination of the action claimed to constitute the malicious prosecution. (Ferraris v. Levy, 223
Cal.App.2d 408 [36 Cal.Rptr. 30].)
The rule with regard to an action for wrongful attachment is the same; and the cause of action
does not accrue during the pendency of an appeal on the action in which the attachment issued.
(Davis v. Fidelity & Deposit Co., 93 Cal.App.2d 13 [208 P.2d 414].)
[10] A cause of action on the bond or for malicious prosecution, therefore, would not accrue until
the present action might finally be determined; and may not be pursued in the very action in
which the receiver was appointed.
We recognize that the part of the judgment under discussion and the finding upon which it is
based do not purport to be upon a cause of action upon the bond or for malicious prosecution.
The finding is a masterpiece of ambiguous potential. It suggests elements of conspiracy, that
Smith was the agent of the receiver, and the receiver was the agent of Smith.
Under certain circumstances, a receiver may be held to be the agent of one or more parties to the
action. (45 Am.Jur. § 129, p. 109.)
[11] Under proper circumstances, vicarious liability for the conduct of a receiver might be placed
upon a plaintiff, such as Smith, as a cause of action distinct from an action on the bond or for
malicious prosecution. One of those circumstances, undoubtedly, must be the framing of a
statement of ultimate facts upon which such liability might be founded, with an opportunity
given to the other side to meet the charge. [237 Cal.App.2d 387] Such a pleading must be a
minimal requirement, even were it possible to have the question litigated in the same action in
which the receiver was appointed. fn. 2
[1b] The making of the quoted finding VIII and of the part of the judgment based thereon which
fixes liability upon plaintiffs is improper and constitutes reversible error.
The trial court found properly that the receivership was unnecessary and wrongfully obtained.
The judgment is considered in part to terminate the receivership and discharge the receiver. In
those respects it is sustained.
The court, therefore, might hold properly that the costs of the receivership and any compensation
for the receiver must be borne by plaintiffs.
Liability for the expenses and fees of a receivership may properly be placed upon one of the
parties to the litigation (Stanton v. Pratt, 18 Cal.2d 599 , 603 [116 P.2d 609]; Baldwin v.
Baldwin, 82 Cal.App.2d 851 [187 P.2d 429]; Lewis v. Hall, 38 Cal.App. 329, 336 [176 P. 171]),
although not upon the plaintiff who has properly obtained the appointment and has established
his cause of action (Atlantic Trust Co. v. Chapman, 208 U.S. 360 [28 S.Ct. 406, 52 L.Ed. 528]).
[12] The court properly denied to the receiver attorney's fees incurred or paid by the receiver for
services rendered after the appointment of the receiver. A sufficient reason is that the attorney
was attorney also for the plaintiffs. (Rule 240(b), Cal. Rules of Court; Hozz v. Varga, 166
Cal.App.2d 539 , 543 [333 P.2d 113]; Adams v. Woods, 8 Cal. 306, 322.)
[13] Although an allowance of fees to such attorney for services rendered in obtaining the
appointment of a receiver is proper (Hozz v. Varga, supra, 166 Cal.App.2d 539 , 543), the court
in the present action did not abuse its discretion in refusing credit to the receiver for all attorney's
fees paid. The evidence is that the fees paid by the receiver were not for obtaining his
appointment.
The court allowed plaintiffs attorney's fees of $4,000. Defendant has acquiesced in that award.
Plaintiffs object that the judgment does not specify that the fees were awarded against defendant;
the judgment may be amended to show that plaintiffs recover such fees from defendant.
The objection to the amounts with which the receiver has been charged for damage done to
equipment during the receivership is not without merit. [237 Cal.App.2d 388]
[14a] Defendant Hill in his objections to the account filed by the receiver injected that issue,
claiming that such damage was negligently done. The evidence as to the amount of such damage
was informal and is in certain respects unsatisfactory. In one instance, no doubt through
inadvertence, the finding is inconsistent with the evidence upon which it is based. Finding VII on
the receiver's account is that damage to the large loader was $2,500 rather than $1,800 as
testified to, and to the small loader, $1,800 rather than $2,500 as testified to.
[15] The measure of damage for wrongful injury to personal property is the difference between
the market value of the property immediately before and immediately after the injury, or the
reasonable cost of repair if such cost be less than the depreciation in value. (Fresno City Lines,
Inc. v. Herman, 97 Cal.App.2d 366 , 372 [217 P.2d 987]; Rhodes v. Firestone etc. Co., 51
Cal.App. 569 [197 P. 392].) [16] The amount actually paid for repairs is some evidence of the
reasonable value of necessary repairs (Malinson v. Black, 83 Cal.App.2d 375 , 380 [188 P.2d
788]); and if such repairs have in fact been made, though there is no evidence as to depreciation
in value, the court may not assume that the depreciation was of lesser amount than the cost of
repairs. (Pfingsten v. Westenhaver, 39 Cal.2d 12 , 24 [244 P.2d 395].) [17] If repairs have in fact
not been made, the estimated cost of repairs reasonably necessary calls for expert testimony.
(LeBrun v. Richards, 210 Cal. 308, 319, 320 [291 P. 825, 72 A.L.R. 336].)
[14b] Hill was not an expert in that field. Concerning the International and Peterbilt trucks, he
said, "Nobody knew what it would cost to fix them" and then testified, "it would have cost at
least three thousand dollars to fix the Peterbilt and probably another thousand dollars to fix the
International." Concerning what it would cost to repair the crane, Hill testified: "Right about
three thousand dollars. The Northwest people told me that's what it would cost to fix it."
There is no evidence in the record as to the value of any of the equipment either before or after
the claimed negligent use, except as to two items, an International truck and a Peterbilt truck.
[18] Evidence as to diminution in value is not essential where repairs actually have been made.
(Pfingsten v. Westenhaver, supra, 39 Cal.2d 12 , 24.) [14c] In fact, no repairs were made to the
trucks or to any of the equipment [237 Cal.App.2d 389] except one Euclid truck, repaired at an
unstated cost, and a shovel, repaired at a cost of $500.
The evidence is insufficient to support the findings as to damage to equipment with the exception
of the item of $500 for repairs actually made to the shovel.
Certain crusher jaws were replaced by the receiver at a cost of $1,900 instead of having been
repaired as Hill would have done at a cost of $50. That resulted in charging the receiver with
$1,850. [19] If in the exercise of a reasonable discretion the receiver might have followed one
course rather than another, he should not be held liable for a possible error in judgment. [20]
However, the trial court has passed upon that subject, and its finding that the expenditure was
unnecessary will not be disturbed. The same may be said with regard to the other expenditures
held to have been made improvidently. Those expenditures include the payments made to the
attorneys and to an employee named Sovay.
Likewise, the trial court's finding with regard to sales made on credit to Valley Sand is upheld.
Findings on Complaint and Cross-Complaint
As to the action itself, the court found that Hill is the owner of the real and personal property and
the appurtenant rights and leasehold subject to Smith's vendor's lien and other security interest;
that all of the tax liens mentioned had been paid in full at the time of the trial; that Smith's claim
that certain of the equipment had been sold without his consent was not true; that Smith had told
Hill that he should ignore the notice given January 26, 1961; that Smith consented to any
defaults that occurred in making prompt payments by accepting late payments; and after serving
the notice of January 26, 1961, accepted further payments without protest and without
demanding strict compliance; that the appointment of a receiver was not necessary to prevent
loss or injury to the business and property or for the protection of Smith's interest; that the sum
of $4,000 was a reasonable amount to be allowed Smith for the services of his attorneys; that
Smith, in the negotiations for the sale of the business, represented that the sale would include all
of the assets including real property, leases, easements and rights owned by Smith connected
with the business; that the consideration for the agreement was fair and reasonable to the
plaintiffs; that Hill had expended sums in excess of $200,000 for improvements to the business
and for the purchase of new equipment; that in 1956 or 1957, Smith had [237 Cal.App.2d 390]
assured Hill that lots 16 and 17 were appurtenant to the rock and gravel business for the purpose
of stockpiling; that in reliance thereon Hill expended time, labor and money of a value in excess
of $3,000 to prepare those lots for stockpiling; that the use of said lots for stockpiling was
essential to the efficient and effective operation of the rock and gravel business; that Hill, ever
since July 5, 1961, has been ready, willing and able to perform all of the terms and conditions of
the agreement of March 1, 1952, and to pay to Smith all of the notes and obligations owing to
him together with all costs properly attributed to the action and reasonable attorney's fees; that
Hill had notified Smith of such readiness, willingness and ability; that the reasonable value of the
business on June 2, 1961, was in excess of $350,000; that in reliance upon Smith's representation
that all he was interested in was being paid his money, Hill endeavored to find purchasers for the
business who would be ready, willing and able to pay the reasonable value thereof; that there
was not any wrongful and malicious interference by Smith with Hill's attempted sale of the
property; that stockpiling rights reserved to Smith in the condemnation action were at that time
and at all times thereafter appurtenant to lots 14 and 15; that the true intent of the parties with
regard to the lease with Lytle was that at the time Smith was to be paid in full, an assignment
was to be executed assigning to Hill all rights of the plaintiffs in the lease, any renewal or
extension thereof, and in the property covered thereby; that by reason of Smith's refusal to
convey and to perform, Hill is being damaged by loss of interest at the rate of 7 per cent per
annum on the sum of $227,000, plus loss of wages in the sum of $1,000 per month; and that Hill
was entitled to an offset of $23,309.65 as the result of the finding that Smith was liable for the
amounts chargeable to the receiver.
The court concluded that Hill was entitled to a decree of specific performance including a
conveyance of the easement in lots 16 and 17 and an assignment of all rights in the lease from
Lytle; upon the condition that Hill pay to Smith all moneys owing, together with interest to July
5, 1961, and that such sum should be deposited in an account in favor of Smith on or before 15
days of the date that the judgment becomes final, to be paid to Smith upon his compliance with
the decree of specific performance; that Smith is entitled to costs incurred from the time of filing
the complaint until July 5, 1961, excepting costs incurred with respect to the appointment of the
receiver. [237 Cal.App.2d 391]
Smith contends that he was entitled, by reason of Hill's default, to have his title to the real
property quieted; that right could not be denied him unless Hill pleaded and proved that Smith
would realize more than the benefit of his bargain if the forfeiture were enforced; if there were
such unjust enrichment it could result only in repayment to Hill of the amount by which Smith
would be unjustly enriched by reason of the forfeiture; specific performance was neither pleaded
nor proved; there was not any finding of a tender; the finding that Hill was ready, willing and
able after July 5 to make payment in full was not equivalent to a finding of a formal tender; in
fact there was not a tender by Hill; the language of the cross-complaint with regard to the
payment of reasonable attorney's fees and "costs properly attributed to this action" was uncertain
and meaningless; the demand for easement rights in lots 16 and 17 was a variance from the terms
of the agreement; the claimed proof of ability and willingness was nugatory, being conditioned
upon the close of an escrow and the consummation of the contemplated sale, the sufficiency of
the proceeds to pay Smith and other creditors and the financial ability of the prospective
purchasers, since Hill himself had no present financial ability to make payment; the rule that
objections to the tender must be specified or they will be deemed to be waived has no
application.
Smith's contention that he is entitled to enforce the forfeiture and that Hill's only relief could be
the recovery of sums paid in excess of that which would make Smith whole is based upon Baffa
v. Johnson, 35 Cal.2d 36 [216 P.2d 13]; Freedman v. Rector etc. of St. Matthias Parish, 37
Cal.2d 16 [230 P.2d 629, 31 A.L.R.2d 1]; Luz v. Lopes, 55 Cal.2d 54 [10 Cal.Rptr. 161, 358
P.2d 289], and others. Baffa, Freedman and Luz are all cases in which it was held either that a
purchaser was or was not entitled to recover payments made by him under the contract that had
been forfeited. None of them touched upon the right of the purchaser to the benefit of his bargain
and the denial of a right of forfeiture.
Plaintiffs have not distinguished clearly between rules applied by the courts in varying situations.
[21] Where a contract of purchase has been abandoned by the purchaser, or rescinded by one
party or both parties, or terminated by the seller, the purchaser, even though his fault has brought
about the termination, may recover a part of what he has paid if the seller otherwise would be
unjustly enriched. (Harriman v. Tetik, 56 Cal.2d 805 [17 Cal.Rptr. 134, 366 P.2d [237
Cal.App.2d 392] 486]; Freedman v. Rector etc. of St. Matthias Parish, supra, 37 Cal.2d 16 ; cf.
Ebbert v. Mercantile Trust Co., 213 Cal. 496, 500 [2 P.2d 776].)
[22] Where such unjust enrichment would result from a forfeiture, a defaulting purchaser may
have the contract reinstated upon proper conditions. (Kay v. Kay, 188 Cal.App.2d 214 , 219 [10
Cal.Rptr. 196]; Scarbery v. Bill Patch Land & Water Co., 184 Cal.App.2d 87 [7 Cal.Rptr. 408];
Petersen v. Ridenour, 135 Cal.App.2d 720 , 728 [287 P.2d 848].)
The foregoing rule does not depend upon the question of waiver or estoppel against the seller to
insist upon strict compliance with the contract. (Kay v. Kay, supra, 188 Cal.App.2d 214 , 217:
implied finding against waiver; Petersen v. Ridenour, supra, 135 Cal.App.2d 720 , 730: "no plea
of waiver or estoppel.")
[23] Where the purpose of a time and forfeiture clause is merely to secure payment of the
purchase price, and there has been a waiver of strict compliance clauses by the vendor, the
vendee is entitled to definite seasonable notice from vendor of the reestablishment of such
conditions with reasonable opportunity for compliance before the vendor can declare a forfeiture.
(Gonzalez v. Hirose, 33 Cal.2d 213 [200 P.2d 793]; Stevinson v. Joy, 164 Cal. 279, 285 [128 P.
751].)
[24] The application of that rule does not depend upon section 3275 of the Civil Code, under
which relief may be granted in appropriate circumstances even if the vendor has not waived strict
compliance with a clause making time of the essence. (Barkis v. Scott, 34 Cal.2d 116 , 118 [208
P.2d 367].)
The trial court did not in explicit terms find that there had been a waiver of the provision making
time of the essence. The court has perhaps failed to find that after the doing of acts constituting
waiver Smith failed to give notice that strict compliance would thereafter be demanded. If a
waiver occurred, whether before or after the notice of January 26, the evidence would support
only a finding that Smith did not thereafter give notice of the reestablishment of the requirement
of strict compliance.
[25] The finding of consent to the default in making prompt payment is tantamount to a finding
of waiver; the further finding that notice of the requirement of strict compliance was not given
follows by necessary implication as being essential to support the judgment. (Richter v. Walker,
36 Cal.2d 634 , 640 [226 P.2d 593].)
The evidence amply supports such findings. [237 Cal.App.2d 393]
[26] The court's finding that the easement for stockpiling on lots 16 and 17 was appurtenant to
lots 14 and 15 finds sufficient support in the evidence. (Owsley v. Hamner, 36 Cal.2d 710 [227
P.2d 263, 24 A.L.R.2d 112].)
[27] An intended easement will never be construed as personal when it may fairly be construed
as appurtenant to some other estate. (Wright v. Best, 19 Cal.2d 368 , 383 [121 P.2d 702].)
The finding that the retention by Smith of the remainder of the estate in the leasehold was for
security likewise finds support in the evidence. In the supplement to the appellants' closing brief,
it is stated that "the old lease from the Lytle Creek Water and Improvement Company had
expired, and a new lease had been executed by the lessor to Hill. Without source material, the
plant, whatever may have been its condition, would have been useless." (If Smith's title had been
quieted.)
The statement, which has the appearance of an unintended admission of the force of Hill's
argument that the leasehold went with the plant, goes outside the record so far as the making of a
new lease to Hill is concerned. If true it indicates that Smith did not exercise the option to renew
under the 1958 lease which was still in force at the time of trial.
Plaintiffs have taken, in their opening brief, the position that no relief could be accorded Hill
unless it might be the return of some part of the purchase price under proof that plaintiffs insist
was not made. In their closing brief and in a supplement thereto, while arguing that Hill has no
right to such judgment, they postulate that a judgment of foreclosure of Hill's rights as purchaser,
with a period of redemption upon conditions, would be the proper judgment rather than a decree
of specific performance.
Plaintiffs in their opening brief attacked the sufficiency of the defendant's pleadings as the basis
for a decree of specific performance. However, in the supplement to their closing brief, plaintiffs
state that "the case was tried and decided upon the theory that Hill had the right to demand
specific performance." This seems to eliminate the question whether Hill's right to specific
performance was an issue.
They attack also the sufficiency of the evidence as to whether there was a tender by Hill and
whether either he or his prospective purchasers had the ability to pay.
[28] Specific performance may sometimes be decreed in favor of a purchaser in default under a
contract that makes [237 Cal.App.2d 394] time of the essence, where that requirement has been
waived. (Lifton v. Harshman, 80 Cal.App.2d 422 , 433 [182 P.2d 222].)
Nonetheless, there are serious problems as to the correctness of the decree for specific
performance:
1. Unless Hill had the right to make payment in full his right to specific performance had not
ripened.
2. Under the contract as written, there was no right to make prepayment nor would acceptance of
prepayment be required. (Record etc. Co. v. Pageman Holding Corp., 42 Cal.2d 227 , 232 [266
P.2d 1].)
3. Hill's right to make prepayment, then, must depend upon one of three things: (a) whether the
notice of January 26, 1961, which Hill was told to and did ignore, conferred a right upon Hill to
make prepayment; (b) whether the commencement of the present action had the effect of making
the whole amount of principal due and payable; or (c) whether Smith thereafter agreed to accept
the entire balance in disregard of the terms of the contract. The court has not made a finding on
any of those matters. [29] Concerning the first alternative, a notice ineffective for its intended
purpose should not confer a right necessarily based upon the defeated purpose. As to the second
alternative, if the January 26, 1961, notice failed of its purpose, Smith's only possible cause of
action was to recover the then delinquent payments. As to the third alternative, the
correspondence between counsel shows that Smith's first offer was to have the contract reinstated
without his being paid in full; his last offer contemplated some additional payment to him in
consideration of the tax consequences of receiving payment in full. An intermediate offer (letter
of June 26, 1961) was not in terms, or by necessary implication, accepted.
[30] 4. The court did not make a finding that Hill had tendered payment on July 5, 1961. The
finding that Hill was ready, willing and able to pay, and had notified Smith that he was ready,
willing and able to pay, is not necessarily equivalent to a finding that a tender had been made.
(Rottman v. Hevener, 54 Cal.App. 485, 490 [202 P.2d 334].)
In requiring the payment of interest by Hill only to July 5, 1961, the decree demands a finding
that a tender had been made on that date. The making of such nonexistent finding would call into
play the court's view of the negotiations between counsel for the two parties during the month of
June 1961, and the court's view as to whether the correspondence between counsel constituted an
agreement to accelerate the maturity of the entire obligation owing to Smith, and of the [237
Cal.App.2d 395] effect upon the question of acceleration of the notice given on January 26 and
of the commencement of the action on June 2.
If Hill did not have the right to make full payment, absent a modification of the original purchase
agreement, there was no tender which would abate the payment of further interest, fees and costs.
[31] A premature offer of performance is not a valid tender. (Allen v. Chatfield, 172 Cal. 60 [156
P. 47].)
If, on the other hand, Hill had the right to make payment in full and in good faith offered to do
so, and without the imposition of any improper condition, the fact that payment was to be made
through an escrow with funds furnished by a third party would not necessarily destroy the effect
of the offer as a tender.
[32] Objections to the form of the tender may be waived, and are waived if the objections thereto
are not specified. (Civ. Code, § 1501; Reeves v. Hutson, 144 Cal.App.2d 445 , 452 [301 P.2d
264].)
[33] Such waiver may result from acquiescence of the obligee in a tender by deposit with an
escrow agent (Bodem v. Friedman, 90 Cal.App.2d 225 , 228 [202 P.2d 632]); from conduct of
the obligee evidencing an intention to refuse a tender (Moriarty v. Carlson, 184 Cal.App.2d 51 ,
58, 59 [7 Cal.Rptr. 282]; Beeler v. American Trust Co., 24 Cal.2d 1 , 28, 29 [147 P.2d 583]).
We do not conclude that a finding that tender was made follows by necessary implication from
other facts found by the court; nor does the evidence as a matter of law establish the fact of a
tender, contingent as such a finding must be upon the defendant's right to make payment in full
and other circumstances involved in a determination of the existence of such right.
Perhaps the only significant difference between a decree permitting Hill to reinstate the contract
upon conditions, as was done in cases cited by Smith, and a decree of specific performance,
would be with regard to the interest payable by Hill, for the following reason: if certain issues
should be retried and others tried for the first time, it is likely that the time will have arrived
within which the contract as written would be fully payable. In that event, should Hill make
payment in full, he would be entitled to specific performance. The amount of interest he should
pay will depend upon findings to be made upon the question of Hill's right to make premature
payment in full, and tender.
[34] Since the cause must be remanded, if, after a determination of the matters touched upon
herein, specific performance [237 Cal.App.2d 396] should be decreed, there should be a finding
as to whether the consideration for the sale was adequate, in addition to the finding already made
that such consideration was fair and reasonable. (Weneda Corp. v. Dispalatro, 225 Cal.App.2d
187 , 191 [37 Cal.Rptr. 267].)
The finding that Smith represented that all he was interested in was being paid his money is
ambiguous as to whether it means all of the money owing to him in advance of the maturity date.
The finding that Hill is being damaged by loss of interest at the rate of 7 per cent per annum on
the sum of $227,000, plus loss of wages in the sum of $1,000 per month, is contrary to the
evidence which shows that Hill was being paid a salary of $1,000 per month at the time of trial.
To recapitulate, the following findings having to do with the hearing on the receiver's account
and the objections thereto are held to be improper:
Finding No. 8 in its entirety.
The finding that $3,000 damage was done to a crane; that $2,500 damage was done to a large
Hough loader; that $1,800 damage was done to a small Hough loader; that $3,000 damage was
done to a Peterbilt truck; that $1,000 damage was done to an International truck; and that $4,000
damage was done to Euclid trucks.
The following findings based upon issues drawn by the complaint, and answers thereto, the
cross-complaint and the answer thereto are held to be improper:
The finding that Hill is the owner of real and personal property and the appurtenant rights and
leasehold.
The finding that by reason of Smith's refusal to convey and to perform, Hill is being damaged by
loss of interest at the rate of 7 per cent per annum on the sum of $227,000, plus loss of wages in
the sum of $1,000 per month.
The finding that Hill was entitled to an offset of $23,309.65 on the purchase price.
The finding that Smith represented that all he was interested in was being paid his money.
In all other respects, the findings of the trial court are proper, including findings of waiver of the
requirement for strict compliance and that there had not been any notice of the reimposition of
such requirement prior to the commencement of the action.
The following portions of the judgment are reversed: that part of the judgment decreeing specific
performance, the part [237 Cal.App.2d 397] decreeing that plaintiffs are indebted to defendant
in the sum of $23,309.65, the part decreeing receiver chargeable with damage to the articles of
equipment based on the findings hereinbefore held to be improper and that the receiver is
indebted to the plaintiffs in the sum of $23,309.65, and that part ordering plaintiffs to pay all
accounts payable of the receiver.
If upon a retrial it should be held that Hill was not entitled on July 5, 1961, to make payment in
full, the trial court should reconsider the amount of attorney's fees recoverable by plaintiffs as
well as the date to which plaintiffs would be entitled to recover costs, other than costs incident to
the receivership. If there should not be any change in the amount of attorney's fees awarded or in
the date to which costs incurred by the plaintiffs would be recoverable by them, the trial court is
ordered to amend the judgment to provide that the attorney's fees and costs of plaintiffs be
recovered from the defendant and to make it clear that it is the plaintiffs rather than their attorney
who are entitled to recover such fees and costs from the defendant.
As hereinabove expressed, a decree of specific performance, should one be decreed upon a
retrial, will call for a finding as to whether the consideration for the sale was adequate.
In all other respects than those as to which it has been reversed or ordered amended, the
judgment is affirmed.
The cause is remanded for further proceedings in accordance with the views expressed herein.
Each party to bear his own costs on appeal.
Brown (Gerald), P. J., and Coughlin, J., concurred.
FN 1. Apparently for the preparation of batches of concrete.
FN 2. In the factual situation peculiar to Link Belt Machinery Co. v. Hughes, 195 Ill. 413 [63
N.E. 186, 59 L.R.A. 673], rent accrued during the receivership was charged to the plaintiff
creditor as an expense of the receivership in the action in which the receiver was appointed
Leiter v. Handelsman , 125 Cal.App.2d 243
[Civ. No. 20112. Second Dist., Div. One. May 17, 1954.]
L. A. LEITER et al., Appellants, v. WILLIAM J. HANDELSMAN et al., Respondents.
COUNSEL
Elwood Bowles and Fred L. Brown, Jr., for Appellants.
Morris C. Schrager for Respondents. [125 Cal.App.2d 245]
OPINION
MOSK, J. pro tem. fn. *
Appellants L. A. Leiter and Ralph Cogan owned Lot 215, Tract 13796, county of Los Angeles,
and appellants Daniel D. Aberle and Virginia R. Aberle owned Lot 216 in the same tract. Both
parcels were registered under the Land Title Law (Torrens Title).
On February 24, 1950, the four owners executed an agreement to sell their respective lots to the
four respondents, William J. Handelsman, Lillian M. Handelsman, Al Kahan and Essie L.
Kahan, for the sum of $33,000. On February 28, 1950, an escrow was opened at the Florence
White Escrow Company, instructions being signed by all parties.
The sum of $1,000 was deposited in the escrow the day it was opened by A. Lee Elkins, the
broker handling the transaction, and the sum of $5,000 was deposited on March 6, 1950, by
respondent Handelsman. Properly executed deeds were deposited in the escrow by the appellants
on February 28, 1950.
The original purchase agreement provided that the "Purchase price to be paid in cash in escrow
on delivery of deed free and clear title, there is no bonds--if deal is not accepted money will be
refunded--no bonds--no assessments--no easement. Evidence of title was to be in form of a
policy of title insurance issued by a responsible title company and to be furnished and paid for by
the sellers."
The escrow instructions provided that it was to be completed "on or before 30 days" from
February 28, 1950.
On March 13, 1950, the escrow company informed the purchasers that a preliminary title report
had been received. A day or so later respondent Handelsman read the report in the escrow
company office and advised the escrow holder and broker Elkins that he and his associates
would not accept the property with the reported easement thereon. The title company report
showed an easement running 30 feet into the property in favor of the Southern California Edison
Company and the Pacific Telephone and Telegraph Company. In addition there were guy wires
physically located on the land.
The appellant Leiter and broker Elkins both admitted in their testimony they were informed
during negotiations that respondents desired the property for the purpose of constructing a
market building and they realized it would be impossible to construct a building if the wires and
the easement were retained. [125 Cal.App.2d 246]
On or about March 30, the escrow company notified appellants that the respondents objected to
the easement indicated in the preliminary title report. The following day the appellants employed
an attorney for the purpose of assisting in clearing title so that the transaction might be
completed.
Appellants' counsel proceeded expeditiously to persuade the utility companies to remove the
wires and the easement, but the processing of the proposed quitclaim deed was not accomplished
immediately.
Meanwhile, the respondents contacted the escrow company "every two or three days to see if the
easement was removed." When it was not removed by April 17, 1950, respondents, through their
counsel, sent a notice to the escrow company cancelling the escrow and demanding return of the
$6,000 on deposit. The escrow holder immediately notified appellants by letter, stating therein
that it would retain all funds and documents on hand for another five days.
On April 18, appellants' counsel called respondents' attorney and advised him that the guy wires
had then been removed and that a quitclaim deed would be forthcoming. On April 26, the
quitclaim deed was executed by the Southern California Edison Company and recorded May 9th.
Pursuant to the demand of respondents the escrow was promptly closed and the deposited money
and documents returned to the respective parties.
The easement in question purportedly was running in favor of the Southern California Edison
Company and the Pacific Telephone and Telegraph Company. The quitclaim deed of April 26,
1950, was apparently that of the Edison Company only. There is nothing in the record before us
to indicate how, or whether, the easement of the telephone company was extinguished. However,
since neither party raises any issue on that subject, we will assume the telephone company rights
and those of the Edison Company arose and expired simultaneously.
Appellants contend that the easement was not an encumbrance on the real property and therefore
respondents lacked valid excuse for failure to perform. They have therefore brought this action
seeking damages for breach of the contract to purchase. From an adverse determination in the
trial court they have pursued this appeal.
The two lots were registered under the Land Title Law of California. Act 8589, Statutes of 1915,
page 1932.
Section 42 of the act provides in part as follows: "The [125 Cal.App.2d 247] register of any
land, and duly certified copies thereof, shall, except as herein otherwise provided, be received in
law and in equity as evidence of the facts therein stated, and as conclusive evidence that the
person named therein as owner is entitled to the land for the estate or interests therein specified."
Section 34 of the act provides in part as follows: "The registered owner of any estate or interest
in land brought under this act shall, except in case of fraud to which he is a party, or of the
person through whom he claims without valuable consideration paid in good faith, hold the same
subject only to such estates, mortgages, liens, charges, and interests as may be noted in the last
certificate of title in the registrar's office, and free from all others, except: ... (3) Any subsisting
right of way or other easement, created within one year before issue of the certificate upon, over,
or in respect of the land."
Lots 215 and 216, involved herein, were first registered under the act on April 1, 1924. The grant
of easement was dated October 24, 1947, and recorded on January 30, 1948. The foregoing
sections of the act fortify appellants' assertion that this purported easement should not be an
objectionable encumbrance upon the property. [1] As stated in Estate of Allan, 28 Cal.App.2d
181 , 184 [82 P.2d 190], "a certificate of ownership issued by the registrar of titles is conclusive
evidence of the title as therein stated."
Testimony of the Chief of Land Registration of the county of Los Angeles established there was
no record of easements on either lot.
[2] Nevertheless, the existence of the easement was reported by the title insurance company as a
cloud upon the title. Any such cloud would clearly affect the merchantability of the property.
The parties herein contemplated in the purchase memorandum that there were to be "no bonds-no assessments--no easement," not merely easements recorded under the Torrens Title Law.
Further, they did not contemplate validity of title to be ascertained only by the Land Title Law
but "evidence of title was to be in form of a policy of title insurance issued by a responsible title
company." This is not an unusual requirement, as indicated by King v. Stanley, 32 Cal.2d 584 ,
590 [197 P.2d 321], in which the court said that title insurance "is a reasonable method by which
a vendee may determine the merchantability of the vendor's title ..." [125 Cal.App.2d 248]
In Ward v. Downey, 95 Cal.App.2d 680 [213 P.2d 523], there is a remarkable factual similarity.
The instruments there were a purchase agreement calling for marketable title, and escrow
instructions providing that if performance had not been completed within the specified time, the
escrow was to continue open unless written demand to close had been made. The cloud on the
title was no recorded instrument, but merely the title company's conclusion that there was a
possibility of an inheritance tax and federal estate tax becoming due. This possibility alone
convinced the court there was (p. 685) "a defect in the title ... which made it unmarketable within
the meaning of the terms of the offer to purchase. If there were any reasonable doubt relative to
litigation regarding the title, then the property was not 'marketable.' "
In Culligan v. Leider, 65 Cal.App.2d 51 [149 P.2d 894], it was held that if there was "any
reasonable doubt" of the title, then the property was not marketable and the purchaser was
entitled to return of his deposit. To the same general effect are Muller v. Palmer, 144 Cal. 305
[77 P. 954]; Allen v. Globe Grain & Milling Co., 156 Cal. 286 [104 P. 305]; Gwin v. Calegaris,
139 Cal. 384 [73 P. 851].
The evidence discloses that appellants themselves considered the easement to be a reflection
upon their title. This is indicated first by the efforts they made to remove it. And secondly, after
the escrow was closed, appellants filed suit against the Southern California Edison Company and
the Pacific Telephone and Telegraph Company for slander of title and in their verified complaint
in that lawsuit alleged that the prospective purchasers "withdrew from said escrow and refused
to complete the transaction because of the said cloud on the title to said real property." That
lawsuit was ultimately settled when the utility companies compromised and paid to appellants
the sum of $3,000.
Appellants next urge that there was a waiver by respondents of the time limit fixed in the escrow
instructions for performance, and that after this waiver a "notice terminating the waiver" and
allowing a reasonable time for performance by appellants was necessary.
[3] Whether there has been a waiver is ordinarily a question of fact to be considered under all of
the evidence. (Lyons v. Brunswick- Balke etc. Co., 20 Cal.2d 579 , 583 [127 P.2d 924, 141
A.L.R. 1173]; Jolin v. Spira, 94 Cal.App.2d 356 , 360 [210 P.2d 704]; Boyd v. A. E. J. Chivers
Co., 134 Cal. [125 Cal.App.2d 249] App. 566, 569 [25 P.2d 878]; Black v. Arnold Best Co., 124
Cal.App.2d 378 [268 P.2d 513].)
The cases cited by appellants all involved factual situations justifying findings that there were
waivers of the "time is of the essence" condition. None of them categorically asserts this to be a
question of law.
In Chin Ott Wong v. Title Ins. & Trust Co., 89 Cal.App.2d 183 [200 P.2d 541], decided by this
court, performance of a real property sale agreement was to be completed by May 29, 1946. The
plaintiff's own complaint alleged that on July 15 certain supplemental agreements were entered
into. This court therefore found that the complaint affirmatively revealed the transaction to be
pending long after the date to which the time-essence condition was to apply. Clearly this
constituted a waiver.
Chin Ott Wong was retried and thereafter went to the Supreme Court, to be known as Chan v.
Title Ins. & Trust Co., 39 Cal.2d 253 [246 P.2d 632]. Here again the court found that the
transaction was still pending long after the time limit set in the escrow instructions, and that
under those facts the time clause must be deemed to have been waived.
Lifton v. Harshman, 80 Cal.App.2d 422 [182 P.2d 222], was somewhat comparable, although the
court there noted that time was not declared to be of the essence of the contract. (P. 433.) The
escrow was to be completed within 30 days. Three days after expiration of the 30-day period, the
seller deposited money in the escrow to be used toward eliminating encumbrances; thereafter she
attempted to declare the purchaser's default. The court found her action to constitute a waiver of
strict compliance with the date of completion.
In Tuffin v. Warfield, 72 Cal.App. 282 [237 P. 64], the purchasers actually took possession prior
to the time-essence date specified in the contract. After the date had passed without full
performance of the sellers' agreed obligations, the purchasers not only remained in possession of
the land, but they cultivated it, made improvements thereon, and subsequently wrote a letter
admitting the continued existence of their obligation to pay. Surely, said the court, these acts
constituted a waiver.
The element of waiver is discussed in an entirely different context in Bagdasarian v. Gragnon, 31
Cal.2d 744 [192 P.2d 935], although parenthetically it may be noted there is disapproval of
holding specified conduct to be a waiver as a [125 Cal.App.2d 250] matter of law "without
regard to the circumstances under which it is made."
There are two instruments involved here, the agreement of purchase, and the escrow instructions.
[4] Where the terms of an executory agreement for the sale of real property are clarified by the
provisions of signed escrow instructions, both instruments are to be considered together in
determining the understanding of the parties and in ascertaining their rights and obligations.
(Katemis v. Westerlind, 120 Cal.App.2d 537 [261 P.2d 553]; Keelan v. Belmont Co., 73
Cal.App.2d 6 , 12 [165 P.2d 930].) [5] Escrow instructions are customary and expected
directions to carry into effect an executory agreement. (King v. Stanley, supra.)
The agreement of purchase provided that "time is of the essence of this contract, but the time for
any act required to be done may be extended not longer than thirty days by the undersigned
agent." The escrow instructions contained the following: "In the event that the conditions of this
escrow have not been complied with at the expiration of the time provided for herein, you are
instructed to complete the same at the earliest date possible thereafter, unless we or either of us
shall have made written demand upon you for the return of the money or instruments deposited
by either of us; in which case you are instructed to return all instruments and/or cash to the
respective parties hereto ..."
[6] The general rule is that time is not of the essence unless it has been made so by the express
terms of a contract or is necessarily so from the very nature of the contract. (Katemis v.
Westerlind, supra.) [7] In order to render time thus essential, it must be shown in clear,
unequivocal and unmistakable language. (Miller v. Cox, 96 Cal. 339 [31 P. 161].)
Katemis held a purchase agreement clause, comparable to the one in the instant case, to indicate
performance on the specified date was not of crucial significance to the vendee. This was
deduced from the permissive power of a mere agent to extend performance of any act for 30 days
without notice.
It should be appreciated, however, that factually Katemis was an exaggerated case. There the
instrument provided for performance on March 1, 1952. A check in full was mailed February 29,
and because of an intervening weekend, did not arrive until March 3d. On March 5th,
cancellation of the escrow was demanded for failure to have completed the transaction by the
1st. [125 Cal.App.2d 251]
[8] In this case we have no such marginal miscalculation. The escrow was to have been
completed 30 days after February 28, 1950. Not until after that period had expired were efforts
made to eliminate the easement and the guy wires. On April 17, respondents demanded their
money be returned. On the following day, April 18, counsel for appellants informed respondents'
counsel the wire had been removed, but not until April 26 was a quitclaim deed for the easement
delivered to the title company.
Assuming nevertheless, but not necessarily deciding, that Katemis is controlling and that time
was not of the essence here, we come next to the escrow instructions. They provided for
performance within 30 days, but if not completed then, the period was extended to "the earliest
date possible thereafter."
That "earliest date" conceivably could be prolonged to many years distant were it not for the
further protective qualification: "unless we or either of us shall have made written demand" for
return of the money or instruments.
The right to make written demand for return of the money or instruments was an integral, clear
and unequivocal clause in the instructions. Even if time was not of the essence, and even if it
could be found that there had been a waiver of the precise time of performance, nowhere has it
been suggested in the evidence or in argument that respondents waived their right to make
written demand for return of their money after the 30-day escrow period concluded. Were they
to be denied that right, the court in effect would be altering the express terms of the contract.
Neither a trial nor appellate court has the power to rewrite a contract.
[9] Where time is not of the essence of an instrument, compliance within a reasonable time after
the specified due date constitutes compliance therewith. (Walsh v. Walsh, 42 Cal.App.2d 287 ,
292 [108 P.2d 765]. Milton Realty Co. v. Butterfield, 87 Cal.App. 772, 776 [262 P. 419].)
[10] What constitutes reasonable time is always a question of fact. In this instance it is limited to
that time after the 30-day escrow period and before written demand upon the escrow company
pursuant to terms of the instructions.
There is language in some cases, notably Chan v. Title Ins. & Trust Co., supra, suggesting that
after a waiver, or when the date originally provided for performance has passed without decisive
action, a definite notice demanding performance by another reasonable and specific date is
required. [125 Cal.App.2d 252]
This question was decided in Weaver v. Casad, 86 Cal.App. 2d 593 [195 P.2d 81]. The escrow
instructions there required all acts to be performed in 90 days and "that if not so done the escrow
could be cancelled on written notice to the escrow holder at any time thereafter." The acts were
incomplete at the end of 90 days and written notice to cancel was given to the escrow holder.
Said the court (p. 595): "No further notice was required as the escrow instructions were
controlling in this regard."
Though not required by any instrument to do so in this case, the escrow holder did send a fiveday notice to the sellers. While the notice was not in the form of a demand for performance, it
did unequivocally advise that the purchasers had exhausted their patience and had demanded
close of the escrow. At the expiration of the five days the Edison Company quitclaim still had
not been executed.
While the evidence does not reflect that the sellers were dilatory in any respect, all of the events
indicate with equal perspicuity that the purchasers acted in good faith, and not arbitrarily. They
proposed to purchase clear title to real property. Within a reasonable time after the specified date
clear title was not offered to them. The trial court properly determined those circumstances did
not create liability.
The judgment is affirmed.
White, P. J., and Drapeau, J., concurred.
FN *. Assigned by Chairman of Judicial Council.
Krasley v. Superior Court (Brennan) (1980) 101 Cal.App.3d
425 , 161 Cal.Rptr. 629
[Civ. No. 22463. Court of Appeals of California, Fourth Appellate District, Division One.
January 25, 1980.]
NORMAN KRASLEY, Petitioner, v. THE SUPERIOR COURT OF SAN DIEGO COUNTY,
Respondent; JAMES P. BRENNAN, Real Party in Interest.
(Opinion by Brown (Gerald), P. J., with Cologne and Staniforth, JJ., concurring.)
COUNSEL
Goldin, Haviland & Leuthold and Richard R. Leuthold for Petitioner.
No appearance for Respondent.
Donald A. Nunn for Real Party in Interest.
OPINION
BROWN (Gerald), P. J.
Norman Krasley petitions for a writ of mandate to compel the trial court to vacate its order
denying his motion for summary judgment and instead to enter summary judgment in his favor.
The underlying action was brought by real party in interest James Brennan for specific
performance or damages under an alleged contract between himself as buyer and Krasley and his
deceased wife Beulah, as sellers, of real estate in Chula Vista. As a matter of law the affidavits
show no enforceable contract for the sale of real estate. Summary judgment in Norman's favor
should have been entered. [1] A writ of mandate is an appropriate method to require the trial
court to do so [101 Cal.App.3d 428] (Roman Catholic Archbishop v. Superior Court (1971) 15
Cal.App.3d 405 , 410 [93 Cal.Rptr. 338]; Burke Concrete Accessories, Inc. v. Superior Court
(1970) 8 Cal.App.3d 773 [87 Cal.Rptr. 619]).
The facts established by the parties' affidavits and depositions lodged with the court and the
documents offered as exhibits below are: Brennan, a real estate broker, sued for specific
performance, or alternatively for damages, based on an alleged contract by which the Krasleys,
in December of 1977, when both were in their 80's and ill with pneumonia, supposedly agreed to
sell to Brennan a one-acre lot with house and antique business, located at 330 Moss Street in
Chula Vista, owned by the Krasleys in joint tenancy since about 1942. On December 1, 1977,
they listed the property for sale with their broker, Gruss, hoping to get about $165,000. A
number of offers were received, including that of real party Brennan, and between December 16
and December 30, 1977, negotiations continued between the Krasleys and Brennan with offers
and counteroffers being carried back and forth by the brokers representing each party.
Documents from the Krasleys were sometimes signed only by Norman and sometimes by both
Norman and Beulah. Finally on December 27, 1977, Brennan submitted to the Krasleys an offer
which he now contends was accepted. That offer is written on a standard real estate broker's form
entitled "Real Estate Purchase Contract and Deposit Receipt." Pertinent language added to the
customary boiler plate was: "1. ... Seller to subordinate to a Construction Loan ....
"9. Buyer's signature hereon constitutes an offer to Seller to purchase the real estate described
above. Unless acceptance hereof is signed by Seller and the signed copy delivered to Buyer,
either in person or by mail to the address shown below within two (2) days hereof, this offer
shall be deemed revoked and the deposit shall be returned to Buyer.
"10. Time is of the essence of this contract." Thus, the offer provided for subordination to a
construction loan, without specifying any of the terms; the offer expired by its own terms on
December 29; and time was of the essence.
Next, on December 30, 1977, one day after the offer lapsed, Norman alone signed and delivered
to Brennan's broker, at about 2:30 p.m., a document entitled "Counter Counter Offer" (CCO).
The CCO is also on a boiler plate form and contains this pertinent language: "This is a [101
Cal.App.3d 429] counter offer to the Real Estate Purchase Contract...dated December 27, 1977.
"The undersigned accepts the offer on the terms and conditions set forth in the above designated
agreement with the following changes or amendments:
"The terms and price are acceptable if there is included in the deed of trust an acceleration
clause.
"Option Counter Offer Sale Price $155,000 with $44,950 cash, etc ....
"Seller reserves the right to accept any other offer prior to actual receipt of buyer's acceptance."
[2] Brennan contends this CCO is an acceptance of his (lapsed) December 27 offer such as to
create a binding and enforceable contract compelling the Krasleys to sell him the property. The
CCO contained two alternatives: either to agree to the previous terms of the December 27 offer
plus addition of the acceleration clause requirement, or alternatively to enter into a new deal with
different terms described under the heading "Option Counter Offer." Brennan contends at about
3:45 p.m. on December 30 he made his choice by striking out the second alternative, thus
accepting the first alternative consisting of the terms of the December 27 offer plus an
acceleration clause provision. He further claims his uncommunicated acceptance at that time
bound the Krasleys, despite the express reservation in the CCO stating seller reserves the right to
accept other offers before actual receipt of buyer's acceptance. Brennan does not declare the
Krasleys or their broker ever received notice of his "acceptance," if such it was, before they
received, and accepted, another offer by American Homebuilders that same afternoon. When at
5:10 p.m. on December 30, Krasleys' broker telephoned Brennan's broker, Whitegate Realty, and
told them of the acceptance of the other offer, Whitegate took the position the Krasleys were
bound to sell to Brennan because of his acceptance at 3:30 or thereabouts of the CCO. This
lawsuit followed, and the property has been tied up ever since.
It is not important whether Beulah signed the CCO. Whether the contract, if any, were
enforceable against her hardly matters since it would be enforceable against Norman to the
extent of his interest in the property regardless of her rights, and since the records do not show
[101 Cal.App.3d 430] Beulah's interest has passed to anyone other than Norman, her joint
tenant. If this issue were important, summary judgment would probably not be suitable because
the factual issue would arise of whether she should be estopped to deny ratification or consent.
(See, e.g., Quan Shew Yung v. Woods (1963) 218 Cal.App.2d 506 , 511-512 [32 Cal.Rptr. 454].)
The real issue is whether any enforceable contract exists at all. None exists.
Time is of the essence and the lapse provisions of the December 27 offer were for the benefit of
Brennan and hence could be waived by him. Nevertheless, credulity is strained to treat a
document entitled "Counter Counter Offer," which begins by reciting "This is a counter offer," as
an acceptance of anything. It is argued factual issues exist whether the new term requiring an
acceleration clause, so varied the terms of the December 27 offer as to constitute a new offer
rather than an acceptance. That approach is hypertechnical and misses the point. Contract law
being a question of objective manifestation of intent, the courts should treat a document as what
it says it is unless extrinsic evidence supplies notice of ambiguities (Ajax Holding Co. v.
Heinsbergen (1944) 64 Cal.App.2d 665 , 670-671 [149 P.2d 189]). No trade custom or usage
evidence is contained in any declaration nor has any been suggested which would tend to show
this counteroffer is an acceptance of anything. It is therefore irrelevant whether adding an
acceleration clause requirement to the terms of the December 27 offer materially varied its terms.
The CCO was a new offer.
[3] Further, as a matter of law, the original offer is not sufficiently specific to enforce because it
contains a subordination clause requirement but does not specify the terms of the subordination.
Handy v. Gordon (1967) 65 Cal.2d 578 [55 Cal.Rptr. 769, 422 P.2d 329, 26 A.L.R.3d 848],
states such a contract cannot be specifically enforced because it does not establish the risk to the
seller's security. The Supreme Court said at page 581: "Although the parties to a contract of sale
containing a subordination clause may delegate to the vendee or third party lenders power to
determine the details of subordinating loans, an enforceable subordination clause must contain
terms that will define and minimize the risk that the subordinating liens will impair or destroy the
seller's security. [Citations.] Such terms may include limits on the use to which the proceeds may
be put to insure that their use will improve the value of the land, maximum amounts so that the
loans will not exceed the contemplated value of the improvements they finance, [101
Cal.App.3d 431] requirements that the loans do not exceed some specified percentage of the
construction cost or value of the property as improved, specified amounts per square foot of
construction, or other limits designed to protect the security. Without some such terms, however,
the seller is forced to rely entirely on the buyer's good faith and ability as a developer to insure
that he will not lose both his land and the purchase price." The lack of specification of the
subordination terms makes the contract unenforceable whether specific performance or damages
are sought. (See Spellman v. Dixon (1967) 256 Cal.App.2d 1 [63 Cal.Rptr. 668]; and discussion
in Eldridge v. Burns (1978) 76 Cal.App.3d 396 , 420 [142 Cal.Rptr. 845].) The law regarding
subordination clauses is but a specific application of the general principle where a party seeks
specific performance of a contract for the sale of real property, the terms of the contract must be
complete and certain in all particulars essential to its enforcement and must express each material
term in a reasonably definite manner (Magna Development Co. v. Reed (1964) 228 Cal.App.2d
230 , 236 [39 Cal.Rptr. 284]; Bruggeman v. Sokol (1954) 122 Cal.App.2d 876 , 881 [265 P.2d
575]). Although usage or custom may be used to explain the meaning of language or to imply
terms (Civ. Code, § 1655; King v. Stanley (1948) 32 Cal.2d 584 , 589 [197 P.2d 321]), no
material element must be left to future agreement (White Point Co. v. Herrington (1968) 268
Cal.App.2d 458 , 468 [73 Cal.Rptr. 885]). Here nothing offered by Brennan in opposition to the
summary judgment motion supplies the missing terms, other than his general assertion trade
custom and usage will fill the gaps.
Looking realistically at this case, Beulah is now dead and Norman is elderly. Their depositions
reveal they remember little or nothing of the negotiations back in December 1977, when both
were ill and Beulah was bedridden. Neither had experience in real estate transactions and both
relied heavily on their broker. Neither had any notion what an acceleration clause or a
subordination clause was all about. Assuming the new offer had not materialized, and the
Krasleys and Brennan had continued to work out a deal, it is obvious they would have had to
engage in further negotiations particularly dealing with the financing of the sale before an
enforceable agreement existed. This is not a case where minor technicalities, such as the choice
of a financing institution or escrow agent, remained for completion. Rather, the critical question
of financing was still unresolved. The essence of a contract is the meeting of minds on the
essential features of the agreement (Lawrence Block Co. v. Palston (1954) 123 Cal.App.2d 300 ,
308 [266 P.2d 856]). One [101 Cal.App.3d 432] such essential feature is the terms and amount
of the loan to which the seller's trust deed will be subordinated (Handy v. Gordon, supra, 65
Cal.2d 578 )and here those terms are entirely missing.
[4] Summary judgment is a drastic remedy (Pettis v. General Tel. Co. (1967) 66 Cal.2d 503 , 505
[58 Cal.Rptr. 316, 426 P.2d 884]; Eagle Oil & Ref. Co. v. Prentice (1942) 19 Cal.2d 553 [122
P.2d 264]). All doubts are resolved against the moving party (Keene v. Wiggins (1977) 69
Cal.App.3d 308 , 311 [138 Cal.Rptr. 3]). Nevertheless, its entry is mandatory in a proper case
based upon the law and where the documents disclose no triable factual issues (Whitney's at the
Beach v. Superior Court (1970) 3 Cal.App.3d 258 , 266-267 [83 Cal.Rptr. 237]; Roman Catholic
Archbishop v. Superior Court, supra, 15 Cal.App.3d 405 , 410). We appreciate the reluctance of
the trial court here to enter summary judgment, particularly because another judge of the same
court had denied a motion for summary judgment in this case at an earlier stage of the litigation,
before any discovery had taken place. Now that discovery has been completed, however, it is
obvious there are no issues of fact whether an enforceable contract exists, and further delay is not
warranted.
Although, in general, summary judgment is a remedy sparingly granted, we note a number of
cases have found it proper and indeed required in situations involving actions for specific
performance of alleged real estate contracts which were in fact illusory and consisted only of
hastily scribbled offers and counteroffers which did not define with precision and clarity an
agreement of sale. (See, e.g., Ajax Holding Co. v. Heinsbergen, supra, 64 Cal.App.2d 665 ;
Tibbs v. Smart & Final Iris Co. (1957) 152 Cal.App.2d 618 [313 P.2d 636]; Sinks v. Merrill
(1963) 222 Cal.App.2d 200 [35 Cal.Rptr. 113]; Thomson v. Honer (1960) 179 Cal.App.2d 197
[3 Cal.Rptr. 791]; see also Caldwell v. Delaray Mines, Inc. (1945) 68 Cal.App.2d 180 , 184 [156
P.2d 52] [acceptance must be unequivocal and positive and must comply with terms of offer].)
The Ajax Holding Co. case, supra, was an action for specific performance of an alleged
agreement for sale of an apartment hotel and lots. The only writing defendants signed was
plaintiff's escrow instructions in which defendants inserted a supplement or counterproposal
requiring them to approve certain letters plaintiff was to write, concerning such matters as
inspection of the property, sale of the personal property, and plans for improvements. Affirming
summary judgment for defendants, the appellate court noted, "The alleged contract [101
Cal.App.3d 433] for the sale of realty turned out to be a myth." (Ajax Holding Co. v.
Heinsbergen, supra, 64 Cal.App.2d 665 , 670.) The court further pointed out if a counteroffer is
clear and explicit and not absurd, its language must govern its interpretation (Civ. Code, § 1638)
and the intent of the parties is gleaned from the writing itself (Civ. Code, § 1639) which is what
it says it is. (Id. at pp. 670-671.) The following language from that opinion is apt here also: "... it
cannot be said that we have a contract where a counterproposal to a written offer was never
accepted by the original offeror." ((Id. at p. 671.) In short, the CCO here is exactly what it says it
is, a counteroffer, and it was not accepted by Brennan before the Krasleys accepted another offer,
as they had the right to do by the terms in the CCO.
The parties have filed points and authorities. The remedy is clear. An alternative writ or order to
show cause would add nothing to the full presentations already made. A peremptory writ is
proper (Code Civ. Proc., § 1088; Carruth v. Superior Court (1978) 80 Cal.App.3d 215 , 224 [145
Cal.Rptr. 344]; Goodenough v. Superior Court (1971) 18 Cal.App.3d 692 , 697 [96 Cal.Rptr.
165]; Bolles v. Superior Court (1971) 15 Cal.App.3d 962 [93 Cal.Rptr. 719]; McComb v.
Superior Court (1977) 68 Cal.App.3d 89 , 93 [137 Cal.Rptr. 233]; 5 Witkin, Cal. Procedure (2d
ed. 1971) Extraordinary Writs, p. 3919) and should issue without further delay.
Let a writ of mandate issue directing respondent superior court to vacate its denial of summary
judgment and enter summary judgment as prayed.
Cologne, J., and Staniforth, J., concurred.
Ferguson v. Fajardo , 211 Cal.App.2d 119
[Civ. No. 20393. First Dist., Div. Two. Dec. 19, 1962.]
LLOYD MARSHALL FERGUSON et al., Plaintiffs and Respondents, v. MERCEDES
FAJARDO, Defendant and Appellant.
COUNSEL
Joseph A. Brown for Defendant and Appellant.
Herron & Winn, Fred R. Winn, Daniel W. Hone and Hubert Forsyth for Plaintiffs and
Respondents.
OPINION
AGEE, J.
Defendant appeals from a judgment for specific performance of a written agreement, wherein
defendant agreed to sell and plaintiffs agreed to buy an apartment building and the furniture
therein, located at 2953-55-57 Jackson Street, San Francisco, for the sum of $35,000. The [211
Cal.App.2d 121] agreement was signed by the buyers and the seller on January 23 and 24, 1957.
The sale not having been consummated, a complaint for damages was filed by plaintiffs on
August 20, 1957. Defendant filed an answer on September 23, 1957. On November 12, 1959,
over two years later, plaintiffs were granted leave to amend their complaint on a noticed motion.
There was no appearance made by defendant. Plaintiffs amended so as to include an additional
cause of action for specific performance. Defendant filed an answer to the amended complaint on
February 9, 1960, after her demurrer thereto had been overruled.
The action came to trial on February 27, 1961, before the court sitting without a jury. On May
25, 1961, after the matter was taken under submission but before the judgment, plaintiffs noticed
a motion to amend their specific performance count to conform to the proof. The motion was
opposed but was granted on June 8, 1961. The judgment in favor of plaintiffs then followed.
Defendant's first contention is that over two years had elapsed since the original filing of the
complaint, and therefore plaintiffs were estopped from amending the pleadings to include the
count for specific performance, and it was error for the trial court to so permit the amendment.
Defendant bases this argument on the doctrine of election of remedies.
The rule of law applicable in this situation is well established. [1] Whether, and under what
circumstances, a party can change his pleading so as to take advantage of an alternative remedy
is discussed in 1 Witkin, California Procedure, Actions, section 51, at page 548, as follows:
"Except where the principle of res judicata is involved ..., the modern tendency is to explain
election in terms of estoppel, i.e., to take into consideration not merely the plaintiff's
manifestation of choice but also its effect on the defendant. Hence, despite a clearly manifested
intention to pursue one of two inconsistent remedies, the plaintiff may thereafter seek the other
remedy if the change will not work a substantial injury to the adverse party. ... But if the change
will for some reason operate to the prejudice of the defendant, the plaintiff's new remedy is
barred, because his 'election' has continued to the point where he is estopped to change his
remedy." (See also Lenard v. Edmonds (1957) 151 Cal.App.2d 764 [312 P.2d 308] which
discusses at some length the principles [211 Cal.App.2d 122] of election of remedies; Goossen
v. Adair (1960) 185 Cal.App.2d 810 , 821 [8 Cal.Rptr. 855].)
[2] Defendant realizes that her contention is without merit unless some prejudice is proved.
Therefore, it is her position that, in reliance on the plaintiffs' election to sue for damages at law,
she expended approximately $5,500 in improvements of the property involved, which she would
not otherwise have done if she had contemplated a prayer for specific performance.
However, the record does not bear out the fact that defendant has been prejudiced by the change
of remedy. Instead, the record shows that the trial court, in the exercise of its equitable
discretion, more than amply compensated defendant for any outlay of expenses that she made.
The court permitted her to retain possession of all income produced by the property during the
period beginning in February 1957, when the contract would have been performed, and the
current date of the trial, in March 1961, a period of over four years. The court's findings of fact
indicate that this amount, an unspecified sum, exceeded the expenditures of defendant on the
property, a reasonable management fee, interest on the money expended, credit for the
improvements made by virtue of any increase in value, and all other possible fruits of the
investment allegedly made in reliance on plaintiffs' original form of action. Although the exact
amount of income realized in the four year period was never specified, it can be roughly
estimated that the sum would approximate $20,000, based upon the rental fees which defendant
received, according to her own testimony.
[3] Defendant's second contention is that plaintiffs breached the contract which contained a time
of the essence clause, and thus were not entitled to either damages or specific performance. This
is a question of fact which was considered by the court below and found to be without merit.
Consequently, this court should not concern itself with the issue, unless there is no substantial
evidence by which the trial court could have arrived at this conclusion. (Cottle v. Gibbon (1962)
200 Cal.App.2d 1 [19 Cal.Rptr. 82].)
[4] Defendant's argument rests on a clause in the contract which reads, "Deposit to be increased
to $5,000.00 upon approval. Time is of the essence of this agreement." This clause appeared just
over the buyers' signatures and defendant contends that the contract was breached because the
plaintiffs did not tender $5,000 on or about January 24, 1957, [211 Cal.App.2d 123] when the
defendant approved the contract. To substantiate this, defendant offered evidence that on
February 9, 1957, plaintiffs had on account in escrow the sum of only $919.99.
But the trial court was clearly correct in rejecting this argument, because it is refuted on the face
of the contract itself. On the reverse side of page one of the contract, as a continuation of the
terms of the contract, are the words: "This offer subject to the purchasers obtaining a loan on
their property known as 722-10th Ave." (Italics ours.) Directly beneath are the initials M.F.
Defendant testified the initials were hers and that she had placed them there by her own hand. It
is quite obvious, as the evidence bears out, that the parties intended for the buyers to acquire the
balance of the downpayment by a loan on their present property at 722-10th Ave. This was done
on February 13, 1957, and the proceeds deposited in escrow. The evidence was thus amply
sufficient to support the finding of the trial court that plaintiffs had not breached the time of the
essence clause in the contract.
[5a] Defendant also contends that the evidence is not sufficient to support the trial court's finding
that the purchase price of $35,000, as payable under the terms of the agreement, was the fair and
reasonable market value of the property at the time of the execution of the agreement. [6] The
fairness and adequacy of the consideration in an action for specific performance are questions of
fact for the trial court (Ornbaun v. Main (1961) 198 Cal.App.2d 92 , 97 [17 Cal.Rptr. 631]).
Thus, the matter should be left to the sound discretion of the trial court if substantially supported
by the evidence. (Westwood Temple v. Emanuel Center (1950) 98 Cal.App.2d 755 , 759 [221
P.2d 146].)
[5b] In this case the record is replete with testimony by defendant herself and her real estate
agents that the contemplated transaction was an exceptional bargain for her. For example, the
testimony of her broker, Alfred Gruber, is in point: "Q. And what did you say? A. I remember
that I told her that she had an excellent deal; that she had a full price, which is extremely rare--in
all the years I have been a real estate agent the full price is very rare. As a broker and as an old
acquaintance of hers I advised her to take the deal, and she thought that I was correct." And
defendant remarked: "They both looked but so far I can't figure out how they were so impressed
to buy right away the way they did," and "[t]hey don't ask him for a termite inspection; [211
Cal.App.2d 124] they don't ask him for nothing." We believe that the evidence is abundantly
clear and sufficient to support a conclusion that the consideration was fair and adequate.
Defendant's final argument is the general complaint that the decision was not equitable. But she
advances no legal arguments in support. There appears to be no reason why the trial court can be
held to have abused its discretion in framing the decree for specific performance. (Holibaugh v.
Stokes (1961) 192 Cal.App.2d 564 [13 Cal.Rptr. 528]).
Judgment affirmed.
Kaufman, P. J., and Shoemaker, J., concurred.
Weisberg v. Ashcraft , 194 Cal.App.2d 225
[Civ. No. 25083. Second Dist., Div. One. July 25, 1961.]
SIDNEY M. WEISBERG et al., Respondents, v. VERNON E. ASHCRAFT et al., Appellants.
COUNSEL
W. Garfield McDaniel for Appellants.
Sky, Winkler & Fischmann and Harry I. Sky for Respondents.
OPINION
WOOD, P. J.
The complaint alleged that on May 28, 1957, and on May 29, 1957, the plaintiffs entered into
written agreements with defendants whereby defendants (Mr. and Mrs. Ashcraft) agreed to sell
to plaintiffs certain real property (a [194 Cal.App.2d 227] vacant lot); and the agreements
consisted of a deposit receipt and escrow instructions, copies of which were attached to the
complaint.
The prayer of the complaint was for specific performance, and for damages for failure to perform
the agreements.
(The escrow company was named as a defendant, but the body of the complaint does not refer
specifically to that company.) The sellers (the Ashcrafts) will be referred to herein as the
defendants.
Judgment was in favor of plaintiffs for specific performance and for damages against defendants.
Defendants appeal from the judgment and the order denying their motion for a new trial.
Appellants filed an opening brief, wherein they assert that the evidence does not support certain
findings and that the findings do not support the judgment. Respondents (plaintiffs Weisberg) did
not file a brief or appear on the appeal.
The escrow instructions, dated May 29, 1957, provided in part, as follows: The escrow should
be closed 30 days from date. The purchase price was $6,000. The broker would deposit $200 in
the escrow. Buyers would deposit $300 on or before June 1, 1957. Buyers would also deposit
$2,972, and would execute a trust deed "in the amount of $2,528.00" in favor of sellers. Time is
of the essence of the instructions. The sellers would give clear title to the property; but
easements of record thereon, if any, should be subject to approval of the buyers.
On May 29 the $200 was deposited in escrow, and on June 5 the $300 was deposited. The buyers
did not deposit in escrow the $2,972, nor deliver into escrow the trust deed for $2,528, within
the 30-day period for closing the escrow. It thus appears that the buyers had not complied with
the escrow instructions within the escrow period.
About June 26 the escrow company received a title report which showed there was an easement
of record over the rear 5 feet of the land. On June 27 the escrow company sent a copy of that
report to the buyers and requested them to approve and return the report. The approval of the
report (approval of easement) was not returned within the 30-day escrow period. It thus appears
that the sellers could not convey clear title within the escrow period.
On July 2 the sellers notified the buyers and the escrow company, by letter, that the sellers
rescinded their agreement [194 Cal.App.2d 228] to sell the property, for the reason the buyers
had not deposited the money in the escrow within the time required.
On July 5 (a week after the escrow closing date), and after the buyers had received the notice of
rescission, they deposited $3,020 in escrow and they also delivered into escrow their approval of
the title report (approval of easement). Also, they delivered the trust deed and note.
On July 12 the sellers sent a letter to the escrow company wherein they again stated that they
rescinded the agreement for the reason the buyers had not deposited the money within the time
required; and they requested the escrow company to accept the letter as notice of cancellation of
the escrow.
There was evidence to the effect that the defendants were not owners of the property.
Apparently, Mr. Thompson, the owner of the property, had entered into an agreement on July 15,
1955, to sell the property to Mr. and Mrs. Bowen, and those purchasers had assigned (on July 17,
1956) their rights under the agreement to the defendants Ashcraft--and there was an unpaid
balance of $3,440.30 under the agreement. The escrow file indicates that on June 24, 1957, Mr.
Thompson sent to the escrow company the agreement for sale of the property, and also sent a
deed to the property, and authorized the escrow company to "use" the deed provided that before
July 24 the company held $3,440.30 for him. On August 2 Mr. Thompson requested the return of
all papers he had sent to the escrow. The agreement was returned, but it does not appear whether
the deed was returned.
The court found, among other things, as follows: The buyers or the sellers had not performed the
agreement within the period stated therein, but that any delay in performance was minor and
trivial and the buyers or the sellers were not injured thereby. Although the "agreements"
provided that time was of the essence, said "agreement" provided further for an extension of the
30-day period for performance in the event of possible delay, and such provision constituted a
waiver of the requirement for strict compliance with the provisions of the "said agreements." The
"payment provisions" of the agreements were inserted to induce prompt performance but were
not intended by the parties to work a forfeiture in case of a failure to perform strictly in "point of
time." The agreements were fair and reasonable, and the sale price and terms were fair and
reasonable. The agreements were not terminated in the manner required thereby. Although the
buyers delayed in making payments, they fully complied with and performed [194 Cal.App.2d
229] under said agreements immediately upon demand, and at all times acted in good faith. The
buyers at all times stood ready and willing to pay the sellers the sums of money provided in said
agreements and to execute the "notes and deeds of trust" as provided therein, and tendered "such
performance," but the sellers rejected said tender and have failed and refused to execute a
conveyance of property as provided for in said agreements. As a direct and proximate result of
the failure and refusal of sellers to convey the property to buyers, buyers had been damaged in
the sum of $35 a month from July 5, 1957, for the loss of use of the property.
The judgment ordered that the sellers deliver to the escrow company (1) a warranty deed which
"shall grant" the property to buyers free and clear of all encumbrances, and (2) a "proper Joint
Protection Policy of Title Insurance of standard form containing usual title company exceptions
bearing a liability" of $6,000. The judgment also ordered that the sellers pay to the escrow
company "the following sums; or suffer same to be taken out of moneys received by [the escrow
company] ... on their behalf:" (1) damages "to buyers" in the amount of $1,427.50, and an
additional amount of $35 per month commencing April 26, 1960, and continuing until the
property is conveyed to buyers as provided in the judgment; (2) buyers' costs of suit; (3)
damages to the escrow company in the amount of $377.50; (4) escrow company's costs of suit.
The judgment ordered that the buyers deliver to the escrow company a first trust deed,
"covering" the property in favor of the sellers, in the amount of $2,528 and securing a note, in the
same amount, in favor of the sellers; and that the buyers pay to the escrow company $3,472 for
delivery to the sellers.
The judgment ordered that the escrow company, after receiving the amounts "called for" in the
judgment, credit and debit such amounts pursuant to the terms of the judgment.
The judgment also provided that "in default" of sellers to convey the property to buyers as
ordered, the judgment should have "the same effect and operation as such deed."
As above stated, the respondents have not filed a brief, and have not appeared at all in the appeal
proceedings. They were notified, pursuant to rule 17, subdivision (b), with reference to filing a
brief within 30 days after such notification. They were also notified of the date the case was on
the calendar for hearing on appeal.
Said rule 17, subdivision (b), provides: "If the respondent's brief is not filed within the time
prescribed in subdivision [194 Cal.App.2d 230] (a) of rule 16, the clerk of the reviewing court
shall notify the parties by mail that the case may be submitted for decision on the record and on
the appellant's opening brief unless the brief is filed within 30 days after the date of mailing of
the notification or good cause is shown for relief. If the brief is not filed within that period ... the
court may accept as true the statement of facts in the appellant's opening brief and ... may submit
the case for decision on the record and on the appellant's opening brief." [1] In Cravens v.
Coghlan, 154 Cal.App.2d 215 [315 P.2d 910], wherein respondent said he did not desire to file a
brief, it was said, at page 217: "In such a case the appellate court is under no duty to look up the
law, if any, in support of the judgment, may assume that the respondent has abandoned any
attempt to support the judgment, and may also assume that the point or points made by appellant
are meritorious."
In the present case respondents have elected not to answer the contentions of appellants, but their
reason for such failure, of course, is not apparent. Appellants' contentions involve a
consideration of all the testimony and the numerous documents in evidence. Many complex
factual and legal questions are involved on the appeal.
Some of those questions are, as follows: 1. The effect of buyers' failure to deposit the money
until a week after the expiration of the 30-day escrow period--and after notice of rescission. 2.
The effect of the inability of the sellers to convey clear title (by reason of the easement) within
the 30-day escrow period. 3. The effect of the provision of the judgment ordering the sellers to
convey the property by warranty deed--where escrow instructions do not designate such a deed,
and where it does not appear that the sellers were owners of the property. 4. The effect of the
provision of the judgment that in the event of the default of the sellers to so convey the property,
the judgment would have the same effect and operation as a warranty deed. 5. Whether the
provisions of the escrow instructions superseded the provisions of the deposit receipt, or whether
the two documents should be read together,--where there was no finding as to the intention of the
parties with respect thereto. (See Swanson v. Thurber, 132 Cal.App.2d 171 , 180 [281 P.2d
642].) 6. Whether the doctrine of substantial performance was applicable in an action for specific
performance of an escrow agreement. 7. Whether the evidence supports the findings to the
effect: (a) there was a waiver of strict performance; (b) the sale price was fair and reasonable;
[194 Cal.App.2d 231] (c) the escrow agreement was not terminated in the manner required
thereby; and (d) the buyers were damaged in the amount awarded.
[2] Appellants state in their brief that there was no testimony that the contract price of the
property was fair and reasonable. In an action for specific performance the plaintiff must prove
that the agreed price is fair and reasonable. (Davy v. Ogier, 87 Cal.App.2d 835 [198 P.2d 92];
Dennis v. Overholtzer, 178 Cal.App.2d 766 [3 Cal.Rptr. 193].) Since respondents herein have
failed to file a brief, the court is entitled under said rule 17, subdivision (b), to accept as true
appellants' statement in their brief regarding lack of evidence that the price was fair and
reasonable. It therefore appears that the trial court erred in finding that the sale price was fair and
reasonable.
Appellants also state in their brief that the evidence does not support the findings hereinabove
specifically mentioned. In support of such statements they refer to certain testimony and
documentary evidence. Since respondents have failed to file a brief and refer to contrary
testimony or other evidence, if any, this court is entitled to assume, under the provisions of said
rule, that there is merit to appellants' statements.
[3] Appellants assert that the conclusion of the court that "any delay in the completion of the
escrow was minor and trivial" is not supported by any testimony. That statement of the court is
in effect a statement that the sellers had substantially performed the agreement. In Altadena
Escrow Corp. v. Beebe, 181 Cal.App.2d 743 [5 Cal.Rptr. 530], it was said, at page 745: "It is
established in this state that the terms and conditions of an escrow must be strictly performed. ...
The doctrine of substantial performance does not apply." In Love v. White, 56 Cal.2d 192 [14
Cal.Rptr. 442, 363 P.2d 482], it was said, at page 194: "In this state the terms and conditions of
an escrow must be performed. The doctrine of substantial performance does not apply, and no
title passes prior to full performance of the terms of the escrow agreement." In the present case
the trial court erred in concluding or finding that any delay in performance of the escrow
agreement was minor and trivial, and that the buyers or the sellers were not injured thereby.
[4a] As above indicated, the judgment ordered that the sellers deliver to the escrow company a
warranty deed which "shall grant" the property to the buyers free and clear of [194 Cal.App.2d
232] all encumbrances. The judgment also provided that in default of the sellers to convey the
property to the buyers, the judgment should have the same effect and operation as a warranty
deed. As above stated, there was evidence to the effect that the sellers (defendants) were not
owners of the property, that they were assignees of an agreement whereby the owner (Mr.
Thompson) had agreed to sell the property to the Bowens, and that a balance of $3,440.30 was
unpaid under the agreement.
[5] In Milkes v. Smith, 91 Cal.App.2d 79 [204 P.2d 419], it was said, at pages 81 and 82: "It is
well settled that where a vendor has no title or interest in the land he contracts to convey he
cannot be required specifically to perform. The decree would be of no avail for equity will not
compel him to obtain title. [Citations.] Where the vendor is, however, the equitable owner of the
property and has the right to call for the legal title, he may be compelled by the vendee to
specifically perform the contract of sale. [Citations.] [6] It is likewise well settled that if a vendor
has any interest in the property he has contracted to convey, the vendee at his option may enforce
the contract with respect to whatever interest the vendor possesses, and may also receive
compensation for the deficiency in performance." [4b] In the present case, in view of such
condition of the title to the property, it is apparent the form of the judgment with respect to
specific performance is erroneous. It is to be noted further that the judgment directs the sellers to
deliver the deed to the escrow company, and directs the buyers to deliver money, a trust deed,
and note to the escrow company; but the judgment does not state when such deliveries should be
made. The judgment does not direct the escrow company to record or deliver the deed or trust
deed, or to deliver the money or documents to the parties.
The appeal from the order denying the motion for a new trial is dismissed.
The judgment is reversed.
Fourt, J., and Lillie, J., concurred.