Nash v. Superior Court

86 Cal. App. 3d 690, 150 Cal. Rptr. 394, 1978 Cal. App. LEXIS 2115

• Court: California Court of Appeal
• Decided: November 27, 1978
• Docket: Civ. 53181
• Status: Published

Opinions

Opinion

FILES, P. J.

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 statutoiy 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.

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 914 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.”

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. 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 9¼ percent interest.

The buyers’ attorney submitted a declaration attaching a Mailgram which he received from Malibu Escrow on September 22 which included the statement “Loma 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.)

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 9¼ 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, 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 case.

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.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.

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.”

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 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.

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.”

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].)

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 theoiy 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.

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.”