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.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 [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 goodfaith.” (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” [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 ciy 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., atp. 383.)
[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 409.1,2 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.
[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 [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, 5 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 [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.”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 [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 [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 [j/c] 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.
[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 Loma 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 [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 sale-of-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 [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 détermination 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 [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.
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. vs. Sinsley (1976) 53 Cal.App.3d 1027.)”
Amended by Statutes 1976, chapter 27, section 1, page 42.
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.)