DAWN INVESTMENT CO INC 19 1974 v. BECK (1981)

NATURE OF CASE :

Petitioners seek a writ of mandate to compel the superior court to set aside its order preliminarily enjoining petitioners from proceeding with a nonjudicial foreclosure. The question presented is whether Wellenkamp v. Bank of America (1978) 21 Cal.3d 943, 148 Cal.Rptr. 379, 582 P.2d 957, declaring a due-on-sale clause unenforceable by an institutional lender, applies to a noninstitutional seller of commercial real property who holds a second deed of trust securing a promissory note for part of the purchase price. We hold that Wellenkamp does not apply in such a case and we grant the writ.

FACTS AND PROCEDURAL BACKGROUND :

Petitioners are defendants in the trial court. Real parties in interest are plaintiffs in the trial court. We refer to the parties by their status in the trial court. The recitals of the first cause of action in plaintiffs' complaint disclose the following: In March 1977, plaintiffs Don Beck and Edith Beck purchased real property, consisting of a ten-unit apartment building from defendants Dawn Investment Co. and Gertrude Robinson. As part of the purchase price, plaintiffs Beck gave to sellers, defendants Dawn Investment and Robinson a promissory note for $34,000, secured by a second deed of trust. Defendant Imperial Bank is the original trustee and Trust Deed Diversified Services is the substitute trustee under the deed of trust executed by plaintiffs Beck. The promissory note contained the provision: “ that in the event of a sale, transfer or change of ownership of title to the property the unpaid balance of principal and interest due on the note shall at the option of the holder become immediately due and payable.” In March 1980, plaintiffs Beck sold and transferred the real property to plaintiffs Babu-Khan and Khaja. Defendants, original sellers, elected to accelerate the balance of the principal and interest due and recorded a notice of such election. Plaintiffs alleged on information and belief in conclusionary terms that defendant-seller Dawn Investment Co. is “an institutional lender.”

In the purported second cause of action, plaintiffs allege only that the threatened sale would cause them great and irreparable harm because, having no right to redeem the property from the threatened sale, they will lose it. No additional facts are alleged. The purported third cause of action alleges, again upon information and belief, that defendants have not complied with the provisions of sections 2924b and 2934a of the Civil Code, relating to the form of giving notice of default and election to sell and of substitution of trustees.

Other than a declaration by plaintiffs' attorney regarding his inquiry relative to service of the complaint on the substitute trustee and how he served notice of his intention to apply for a temporary restraining order, there were no additional declarations or affidavits in support of the request for a preliminary injunction or the temporary restraining order.

DISCUSSION :

The meager facts set forth in this record are insufficient to justify the granting of the preliminary injunction. Issuance of a preliminary injunction is a matter of discretion vested in the trial court. A reviewing court will interfere only where it is clear that discretion has been abused by the trial court. (Nalley's, Inc. v. Corona Processed Foods, Inc. (1966) 240 Cal.App.2d 948, 50 Cal.Rptr. 173.) When that discretion has been abused, mandamus is an available remedy to correct the abuse. (State Farm etc. Ins. Co. v. Superior Court (1956) 47 Cal.2d 428, 304 P.2d 13.)

At bench the gravamen of plaintiffs' complaint is that defendants-sellers were institutional lenders and therefore the rule of Wellenkamp v. Bank of America, supra, made the due-on-sale clause unenforceable and the foreclosure proceedings to compel payment or threaten sale should therefore be halted. Disregarding the conclusionary assertions, the facts disclosed by the pleadings show without serious doubt that the trial court granted the preliminary injunction solely upon the basis that the Wellenkamp rule automatically applied as a matter of law to any due-on-sale clause. This was error.

A trial court is justified in granting a preliminary injunction only when the facts alleged clearly establish that the applicant is legally entitled thereto. The pleadings must state facts, not legal conclusions. The facts, however, must be asserted under oath in the complaint or by an affidavit or declaration under oath, and be on the basis of the declarant's knowledge, not upon his conjecture, guess or belief. The allegation at bench that defendants were “institutional lenders” is made solely on information and belief, without one scrap of fact alleged or any additional information why defendants are such. This is a sham. It is a transparent effort to have the court accept the pleadings so as to assume and pretend that defendants were “institutional lenders” so as to seemingly make the rule of Wellenkamp applicable.

The following language of Ancora-Citronelle Corp. v. Green (1974) 41 Cal.App.3d 146, 148, 115 Cal.Rptr. 879, is especially applicable here:

“ ‘ ”To issue an injunction is the exercise of a delicate power, requiring great caution and sound discretion, and rarely, if ever, should (it) be exercised in a doubtful case “ ‘ (Willis v. Lauridson, 161 Cal. 106, 117, 118 P. 530; West v. Lind, 186 Cal.App.2d 563, 569, 9 Cal.Rptr. 288; Mallon v. City of Long Beach, 164 Cal.App.2d 178, 190, 330 P.2d 423.) It was undoubtedly such considerations as motivated the Legislature in decreeing, by section 527, that an injunction may issue only upon a satisfactory showing of sufficient facts under oath. The availability of criminal sanctions for perjury was calculated to insure that injunction applications be substantially supported by a truthful factual representation, and made in good faith.

“The requirement that good cause, under oath, must be shown in support of an injunction, is jurisdictional. It was said in Harlan v. Superior Court, 94 Cal.App.2d 902, 905, 211 P.2d 942 (disapproved on other grounds, Signal Oil etc. Co. v. Ashland Oil etc. Co. (1958) 49 Cal.2d 764, 775, fn. 5, 322 P.2d 1):

“ ‘A verified showing is indispensable to the exercise of injunctive power (our italics) under the rule that ”though the court has jurisdiction over the subject matter and the parties in the fundamental sense, it has no ‘jurisdiction’ (or power) to act except in a particular manner, or to give certain kinds of relief, or to act without the occurrence of certain procedural prerequisites.“ (Italics in original.) Accordingly, because of the failure to observe the procedural requirements of section 527, the court was without jurisdiction to render the order ‘ ” (All emphasis in original opinion in Ancora.)

Here, the assertion of institutional lender is a conclusion at best if not a pure sham. There are no facts set forth in the complaint or by affidavit showing the information that gave rise to plaintiffs' alleged belief. The record before the trial court was absolutely barren of any alleged fact which justified the trial court in treating the defendants as institutional lenders. The mere use by defendants of a name containing “investment company” is certainly not sufficient. Many individual, small family businesses use this form of name although they are not banks, savings and loan associations, mortgage brokers or any other kind of institutional lender. Moreover, defendants filed an uncontroverted affidavit adequately and clearly showing that the Dawn Investment Co. was merely a form of ownership by which a husband and wife held title to their properties. In view of this affidavit the court's reliance on plaintiffs' bald, unsupported conclusion was clearly an abuse of discretion.

In view of the total lack of factual support for the conclusion that defendants or any of them were institutional lenders, the only other charitable view of the court's conduct is that the court assumed that the rule of Wellenkamp is applicable to all due-on-sales clauses, irrespective of the status of the lender. This is not the law. The decision in Wellenkamp made a special note of this. It said: “In the instant case the party seeking enforcement of the due-on clause is an institutional lender. We limit our holding accordingly. We express no present opinion on the question whether a private lender, including the vendor who takes back secondary financing, has interests which might inherently justify automatic enforcement of a due-on clause in his favor upon resale.” (Wellenkamp v. Bank of America, supra, 21 Cal.App.3d 943, 952, fn. 9, 148 Cal.Rptr. 379, 582 P.2d 957, emphasis added.) Therefore, in disapproving Hellbaum v. Lytton Savings & Loan Assn. (1969) 274 Cal.App.2d 456, 79 Cal.Rptr. 9; and Cherry v. Home Sav. & Loan Assn. (1969) 276 Cal.App.2d 574, 81 Cal.Rptr. 135; and overruling to the extent it was inconsistent with its opinion, the case of Coast Bank v. Minderhout (1964) 61 Cal.2d 311, 38 Cal.Rptr. 505, 392 P.2d 265, the court did so only with respect to institutional lenders only. Wellenkamp did not make illegal or unenforceable acceleration clauses for all purposes and in any and all situations. Thus, the general rule remains, i. e. acceleration clauses are not per se unlawful. In situations where the facts and reasons against allowing legal recognition discussed in Wellenkamp are not present, the due-on clause has been recognized as, and continues to be, valid.

Such is the case at bench. The trial court, therefore, was without jurisdiction (Ancora-Citronelle Corp. v. Green, supra, 41 Cal.App.3d 146, 149, 115 Cal.Rptr. 579) to render the order extending the Wellenkamp rule to defeat the right of an ordinary owner of the secured note to elect to accelerate and thereby protect his interests as agreed upon.

In addition to the failure to honestly and legally sufficiently allege facts describing an institutional lender, there are other factual distinctions between this case and Wellenkamp :

(1) In Wellenkamp the lender was a large bank with tremendous strength, resources and bargaining power far superior to that of the individual homeowner there seeking to avoid the dilemma between dispossession and more expensive refinancing. At bench, the lenders are husband and wife and his mother, not shown to be engaged in banking, mortgage financing, brokerage or any other “institutional” activity requiring licensing for the purpose of investing other people's money.

(2) In Wellenkamp the security was a single-family, owner-occupied home. Here, the security is a commercial building consisting of several apartments. The property at bench, as to all parties, is investment commercial property. In Wellenkamp the court noted the added feature of the public policy favoring protection of equity in a person's home. (See Wellenkamp v. Bank of America, supra, 21 Cal.3d 943, 950, fn. 6, 148 Cal.Rptr. 379, 582 P.2d 957.)

(3) In relative positions of safety, security, bargaining and ability in an open interest market the parties are much more equal at bench than were the parties in Wellenkamp. An extended discussion of the relative positions of the parties, the rising interest market and the significant difference between the subordinate security here and the first trust deed in Wellenkamp is unnecessary. Suffice it to say that in this case the effect of applying Wellenkamp would create the very hardship or diminution in security value and the risks to less favorably positioned sellers acknowledged and discussed in Wellenkamp. (See Wellenkamp v. Bank of America, supra, 21 Cal.3d 943, 951-952, fns. 7 and 8, 148 Cal.Rptr. 379, 582 P.2d 957.)

(4) No facts are alleged which demonstrate that the “quantum of restraint” (the actual practical effect upon alienation which would result from enforcement) is not fairly or evenly balanced by the “justification for enforcement” of this particular restraint. (Wellenkamp v. Bank of America, supra, 21 Cal.3d 943, 948-949, 148 Cal.Rptr. 379, 582 P.2d 957.)

In the third purported cause of action, defendants pleaded, again solely on information and belief, that “there has been no compliance with the provisions of section 2934a and 2924b of the Civil Code of the State of California and that any sale conducted by the defendant Trust Deed Diversified Services would be void.” In deciding whether to grant injunctive relief, this too is a pleading which the trial court should have ignored, being conclusionary, non-factual and, moreover, one made solely on information and belief. Reference to the deed of trust and to the notice of default, appended to the complaint as parts thereof, discloses no such failure. There is thus again demonstrated the sham nature of this pleading by the total failure to state therein, or in any supporting affidavit or declaration, that plaintiffs were not given notice of the substitute trustee, or that the original trustee failed to receive notice of substitution, or that notice of the sale or default was not actually given.

In their answer, as real parties in interest, to the petition before us plaintiffs argue how the trial court could have inferred lack of compliance with the statutory provisions. We do not accept these arguments. Part of the procedural aspects regarding the substitute trustee and notice, which plaintiffs now argue were insufficient, were totally immaterial to the issues around which grant or denial of the preliminary injunction revolved. (U. S. Hertz, Inc. v. Niobrara Farms (1974) 41 Cal.App.3d 68, 116 Cal.Rptr. 44.) The issuance of the preliminary injunction, if based partially on some defect of notice, required at the least an honest, forthright statement that, and explaining how, a certain party did not receive a particular notice required by law. The statement should be under oath. It should not be based upon a possible inference based upon a conclusion or unsworn assertion.

It is ordered that a peremptory writ issue directing the superior court to vacate its order granting a preliminary injunction and to make a new and different order denying the same, consistent with this opinion.

BEACH, Associate Justice.

FLEMING, Acting P. J., and COMPTON, J., concur.