KOSSLER v. PALM SPRINGS DEVELOPMENTS LTD (1983)

OPINION

In this action for damages and specific performance of a contract to construct and sell a house, plaintiffs appeal from a judgment entered after gaining reversal in an earlier appeal.   They contend:  (1) the court improperly ordered expungement of a lis pendens;  (2) subsequent purchasers (the Teufels) were not bona fide purchasers;  and (3) the court erred in awarding plaintiffs no damages.   We conclude plaintiffs' contentions are well taken.   Accordingly, the judgment will again be reversed.

Facts

Defendant Palm Springs Developments, Ltd., a general contractor, owned property in the City of Palm Springs which it was developing as a 13-home tract.   Plaintiffs agreed to purchase one of the homes under construction (the property) and an escrow was opened.   The escrow instructions as amended provided that escrow would close upon recordation of the notice of completion but also contained a boilerplate “time is of the essence” provision.

To quote from our opinion on the earlier appeal:  “Having moved to Palm Springs and rented a condominium, plaintiffs visited the construction site daily after January 20 [1977].  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[s], purchase upgraded appliances, and deliver them to the jobsite for installation by defendant[s].  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.''  (Kossler v. Palm Springs Developments, Ltd. (1980) 101 Cal.App.3d 88, 93, 161 Cal.Rptr. 423.)

After defendants filed a notice of completion on March 28, 1977, plaintiffs took an inspection tour of the premises.   Several items of construction had not been completed or had been improperly performed.   Plaintiff George Kossler had a discussion with defendant Appel, who said, inter alia, 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’ ”;  “ ‘If you want your money back, you can have it.’ ”  (Id., at p. 94, 161 Cal.Rptr. 423.)

Mr. Kossler declined the offer of rescission and Mr. Appel said, “ ‘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?’ ” and Mr. Appel replied, “ ‘That's right.   I'm breaching the contract right now.’ ”  (Id., at p. 95, 161 Cal.Rptr. 423.)

Plaintiffs sued for specific performance and for damages for breach of contract and fraud and recorded a lis pendens.   After trial the court found and concluded that:  time was of the essence of the contract;  defendants fully performed all conditions required under the contract;  defendants were ready, willing and able to close the escrow;  plaintiffs had failed to deposit into escrow the balance of the purchase price;  plaintiffs were not excused from their obligation to pay the balance of the purchase price, and plaintiffs' failure to so perform was a material breach of the contract;  defendants cancelled the escrow in accordance with the terms of the contract;  and plaintiffs failed to establish they were able to pay the balance of the purchase price.   The court entered judgment for defendants which included a provision expunging the lis pendens.¹  Plaintiffs appealed.

In January or February of 1979, while the appeal was pending, an escrow for purchase and sale of the property was opened by defendants and a Mr. and Mrs. Teufel.   Title insurance companies refused to insure title free of plaintiffs' claims, and on March 16, 1979, defendants applied ex parte for a separate order expunging the lis pendens.   On the same day, the court entered an order expunging the lis pendens.   The court found “the judgment previously entered in this action ․ ordered that the lis pendens recorded by plaintiffs ․ be expunged” and “the trial of this matter and the noticed hearing on the proposed Findings of Fact and Conclusions of Law constituted a hearing within the meaning of Section 408.1 of the Code of Civil Procedure, permitting the lis pendens to be expunged as provided in the Judgment ․”  The trial court ordered the lis pendens expunged “as of October 13, 1978, the date of entry of judgment in this action.”   Plaintiffs did not file a petition for writ of mandate to review this order.

The escrow between defendants and the Teufels closed in May 1979.   A grant deed to the Teufels dated February 7 was recorded on May 18, 1979.

On January 15, 1980, this court filed its opinion on the appeal from the original judgment.  (See Kossler v. Palm Springs Developments, supra, 101 Cal.App.3d 88, 161 Cal.Rptr. 423.)   We there determined that defendants had repudiated the contract and the trial court's findings that time was of the essence, that defendants had fully performed and that plaintiffs were in default of their obligations under the contract were erroneous.   We therefore reversed the judgment, directing the trial court to determine whether plaintiffs were willing and able to perform at the time of the repudiation and to determine the nature of plaintiffs' remedy and the amount of damages to be awarded, if any.  (Id., at p. 104, 161 Cal.Rptr. 423.)

On remand further trial was had and the court found plaintiffs were willing and able to pay the balance of the purchase price on the date of repudiation;  defendants breached the contract by repudiating the contract and cancelling escrow;  defendants “did not act in bad faith in breaching said contract”;  the value of the subject property at the time of the breach was the amount of the purchase price;  plaintiffs incurred no expenses in examining the title to the property or in preparing to enter upon the property;  “[o]n March 16, 1979 this court made and entered a separate order expunging a notice of pendency of this action which had previously been recorded by plaintiffs;  plaintiffs had notice of the application for such order, but they did not appear or otherwise oppose the granting thereof.   Thereafter, and prior to May 18, 1979, said order of expungement was duly recorded ․”;  defendants sold the subject property to Mr. and Mrs. Teufel;  in making the sale defendants relied in good faith on the advice of their counsel.   The court concluded that:  defendants no longer had the power to lawfully perform the contract;  “[t]here is no evidence from which the court can find that [the Teufels] are not bona fide purchasers of the subject real property”;  and plaintiffs suffered no damage.

Discussion

1. The order expunging the lis pendens

Plaintiffs first argue the order expunging the lis pendens was against the law because:  (1) the statutory requirement of a 20-day notice was not complied with;  (2) the court failed to conduct a hearing on the motion to expunge the lis pendens as required by Code of Civil Procedure section 409.1 ² ;  and (3) the court was without authority to expunge the lis pendens nunc pro tunc.

 While we are inclined to agree with these arguments, we must agree with defendants that these improprieties in the order expunging the lis pendens may not be reviewed on this appeal;  that they were exclusively reviewable by way of a petition for writ of mandate pursuant to section 409.4; ³  and that the order has become final and is immune to attack for ordinary judicial error.

However, plaintiffs also contend the order expunging the lis pendens was void and is subject to collateral attack.   We conclude that in the unique circumstances of this case plaintiffs are correct.

 Section 916 provides in pertinent part, “the perfecting of an appeal stays proceedings in the trial court upon the judgment or order appealed from or upon the matters embraced therein or affected thereby, ․ but the trial court may proceed upon any other matter embraced in the action and not affected by the judgment or order.”   Normally, pending appeal from a judgment in favor of the defendant, the trial court has jurisdiction to entertain a motion for expungement of a lis pendens and to order expungement because expungement of a lis pendens is not a matter embraced within the judgment or affecting the judgment but, rather, a matter collateral to the judgment.  (Peery v. Superior Court (1981) 29 Cal.3d 837, 842, 176 Cal.Rptr. 533, 633 P.2d 198;  California-Hawaii Development, Inc. v. Superior Court (1980) 102 Cal.App.3d 293, 297, 162 Cal.Rptr. 365;  United Professional Planning, Inc. v. Superior Court (1970) 9 Cal.App.3d 377, 384–386, 88 Cal.Rptr. 551;  Howden-Goetzl v. Superior Court (1970) 7 Cal.App.3d 135, 138–139, 86 Cal.Rptr. 323.)

 As previously noted, however, (see fn. 1, ante, and accompanying text), in this case the original judgment contained an express provision purporting to expunge the lis pendens.   Plaintiffs appealed from the entire judgment, not any particular part thereof.   The expungement of the lis pendens was therefore a matter embraced in the judgment and was potentially at issue in the appeal.   Indeed, we specifically mentioned the expungement of the lis pendens and the problems attendant thereto in our opinion on the appeal (101 Cal.App.3d at p. 104, 161 Cal.Rptr. 423), although we did not reach the problem because we reversed the judgment.

Thus, under section 916, the court was without jurisdiction pending appeal to entertain a motion for expungement and enter an expungement order in the absence of a new or different showing on the part of defendants.   Not only was there no new showing, there was no showing at all.   The only reason given in the application for a new order was that the title company would not insure the title without one, and the new order was expressly based upon “the trial of this matter and the noticed hearing on the proposed Findings of Fact and Conclusions of Law” preceding the entry of the original judgment.

This was no mere procedural error;  the court was without jurisdiction to entertain the ex parte motion for expungement or to make the new expungement order.  “In interpreting section 916, the court held in Olson v. Superior Court [1969] 274 Cal.App.2d 311 at page 314 [79 Cal.Rptr. 136]:  ‘The filing of an appeal from a judgment divests the trial court of all jurisdiction in matters embraced in the judgment or affected thereby․  The appeal “vests jurisdiction in the appellate court and terminates the jurisdiction of the lower court.”  (Estate of Hanley (1943) 23 Cal.2d 120, 123 [142 P.2d 423, 149 A.L.R. 1250].)’ ”  (Weisenburg v. Molina (1976) 58 Cal.App.3d 478, 485, 129 Cal.Rptr. 813;  accord:  California State Auto. Assn. Inter-Ins. Bureau v. Jackson (1973) 9 Cal.3d 859, 862, fn. 3, 109 Cal.Rptr. 297, 512 P.2d 1201;  Eisenberg v. Superior Court (1924) 193 Cal. 575, 578–579, 226 P. 617;  Socialist Workers etc. Committee v. Brown (1975) 53 Cal.App.3d 879, 890, 125 Cal.Rptr. 915.)

 An order or judgment void for the court's lack of subject matter jurisdiction is open to collateral attack notwithstanding that the time for direct attack by appeal has expired.  (Becker v. S.P.V. Construction Co. (1980) 27 Cal.3d 489, 493, 165 Cal.Rptr. 825, 612 P.2d 915;  Swycaffer v. Swycaffer (1955) 44 Cal.2d 689, 693, 285 P.2d 1;  see Armstrong v. Armstrong (1976) 15 Cal.3d 942, 950, 126 Cal.Rptr. 805, 544 P.2d 941;  5 Witkin, Cal.Procedure (2d ed. 1971) Attack on Judgment, § 10, pp. 3590, 3591.)   There is, of course, an infrequently applied exception to the general rule:  where some of the parties have relied on, or changed their position in accordance with the judgment, a court may deny collateral attack.   (Armstrong v. Armstrong, supra, 15 Cal.3d at p. 951, 126 Cal.Rptr. 805, 544 P.2d 941.)   This, however, is not such a case.   The record suggests that the Teufels, who incidentally are not parties to the action, had actual knowledge of this litigation and, in any event, it is a fair inference that they relied not on the order of expungement, but on the guarantee of title issued by the title insurance company.   Obviously, the title insurance company had actual knowledge of the litigation, the lis pendens and the appeal.

Moreover, section 12 of the Restatement Second of Judgments would authorize the collateral attack on a judgment void for lack of subject matter jurisdiction where:  (1) “[a]llowing the judgment to stand would substantially infringe the authority of another tribunal or agency of government;”  or (2) “[t]he judgment was rendered by a court lacking capability to make an adequately informed determination of a question concerning its own jurisdiction and as a matter of procedural fairness the party seeking to avoid the judgment should have opportunity belatedly to attack the court's subject matter jurisdiction.”  (See also Rest.2d Judgments, § 69.)

Both conditions here obtain.   Allowing the judgment to stand would substantially infringe the authority of this court which pending appeal from the judgment had exclusive jurisdiction over the matter of the expungement of the lis pendens on the showing made in the trial court prior to entry of the judgment.   In addition, the trial court here did lack the capability to make an adequately informed determination of its own jurisdiction to proceed and as a matter of procedural fairness plaintiffs should be permitted to attack the court's subject matter jurisdiction.   The subsequent expungement order was granted ex parte without the statutory notice and without any adversary hearing at all, the court relying upon the earlier trial and hearing on objections to the findings of fact and conclusions of law as supposedly satisfying the statutory requirement of a hearing.⁴

2. Bona fides of the subsequent purchasers

 Since the judgment expunging the lis pendens was reversed on appeal and we have determined the subsequent expungement order was void, the subsequent purchasers were not as the trial court found bona fide purchasers.   It is true that section 409.1 provides that upon recordation of a certified copy of an order expunging a lis pendens, “neither the notice of the pendency of the action nor any information derived therefrom, prior to the recording of a certified copy of the judgment or decree issued therein, shall constitute constructive or actual notice of any of the matters contained therein, or of any of the matters relating to such action ․”  However, we do not believe the Legislature intended that result to flow from the recordation of an expungement order rendered by a court without subject matter jurisdiction and therefore subject to collateral attack.   Such an interpretation of the statute would render nugatory the authority of the courts to afford relief from an expungement order void for lack of subject jurisdiction, and it is inconceivable to us that the Legislature intended that result.

Moreover, as previously mentioned, the record indicates that the Teufels had actual knowledge of the litigation derived inferably from sources other than the lis pendens.   So even if section 409.1 were interpreted to preclude the imputation of constructive notice to the Teufels, their actual knowledge would be a question subject to trial on return of the case to the trial court.

3. Damages

Inasmuch as specific performance remains a potential remedy, the damages issues may or may not be essential on retrial.   However, it is necessary that we discuss at least some of them so that the same errors will not recur if the damages issues are reached.  (See § 43.)

The court's determination plaintiffs suffered no recoverable damages would require reversal if for no other reason than that the trial court applied the wrong measure of damages.  Civil Code section 3306 provides that the damages recoverable for the breach of a contract to convey real property “is deemed to be the price paid, and the expenses properly incurred in examining the title and preparing the necessary papers, with interest thereon; ․”  If the contract was breached in bad faith by the seller damages are also recoverable in the amount of “the difference between the price agreed to be paid and the value of the estate ․ at the time of the breach, and the expenses properly incurred in preparing to enter upon the land.” ⁵

 The trial court found that defendants' breach was in good faith.   That determination finds no support in the evidence and is contrary to law.   Defendants simply refused to sell the property to plaintiffs;  Mr. Appel stated that he was “breaching the contract right now.”   The term “bad faith” as used in Civil Code section 3306, relating to damages for a bad faith breach of contract to sell or convey real property, does not require a showing of fraud or evil intent but only a deliberate refusal to perform without just cause or excuse;  refusal to perform on the basis of legally invalid excuses, constitutes bad faith under the statute.  (Collins v. Marvel Land Co. (1970) 13 Cal.App.3d 34, 42, 91 Cal.Rptr. 291.)   As determined in our opinion on the prior appeal, defendants did not have any legally valid excuse for refusing to perform.   Accordingly, their breach is deemed to have been in bad faith.

 Defendants contend that in any event the expenditures made by plaintiffs for upgraded appliances, custom measured shutters and redwood panelling, which, as we understand it were installed in the house, are not recoverable as damages because they were not “expenses properly incurred in preparing to enter upon the land,” as required by Civil Code section 3306.   Defendants rely on language in Crag Lumber Co. v. Crofoot (1956) 144 Cal.App.2d 755, 779, 301 P.2d 952, where the court held that the cost of building a mill, its depreciation, and the cost of building roads to the mill were not expenditures incurred in preparing to enter upon the land, stating:  “The trial court found that this item was a cost for entry upon the land and also that the building of access roads to and into the land for the purpose of taking out timber from the land to the mill were costs expended in preparation for such entry.   But these costs were not expenditures incurred in preparing to enter upon the land.   They were expenditures made in accomplishing the general purposes for which the property was bought, that is, expended in the use of the land.   The phrase ‘to enter upon the land’ refers to the taking of possession rather than to things done to put the land to general use.”

We agree with the court in Crag Lumber that the phrase “to enter upon the land” refers to the taking of possession rather than the use of the property.   But the crucial fact in Crag Lumber defendants have failed to recognize and the fatal flaw in their attempting to analogize that case to this is that the plaintiff there had actually taken possession of the property long before making the expenditures for the mill and roads, so they could not possibly have been found to have been made in preparing to enter upon the land.  (See, e.g., 144 Cal.App.2d at pp. 762, 763, 301 P.2d 952.)

To construe the statute as narrowly as defendants urge, would substantially defeat the legislative purpose of enlarging the elements of damages recoverable when the seller's breach was in bad faith.   We decline so to do.

 In respect to the recovery of interest, we are unable to agree with the statement of the court in Crag Lumber that interest may not be recovered on damages based on expenditures incurred in preparing to enter upon the land.   The court gave no consideration to Civil Code section 3287, subdivision (a), which specifically provides:  “Every person who is entitled to recover damages certain, or capable of being made certain by calculation, and the right to recover which is vested in him upon a particular day, is entitled also to recover interest thereon from that day ․”  If plaintiffs were entitled to recover damages for the expenditures made by them in preparing to enter upon the land, they are also entitled to recover interest thereon.  (Civ.Code, § 3287, subd. (a).)

Finally, the finding of the trial court that the value of the property at the time of the breach was the amount of the purchase price is without evidentiary support in the record and the question must be retried if it remains in issue.

Disposition

The judgment is reversed and the case is remanded to the trial court for retrial limited to the issues of the remedy or remedies to be afforded plaintiffs and, thereafter, the entry of judgment accordingly.

FOOTNOTES

1.   That provision read:  “IT IS FURTHER ORDERED, ADJUDGED, AND DECREED that the lis pendens recorded by plaintiffs in connection with the property which is the subject of this action be and the same hereby is expunged.”

2.   All statutory references are to the Code of Civil Procedure unless otherwise noted.

3.   Section 409.4 reads in pertinent part:  “An order granting or denying a motion to expunge a notice of pendency of action made pursuant to Section 409.1 or 409.2 shall not be appealable.   When such an order is made, the party aggrieved by such order may, within the time hereinafter provided, petition the proper reviewing court to review such order by writ of mandate.”

4.   We also observe that the hearing referred to by the court was in reality not a hearing on the question of the propriety of expunging the lis pendens at all.   Nor did the court make any finding that plaintiffs instituted or prosecuted the action in bad faith or for an improper purpose.

5.   Relying on language in Stewart Development Co. v. Superior Court (1980) 108 Cal.App.3d 266, 166 Cal.Rptr. 450, plaintiffs assert that the proper measure of damages is the difference between the contract price and the market price of the property at the time of trial.   However, Stewart Development does not support their position.   In Stewart we considered the propriety of an order expunging a lis pendens on the condition that the defendant post an undertaking.   In considering whether the amount of the undertaking was sufficient to indemnify the defendant for all damages he might incur if the notice were expunged, we concluded that the damages recoverable for the improper expungement of a lis pendens were not limited by Civil Code section 3306.   We did not suggest, nor have we discovered any case suggesting, that the measure of damages for breach of a contract to convey real property is other than that specified in Civil Code section 3306.

KAUFMAN, Associate Justice.

MORRIS, P.J., and TROTTER, J.,* concur.